<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998 Commission File Number 001-13243
----------------------
PAN PACIFIC RETAIL PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 33-0752457
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of May 11, 1998, 16,814,012 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Operating properties, at cost:
Land $ 154,079 $ 139,959
Buildings and improvements (including related party
development and acquisition fees of $1,235) 384,637 313,483
Tenant improvements 30,610 32,148
--------- ---------
569,326 485,590
Less accumulated depreciation and amortization (32,895) (30,076)
--------- ---------
536,431 455,514
Investments in unconsolidated partnerships 9,939 9,921
Restricted cash 1,191 661
Accounts receivable (net of allowance for doubtful
accounts of $118 and $125, respectively) 2,251 1,626
Accrued rent receivable (net of allowance for doubtful
accounts of $892 and $847, respectively) 8,030 7,620
Notes receivable 2,949 2,981
Deferred lease commissions (including unamortized related
party amounts of $2,297 and $2,236, respectively, and
net of accumulated amortization of $2,008 and $2,023,
respectively) 2,701 2,683
Prepaid expenses 3,917 3,860
Other assets 3,236 2,354
--------- --------
$ 570,645 $487,220
========= ========
LIABILITIES AND EQUITY:
Notes payable $ 107,884 $108,316
Line of credit payable 146,050 62,450
Accounts payable (including related party amounts
of $705 and $11, respectively) 3,037 2,183
Accrued expenses and other liabilities (including
related party amounts of $3,919 and $3,822,
respectively) 5,717 5,600
Dividends payable 6,389 6,095
--------- --------
269,077 184,644
Minority interest 1,530 1,521
--------- --------
Shareholders' equity:
Common stock par value $.01 per share, 100,000,000
authorized shares, 16,814,012 shares issued and
outstanding 168 168
Paid in capital in excess of par value 395,313 395,313
Accumulated deficit (95,443) (94,426)
--------- --------
300,038 301,055
--------- --------
$ 570,645 $487,220
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
REVENUE:
Base rent $ 13,706 $ 7,229
Percentage rent 142 68
Recoveries from tenants 2,929 1,689
Income from unconsolidated
partnerships 160 55
Other 464 191
-------- --------
17,401 9,232
-------- --------
EXPENSES:
Property operating 2,137 1,254
Property taxes 1,248 689
Property management fees 17 15
Depreciation and amortization 3,302 1,827
Interest 4,400 3,836
General and administrative 901 918
Other expenses, net 15 450
-------- --------
12,020 8,989
-------- --------
INCOME BEFORE INCOME TAX
EXPENSE AND MINORITY INTEREST 5,381 243
Income tax expense -- (29)
Minority interest (9) (31)
-------- --------
NET INCOME $ 5,372 $ 183
======== ========
Basic and diluted earnings per share $ 0.32 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1998 1997
--------- --------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,372 $ 183
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,302 1,827
Amortization of prepaid financing costs 188 87
Income from unconsolidated partnerships (160) (55)
Minority interest 9 31
Changes in assets and liabilities:
Increase in restricted cash (530) (423)
Decrease (increase) in accounts receivable (625) 101
Increase in accrued rent receivable (410) (147)
Increase in deferred lease commissions (186) (264)
Decrease (increase) in prepaid expenses 18 (74)
Increase in other assets (965) (105)
Increase (decrease) in accounts payable 854 (533)
Increase in accrued expenses and other liabilities 819 347
-------- --------
Net cash provided by operating activities 7,686 975
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of and additions to operating properties (83,993) (21,154)
Additions to property under development -- (307)
Decrease in construction accounts payable (702) --
Contributions to unconsolidated partnerships -- (456)
Distributions from unconsolidated partnerships 142 --
Increase in notes receivable (3) --
Collections of notes receivable 35 1,086
-------- --------
Net cash used in investing activities (84,521) (20,831)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit proceeds 83,600 --
Notes payable payments (432) (1,789)
Advances from related party -- 16,129
Prepaid financing costs (263) --
Contributions from minority interest -- 2
Refunds from loan escrow 25 393
Dividends paid (6,095) --
-------- --------
Net cash provided by financing activities 76,835 14,735
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS -- (5,121)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD -- 8,235
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 3,114
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of amounts capitalized
of $16 and $58, respectively) $ 3,905 $ 3,463
Income taxes paid $ 7 $ 2
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1998 (unaudited) and December 31, 1997, and
for the three months ended March 31, 1998 and 1997 (unaudited)
(Tabular amounts are in thousands)
1. MANAGEMENT STATEMENT AND GENERAL
The financial statements of Pan Pacific Retail Properties, Inc. (the
"Company") were prepared from the books and records of the Company without
audit and in the opinion of management include all adjustments (consisting
of only normal recurring accruals) necessary to present a fair statement of
results for the interim periods presented. Readers of this quarterly report
should refer to the audited financial statements of the Company for the year
ended December 31, 1997, which are included in the Company's 1997 Annual
Report on Form 10-K, as certain disclosures which would substantially
duplicate those contained in such audited financial statements have been
omitted from this report.
2. LINE OF CREDIT
The Company increased its $150,000,000 unsecured credit facility to
$200,000,000 in March 1998. The unsecured credit facility bears interest at
the Company's option at either LIBOR plus 1.375% or a reference rate and
expires in August 2000. At March 31, 1998, the amount drawn on this line of
credit was $146,050,000 and the interest rate was 7.07%. The net proceeds
drawn in the three-month period ended March 31, 1998 of $83,600,000 were
used to acquire seven properties for an aggregate amount of approximately
$81,900,000. The credit facility requires a quarterly fee of .25% per annum
on the unused amount of the available commitment if less than half of the
commitment has been used. The quarterly unused fee decreases to .125% per
annum once more than half of the commitment has been drawn.
3. STOCK OPTION AND INCENTIVE PLAN
In 1997, the Company established the 1997 Stock Option and Incentive Plan
(the "Plan") pursuant to which the Company's Board of Directors may grant
stock options or awards to purchase up to 1,620,000 shares of common stock
to officers, directors and key employees. At the time of the Company's
initial public offering, the Company issued 900,000 common stock options
pursuant to the Plan. The stock options were granted with an exercise price
of $19.50, equal to the stock's fair market value at the date of grant. On
March 17, 1998, the Company granted an additional 277,500 common stock
options with an exercise price of $22.188, equal to the stock's fair market
value at the date of grant. The stock options have seven year terms and will
vest 331/3% per year over three years from the date of grant, except the
independent directors who received non-qualified options that vested 331/3%
immediately, with the remainder vesting ratably over two years. An
additional 447,500 shares of common stock remain reserved for issuance under
the Plan. No other options or awards have been granted. During the three
month period ended March 31, 1998, 5,000 options were forfeited. As such, at
March 31, 1998, there were 1,172,500 common stock options outstanding,
10,000 of which were exercisable and none had expired.
4. RELATED PARTY TRANSACTIONS
(a) Included in general and administrative expenses are management fees totaling
$195,000 for the three months ended March 31, 1997, which are a
reimbursement by Pan Pacific Development Properties of costs incurred by
Revenue Properties Company Limited ("Revenue"), a related party, for
managing the development of the properties, directing corporate strategy,
and consulting on operations. Effective August 13, 1997, at the closing of
the Company's initial public offering, these fees are no longer being
incurred by the Company.
(b) Pan Pacific Development Properties paid a consulting fee of $105,000 for the
three months ended March 31, 1997, to a sole proprietorship owned by a
director of Revenue. Effective August 13, 1997, at the closing of the
Offering, these fees are no longer being incurred by the Company.
(c) Pan Pacific Development Properties incurred $215,000 for the three months
ended March 31, 1997, for loan guaranty fees charged by Revenue. These fees
are recorded as a component of other expenses, net. Effective August 13,
1997, at the closing of the Offering, these fees are no longer being
incurred by the Company.
(d) The Company received net advances from Revenue of $16,129,000 for the three
months ended March 31, 1997.
(e) Dividends paid to Pan Pacific Development (U.S.) Inc. ("PPD"), a
wholly-owned subsidiary of Revenue, were $3,130,000 during the three months
ended March 31, 1998. At March 31, 1998, $3,281,000 of dividends were
payable to PPD. There were no dividends paid or payable to PPD during the
three-month period ended March 31, 1997.
<PAGE> 6
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of
March 31, 1998 (unaudited) and December 31, 1997,
and for the three months ended March 31, 1998 and 1997 (unaudited)
(Tabular amounts are in thousands)
5. COMMITMENTS AND CONTINGENCIES
Various claims and legal proceedings arise in the ordinary course of
business. The ultimate amount of liability from all claims and actions
cannot be determined with certainty, but in the opinion of management, the
ultimate liability from all pending and threatened legal claims will not
materially affect the consolidated financial statements taken as a whole.
6. SUBSEQUENT EVENTS
(a) On April 7, 1998, the Company purchased a single tenant building leased to
24 Hour Fitness located in Hillsboro, Oregon. The purchase price was
$2,275,000 and was financed primarily by a draw under the Company's line of
credit.
(b) On April 16, 1998, the Company purchased Panther Lake Shopping Center, a
shopping center located in Kent, Washington. The purchase price was
$7,800,000 and was financed primarily by a draw under the Company's line of
credit.
(c) On April 17, 1998, the Company purchased Creekside Center, a shopping center
located in Hayward, California. The purchase price was $6,000,000 and was
financed primarily by a draw under the Company's line of credit.
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in connection with the
consolidated financial statements of Pan Pacific Retail Properties, Inc. and
subsidiaries (the "Company"), and the notes thereto, appearing elsewhere in this
report.
The Company receives income primarily from rental revenue (including
recoveries from tenants) from shopping center properties. As a result of the
Company's acquisition and development program, the financial data show increases
in total revenue from period to period, largely attributable to: (i) property
acquisitions; and (ii) the benefit of a full period of rental and other revenue
from a property placed into operation in the third quarter of 1997.
The Company believes that overhead costs will decrease as a percentage
of revenue as the Company achieves economies of scale through increases in its
portfolio's revenue base. For example, during the three months ended March 31,
1998, the Company owned properties comprising a weighted average GLA of
5,072,457 square feet. Total expenses, excluding interest, depreciation and
amortization for the three months ended March 31, 1998 were $4,311,000 or an
annualized $3.40 per square foot. By comparison, during the three months ended
March 31, 1997, the Company owned properties comprising a weighted average GLA
of 2,977,552 square feet. Total expenses, excluding interest, depreciation and
amortization, for the three months ended March 31, 1997 were $3,326,000 or an
annualized $4.47 per square foot.
The Company expects that the more significant part of its revenue
growth in the next year or two will come from additional acquisitions and rent
increases from re-leasing and re-tenanting initiatives.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1998 to the Three Months
Ended March 31, 1997.
Total revenue increased by $8,169,000 or 88.5% to $17,401,000 for the
three months ended March 31, 1998 as compared to $9,232,000 for the three months
ended March 31, 1997.
Rental revenue increased by $6,551,000 or 89.8% to $13,848,000 from
$7,297,000 for the three months ended March 31, 1998, compared to the three
months ended March 31, 1997. The increase in rental revenue resulted principally
from the acquisitions of Chico Crossroads in February 1997, Monterey Plaza in
April 1997, Fairmont Shopping Center in May 1997, Lakewood Shopping Center in
June 1997, Green Valley Town & Country in August 1997, Rainbow Promenade in
September 1997, Claremont Village, Olympia West Center and Tacoma Central in
November 1997, Tustin Heights Shopping Center, Palmdale Shopping Center and
Brookvale Shopping Center in December 1997, Bear Creek Plaza and San Dimas
Marketplace in January 1998, Milwaukie Marketplace, Pioneer Plaza, Powell Valley
Junction and Shute Park Plaza in February 1998 and Manteca Marketplace in March
1998 (collectively the "Acquisitions"). In addition, the commencement of
operations of Laguna Village Phase II in the third quarter of 1997 added to this
increase. Rental revenue also increased as a result of increased occupancy
levels primarily at Canyon Ridge Plaza, Chino Town Square, Sunset Square,
Country Club Center and Laurentian Center.
<PAGE> 8
Recoveries from tenants increased by $1,240,000 or 73.4% to $2,929,000
for the three months ended March 31, 1998, compared to $1,689,000, for the three
months ended March 31, 1997. This increase resulted primarily from the
Acquisitions. Recoveries from tenants were 86.1% of property operating expenses,
property taxes and management fees for the three months ended March 31, 1998 as
compared to 86.3% of the same expenses for the comparable period in 1997.
Management believes that the slight decrease in the recovery rate is due to
timing of the actualization of operating expense recoveries from newly acquired
properties.
Property expenses include property operating expenses, property taxes
and property management fees. Property operating expenses increased by $883,000
or 70.4% to $2,137,000 from $1,254,000 for the three months ended March 31,
1998, compared to the three months ended March 31, 1997. The increase in
property operating expenses was primarily attributable to the Acquisitions and
Laguna Village Phase II. Property taxes increased by $559,000 or 81.1% to
$1,248,000 from $689,000 for the three months ended March 31, 1998, compared to
the three months ended March 31, 1997. The increase in property taxes was
primarily the result of the Acquisitions and Laguna Village Phase II.
Depreciation and amortization increased by $1,475,000 or 80.7% to
$3,302,000 from $1,827,000 for the three months ended March 31, 1998, compared
to the three months ended March 31, 1997. This was primarily due to the
Acquisitions and the Laguna Village Phase II.
Interest expense increased by $564,000 or 14.7% to $4,400,000 from
$3,836,000 for the three months ended March 31, 1998, compared to the three
months ended March 31, 1997, primarily as a result of interest expense relating
to amounts drawn on the Company's unsecured credit facility (the "Unsecured
Credit Facility") to finance the Acquisitions offset by a decrease in interest
expense related to the repayment of debt of approximately $134,000,000 in August
1997 in connection with the Company's initial public offering.
General and administrative expenses decreased by $17,000 or 1.9% to
$901,000 from $918,000 for the three months ended March 31, 1998, compared to
the three months ended March 31, 1997. This decrease was primarily attributable
to the elimination of management fees paid to Revenue Properties Company Limited
("Revenue") effective with the completion of the Company's initial public
offering partially offset by annual salary increases and costs associated with
additional staffing necessitated by the Acquisitions. As a percentage of total
revenue, general and administrative expenses were 5.2% and 9.9% for the three
months ended March 31, 1998 and 1997, respectively.
Other expenses, net, consist primarily of loan guaranty fees and the
expensing of due diligence costs for acquisitions that will not be consummated.
Other expenses decreased by $435,000 or 96.7% to $15,000 from $450,000 for the
three months ended March 31, 1998, compared to the three months ended March 31,
1997. The decrease was primarily due to loan guaranty fees paid to Revenue which
are no longer being charged as the debt which was guaranteed was paid off in
August 1997 in connection with the Company's initial public offering. The
comparable period in 1997 also included $175,000 of due diligence costs for
acquisitions that were not completed. This decrease was partially offset by the
expensing of due diligence costs related to potential acquisitions which were
not consummated in the current period.
<PAGE> 9
The following table compares the operating data for the properties
("Same Store Properties") that were owned and in operation for the entirety of
both the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Revenue:
Rental $7,197,000 $6,905,000
Recoveries from tenants 1,654,000 1,577,000
Income from unconsolidated
partnerships 160,000 55,000
Other 159,000 157,000
---------- ----------
$9,170,000 $8,694,000
Operating expenses:
Property operating, property taxes and
property management fees 1,782,000 1,786,000
---------- ----------
Operating income $7,388,000 $6,908,000
========== ==========
</TABLE>
Operating income for the Same Store Properties for the three months
ended March 31, 1998, increased over the same period in the prior year by
$480,000 or 6.9%. This increase was attributable to increased rental revenue due
to increased occupancy levels primarily at Canyon Ridge Plaza, Chino Town
Square, Sunset Square, Country Club Center and Laurentian Center. In addition,
percentage rent increased at Cheyenne Commons, Rosewood Village, Tanasbourne
Village and Winterwood Pavilion.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") in March 1995 (the "White Paper") defines Funds from Operations as
net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management considers Funds from Operations an
appropriate measure of performance of an equity REIT because it is predicated on
cash flow analyses. The Company computes Funds from Operations in accordance
with standards established by the White Paper. The Company's computation of
Funds from Operations may, however, differ from the methodology for calculating
Funds from Operations utilized by other equity REITs and, therefore, may not be
comparable to such other REITs. Funds from Operations should not be considered
as an alternative to net income (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make distributions.
<PAGE> 10
The following table presents the Company's actual Funds from Operations
for the three months ended March 31, 1998 and pro forma Funds from Operations
for the three months ended March 31, 1997, respectively. The pro forma
information for the three months ended March 31, 1997 assumes the initial public
offering and related formation transactions and the repayment of notes payable
with the net proceeds of the initial public offering all had occurred on January
1, 1997:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
ACTUAL PRO FORMA
<S> <C> <C>
Net income $ 5,372,000 $ 3,856,000
Add:
Depreciation and amortization 3,302,000 2,168,000
Depreciation of unconsolidated
partnerships 51,000 47,000
Depreciation of non-real estate
corporate assets (58,000) (46,000)
------------ ------------
Funds from Operations $ 8,667,000 $ 6,025,000
============ ============
Weighted average number of shares
of common stock outstanding
(assuming dilution) 16,918,039 --
Number of shares of common stock
assumed to be outstanding -- 16,814,012
</TABLE>
CASH FLOWS
Comparison of the Three Months Ended March 31, 1998 to the Three Months
Ended March 31, 1997.
Net cash provided by operating activities increased by $6,711,000 to
$7,686,000 for the three months ended March 31, 1998, as compared to $975,000
for the three months ended March 31, 1997. The increase was primarily the result
of an increase in net income.
Net cash used in investing activities increased by $63,690,000 to
$84,521,000 for the three months ended March 31, 1998, compared to $20,831,000
for the three months ended March 31, 1997. The increase was primarily the result
of additions to properties acquired in the quarter. In the comparable period in
1997, the use of cash for investing activities was primarily for the purpose of
acquiring Chico Crossroads.
Net cash provided by financing activities increased by $62,100,000 to
$76,835,000 for the three months ended March 31, 1998, compared to $14,735,000
for the three months ended March 31, 1997. The increase resulted primarily from
amounts drawn on the Company's Unsecured Credit Facility. The increase was
partially offset by the payment in January 1998 of the fourth quarter 1997
dividend. In the comparable period in 1997, the source of cash from financing
activities was an increase in advances from a related party primarily for the
purpose of acquiring Chico Crossroads.
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company believes the initial public offering and the related
formation transactions that were completed in August 1997 improved its financial
position through changes to its capital structure, principally the substantial
reduction in its overall debt and its debt-to-equity ratio. In connection with
the formation transactions, the Company repaid all of its existing floating rate
mortgage debt. As a result, the total principal amount of outstanding secured
debt after the formation transactions and the acquisition of Green Valley Town &
Country was reduced by approximately $146,000,000. This resulted in a
significant reduction in interest expense as a percentage of total revenue,
25.3% for the three months ended March 31, 1998 as compared to 41.6% for the
three months ended March 31, 1997. Thus, cash from operations required to fund
debt service requirements was substantially decreased.
The total market capitalization of the Company at March 31, 1998 was
approximately $621,741,000 based on the market closing price at March 31, 1998
of $21.875 per share and the debt outstanding of approximately $253,934,000
(exclusive of accounts payable and accrued expenses). As a result, the Company's
debt to total market capitalization ratio was approximately 40.8% at March 31,
1998. On May 12, 1998 the Company priced its secondary equity offering of
2,000,000 shares of common stock to the public and 2,000,000 shares of common
stock in a private placement to the Company's major shareholder, both of which
are scheduled to close on or about May 18, 1998. Assuming the completion of the
transactions, the market capitalization of the Company is expected to be 29.8%.
The Company believes that its capital structure combined with its Unsecured
Credit Facility enhances the Company's ability to take advantage of acquisition
opportunities as well as to provide funds for general corporate purposes.
In March 1998, the Company obtained an increase to its Unsecured Credit
Facility from $150,000,000 to $200,000,000 and a reduction in the borrowing rate
thereunder to LIBOR plus 1.375% (which rate is reduced to 1.25% for as long as
the Company's debt-to-book value ratio is .30 or below). The Company had
approximately $54,000,000 available under the Unsecured Credit Facility at March
31, 1998. At the Company's option, amounts borrowed under the Unsecured Credit
Facility bear interest at either LIBOR plus 1.375% or a reference rate. The
weighted average interest rate for amounts borrowed under the Unsecured Credit
Facility at March 31, 1998 was 7.07%. The Company anticipates that the Unsecured
Credit Facility will continue to be used primarily to acquire additional
properties and for general corporate purposes.
The Company's mortgage indebtedness outstanding at March 31, 1998
requires balloon payments of $172,488,000 in 2000, $4,004,000 in 2004,
$7,395,000 in 2005, $52,748,000 in 2007 and $2,697,000 in 2008 and subsequent
years. The balloon payment due in the year 2000 includes the balance drawn on
the Unsecured Credit Facility at March 31, 1998 of $146,050,000. It is likely
that the Company will not have sufficient funds on hand to repay these balloon
amounts at maturity. Therefore, the Company expects to refinance such debt
either through additional debt financings secured by individual properties or
groups of properties, by unsecured private or public debt offerings or by
additional equity offerings. The Unsecured Credit Facility, which matures in
2000, is renewable.
The Company expects to make distributions from cash available for
distributions which the Company believes will exceed historical cash available
for distributions due to the reduction in debt service resulting from the
repayment of indebtedness described above. Amounts accumulated for distribution
will be invested by the Company primarily in short-term investments such as
collateralized securities of the United States government or its agencies,
high-grade commercial paper and bank deposits or will be used to pay down
outstanding balances on the Unsecured Credit Facility, if any. On October 6,
1997, the Board of Directors of the Company declared the first dividend of
$0.2128 per share paid on October 31, 1997 to shareholders of record on October
22, 1997. The dividend was for the prorated period from August 8, 1997 to
September 30, 1997. On December 5, 1997, the Board of Directors of the Company
declared a dividend of $0.3625 per share for the fourth quarter 1997 which was
paid on January 19, 1998 to shareholders of record on December 29, 1997. On
March 17, 1998, the Board of Directors declared an increased dividend of $0.38
per share for the first quarter 1998 which was paid on April 17, 1998 to
shareholders of record on March 31, 1998.
<PAGE> 12
The Company expects to meet its short-term liquidity requirements
generally through its current working capital and net cash provided by
operations. The Company believes that its net cash provided by operations will
be sufficient to allow the Company to make the distributions necessary to enable
the Company to continue to qualify as a REIT. The Company also believes that the
foregoing sources of liquidity will be sufficient to fund its short-term
liquidity needs for the foreseeable future.
The Company expects to meet certain long-term liquidity requirements
such as property acquisition and development, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness and the issuance of additional
equity or debt securities. The Company also expects to use funds available under
the Unsecured Credit Facility to finance acquisition and development activities
and capital improvements on an interim basis.
INFLATION
Substantially all of the leases provide for the recovery of real estate
taxes and operating expenses incurred by the Company. In addition, many of the
leases provide for fixed base rent increases or indexed escalations (based on
the consumer price index or other measures) and percentage rent. The Company
believes that inflationary increases in expenses will be substantially offset by
the expense reimbursements, contractual rent increases and percentage rent
described above.
The Unsecured Credit Facility bears interest at a variable rate which
will be influenced by changes in short-term interest rates and will be sensitive
to inflation.
IMPACT OF ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT ADOPTED BY THE COMPANY
On March 19, 1998, the Financial Accounting Standards Board's Emerging
Issues Task Force reached a consensus on Issue No. 97-11, "Accounting for
Internal Costs Relating to Real Estate Property Acquisitions" ("EITF 97-11").
EITF 97-11 states that internal costs of preacquisition activities incurred in
connection with the acquisition of an operating property should be expensed as
incurred. EITF 97-11 is to be implemented on a prospective basis effective on
the date the consensus was reached.
The Company anticipates that the adoption of EITF 97-11 will not have a
material effect on the financial position, results of operations or liquidity of
the Company, nor result in disclosures that will be materially different from
those presently included in its financial statements.
<PAGE> 13
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1 Articles of Amendment and Restatement of the Company (previously
filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-11 (Registration No. 333-28715) and incorporated herein by
reference)
3.2 Amended and Restated Bylaws of the Company (previously filed as
Exhibit 3.2 to the Company's Registration Statement on Form S-11
(Registration No. 333-28715) and incorporated herein by
reference)
4.1 Form of Certificate of Common Stock (previously filed as Exhibit
4.1 to the Company's Registration Statement on Form S-11
(Registration No. 333- 28715) and incorporated herein by
reference)
10.1 The 1997 Stock Option and Incentive Plan of Pan Pacific Retail
Properties, Inc. (previously filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-11 (Registration No.
333-28715) and incorporated herein by reference)
10.2 Form of Officers and Directors Indemnification Agreement
(previously filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-11 (Registration No. 333-28715) and
incorporated herein by reference)
10.3 Form of Employment Agreement between the Company and Mr. Stuart
A. Tanz (previously filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-11 (Registration No. 333-28715)
and incorporated herein by reference)
10.4 Form of Employment Agreement between the Company and Mr. David L.
Adlard (previously filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-11 (Registration No. 333-28715)
and incorporated herein by reference)
10.5 Form of Employment Agreement between the Company and Mr. Jeffrey
S. Stauffer (previously filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-11 (Registration No. 333-28715)
and incorporated herein by reference)
10.6 Form of Miscellaneous Rights Agreement (previously filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-11
(Registration No. 333- 28715) and incorporated herein by
reference)
10.7 Form of Non-Competition Agreement (previously filed as Exhibit
10.7 to the Company's Registration Statement on Form S-11
(Registration No. 333- 28715) and incorporated herein by
reference)
<PAGE> 14
10.8 Purchase and Sale Agreement for Green Valley Town & Country
Shopping Center (previously filed as Exhibit 10.11 to the
Company's Registration Statement on Form S-11 (Registration No.
333-28715) and incorporated herein by reference)
10.9 Credit Agreement with Bank of America NT&SA (previously filed as
Exhibit 10.8 to the Company's filing of Form 10-Q for the quarter
ended June 30, 1997 and incorporated herein by reference)
10.10 Purchase and Sale Agreement for Rainbow Promenade (previously
filed as Exhibit 10.9 to the Company's filing of Form 10-Q for
the quarter ended June 30, 1997 and incorporated herein by
reference)
10.11 Purchase and Sale Agreement for Claremont Village Shopping Center
(previously filed as Exhibit 10.9 to the Company's filing of Form
10-Q for the quarter ended September 30, 1997 and incorporated
herein by reference)
10.12 Purchase and Sale Agreement for Olympia West Plaza Shopping
Center (previously filed as Exhibit 10.10 to the Company's filing
of Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference)
10.13 Purchase and Sale Agreement for Tacoma Central Shopping Center
(previously filed as Exhibit 10.11 to the Company's filing of
Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference)
10.14 Modification Agreement to the Credit Agreement with Bank of
America NT & SA (previously filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-11 (Registration No.
333-50125) and incorporated herein by reference)
27 Financial Data Schedule (electronically filed with the Securities
and Exchange Commission only)
(b) Reports on Form 8-K.
1. A Form 8-K/A was filed on January 26, 1998 for the purpose of
providing financial statements and pro forma financial
information pertaining to the acquisition of three shopping
centers which was reported on Form 8-K on November 26, 1997.
<PAGE> 15
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 May 11, 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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0
0
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