<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER: 001-13243
----------
PAN PACIFIC RETAIL PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 33-0752457
(State of Incorporation) (I.R.S. Employer Identification No.)
1621-B SOUTH MELROSE DRIVE, 92083
VISTA, CALIFORNIA (zip code)
(Address of Principal Executive Offices)
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 12, 1999, the number of shares of the Registrant's common stock
outstanding was 21,162,012.
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<PAGE> 2
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS:
Operating properties, at cost:
Land $ 195,092 $ 186,891
Buildings and improvements (including related party development
and acquisition fees of $1,235) 520,652 501,645
Tenant improvements 22,302 20,986
--------- ---------
738,046 709,522
Less accumulated depreciation and amortization (47,932) (42,044)
--------- ---------
690,114 667,478
Investments in unconsolidated partnerships 1,469 9,946
Cash and cash equivalents -- 2,759
Restricted cash 186 912
Accounts receivable (net of allowance for doubtful accounts of
$542 and $412, respectively) 2,486 2,958
Accrued rent receivable (net of allowance for doubtful accounts of
$1,169 and $1,071, respectively) 10,525 9,643
Notes receivable 2,242 2,411
Deferred lease commissions (including unamortized related party amounts
of $2,057 and $2,310, respectively, and net of accumulated
amortization of $2,262 and $2,093, respectively) 3,209 2,955
Prepaid expenses 5,457 5,244
Other assets 3,409 1,235
--------- ---------
$ 719,097 $ 705,541
========= =========
LIABILITIES AND EQUITY:
Notes payable $ 135,698 $ 144,024
Line of credit payable 163,597 138,500
Accounts payable (including related party amounts of $20 and $16,
respectively) 3,621 5,880
Accrued expenses and other liabilities (including related party amounts
of $389) 7,588 8,504
Distributions payable (including related party amounts
of $4,323 and $4,107, respectively) 8,798 8,227
--------- ---------
319,302 305,135
Minority interests 17,334 17,318
--------- ---------
Stockholders' equity:
Common stock par value $.01 per share, 100,000,000 authorized shares,
21,162,012 shares issued and outstanding
at March 31, 1999 and December 31, 1998 212 212
Paid in capital in excess of par value 481,182 481,182
Accumulated deficit (98,933) (98,306)
--------- ---------
382,461 383,088
--------- ---------
$ 719,097 $ 705,541
========= =========
</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,
--------------------------
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
REVENUE:
Base rent $ 18,943 $ 13,706
Percentage rent 160 142
Recoveries from tenants 4,048 2,929
Income from unconsolidated partnerships 111 160
Other 553 503
-------- --------
23,815 17,440
-------- --------
EXPENSES:
Property operating 2,857 2,154
Property taxes 1,769 1,248
Depreciation and amortization 4,120 3,302
Interest 5,390 4,400
General and administrative 1,425 901
Other 38 54
-------- --------
15,599 12,059
-------- --------
INCOME BEFORE MINORITY INTERESTS 8,216 5,381
Minority interests (378) (9)
-------- --------
NET INCOME $ 7,838 $ 5,372
======== ========
Basic and diluted earnings per share $ 0.37 $ 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,
--------------------------
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,838 $ 5,372
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,120 3,302
Amortization of prepaid financing costs 124 188
Income from unconsolidated partnerships (111) (160)
Accrued interest on note receivable (4) (3)
Minority interests 378 9
Changes in assets and liabilities:
Decrease (increase) in restricted cash 726 (530)
Decrease (increase) in accounts receivable 472 (625)
Increase in accrued rent receivable (882) (410)
Increase in deferred lease commissions (474) (186)
Decrease (increase) in prepaid expenses (337) 18
Increase in other assets (512) (965)
Increase in accounts payable 61 854
Increase (decrease) in accrued expenses and other
liabilities (916) 819
-------- --------
Net cash provided by operating activities 10,483 7,683
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of and additions to operating properties (10,689) (83,993)
Decrease in construction accounts payable and accrued
expenses (2,320) (702)
Contributions to unconsolidated partnerships (24) --
Distributions from unconsolidated partnerships -- 142
Acquisition of minority interest in unconsolidated
partnership (7,163) --
Collections of notes receivable 173 35
-------- --------
Net cash used in investing activities (20,023) (84,518)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit proceeds 30,297 97,600
Line of credit payments (5,200) (14,000)
Notes payable payments (8,326) (432)
Financing deposits (1,747) --
Payment of financing costs -- (263)
Acquisition of minority interests (16) --
Refunds from loan escrow -- 25
Distributions paid (8,227) (6,095)
-------- --------
Net cash provided by financing activities 6,781 76,835
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,759) --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,759 --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ --
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized
of $28 and $16, respectively) $ 5,347 $ 3,905
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Transfer from investment in unconsolidated partnerships
to property $ 15,775 $ --
Distributions payable $ 8,798 $ 6,389
Acquisition of partnership interests $ 13 $ 33
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998,
AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)
1. MANAGEMENT STATEMENT AND GENERAL
The consolidated 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, 1998, which are included in the Company's 1998
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. Certain reclassifications of 1998 amounts have been made in
order to conform to 1999 presentation.
2. STOCK OPTION PLAN
In March 1999, the Company granted an additional 233,000 stock options
under the 1997 Stock Option and Incentive Plan.
3. EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator for the
calculation of basic and diluted earnings per share for the three months ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Income available to common stockholders:
- ----------------------------------------
Basic $ 7,838 $ 5,372
Add-back income allocated to Pan Pacific (Portland),
LLC units (minority interest) 366 --
----------- -----------
Diluted $ 8,204 $ 5,372
=========== ===========
Weighted average shares:
- -----------------------
Basic 21,162,012 16,814,012
Incremental shares from assumed:
Exercise of dilutive stock options 2,106 104,027
Conversion of Pan Pacific (Portland), LLC units 832,617 --
----------- -----------
Diluted 21,996,735 16,918,039
=========== ===========
</TABLE>
At March 31, 1999 and 1998, 1,203,501 and 337,500 options, respectively,
were excluded from the calculation of diluted weighted-average shares because
they were antidilutive.
4. RELATED PARTY TRANSACTIONS
(a) Distributions paid to Revenue Properties (U.S.) Inc. ("U.S. Inc."),
previously named Pan Pacific Development (U.S.) Inc., were $4,107,000 and
$3,130,000 during the three months ended March 31, 1999 and 1998,
respectively. At March 31, 1999 and 1998, $4,323,000 and $3,281,000,
respectively, of distributions were payable to U.S. Inc.
(b) The Company had a note receivable at December 31, 1998 of $144,000 due from
an executive officer. As of March 31, 1999, the note has been paid in full
by the executive.
<PAGE> 6
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998,
AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)
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) In April 1999, the Company received funding commitments from two financial
institutions for approximately $90,000,000. The Company intends to use
these proceeds to pay down the line of credit.
(b) In April 1999, the Company purchased Marina Village Shopping Center,
located in Huntington Beach, California. The purchase price was $14,450,000
and was financed primarily by a draw under the Company's line of credit.
<PAGE> 7
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 program, the financial data show increases in total
revenue from period to period, primarily attributable to the acquisition of
additional properties.
The Company has experienced economies of scale as it has grown its
portfolio from 25 properties, at the initial public offering ("IPO") in August
1997, to 55 properties at March 31, 1999. For example, during the three months
ended March 31, 1999, the Company owned properties comprising a weighted average
gross leasable area ("GLA") of 7,445,000 square feet. Total expenses, excluding
interest, depreciation and amortization for the three months ended March 31,
1999 were $6,089,000 or an annualized $3.27 per square foot. By comparison,
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 $4,357,000 or an annualized $3.44 per square foot.
The Company expects that the most significant part of its revenue growth in
the next year or two will come from additional acquisitions, rent increases from
re-leasing and re-tenanting initiatives, the benefit of the stabilization of the
properties acquired during 1998 and the revenue generated from expanded GLA due
to the buildout of outparcels.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 1999 to the Three Months
Ended March 31, 1998.
Total revenue increased by $6,375,000 or 36.6% to $23,815,000 from
$17,440,000 for the three months ended March 31, 1999, compared to the three
months ended March 31, 1998.
Rental revenue increased by $5,255,000 or 38.0% to $19,103,000 from
$13,848,000 for the three months ended March 31, 1999, compared to the three
months ended March 31, 1998. The increase in rental revenue resulted principally
from the acquisition of San Dimas Marketplace and Bear Creek Plaza in January
1998, Milwaukie Marketplace, Pioneer Plaza, Powell Valley Junction and Shute
Park Plaza in February 1998, Manteca Marketplace in March 1998, a 24 Hour
Fitness building, Panther Lake Shopping Center and Creekside Center in April
1998, Westwood Village Shopping Center and Fashion Faire Shopping Center in May
1998, Pacific Commons Shopping Center in June 1998, Oregon Trail, Hermiston
Plaza and Hood River Center in October 1998, and Sandy Marketplace, Southgate
Center, Oregon City Shopping Center, Sunset Mall, Mira Loma Shopping Center and
Glen Cove Center in November 1998 (collectively, the "1998 Acquisitions").
Recoveries from tenants increased by $1,119,000 or 38.2% to $4,048,000 from
$2,929,000 for the three months ended March 31, 1999, compared to the three
months ended March 31, 1998. This increase resulted primarily from the 1998
Acquisitions. Recoveries from tenants were 87.5% of property operating expenses
and property taxes for the three months ended March 31, 1999 compared to 86.1%
of the same expenses for the same period in 1998.
Property expenses include property operating expenses and property taxes.
Property operating expenses increased by $703,000 or 32.6% to $2,857,000 from
$2,154,000 for the three months ended March 31, 1999, compared to the three
months ended March 31, 1998. The increase in property operating expenses was
primarily attributable to the 1998 Acquisitions. Property taxes increased by
$521,000 or 41.8% to $1,769,000 from $1,248,000 for the three months ended March
31, 1999, compared to the three months ended March 31, 1998. The increase in
property taxes was also primarily the result of the 1998 Acquisitions.
Depreciation and amortization increased by $818,000 or 24.8% to $4,120,000
from $3,302,000 for the three months ended March 31, 1999 compared to the three
months ended March 31, 1998. This was primarily due to the 1998 Acquisitions.
<PAGE> 8
Interest expense increased by $990,000 or 22.5% to $5,390,000 from
$4,400,000 for the three months ended March 31, 1999, compared to the three
months ended March 31, 1998, primarily as a result of interest expense relating
to amounts drawn on the Company's unsecured credit facility (the "Unsecured
Credit Facility") to finance acquisitions, interest expense on the fixed rate
mortgage assumed related to Westwood Village Shopping Center in the second
quarter of 1998 as well as interest expense on the fixed rate mortgages assumed
related to Sunset Mall, Oregon City Shopping Center, Sandy Marketplace and
Southgate Center in the fourth quarter of 1998. These increases were offset by a
decrease in interest expense related to the repayment of debt of approximately
$82,000,000 in May 1998 in connection with the Company's secondary offering of
common stock.
General and administrative expenses increased by $524,000 or 58.2% to
$1,425,000 from $901,000 for the three months ended March 31, 1999, compared to
the three months ended March 31, 1998. This increase was primarily attributable
to costs associated with additional staffing necessitated by the 1998
Acquisitions, annual compensation increases as well as a one-time accrual for
executive severance cost. As a percentage of total revenue, general and
administrative expenses were 6.0% and 5.2% for the three months ended March 31,
1999 and 1998, respectively.
The following table compares the operating data for the 33 properties ("Same
Properties") that were owned and in operation for the entirety of the three
months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
Rental $13,258,000 $12,848,000
Recoveries from tenants 2,849,000 2,829,000
Operating income from unconsolidated 113,000 70,000
partnerships
Other 191,000 244,000
----------- -----------
$16,411,000 $15,991,000
Operating expenses:
Property operating and property taxes 3,285,000 3,192,000
----------- -----------
Operating income $13,126,000 $12,799,000
=========== ===========
</TABLE>
Operating income for the Same Properties for the three months ended March
31, 1999 increased over the same period in the prior year by $327,000 or 2.6%.
This increase was attributable to increased rental revenue primarily due to
income related to the development of pads at Brookvale Shopping Center, Country
Club Center, Sunset Square and Winterwood Pavilion. This increase was offset by
a decrease in other income primarily due to amounts recorded in 1998 at Chino
Town Square for the recovery of a note receivable previously written-off and a
common area maintenance recovery adjustment. Operating expenses for these Same
Properties increased by $93,000 or 2.9% primarily due to bad debt expense at
Chino Town Square and Fairmont Shopping Center, and the replacement cost of a
fire sprinkler pump house at Cheyenne Commons.
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 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 those 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> 9
The following table presents the Company's Funds from Operations for the
three months ended March 31, 1999 and three months ended March 31, 1998
respectively:
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net income $ 7,838,000 $ 5,372,000
Add:
Depreciation and amortization 4,120,000 3,302,000
Depreciation of unconsolidated
partnerships 2,000 51,000
Depreciation of non-real estate
corporate assets (85,000) (58,000)
Minority interest in Pan Pacific
(Portland), LLC 366,000 --
------------ ------------
Funds from Operations $ 12,241,000 $ 8,667,000
============ ============
Weighted average number of shares
of common stock outstanding
(assuming dilution) 21,996,735 16,918,039
</TABLE>
CASH FLOWS
Comparison of the Three months ended March 31, 1999 to the Three months
ended March 31, 1998.
Net cash provided by operating activities increased by $2,800,000 to
$10,483,000 for the three months ended March 31, 1999, as compared to $7,683,000
for the three months ended March 31, 1998. The increase was primarily the result
of an increase in operating income due to property acquisitions.
Net cash used in investing activities decreased by $64,495,000 to
$20,023,000 for the three months ended March 31, 1999, compared to $84,518,000
for the three months ended March 31, 1998. The decrease was primarily the result
of a decrease in additions to properties offset by the acquisition of minority
interest in an unconsolidated partnership.
Net cash provided by financing activities decreased by $70,054,000 to
$6,781,000 for the three months ended March 31, 1999, compared to $76,835,000
for the three months ended March 31, 1998. The decrease resulted primarily from
a decrease in net borrowings under the Unsecured Credit Facility offset by an
increase in notes payable payments.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer systems,
software and devices with embedded technology that are date-sensitive may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures, miscalculations or disruptions in operations,
including, among other things, a temporary inability to process transactions or
engage in similar normal business activities.
The Company has conducted an assessment of how it may be impacted by the
Year 2000 issue and is implementing a comprehensive plan to address all known
aspects of the issue.
Based on the Company's assessment of its internal computer systems
(including related hardware, software, customized applications and network
systems) with respect to the Year 2000 issue, the Company determined that its
existing network and IBM AS400 operating systems were not Year 2000 compliant.
Accordingly, the Company recently replaced its network operating system with a
new operating system and expects to complete a conversion to a new software
package, which does not run on the IBM AS400 but on a Year 2000 compliant NT
platform, by June 30, 1999. The Company believes that these measures, the actual
and estimated costs of which have been and are expected to continue to be
insignificant in the aggregate, will enable its internal computer systems to be
Year 2000 compliant.
<PAGE> 10
The Company is also reviewing the efforts of its significant tenants,
vendors and other service providers to become Year 2000 compliant. Letters and
questionnaires have been or are in the process of being sent to all critical
entities with which the Company does business to assess their Year 2000
readiness. The Company will review the responses to such letters and
questionnaires, assess the impact that the Year 2000 readiness status of such
entities may have on the Company's operations, and take whatever action is
deemed necessary. To date, the Company has received responses from 38% of the
212 tenants surveyed and 96% of the 23 vendors and service providers surveyed.
Based on these responses, there has been no indication that the respondents have
any material concerns related to their ability to address all of their known
significant Year 2000 issues on a timely basis. The Company anticipates that
these review activities will be on-going for 1999 and will include any necessary
follow-up efforts. The Company, however, cannot presently estimate the total
cost of this phase of its Year 2000 readiness program. Although the review of
these third parties is continuing, the Company is not currently aware of any
third party circumstances with respect to the Year 2000 issue that would have a
material adverse impact on the Company. The Company can provide no assurance
that the Year 2000 compliance plans of these third parties will be successfully
completed in a timely manner.
Based on the results to date of the Company's internal assessment and
external inquiries, the Company does not believe that the Year 2000 issue will
pose significant operational problems for the Company or otherwise have a
material adverse effect on its results of operations or financial position.
Although management believes it has undertaken a careful and thorough analysis,
if all Year 2000 issues are not properly identified, or assessment, remediation
and testing efforts are not completed in a timely manner with respect to the
problems that are identified, there can be no assurance that the Year 2000 issue
will not have a material adverse effect on the Company's results of operations
or adversely affect the Company's relationships with tenants, vendors and other
service providers. Further, management believes it has undertaken a careful
survey of third party entities and does not believe there to be a material
concern based upon the potential third party risks that have been identified,
however, there can be no assurance that the Year 2000 issues of these other
entities will not have a material adverse effect on the Company's results of
operations. A contingency plan has not yet been developed for dealing with the
most reasonably likely worst case scenario resulting from the Year 2000 issues
as that scenario has not yet been clearly identified.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes the IPO and related Formation Transactions that were
completed in August 1997 and the secondary offering completed in May 1998
improved its financial position through changes to its capital structure, which
principally included a substantial reduction of 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. In connection with the secondary offering, the Unsecured Credit
Facility was paid down by approximately $82,000,000. These transactions resulted
in a significant reduction in interest expense as a percentage of total revenue,
22.6% for the three months ended March 31, 1999 and 25.2% for the three months
ended March 31, 1998. Thus, cash from operations needed to fund debt service
requirements was substantially decreased.
The total market capitalization of the Company at March 31, 1999, was
approximately $689,700,000, based on the market closing price at March 31, 1999
of $17.75 per share (assuming the conversion of PPP LLC's 832,617 units) and the
debt outstanding of approximately $299,295,000 (exclusive of accounts payable
and accrued expenses). As a result, the Company's debt to total market
capitalization ratio was approximately 43.4% at March 31, 1999. The Board of
Directors adopted a policy of limiting the Company's indebtedness to
approximately 50% of its total market capitalization. However, the Company may
from time to time modify its debt policy in light of current economic or market
conditions including but not limited to the relative costs of debt and equity
capital, market conditions for debt and equity securities and fluctuations in
the market price of its common stock. Accordingly, the Company may increase or
decrease its debt to market capitalization ratio beyond the limit described
above.
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. At March 31, 1999, the Company had $36,403,000 available under the
Unsecured Credit Facility. 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, 1999 was 6.38%. The Company will
continue to use the Unsecured Credit Facility to take advantage of select
acquisition opportunities as well as to provide funds for general corporate
purposes. It is expected, however, that the rate of external growth in 1999 will
be at a slower pace than the rate of external growth during 1998.
The Company's indebtedness outstanding at March 31, 1999 requires balloon
payments of $193,656,000 in 2000, $4,004,000 in 2004, $7,443,000 in 2005,
$67,491,000 in 2007 and $5,836,000 in 2012. The balloon payments due in the year
2000 include the balance drawn on the Unsecured Credit Facility at March 31,
1999 of $163,597,000. 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
<PAGE> 11
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 Company is currently in
the process of obtaining financing on six properties which is expected to
generate approximately $90,000,000 in proceeds. These new financings, expected
to be completed by the end of the second quarter of 1999, are subject to normal
lender due diligence procedures. The proceeds will be used to pay down the
Unsecured Credit Facility and for other corporate purposes. At March 31, 1999,
41 of the Company's 55 properties remained unencumbered. The Unsecured Credit
Facility, which matures in 2000, is renewable, subject to certain conditions.
The Company believes that given current market conditions for secured and
unsecured borrowings, no factors exist which would cause a material change in
the Company's exposure to market risk.
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
repayments of indebtedness described above and from the net cash flows from
acquired properties. Amounts accumulated for distributions 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.
The following table provides historical distribution information:
<TABLE>
<CAPTION>
Distribution
Quarter Ended Date Declared Record Date Date Paid Per Share
------------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C>
September 30, 1997 October 6, 1997 October 22, 1997 October 31, 1997 $0.2128
December 31, 1997 December 5, 1997 December 29, 1997 January 19, 1998 $0.3625
March 31, 1998 March 17, 1998 March 31, 1998 April 17, 1998 $0.3800
June 30, 1998 June 19, 1998 June 30, 1998 July 17, 1998 $0.3800
September 30, 1998 September 11, 1998 October 5, 1998 October 21, 1998 $0.3800
December 31, 1998 December 8, 1998 December 22, 1998 January 20, 1999 $0.3800
March 31, 1999 February 10, 1999 March 17, 1999 April 16, 1999 $0.4000
</TABLE>
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, the issuance of additional equity or debt
securities and the use of net proceeds from the disposition of non-strategic
assets. 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
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
Effective January 1, 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities". The effect of the adoption was
immaterial.
<PAGE> 12
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)
27.1 Financial Data Schedule (electronically filed
with the Securities and Exchange Commission
only)
(b) Reports on Form 8-K
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 10, 1999.
PAN PACIFIC RETAIL PROPERTIES, INC.
By: /s/ Stuart A. Tanz By: /s/ Laurie A. Sneve
------------------------------------- -----------------------------
Stuart A. Tanz Laurie A. Sneve, CPA
President and Chief Executive Officer Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 186
<SECURITIES> 0
<RECEIVABLES> 16,964
<ALLOWANCES> 1,711
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 738,046
<DEPRECIATION> 47,932
<TOTAL-ASSETS> 719,097
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 212
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 382,249
<SALES> 0
<TOTAL-REVENUES> 23,815
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,926
<LOSS-PROVISION> 248
<INTEREST-EXPENSE> 5,390
<INCOME-PRETAX> 8,251
<INCOME-TAX> 35
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,838
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
