<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 SEPTEMBER 30, 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.)
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 November 10, 1999, the number of shares of the Registrant's common
stock outstanding was 21,252,512.
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<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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS:
Operating properties, at cost:
Land $ 205,316 $ 186,891
Buildings and improvements (including related party
development and acquisition fees of $1,235) 556,587 501,645
Tenant improvements 24,646 20,986
--------- ---------
786,549 709,522
Less accumulated depreciation and amortization (55,729) (42,044)
--------- ---------
730,820 667,478
Investments in unconsolidated partnerships 1,486 9,946
Cash and cash equivalents -- 2,759
Restricted cash 239 912
Accounts receivable (net of allowance for doubtful accounts
of $567 and $412, respectively) 3,141 2,958
Accrued rent receivable (net of allowance for doubtful
accounts of $1,317 and $1,071, respectively) 11,854 9,643
Notes receivable 1,857 2,411
Deferred lease commissions (including unamortized related
party amounts of $2,226 and $2,310, respectively, and net
of accumulated amortization of $2,441 and $2,093, respectively) 3,603 2,955
Prepaid expenses 7,286 5,244
Other assets 2,096 1,235
--------- ---------
$ 762,382 $ 705,541
========= =========
LIABILITIES AND EQUITY:
Notes payable $ 238,195 $ 144,024
Line of credit payable 98,900 138,500
Accounts payable (including related party amounts of $24 and
$16, respectively) 4,670 5,880
Accrued expenses and other liabilities (including related
party amounts of $367 and $389, respectively) 6,634 8,504
Distributions payable (including related party amounts
of $4,323 and $4,107, respectively) 8,840 8,227
--------- ---------
357,239 305,135
Minority interests 23,454 17,318
--------- ---------
Stockholders' equity:
Common stock par value $.01 per share,
100,000,000 authorized shares,
21,242,512 and 21,162,012 shares issued
and outstanding at September 30, 1999 and
December 31, 1998, respectively 212 212
Paid in capital in excess of par value 481,273 481,182
Accumulated deficit (99,796) (98,306)
--------- ---------
381,689 383,088
--------- ---------
$ 762,382 $ 705,541
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Base rent $ 20,014 $ 16,056 $ 58,390 $ 44,966
Percentage rent 185 33 510 340
Recoveries from tenants 4,500 3,521 12,609 9,733
Gain on sale of real estate -- -- 75 --
Income from unconsolidated partnerships 82 181 267 531
Other 584 451 1,675 1,360
-------- -------- -------- --------
25,365 20,242 73,526 56,930
-------- -------- -------- --------
EXPENSES:
Property operating 3,100 2,479 8,778 6,862
Property taxes 1,895 1,432 5,445 4,038
Depreciation and amortization 4,598 3,501 13,062 10,454
Interest 6,165 4,242 17,202 13,310
General and administrative 1,178 1,114 3,881 3,001
Other 68 7 181 305
-------- -------- -------- --------
17,004 12,775 48,549 37,970
-------- -------- -------- --------
INCOME BEFORE MINORITY INTERESTS 8,361 7,467 24,977 18,960
Minority interests (341) (18) (1,040) (37)
-------- -------- -------- --------
NET INCOME $ 8,020 $ 7,449 $ 23,937 $ 18,923
======== ======== ======== ========
Basic and diluted earnings per share $ 0.38 $ 0.35 $ 1.13 $ 1.00
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
--------- ----------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,937 $ 18,923
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,062 10,454
Amortization of prepaid financing costs 502 524
Gain on sale of real estate (75) --
Income from unconsolidated partnerships (267) (531)
Minority interests 1,040 37
Changes in assets and liabilities:
Decrease in restricted cash 673 191
Increase in accounts receivable (183) (1,218)
Increase in accrued rent receivable (2,116) (1,453)
Decrease in notes receivable -- 225
Increase in deferred lease commissions (1,275) (637)
Increase in prepaid expenses (1,378) (188)
Increase in other assets (1,157) (545)
Increase in accounts payable 1,107 1,573
Decrease in accrued expenses and other liabilities (1,779) (301)
--------- ---------
Net cash provided by operating activities 32,091 27,054
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of and additions to operating properties (45,387) (127,126)
Proceeds from sale of real estate 4,400 --
Decrease in construction accounts payable and
accrued expenses (2,317) (833)
Distributions from unconsolidated partnerships 20 540
Acquisition of interest in unconsolidated partnership (7,163) --
Collections of notes receivable 812 92
Increase in notes receivable (258) --
--------- ---------
Net cash used in investing activities (49,893) (127,327)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit proceeds 72,062 134,501
Line of credit payments (111,662) (96,950)
Notes payable proceeds 91,300 --
Notes payable payments (9,652) (1,273)
Prepaid financing costs (1,166) (499)
Acquisition of minority interests (16) (145)
Refunds from loan escrow -- 43
Issuance of common stock -- 85,913
Distributions paid (25,823) (20,526)
--------- ---------
Net cash provided by financing activities 15,043 101,064
--------- ---------
NET INCREASE/(DECREASE) CASH AND CASH EQUIVALENTS (2,759) 791
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,759 --
========= =========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 791
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized
of $203 and $128, respectively) $ 16,578 $ 13,020
</TABLE>
Continued
4
<PAGE> 5
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
--------- ----------
(unaudited)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Note payable assumed upon acquisition of property $12,523 $3,767
Foreclosure of a property securing a note receivable $ -- $ 601
Transfer of acquisition deposits from other assets
to property $ -- $1,465
Transfer from investment in unconsolidated
partnerships to property $15,775 $ --
Distributions payable $ 8,840 $8,042
Acquisition of partnership interests $ 13 $ 160
Minority interest from acquisition of property $ 6,134 $ --
Issuance of restricted stock $ 91 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998,
AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT 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 consolidated 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 consolidated financial
statements have been omitted from this report. Certain reclassifications of 1998
amounts have been made in order to conform to 1999 presentation.
2. PROPERTY
In September 1999, the Company formed Pan Pacific (Rancho Las Palmas), LLC
(the "LLC") and Pan Pacific (RLP), Inc. ("RLP, Inc.") in connection with the
acquisition of Rancho Las Palmas Retail Center. The Company and RLP, Inc. are
co-managing members of the LLC. As part of the acquisition, and in exchange for
an interest in the asset contributed to the LLC by an individual, 314,587 units
were issued to a non-managing member. The non-managing member can seek
redemption of the units beginning on the first anniversary of the date of
issuance. The Company, at its option, may redeem the units by either (i) issuing
common stock at the rate of one share of common stock for each unit, or (ii)
paying cash to the non-managing member based on the average trading price of its
common stock. Distributions are made to the non-managing members at a rate equal
to the distribution being paid by the Company on a share of common stock. Net
income or loss is allocated to the non-managing member in an amount equal to the
cumulative distributions earned by the non-managing member. All remaining net
income or loss is allocated to the managing members.
3. NOTES PAYABLE
(a) On June 29, 1999, the Company completed a $35,000,000 financing
transaction. This financing is evidenced by notes payable, secured by deeds
of trust, bears interest at 7.2% and is due in June 2006. The net proceeds
from this transaction were used to pay down the line of credit.
(b) On July 12, 1999, the Company completed a $56,300,000 financing
transaction. This financing is evidenced by notes payable, secured by deeds
of trust, bears interest at 7.1% and is due in July 2009. The net proceeds
from this transaction were used to pay down the line of credit.
(c) On September 24, 1999, in connection with the acquisition of Rancho Las
Palmas Retail Center, the LLC assumed a promissory note with a principal
balance of $12,523,000. The note, secured by a deed of trust, bears
interest at 8.1% and is due in August 2007.
4. GAIN ON SALE OF REAL ESTATE
On June 30, 1999, the Company sold a single-tenant property for cash of
$4,400,000 and recognized a gain of $75,000.
5. STOCK OPTION PLAN
In March 1999, the Company granted 233,000 stock options and in August
1999, the Company granted awards of 80,500 shares of restricted stock under the
1997 Stock Option and Incentive Plan.
6
<PAGE> 7
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998,
AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT SHARE DATA)
6. 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 and nine
months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income available to common stockholders:
Basic $ 8,020 $ 7,449 $ 23,937 $ 18,923
Add-back income allocated to Pan Pacific
(Portland), LLC and Pan Pacific (Rancho
Las Palmas), LLC units (minority interest) 344 -- 1,023 --
----------- ----------- ----------- -----------
Diluted $ 8,364 $ 7,449 $ 24,960 $ 18,923
=========== =========== =========== ===========
Weighted average shares:
Basic 21,208,387 21,162,012 21,177,640 18,949,455
Incremental shares from assumed:
Assumed exercise of dilutive stock options 18,626 -- 10,377 54,029
Conversion of Pan Pacific (Portland), LLC
and Pan Pacific (Rancho Las Palmas),
LLC units 856,553 -- 840,684 --
----------- ----------- ----------- -----------
Diluted 22,083,566 21,162,012 22,028,701 19,003,484
=========== =========== =========== ===========
</TABLE>
For the three and nine months ended September 30, 1999 and 1998, 1,198,834
and 337,500 stock options, respectively, were excluded from the calculation of
diluted weighted-average shares because they were antidilutive.
7. RELATED PARTY TRANSACTIONS
(a) Distributions on common stock paid to Revenue Properties (U.S.) Inc.
("U.S. Inc."), formerly Pan Pacific Development (U.S.) Inc., were
$12,753,000 and $10,518,000 during the nine months ended September 30, 1999
and 1998, respectively. At September 30, 1999 and 1998, $4,323,000 and
$4,107,000, respectively, of distributions were payable to U.S. Inc.
(b) The Company has notes receivable at September 30, 1999 of $253,000 due from
executive officers. The notes are interest only, bear interest at 7.00% and
mature in August 2000.
7
<PAGE> 8
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998,
AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT SHARE DATA)
8. 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.
9. SUBSEQUENT EVENTS
(a) In October 1999, the Company acquired The Shops at Lincoln School, located
in Modesto, California. The purchase price was $6,750,000 and was financed
primarily by a draw under the Company's line of credit.
(b) In October 1999, the Company acquired Albany Plaza, located in Albany,
Oregon. The purchase price was $6,100,000 and was financed primarily by a
draw under the Company's line of credit.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY LANGUAGE
The discussions in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contain certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
reflect management's current views with respect to future events and financial
performance. Such forward-looking statements are subject to certain risks and
uncertainties. Factors that could cause actual results to differ materially from
expectations include market valuations of the Company's stock, financial
performance and operations of its shopping centers, real estate conditions,
execution of shopping center development programs, successful completion of
renovations, completion of pending acquisitions, changes in the availability of
additional acquisitions, changes in local or national economic conditions, and
other risks detailed from time to time in reports filed with the Securities
Exchange Commission including the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
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 57 properties at September 30, 1999. For example, during the nine
months ended September 30, 1999, the Company owned properties comprising a
weighted average gross leasable area ("GLA") of 7,513,037 square feet. Total
expenses, excluding interest, depreciation and amortization for the nine months
ended September 30, 1999 were $18,285,000 or an annualized $3.25 per square
foot. By comparison, during the nine months ended September 30, 1998, the
Company owned properties comprising a weighted average GLA of 5,702,664 square
feet. Total expenses, excluding interest, depreciation and amortization, for the
nine months ended September 30, 1998 were $14,206,000 or an annualized $3.32 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 1999 and the revenue generated from expanded
GLA due to the buildout of outparcels.
RESULTS OF OPERATIONS
Comparison of the nine months ended September 30, 1999 to the nine months
ended September 30, 1998.
-------------------------------------------------------------------------
Total revenue increased by $16,596,000 or 29.2% to $73,526,000 from
$56,930,000 for the nine months ended September 30, 1999, compared to the nine
months ended September 30, 1998.
Rental revenue increased by $13,594,000 or 30.0% to $58,900,000 from
$45,306,000 for the nine months ended September 30, 1999, compared to the nine
months ended September 30, 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, Sandy Marketplace,
Southgate Center, Oregon City Shopping Center, Sunset Mall, Mira Loma Shopping
Center and Glen Cove Center in November 1998, the remaining 50% interest in
Melrose Village Plaza in January 1999, Auburn North Shopping Center in March
1999, Marina Village in April 1999 and Canyon Square Plaza and Rancho Las Palmas
Retail Center in September 1999 (collectively, the "1998 and 1999
Acquisitions").
Recoveries from tenants increased by $2,876,000 or 29.6% to $12,609,000 from
$9,733,000 for the nine months ended September 30, 1999, compared to the nine
months ended September 30, 1998. This increase resulted primarily from the 1998
and 1999 Acquisitions. Recoveries from tenants were 88.7% of property operating
expenses and property taxes for the nine months ended September 30, 1999
compared to 89.3% of the same expenses for the same period in 1998.
9
<PAGE> 10
Property expenses include property operating expenses and property taxes.
Property operating expenses increased by $1,916,000 or 27.9% to $8,778,000 from
$6,862,000 for the nine months ended September 30, 1999, compared to the nine
months ended September 30, 1998. The increase in property operating expenses was
primarily attributable to the 1998 and 1999 Acquisitions. Property taxes
increased by $1,407,000 or 34.8% to $5,445,000 from $4,038,000 for the nine
months ended September 30, 1999, compared to the nine months ended September 30,
1998. The increase in property taxes was also primarily the result of the 1998
and 1999 Acquisitions.
Depreciation and amortization increased by $2,608,000 or 25.0% to
$13,062,000 from $10,454,000 for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998. This was primarily due to
the 1998 and 1999 Acquisitions.
Interest expense increased by $3,892,000 or 29.2% to $17,202,000 from
$13,310,000 for the nine months ended September 30, 1999, compared to the nine
months ended September 30, 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, 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 and interest expense on the fixed
rate mortgage assumed related to Rancho Las Palmas Retail Center in the third
quarter of 1999. Interest expense also increased as a result of the secured
financings on Rainbow Promenade, San Dimas Marketplace, Melrose Village Plaza,
Monterey Plaza, Tustin Marketplace and Tanasbourne Village completed in June and
July 1999. Although the proceeds were used to paydown the Unsecured Credit
Facility, the fixed interest rates on the secured financings are greater than
the Company's variable rate borrowings under the Unsecured Credit Facility.
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 $880,000 or 29.3% to
$3,881,000 from $3,001,000 for the nine months ended September 30, 1999,
compared to the nine months ended September 30, 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 5.3% for both the nine months ended September
30, 1999 and 1998.
The following table compares the operating data for the 33 properties ("Same
Properties") that were owned and in operation for the entirety of the nine
months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
Rental $40,010,000 $38,759,000
Recoveries from tenants 8,699,000 8,517,000
Operating income from unconsolidated partnership 273,000 222,000
Other 889,000 742,000
----------- -----------
$49,871,000 $48,240,000
Operating expenses:
Property operating and property taxes 9,769,000 9,462,000
----------- -----------
Operating income $40,102,000 $38,778,000
=========== ===========
</TABLE>
Operating income for the Same Properties for the nine months ended
September 30, 1999 increased over the same period in the prior year by
$1,324,000 or 3.4%. This increase was attributable to increased rental revenue
primarily due to income related to the development of pads at Brookvale Shopping
Center, Canyon Ridge Plaza, Sunset Square and Winterwood Pavilion, and increased
occupancy at Laguna Village and Sahara Pavilion North. Operating expenses for
these Same Properties increased by $307,000 or 3.2% primarily due to bad debt
expense at Fairmont Shopping Center and Sahara Pavilion North, and increases in
common area maintenance costs at Cheyenne Commons, Rainbow Promenade and
Winterwood Pavilion.
Comparison of the three months ended September 30, 1999 to the three months
ended September 30, 1998.
---------------------------------------------------------------------------
Total revenue increased by $5,123,000 or 25.3% to $25,365,000 from
$20,242,000 for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998.
10
<PAGE> 11
Rental revenue increased by $4,110,000 or 25.5% to $20,199,000 from
$16,089,000 for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998. The increase in rental revenue resulted
principally from the 1998 and 1999 Acquisitions exclusive of San Dimas
Marketplace, Bear Creek Plaza, Milwaukie Marketplace, Pioneer Plaza, Powell
Valley Junction, Shute Park Plaza, Manteca Marketplace, a 24 Hour Fitness
building, Panther Lake Shopping Center, Creekside Center, Westwood Village
Shopping Center, Fashion Faire Shopping Center and Pacific Commons Shopping
Center (collectively, the "first and second quarter 1998 Acquisitions")
previously noted in the nine month comparative results.
Recoveries from tenants increased by $979,000 or 27.8% to $4,500,000 from
$3,521,000 for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998. This increase resulted primarily from the 1998
and 1999 Acquisitions exclusive of the first and second quarter 1998
Acquisitions. Recoveries from tenants were 90.1% of property operating expenses
and property taxes for the three months ended September 30, 1999 compared to
90.0% of the same expenses for the same period in 1998.
Property expenses include property operating expenses and property taxes.
Property operating expenses increased by $621,000 or 25.1% to $3,100,000 from
$2,479,000 for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998. The increase in property operating expenses was
primarily attributable to the 1998 and 1999 Acquisitions exclusive of the first
and second quarter 1998 Acquisitions. Property taxes increased by $463,000 or
32.3% to $1,895,000 from $1,432,000 for the three months ended September 30,
1999, compared to the three months ended September 30, 1998. The increase in
property taxes was also primarily the result of the 1998 and 1999 Acquisitions
exclusive of the first and second quarter 1998 Acquisitions.
Depreciation and amortization increased by $1,097,000 or 31.3% to $4,598,000
from $3,501,000 for the three months ended September 30, 1999 compared to the
three months ended September 30, 1998. This was primarily due to the 1998 and
1999 Acquisitions exclusive of the first and second quarter 1998 Acquisitions.
Interest expense increased by $1,923,000 or 45.3% to $6,165,000 from
$4,242,000 for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998, primarily as a result of interest expense
relating to amounts drawn on the Company's Unsecured Credit Facility to finance
acquisitions as well as interest expense on the fixed rate mortgage assumed
related to Rancho Las Palmas Retail Center in the third quarter of 1999.
Interest expense also increased as a result of the secured financings on Rainbow
Promenade, San Dimas Marketplace, Melrose Village Plaza, Monterey Plaza, Tustin
Marketplace and Tanasbourne Village completed in June and July 1999. Although
the proceeds were used to paydown the Unsecured Credit Facility, the fixed
interest rates on the secured financings are greater than the Company's variable
rate borrowings under the Unsecured Credit Facility.
General and administrative expenses increased by $64,000 or 5.7% to
$1,178,000 from $1,114,000 for the three months ended September 30, 1999,
compared to the three months ended September 30, 1998. This increase was
primarily attributable to costs associated with additional staffing necessitated
by the 1998 acquisitions and annual compensation increases. As a percentage of
total revenue, general and administrative expenses were 4.6% and 5.5% for the
three months ended September 30, 1999 and 1998, respectively.
The following table compares the operating data for the 45 properties ("Same
Properties") that were owned and in operation for the entirety of the three
months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenue:
Rental $17,146,000 $16,373,000
Recoveries from tenants 3,887,000 3,583,000
Operating income from unconsolidated
partnership 84,000 69,000
Other 308,000 282,000
----------- -----------
$21,425,000 $20,307,000
Operating expenses:
Property operating and property taxes 4,238,000 4,003,000
----------- -----------
Operating income $17,187,000 $16,304,000
=========== ===========
</TABLE>
Operating income for the Same Properties for the three months ended
September 30, 1999 increased over the same period in the prior year by $883,000
or 5.4%. This increase was attributable to increased rental revenue primarily
due to income related to the development of pads at Brookvale Shopping Center,
Canyon Ridge Plaza, Sunset Square and Winterwood Pavilion and increases in
occupancy at Fashion Faire Shopping Center, Milwaukie Marketplace and
Tanasbourne Village. In addition,
11
<PAGE> 12
\
increases in percentage rent were recorded at Brookvale Shopping Center and
Canyon Ridge Plaza. Operating expenses for these Same Properties increased by
$235,000 or 5.9% primarily due to bad debt expense at Milwaukie Marketplace and
Sahara Pavilion North, and increases in common area maintenance costs at Panther
Lake.
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.
The following table presents the Company's Funds from Operations for the
three and nine months ended September 30, 1999 and three and nine months ended
September 30, 1998:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 8,020,000 $ 7,449,000 $ 23,937,000 $ 18,923,000
Add:
Depreciation and amortization 4,598,000 3,501,000 13,062,000 10,454,000
Depreciation of unconsolidated
partnerships 2,000 53,000 6,000 157,000
Depreciation of non-real estate
corporate assets (100,000) (49,000) (296,000) (154,000)
DownREIT minority interests 344,000 -- 1,023,000 --
Less:
Gain on sale of real estate -- -- (75,000) --
------------ ------------ ------------ ------------
Funds from operations $ 12,864,000 $ 10,954,000 $ 37,657,000 $ 29,380,000
============ ============ ============ ============
Weighted average number of shares
of common stock outstanding
(assuming dilution) 22,083,566 21,162,012 22,028,701 19,003,484
</TABLE>
CASH FLOWS
Comparison of the nine months ended September 30, 1999 to the nine months
ended September 30, 1998.
-------------------------------------------------------------------------
Net cash provided by operating activities increased by $5,037,000 to
$32,091,000 for the nine months ended September 30, 1999, as compared to
$27,054,000 for the nine months ended September 30, 1998. The increase was
primarily the result of an increase in operating income due to property
acquisitions offset by an increase in prepaid expenses and a decrease in accrued
expenses and other liabilities.
Net cash used in investing activities decreased by $77,434,000 to
$49,893,000 for the nine months ended September 30, 1999, compared to
$127,327,000 for the nine months ended September 30, 1998. The decrease was
primarily the result of a decrease in acquisitions and additions to properties
offset by proceeds from the sale of real estate and the acquisition of minority
interest in an unconsolidated partnership.
Net cash provided by financing activities decreased by $86,021,000 to
$15,043,000 for the nine months ended September 30, 1999, compared to
$101,064,000 for the nine months ended September 30, 1998. The decrease resulted
primarily from a decrease in borrowings under the Unsecured Credit Facility, an
increase in payments under the Unsecured Credit Facility and a decrease in the
issuance of common stock offset by an increase in notes payable proceeds.
12
<PAGE> 13
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.
These operating systems could be made Year 2000 compliant by applying available
patches to the software. However, the Company had previously decided to upgrade
its systems to new software and accordingly, the Company recently replaced its
network operating system with a new operating system and completed a conversion
to a new software package, which does not run on the IBM AS400 but on a Year
2000 compliant NT platform. The Company believes that these measures, the actual
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.
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 sent to all critical entities with which the Company
does business to assess their Year 2000 readiness. The Company has and will
continue to 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 39% 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 the remainder of 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 been developed for dealing with the most
reasonably likely worst case scenario resulting from the Year 2000 issues.
LIQUIDITY AND CAPITAL RESOURCES
The total market capitalization of the Company at September 30, 1999, was
approximately $719,120,000, based on the market closing price at September 30,
1999 of $17.0625 per share (assuming the conversion of 1,147,204 DownREIT LLC
units) and the debt outstanding of approximately $337,095,000 (exclusive of
accounts payable and accrued expenses). As a result, the Company's debt to total
market capitalization ratio was approximately 46.9% at September 30, 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.
13
<PAGE> 14
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 September 30, 1999, the Company had $101,000,000 available under the
Unsecured Credit Facility. The weighted average interest rate for amounts
borrowed under the Unsecured Credit Facility at September 30, 1999 was 6.57%.
Subsequent to quarter end, the Company received an investment grade credit
rating of BBB- from Standard & Poor's, thereby reducing the Company's borrowing
costs under the Unsecured Credit Facility by 22.5 basis points. As such, at the
Company's option, amounts borrowed under the Unsecured Credit Facility bear
interest at either LIBOR plus 1.15% or a reference rate. 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
continue to be at a slower pace than the rate of external growth during 1998.
The Company's indebtedness outstanding at September 30, 1999 requires
balloon payments of $128,959,000 in 2000, $4,004,000 in 2004, $7,443,000 in
2005, $30,520,000 in 2006, $78,717,000 in 2007 and $5,873,000 in 2012. The
balloon payments due in the year 2000 include the balance drawn on the Unsecured
Credit Facility at September 30, 1999 of $98,900,000. The remainder of the
balloon payments due in the year 2000 consists of two loans. Westwood Village's
loan for approximately $3,621,000 is expected to be repaid in full during the
fourth quarter 1999 with cash flows from operations and a borrowing under the
Unsecured Credit Facility. The other loan is on Chino Town Square for
approximately $26,438,000. The Company is currently working with the lender on a
modification agreement to extend this loan for ten years with a reduction in the
interest rate from 8.0% to 7.72%. The modification agreement is expected to
close in December 1999. With regard to balloon payments due beyond 2000, 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. At the end of the second quarter, the Company
closed a $35,000,000 financing transaction evidenced by notes payable, secured
by deeds of trust on two properties, Rainbow Promenade and San Dimas
Marketplace, bearing interest at 7.2%. At the beginning of the third quarter,
the Company closed a second financing transaction for $56,300,000 also evidenced
by notes payable, secured by deeds of trust on four properties, Melrose Village
Plaza, Monterey Plaza, Tustin Marketplace and Tanasbourne Village, bearing
interest at 7.1%. The proceeds were used to pay down the Unsecured Credit
Facility. Following these financing transactions, at September 30, 1999, 36 of
the Company's 57 properties remain unencumbered. The Unsecured Credit Facility,
which matures in August 2000, is renewable, subject to certain conditions.
The Company expects to make distributions from net cash provided by
operations. 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>
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
June 30, 1999 June 15, 1999 June 28, 1999 July 16, 1999 $0.4000
September 30, 1999 September 9, 1999 September 24, 1999 October 22, 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.
14
<PAGE> 15
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. The
primary market risk to which we are exposed is interest rate risk, which is
sensitive to many factors, including governmental monetary and tax policies,
domestic and international economic and political considerations and other
factors that are beyond our control.
INTEREST RATE RISK
As of September 30, 1999, the Company had $98,900,000 of outstanding
floating rate debt under the Unsecured Credit Facility. In order to modify and
manage the interest characteristics of outstanding debt and limit the effects of
changes in interest rates on operations, the Company may use a variety of
financial instruments. The Company was not a party to any hedging agreements
with respect to its floating rate debt as of September 30, 1999. The Company
does not enter into any transactions for speculative or trading purposes. The
Company does not believe that its weighted average interest rate of 7.8% on its
fixed rate debt is materially different from current fair market interest rates
for debt instruments with similar risks and maturities. Additionally, the
Company does not believe that the interest rate risk represented by its floating
rate debt is material as of that date in relation to the $762,382,000 of total
assets of the Company and approximately $382,025,000 market capitalization of
the Company's common stock and operating partnership units.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number 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 Form of Restricted Stock Agreement between the Company and
Mr. Stuart A. Tanz
27.1 Financial Data Schedule (electronically filed with the
Securities and Exchange Commission only)
(b) Reports on Form 8-K
None
16
<PAGE> 17
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 November 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 Vice President and
Executive Officer Controller
17
<PAGE> 18
EXHIBIT INDEX
Exhibit
Number 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 Form of Restricted Stock Agreement between the Company and
Mr. Stuart A. Tanz
27.1 Financial Data Schedule (electronically filed with the
Securities and Exchange Commission only)
<PAGE> 1
EXHIBIT 10.1
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT is made between Stuart A. Tanz (the "Employee") and Pan
Pacific Retail Properties, Inc. (the "Company") as of August 9, 1999.
RECITALS
(1) Pursuant to the Company's 1997 Stock Option and Incentive Plan (the
"Option Plan"), the Company has granted to Employee an award of 60,000 shares of
common stock of the Company (the "Shares") effective as of August 9, 1999 (the
"Effective Date").
(2) As a condition to Employee's grant of Shares, Employee must execute
this Restricted Stock Agreement (this "Agreement"), which sets forth the rights
and obligations of the parties with respect to the Shares.
1. Forfeiture; Vesting.
(a) If Employee's employment or consulting relationship with the
Company is terminated for any reason, including, but not limited to, for cause,
death, and disability, all unvested Shares as of the date of such termination
shall immediately be forfeited and shall be transferred to the Company.
(b) Subject to Subsections 1(c) and (e), the Shares issued hereunder
shall become vested over five (5) years in twenty percent installments on each
anniversary of the Effective Date (each such anniversary, a "Vesting Date"),
conditioned upon Employee's continued employment as of each such Vesting Date.
(c) Notwithstanding Subsection 1(b), upon the attainment of the
following performance goals as of a Vesting Date, the number of Shares that
would have become vested on the immediately succeeding Vesting Date (assuming
Employee's continued employment as of such succeeding Vesting Date) shall become
vested in addition to any Shares which become vested pursuant to Subsection
1(b):
(i) A cumulative average increase of six percent in the
Company's FFO (determined on a consistent basis and without regard to the effect
of any reduction in FFO attributable to compensation expense recognized by the
Company in connection with the grant of restricted stock under the Option Plan
and any payment pursuant to a gross-up provision in any restricted stock
agreement between the Company and any Company employee or member of the
Company's Board of Directors (the "Board")) for the period commencing on the
Effective Date and ending on such Vesting Date over FFO for the Company's 1998
fiscal year, and a cumulative average increase in the Company's total return
(dividends plus stock appreciation) of four percent for the period commencing on
the Effective Date and ending on such Vesting Date over the Company's total
return for the Company's 1998 fiscal year; or
<PAGE> 2
(ii) A cumulative average increase of three percent in the
Company's per share dividend payment for the period commencing on the Effective
Date and ending on such Vesting Date over the Company's per share dividend
payment for the Company's 1998 fiscal year, and a cumulative average increase in
total return for the period commencing on the Effective Date and ending on such
Vesting Date of not less than ten percent over the Company's total return for
the Company's 1998 fiscal year.
(d) In the event one or more elements of the performance goals
described in the preceding paragraph are not satisfied as of any Vesting Date,
the Company's performance would be reviewed as of the next Vesting Date (and if
necessary, later Vesting Dates but not later than the last Vesting Date), and to
the extent that any of the performance goals are satisfied (on a cumulative
average basis) as of such subsequent Vesting Date, the relevant prior
installment (or installments, as applicable) will become vested as of such
subsequent Vesting Date.
(e) Notwithstanding Subsections 1(b) and (c), in the case of a
"Change in Control" (as hereinafter defined) prior to the termination of
Employee's employment or consulting relationship with the Company, then,
immediately prior to the occurrence of such Change in Control, the Shares shall
become fully vested and shall cease to be subject to forfeiture under Subsection
1(a) after such event. For purposes of this Agreement, "Change in Control" shall
mean the occurrence of any of the following events:
(i) the individuals constituting the Board as of the date of the
initial public offering of common stock of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; provided,
however, that if the election, or nomination for election by the Company's
stockholders, of any new director was approved by a vote of at least a majority
of the Incumbent Board, such new director shall be considered a member of the
Incumbent Board;
(ii) provided that the number of shares of common stock of the
Company directly held by Revenue Properties Company (U.S.) Inc., a Delaware
corporation and its subsidiaries (other than the Company and the Company's
subsidiaries) represents 50% or less of the total outstanding shares of common
stock of the Company, an acquisition of any voting securities of the Company
(the "Voting Securities") by any "person" (as the term "person" is used for
purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) immediately after which such person has
"beneficial ownership" (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of 20% or more of the combined voting power of the Company's then
outstanding Voting Securities; or
(iii) approval by the stockholders of the Company of:
(A) a merger, consolidation, share exchange or
reorganization of the Company, unless the stock holders of the Company,
immediately before such merger, consolidation, share exchange or reorganization,
own, directly or indirectly immediately following such merger, consolidation,
share exchange or reorganization, at least 80% of the combined voting power of
the outstanding voting securities of the corporation that is the successor in
such merger, consolidation, share exchange or reorganization (the "Surviving
2
<PAGE> 3
Company") in substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation, share exchange or
reorganization; or
(B) a complete liquidation or dissolution of the Company;
or
(iv) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
2. Transferability of the Shares; Escrow.
(a) With the exception of Shares which have been forfeited and
required to be transferred to the Company pursuant to this Agreement, no
unvested Shares nor any interest or right therein or part thereof shall be
liable for the debts, contracts or engagements of Employee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect. Employee hereby authorizes and directs the secretary of
the Company, or such other person designated by the Company, to transfer the
unvested Shares that have been forfeited to the Company pursuant to this
Agreement.
(b) To insure the availability for delivery of Employee's unvested
Shares upon forfeiture to the Company, Employee hereby appoints the secretary of
the Company, or any other person designated by the Company as escrow agent, as
his attorney-in-fact to assign and transfer unto the Company, such unvested
Shares, if any, forfeited to the Company pursuant to Section 1 and shall, upon
execution of this Agreement, deliver and deposit with the secretary of the
Company, or such other person designated by the Company, the Share certificates
representing the unvested Shares, together with the stock assignment duly
endorsed in blank, attached hereto as Exhibit 1. The unvested Shares and stock
assignment shall be held by the secretary in escrow, pursuant to the Joint
Escrow Instructions of the Company and Employee attached as Exhibit 2 hereto,
until such unvested Shares are vested, or until such time as this Agreement no
longer is in effect. As a further condition to the Company's obligations under
this Agreement, the spouse of the Employee, if any, shall execute and deliver to
the Company the Consent of Spouse attached hereto as Exhibit 3. Upon vesting of
the unvested Shares, the escrow agent shall promptly deliver to the Employee the
certificate or certificates representing such Shares in the escrow agent's
possession belonging to the Employee, and the escrow agent shall be discharged
of all further obligations hereunder; provided, however, that the escrow agent
shall nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
3
<PAGE> 4
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and shall
acknowledge the same by signing a copy of this Agreement.
(e) This Agreement shall terminate upon the earlier of (i) an event
of forfeiture, as described in Subsection 1(a) herein, or (ii) August 9, 2004.
3. "Gross-Up." Upon each Vesting Date for which Employee recognizes
ordinary income in connection with the vesting of one or more installments of
his Shares, the Company shall pay Employee, by no later than the initial
deadline for the filing of tax returns in which such income is reported by
Employee, a cash amount equal to the amount of ordinary federal and state income
tax (net of the federal benefit) recognized by Employee in connection with such
vesting.
4. Ownership, Voting Rights, Duties. This Agreement shall not affect in
any way the ownership, voting rights or other rights or duties of Employee,
except as specifically provided herein.
5. Legends. The Share certificate evidencing the Shares issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable federal and state securities laws and the Company's
charter):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS UPON TRANSFER AND FORFEITURE AS SET FORTH
IN AN AGREEMENT BETWEEN THE COMPANY AND THE HOLDER OF THE
SHARES, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
6. Adjustment for Stock Split. All references to the number of Shares
in this Agreement shall be appropriately adjusted to reflect any stock split,
stock dividend or other change in the Shares which may be made by the Company
after the date of this Agreement.
7. Notices. Notices required hereunder shall be given in person or by
registered mail to the address of Employee shown on the records of the Company,
and to the Company at its principal executive office.
8. Survival of Terms. This Agreement shall apply to and bind Employee
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
9. No Section 83(b) Elections. Because such election could have an
impact on the Company's ability to continue as a real estate investment trust
under the Internal Revenue Code of 1986, as amended (the "Code"), Employee
agrees that Employee will not file an election under Section 83(b) of the Code
with respect to the Shares. If Employee does file a Section 83(b) election then
such election shall cause the immediate forfeiture of all of the Shares.
4
<PAGE> 5
10. Representations. Employee has reviewed with his own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. Employee is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. Employee understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of the grant of
the Shares or the transactions contemplated by this Agreement.
11. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with California law.
12. Amendment. The Compensation Committee of the Board of Directors of
the Company may at any time wholly or partially amend, alter or suspend this
Agreement; provided, however, that no amendment, alteration or suspension of
this Agreement shall impair the rights of Employee, unless mutually agreed
between the Employee and the Compensation Committee, which agreement must be in
writing and signed by Employee and the Compensation Committee.
Employee represents that he has read this Agreement and is familiar
with its terms and provisions. Employee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
of the Company (or the Compensation Committee thereof) upon any questions
arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first
set forth above.
"COMPANY"
PAN PACIFIC RETAIL PROPERTIES, INC.
-----------------------------------
By:
-------------------------------
Title:
----------------------------
"EMPLOYEE"
-----------------------------------
Stuart A. Tanz
5
<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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 239
<SECURITIES> 0
<RECEIVABLES> 18,736
<ALLOWANCES> 1,884
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 786,549
<DEPRECIATION> 55,729
<TOTAL-ASSETS> 762,382
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 212
<OTHER-SE> 381,477
<TOTAL-LIABILITY-AND-EQUITY> 762,382
<SALES> 0
<TOTAL-REVENUES> 73,526
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,840
<LOSS-PROVISION> 424
<INTEREST-EXPENSE> 17,202
<INCOME-PRETAX> 25,060
<INCOME-TAX> 83
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,937
<EPS-BASIC> 1.13
<EPS-DILUTED> 1.13
</TABLE>
