<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to __________
Commission file number 333-34835-01
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
----------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
87-0516235
MARYLAND (I.R.S. Employer
(State of organization) Identification No.)
35 CENTURY PARK-WAY (801) 486-3911
SALT LAKE CITY, UTAH 84115 (Registrant's telephone number, including area code)
(Address of principal executive offices)
</TABLE>
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
Certain matters discussed under the captions "Business and Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Annual Report of Form 10-K/A may constitute
forward-looking statements for purposes of Section 21E of the Securities
Exchange Act of 1934, as amended, and as such may involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance and achievements of JP Realty, Inc. to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
General
JP Realty, Inc. (together with its subsidiaries, the "Company"), the
sole general partner of Price Development Company, Limited Partnership
(the"Operating Partnership"), is a fully integrated, self-administered and
self-managed real estate investment trust ("REIT") primarily engaged in the
business of owning, leasing, managing, operating, developing, redeveloping and
acquiring malls, community centers and other commercial and retail properties
in Utah, Idaho, Colorado, Arizona, Nevada, New Mexico and Wyoming (the
"Intermountain Region"), as well as in Oregon, Washington and California
(together with the Intermountain Region, the "Western States"). The
Company was formed on September 8, 1993 to continue and expand the business,
commenced in 1957, of certain companies (the "Predecessor Companies") affliated
with John Price, Chairman of the Board and Chief Executive Officer of the
Company. As of December 31, 1997, the Company, through the Operating
Partnership, held a portfolio consisting of 48 properties ("Properties"),
including 15 enclosed regional malls, 25 community centers and two free-
standing retail properties located in ten states and six mixed-use commercial
properties located primarily in the Salt Lake City, Utah metropolitan area.
Since 1976, the Company and the Predecessor Companies have been responsible for
developing more retail malls in the Intermountain Region than any other
developer having constructed, developed or redeveloped 11 malls in the region
(as well as three other malls in Oregon and Washington).
Based on gross leasable area (Company-owned leasable area plus any
tenant-owned leasable area within the Company's properties or "Total GLA"), the
Company owns and operates the largest retail property portfolio in each of the
states of Utah, Idaho and Wyoming, and is the leading owner and operator of
retail shopping center properties throughout the Intermountain Region. As of
December 31, 1997, the Company's retail portfolio contained an aggregate of
10,909,652 square feet of total gross leasable area (together, Company-owned
leasable area within the Properties ("GLA") plus tenant-owned leasable area
within the Properties, "Total GLA") and its commercial portfolio contained an
aggregate of 1,417,667 square feet of GLA. Based on Total GLA, the Company's
retail properties were approximately 94% leased as of December 31, 1997, and,
based on GLA, its commercial properties were approximately 92% leased as of
that date. For the year ended December 31, 1997, the retail properites and
the commerical properities contributed approximately 90.5% and 9.5%,
respectively, to the Company's consolidated net operating income.
The Company's strategy is to extend its dominant market position in the
Intermountain Region, and to continue to achieve cash flow growth and enhance
the value of the Properties by increasing their rental income and net operating
income over time. The Company expects to achieve rental income and net
operating income growth through (i) contractual rent increases, which are
included in substantially all existing leases for the Properties, (ii) re-
leasing available space at higher rent levels and (iii) selectively renovating,
expanding and redeveloping the Properties. In order to extend its market
position, the Company expects to concentrate its acquisition and other
development activities in the Western States.
2
<PAGE>
In January, 1994, the Company completed a series of transactions intended
to allow it to reorganize and continue the business of the Predecessor
Companies through the Operating Partnership. As part of these transactions,
the Company issued 13,029,500 shares of common stock ("Common Stock") in a
public offering (the "Offering"), issued 200,000 shares of Price Group Stock to
Fairfax Realty, Inc. ("Fairfax"), a company controlled by John Price, and
incurred $95 million in fixed rate mortgage debt (the "Mortgage Debt") together
with $9 million in additional mortgage debt (the "Additional Mortgage Debt").
Net proceeds of the sale of Common Stock were used by the Company to purchase
its general partner interest in the Operating Partnership, which in turn
utilized such proceeds, together with the net proceeds from the Mortgage Debt
and the Additional Mortgage Debt, to (i) retire substantially all of the then
existing mortgage debt encumbering 38 of the Properties and other borrowings
relating to such Properties, (ii) purchase the equity interests held by two
partners in Cottonwood Mall and (iii) invest an additional $4 million in the
development project for the regional mall being developed in Spokane,
Washington.
In August, 1995, the Company completed an additional public offering (the
"1995 Offering") raising approximately $56.4 million in gross proceeds through
the sale of 2,750,000 shares of Common Stock. The Company used the net
proceeds raised in the 1995 Offering to purchase additional general partner
interest ("OP Units") in the Operating Partnership. The Operating Partnership
utilized $47 million of these funds to repay borrowings under a credit facility,
which borrowings were incurred to fund the June 1995 acquisitions of the
Eastridge Mall and Animas Valley Mall.
On January 28, 1997, JP Realty, Inc. completed a public offering of
1,500,000 shares of Common Stock, raising approximately $38.8 million in
net proceeds. The Operating Partnership, which received the net proceeds
from JP Realty, Inc., in exchange for OP Units, used such proceeds to
reduce outstanding borrowings under existing credit facilities.
On October 16, 1997, the Company entered into a $150.0 million
unsecured credit facility (the "1997 Credit Facility") with a syndicate of
banks. The Company used borrowings under the 1997 Credit Facility to
repay $67.1 million outstanding under its two then-existing credit
facilities, a $40.0 million credit facility (the "1996 Credit Facility")
and a $50.0 million credit facility (the "1995 Credit Facility"). On
December 18, 1997, the Company increased the total amount available under
the 1997 Credit Facility to $200.0 million. The 1997 Credit Facility bears
interest, at the option of the Operating Partnership, at one, or a
combination, of (i) the higher of the Federal Funds Rate plus 50 basis
points or the prime rate, (ii) LIBOR plus a spread of 70 to 130 basis
points based on the credit rating of the Operating Partnership (which
resulted in a spread of 90 basis points at December 31, 1997) or (iii)
LIBOR plus a spread as offered by the participating banks under a one to
three month bid rate auction option. The 1997 Credit Facility has a term
of three years and provides for monthly payments of interest only. The
weighted average interest rate paid on 1997 borrowings under the 1997
Credit Facility was 6.75%, and the balance outstanding at December 31, 1997
was $127.0 million. The 1997 Credit Facility is available for general
corporate purposes, including development, working capital, equity
investments, repayment of indebtedness and/or amortization payments.
Each of the Company's regional malls is the premier and dominant mall
and, in some cases, the only mall within its trade area and is generally
considered to be the financial, economic and social center for a given
geographic area. The trade areas surrounding the Company's malls have a
drawing radius, depending on the mall, ranging from five to over 150 miles.
The malls have attracted as anchor tenants some of the leading national and
regional retail companies such as JCPenney, Nordstrom, Wal-Mart, The Bon
Marche, Sears, Dillard's, Mervyn's and ZCMI. The 15 regional malls in the
portfolio contain and aggregate of approximately 7,745,000 square feet of
Total GLA and range in size from approximately 296,000 to 876,000 square
feet of Total GLA. The community center portfolio consists of 25
Properties in seven states containing over 3,159,000 square feet of Total
GLA. The two freestanding retail properties contain a total of
approximately 5,000 square feet of GLA. The commercial portfolio, which
includes 40 commercial buildings containing approximately 1,418,000 square
feet of GLA, is primarily located in the Salt Lake City, Utah area where
the Company's headquarters are located.
3
<PAGE>
Properties
The following tables set forth certain information relating to the Properties,
all of which (except as otherwise indicated) are 100% owned by the Operating
Partnership. The Company believes that all such Properties are adequately
covered by insurance.
<TABLE>
<CAPTION>
RETAIL PROPERTIES
OCCUPANCY AS OF
12/31/97
---------------
Free Based
Standing Tenant Total Tenant on Based Tenant Owner-
Property Stores(2) Shops(3) Anchors GLA(4) GLA(5) Owned Total on Shop SHIP
Property Location Type (1)(Sq. Ft.)(Sq. Ft.)(Sq. Ft.)(Sq.Ft.)(Sq.Ft.) (Sq.Ft.) GLA GLA Space Type(6) ANCHORS
- -------- -------- -------- -------- -------- -------- ------- ------- ------- ------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Utah
- ----
Bank One Nephi FR 3,590 -- -- 3,590 3,590 -- 100.0% 100.0% -- Fee None
Cache
Valley
Mall(7) Logan RM 30,120 96,839 182,889 309,848 307,348 2,500 95.2% 95.2% 84.7% Fee JCPenney,
ZCMI,
Lamonts
Cottonwood
Mall(7) Salt Lake
City RM 53,300 321,314 379,508 754,122 754,122 -- 93.5% 93.5% 84.7% Fee/GL(8) JCPenney,
ZCMI
Cottonwood
Square Salt Lake
City CC -- 35,371 41,612 76,983 76,983 -- 93.3% 93.3% 85.4% Fee/GL Albertsons
Fort Union
Plaza Salt Lake
City CC 29,240 -- -- 29,240 29,240 -- 100.0% 100.0% -- GL None
Gateway
Crossing Bountiful CC 35,620 65,932 174,047 275,599 145,639 129,960(9) 100.0% 100.0% 100.0% Fee Ernst
Home
Center(10),
ShopKo,
TJ Maxx
North
Temple
Shops Salt Lake
City CC -- 10,085 -- 10,085 10,085 --(11) 100.0% 100.0% 100.0% Fee Albertsons,
Payless Drug
Orem
Plaza-
Center
St. Orem CC 15,491 18,814 62,420 96,725 91,125 5,600 100.0% 100.0% 100.0% Fee Savers,
Showbiz Pizza
Orem
Plaza-
State
St. Orem CC 8,045 19,057 -- 27,102 27,102 --(12) 89.3% 89.3% 84.8% Fee Payless Drug
Plaza
9400 Sandy CC 34,510 55,445 136,745 226,700 226,700 -- 100.0% 100.0% 100.0% GL Albertsons,
Fred Meyer,
Pep Boys
Red
Cliffs
Mall(7) St. George RM 12,500 90,872 203,338 306,710 192,439 114,271(13) 97.4% 95.8% 91.2% Fee JCPenney,
ZCMI,
Wal-Mart
Red
Cliffs
Plaza St. George CC 9,327 -- 46,626 55,953 46,626 9,327 16.7% -- -- Fee Ernst
Home
Center(14)
River
Pointe
Plaza West Jordan CC 18,522 56,120 135,707 210,349 56,120 154,229(15) 98.5% 94.3% 94.3% Fee Albertsons,
ShopKo
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RETAIL PROPERTIES - (CONTINUED)
OCCUPANCY AS OF
12/31/97
---------------
FREE BASED
STANDING TENANT TOTAL TENANT ON BASED TENANT OWNER-
PROPERTY STORES(2) SHOPS(3) ANCHORS GLA(4) GLA(5) OWNED TOTAL ON SHOP SHIP
PROPERTY LOCATION TYPE (1) (SQ. FT.)(SQ. FT.)(SQ. FT) (SQ.FT) (SQ.FT) (SQ.FT.) GLA GLA SPACE TYPE(6) ANCHORS
- -------- -------- -------- -------- -------- -------- ------- ------- ------- ------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Utah
- ----
(continued)
- ---------
Riverside
Plaza Provo CC 10,050 11,363 156,454 177,867 174,867 3,000 65.7% 65.1% 84.8% Fee Best
Products(16)
Payless Drug,
McFrugals,
Mini World
University
Crossing Orem CC 33,401 38,551 128,091 200,043 199,143 900 100.0% 100.0% 100.0% Fee Burlington
Coat(17),
Office Max(18),
CompUSA
Idaho
- -----
Alameda
Plaza Pocatello CC 19,049 27,346 143,946 190,341 190,341 -- 100.0% 100.0% 100.0% Fee Albertsons,
Fred Meyer
Baskin
Robbins
17th
Street Idaho
Falls FR 1,761 -- -- 1,761 1,761 -- 100.0% 100.0% -- Fee None
Boise
Towne
Square(7) Boise RM 84,418 339,050 452,037 875,505 480,368 395,137(19) 98.0% 96.4% 94.9% Fee/GL(20)JCPenney,
Sears, The
Bon Marche,
Boise
Plaza Boise CC -- -- 108,464 108,464 108,464 -- 100.0% 100.0% -- PI(21) Burlington
Coat(17),
Albertsons
Boise
Towne
Plaza Boise CC -- -- 76,414 76,414 76,414 -- 100.0% 100.0% -- Fee Circuit City,
Linens' n
Things
Grand
Teton
Mall Idaho
Falls RM 29,089 172,056 323,925 525,070 519,450 5,620 94.1% 94.0% 81.9% Fee JCPenney,
Sears, ZCMI,
The Bon
Marche
Pine
Ridge
Mall(7) Pocatello RM 25,818 148,976 436,528 611,322 499,822 111,500(9) 96.1% 95.2% 84.0% Fee/GL(22)JCPenney,
ZCMI,
The Bon Marche,
Sears, ShopKo
Silver
Lake
Mall(7) Coeur
d'Alene RM 20,090 97,164 217,493 334,747 327,811 6,936 99.1% 99.1% 96.9% Fee JCPenney,
Sears,
Emporium,
Lamonts
Twin
Falls
Crossing Twin
Falls CC -- -- 37,680 37,680 37,680 -- 100.0% 100.0% -- Fee None(23)
Yellow-
stone
Square Idaho
Falls CC 16,865 38,950 166,733 222,548 220,748 1,800 87.6% 87.5% 59.5% PI(24) Albertsons,
Fred Meyer
Washington
- ----------
Spokane
Valley
Mall(7) Spokane RM 46,125 273,673 369,184 688,982 447,405 241,577(25) 89.0% 83.1% 72.4% Fee JCPenney,
Sears,
The Bon
Marche
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
RETAIL PROPERTIES - (CONTINUED)
OCCUPANCY AS OF
12/31/97
---------------
FREE BASED
STANDING TENANT TOTAL TENANT ON BASED TENANT OWNER-
PROPERTY STORES(2) SHOPS(3) ANCHORS GLA(4) GLA(5) OWNED TOTAL ON SHOP SHIP
PROPERTY LOCATION TYPE (1) (SQ. FT.)(SQ. FT.)(SQ. FT) (SQ.FT) (SQ.FT) (SQ.FT.) GLA GLA SPACE TYPE(6) ANCHORS
- -------- -------- -------- -------- -------- -------- ------- ------- ------- ------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington
(Continued)
- ----------
Three
Rivers
Mall(7) Kelso RM 199,623 126,674 188,076 514,373 345,566 168,807(26) 97.3% 96.0% 89.1% Fee JCPenney,
Sears,
The Bon Marche,
Emporium
Oregon
- ------
Bailey
Hills
Plaza Eugene CC 12,000 11,895 155,000 178,895 11,895 167,000(27) 100.0% 100.0% 100.0% Fee Safeway,
ShopKo
Division
Crossing Portland CC 2,589 24,091 67,960 94,640 92,051 2,589 91.5% 91.3% 66.6% Fee United Grocers,
Payless Drug
Halsey
Crossing Gresham CC 9,000 23,071 52,764 84,835 84,835 -- 95.3% 95.3% 82.8% GL Safeway
Salem
Center Salem RM 45,000 167,500 438,000 650,500 212,500 438,000 96.8% 90.2% 87.6% Fee/GL(28)Nordstrom,
Meier & Frank
JCPenney
Wyoming
- -------
Eastridge
Mall Casper RM 17,500 264,388 289,796 571,684 495,801 75,883(29) 90.9% 89.5% 80.3% Fee Target, Sears,
JCPenney,
The Bon Marche
White
Mountain
Mall(7) Rock
Springs RM 26,025 105,962 208,452 340,439 340,439 -- 76.4% 76.4% 75.4% Fee JCPenney,
Herbergers,
Wal-Mart
New Mexico
- ----------
Animas
Valley
Mall Farmington RM 33,000 221,936 271,155 526,091 466,753 59,338(30) 78.5% 75.8% 71.7% Fee JCPenney,
Sears,
Dillard's,
Beall's,
Best Products
North
Plains
Mall(7) Clovis RM 19,076 81,407 195,431 295,914 196,937 98,977(13) 96.3% 94.4% 86.6% Fee JCPenney,
Sears,
Wal-Mart,
Beall's
Nevada
- ------
Fremont
Plaza Las Vegas CC 6,542 19,643 77,348 103,533 103,533 -- 100.0% 100.0% 100.0% GL Smith's Food
& Drug,
Sav-On Drug
Plaza 800 Sparks CC 5,985 21,846 139,607 167,438 167,438 -- 95.7% 95.7% 67.0% GL Albertsons,
ShopKo
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
RETAIL PROPERTIES - (CONTINUED)
OCCUPANCY AS OF
12/31/97
---------------
FREE BASED
STANDING TENANT TOTAL TENANT ON BASED TENANT OWNER-
PROPERTY STORES(2) SHOPS(3) ANCHORS GLA(4) GLA(5) OWNED TOTAL ON SHOP SHIP
PROPERTY LOCATION TYPE (1)(SQ. FT.) (SQ. FT.) (SQ. FT) (SQ.FT) (SQ.FT) (SQ.FT.) GLA GLA SPACE TYPE(6) ANCHORS
- -------- -------- -------- -------- -------- -------- ---------- --------- ----------- ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Colorado
- --------
Austin
Bluffs
Plaza Colorado
Springs CC 9,447 35,859 71,543 116,849 78,902 37,947(31) 100.0% 100.0% 100.0% Fee Albert-
sons,
Longs
Drug
Arizona
- -------
Fry's
Shopping
Plaza Glendale CC 8,564 38,781 71,919 119,264 119,264 -- 98.0% 98.0% 93.8% Fee Fry's
Woodlands
Village Flagstaff CC 4,020 43,380 146,898 194,298 91,858 102,440(13) 100.0% 100.0% 100.0% Fee Bashas',
Wal-Mart
California
- ----------
Anaheim
Plaza Anaheim CC 10,000 -- 67,433 77,433 77,433 -- 100.0% 100.0% -- PI(32)(33)
Visalia
Mall Visalia RM 8,510 174,206 257,000 439,716 439,716 -- 97.8% 97.8% 94.5% Fee JC-
------- --------- --------- ---------- --------- -------- ------ ------ ------ Penney
Gotts-
chalk's
953,812 3,277,617 6,678,223 10,909,652 8,576,314 2,333,338 93.66% 91.94% 85.68%
======= ========= ========= ========== ========= ========= ====== ======= ======
</TABLE>
(1) Property type definitions are as follows: Regional Mall--RM, Community
Centers--CC, Freestanding Retail Properties--FR.
(2) Freestanding stores means leasable buildings or other structures located on
a property which are not physically attached to a mall or community center.
(3) Tenant shops means non-anchor retail stores located in a mall or community
center.
(4) Represents Operating Partnership-owned leasable area and tenant-owned
leasable area within the Properties.
(5) Represents Operating Partnership-owned leasable area within the Properties.
(6) Ownership type definitions are as follows: Fee, Groundlease-GL and
Partnership Interest-PI.
(7) Secured Property as of December 31, 1997.
(8) The Operating Partnership owns a ground lease on one-half acre.
(9) Tenant owned space at this Property includes ShopKo.
(10)Ernst Home Center has filed for protection under the United States
Bankruptcy Code ("Bankruptcy Code") but continues to be responsible for
lease payments and at December 31, 1997 was still paying rent pursuant to
the terms of the lease and the Bankruptcy Code.
(11)Tenant-owned space at this Property includes Albertsons and Payless Drug.
(12)Tenant-owned space at this Property includes Payless Drug.
(13)Tenant-owned space at this Property includes Wal-Mart.
(14)Ernst Home Center has filed for protection under the Bankruptcy Code. The
trustee in bankruptcy has rejected the terms of the lease and the Company
is currently in the process of re-leasing the space.
(15)Tenant-owned space at this Property includes Albertsons and ShopKo.
(16)Best Products has filed for protection under the Bankruptcy Code. The
trustee in bankruptcy has rejected the terms of this lease and the Company
is currently in the process of re-leasing the space.
(17)The Operating Partnership's lease is with Fred Meyer which subleases the
Property space to Burlington Coat.
(18)The Operating Partnership's lease is with Fred Meyer which subleases the
space to Burlington Coat. 33.6% of the space represented by the Burlington
Coat sublease is further subleased to Office Max.
(19)Tenant-owned space at this Property includes JCPenney, Sears and Mervyn's.
(20)The Operating Partnership owns a ground lease on two acres.
7
<PAGE>
Retail Properties - (Continued)
(21)The Operating Partnership's ownership represents a 73.3 partnership
interest in the current fee holder of the property.
(22)The Operating Partnership owns two ground leases on 7.3 acres and 1.2
acres.
(23)The Operating Partnership's lease subleases the Property to several other
retailers.
(24)The Operating Partnership's ownership represents a 83.5% partnership
interest in the current fee holder of the Property.
(25)Tenant-owned space at this property includes Sears and The Bon Marche.
(26)Tenant-owned space at this Property includes Target and Top Foods.
(27)Tenant-owned space at this Property includes Safeway and ShopKo.
(28)The Operating Partnership owns seven ground leases comprising a total of
1.58 acres and 2.35 acres in fee.
(29)Tenant-owned space at this Property includes Target.
(30)Tenant-owned space at this Property includes property owned by a third
party which leases its space to Best Products.
(31)Tenant-owned space at this Property includes Longs Drugs.
(32)The Operating Partnership's ownership interest represents a 50% partnership
interest in the current ground lease holder of the Property.
(33)Anchor space is vacant as of December 31, 1997.
8
<PAGE>
<TABLE>
<CAPTION> COMMERCIAL PROPERTIES
OCCUPANCY
PROPERTY GLA BASED ON OWNERSHIP
PROPERTY LOCATION TYPE(1) (SQ.FT) GLA TYPE
- -------- -------------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
UTAH
- ----
Price Business Center-
Pioneer Square Salt Lake City BP 530,484 97.52% Fee
Price Business Center-
South Main Salt Lake City BP 144,554 96.41% Fee
Price Business Center-
Timesquare Salt Lake City BP 289,423 84.07% Fee
Sears-Eastbay Provo CP 48,880 100.00% Fee
Price Business Center-
Commerce Park West Valley City BP 393,268 89.74% Fee
IDAHO
- -----
Boise/FSB Plaza Boise CP 11,058 38.55% Fee
--------- ----------
1,417,667 92.13%
========= ==========
</TABLE>
___________________
(1) Property type definitions are as follows: Business Park--BP, Commercial
Property--CP.
SIGNIFICANT PROPERTIES
Boise Towne Square contributed in excess of 10% of the Company's total
aggregate gross revenue for the year ended December 31, 1997. Additionally,
Spokane Valley Mall, comprised in excess of 10% of the Company's assets
the year ended December 31, 1997. Certain additional information relating to
these Properties is set forth below.
9
<PAGE>
Boise Towne Square
Boise Towne Square is centrally located in Boise, Idaho adjacent to the
main thoroughfare of the city. Boise Towne Square was opened by the
Predecessor Companies in October of 1988. Boise Towne Square is the dominant
regional mall in its trade area, with several community centers as its major
competition. The real estate tax rate on the improvements for the year ended
December 31, 1997 was 1.9%, amounting to a total tax of $764,000 for the year.
The Company leases approximately two acres which is utilized for
perimeter parking and landscaping from Union Pacific Railroad Company on a year-
to-year basis from December 1 to November 30 at a current rental rate of
$21,000 per year. Boise Towne Square is part of the collateral securing the
Mortgage Debt and the Company believes it is adequately insured. Depreciation
is taken utilizing a straight line method over 40 years with a net book basis
of approximately $31,301,000, $32,543,000 and $33,687,000 at December 31,
1997, 1996 and 1995, respectively. It is the Company's policy to renovate,
expand and upgrade as warranted by market conditions.
The Company is currently constructing a 273,000 square foot expansion
at Boise Towne Square which upon completion will include new anchor
tenant space for a fifth anchor tenant, additional anchor tenant space for
an existing anchor tenant and additional shop tenant space. The project
will add approximately 180,000 square feet of Total GLA for Dillards
department store, 30,000 square feet of GLA for the expansion of The Bon
Marche department store and approximately 63,000 square feet of GLA for
additional shops.
As of December 31, 1997, 1996 and 1995, Boise Towne Square was 98%, 99%
and 98% occupied, respectively, with an average annual rent per square foot of
$15.00, $14.80 and $14.65 for the years ended on those respective dates. Its
major tenants occupying 10% or more of Total GLA are all department stores and
include JCPenney, Sears, The Bon Marche and Mervyn's. JCPenney, Sears and
Mervyn's own their own land and buildings and are subject to a Construction,
Operation and Reciprocal Easement Agreement that expires in 2078, while The Bon
Marche's lease is for a term of 20 years, expiring in 2008, with two 20-year
extension options. Boise Towne Square's leases will expire on the following
schedule:
<TABLE>
<CAPTION>
Average
Annualized Annualized Base Percentage Of GLA
Base Rent Per Square Represented by Expiring Leases
Number Approximate Rent Under Foot Under Assuming No Assuming Full
Lease Expiration of Leases GLA Expiring Expiring Exercise of Exercise of
Year Ending December 31, Expiring Square Feet Leases Leases(1) Renewal Options Renewal Options
- ------------------------ -------- ----------- ------------ ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1998 41 50,723 $ 1,107,101 $ 21.83 10.56% 8.03%
1999 27 72,434 1,253,000 17.30 15.08 7.94
2000 28 60,650 1,132,938 18.68 12.63 9.69
2001 14 43,144 798,535 18.51 8.98 8.84
2002 8 14,492 228,181 15.75 3.02 1.65
2003 14 25,795 588,623 22.82 5.37 5.14
2004 3 10,625 212,214 19.97 2.21 1.93
2005 1 3,710 68,635 18.50 0.77 0.77
2006 5 13,525 240,281 17.77 2.82 1.56
2007 4 9,185 227,900 24.81 1.91 1.91
2008 and thereafter 7 143,287 1,049,756 7.33 29.83 0.41
----- ---------- ----------- ---------- ---------
Total 152 447,570 93.18% 47.87%
===== ========== ========== =========
</TABLE>
(1) Excludes tenants paying percentage rents in lieu of minimum rents.
10
<PAGE>
Spokane Valley Mall
On August 13, 1997, the Company held the grand opening of its Spokane
Valley Mall, a two-level, 688,982 square foot regional mall, located on an
85 acre parcel of land overlooking the Spokane River and the Centennial
Trail in Spokane, Washington. The mall was 72% leased on August 13, 1997
and was 89% leased on December 31, 1997. Its major tenants occupying 10%
or more of Total GLA are department stores and include JCPenney, Sears and
The Bon Marche. Sears and The Bon Marche own their own land and buildings
and are subject to a Construction, Operation and Reciprocal Easement
Agreement that expires in 2046, while JCPenney's lease is for a term of 20
years, expiring in 2017, with six five-year extension options.
Spokane Valley Mall's leases will expire on the following schedule:
<TABLE>
<CAPTION>
Average
Annualized Annualized Base Percentage of GLA
Base Rent Per Square Represented by Expiring Leases
Number Approximate Rent Under Foot Under Assuming No Assuming Full
Lease Expiration of Leases GLA Expiring Expiring Exercise of Exercise of
Year Ending December 31, Expiring Square Feet Leases Leases(1) Renewal Options Renewal Options
- ------------------------ -------- ------------ ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1999 1 120 $ 15,600 $ 130.00 0.03% 0.03%
2000 9 5,295 159,317 30.09 1.18 1.18
2001 1 120 14,400 120.00 0.03 0.03
2002 12 18,971 378,627 19.96 4.24 4.24
2003 2 1,740 36,656 21.07 0.39 0.39
2004 2 1,780 43,807 24.61 0.40 0.40
2005 1 899 22,475 25.00 0.20 0.20
2006 -- -- -- -- -- --
2007 30 44,993 1,480,507 32.91 10.06 10.06
2008 and thereafter 17 207,053 1,832,536 8.85 46.28 7.45
------- --------- ------------- ----------
Total 75 280,971 62.81% 23.98%
======= ========= ============= ==========
</TABLE>
(1) Excludes tenants paying percentage rents in lieu of minimum rents.
THE COMPANY'S LARGEST TENANTS
Large stores (over 20,000 square feet per store) occupy 63.5% of the
Total GLA of the Company's regional malls and community centers. The
Company's largest tenants include JCPenney, ZCMI, Wal-Mart, The Bon
Marche, Sears, Meier & Frank, Mervyn's and Gottschalk's. No tenant
represented more than 10% of the Company's total rental revenues (I.E.
minimum rents plus percentage rents) for the year ended December 31, 1997.
Anchors
Regional malls and community centers usually contain one or more large
retail companies known as "anchors." Anchors, which include traditional
department stores, general merchandise stores, large fashion specialty
stores, value oriented specialty stores and discount stores, usually
inventory a broad range of products that appeal to many shoppers. Anchors
either own their own stores (and sufficient parking) or lease their stores
from the owner of the mall or center. Although the rent and other charges
paid by anchors are usually much less (on a per square foot basis) than the
rent and other charges paid by other tenants, their presence typically
attracts many shoppers and enhances the value of a mall or community
center.
Anchor tenants in the regional malls are JCPenney, ZCMI, Nordstrom,
Wal-Mart, The Bon Marche, Sears, Gottschalk's, ShopKo, The Emporium,
Lamonts, Mervyn's, Meier & Frank, Target and Dillard's. Anchors in the
regional malls occupy 57.0% of Total GLA of the regional malls. The
following table summaries the Total GLA owned and leased as of December 31,
1997 by these anchors:
11
<PAGE>
<TABLE>
<CAPTION>
Anchor Company-Owned
Number of Company-owned Anchor-Owned Total GLA Percent Anchors as
Anchors Anchor Stores Square Feet Square Feet Square Feet Total GLA % Of Revenue(1)
- ------- ------------- ----------- ------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JCPenney 15 913,188 243,591 1,156,779 9.38% 3.52%
Sears 9 471,669 227,780 699,499 5.67% 3.10%
The Bon Marche 6 354,794 120,420 475,215 3.85% 3.15%
ZCMI 5 562,754 -- 562,754 4.57% 2.67%
Wal-Mart 3 86,944 210,128 297,072 2.41% *
Meier & Frank 1 -- 183,500 183,500 1.49% --
Mervyn's 2 -- 159,648 159,648 1.30% --
Gottschalk's 1 150,000 -- 150,000 1.22% *
ShopKo 1 -- 111,500 111,500 0.90% --
The Emporium 2 84,261 -- 84,261 0.68% *
Lamonts 2 80,953 -- 80,953 0.66% *
Target 1 -- 75,883 75,883 0.62% --
Dillard's 1 72,212 -- 72,212 0.59% *
Nordstrom 1 -- 72,000 72,000 0.58% --
</TABLE>
- ---------------------------
* Less than 1%
(1) Revenue defined as minimum rents plus percentage rents
12
<PAGE>
Anchor tenants occupying the greatest amount of GLA in the Company's
community centers are ShopKo, Fred Meyer, Albertsons, Burlington Coat,
Safeway, Wal-Mart and Payless Drug Stores. Anchors in the community
centers occupy approximately 71.2% of Total GLA of the community centers.
The following table summarizes the Total GLA owned and leased as of
December 31, 1997 by these anchors:
<TABLE>
<CAPTION>
Anchor Company-Owned
Number of Company-Owned Anchor-Owned Total GLA Percentage Anchors As
Anchor Anchor Stores Square Feet Square Feet Square Feet Total GLA % Of Revenue(1)
- ------------ ------------- ------------- ----------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ShopKo 4 104,000 297,140 401,140 3.25% *
Albertsons 8 269,098 41,407 310,505 2.52% 1.24%
Fred Meyer 3 309,944 -- 309,944 2.51% 1.16%
Burlington Coat (2) 2 174,248 -- 174,248 1.41% *
Safeway 2 52,764 53,000 105,764 0.86% *
Wal-Mart 1 -- 102,440 102,440 0.83% --
Ernst Home Centers(3) 2 94,783 -- 94,783 0.77% *
PayLess Drug 2 70,583 -- 70,583 0.57% *
Best Products(4) 1 59,350 -- 59,350 0.48% *
</TABLE>
_________________
* Less than 1%.
(1) Revenue defined as minimum rents plus percentage rents.
(2) Sublease from Fred Meyer, Inc.
(3) Ernst Home Center has filed for protection under the Bankruptcy Code but
continues to be responsible for lease payment pursuant to the terms of the
Gateway Crossing lease and the Bankruptcy Code. The Ernst Home Center
lease for space at the Red Cliffs Plaza has been rejected and the Company
is currently in the process of releasing the space.
(4) Best Products lease for space at the Riverside Plaza has been rejected and
the Company is currently in the process of re-leasing the space.
13
<PAGE>
Major Tenants
Nonanchor tenants owned by major national retail chains lease a
considerable amount of space in the Company's retail properties. Such retail
chains include Amcena Corporation (Maurice's), Brown Group (Naturalizer Shoes),
Claire's (Claire's Boutique), Edison Brothers (Bakers Shoes, Jeans West, J.
Riggings, 5-7-9), Waldenbooks Books, Inc., The Limited (Lane Bryant, Lerner,
Limited Express, Victoria's Secret, Bath & Body Works, Structure), May
Department Stores (PayLess ShoeSource), Kay-Bee Toys, Wilson's Suede & Leather,
Musicland Land Group (Musicland, Sam Goody, Suncoast Pictures), Tandy
Corporation (Radio Shack), Woolworth Corporation, (Northern Reflections,
Afterthoughts, Athletic X-press, Foot Locker, Kinney Shoes, Lady Footlocker,
San Francisco Music Box Company), B. Dalton (B. Dalton Bookseller, Barnes &
Noble), Charming Shoppes, Inc. (Fashion Bug), Deb Shops, Regis Corporation, Jay
Jacobs, County Seat, General Mills (Olive Garden, Red Lobster), Gap Stores,
Inc. (Gap, GapKids), The Buckle, Eddie Bauer, Zales Corporation, Gymboree, Fred
Meyer, Millers Outpost, Pearle Vision and Pendleton.
LEASES
Most of the Company's leases are long-term leases that contain fixed base
rents and step-ups in rent typically occurring every three to five years.
These leases generally pass through to the tenant the tenant's share of common
area charges, including insurance costs and real estate taxes. Generally, all
of the regional mall leases and certain of the community center leases include
roof and structure repair costs in common area charges. The Company's leases
also generally provide for additional rents based on a percentage of tenant
sales. For the years ended December 31, 1996 and 1997, such percentage rents
accounted for approximately 7.2% and 6.1% respectively, of total rental income
from the Properties owned by the Company during such periods.
The following table sets forth information relating to the rental revenue from
the Properties for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
Property Type 1997 1996 1995 1994 1993
------------- --------- --------- -------- -------- --------
(Dollars in thousands)
<C> <C> <C> <C> <C>
<S>
Regional Malls $ 44,005 $ 36,286 $ 29,299 $ 24,860 $ 22,882
Community Centers and
Free-Standing Retail Properties 13,192 13,591 12,173 10,658 9,453
Commercial Properties 6,323 6,631 5,633 4,929 4,646
-------- --------- -------- -------- --------
Total $ 63,520 $ 56,508 $ 47,105 $ 40,447 $ 36,981
======== ========= ======== ======== ========
</TABLE>
Vacant Space
Approximately 803,000 square feet, or 6.51%, of Total GLA was vacant
as of December 31, 1997. Of this vacant space, approximately 523,000
square feet was in the regional mall portfolio (20% of which is anchor and
80% of which is mall shop space), 168,171 square feet was in the community
center portfolio and 111,586 square feet was in the commercial portfolio.
The following tables set forth information relating to lease
expirations for retail store and commercial property leases in effect as of
December 31, 1997, over the ten-year period commencing January 1, 1998 and
thereafter for large stores (over 20,000 square feet) and small stores
(20,000 square feet or less) at the retail properties and for all leases
at the commercial properties. Unless otherwise indicated, all information
set forth below assumes that none of the tenants exercise renewal options and
excludes leases that had not commenced as of December 31, 1997.
14
<PAGE>
<TABLE>
<CAPTION>
Lease Expirations For
Retail Store Leases (Over 20,000 Square Feet)
Average
Annualized Base
Lease Expiration Number of Approximate Annualized Base Rent Per Square
Year Ending Leases GLA in Rent Under Foot Under
December 31, Expiring Square Feet Expiring Leases Expiring Leases(1)
------------ -------- ----------- --------------- ------------------
<S> <C> <C> <C> <C>
1998 8 370,846 $ 510,121 $ 1.38
1999 2 201,690 323,647 1.60
2000 3 119,045 365,534 3.07
2001 9 595,718 1,423,260 2.39
2002 4 231,458 711,643 3.07
2003 3 100,249 303,001 3.02
2004 4 255,669 725,957 2.84
2005 1 33,421 111,605 3.34
2006 3 185,240 562,696 3.04
2007 and thereafter 40 2,409,564 11,874,088 4.93
-------- ----------
Total 77 4,502,900
======== ==========
</TABLE>
<TABLE>
<CAPTION>
Lease Expirations For
Retail Store Leases (20,000 Square Feet or Less)
Average
Annualized Base
Lease Expiration Number of Approximate Annualized Base Rent Per Square
Year Ending Leases GLA in Rent Under Foot Under
December 31, Expiring Square Feet Expiring Leases Expiring Leases(1)
------------ -------- ----------- --------------- ------------------
<S> <C> <C> <C> <C>
1998 177 294,545 $ 3,847,377 $ 13.06
1999 160 337,915 4,562,648 13.50
2000 177 347,098 5,403,907 15.57
2001 125 282,675 4,008,790 14.18
2002 134 331,438 4,273,324 12.89
2003 70 211,116 3,067,072 14.53
2004 63 181,666 3,094,598 17.03
2005 46 133,587 2,421,583 18.13
2006 51 144,223 2,745,303 19.04
2007 and thereafter 150 509,436 9,418,638 18.49
-------- ----------
Total 1,153 2,773,699
======== ==========
</TABLE>
<TABLE>
<CAPTION>
Lease Expirations For
Commercial Properties
Average
Annualized Base
Lease Expiration Number of Approximate Annualized Base Rent Per Square
Year Ending Leases GLA in Rent Under Foot Under
December 31, Expiring Square Feet Expiring Leases Expiring Leases(1)
------------ -------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>
1998 15 363,165 $ 1,616,563 $ 4.45
1999 12 195,205 929,800 4.76
2000 12 422,641 2,002,513 4.74
2001 3 113,115 922,213 8.15
2002 10 170,585 1,174,651 6.89
2003 1 20,988 275,572 13.13
2004 2 28,621 146,464 5.12
2005 -- -- -- --
2006 -- -- -- --
2007 and thereafter -- -- -- --
-------- ----------
Total 55 1,314,320
</TABLE> ======== ==========
_______________
(1) Excludes tenants paying percentage rents in lieu of minimum rents.
As leases expire, the Company currently expects to be able to increase
rental revenue by re-leasing the underlying space (either to a new tenant
or to an existing tenant) at rental rates that are at or higher than the
existing rates.
15
<PAGE>
OPERATIONS AND MANAGEMENT
The Company performs all property management functions for the
Properties. At December 31, 1997 the Company had 311 full-time employees
devoted exclusively to property management. Each of the regional malls has on-
site management and maintenance personnel as well as a marketing staff to
assist the mall tenants in promoting and advertising their products. Overall
supervision of mall operations, headed by a Director of Enclosed Malls and a
Director of Marketing, is conducted in a centralized fashion in order to take
advantage of economies of scale and to deliver a uniform presentation of all
management functions. The Company's internal property management information
system enables it to quickly determine tenant status, tenant gross sales,
insurance, and other critical information in order to effectively manage the
affairs of its real property portfolio. The data collected regarding
percentage sales allows the Company to predict sales, to retain tenants and
enhance mall stability.
The Leasing/Development Department is responsible for maintaining
relationships with tenants that afford the Company opportunities for new
development and expansion. The Company conducts an active program of leasing,
within the common area space of its malls and community centers, kiosks and
other promotional displays on a seasonal basis. In addition to increased
customer traffic, this approach generates additional revenue for the Company
and offers an opportunity for entrepreneurial individuals interested in opening
stores on a more permanent basis within one of the Company's Properties.
The Company's property management efforts will continue to be directed
toward improving the attractiveness and appeal of its retail properties and a
pleasant shopping environment in order to increase overall tenant sales and
rents. The Company strives to meet the needs of its tenants in the areas of
promotion, marketing and ongoing management of its properties and seeks to
bring together a sufficient critical mass of complementary upscale and brand-
name tenants. As part of its property management efforts, the Company monitors
tenant mix, store size, sales results and store locations, and works closely
with tenants to improve the overall performance of their stores. The Company
seeks to anticipate trends in the retailing industry and introduce new retail
names and concepts into its retail properties in response to these trends. The
Company maintains its malls and community centers to very high standards and
believes that the aesthetics, ambiance and cleanliness of these Properties
contribute to repeat visits by customers.
ACQUISTION PROGRAM
In June 1997, the Company acquired Silver Lake Mall, a 298,711 square
foot mall located in Coeur d'Alene, Idaho. The Company, which had held a 30%
interest in Silver Lake Mall, Ltd., a limited partnership owning Silver Lake
Mall, prior to its acquisition of the mall, acquired the remaining 70% interest
in such limited partnership in exchange for 72,000 partnership units ("OP
Units") and the assumption of approximately $24.8 million in outstanding
indebtedness. Silver Lake Mall is anchored by JCPenney, Sears, Emporium and
Lamonts and contains 65 mall shops. Silver Lake Mall was 99% leased as of
December 31, 1997.
In June 1997, the Company also acquired Visalia Mall, a 439,716 square
foot mall located in Visalia, California for approximately $38.0 million.
Visalia Mall is anchored by JCPenney and Gottschalk's and contains 68 mall
shops. Prior to the Company's purchase of Visalia Mall, the mall underwent a
major renovation which included the expansion of anchor tenant space, the
addition of a new food court, the renovation and expansion of additional tenant
shop space and the construction of a new 1,000 stall parking facility. Visalia
Mall was 98% leased as of December 31, 1997.
In December 1997, the Company acquired the Salem Center, a 650,000 square
foot enclosed mall located in Salem, Oregon. The Company acquired the Salem
Center for approximately $32.0 million of which the Company financed by
borrowing under the 1997 Credit Facility and assuming debt for the remainder.
Salem Center is located in Salem's downtown business district covering over
five contiguous city blocks and is anchored by Nordstrom, Meryvn's, Meier &
Frank, JCPenney and a 7-screen, 2,300 seat theater. Salem Center was 97%
leased as of December 31, 1997.
16
<PAGE>
DEVELOPMENT
Since 1976, the Company and the Predecessor Companies have been
responsible for developing more retail malls in the Intermountain Region
than any other developer, having constructed, developed or redeveloped 11
malls in the region (as well as three other malls in Oregon and
Washington). The Company maintains the in-house capability to bring a
project from concept to completion. The Leasing/Development Department had
a total of 30 full-time employees at December 31, 1997, including directors
of Leasing, Development, Tenant Coordination and Design/Drafting.
In August 1997, the Company held a grand opening for its development
of the Spokane Valley Mall, a two-level, 688,982 square foot regional mall,
located on an 85 acre parcel of land overlooking the Spokane River and the
Centennial Trail in Spokane, Washington. The mall is anchored by JCPenney,
Sears and The Bon Marche and contains 101 mall shops. In addition to the
273,673 square feet of retail mall space, the mall contains a 40,000 square
foot 12-screen ACT III theater and seven out-parcel pads for retail and
restaurant development.
In early 1997, the Company began developing Boise Towne Plaza, a
105,664 square foot shopping center located adjacent to Boise Towne Square
in Boise, Idaho. The first phase of construction at Boise Towne Plaza,
containing 76,414 square feet of retail space, was completed and opened in
November 1997. The second phase of construction at Boise Towne Plaza,
containing 29,250 square feet of retail space, is expected to be completed
in the second quarter of 1998. During 1997, the Company also completed the
construction of (i) a 76,411 square foot Sears department store at the Pine
Ridge Mall located in Pocatello, Idaho, (ii) a 36,036 square foot addition
to the Sears department store at the Silver Lake Mall and (iii) a 5,500
square foot Applebees restaurant at the Animas Valley Mall located in
Farmington, New Mexico.
The Company is currently expanding Boise Towne Square which will add
Dillard's as a fifth anchor. The project will add approximately 273,000
Total GLA with approximately 180,000 Total GLA for Dillard's, 30,000 GLA
for the expansion of The Bon Marche and approximately 63,000 GLA for
additional shops.
The Company is also developing Provo Towne Centre, a 750,000 square
foot enclosed regional mall, located in Provo, Utah. Provo Towne Center
will be anchored by JCPenney, Sears, and Dillard's and will include space for
more than 80 mall shops. Additionally, the Company is currently
contemplating the expansion and renovation of several other of its
Properties as well as other developments and acquisitions.
Further, the Properties contain approximately 48 acres of vacant land
suitable for additional retail expansion projects. Likewise, the
Properties include additional improved land ready for development of
approximately 263,000 square feet of free standing retail space. The
Company will seek to expand these and other Properties in its retail
portfolio, as well as newly acquired properties, depending on tenant demand
and market conditions.
THIRD PARTY MANAGEMENT
The Company provides third-party property management for an office
building and a commercial building located in the greater Salt Lake City,
Utah metropolitan area, a commercial building located in Albuquerque, New
Mexico and Silver Lake Plaza, a community center, located in Coeur d'Alene,
Idaho. In addition to these arrangements, the Company plans to pursue
other property management opportunities. Because property management
facilitates an understanding of a property's value and potential for cash
flow growth, the Company believes that, in addition to generating property
management fees, third-party property management arrangements can be a
source of future acquisitions for the Company. For example, the Company
was the property manger for Eastridge Mall and Silver Lake Mall prior to
their acquisitions by the Company.
EMPLOYEES
The Company had over 506 employees at December 31, 1997. The Company
believes its relationship with its employees is very good. None of the
Company's employees are unionized.
17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Operating Partnership is not aware of any pending or threatened
litigation at this time that will have a materially adverse effect on the
Operating Partnership or any of the Properties or it's development parcels.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Operating Partnership's security holders
during the fourth quarter of the period covered by this report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANTS
The following table sets forth certain information with respect to the
executive officers of the Company as of December 31, 1997.
<TABLE>
<CAPTION>
Name Age Position
- ----------- --- --------
<S> <C> <C>
John Price 64 Chairman of the Board of Directors and Chief Executive Officer
G. Rex Frazier 54 President, Chief Operating Officer and Director
Paul K. Mendenhall 50 Vice President--Chief Investment Officer and Secretary
Martin G. Peterson 51 Vice President--Administration
Thomas L. Mulkey 45 Vice President--Leasing/Development
Greg Curtis 47 Vice President--Management
David R. Sabey 45 Vice President and General Counsel
M. Scott Collins 42 Vice President--Chief Financial Officer and Treasurer
</TABLE>
Set forth below is a summary of the business experience of the executive
officers of the Company:
John Price has served as Chairman of the Board of Directors and Chief
Executive Officer since September, 1993. Mr. Price formed Fairfax Realty, Inc.
("Fairfax"), the principal entity through which the business of the Predecessor
Companies was conducted, in 1972, and it's predecessor, John Price Associates,
Inc., a construction company, in 1957. Mr. Price has developed and built
substantial retail and commercial real estate properties during his 40 years in
the real estate industry and has been involved in all facets of real estate
development, construction, leasing, management and financing. Mr. Price is a
member of the Board of Directors and the Executive Committee of Alta
Industries-Utah, Inc. (a distributor of ferrous and nonferrous metals and a
manufacturer of roofing, siding, and other structural components). Mr. Price
is also a member of the NAREIT Legislative Advisory Council, a trustee of the
University of Utah, a member of the Board of Directors of the Utah State
Fairpark Corporation which operates the Utah State Fairgrounds and a member of
the Advisory Board of the First Security Bank of Utah, N.A. Mr. Price is a
graduate of the University of Utah.
G. Rex Frazier has served as President, Chief Operating Officer and a
Director since September, 1993. Mr. Frazier has served as President and Chief
Operating Officer of Fairfax since 1986, prior to which he had served as
Executive Vice- President, Vice President-Finance and Director of Finance. Mr.
Frazier has been involved in the real estate industry since 1976. He is a
certified public accountant and, prior to joining Fairfax, worked as an audit
supervisor with Touche Ross & Company. Mr. Frazier is a graduate of the
University of Utah.
Paul K. Mendenhall has served as Vice President-Chief Investment Officer
and Secretary since May, 1997, prior to which he served as Vice President-
Finance and Secretary. Mr. Mendenhall has served as Vice President-Finance and
Secretary of Fairfax since 1986, prior to which he served as Director of
Finance and as Financial Analyst. Mr. Mendenhall has been involved in the real
estate industry since 1977. He is a certified public accountant and, prior to
joining Fairfax, worked as a senior auditor for Touche Ross & Company. Mr.
Mendenhall is a former President and Director of the Utah Association of
Certified Public Accountants (UACPA). Mr. Mendenhall is a graduate of the
University of Utah.
18
<PAGE>
Martin G. Peterson has served as Vice President-Administration since
September, 1993, prior to which he served as Vice President-
Administration/Accounting and Treasurer and as Assistant Vice President. In
addition, Mr. Peterson has served as Vice President-Administration and
Treasurer of Fairfax since 1978. Mr. Peterson has been involved in the real
estate industry since 1975. He is a certified public accountant and, prior to
joining Fairfax, worked as a senior auditor for Price Waterhouse & Co. Mr.
Peterson is a member of the Advisory Board of the Marriott School of Management
at Brigham Young University. Mr. Peterson is a graduate of Brigham Young
University.
Thomas L. Mulkey has served as Vice President-Leasing/Development since
September, 1993. In addition, Mr. Mulkey has served as the Vice President-
Leasing/Development of Fairfax since 1987, prior to which he oversaw the
development of many of the Company's properties. Mr. Mulkey has been involved
in the real estate industry since 1974. Prior to joining Fairfax, Mr. Mulkey
was a project manager for the May Stores Centers, Inc. (a retail department
store company). Mr. Mulkey is a graduate of the University of Missouri.
Greg Curtis has served as Vice President-Management since September,
1993. In addition, Mr. Curtis has served as Vice President-Management of
Fairfax since 1982, prior to which he served as Director of Enclosed Malls and
as a Mall Manager. Mr. Curtis has been involved in real estate since 1977.
Mr. Curtis is a graduate of Brigham Young University.
David R. Sabey has served as Vice President and General Counsel since
September, 1993. In addition, Mr. Sabey has served as Vice President and
General Counsel of Fairfax since 1990. Prior to joining Fairfax, Mr. Sabey
worked as Assistant General Counsel for the Longs Drug Stores Corporation (a
retail drug store company). Mr. Sabey has been in the retail and real estate
industry since 1983. Mr. Sabey is a graduate of McGeorge School of Law and the
University of Utah.
M. Scott Collins has served as Vice President-Chief Financial Officer and
Treasurer since May, 1997. From November, 1992 through May, 1997, Mr. Collins
served as Vice President-Finance and Administration, Chief Financial Officer
and Secretary of Park City Group, Inc. (a software development company). Prior
to his employment with Park City Group, Mr. Collins worked as a senior manager
for Price Waterhouse where he was also involved with the real estate industry.
Mr. Collins is a certified public accountant and is a graduate of Brigham Young
University.
19
<PAGE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
At December 31, 1997, there was no established public trading market
for the Operating Partnership's OP Units. As of March 10, 1998, there were
64 holders of OP Units. The following table sets forth to the
distributions paid per OP Unit for each of the quarters presented:
Distribution
Per OP Unit
------------
Year Ended 12/31/96
First Quarter $ .420
Second Quarter .420
Third Quarter .420
Fourth Quarter .435
Year Ended 12/31/97
First Quarter $ .435
Second Quarter .435
Third Quarter .435
Fourth Quarter .450
During 1997 and 1996, the Operating Partnership recorded regular
quarterly distributions, totaling $37,220,000 and $33,977,000,
respectively, or $1.755 and $1.695 per OP Unit, respectively. On behalf of
the Operating Partnership, the Board of Directors of the Company has
declared a quarterly distribution, payable to holder of OP Units of record
as of April 3, 1998, of $.45 per OP Unit which is an amount equivalent to
an annual distribution of $1.80 per OP Unit. Future distributions will be
determined by the Board of Directors of the Company, the general partner of
the Operating Partnership, and will be dependent upon cash available for
distribution, financial position and cash requirements of the Company and
the Operating Partnership.
On June 1, 1997, the Operating Partnership acquired the remaining 70%
partner interest in Silver Lake Mall, Ltd., a limited partnership owning
Silver Lake Mall, from Roebbelen Engineering, Inc. in exchange for 72,000
OP Units, which at the time of acquisition had a value of $1,863,000, and
the assumption of debt totaling $24,755,000. In connection with the
issuance of the OP Units, the Operating Partnership relied upon the
exemption from registration contained in Section 4(2) of the Securities Act
and the rules and regulations of the Commission thereunder. The OP Units
are convertible on a one-for-one basis into shares of Common Stock of the
Company.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and other data for (i)
the Operating Partnership for the years ended December 31, 1997, 1996,
1995, and for the period January 21, 1994 through December 31, 1994 and
(ii) for the Predecessor Companies for the period January 1, 1994 through
January 20, 1994 and for the year ended December 31, 1993. The historical
financial information for all the periods have been derived from the
audited historical consolidated and combined financial statements.
The following selected financial information should be read in conjunction
with all of the financial statements included elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
20
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Data)
Operating Partnership Predecessor Predecessor
_________________________________________________ Companies Companies
Company Company Company January 2, January 1, Year
Year Ended Year Ended Year Ended 1994 to 1994 to Ended
December 31, December 31, December 31, December 31, January 20, December 31,
1997 1996 1995 1994(1) 1994 1993
----------- ------------ ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 82,973 $ 72,949 $ 60,950 $ 50,071 $ 2,578 $ 47,728
---------- ----------- ---------- ------------ ----------- -----------
EXPENSES
Operating Expenses before Interest,
Depreciation and Amortization 27,434 24,405 20,389 17,090 893 17,226
Interest 9,066 7,776 6,623 5,873 893 18,482
Depreciation and Amortization 13,410 11,979 11,528 8,734 430 8,530
---------- ----------- ---------- ------------ ----------- -----------
Total 49,910 44,160 38,540 31,697 2,149 44,238
---------- ----------- ---------- ------------ ----------- -----------
33,063 28,789 22,410 18,374 429 3,490
Minority Interest in Income of Consolidated
Partnerships (394) (389) (421) (277) -- (251)
Equity in Net Loss of Partnership Interest -- -- (184) (82) 7 (238)
Gain of Sales of Real Estate 339 94 918 -- -- 607
---------- ----------- ---------- ------------ ----------- -----------
Income Before Extraordinary Item 33,008 28,494 22,723 18,015 436 3,608
Extraordinary Item - Loss on Extinguishment
of Debt (162) -- -- (6,670) -- --
---------- ----------- ---------- ------------ ----------- -----------
Net Income $ 32,846 $ 28,494 $ 22,723 $ 11,345 $ 436 $ 3,608
========== =========== ========== ============ =========== ===========
Basic Earnings Per OP Unit (2):
Income Before Extraordinary Item 1.57 1.45 1.26 1.07
Extraordinary Item (.01) -- -- (.40)
---------- ----------- ---------- -----------
Net Income $ 1.56 $ 1.45 $ 1.26 $ .67
========== =========== ========== ===========
Diluted Earnings Per OP Unit (2):
Income Before Extraordinary Item $ 1.55 $ 1.44 $ 1.26 $ 1.07
Extraordinary Item (.01) -- -- (.40)
---------- ----------- ---------- -----------
Net Income $ 1.54 $ 1.44 $ 1.26 $ .67
========== =========== ========== ===========
Distributions per OP Unit $ 1.755 $ 1.695 $ 1.635 $ 1.525
========== =========== ========== ===========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Data)
Operating Partnership Predecessor Predecessor
_________________________________________________ Companies Companies
January 21, January 1, Year
Year Ended Year Ended Year Ended 1994 to 1994 to Ended
December 31, December 31, December 31, December 31, January 20, December 31,
1997 1996 1995 1994(1) 1994 1993
----------- ------------ ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Real Estate, before Accumulated Depreciation $ 619,371 $ 453,241 $ 388,205 $ 321,242 N/A $ 286,719
Total Assets 545,684 381,360 327,061 281,696 N/A 236,482
Total Debt 283,390 162,375 106,406 108,741 N/A 235,799
Shareholders' Equity (Deficit) 207,986 172,556 175,754 127,593 N/A (6,951)
Other Data
Funds From Operations (3) 44,523 39,098 32,139 26,083 859 10,792
Net Operating Income 55,539 48,544 40,561 32,981 1,685 30,502
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF PROPERTIES/TOTAL GLA AT DECEMBER 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Number of Properties at Year End 48 44 43 40 38
Total GLA in square feet at Year End:
Malls 7,745,000 5,553,000 5,020,000 3,898,000 3,855,000
Community Centers and Free-Standing Retail
Properties 3,164,000 3,091,000 3,091,000 2,997,000 2,742,000
Commercial Properties 1,418,000 1,418,000 1,394,000 1,113,000 1,113,000
---------- ---------- ---------- ---------- -----------
Total 12,327,000 10,062,000 9,505,000 8,008,000 7,710,000
========== ========== ========== ========== ===========
</TABLE>
___________________
(1) The Company closed its initial public offering of shares of Common Stock
on January 21, 1994.
(2) Basic Earnings Per OP Unit based on 21,119,000, 19,668,000, 18,037,000
and 16,923,000 weighted average number of OP Units outstanding for the
years ended December 31, 1997, 1996, 1995 and 1994, respectively.
Diluted Earnings Per OP Unit based on 21,285,000, 19,753,000, 18,103,000
and 16,992,000 weighted diluted average number of OP Units outstanding
for years ended December 31, 1997, 1996, 1995, and 1994, respectively.
(3) The Company, the general partner of the Operating Partnership, considers
funds from operations to be an appropriate measure of the performance of
an equity REIT. Funds from operations ("FFO") is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as "net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures." While the Company
believes that FFO is the most relevant and widely used measure of its
operating performance, it does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not indicative of cash available to fund cash needs.
FFO should not be considered as an alternative to net income as an
indication of the Company's or the Operating Partnership's operating
performance or as an alternative to cash flow as a measure of liquidity.
The Company's presentation of FFO, however, may not be comparable to
other similarly titled measures used by other equity REITs. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements of the Operating
Partnership and the Notes thereto appearing elsewhere herein.
JP Realty, Inc. completed its initial public offering on January 21,
1994, and conducts all of its business operations through, and holds an 83%
controlling general partner interest in, Price Development Company, Limited
Partnership ("the Operating Partnership") as of December 31, 1997. JP Realty,
Inc. together with its subsidiaries which included Price Development Company,
Limited Partnership will herein be referred to as the Company.
The Company is a fully integrated, self-administered and self-managed
REIT primarily engaged in the ownership, leasing, management, operation,
development, redevelopment and acquisition of retail properties in the
Intermountain Region, as well as in Oregon, Washington and California. The
Company's existing portfolio consists of 48 properties, including 15 enclosed
regional malls, 25 community centers, two freestanding retail properties and
six mixed-use commercial properties ("Properties"). The Company's financial
condition and results of operations were positively impacted by the Operating
Partnership's June 1997 acquisitions of the Silver Lake Mall, Visalia Mall, the
August 13, 1997 opening of the Spokane Valley Mall, the 1996 acquisition of the
Grand Teton Mall and the 1995 acquisition of two regional malls, Eastridge Mall
and Animas Valley Mall, and one community center, Cottonwood Square. The
Company also acquired Salem Center on December 30, 1997 which has not affected
financial results in 1997. The Company's acquisition and development
activities added a combined 2,798,000 square feet of Total GLA to the retail
portfolio and 24,000 square feet of GLA to the commercial portfolio during 1996
and 1997.
The Company completed an additional public offering in August 1995,
raising approximately $56.4 million in gross proceeds through the sale of
2,750,000 shares of its Common Stock. An additional public offering was
completed in January 1997, raising approximately $40.7 million in gross
proceeds through the sale of 1,500,000 shares of Common Stock.
During 1995, the Company obtained a $50 million credit facility (the "1995
Credit Facility") to fund working capital and property acquisition, expansion
and development activities. On January 22, 1996, the Company obtained an
additional $25 million credit facility (the "1996 Credit Facility," together
with the 1995 Credit Facility, the "Credit Facilities") which was available for
the same purposes as the 1995 Credit Facility. In October 1997 the 1996 Credit
Facility was increased to $40 million. On November 7, 1997 these Credit
Facilities were paid off and canceled.
On October 16, 1997, the Company obtained a $150 million unsecured Credit
Facility (the "1997 Credit Facility") to fund working capital, property
acquisition, expansion and development activities, to pay off and cancel the
$50 million 1995 Credit Facility and pay off and cancel the 1996 Credit
Facility which were obtained for the same purpose as the 1997 Credit Facility.
On December 18, 1997, the $150 million 1997 Credit Facility was increased to
$200 million.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
For the year ended December 31, 1997, income before extraordinary item and
minority interest of the Operating Partnership Unitholders increased $4,515,000
or 16% when compared to the year ended December 31, 1996. The improvement in
operations was primarily attributable to the following factors: an increase in
minimum rents of $7,177,000; and an increase in recoveries from tenants of
$2,642,000 and an increase in other revenues of $373,000. These increases were
offset by an increase in operating expenses of $1,775,000; an increase in taxes
and insurance of $867,000; an increase in general and administrative expense of
$387,000; an increase in interest expense of $1,290,000 and a net increase in
depreciation and amortization of $1,431,000.
Funds from operations increased $5,425,000 or 14% primarily as a result of
acquisitions and developments as discussed herein.
22
<PAGE>
Total revenues for the year ended December 31, 1997 increased $10,024,000 or
14% to $82,973,000 as compared to $72,949,000 in 1996. This increase is
primarily attributable to a $7,177,000 or 14% increase in minimum rents to
$59,624,000 as compared to $52,447,000 in 1996. Additionally, recoveries from
tenants increased $2,642,000 or 17% to $18,199,000 as compared to $15,557,000
in 1996 and other income increased $373,000 due to development and leasing fees
relating to the opening of Spokane Valley Mall. Recoveries from Tenants as a
percentage of operating expenses were 83% in 1997, compared to 80% in 1996.
The April 1996 acquisition of Grand Teton Mall, the June 1997 acquisitions of
Silver Lake Mall and Visalia Mall and the August 13, 1997 opening of Spokane
Valley Mall contributed $6,923,000 to the minimum rent increase and $2,453,000
of the increase in recoveries from tenants. Minimum rent growth in the
remaining portfolio was offset by certain unexpected vacancies in the retail
and commercial properties.
Property operating expenses, including operating and maintenance and real
estate taxes and insurance increased $1,775,000 or 15% and $867,000 or 11%,
respectively. These increases were attributable to the acquisitions of Grand
Teton Mall, Silver Lake Mall, Visalia Mall and the opening of Spokane Valley
Mall. These properties contributed $1,804,000 to operating and maintenance
costs and $885,000 to taxes and insurance.
General and administrative expenses increased $387,000 or 8% to $5,447,000
as compared to $5,060,000. The increase is primarily due to payroll costs from
additional personnel added to support the Company's growth.
Interest expense increased $1,290,000 or 17% to $9,066,000 as compared to
$7,776,000 in 1996. This increase is the result of additional interest on new
borrowings to acquire Silver Lake Mall, Visalia Mall and to the opening of
Spokane Valley Mall.
Depreciation expense increased $1,572,000 or 15% to $11,802,000 as compared
to $10,230,000 in 1996. This increase is primarily due to the acquisition of
Grand Teton Mall, Silver Lake Mall, Visalia Mall, the opening of the Spokane
Valley Mall and tenant allowances given on existing GLA.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
For the year ended December 31, 1996, income before extraordinary item and
minority interest of the Operating Partnership Unitholders increased $5,790,000
or 25% when compared to the year ended December 31, 1995. The improvement in
operations was primarily attributable to the following factors: an increase in
minimum rents of $8,807,000; an increase in percentage and overage rents of
$596,000; and an increase in recoveries from tenants of $3,305,000. These
increases were offset by a decrease in interest and other income of $709,000;
an increase in operating expenses of $3,041,000; an increase in taxes and
insurance of $787,000; an increase in general and administrative expense of
$215,000; and an increase in interest expense of $1,153,000. These were also
offset by an increase in depreciation and amortization of $451,000.
Funds from operations increased $6,959,000 or 22% primarily as a result of
acquisitions, minimum rent increases and percentage and overage rent increases
as discussed herein.
Total revenues for the year ended December 31, 1996 increased $11,999,000 or
20% to $72,949,000 as compared to $60,950,000 in 1995. This increase is
primarily attributable to an $8,807,000 or 20% increase in minimum rents to
$52,447,000 as compared to $43,640,000 in 1995. Additionally, percentage and
overage rents increased $596,000 or 17% to $4,061,000 as compared to $3,465,000
in 1995.
The April 1996 acquisition of the Grand Teton Mall, the June 1995
acquisitions of the Eastridge Mall and the Animas Valley Mall and the December
1995 acquisition of Cottonwood Square contributed a combined $6,915,000 to the
minimum rent increase and $459,000 to the percentage and overage rent increase
in 1996.
23
<PAGE>
Recoveries from tenants increased $3,305,000 or 27% to $15,557,000 as
compared to $12,252,000 in 1995. Property operating expenses, including
operating and maintenance and real estate taxes and insurance increased
$3,014,000 or 35% and $787,000 or 11%, respectively. These increases are
mainly due to the 1995 and 1996 property acquisitions. Recoveries from tenants
as a percentage of property operating expenses were 80% in 1996, compared to
79% in 1995.
Interest expense increased $1,153,000 or 17% to $7,776,000 as compared to
$6,623,000 in 1995. This increase resulted from additional borrowings used to
acquire the Grand Teton Mall in April 1996.
Depreciation increased $620,000 or 6% to $10,230,000 as compared to
$9,610,000 in 1995. This increase is primarily due to the 1995 and 1996
property acquisitions and the development of additional GLA at the Properties.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal uses of its liquidity and capital resources have
historically been for distributions, property development, expansion and
renovation programs and debt repayment. To maintain its qualification as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"), the
Company is required to distribute to its shareholders at least 95% of its "Real
Estate Investment Trust Taxable Income" as defined in the Code. The Company
declared quarterly distributions aggregating $1.755 per share in 1997.
Approximately 11% of the distributions represented a return of capital. Future
distributions will be determined based on actual results of operations and cash
available for distribution.
The Company's principal source of liquidity is its cash flow from operations
generated from its real estate investments. As of December 31, 1997, the
Company's cash and restricted cash amounted to approximately $8.1 million. In
addition to its cash and restricted cash, unused capacity under its 1997 Credit
Facility totaled $73 million at year end. On January 28, 1997, the Company
completed an additional public offering of 1,500,000 shares of Common Stock,
raising approximately $40.7 million in gross proceeds. The net proceeds of
approximately $38.8 million were used to pay costs of the offering and to
reduce outstanding borrowings under the Credit Facilities by approximately
$38.6 million.
The Company generally intends to distribute approximately 80% to 85% of its
funds from operations with the remaining 20% to 15% to be held for capital
expenditures and additional growth. The Company expects to meet its other
short-term cash requirements, through undistributed funds from operations, cash
balances and advances under the 1997 Credit Facility.
The Company prepares an annual capital expenditure and maintenance budget
for each Property which includes provisions for all necessary recurring capital
improvements. The Company believes that its undistributed funds from
operations will provide the necessary funding for these requirements. The
Company believes that these funds will be sufficient to cover (i) tenant finish
costs associated with the renewal or replacement of current tenant leases as
existing leases expire and (ii) capital expenditures which will not be
reimbursed by tenants. During 1997, the Company had capital expenditures,
excluding acquisitions, totaling approximately $51,683,000. This amount
consists of $49,166,000 in revenue enhancing construction and development,
$1,167,000 in revenue enhancing tenant allowances, $567,000 in non-revenue
enhancing tenant allowances and $783,000 in other non-revenue enhancing capital
expenditures. The Company also had $1,132,000 in leasing commissions paid to
outside parties. Of this amount, $1,003,000 was considered revenue enhancing
and $129,000 was considered non-revenue enhancing. Exclusive of construction
and development, capital expenditures (both revenue and non-revenue enhancing)
for the existing Properties are budgeted in 1998 to be approximately
$5,000,000.
The Company's principal long-term liquidity requirements will be the
repayment of principal on the $95 million mortgage debt, which matures in 2001
and which may require principal payments in an amount necessary to reduce the
debt to $83.1 million as of January 21, 2000, and to retire outstanding
balances under the 1997 Credit Facility.
24
<PAGE>
An additional long-term capital need of the Company is the construction of
the regional mall in Spokane, Washington, through its consolidated partnership,
Spokane Mall Development Company Limited Partnership. On July 30, 1996, this
consolidated partnership entered into a $50 million construction facility to
meet its development and construction needs regarding the Spokane project. The
mall opened August 13, 1997, and contains approximately 689,000 square feet of
Total GLA. Continued payments for initial tenant construction allowances and
completion of construction will increase borrowings on the loan. The Company
estimates the total cost of this project will be approximately $67 million.
The difference between the estimated cost of the project and amount of the
construction facility is comprised of costs incurred to date for the purchase
of land and payment of fees and other development costs. As of December 31,
1997, borrowings on the loan were approximately $43.0 million.
The Operating Partnership has initiated the development of Provo Towne
Centre, an enclosed regional mall in Provo, Utah through its consolidated
partnership Provo Mall Development Company, Ltd. This property will also
represent a future long-term capital need for the Company. The Company expects
to fund this project through advances under its 1997 Credit Facility in
combination with construction financing.
The Company is also contemplating the expansion and renovation of several of
its existing properties and additional development projects and acquisitions as
a means to expand its portfolio. The Company does not expect to generate
sufficient funds from operations to meet such long-term needs and intends to
finance these costs primarily through advances under the 1997 Credit Facility,
together with equity and debt offerings and individual property financing.
On September 2, 1997 the Company and the Operating Partnership filed a shelf
registration statement on Form S-3 with the Securities and Exchange Commission
for the purpose of registering common stock, preferred stock, depositary
shares, common stock warrants, debt securities and guaranties. This
registration statement, when combined with the Company's unused portion of its
previous shelf registration, would allow for up to $400 million of securities
to be offered by the Company and the Operating Partnership. On March 11, 1998
the Operating Partnership under its shelf registration, issued $100 million of
ten year senior unsecured notes bearing annual interest at a rate of 7.29%.
Principal payments of $25 million are due annually beginning March 2005. The
proceeds were used to partially repay outstanding borrowings under the 1997
Credit Facility.
The Company intends to fund its distribution, development, expansion,
renovation, acquisition and debt repayment activities from its credit facility
as well as other debt and equity financing, including public financing, in a
manner consistent with its intention to operate with a conservative debt-to-
total market capitalization ratio of less than 50%. The Company's ratio of
debt-to-total market capitalization was approximately 34% as of December 31,
1997.
The Company believes that to facilitate a clear understanding of the
consolidated historical operating results of the Company and Predecessor
Companies, net income should be examined in conjunction with funds from
operations. The Company considers funds from operations to be an appropriate
measure of the performance of an equity REIT. Funds from operations ("FFO") is
defined by the National Association of Real Estate Investment Trusts ("NAREIT")
as "net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures." While the Company believes
that FFO is the most relevant and widely used measure of its operating
performance, it does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not indicative
of cash available to fund cash needs. FFO should not be considered as an
alternative to net income as an indication of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity. The
Company's presentation of FFO, however, may not be comparable to other
similarly titled measures used by other equity REITs.
25
<PAGE>
The Company's calculation of funds from operations is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
COMPANY COMPANY
HISTORICAL HISTORICAL
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Income from Operations before Equity in
Net Income of Partnership Investment and
Minority Interests in Income of
Consolidated Partnerships $ 33,063 $ 28,789
Add: Depreciation Buildings & Improvements 11,599 10,011
Add: Amortization of Deferred Leasing Costs 639 664
Less: Minority Interests in Income of
Consolidated Partnerships (273) (269)
Less: Straight-Line Rent Accrual (505) (97)
----------- ------------
Funds From Operations $ 44,523 $ 39,098
=========== ============
</TABLE>
INFLATION
Inflation has remained relatively low during the past three years and has
had minimal impact on the operating performance of the Properties.
Nonetheless, substantially all of the retail tenants' leases contain provisions
designed to protect the Company from the impact of inflation. Such provisions
include clauses enabling the Company to receive percentage rents based on
tenants' gross sales, which generally increase as prices rise, and/or
escalation clauses, which generally increase rents during the terms of the
leases. In addition, many of the leases are for terms less than ten years,
which may enable the Company to replace existing leases with new leases at
higher base and/or percentage rents if rents of the existing leases are below
then-existing market rates. Substantially all of the leases, other than those
for anchors, require the tenants to pay a proportionate share of operating
expenses, including common area maintenance, real estate taxes and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation.
However, inflation may have a negative impact on some of the Company's
other operating items. Interest and general and administrative expenses may be
adversely affected by inflation as these specified costs could increase at a
rate higher than rents. Also, for tenant leases with specified rent increases,
inflation may have a negative effect as the specified rent increases in these
leases could be lower than the increase in the inflation rate at any given
time.
All forward looking statements included in this document are based on
information available to the Operating Partnership on the date hereof, and the
Operating Partnership assumes no obligation to update any such forward looking
statement. It is important to note that the Operating Partnership's actual
results could differ materially from those in such forward looking statements.
Certain factors that might cause such differences include those relating to
changes in economic climate, local conditions, law and regulations, the
relative illiquidity of real property investments, the potential bankruptcy of
tenants and the development, redevelopment or expansion of properties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data are listed in the Index
to Financial Statements and Financial Statement Schedules appearing on Page F-1
of this Form 10-K/A.
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the two most recent fiscal years, the Operating Partnership has not
experienced any changes in or disagreements with its independent auditors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company is the sole general partner of the Operating Partnership. The
following information is furnished regarding the Directors of the Company.
JOHN PRICE, age 64, has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since September 1993. Mr. Price formed
Fairfax in 1972, and its predecessor, John Price Associates, Inc., a
construction company, in 1957. Mr. Price has developed and built substantial
retail and commercial real estate properties during his 40 years in the real
estate industry and has been involved in all facets of real estate development,
construction, leasing, management and financing. Mr. Price is a member of the
Board of Directors and the Executive Committee of Alta Industries--Utah, Inc. (a
distributor of ferrous and nonferrous metals and a manufacturer of roofing,
siding, and other structural components). Mr. Price is also a member of the
NAREIT Legislative Advisory Council, a trustee of the University of Utah, a
member of the Board of Directors of the Utah State Fairpark Corporation which
operates the Utah State Fairgrounds and a member of the Advisory Board of the
First Security Bank of Utah, N.A. Mr. Price is a graduate of the University of
Utah.
G. REX FRAZIER, age 54, has served as President, Chief Operating Officer and
a Director of the Company since September 1993. Mr. Frazier has served as
President and Chief Operating Officer of Fairfax since 1986, prior to which he
had served as Executive Vice President, Vice President--Finance and Director
of Finance. Mr. Frazier has been involved in the real estate industry since
1976. He is a certified public accountant and, prior to joining Fairfax,
worked as an audit supervisor with Touche Ross & Company. Mr. Frazier is a
graduate of the University of Utah.
WARREN P. KING, age 60, has been a Director since the formation of the
Company and was appointed Vice Chairman of the Board of Directors in August
1994. Prior to the formation of the Company, Mr. King served as Vice Chairman
of the Board of Directors and Chairman of the Finance Committee of Fairfax
beginning in 1977, and has been involved in the real estate industry since
1974. He is the President and Chief Executive Officer and director of Alta
Industries--Utah, Ltd. Mr. King is also a director of A.T.S. Industrial Supply
(an industrial tool and supply distributor). He is a certified public
accountant and is a graduate of Stevens Henager Business College.
JAMES A. ANDERSON, age 62, has been a Director since the formation of the
Company. From April 1978 to March 1993, Mr. Anderson was the Chairman of the
Board of Directors of the State of California Mining and Geology Board. He
also was the Executive Vice President of Fulcrum Management, Inc. (a public
and private natural resource venture capital investment company) from 1987 to
1991, and was a director of Venture Trident Ltd. Partnership (the parent
company of Fulcrum Management, Inc.). He also served as a director of
Homestake Mining Company from 1980 to 1987 and as Executive Vice President
from 1979 to 1987. Mr. Anderson received his bachelor's degree in geological
engineering from the University of Utah, a masters degree in mining geology
and a doctorate degree in economic geology from Harvard University and a
degree in business administration from the Stanford University Executive
Program.
SAM W. SOUVALL, age 77, has been a Director since the formation of the
Company. Since 1979, Mr. Souvall has been Chairman of the Board of Alta
Industries--Utah, Ltd. and, from 1970 to 1978, was President and Chief
Executive Officer of that company. From 1972 to 1984, Mr. Souvall served as a
director of Valley Bank & Trust Company and as Chairman of the Board of
Directors from 1984 to 1988. Mr. Souvall also served as Chairman of the Board
of Directors of Utah Bancorporation from 1980 to 1988, and as President and
Chief Executive Officer of Souvall Bros. Intermountain Wholesalers from 1946
to 1969.
ALLEN P. MARTINDALE, age 66, has been a Director since the formation of the
Company. Since 1988, Mr. Martindale has served as the President of A.P.M.
Associates (a management consulting firm). Mr. Martindale has served as a
director of Smith's Food and Drug Center, Inc. (a retail food and drug store)
since 1970 and served such company in several senior executive capacities
since that date, including Chairman of the Board of Directors and Chief
Executive Officer. He also served as President and Chief Executive Officer of
Arden-Mayfair from 1964 to 1970. Mr. Martindale is a certified public
accountant and a graduate of the University of California at Los Angeles.
ALBERT SUSSMAN, age 81, has been a Director since the formation of the
Company. Since January 1985, Mr. Sussman has been the Senior Advisor and a
lifetime member of the Board of Trustees of the International Council of
Shopping Centers, an organization of which he had previously served as
executive head for 28 years. From 1987 to 1988, Mr. Sussman was consultant to
LaSalle Partners (a national firm which specializes in the management and
investment of real estate properties held by major corporations) and he also
was a consultant to Kimco Realty Corporation (a public company owning/managing
small and medium-size shopping centers). Mr. Sussman is a graduate of the City
College of New York.
The following information is furnished regarding compliance with Section 16(a)
of the Securities Exchange Act of 1934.
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the outstanding shares of
Common Stock ("10% Stockholders") to file with the Commission and the New York
Stock Exchange initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Directors, executive officers and 10% Stockholders are required by the
Commission's regulations to furnish the Company with copies of all Section
16(a) forms and amendments thereto filed during any given year.
Based on review of the copies of such reports and amendments thereto
furnished to the Company and representations from the Company's directors,
executive officers and 10% Stockholders that no other reports were required to
be filed, the Company believes that for the year ended December 31, 1997, the
Company's directors, executive officers and 10% Stockholders complied with all
Section 16(a) filing requirements applicable to them.
The information required by this item regarding Executive Officers appears
in Item 4A of this Annual Report on Form 10-K/A.
ITEM 11. EXECUTIVE COMPENSATION
The following information is furnished regarding executive compensation of the
Company.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation paid by the Company to its Chief Executive Officer and Chairman
of the Board of Directors and to its President and Chief Operating Officer,
Vice President and General Counsel, Vice President-Leasing/Development and
Vice President-Chief Investment Officer and Secretary, the Company's four most
highly compensated executive officers other than the Chief Executive Officer
(together with the Chief Executive Officer, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------- ---------------------
NAME AND PRINCIPAL SECURITIES ALL OTHER
POSITIONS YEAR SALARY($) BONUS($)(1) UNDERLYING OPTIONS(#) COMPENSATION($)
------------------ ---- --------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
John Price(2) 1997 $118,500 $53,325 -- $13,313(3)
Chairman of the Board 1996 115,000 86,250 -- 11,767(4)
and Chief Executive 1995 100,000 45,000 -- 9,397(5)
Officer
G. Rex Frazier 1997 $134,000 $60,300 -- $14,596(3)
President and Chief 1996 130,000 97,500 12,500 11,007(4)
Operating Officer 1995 125,000 56,250 -- 16,440(5)
David R. Sabey 1997 $103,000 $20,394 -- $ 8,941(3)
Vice President and 1996 100,000 33,000 5,000 8,925(4)
General Counsel 1995 97,500 19,305 -- 7,836(5)
Thomas L. Mulkey 1997 $103,000 $30,900 -- $ 8,981(3)
Vice President-- 1996 100,000 50,000 10,000 7,581(4)
Leasing/Development 1995 97,000 29,100 -- 8,293(5)
Paul K. Mendenhall 1997 $ 82,500 $24,750 -- $10,459(3)
Vice President-- 1996 80,000 40,000 10,000 9,194(4)
Chief Investment 1995 77,500 23,250 -- 9,272(5)
Officer and Secretary
</TABLE>
- --------
(1) Bonuses received for 1995, 1996 and 1997 were paid in February, 1996, 1997
and 1998, respectively.
(2) Mr. Price receives a minimum of $100,000 in annual compensation and
participates in other standard benefit programs available to senior
executives generally pursuant to a year-to-year employment and non-
competition agreement that was entered into on January 21, 1994, the
closing date of the Company's initial public offering (the "IPO").
(3) Amounts received in 1997 for each of the Named Executive Officers are as
follows:
<TABLE>
<CAPTION>
HEALTH LIFE RETIREMENT
INSURANCE INSURANCE 401(K) PLAN PLAN TOTAL
--------- --------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
John Price $7,708 $1,053 $1,000 $3,552 $13,313
G. Rex Frazier 9,147 432 1,000 4,017 14,596
David R. Sabey 4,592 261 1,000 3,088 8,941
Thomas L. Mulkey 4,632 261 1,000 3,088 8,981
Paul K. Mendenhall 6,530 432 1,000 2,497 10,459
</TABLE>
(4) Amounts received in 1996 for each of the Named Executive Officers are as
follows:
<TABLE>
<CAPTION>
HEALTH LIFE RETIREMENT
INSURANCE INSURANCE 401(K) PLAN PLAN TOTAL
--------- --------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
John Price $6,264 $1,053 $1,000 $3,450 $11,767
G. Rex Frazier 5,675 432 1,000 3,900 11,007
David R. Sabey 4,772 153 1,000 3,000 8,925
Thomas L. Mulkey 3,370 153 1,000 3,058 7,581
Paul K. Mendenhall 5,487 261 1,000 2,446 9,194
</TABLE>
(5) Amounts received in 1995 for each of the Named Executive Officers are as
follows:
<TABLE>
<CAPTION>
HEALTH LIFE RETIREMENT
INSURANCE INSURANCE 401(K) PLAN PLAN TOTAL
--------- --------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
John Price $4,344 $1,053 $1,000 $3,000 $9,397
G. Rex Frazier 11,258 432 1,000 3,750 16,440
David R. Sabey 3,758 153 1,000 2,925 7,836
Thomas L. Mulkey 4,230 153 1,000 2,910 8,293
Paul K. Mendenhall 5,686 261 1,000 2,325 9,272
</TABLE>
OPTION GRANTS FOR CALENDAR YEAR 1997
No options were granted to any of the Named Executive Officers during 1997.
OPTION EXERCISES/VALUES OF UNEXERCISED OPTIONS
The following table sets forth as to each of the Named Executive Officers
information with respect to option exercises during 1997 and unexercised
options on December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)(2)
ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John Price -- -- 106,000 106,000 $894,375 $894,375
G. Rex Frazier 625 $5,625 31,550 30,000 259,953 228,125
David R. Sabey 900 8,775 12,100 12,000 99,594 91,250
Thomas L. Mulkey -- -- 20,000 20,000 163,750 148,750
Paul K. Mendenhall 285 2,565 19,143 20,000 156,519 148,750
</TABLE>
- --------
(1) No SARs are held by any of the Named Executive Officers.
(2) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), values are calculated by subtracting the exercise
price of an option from the fair market value of the underlying Common
Stock. For purposes of this table, fair market value is deemed to be
$25.9375, the closing price of the Common Stock reported for the New York
Stock Exchange on December 31, 1997.
REPORT ON EXECUTIVE COMPENSATION
This report is presented to describe the compensation policies applied by
the Executive Compensation Committee of the Board of Directors with regard to
the Company's executive officers and the basis for the compensation of John
Price, Chief Executive Officer of the Company, for the year 1997.
Compensation Philosophy. The Company's compensation program for executive
officers is based upon a desire to achieve both its short-term and long-term
business goals and strategies with a view to enhancing stockholder value. To
achieve its goals, the Company recognizes that it must adopt a compensation
program which will attract, retain and motivate qualified and experienced
executive officers and that its compensation program should align the
financial interests of its executive officers with those of its stockholders.
Compensation of Executive Officers (other than the Chief Executive Officer).
Each year, the Executive Compensation Committee reviews the compensation of
each executive officer of the Company for the previous year. In approving the
1997 annual salary for each of the executive officers, the Executive
Compensation Committee considered several factors, including the individual's
salary for the previous year, the individual's anticipated bonus (if any) for
the previous year, the scope of the individual's responsibilities, the
recommendations of management as to salary and bonus formula for the
subsequent year, the Company's historical financial results and the Company's
anticipated financial performance. The compensation determination for each
individual was largely subjective, and no specific weight was given to any
particular factor. In addition to their base salaries, these executive
officers of the Company are eligible to participate in the Management
Incentive Compensation Plan described below and to receive discretionary
bonuses tied to their individual performances and the overall performance of
the Company.
Compensation of Chief Executive Officer. The Executive Compensation
Committee determined the 1997 annual salary for John Price, Chief Executive
Officer of the Company, based upon a number of factors and criteria, including
the Company's historical financial results, the Company's anticipated
financial performance and the requirements of Mr. Price. As Chief Executive
Officer of the Company, Mr. Price is also eligible to participate in the
Management Incentive Compensation Plan described below and to receive
discretionary bonuses tied to his individual performance and the overall
performance of the Company.
1993 Stock Option Plan. The Company believes that providing executive
officers with opportunities to acquire significant equity stakes in its growth
and prosperity through the grant of stock options will enable the Company to
attract and retain qualified and experienced executive officers. Stock options
represent a valuable portion of the compensation program for the Company's
executive officers. Stock options are generally awarded to executive officers
at the time that they join the Company and periodically thereafter. The
exercise price of stock options has thus been tied to the fair market value of
the Company's Common Stock on the date of the grant, and will only have value
if the value of the Common Stock increases. The size of the initial grants of
stock options made to the existing executive officers was determined in
connection with the formation of the Company. As of December 31, 1997, there
has been only one additional grant of stock options under the plan. Future
grants of stock options to executive officers will generally be made by the
Executive Compensation Committee upon the recommendation of management and be
based upon the level of each executive officer's position with the Company, an
evaluation of the executive officer's past and expected future performance,
the number of outstanding and previously granted options, and discussions with
the executive officer.
Management Incentive Compensation Plan. The Company established an incentive
compensation plan for its officers beginning in 1995. The plan provides that
each officer will earn a cash bonus for a calendar year equal to a percentage
of his annual base salary provided that funds from operations per share of
Common Stock increase at specified levels as compared to the previous year.
The Executive Compensation Committee will review the plan at the end of each
fiscal year to determine if it should be retained or revised to take into
consideration future developments.
Executive Compensation Committee
Warren P. King, Chairman
James A. Anderson
Sam W. Souvall
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John Price, Chief Executive Officer of the Company, is a director of Alta
Industries--Utah, Ltd.; Warren P. King, a Director of the Company and the
Chairman of the Executive Compensation Committee of the Company's Board of
Directors, is the President and Chief Executive Officer of Alta Industries--
Utah, Ltd.
SHARE PERFORMANCE GRAPH
The graph and table set forth below compare the cumulative total stockholder
return on the Company's Common Stock for the period of January 1994 through
December 1997, with the NAREIT Equity Retail REIT Total Return Index, the
NAREIT Equity Mall REIT Total Return Index and the S&P 500 Index for the same
period. The graph and table assume an investment of $100 in the Common Stock
and each index on or about January 21, 1994, the date trading of the Common
Stock commenced on the New York Stock Exchange, and the reinvestment of all
dividends.
[SHARE PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Jan. 31, 1994 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1996 Dec. 31,1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Retail REIT 100.00 99.45 104.53 140.70 164.54
- ----------------------------------------------------------------------------------------------------
Equity Mall REIT 100.00 105.42 108.58 157.73 179.33
- ----------------------------------------------------------------------------------------------------
S & P 500 Index 100.00 98.02 134.71 165.64 220.92
- ----------------------------------------------------------------------------------------------------
JP Realty, Inc. 100.00 123.11 144.80 184.74 198.40
- ----------------------------------------------------------------------------------------------------
</TABLE>
The foregoing Share Performance Graph and the Report on Executive
Compensation shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), except to the extent that the
Company specifically incorporates such graph or report by reference and shall
not otherwise be deemed filed under such acts.
There can be no assurance that the Company's share performance will continue
into the future with the same or similar trends depicted in the graph above.
The Company will not make or endorse any predictions as to future share
performance.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1998
regarding the beneficial ownership of the Company's Common Stock and Price
Group Stock with respect to (i) each person known to the Company to be the
beneficial owner of 5% or more of the Company's outstanding shares of Common
Stock and Price Group Stock; (ii) the Named Executive Officers; (iii) the
Company's directors; and (iii) all directors and executive officers of the
Company as a group.
BENEFICIAL OWNERSHIP TABLE(1)
<TABLE>
<CAPTION>
SHARES
NAME AND BUSINESS ADDRESS BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER OWNED SHARES
- --------------------------------------------- ------------ ----------
<S> <C> <C>
John Price(2)................................ 3,167,868 15.43%
Warren P. King(3)............................ 153,297 *
G. Rex Frazier(4)............................ 78,365 *
Paul K. Mendenhall(5)........................ 34,865 *
Sam W. Souvall(6)............................ 33,061 *
Allen P. Martindale(7)....................... 23,000 *
David R. Sabey(8)............................ 19,061 *
Thomas L. Mulkey(9).......................... 11,291 *
James A. Anderson(10)........................ 9,000 *
Albert Sussman(11)........................... 9,000 *
</TABLE>
<TABLE>
<CAPTION>
SHARES
NAME AND BUSINESS ADDRESS BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER OWNED SHARES
- --------------------------------------------- ------------ ----------
<S> <C> <C>
All Directors and Executive Officers
of the Company as a Group (13 Persons)....... 3,606,567 17.23
Fairfax Realty, Inc.(12)
35 Century Park-Way
Salt Lake City, Utah 84115................... 2,967,313 14.60
Fairfax Holding, L.L.C.(13)
35 Century Park-Way
Salt Lake City, Utah 84115................... 2,967,313 14.60
Cohen & Steers Capital Management, Inc.(14)
757 Third Avenue
New York, New York 10017..................... 2,198,600 12.50
Grantham, Mayo, Van Otterloo & Co., LLC(15)
40 Rowes Wharf
Boston, Massachusetts 02110.................. 1,502,500 8.54
The Equitable Companies Incorporated(16)
787 Seventh Avenue
New York, New York 10019..................... 1,321,100 7.50
</TABLE>
- --------
* An asterisk indicates ownership of less than 1%.
(1) For purposes of this table, a person is deemed to be the beneficial owner
of shares of Common Stock if that person has the right to acquire such
shares within 60 days of the Record Date by the exercise of any stock
option or any other right to convert or exchange outstanding securities.
The Company is the sole general partner of, and owns an 83% interest in,
the Operating Partnership. OP Units are exchangeable, at the option of
the holders thereof, for shares of Common Stock on a one-for-one basis
(subject to adjustment in the event of stock splits, dividends,
combinations or reclassifications). OP Units and stock options held by a
person are deemed to have been exchanged or exercised for the purpose of
computing the percentage of outstanding shares of Common Stock
beneficially owned by such person, but shall not be deemed to have been
exchanged or exercised for the purpose of computing the percentage of
outstanding shares of Common Stock beneficially owned by any other person.
The Company has the right to convert any outstanding shares of Price Group
Stock on a one-for-one basis into shares of Common Stock in the event that
the combined direct or indirect economic interest held by the Price Group
in the Operating Partnership falls below 10%. Even though such economic
interest held by the Price Group is not below the 10% level, for purposes
of this table, shares of Price Group Stock are deemed to be converted into
an equivalent number of shares of Common Stock. Additionally, for the
purposes of this table, a person or entity shall be deemed to be a
beneficial owner of shares of Common Stock if such person or entity has or
shares either investment or voting power with respect to such shares.
(2) Includes (i) 37,101 OP Units held by Mr. Price, (ii) 2,713,313 OP Units
and 200,000 shares of Price Group Stock held by Fairfax Holding, L.L.C., a
limited liability company in which Mr. Price holds an approximate 85%
direct and indirect interest ("Holding"), (iii) 4,454 OP Units held by
JPET, and (iv) options to purchase 159,000 shares of Common Stock. Mr.
Price, through his control of Holding and JPET, exercises sole investment
and voting power over the OP Units and shares of Price Group Stock held by
such entities and disclaims beneficial ownership of the OP Units held by
Holding and JPET, except to the extent of his approximate 85% interest in
Holding and his approximate 6% interest in JPET.
(3) Includes (i) 80,952 OP Units held by Mr. King, (ii) 16,008 OP Units held
by Mr. King's wife, Florence K. King, (iii) 29,337 OP Units held by W.P.
King & Co., a partnership in which Mr. King holds an approximate 8.5%
interest, and (iv) options to purchase 27,000 shares of Common Stock.
(4) Includes (i) 31,831 OP Units and (ii) options to purchase 43,515 shares of
Common Stock.
(5) Includes (i) 7,187 OP Units and (ii) options to purchase 27,143 shares of
Common Stock.
(6) Includes (i) 23,371 OP Units and (ii) options to purchase 9,000 shares of
Common Stock. Of the shares of Common Stock reported in the table, 2,300
shares are owned of record by S.W. Souvall Co., a partnership in which Mr.
Souvall and his wife each hold 2% general partner interests, and 2,300
shares are owned of record by Sary Enterprises, a partnership of which Mr.
Souvall and his wife are 11% and 3% owners, respectively. Mr. Souvall
disclaims beneficial ownership of the shares of Common Stock held by S.W.
Souvall Co. and Sary Enterprises, except to the extent of Mr. and Mrs.
Souvall's ownership interests therein.
(7) Includes options to purchase 1,000 shares of Common Stock.
(8) Includes (i) 1,595 OP Units and (ii) options to purchase 17,100 shares of
Common Stock.
(9) Includes (i) 3,291 OP Units and (ii) options to purchase 8,000 shares of
Common Stock.
(10) Includes options to purchase 9,000 shares of Common Stock.
(11) Includes options to purchase 3,000 shares of Common Stock.
(12) Includes 200,000 shares of Price Group Stock and 2,713,313 OP Units held
by Holding. Fairfax exercises shared investment and voting power with
respect to the OP Units held by Holding and disclaims beneficial
ownership of such OP Units, except to the extent of its approximate 44%
interest in Holding. All shares beneficially owned by Fairfax and Holding
are additionally identified as being beneficially owned by Mr. Price.
(13) Includes 200,000 shares of Price Group Stock and 2,713,313 OP Units, of
which 1,157,298 OP Units and 1,100,945 OP Units are additionally
identified as being beneficially owned by Mr. Price and Fairfax,
respectively.
(14) On its Schedule 13G filed with the Commission February 12, 1998, Cohen &
Steers Capital Management, Inc. reported sole voting power with respect
to 1,861,200 shares of Common Stock beneficially owned by them and sole
dispositive power with respect to 2,198,600 shares of Common Stock
beneficially owned by them.
(15) On its Schedule 13G filed with the Commission on January 21, 1998,
Grantham, Mayo, Van Otterloo & Co., LLC reported sole voting power and
sole dispositive power with respect to 1,502,500 shares of Common Stock
beneficially owned by them.
(16) On its Schedule 13G/A filed with the Commission February 17, 1998, The
Equitable Companies Incorporated, Alpha Assurances Vie Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage
Assurance Mutuelle and AXA-UA reported sole voting power with respect to
102,686 shares of Common Stock beneficially owned by them, shared voting
power with respect to 1,203,021 shares of Common Stock beneficially owned
by them, sole dispositive power with respect to 1,317,459 shares of
Common Stock beneficially owned by them and shared dispositive power with
respect to 3,721 shares of Common Stock beneficially owned by them.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT CONTRACTS
The Company provided third-party management services for certain properties
owned directly or indirectly by John Price, Chairman of the Board of Directors
and Chief Executive Officer of the Company, as follows: (i) an office building
in Salt Lake City, Utah, the owner of which paid the Company a management fee
of $105,000, $114,000 and $100,000 in 1997, 1996 and 1995, respectively
(Fairfax, a company which is wholly owned by John Price, is a general partner
of the owner of this building); (ii) a commercial building in Layton, Utah,
the owner of which paid the Company a management fee of $22,000, $21,000 and
$21,000 in 1997, 1996 and 1995, respectively; and (iii) a commercial building
in Salt Lake City, Utah, the owner of which paid the Company a management fee
of $1,900, $3,000 and $1,000 in 1997, 1996 and 1995, respectively (John Price
is the general partner of the owner of this building).
COMPUTER SERVICES
The Operating Partnership leases computer services from Alta Computer
Services, Inc. ("Alta Computer"). Alta Computer is majority owned by John
Price, Chairman of the Board of Directors and Chief Executive Officer of the
Company, Warren P. King, a Director of the Company, and Sam W. Souvall, a
Director of the Company. The Operating Partnership paid $200,000, $194,000 and
$196,000 in 1997, 1996 and 1995, respectively, for such services.
ACCOUNTING AND MANAGEMENT SERVICES
The Operating Partnership has entered into a management agreement under
which it performs certain accounting and management functions on behalf of
Fairfax. Management fees collected by the Operating Partnership under this
agreement totaled $72,000 for each of the three years ended December 31, 1997.
BOISE TOWNE SQUARE SETTLEMENT
On March 17, 1997, a settlement agreement was entered into by the Company,
Boise Mall Development Company, Ltd., a Utah partnership which is beneficially
owned by, among others, John Price (Chairman of the Board of Directors and
Chief Executive Officer of the Company), G. Rex Frazier (President and Chief
Operating Officer and a Director of the Company), Paul K. Mendenhall (Vice
President--Chief Investment Officer and Secretary of the Company), Martin G.
Peterson (Vice President--Administration of the Company), Greg Curtis (Vice
President--Management of the Company), Warren P. King (a Director of the
Company), Fairfax and JPET II Company, Ltd. (a limited partnership in which
John Price is the sole general partner ("JPET")) and which contributed Boise
Towne Square to the Company ("BMDC"), and the successor to the company that
owned a certain parcel adjacent to Boise Towne Square (the "Prior Owner"),
which parcel is believed to be the source of an environmental contaminant that
has been found to affect Boise Towne Square as well as certain other adjacent
parcels. The settlement agreement, which was approved by the unanimous vote of
the independent directors of the Board of Directors of the Company,
memorializes the final settlement of all claims that the Company and BMDC have
against the Prior Owner relating to the environmental condition existing at
Boise Towne Square. In connection with the settlement agreement, BMDC, which
retained all claims of an environmental nature with respect to Boise Towne
Square that it held on the date of the contribution of such property to the
Company received a cash payment totaling $4.5 million for its prior damages.
In addition, the Company received a cash payment of $1.1 million which is
intended to defray, based on independent studies of the condition, the
additional costs that may be incurred by the Company in any future expansion
of Boise Towne Square as result of such environmental condition and to
reimburse the Company for certain sums escrowed at the time of, and in
connection with, its formation and the closing of the IPO. In addition, the
Company has received from the Prior Owner a broad indemnification relating to
such environmental condition as well as covenant to complete the ongoing
remediation of such environmental condition.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statements Schedules
See Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 of this Form 10-K/A
(b) Reports on Form 8-K
None
(c) Exhibits
27
<PAGE>
ITEM 14A. SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE EXCHANGE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE EXCHANGE ACT
No annual report to security holders or any proxy statement, form of proxy
or other proxy solicitating material will be sent by the Registrant to security
holders.
28
<PAGE>
EXHIBIT INDEX
Description
-----------
Exhibit Page
Number Number
- ------ ------
4.1 Form of Debt Security (4.6)*
4.2 Indenture, dated March 11, 1998, by and between the Operating
Partnership and The Chase Manhattan Bank as trustee (4.8)*
4.3 First Supplemental Indenture, dated March 11, 1998, by and
between the Operating Partnership and The Chase Manhattan Bank
as trustee (4.9)*
10.1 Amended and Restated Agreement of Limited Partnership of Price
Development Company, Limited Partnership (10(a))**
10.2 Agreement of Limited Partnership of Price Financing Partnership,
L.P. (10(b))**
10.3 Loan Agreements related to Mortgage Debt and related documents
(10(c))**
i) Deed of Trust, Mortgage, Security Agreement and Assignment
of Leases and Rents of Price Financing Partnership, L.P.
ii) Intentionally Omitted
iii) Indenture between Price Capital Corp. and a Trustee
iv) Limited Guarantee Agreement (Guarantee of Collection)
for outside investors
v) Limited Guarantee Agreement (Guarantee of Collection) for
Price Group Investors
vi) Cash Collateral Account Security, Pledge and Assignment
Agreement among Price Financing Partnership, L.P., Price
Capital Corp. and Continental Bank N.A.
vii) Note Issuance Agency Agreement between Price Capital Corp.
and Price Financing Partnership, L.P.
viii)Management and Leasing Agreement among Price Financing
Partnership, L.P.and Price Development Company, Limited
Partnership
ix) Assignment of Management and Leasing Agreement of Price
Financing Partnership, L.P.
10.6 Registration Rights Agreement among the Company and the Limited
Partners of Price Development Company, Limited Partnership (10(g))**
10.7 Amendment No. 1 to Registration Rights Agreement, dated August 1,
1995, among the Company and the Limited Partners of Price
Development Company, Limited Partnership**
10.8 Exchange Agreement among the Company and the Limited Partners of
Price Development Company, Limited Partnership (10(h))**
10.10 Amendment to Groundlease between Price Development Company and Alvin
Malstrom as Trustee and C.F. Malstrom, dated December 31, 1985.
(Groundlease for Plaza 9400) (10(j))**
10.11 Lease Agreement between The Corporation of the President of the
Church of Jesus Christ of Latter Day Saints and Price-James
and Assumptions, dated September 24, 1979. (Groundlease for Anaheim
Plaza) (10(k))**
10.12 Indenture of Lease between Ambrose and Zelda Motta and Cordova
Village, dated July 26, 1974, and Amendments and Transfers thereto.
(Groundlease for Fort Union Plaza) (10(l))**
10.13 Lease Agreement between Advance Management Corporation and Price
Rentals, Inc. and dated August 1, 1975 and Amendments thereto.
(Groundlease for Price Fremont) (10(m))**
10.14 Groundlease between Aldo Rossi and Price Development Company, dated
June 1, 1989, and related documents. (Groundlease for Halsey
Crossing) (10(n))**
23. Consent of Independent Accountants 33
*Documents were previously filed with the Operating Partnership's Current
Report on Form 8-K dated March 12, 1998, under the exhibit numbered in
the parenthetical, and are incorporated herein by reference.
**Documents were previously filed with the Company's Registration Statement
on Form S-11, File No. 33-68844, under the exhibit numbered in the
parenthetical, and are incorporated herein by reference.
29
<PAGE>
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.
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
BY: JP Realty, Inc. as a General Partner
Date: May 8, 1998 By: /s/ M. Scott Collins
--------------------------
M. Scott Collins
Vice President - Chief
Financial Officer
30
<PAGE>
EXHIBIT INDEX
Description
-----------
Exhibit Page
Number Number
- ------ ------
4.1 Form of Debt Security (4.6)*
4.2 Indenture, dated March 11, 1998, by and between the Operating
Partnership and The Chase Manhattan Bank as trustee (4.8)*
4.3 First Supplemental Indenture, dated March 11, 1998, by and
between the Operating Partnership and The Chase Manhattan Bank
as trustee (4.9)*
10.1 Amended and Restated Agreement of Limited Partnership of Price
Development Company, Limited Partnership (10(a))**
10.2 Agreement of Limited Partnership of Price Financing Partnership,
L.P. (10(b))**
10.3 Loan Agreements related to Mortgage Debt and related documents
(10(c))**
i) Deed of Trust, Mortgage, Security Agreement and Assignment
of Leases and Rents of Price Financing Partnership, L.P.
ii) Intentionally Omitted
iii) Indenture between Price Capital Corp. and a Trustee
iv) Limited Guarantee Agreement (Guarantee of Collection)
for outside investors
v) Limited Guarantee Agreement (Guarantee of Collection) for
Price Group Investors
vi) Cash Collateral Account Security, Pledge and Assignment
Agreement among Price Financing Partnership, L.P., Price
Capital Corp. and Continental Bank N.A.
vii) Note Issuance Agency Agreement between Price Capital Corp.
and Price Financing Partnership, L.P.
viii)Management and Leasing Agreement among Price Financing
Partnership, L.P.and Price Development Company, Limited
Partnership
ix) Assignment of Management and Leasing Agreement of Price
Financing Partnership, L.P.
10.6 Registration Rights Agreement among the Company and the Limited
Partners of Price Development Company, Limited Partnership (10(g))**
10.7 Amendment No. 1 to Registration Rights Agreement, dated August 1,
1995, among the Company and the Limited Partners of Price
Development Company, Limited Partnership**
10.8 Exchange Agreement among the Company and the Limited Partners of
Price Development Company, Limited Partnership (10(h))**
10.10 Amendment to Groundlease between Price Development Company and Alvin
Malstrom as Trustee and C.F. Malstrom, dated December 31, 1985.
(Groundlease for Plaza 9400) (10(j))**
10.11 Lease Agreement between The Corporation of the President of the
Church of Jesus Christ of Latter Day Saints and Price-James
and Assumptions, dated September 24, 1979. (Groundlease for Anaheim
Plaza) (10(k))**
10.12 Indenture of Lease between Ambrose and Zelda Motta and Cordova
Village, dated July 26, 1974, and Amendments and Transfers thereto.
(Groundlease for Fort Union Plaza) (10(l))**
10.13 Lease Agreement between Advance Management Corporation and Price
Rentals, Inc. and dated August 1, 1975 and Amendments thereto.
(Groundlease for Price Fremont) (10(m))**
10.14 Groundlease between Aldo Rossi and Price Development Company, dated
June 1, 1989, and related documents. (Groundlease for Halsey
Crossing) (10(n))**
23. Consent of Independent Accountants 33
*Documents were previously filed with the Operating Partnership's Current
Report on Form 8-K dated March 12, 1998, under the exhibit numbered in
the parenthetical, and are incorporated herein by reference.
**Documents were previously filed with the Company's Registration Statement
on Form S-11, File No. 33-68844, under the exhibit numbered in the
parenthetical, and are incorporated herein by reference.
31
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 333-34835
and No. 333-34835-01) of Price Development Company, Limited Partnership of
our report dated February 4, 1998 appearing on page F-2 of this Form 10-K.
/s/ Price Waterhouse LLP
- --------------------
Price Waterhouse LLP
Salt Lake City, Utah
March 24, 1998
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
PAGE
----
Report of Independent Accountants F-2
Consolidated Balance Sheet as of December 31, 1997 and 1996 F-3
Consolidated Statement of Operations
for the years ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statement of Partners' Capital F-5
Consolidated Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts F-18
Schedule III - Real Estate and Accumulated Depreciation F-19
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
of Price Development Company, Limited Partnership
In our opinion, the consolidated financial statements listed in the
accompanying index, present fairly, in all material aspects, the financial
position of Price Development Company, Limited Partnership and its subsidiaries
at December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Salt Lake City, Utah
February 4, 1998
F-2
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
Real Estate Assets
Land $ 95,523 $ 69,714
Buildings 490,183 353,500
---------- ---------
585,706 423,214
Less: Accumulated Depreciation (98,404) (87,318)
---------- ---------
Operating Real Estate Assets 487,302 335,896
Real Estate Under Development 33,665 30,027
---------- ---------
Net Real Estate Assets 520,967 365,923
Cash 5,603 1,750
Restricted Cash 2,465 2,372
Accounts Receivable, Net 5,759 3,498
Deferred Charges, Net 7,536 6,512
Other Assets 3,354 1,305
---------- ---------
$ 545,684 $ 381,360
========== =========
LIABILITIES AND PARTNERS' CAPITAL
Borrowings $ 283,390 $ 162,375
Accounts Payable and Accrued Expenses 18,840 11,611
Accumulated Losses in Excess of Equity Investment -- 1,555
Other Liabilities 617 485
---------- ---------
302,847 176,026
---------- ---------
Minority Interests 1,830 668
---------- ---------
Commitments and Contingencies
PARTNERS' CAPITAL
General Partner 207,581 172,286
Limited Partners 33,426 32,380
---------- ---------
241,007 204,666
---------- ---------
$ 545,684 $ 381,360
========== =========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS - EXCEPT PER PARTNERSHIP UNIT AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
REVENUES
Minimum Rents $ 59,624 $ 52,447 $ 43,640
Percentage and Overage Rents 3,896 4,061 3,465
Recoveries from Tenants 18,199 15,557 12,252
Interest 546 549 1,231
Other 708 335 362
--------- --------- ----------
82,973 72,949 60,950
--------- --------- ----------
EXPENSES
Operating and Maintenance 12,990 11,240 8,288
Real Estate Taxes and Insurance 8,546 7,679 6,892
Advertising and Promotions 451 426 364
General and Administrative 5,447 5,060 4,845
Depreciation 11,802 10,230 9,610
Amortization of Deferred Financing Costs 969 1,085 1,256
Amortization of Deferred Leasing Costs 639 664 662
Interest 9,066 7,776 6,623
--------- --------- ----------
49,910 44,160 38,540
--------- --------- ----------
33,063 28,789 22,410
Minority Interest in Income of
Consolidated Partnerships (394) (389) (421)
Equity in Net Loss of Partnership Interest -- -- (184)
Gain on Sales of Real Estate 339 94 918
--------- --------- ----------
Income Before Extraordinary Item 33,008 28,494 22,723
Extraordinary Item - Loss on Extinguishment of Debt (162) -- --
--------- --------- ----------
Net Income $ 32,846 $ 28,494 $ 22,723
========= ========= ==========
Basic Earnings Per Partnership Unit:
Income Before Extraordinary Item $ 1.57 $ 1.45 $ 1.26
Extraordinary Item (.01) -- --
--------- --------- ----------
Net Income $ 1.56 $ 1.45 $ 1.26
========= ========= ==========
Diluted Earnings Per Partnership Unit:
Income Before Extraordinary Item $ 1.55 $ 1.44 $ 1.26
Extraordinary Item (.01) -- --
--------- --------- ----------
Net Income $ 1.54 $ 1.44 $ 1.26
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- --------- ----------
<S> <C> <C> <C>
Partners' Capital at December 31, 1994 $ 127,550 $ 35,523 $ 163,073
Units Issued for Proceeds from Sale of Common Stock 52,888 -- 52,888
Units Issued Upon Exercise of Stock Options 976 -- 976
Distributions (23,881) (6,037) (29,918)
Net Income 18,071 4,652 22,723
--------- --------- ----------
Partners' Capital at December 31, 1995 175,604 34,138 209,742
Units Issued Upon Exercise of Stock Options 407 -- 407
Conversion of Limited Partners' Interests 164 (164) --
Distributions (27,139) (6,838) (33,977)
Net Income 23,250 5,244 28,494
--------- --------- ----------
Partners' Capital at December 31, 1996 172,286 32,380 204,666
Units Issued for Proceeds from Sale of Common Stock 38,632 -- 38,632
Units Issued Upon Exercise of Stock Options 220 -- 220
Conversion of Limited Partners' Interests 40 (40) --
Units Issued for Acquisition -- 1,863 1,863
Distributions (30,797) (6,423) (37,220)
Net Income 27,200 5,646 32,846
--------- --------- ----------
Partners' Capital at December 31, 1997 $ 207,581 $ 33,426 $ 241,007
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 32,846 $ 28,494 $ 22,723
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 11,802 10,230 9,610
Amortization 1,608 1,749 1,918
Minority Interest in Income of Consolidated Partnerships 394 389 421
Equity in Net Loss of Partnership Interest -- -- 184
Gain on Sales of Real Estate (339) (94) (918)
Increase in Accounts Receivable (2,261) (786) (540)
Increase in Deferred Charges (1,128) (387) (1,428)
Increase in Accounts Payable and Accrued Expenses 3,368 3,774 887
Increase in Other Assets (1,917) (295) (138)
--------- --------- ---------
Net Cash Provided by Operating Activities 44,373 43,074 32,719
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Real Estate Assets, Developed or Acquired (137,560) (65,323) (69,300)
Proceeds from Sales of Real Estate 469 -- 1,281
(Increase) Decrease in Restricted Cash (93) 92 636
--------- --------- ---------
Net Cash Used in Investing Activities (137,184) (65,231) (67,383)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Borrowings 219,088 65,442 47,009
Repayment of Borrowings (123,320) (9,473) (49,344)
Deferred Financing Costs (1,503) -- --
Net Proceeds from Sale of Partnership Units 38,865 407 53,850
Capital Contributions by Minority Interests 1,000 -- --
Distributions to Partners (37,220) (33,977) (29,918)
Distributions to Minority Interests (246) (319) (258)
--------- --------- ---------
Net Cash Provided by Financing Activities 96,664 22,080 21,339
--------- --------- ---------
Net Increase (Decrease) in Cash 3,853 (77) (13,325)
Cash, Beginning of Period 1,750 1,827 15,152
--------- --------- ---------
Cash, End of Period $ 5,603 $ 1,750 $ 1,827
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
1. BUSINESS AND BASIS OF PRESENTATION
BUSINESS
Price Development Company, Limited Partnership (the "Operating
Partnership") a Maryland Limited Partnership, is engaged in the business of
owning, leasing, managing, operating, developing and redeveloping regional
malls, community centers and other commercial properties. The Operating
Partnership's general partner, JP Realty, Inc. ("the Company"), is a real
estate investment trust ("REIT") as defined by the Internal Revenue Code and
owns an interest in and conducts its business activities through the Operating
Partnership. The Company owned an 82.7 and 81.7 percent general partnership
interest in the Operating Partnership at December 31, 1997 and 1996,
respectively, which owns a portfolio of 48 properties consisting of 15 enclosed
regional malls, 25 community centers, two free-standing retail properties and
six mixed-use commercial properties. The tenant base includes primarily
national, regional and local retailers; as such, the Company's credit risk is
concentrated in the retail industry.
BASIS OF PRESENTATION
The accompany consolidated financial statements include the accounts of
the Operating Partnership and all controlled affiliates. During 1995, the
Operating Partnership used the equity method to account for a 30 percent
limited partnership interest in a partnership owning a regional mall.
Commencing in 1996, the Operating Partnership discontinued recording its
proportionate interest in the losses generated by this partnership, as it was
not required to fund such losses. During 1997, the Operating Partnership
acquired the remaining 70 percent interest in this partnership.
The effect of all significant intercompany balances and transactions
have been eliminated in the consolidated presentation. Certain amounts in the
1996 and 1995 financial statements have been reclassified to conform with the
1997 presentation.
The preparation of these financial statements in conformity with
generally accepted accounting principles required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
REAL ESTATE ASSETS
Real estate assets are stated at cost less accumulated depreciation. At
each balance sheet date, the Operating Partnership reviews book values of real
estate assets for possible impairment based upon expectations of future
nondiscounted cash flows (excluding interest) from each property.
Costs directly related to the acquisition and development of real estate
assets, including overhead costs directly attributable to property development
are capitalized. Interest and real estate taxes incurred during the
development and construction period are capitalized.
Depreciation is computed on a straight-line basis generally over 40
years for buildings and four to ten years for equipment and fixtures. Tenant
improvements are capitalized and depreciated on a straight-line basis over the
life of the related lease. Expenditures for maintenance and repairs are
charged to operations as incurred. Major replacements and betterments which
improve or extend the life of the asset are capitalized and depreciated over
their estimated useful lives.
F-7
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING (CONTINUED)
REVENUE RECOGNITION
Certain minimum rents are recognized monthly based upon amounts which are
currently due from tenants, when such amounts are not materially different than
recognizing the fixed cash flow over the initial term of the lease using the
straight-line method. All other minimum rents are recognized using the
straight-line method. Percentage rents are recognized monthly on an accrual
basis based on estimated annual amounts. The Operating Partnership receives
reimbursements from tenants for certain costs as provided in the lease
agreements. These costs consist of real estate taxes, insurance, common area
maintenance and other recoverable costs. Recoveries from tenants are
recognized monthly on an accrual basis based on estimated amounts.
An allowance for doubtful accounts has been provided against the portion
of tenant accounts receivable which is estimated to be uncollectible. Tenant
accounts receivable in the accompanying balance sheet are shown net of
allowance for doubtful accounts of $570 and $489 as of December 31, 1997 and
1996, respectively.
RESTRICTED CASH
Restricted cash reflects cash restricted under terms of a loan agreement
to be used for certain capital expenditures and funds held in reserve by a
trustee for interest payments on borrowings.
DEFERRED CHARGES
Deferred charges consists principally of financing fees and leasing
commissions paid to third parties. These costs are amortized on a straight-
line basis over the terms of the respective agreements. Deferred charges in
the accompanying consolidated balance sheet are shown net of accumulated
amortization of $5,857 and $6,064 as of December 31, 1997 and 1996,
respectively.
INCOME TAXES
Income taxes have not been provided in the accompanying financial
statements as the tax effects of the Operating Partnership's operations accrue
directly to the partners.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standards ("SFAS") No. 130 "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity
of a business enterprise during a period from transactions and other event and
circumstances from nonowner sources. The new standard becomes effective for
the Operating Partnership for the year ending December 31, 1998, and requires
comparative information from earlier years to be restated to conform to the
requirements of this standard. The Operating Partnership does not expect this
pronouncement to materially impact the presentation or form of its financial
statements.
F-8
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING (CONTINUED)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. This statement supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". The new standard becomes
effective for the Operating Partnership for the year ending December 31, 1998,
and requires that comparative information from earlier years be restated to
conform to the requirements of this standard.
3. ACQUISITIONS AND DEVELOPMENTS
ACQUISITIONS
On December 30, 1997, the Operating Partnership acquired Salem Center, a
mall located in Salem, Oregon for $32,500. The acquisition was financed
utilizing borrowings on its $200,000 unsecured credit facility.
On June 30, 1997, the Operating Partnership acquired Visalia Mall located
in Visalia, California for $38,000. The acquisition was financed principally
from borrowings.
On June 1, 1997, the Operating Partnership acquired the remaining 70%
interest in Silver Lake Mall, Ltd. a Limited Partnership owning Silver Lake
Mall located in Coeur d'Alene, Idaho. Prior to the acquisition, the Operating
Partnership held a 30% interest in the partnership. The acquisition was
financed by issuing 72,000 Operating Partnership Units ("OP Units") and
assuming debt totaling $24,755.
On April 4, 1996, the Operating Partnership acquired Grand Teton Mall
located in Idaho Falls, Idaho for approximately $34,400. The acquisition was
financed utilizing borrowings from a credit facility.
DEVELOPMENTS
The Operating Partnership through its consolidated partnership Spokane
Mall Development Company Limited Partnership, completed the development of
Spokane Valley Mall located in Spokane, Washington and held a grand opening on
August 13, 1997. The mall contains approximately 689,000 square feet of total
gross leasable area ("Total GLA"). The partnership expended a total of $57,855
for the development. At December 31, 1997, the Operating Partnership had
leased approximately 89% of the mall.
The Operating Partnership has initiated the development of Provo Towne
Centre, an enclosed regional mall in Provo, Utah through its consolidated
partnership Provo Mall Development Company, LTD. The mall will add
approximately 750,000 square feet of Total GLA. At December 31, 1997, the
partnership had expended $30,490 for development costs and anticipates
expending an additional $23,039 to complete the development during 1998.
F-9
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
4. BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Credit Facility, unsecured; weighted average interest at
6.75 percent during 1997 $ 127,000 $ --
Notes, secured by real estate; interest at 6.37 percent;
due in 2001 95,000 95,000
Construction Loan, secured by real estate; interest at
7.41 percent as of December 31, 1997, due in 1999 43,009 16,943
Mortgage payable, secured by real estate; interest at
8.5 percent, due in 2000 12,827 --
Other notes payable, secured by real estate; interest
ranging from 7.0 to 9.99; maturing 2000 to 2095 5,554 2,232
Credit Facility, secured by real estate; interest at
115 basis points over AAA commercial paper -- 44,000
Credit Facility, unsecured; interest at 175 basis points
over LIBOR -- 4,200
--------- ---------
$ 283,390 $ 162,375
========= =========
</TABLE>
CREDIT FACILITIES
On October 16, 1997, the Operating Partnership obtained a $150,000 three
year unsecured credit facility (the "1997 Credit Facility") from a group of
banks. On December 18, 1997, the amount was increase to $200,000. The
facility has a three year term and bears interest, at the option of the
Operating Partnership, at one, or a combination, of (i) the higher of the
federal funds rate plus 50 basis points or the prime rate, or (ii) LIBOR plus a
spread of 70 to 130 basis points. The LIBOR spread is determined by the
Operating Partnership's credit rating and/or leverage ratio. The 1997 Credit
Facility also includes a competitive bid option in the amount of $100,000 which
will allow the Operating Partnership to solicit bids for borrowings from the
bank group. The facility will be used for general purposes including
development, working capital, equity investments, repayment of amounts
outstanding under its other credit facilities, repayment of indebtedness and/or
amortization payments. The facility contains restrictive covenants including
limitations on the amount of secured and unsecured debt, and requires the
Operating Partnership to maintain certain financial ratios. At December 31,
1997, the Operating Partnership was in compliance with these covenants. For
the year ended December 31, 1997, the Operating Partnership paid commitment
fees totaling $50.
On November 7, 1997, the Operating Partnership borrowed $85,000 from the
1997 Credit Facility and utilized the proceeds to retire and cancel previously
existing credit facilities and to pay for development activities. Deferred
financing costs related to the canceled credit facilities were written-off
resulting in an extraordinary loss of $162. On December 29, 1997, the
Operating Partnership borrowed an additional $42,000 to pay for acquisition of
Salem Center (Note 3) and for development activities. At December 31, 1997 the
1997 Credit Facility had a balance of $127,000.
On March 8, 1995, the Operating Partnership entered into a $50,000
secured credit facility agreement which provided for a two year commitment with
an option to extend for an additional year (which option was exercised on
January 22, 1997). Borrowings under this agreement were collateralized by
certain real estate assets. The credit facility bore interest at a floating
rate equal to 115 basis points over the established rate of AAA commercial
paper and was guaranteed by the Company. For the year ended December 31, 1997
and 1996, the Operating Partnership paid commitment fees totaling $280 and
$200, respectively. On November 7, 1997, borrowings under this credit facility
were retired and the facility was canceled.
F-10
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
4. BORROWINGS (CONTINUED)
On January 22, 1996, the Operating Partnership entered into a $25,000
unsecured credit facility agreement which provided for a two year commitment
with an option to extend for an additional year (which option was exercised on
January 24, 1997). On October 6, 1997, the limit was raised to $40,000. For
the year ended December 31, 1997 and 1996, the Operating Partnership paid
commitment fees totaling $86 and $67, respectively. On November 7, 1997,
borrowings under this credit facility were retired and the facility was
canceled.
NOTES
On January 21, 1994, a subsidiary of the Operating Partnership issued
$95,000 in secured notes bearing interest at 6.37% per annum. The notes
require quarterly interest payments and a principal payment of $11,875 on
January 21, 2000 with the remaining balance due on January 21, 2001. The
subsidiary has an option to extend the notes to January 21, 2003.
CONSTRUCTION LOAN
On July 30, 1996, Spokane Mall Development Company Limited Partnership, a
consolidated partnership, of which the Operating Partnership is the general
partner, entered into a $50,000 construction facility. The loan bears interest
at a variable interest rate indexed to the LIBOR rate. The proceeds from this
facility have been used to fund the development and construction of the Spokane
Valley Mall in Spokane, Washington. The construction loan has a three year
term with an optional two year extension, is secured by the Spokane Valley Mall
and is guaranteed by the Operating Partnership. At December 31, 1997, the loan
had a balance of $43,009.
MORTGAGE PAYABLE
In June 1997, the Operating Partnership assumed a mortgage note of
$24,755 as part of the acquisition of Silver Lake Mall (Note 3) and retired
portions of the debt principally using borrowings under a credit facility. The
assumed debt bears interest at 8.5% per annum and has a maturity date of
October 1, 2000 when a balloon payment of $11,971 is due. At December 31, 1997
the loan had a balance of $12,827.
INTEREST RATE PROTECTION AGREEMENT
In December 1997, the Operating Partnership entered into an interest rate
protection agreement with a notional value of $100,000 and a forward yield of
5.74% based on the 10-year treasury note. This interest rate protection
agreement will be used to hedge the interest rate on an anticipated offering of
unsecured debt. At December 31, 1997, the fair value of this instrument, as
estimated by dealers was $0.
SCHEDULED PRINCIPAL REPAYMENTS
The following summarizes the scheduled maturities of borrowings at
December 31, 1997:
YEAR TOTAL
---- --------
1998 $ 560
1999 43,589
2000 151,145
2001 84,741
2002 41
Thereafter 3,314
--------
$283,390
========
F-11
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
5. CAPITAL TRANSACTIONS
The limited partners of the Operating Partnership have an option to
convert their OP Units into shares of the Company's common stock. The
Operating Partnership will issue an equivalent number of OP Units to the
Company as general partnership interests. In 1997, 4,000 OP Units were
converted into shares.
On January 28, 1997, the Company sold 1,500,000 shares of common stock in
an underwritten public offering at $27.13 per share. Net proceeds of $38,632
were contributed to the Operating Partnership in exchange for additional OP
Units and were principally used to repay indebtedness incurred by the Operating
Partnership to fund acquisition activities.
On August 7, 1995, the Company sold 2,750,000 shares of common stock in
an underwritten public offering at $20.50 per share. Net proceeds of $52,887
were contributed to the Operating Partnership in exchange for additional OP
Units and were principally used to repay indebtedness incurred by the Operating
Partnership to fund acquisition activities.
On June 1, 1997, the Operating Partnership issued 72,000 OP Units in the
acquisition of Silver Lake Mall (Note 3). The value of the OP Units at June 1,
1997 was $1,863 (Note 8).
6. RENTAL INCOME
Substantially all real estate held for investment is leased to retail and
commercial tenants under arrangements which generally require the tenants to
pay property taxes, insurance and maintenance charges. These operating leases
generally range from 1 to 25 years and provide for minimum monthly rents and in
certain instances percentage rents based on the tenants' sales.
All non-cancelable leases, assuming no new or renegotiated leases or
option extensions, in effect at December 31, 1997 provide for the following
minimum future rental income:
YEAR TOTAL
---- --------
1998 $ 54,604
1999 59,103
2000 53,420
2001 48,026
2002 41,316
Thereafter 243,117
--------
$ 499,586
========
F-12
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
7. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments under the terms of all non-cancelable
operating leases under which the Operating Partnership is the lessee,
principally for ground leases, are as follows:
YEAR TOTAL
---- --------
1998 $ 971
1999 983
2000 986
2001 998
2002 1,011
Thereafter 27,323
--------
$ 32,272
========
The Operating Partnership is a defendant in certain litigation relating
to its business activities. Management does not believe that the resolution of
these matters will have a materially adverse effect upon the Operating
Partnership.
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended December 31, 1997 and 1996, non-cash investing and
financing transactions included an increase in accounts payable of $3,861
related to development activities, the assumption of debt related to the
acquisition of Salem Center totaling $494 in December 1997, the assumption of
debt related to the acquisition of Silver Lake Mall totaling $24,755 in June
1997, and the write-off of capitalized tenant allowances of $406 and $159,
respectively. In addition, holders of OP Units elected to convert 4,000 and
16,000 OP Units, having a recorded value of $40 and $164, into common stock for
the years ended December 31, 1997 and 1996, respectively.
Interest paid (net of capitalized amounts of $3,509, $1,261 and $788, for
the years ended December 31, 1997, 1996 and 1995) aggregated $8,276, $7,707,
and $6,597, for the years ended December 31, 1997, 1996 and 1995, respectively.
Purchase of the remaining 70% interest in Silver Lake Mall, Ltd.:
72,000 Operating Partnership Units issued $ 1,863
Book value of 30% equity investment in Silver Lake Mall, Ltd. (1,555)
Debt assumed 24,755
---------
$ 25,063
=========
9. RELATED PARTY TRANSACTIONS
On January 2, 1996, the Operating Partnership purchased an interest in an
affiliated limited partnership for $1,200. The affiliated limited
partnership's only asset was its ownership in OP Units. In June 1996, the
affiliated limited partnership was liquidated and 66,000 OP Units were received
by the Operating Partnership in such liquidation. To account for this
transaction, the Operating Partnership recorded a reduction in minority
interest liability for the book value of the acquired partner's interest of
$705, and recognized the excess cost over book value of $495 as an asset on the
Operating Partnership's books. This excess cost is being amortized over 40
years.
The Operating Partnership leases computer services from Alta Computer
Services, Inc. ("Alta"). Alta is majority owned by three directors of the
Company. The Operating Partnership paid $200, $194 and $196 in 1997, 1996 and
1995, respectively, for such services.
F-13
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Operating Partnership has entered into a management agreement under
which the Operating Partnership performs certain accounting and management
functions on behalf of a company, whose majority owner is the Chairman of the
Board of Directors of the Company. Management fees collected by the Operating
Partnership under this agreement totaled $72 for each of the three years ended
December 31, 1997.
10. STOCK INCENTIVE PLAN
On October 26, 1993, the Company adopted the 1993 Stock Option Plan which
authorizes the discretionary grant by the Executive Compensation Committee, of
options intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code, to key employees of the Company and
the discretionary grant of nonqualified stock options to key employees,
directors and consultants of the Company. The maximum number of shares of
common stock subject to option under the Company's Plan is 1,100,000. The
proceeds received by the Company upon exercise of options are contributed to
the Operating Partnership in exchange for the issuance of an equivalent number
of OP Units. No stock options may be granted after ten years from the date of
adoption and options must be granted at a price generally not less than the
fair market value of the Company's common stock at the date of grant. These
options vest over a period of one to five years.
A summary of the Company's stock option plan is set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- --------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 558,000 $ 17.99 494,000 $ 17.56 550,000 $ 17.54
Granted 7,000 25.38 107,000 20.02 7,000 19.13
Exercised (12,000) 18.64 (22,000) 17.57 (55,000) 17.50
Forfeited -- -- (21,000) 18.85 (8,000) 17.50
------- ------- ------- -------------- -------
Outstanding at end of year 553,000* $ 18.07 558,000 $ 17.99 494,000 $ 17.56
======= ======= ======= ======= ======= =======
Exercisable at end of year 277,000 $ 17.87 178,000 $ 17.77 96,000 $ 17.83
======= ======= ======= ======= ======= =======
</TABLE>
* The weighted average remaining contractual life of options outstanding as of
December 31, 1997 was 8 years. The range of option prices was $17.50 to
$25.38 per share.
F-14
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
10. STOCK INCENTIVE PLAN (CONTINUED)
The Operating Partnership has applied Accounting Principals Board Opinion
25 and selected interpretations in accounting for the plan. Accordingly, no
compensation costs have been recognized. Had compensation costs for the plan
been determined based on the fair value at the grant date for options granted
in 1997, 1996 and 1995, respectively, in accordance with the method required by
SFAS 123, "Accounting for Stock-Based Compensation", the Operating Partnership
net income and net income per OP Unit would have been reduced to the proforma
amounts as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income
As reported $ 32,846 $ 28,494 $ 22,723
Proforma $ 32,800 28,451 22,707
Basic net income per OP Unit
As reported $ 1.56 $ 1.45 $ 1.26
Proforma 1.55 1.45 1.26
Diluted net income per OP Unit
As reported $ 1.54 $ 1.44 $ 1.26
Proforma 1.54 1.44 1.26
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Sholes options pricing model using the following assumptions:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Risk free interest rate 6.76% 5.50% 6.96%
Dividend yield 7.00% 7.00% 7.00%
Expected life 9 years 10 years 10 years
Expected volatility 16.50% 16.00% 20.00%
Weighted average per share
fair value of an option granted
during the year $ 2.53 $ 1.47 $ 2.34
</TABLE>
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan which permits participating
employees to defer up to a maximum of 15% of their compensation. The Company
matches 50% of the qualified employees' contributions up to a maximum of $1 per
employee each year. Employees working a minimum of 1,000 hours per year who
have completed at least one year of service and attained the age of 21 are
qualified to participate in the plan. The employees' contributions are
immediately vested. Additionally, the Company annually contributes 3% of base
salary to the plan for each qualified employee. Contributions from the
Company vest at 20% per year. The Company's contributions to the plan for the
years ended December 31, 1997, 1996 and 1995 were $225, $190, and $159,
respectively.
F-15
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information. Considerable judgment is
necessary to interpret market data and develop estimated fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Operating Partnership could realize on disposition of the
financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The carrying value of cash, accounts receivable, accounts payable and
accrued expenses at December 31, 1997 and 1996 are reasonable estimates of
their fair values because of the short maturity of these financial instruments.
Borrowings with an aggregate carrying value of $283,390 and $162,375 have
an estimated aggregate fair value of $283,533 and $158,287 at December 31, 1997
and 1996, respectively. Estimated fair value is based on interest rates
currently available to the Operating Partnership for issuance of borrowings
with similar terms and remaining maturities.
13. EARNINGS PER OP UNIT
Earnings per OP Unit have been computed pursuant to the provisions of
SFAS No. 128, "Earnings Per Share" which became effective after December 15,
1997; all periods prior thereto have been restated to conform with the
provisions of this Statement.
The following table provides a reconciliation of both income before
extraordinary items and the number of OP Units used in the computations of
"basic" earnings per OP Unit, which utilizes the weighted average number of OP
Units outstanding without regard to potentially dilutive OP Units and "diluted"
earnings per OP Units, which includes all such OP Units. Effect has been given
to the Company's Stock Option Plan (Note 10) since proceeds received by the
Company upon exercise of options are contributed to the Operating Partnership
in exchange for the issuance of an equivalent number of OP Units.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income (Numerator):
Before extraordinary item $ 33,008 $ 28,494 $ 22,723
--------- --------- ---------
Applicable to OP Units $ 33,008 $ 28,494 $ 22,723
========= ========= =========
Shares (Denominator):
Basic-average OP Units outstanding 21,119 19,668 18,037
Add: Dilutive effect of stock options 166 85 66
--------- --------- ---------
Diluted OP Units 21,285 19,753 18,103
========= ========= =========
Per OP Unit - Income before extraordinary
item:
Basic $ 1.57 $ 1.45 $ 1.26
--------- --------- ---------
Diluted $ 1.55 $ 1.44 $ 1.26
========= ========= =========
</TABLE>
Options to purchase 553,000, 558,000 and 494,000 shares of common stock
were outstanding at December 31, 1997, 1996 and 1995, respectively (Note 10),
a portion of which has been reflected above using the treasury stock method.
F-16
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial information for each of the quarters in the years ended
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- --------
YEAR ENDED
DECEMBER 31, 1997
- -----------------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 18,375 $ 18,617 $ 21,773 $ 24,208 $ 82,973
Income Before Extraordinary Item, Gain on
Sale of Real Estate and Minority Interest 7,555 8,137 8,230 9,141 33,063
Net Income 7,456 8,368 8,137 8,885 32,846
Basic Earnings Per OP Unit .36 .39 .38 .43 1.56
Diluted Earnings Per OP Unit .36 .39 .38 .41 1.54
Distributions Declared Per OP Unit .435 .435 .435 .45 1.755
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997 FIRST SECOND THIRD FOURTH TOTAL
- ----------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 16,942 $ 18,407 $ 18,497 $ 19,103 $ 72,949
Income Before Extraordinary Item, Gain on
Sale of Real Estate and Minority Interest 6,693 7,234 7,088 7,774 28,789
Net Income 6,696 7,068 7,059 7,671 28,494
Basic Earnings Per OP Unit .34 .36 .36 .39 1.45
Diluted Earnings Per OP Unit .34 .36 .36 .38 1.44
Distributions Declared Per OP Unit .420 .420 .420 .435 1.695
</TABLE>
15. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited proforma summary financial information for the
years ended December 31, 1997 and 1996, is presented as if the acquisitions of
Grand Teton Mall, Silver Lake Mall, Visalia Mall, Salem Center and the
additional common stock offering and additional units issued on January 22,
1997, had been consummated as of January 1, 1997 and January 1, 1996,
respectively:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues $ 92,602 $ 88,620
Income Before Extraordinary Item 33,858 31,531
Net Income 33,696 31,531
Basic Earnings Per OP Unit:
Income Before Extraordinary Item 1.59 1.48
Net Income 1.58 1.48
Diluted Earnings Per OP Unit:
Income Before Extraordinary Item 1.58 1.48
Net Income 1.57 1.48
</TABLE>
The proforma financial information summarized above is presented for
information purposes only and may not be indicative of what actual results of
operations would have been had the acquisitions and offering been completed as
of the beginning of the periods presented, nor does it purport to represent the
results of operations for future periods.
F-17
<PAGE>
SCHEDULE II
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO BALANCE AT
OF YEAR EXPENSE DEDUCTIONS END OF YEAR
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for uncollectible accounts $ 489 $ 346 $ 265 $ 570
Year ended December 31, 1996
Allowance for uncollectible accounts $ 504 $ 340 $ 355 $ 489
Year ended December 31, 1995
Allowance for uncollectible accounts $ 437 $ 258 $ 191 $ 504
</TABLE>
F-18
<PAGE>
SCHEDULE III
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
------------------------- SUBSEQUENT ----------------------------
RELATED BUILDING & TO BLDG. &
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROV. TOTAL(1)
----------- ------------ ---- -------------------------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MALLS:
Animas Valley Mall, Farmington, NM $ -- $ 3,902 $24,059 $ 28 $ 3,902 $24,087 $27,989
Boise Towne Square, Boise, ID 32,475 6,512 -- 37,045 6,512 37,045 43,557
Cache Valley Mall, Logan, UT 5,781 909 -- 8,419 909 8,419 9,328
Cottonwood Mall, Salt Lake City, UT 19,857 7,514 20,776 30,851 7,514 51,627 59,141
Eastridge Mall, Casper, WY -- 4,300 19,896 3,421 4,300 23,318 27,618
Grand Teton Mall, Idaho Falls, ID -- 5,802 28,614 92 5,802 28,706 34,508
North Plains Mall, Clovis, NM 5,472 1,592 -- 10,863 1,592 10,863 12,455
Pine Ridge Mall, Pocatello, ID 10,019 1,883 -- 21,566 1,883 21,566 23,449
Red Cliffs Mall, St. George, UT 6,132 903 -- 12,846 903 12,846 13,749
Salem Center Mall, Salem, OR -- 1,704 30,504 -- 1,704 30,504 32,208
Silver Lake Mall, Coeur d'Alene, ID 12,827 4,055 21,379 181 4,055 21,560 25,615
Spokane Valley Mall, Spokane, WA 43,009 6,645 34,341 16,869 6,645 51,210 57,855
Three Rivers Mall, Kelso, WA 10,175 1,977 -- 20,380 1,977 20,380 22,357
Visalia Mall, Visalia, CA -- 6,146 31,812 834 6,146 32,645 38,791
White Mountain Mall, Rock Springs, WY 5,083 1,120 -- 15,789 1,120 15,789 16,909
COMMUNITY CENTERS &
FREE-STANDING RETAIL:
Alameda Plaza, Pocatello, ID -- 500 -- 3,365 500 3,365 3,865
Anaheim Plaza, Anaheim, CA -- -- -- 54 -- 54 54
Austin Bluffs Plaza,
Colorado Springs, CO -- 1,488 -- 1,943 1,488 1,943 3,431
Bailey Hills Plaza, Eugene, OR -- 157 -- 317 157 317 474
Bank One, Nephi, UT -- 17 183 -- 17 183 200
Baskin Robbins 17th St.,
Idaho Falls, ID -- 9 67 7 9 74 83
Boise Plaza, Boise, ID -- 322 -- 1,382 322 1,382 1,704
Boise Towne Plaza, Boise, ID -- 3,316 4,243 1,049 3,316 5,292 8,608
Cottonwood Square, Salt Lake City, UT -- 1,926 3,535 -- 1,926 3,535 5,461
Division Crossing, Portland, OR -- 2,429 -- 4,483 2,429 4,483 6,912
Fort Union Plaza, Salt Lake City, UT -- 21 -- 1,673 21 1,673 1,694
Fremont Plaza, Las Vegas, NV -- -- -- 2,254 -- 2,254 2,254
Fry's Shopping Plaza, Glendale, AZ -- 353 -- 4,582 1,254 3,682 4,936
Gateway Crossing, Bountiful, UT -- 3,644 -- 8,480 3,644 8,480 12,124
ACCUMULATED DATE OF DATE DEPRECIABLE
DEPRECIATION CONSTRUCTION ACQUIRED LIVES-YEARS
- ------------ ------------ -------- -----------
<C> <C> <C> <C>
$ 1,518 -- 1995 40
12,455 1987-88 1985-86 5-40
4,209 1975-76 1973-75 10-40
18,048 1981-87 1980 4-40
1,321 -- 1995 40
1,252 -- 1996 40
3,409 1984-85 1979-84 10-40
7,916 1979-81 1979 10-40
2,913 1989-90 1989 3-40
-- -- 1997 40
293 -- 1997 40
475 1990-97 1990 40
4,971 1986-87 1984 10-40
397 -- 1997 40
6,053 1977-78 1977 40
1,837 1973 1973 40
30 1980-81 1979 40
594 1985 1979 3-40
51 1988-89 1988 40
140 -- 1976 40
18 -- 1988 40
900 1970-71 1970 40
15 1996-97 1996-97 40
177 -- 1995 40
813 1990-91 1990 20-40
628 1979-84 -- 40
1,132 1976-80 -- 40
1,544 1980-81 1980 40
1,052 1990-92 1990 40
</TABLE>
F-19
<PAGE>
SCHEDULE III
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED
INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD
-------------------- SUBSEQUENT -----------------------------
RELATED BUILDING & TO BLDG. &
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROV. TOTAL(1)
----------- ------------ ---- ------------ ----------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMUNITY CENTERS &
FREE-STANDING RETAIL (CONTINUED):
Halsey Crossing, Gresham, OR -- -- --2,302 -- 2,302 2,302
North Temple Shops, Salt Lake City, UT -- 60 --177 60 177 237
Orem Plaza Center Street, Orem, UT -- 371 330 1,091 344 1,448 1,792
Orem Plaza State Street, Orem, UT -- 126 --687 126 687 813
Plaza 800, Sparks, NV -- 33 2,969 38 33 3,007 3,040
Plaza 9400, Sandy, UT -- -- --4,514 -- 4,514 4,514
Red Cliffs Plaza, St. George, UT -- -- 2,403 -- -- 2,403 2,403
River Pointe Plaza, West Jordan, UT -- 1,130 --2,668 1,130 2,668 3,798
Riverside Plaza, Provo, UT -- 427 1,886 1,289 427 3,175 3,602
Twin Falls Crossing, Twin Falls, ID -- 125 --776 125 776 901
University Crossing, Orem, UT -- 230 --4,424 230 4,424 4,654
Woodlands Village, Flagstaff, AZ -- 2,068 5,329 228 2,068 5,557 7,625
Yellowstone Square, Idaho Falls, ID -- 355 --4,552 355 4,552 4,907
COMMERCIAL:
First Security Place, Boise, ID -- 300 --3,249 300 3,249 3,549
Price Business Center - Commerce Park,
West Valley City, UT -- 415 2,109 8,509 1,147 9,886 11,033
Price Business Center-Pioneer Square,
Salt Lake City, UT -- 658 --10,468 658 10,468 11,126
Price Business Center-South Main,
Salt Lake City, UT -- 317 --2,469 317 2,469 2,786
Price Business Center-Timesquare,
Salt Lake City, UT -- 581 --9,019 581 9,019 9,600
Sears-Eastbay, Provo, UT 1,927 275 --2,079 275 2,079 2,354
OTHER REAL ESTATE:
Provo Towne Centre, Provo, UT 3,000 13,829 16,661 -- 13,829 16,661 30,490
Miscellaneous Real Estate -- 3,471 17 7,029 3,471 7,045 10,516
-------- ------- -------- -------- ------- -------- --------
TOTAL $155,763 $93,917 $251,113 $274,341 $95,523 $523,848 $619,371
======== ======= ======== ======== ======= ======== ========
ACCUMULATED DATE OF DATE DEPRECIABLE
DEPRECIATION CONSTRUCTION ACQUIRED LIVES-YEARS
- ------------ ------------ -------- -----------
<C> <C> <C> <C>
492 1989-91 -- 4-40
83 1970 1970 40
592 1976-87 1973 10-40
345 1975 1973 29-40
1,665 1974 -- 40
1,916 1976-84 -- 10-40
195 1994-95 1994-95 40
727 1987-88 1986-87 5-40
1,461 1978-81 1977 40
407 1976 1975 40
1,681 1971-92 1971 40
455 -- 1994 40
2,554 1972-77 1972 40
1,471 1978-80 1978 10-40
1,349 1980 1973-95 40
3,311 1974-92 1973 3-40
1,298 1967-82 1966-81 3-40
3,544 1974-80 1972-80 5-40
457 1989-90 1989 40
-- 1997(2) 1997 40
240 -- 1980-95 40
-------
$98,404
=======
</TABLE>
- ---------------------------
(1) The aggregate cost for Federal Income Tax purposes was approximately
$642,645 at December 31, 1997.
(2) Construction in progress as of December 31, 1997.
F-20
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
A summary of activity for real estate investments and accumulated
depreciation is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Real Estate Investments:
Balance at Beginning of Year $ 453,241 $ 388,205 $ 321,242
Acquisitions 96,615 37,055 59,081
Improvements 69,921 28,268 9,903
Disposition of Property (406) (287) (2,021)
--------- --------- ---------
Balance at End of Year $ 619,371 $ 453,241 $ 388,205
========= ========= =========
Accumulated Depreciation:
Balance at Beginning of Year $ 87,318 $ 77,462 $ 69,660
Depreciation 11,492 10,015 9,386
Depreciation of Disposed Property (406) (159) (1,584)
--------- --------- ---------
Balance at End of Year $ 98,404 $ 87,318 $ 77,462
========= ========= =========
</TABLE>
F-21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,603
<SECURITIES> 0
<RECEIVABLES> 6,329
<ALLOWANCES> (570)
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0<F2>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 545,684
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 241,007
<TOTAL-LIABILITY-AND-EQUITY> 545,684
<SALES> 0
<TOTAL-REVENUES> 82,973
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 40,844<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,066
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (162)
<CHANGES> 0
<NET-INCOME> 32,846
<EPS-PRIMARY> $1.56
<EPS-DILUTED> $1.54
<FN>
<F1>The financial statements reflect an unclassified balance sheet due to the
nature of the Company's industry - Real Estate.
<F2>The Company utilizes a condensed balance sheet format for 10-k reporting.
Amounts are included in Other Assets.
<F3>Amount is comprised of $49,910 of expenses less interest expense of $9,066
reflected elsewhere in this Financial Data Schedule.
</FN>
</TABLE>
