<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, 2000
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, 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 11, 2000, the number of shares of the Registrant's common stock
outstanding was 21,252,512.
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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,
2000 1999
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS:
Operating properties, at cost:
Land $ 209,102 $ 209,071
Buildings and improvements (including related party development
and acquisition fees of $1,235) 572,160 569,519
Tenant improvements 27,029 26,496
--------- ---------
808,291 805,086
Less accumulated depreciation and amortization (60,130) (57,025)
--------- ---------
748,161 748,061
Investment in unconsolidated partnership 1,493 1,496
Cash and cash equivalents -- 1,097
Restricted cash 389 592
Accounts receivable (net of allowance for doubtful accounts of
$607 and $608, respectively) 3,022 3,295
Accrued rent receivable (net of allowance for doubtful accounts of
$1,445 and $1,377, respectively) 13,008 12,391
Notes receivable 2,743 3,043
Deferred lease commissions (including unamortized related party amounts
of $2,401 and $2,396, respectively, and net of accumulated
amortization of $2,309 and $2,281, respectively) 4,072 3,943
Prepaid expenses 7,143 7,987
Other assets 2,580 2,632
--------- ---------
$ 782,611 $ 784,537
========= =========
LIABILITIES AND EQUITY:
Notes payable $ 227,652 $ 228,490
Line of credit payable 128,150 128,800
Accounts payable, accrued expenses and other liabilities (including
related party amounts of $447 and $404, respectively) 13,398 13,074
Distributions payable (including related party amounts
of $4,539 and $4,323, respectively) 9,408 8,960
--------- ---------
378,608 379,324
Minority interests 22,667 23,347
--------- ---------
Stockholders' equity:
Common stock par value $.01 per share, 100,000,000 authorized shares,
21,252,512 shares issued and outstanding at March 31, 2000
and December 31, 1999 213 213
Paid in capital in excess of par value 481,399 481,312
Accumulated deficit (100,276) (99,659)
--------- ---------
381,336 381,866
--------- ---------
$ 782,611 $ 784,537
========= =========
</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,
--------------------------
2000 1999
-------- ---------
(UNAUDITED)
<S> <C> <C>
REVENUE:
Base rent $ 21,289 $ 18,943
Percentage rent 127 160
Recoveries from tenants 4,966 4,048
Income from unconsolidated partnership 71 111
Other 610 553
-------- --------
27,063 23,815
-------- --------
EXPENSES:
Property operating 3,400 2,857
Property taxes 1,983 1,769
Depreciation and amortization 4,656 4,120
Interest 6,972 5,390
General and administrative 1,212 1,425
Other 31 38
-------- --------
18,254 15,599
-------- --------
INCOME BEFORE MINORITY INTERESTS 8,809 8,216
Minority interests (499) (378)
-------- --------
NET INCOME $ 8,310 $ 7,838
======== ========
Basic and diluted earnings per share $ 0.39 $ 0.37
</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,
--------------------------
2000 1999
-------- ---------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,310 $ 7,838
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,656 4,120
Amortization of prepaid financing costs 169 124
Income from unconsolidated partnership (71) (111)
Accrued interest on note receivable -- (4)
Minority interests 499 378
Changes in assets and liabilities:
Decrease in restricted cash 203 726
Decrease in accounts receivable 273 472
Increase in accrued rent receivable (617) (882)
Increase in deferred lease commissions (326) (474)
Decrease (increase) in prepaid expenses 699 (337)
Increase in other assets (43) (512)
Decrease in accounts payable, accrued expenses and other liabilities (43) (855)
-------- --------
Net cash provided by operating activities 13,709 10,483
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of and additions to operating properties (5,155) (10,689)
Increase (decrease) in construction accounts payable and accrued 454 (2,320)
expenses
Contributions to unconsolidated partnership -- (24)
Distributions from unconsolidated partnership 74 --
Acquisition of interest in unconsolidated partnership -- (7,163)
Acquisition of minority interests -- (16)
Increase in other assets (6) --
Collections of notes receivable 302 173
Increases in notes receivable (2) --
-------- --------
Net cash used in investing activities (4,333) (20,039)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit proceeds 9,100 30,297
Line of credit payments (9,750) (5,200)
Notes payable payments (838) (8,326)
Financing deposits -- (1,747)
Prepaid financing costs (25) --
Distributions paid (8,960) (8,227)
-------- --------
Net cash (used in) provided by financing activities (10,473) 6,797
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,097) (2,759)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,097 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
$26 and $28, respectively) $ 6,758 $ 5,347
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfer from investment in unconsolidated partnerships to property $ -- $ 15,775
Distributions payable $ 9,408 $ 8,798
Acquisition of partnership interests $ 697 $ 13
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999,
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (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 consolidated financial statements
of the Company for the year ended December 31, 1999, which are included in the
Company's 1999 Annual Report on Form 10-K, as certain disclosures which would
substantially duplicate those contained in the audited consolidated financial
statements have been omitted from this report.
2. STOCK OPTION PLAN
In March 2000 and 1999, the Company granted an additional 28,000 and
233,000 stock options, respectively, 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, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Income available to common stockholders:
Basic $ 8,310 $ 7,838
Add-back income allocated to Pan Pacific
(Portland), LLC and Pan Pacific (Rancho
Las Palmas), LLC units (minority interests) 486 366
----------- -----------
Diluted $ 8,796 $ 8,204
=========== ===========
Weighted average shares:
Basic 21,252,512 21,162,012
Incremental shares from assumed:
Exercise of dilutive stock options 7,433 2,106
Conversion of Pan Pacific (Portland), LLC
and Pan Pacific (Rancho Las Palmas),
LLC units 1,147,204 832,617
----------- -----------
Diluted 22,407,149 21,996,735
=========== ===========
</TABLE>
At March 31, 2000 and 1999, 1,276,834 and 1,203,501 stock options,
respectively, were excluded from the calculation of diluted weighted-average
shares because they were antidilutive.
<PAGE> 6
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999,
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA)
4. RELATED PARTY TRANSACTIONS
(a) Distributions on common stock paid to Revenue Properties (U.S.) Inc.
("RPUS") were $4,323,000 and $4,107,000 during the three months ended March 31,
2000 and 1999, respectively. At March 31, 2000 and 1999, $4,539,000 and
$4,323,000, respectively, of distributions were payable to RPUS.
(b) The Company received $25,000 and $75,000 for the three months ended March
31, 2000 and 1999, respectively, which represent a reimbursement of costs
incurred by the Company in providing financial services to RPUS. These amounts
are included as a reduction of general and administrative expenses.
5. COMMITMENTS AND CONTINGENCIES
Various claims and legal proceedings arise in the ordinary course of
business. The ultimate amount of liability from all claims and actions cannot be
determined with certainty, but in the opinion of management, the ultimate
liability from all pending and threatened legal claims will not materially
affect the consolidated financial statements taken as a whole.
6. SUBSEQUENT EVENTS
(a) On March 17, 2000 the Board of Directors adopted the 2000 Stock Incentive
Plan of Pan Pacific Retail Properties, Inc. Under the terms of the plan, the
aggregate number of shares of common stock subject to options, stock purchase
rights, stock appreciation rights and other awards will be no more than 489,971.
On March 17, 2000 the Board of Directors granted a total of 155,000 stock
options, subject to stockholder approval of the plan which was obtained at the
Annual Meeting of Stockholders on May 5, 2000.
(b) In April 2000, the Company acquired Wiegand Plaza I, located in Encinitas,
California. The purchase price was $11,850,000 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
CAUTIONARY LANGUAGE
The discussions in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contain 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. Forward-looking statements are subject to 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 and Exchange
Commission including the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
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. Primarily as a result
of the Company's acquisition program and outparcel buildout program, the
financial data show increases in total revenue from period to period.
The Company has experienced economies of scale as it has grown its
portfolio from 25 properties in 1997 to 58 properties at March 31, 2000. For
example, during the three months ended March 31, 2000, the Company owned
properties comprising a weighted average gross leasable area ("GLA") of
8,165,000 square feet. Total expenses, excluding interest, depreciation and
amortization for the three months ended March 31, 2000 were $6,626,000 or an
annualized $3.25 per square foot. During the three months ended March 31, 1999,
the Company owned properties comprising a weighted average 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. These expense rates per square foot compare favorably with the
same calculations for the three months ended March 31, 1998 and 1997 where the
rates per square foot were $3.40 and $4.47, respectively.
The Company expects that the more significant part of its revenue
growth in the next year or two will come from additional acquisitions and rent
increases from re-leasing and re-tenanting initiatives, the benefit of the
stabilization of 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 three months ended March 31, 2000 to the three months
ended March 31, 1999.
Total revenue increased by $3,248,000 or 13.6% to $27,063,000 from
$23,815,000 for the three months ended March 31, 2000, compared to the three
months ended March 31, 1999.
Rental revenue increased by $2,313,000 or 12.1% to $21,416,000 from
$19,103,000 for the three months ended March 31, 2000, compared to the three
months ended March 31, 1999. The increase in rental revenue resulted principally
from the properties acquired in the fourth quarter 1998 and the properties
acquired during 1999.
Recoveries from tenants increased by $918,000 or 22.7% to $4,966,000
from $4,048,000 for the three months ended March 31, 2000, compared to the three
months ended March 31, 1999. This increase resulted primarily from the
properties acquired in the fourth quarter 1998 and the properties acquired
during 1999. Recoveries from tenants were 92.3% of property operating expenses
and property taxes for the three months ended March 31, 2000 compared to 87.5%
of the same expenses for the same period in 1999.
Property expenses include property operating expenses and property
taxes. Property operating expenses increased by $543,000 or 19.0% to $3,400,000
from $2,857,000 for the three months ended March 31, 2000, compared to the three
months ended March 31, 1999. The increase in property operating expenses was
primarily attributable to the properties acquired in the fourth quarter 1998 and
the properties acquired during 1999. Property taxes increased by $214,000 or
12.1% to $1,983,000 from $1,769,000 for the three months ended March 31, 2000,
compared to the three months ended March 31, 1999. The increase in property
taxes was also primarily the result of the properties acquired in the fourth
quarter 1998 and the properties acquired during 1999.
<PAGE> 8
Depreciation and amortization increased by $536,000 or 13.0% to
$4,656,000 from $4,120,000 for the three months ended March 31, 2000 compared to
the three months ended March 31, 1999. This was primarily due to the properties
acquired in the fourth quarter 1998 and the properties acquired during 1999.
Interest expense increased by $1,582,000 or 29.4% to $6,972,000 from
$5,390,000 for the three months ended March 31, 2000, compared to the three
months ended March 31, 1999, primarily as a result of interest expense relating
to additional funds 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.
General and administrative expenses decreased by $213,000 or 14.9% to
$1,212,000 from $1,425,000 for the three months ended March 31, 2000, compared
to the three months ended March 31, 1999. This decrease was primarily
attributable to one-time executive severance costs recorded in the first quarter
of 1999 offset by annual compensation increases in the first quarter of 2000. As
a percentage of total revenue, general and administrative expenses were 4.5% and
6.0% for the three months ended March 31, 2000 and 1999, respectively.
The following table compares the operating data for the 52 properties
("Same Properties") that were owned and in operation for the entirety of the
three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
------- -------
<S> <C> <C>
Revenue:
Rental $19,211 $18,641
Recoveries from tenants 4,375 3,967
Operating income from unconsolidated partnership 74 113
Other 382 398
------- -------
$24,042 $23,119
Property operating and property taxes expenses 4,746 4,512
------- -------
Operating income $19,296 $18,607
======= =======
</TABLE>
Operating income for the Same Properties for the three months ended
March 31, 2000 increased over the same period in the prior year by $689,000 or
3.7%. This increase was attributable to increased rental revenue primarily due
to increases in occupancy at Oregon Trail Shopping Center, re-tenanting at
Olympia Square and Sunset Square and pad development at Powell Valley Junction
and Winterwood Pavilion. Recoveries from tenants also increased primarily due to
increases in common area maintenance expenditures at Melrose Village Plaza,
Pacific Commons, Rainbow Promenade, Sahara Pavilion North, Sandy Marketplace,
Southgate Shopping Center and Winterwood Pavilion and due to increases in
occupancy and pad development at Oregon Trail Shopping Center, Sunset Square and
Winterwood Pavilion. Operating expenses for these Same Properties increased
mainly due to increases in common area maintenance costs at Melrose Village
Plaza, Pacific Commons, Sahara Pavilion North and Winterwood Pavilion.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts in March
1995 (the "White Paper") defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Management considers Funds from Operations an appropriate measure of
performance of an equity REIT because it is predicated on cash flow analyses.
The Company computes Funds from Operations in accordance with standards
established by the White Paper. The Company's computation of Funds from
Operations may, however, differ from the methodology for calculating Funds from
Operations utilized by other equity REITs and, therefore, may not be comparable
to such other REITs. Funds from Operations should not be considered as an
alternative to net income (determined in accordance with GAAP), as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions. NAREIT's
clarification to the definition of Funds from Operations, which became effective
January 1, 2000, had no impact on the calculation of our Funds from Operations.
<PAGE> 9
The following table presents the Company's Funds from Operations
(assuming dilution) for the three months ended March 31, 2000 and three months
ended March 31, 1999 respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income $ 8,310,000 $ 7,838,000
Add:
Depreciation and amortization 4,656,000 4,120,000
Depreciation of unconsolidated
partnership 2,000 2,000
Depreciation of non-real estate
corporate assets (101,000) (85,000)
DownREIT minority interests 486,000 366,000
------------ ------------
Funds from Operations $ 13,353,000 $ 12,241,000
============ ============
Weighted average number of shares
of common stock outstanding
(assuming dilution) 22,407,149 21,996,735
</TABLE>
CASH FLOWS
Comparison of the three months ended March 31, 2000 to the three months
ended March 31, 1999.
Net cash provided by operating activities increased by $3,226,000 to
$13,709,000 for the three months ended March 31, 2000, as compared to
$10,483,000 for the three months ended March 31, 1999. The increase was
primarily the result of an increase in operating income and depreciation and
amortization due to property acquisitions, a decrease in prepaid expenses, a
reduction in other assets and the change in accounts payable, accrued expenses
and other liabilities. These increases were reduced by a decrease in restricted
cash.
Net cash used in investing activities decreased by $15,706,000 to
$4,333,000 for the three months ended March 31, 2000, compared to $20,039,000
for the three months ended March 31, 1999. The decrease was primarily the result
of a decrease in acquisitions of and additions to operating properties, a
decrease in the acquisition of interest in an unconsolidated partnership and an
increase in construction accounts payable and accrued expenses.
Net cash used in financing activities increased by $17,270,000 to
$10,473,000 for the three months ended March 31, 2000, compared to net cash
provided by financing activities of $6,797,000 for the three months ended March
31, 1999. The increase resulted primarily from a decrease in borrowings under
the Unsecured Credit Facility and an increase in payments under the Unsecured
Credit Facility. These increases were reduced by a decrease in notes payable
payments and a decrease in financing deposits.
YEAR 2000 ISSUE
To date, we are not aware of any adverse effects of the Year 2000 issue
on any of our internal systems or those of our vendors or tenants. Management
does not expect Year 2000 issues to have a material adverse effect on our
operations or financial results.
LIQUIDITY AND CAPITAL RESOURCES
The total market capitalization of the Company at March 31, 2000, was
approximately $768,796,000, based on the market closing price at March 31, 2000
of $18.4375 per share (assuming the conversion of 1,147,204 DownREIT LLC units)
and the debt outstanding of approximately $355,802,000. As a result, the
Company's debt to total market capitalization ratio was approximately 46.3% at
March 31, 2000. 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. Considering current
market volatility with regard to stock prices, an alternate measure of leverage
used within the industry which is not affected by fluctuations in stock price is
the ratio of debt to gross real estate assets. At March 31, 2000 the Company's
debt to gross real estate assets ratio was 44.0%.
<PAGE> 10
At March 31, 2000, the Company had $71,850,000 available under its
Unsecured Credit Facility. In October 1999, the Company received an investment
grade credit rating of BBB- from Standard & Poor's, thereby reducing the
Company's interest rate 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
determined by the lead bank of the lending group. The weighted average interest
rate for short-term LIBOR contracts under the Unsecured Credit Facility at March
31, 2000 was 7.24%. 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. The Company did not acquire any
properties in the first quarter of 2000 and the rate of property acquisitions in
1999 was at a slower pace than the rate during 1998 in response to capital
market conditions. This decreased rate of growth is expected to continue through
the year 2000.
The Company's indebtedness outstanding at March 31, 2000 requires
balloon payments of $128,150,000 in 2002, $4,004,000 in 2004, $7,395,000 in
2005, $30,520,000 in 2006, $74,644,000 in 2007, $46,355,000 in 2009, $23,191,000
in 2010 and $5,836,000 in 2012. The balloon payment due in the year 2002
represents the balance drawn on the Unsecured Credit Facility at March 31, 2000
of $128,150,000. With regard to the balloon payments noted above, 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 this 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 terms of future financing transactions will be
subject to general market conditions at the time.
We did not engage in any financing transactions in the first quarter of
2000. During 1999, the Company completed a number of financing transactions. 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 Heights Shopping Center and Tanasbourne Village, bearing interest at
7.1%. The proceeds were used to pay down the Unsecured Credit Facility.
Also in the third quarter of 1999, the Company formed Pan Pacific
(Rancho Las Palmas), LLC (the "RLPLLC") and Pan Pacific (RLP), Inc. in
connection with the acquisition of Rancho Las Palmas Retail Center. As part of
the acquisition, and in exchange for an interest in the asset contributed to
RLPLLC by an individual, 314,587 DownREIT LLC units were issued.
In the fourth quarter of 1999 the Company entered into a new
$200,000,000 Unsecured Credit Facility for three years under similar terms and
conditions as the old facility and with the same group of banks. The Unsecured
Credit Facility matures in December 2002. In addition, the Company entered into
a modification agreement with the lender on the Chino Town Square property. The
loan was set to mature in March of 2000. Under the terms of the modification
agreement, the maturity date was extended to January 2010 and the interest rate
was reduced from 8.0% to 7.72%. Following these financing transactions, at March
31, 2000, 39 of the Company's 58 properties remain unencumbered.
The Company expects to make distributions from net cash provided by
operations. Operating cash flows in excess of amounts to be used 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 certain historical distribution
information:
<TABLE>
<CAPTION>
Distribution
Quarter Ended Date Declared Record Date Date Paid Per Share
------------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C>
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
December 31, 1999 December 9, 1999 December 22, 1999 January 21, 2000 $0.4000
March 31, 2000 February 9, 2000 March 17, 2000 April 14, 2000 $0.4200
</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
<PAGE> 11
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 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 March 31, 2000, the Company had $128,150,000 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 March 31, 2000. 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 7.7% 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 $782,611,000 of total assets
of the Company and approximately $412,995,000 market capitalization of the
Company's common stock and DownREIT LLC units.
<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
None
<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 5, 2000.
PAN PACIFIC RETAIL PROPERTIES, INC.
By: /s/ Stuart A. Tanz By: /s/ Joseph B. Tyson
------------------------------------- -----------------------------
Stuart A. Tanz Joseph B. Tyson, CPA
President and Chief Executive Officer Executive Vice President and
Chief Financial Officer
<PAGE> 14
EXHIBIT INDEX
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)
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 389
<SECURITIES> 0
<RECEIVABLES> 20,825
<ALLOWANCES> 2,052
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 808,291
<DEPRECIATION> 60,130
<TOTAL-ASSETS> 782,611
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 213
<OTHER-SE> 381,123
<TOTAL-LIABILITY-AND-EQUITY> 782,611
<SALES> 0
<TOTAL-REVENUES> 27,063
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,149
<LOSS-PROVISION> 148
<INTEREST-EXPENSE> 6,972
<INCOME-PRETAX> 8,794
<INCOME-TAX> (15)
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<NET-INCOME> 8,310
<EPS-BASIC> 0.39
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