UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
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MARYLAND 87-0516235
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(State of organization) (I.R.S. Employer Identification No.)
35 CENTURY PARK-WAY (801) 486-3911
SALT LAKE CITY, UTAH 84115 ----------------------------------
--------------------------- (Registrant's telephone number,
(Address of principal executive offices) inlcluding area code)
</TABLE>
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 No
[X]
<PAGE>
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
FORM 10-Q
INDEX
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PART I: FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements 3
Condensed Consolidated Balance Sheet as of March 31, 1999
and December 31, 1998 4
Condensed Consolidated Statement of Operations for the Three Months
Ended March 31, 1999 and 1998 5
Condensed Consolidated Statement of Cash Flows
for the Three months Ended March 31, 1999 and 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II: OTHER INFORMATION
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Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE> 2
Certain matters discussed under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Quantitative and
Qualitative Disclosures About Market Risk" and elsewhere in the Quarterly
Report on Form 10-Q and the information incorporated by reference herein may
constitute forward-looking statements and as such may involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance and achievements of Price Development Company, Limited Partnership
to be materially different from future results, performance or achievements
expressed or implied by such forward-looking statements.
PART I
ITEM 1. FINANCIAL STATEMENTS
The information furnished in the accompanying financial statements listed
in the index on page 2 of this Quarterly Report on Form 10-Q reflects only
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the aforementioned financial statements for the
interim periods.
The aforementioned financial statements should be read in conjunction with
the notes to the financial statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations and Price Development Company,
Limited Partnership's Annual Report on Form 10-K for the year ended December
31, 1998, including the financial statements and notes thereto.
<PAGE> 3
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
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<CAPTION>
(UNAUDITED)
---------
MARCH 31, DECEMBER 31,
1999 1998
---------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real Estate Assets, Including Assets Under Development
of $22,358 and $28,073 $ 825,468 $ 815,756
Less: Accumulated Depreciation (119,005) (114,136)
----------------- ---------------
Net Real Estate Assets 706,463 701,620
Cash 7,071 5,123
Restricted Cash 4,284 3,605
Other Assets 20,504 22,807
----------------- ---------------
$ 738,322 $ 733,155
================= ===============
LIABILITIES AND PARTNERS' CAPITAL
Borrowings $ 472,264 $ 472,990
Accounts Payable and Accrued Expenses 17,093 20,411
Distributions Payable 9,894 --
Other Liabilities 781 798
----------------- ---------------
500,032 494,199
----------------- ---------------
Minority Interest 3,042 2,035
Commitments and Contingencies ----------------- ---------------
Partners' Capital
General Partner 203,004 204,384
Limited Partner 32,244 32,537
----------------- ---------------
235,248 236,921
----------------- ---------------
$ 738,322 $ 733,155
================= ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT AMOUNTS)
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<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
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<S> <C> <C> <C> <C> <C>
1999 1998
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Revenues
Minimum Rents $ 24,954 $ 17,911
Percentage and Overage Rents 1,002 1,070
Recoveries from Tenants 6,768 5,340
Interest 123 89
Other 142 93
---------------- ----------------
32,989 24,503
---------------- ----------------
Expenses
Operating and Maintenance 5,446 4,166
Real Estate Taxes and Insurance 3,308 2,640
General and Administrative 1,794 1,574
Depreciation 5,247 3,646
Amortization of Deferred Financing Costs 423 259
Amortization of Deferred Leasing Costs 168 167
Interest 7,359 3,958
---------------- ----------------
23,745 16,410
---------------- ----------------
9,244 8,093
Minority Interest in Income of Consolidated Partnerships (1,023) (102)
---------------- ----------------
Net Income $ 8,221 $ 7,991
================ ================
Basic Earnings Per Partnership Unit $ 0.39 $ 0.38
================ ================
Diluted Earnings Per Partnership Unit $ 0.38 $ 0.37
================ ================
Basic Weighted Average Number of Partnership Units Outstanding 21,318 21,290
Add: Diluted Effect of Stock Options 37 146
---------------- ----------------
Diluted Weighted Average Number of Partnership Units Outstanding 21,355 21,436
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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<CAPTION>
For the Three Months Ended March 31,
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1999 1998
-------------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 13,218 $ 14,746
-------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Real Estate Assets, Developed or Acquired,
Net of Accounts Payable (9,719) (15,494)
(Increase) Decrease in Restricted Cash (679) 124
-------------------- ------------------
Net Cash Used in Investing Activities (10,398) (15,370)
-------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Borrowings 10,427 101,940
Repayment of Borrowings (11,153) (99,125)
Proceeds from Sale of Partnership Units -- 492
Distributions to Minority Interests (16) (71)
Deferred Financing Costs (130) (1,228)
-------------------- -----------------
Net Cash (Used in) Provided by Financing Activities (872) 2,008
-------------------- -----------------
Net Increase in Cash 1,948 1,384
Cash, Beginning of Period 5,123 5,603
-------------------- -----------------
Cash, End of Period $ 7,071 $ 6,987
==================== =================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT DATA)
1. BUSINESS SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES
Price Development Company, Limited Partnership (the "Operating
Partnership") is primarily engaged in the business of owning, leasing,
managing, operating, developing and redeveloping malls, community centers and
other commercial properties. The tenant base includes primarily national retail
chains and local retail companies. Consequently, the credit risk is
concentrated in the retail industry. JP Realty, Inc., a Maryland corporation
(the "Company"), is the sole general partner of the Operating Partnership. The
Company conducts all of its business operations through, and holds an 83%
controlling general partner interest in, the Operating Partnership. Since
there are no material differences between the Company and the Operating
Partnership they will be collectively referred to as the "Company" unless the
text requires otherwise.
The interim financial data for the three-months ended March 31, 1999 and
1998 is unaudited; however, in the opinion of the Company, the interim
financial data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods.
On April 1, 1998, the Company stopped accruing revenues for percentage and
overage rents based upon the adoption of Emerging Issues Task Force Issue 98-9.
In 1999, the Company started accruing these revenues again on a straight-line
basis and will continue to do so as allowed by the Emerging Issues Task Force
in late 1998.
2. BORROWINGS
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MARCH 31,
<S> <C> <C> <C>
1999
----------------
Notes, unsecured; interest at 7.29%, maturing 2005 to 2008 $ 100,000
Credit facility, unsecured; weighted average interest at 5.9%
during 1999 91,600
Notes, secured by real estate; interest at 6.37%, due in 2001 95,000
Mortgage payable, secured by real estate; interest at 6.68%,
due in 2008 84,068
Construction loan, secured by real estate; interest at 6.45%
as of March 31, 1999, due in 1999 47,505
Construction loan, secured by real estate; interest at 6.44%
as of March 31, 1999, due in 2001 36,377
Mortgage payable, secured by real estate; interest at 8.5%,
due in 2000 12,427
Other notes payable, secured by real estate; interest ranging
from 7.0% to 9.99% maturing 2000 to 2095 5,287
----------------
$ 472,264
================
</TABLE>
During the first quarter of 1999, a draw in the amount of $8,827 was made
on the construction loan facility collateralized by Provo Towne Centre. The
proceeds along with operating cash were used to reduce the Operating
Partnership's unsecured credit facility by $9,200.
The Operating Partnership extended its $10,000 unsecured line of credit
for 60 days to May 15, 1999. The fee to extend the unsecured line was $3.
<PAGE> 7
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT DATA)
3. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma summary financial information for the
three months ended March 31, 1999 and 1998, is presented as if the acquisition
of NorthTown Mall had been consummated as of January 1, 1998.
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FOR THE THREE MONTHS ENDED MARCH 31,
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1999 1998
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Total Revenues $ 32,989 $ 28,252
Net Income $ 6,837 $ 6,549
Basic Earnings Per Partnership Unit Share $ 0.39 $ 0.37
Diluted Earnings Per Partnership Unit Share $ 0.39 $ 0.37
</TABLE>
The pro forma 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 acquisition been completed as of the
beginning of the periods presented, nor does it purport to represent the
results of operations for future periods.
4. PARTNERS' CAPITAL
The following table summarizes changes in partners' capital since December
31, 1998:
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General LIMITED
Partner PARTNER TOTAL
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Partners' Capital at December 31, 1998 204,384 $ 32,537 $ 236,921
Conversion of Limited Partners' Interests 2 (2) --
Distributions Accrued (8,184) (1,710) (9,894)
Net Income 6,802 1,419 8,221
-------------- -------------- -----------
Partners' Capital at March 31, 1999 $ 203,004 $ 32,244 $ 235,248
============== ============== ===========
</TABLE>
5. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131. The prior years' information
has been restated to present the Operating Partnership's three reportable
segments - 1) regional malls, 2) community centers, and 3) commercial
properties in conformity with SFAS No. 131.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." Segment data includes total
revenues and property net operating income (revenues less operating and
maintenance expense and real estate taxes and insurance expense ("Property
NOI")). The Operating Partnership evaluates the performance of its segments
and allocates resources to them based on Property NOI.
The regional mall segment consists of 17 regional malls in seven states
containing approximately 9,810,000 square feet of total gross leasable area
("GLA") and which range in size from approximately 296,000 to 1,171,000 square
feet of total GLA.
<PAGE> 8
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT DATA)
5. SEGMENT INFORMATION (CONTINUED)
The community center segment consists of 25 properties in seven states
containing over 3,185,000 square feet of total GLA and two freestanding retail
properties containing approximately 5,000 square feet of GLA.
The commercial properties include six mixed-use commercial/business
properties with 38 commercial buildings containing approximately 1,354,000
square feet of GLA which are located primarily in the Salt Lake City, Utah area
where the Company's headquarters is located.
The table below presents information about the Operating Partnership's
reportable segments for the quarter ending March 31:
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REGIONAL COMMUNITY COMMERCIAL
MALLS CENTERS PROPERTIES OTHER TOTAL
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1999
- -----
Total Revenues $ 24,681 $ 6,360 $ 1,724 $ 224 $ 32,989
Property Operating Expenses (1) 7,350 1,000 404 -- 8,754
--------- ------------ ---------- --------- ---------
Property NOI (2) 17,331 5,360 1,320 224 24,235
Unallocated Expenses (3) -- -- -- 14,991 14,991
Unallocated Minority Interest (4) -- -- -- 2,407 2,407
Consolidated Net Income -- -- -- -- 6,837
Additions to Real Estate Assets 6,592 2,625 469 26 9,712
Total Assets (5) 608,273 81,993 31,152 16,904 738,322
1998 18,001 4,375 1,950 177 24,503
Total Revenues
Property Operating Expenses (1) 5,471 961 374 -- 6,806
--------- ------------ ---------- --------- ---------
Property NOI (2) 12,530 3,414 1,576 177 17,697
Unallocated Expenses (3) -- -- -- 9,604 9,604
Unallocated Minority Interest (4) -- -- -- 1,451 1,451
Unallocated Other (5) -- -- -- -- --
Consolidated Net Income -- -- -- -- 6,642
Additions to Real Estate Assets 8,675 2,746 191 -- 11,612
Total Assets (5) 431,404 82,661 31,802 10,718 556,585
</TABLE>
- ----------------------------
(1) Property operating expenses consist of operating, maintenance, real
estate taxes and insurance as listed in the condensed consolidated
statement of operations.
(2) Total revenues minus property operating expenses.
(3) Unallocated expenses consist of general and administrative,
depreciation, amortization of deferred financing costs, amortization of
deferred leasing costs and interest as listed in the condensed
consolidated statement of operations.
(4) Unallocated minority interest includes minority interest in income of
consolidated partnerships and minority interest of the Operating
Partnership unitholders as listed in the condensed consolidated
statement of operations.
(5) Unallocated other total assets include cash, corporate offices,
miscellaneous real estate and deferred financing costs.
<PAGE> 9
PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT DATA)
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Price James, a Consolidated Partnership of the Operating Partnership,
received a building appraised at $2,000 in exchange for accounts receivable of
$43 and $1,957 for termination of a long-term ground lease which amount was
recorded in minimum rents.
Holders of Operating Partnership units elected to convert 200 and 125
Operating Partnership units having a recorded value of $2 and $1, respectively,
into common stock during the three months ended March 31, 1999 and 1998,
respectively.
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MARCH 31, MARCH 31,
1999 1998
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SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
The following non-cash transactions occurred:
Distributions Accrued For General Partner Not Paid $ 8,184 $ 7,910
Distributions Accrued For Limited Partners Not Paid $ 1,710 $ 1,655
</TABLE>
<PAGE> 10
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Operating Partnership and the Notes
thereto appearing elsewhere herein.
JP Realty, Inc. is a fully integrated, self-administered and self-managed
REIT primarily engaged in the ownership, leasing, management, operating,
development, redevelopment and acquisition of retail properties in Utah, Idaho,
Colorado, Arizona, Nevada, New Mexico and Wyoming (the "Intermountain Region"),
as well as in Oregon, Washington and California. JP Realty, Inc. conducts all
of its business operations through, and held an 83% controlling general partner
interest in, Price Development Company, Limited Partnership ("the Operating
Partnership") as of March 31, 1999. The Operating Partnership's existing
portfolio consists of 50 properties, in three operating segments, including 17
enclosed regional malls, 25 community centers together with two freestanding
retail properties and six mixed-use commercial properties.
The Operating Partnership's operations before depreciation were
positively impacted by the August 1998 acquisition of NorthTown Mall as well as
its development activities which added a combined 1,028,000 square feet of
gross leasable area ("GLA") to the retail portfolio, 15,000 in March 1998,
491,000 in August 1998, and 522,000 in October 1998.
JP Realty, Inc. together with the Operating Partnership and its other
subsidiaries, shall be referred to herein as (the "Company").
CHANGE IN REVENUE RECOGNITION POLICY
On April 1, 1998, the Company stopped accruing revenues for percentage
and overage rents based upon the adoption of Emerging Issues Task Force Issue
98-9. In 1999, the Company started accruing these revenues again on a straight-
line basis and will continue to do so as allowed by the Emerging Issues Task
Force in late 1998.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH
31, 1998 (DOLLARS IN THOUSANDS)
Total revenues for the three months ended March 31, 1999 increased $8,486
or 35% to $32,989 as compared to $24,503 in 1998. This increase is primarily
attributable to a $7,043 or 39% increase in minimum rents to $24,954 as
compared to $17,911 in 1998. Additionally, percentage and overage rents
decreased $68 or 6% to $1,002 as compared to $1,070 in 1998. The decrease in
percentage and overage rents is the result of a lease change with an anchor
tenant at Boise Towne Square where minimum rents were increased and percentage
and overage rents decreased.
The August 1998 acquisition of NorthTown Mall, the August expansion of
Boise Towne Square, the October 28, 1998 opening of Provo Towne Centre, the
October 1998 addition of Sears to Red Cliffs Mall and Sears Tire and Battery to
Red Cliffs Plaza, contributed $4,364 to the minimum rent increase and $112 to
percentage and overage rents. Minimum rents increased $1,957 from a non-cash
transaction in which a consolidated partnership of the Operating Partnership
received a building in exchange for cancellation of a long-term ground lease.
The additional $722 increase in minimum rents was the result of increases
experienced for the balance of the property portfolio.
Revenues recognized from straight-line rents were $280 in 1999 and $184
in 1998.
Recoveries from tenants increased $1,428 or 27% to $6,768 as compared to
$5,340 in 1998. Property operating expenses, including operating and
maintenance, and real estate taxes and insurance increased $1,280 or 31% and
$668 or 25% respectively. The acquisition of NorthTown Mall, the opening of
Provo Towne Centre and the expansion of Boise Towne Square contributed $1,264
to recoveries from tenants, $1,284 to property operating expenses, including
operating and maintenance, and $590 to real estate taxes and insurance.
Recoveries from tenants as a percentage of property operating expenses were 77%
compared to 78% in 1998.
Depreciation and amortization increased $1,766 or 43% to $5,838 as
compared to $4,072 in 1998. This increase is primarily due to the acquisition
of NorthTown Mall and the increase in newly developed GLA.
<PAGE> 11
Interest expense increased $3,401 or 86% to $7,359 as compared to $3,958
in 1998. This increase resulted from additional borrowings used to acquire
NorthTown Mall and used for newly constructed GLA. Interest capitalized on
projects under development was $505 in 1999 as compared to $873 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal uses of its liquidity and capital resources have
historically been for distributions, property acquisitions, 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"), JP Realty, Inc. is required to distribute to its shareholders at
least 95% of its "Real Estate Investment Trust Taxable Income," as defined in
the Code. During the quarter ended March 31, 1999, the Company declared a
distribution of $.465 per share payable April 20, 1999 to the shareholders and
unitholders of record as of April 6, 1999.
The Company's principal source of liquidity is its cash flow from
operations generated from its real estate investments. As of March 31, 1999,
the Company's cash and restricted cash amounted to approximately $11.4 million.
In addition to its cash and restricted cash, unused capacity under its credit
facilities at March 31, 1999, totaled $108.9 million.
The Company expects to meet its short-term cash requirements, including
distributions, recurring capital expenditures related to maintenance and
improvement of existing properties, through undistributed funds from
operations, cash balances and advances under the credit facilities.
The Company's principal long-term liquidity requirements will be the
repayment of principal on the Spokane Valley Mall construction loan of
approximately $47.5 million which is due in July 1999 and which the Company
intends to convert to permanent financing in 1999, the $95 million mortgage
debt, which matures in 2001 and which requires principal payments in an amount
necessary to reduce the debt to $83.1 million as of January 21, 2000, the
repayment of the $100 million senior notes principal payable at $25 million a
year starting in March 2005, the repayment of the $84.5 million first mortgage,
which requires a balloon payment of approximately $73 million in September
2008, and the repayment of outstanding balances under the $200 million credit
facility.
The Operating Partnership is continuing the development of Provo Towne
Centre, an enclosed regional mall in Provo, Utah through its Consolidated
Partnership, Provo Mall Development Company, Ltd. On September 4, 1998, Provo
Mall Development Company, Ltd. entered into a $50 million construction loan
facility to meet its development and construction needs regarding the Provo
project. The construction loan facility is guaranteed by the Operating
Partnership. The Provo project has incurred costs of approximately $66.7
million as of March 31, 1999, which have been funded from the Company's credit
facilities and the construction loan facility. As of March 31, 1999, borrowings
on the construction loan facility were approximately $36.4 million. This
property will also represent a future long-term capital need for the Company,
as the total costs of the project are estimated to be approximately $77
million. The Company expects to fund this project through advances under its
credit facilities in combination with its construction loan facility. Provo
Towne Centre opened October 28, 1998 and contains approximately 723,300 square
feet of total GLA.
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 credit facilities
together with equity and debt offerings and individual property financing. The
availability of such financing will influence the Company's decision to proceed
with, and the pace of, its development and acquisition activities.
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,
pursuant to this registration statement, the Operating Partnership issued $100
million of ten-year senior unsecured notes bearing annual interest at a rate of
7.29%. The Operating Partnership had entered into an interest rate protection
agreement in anticipation of issuing these notes and received $270 as a result
of terminating this agreement making the effective rate of interest on these
notes 7.24%. Interest payments are due semi annually on March 11th and
September 11th of each year. Principal payments of $25 million are due
annually beginning March 2005. The proceeds were used to partially repay
outstanding borrowings under the credit facility.
<PAGE> 12
The Company intends to incur additional borrowings in the future in a
manner consistent with its policy of maintaining a conservative ratio of debt-
to-total market capitalization. The Company's ratio of debt-to-total market
capitalization was approximately 53% at March 31, 1999.
YEAR 2000 ISSUES
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, date-sensitive
computer software may recognize a date using "00" as the year 1900 rather than
the year 2000. This is generally referred to as the Year 2000 ("Y2K") issue.
If this situation occurs, the potential exists for computer system failures or
miscalculations by computer programs, which could disrupt the Company's
operations.
The Company has developed a comprehensive strategy for updating its systems
for Y2K compliance. The Company's information technology ("IT") systems
include software and hardware purchased from outside vendors, as well as in-
house developed software. The Company believes that vendor developed software
and hardware will be made Y2K compliant through vendor-provided updates or
replacement with other Y2K compliant software and hardware that will be
installed, tested and in use prior to the end of 1999. In-house developed
software has been identified and assessed. Modifications are being and will
continue to be made as necessary to bring such software into Y2K compliance and
validate such in-house developed compliance prior to the end of 1999.
The Company believes that the identification of a significant majority of
the Company's non-IT systems which may be impacted by the Y2K problem,
including those relating to property management (e.g. alarm systems and HVAC
systems) has been completed, and that modifications, validation and
implementation of necessary changes will be completed during 1999.
The Company is also identifying third parties with which it has a
significant relationship that, in the event of a Y2K failure, could have a
material impact on its financial position or operating results. Third parties
include energy and utility suppliers, creditors, service and product suppliers
and the Company's significant tenants. These relationships, especially those
associated with certain suppliers and tenants, are material to the Company and
a Y2K failure for one or more of these parties could result in a material
adverse effect on the Company's operating results and financial position. The
Company is making inquiries of these third parties to assess their Y2K
readiness. The Company expects that this process will be on-going throughout
the current year.
The Company currently estimates that the costs to address Y2K issues will
not exceed $200,000. Costs include incremental salary and fringe benefits for
personnel, hardware and software costs, and consulting and travel expenses
associated with addressing Y2K issues. These costs will be expensed as
incurred or, in the case of equipment or software replacement, will be
capitalized and depreciated over the expected useful life. The Company
recognizes that the total cost estimate is likely to increase as it completes
its assessment of non-IT systems. The Company is not currently able to
reasonably estimate the ultimate cost to be incurred for the assessment,
remediation, upgrade, replacement and testing of its impacted non-IT systems.
The worst case Y2K scenarios could be as insignificant as a minor
interruption in property management services provided to tenants at the
Company's Properties resulting from unanticipated problems encountered in the
IT systems of the Company or any of the significant third parties with whom the
Company does business. The pervasiveness of the Y2K issue makes it likely that
previously unidentified issues will require remediation during the normal
course of business. In such a case, the Company anticipates that transactions
could be processed manually while IT and other systems are repaired and that
such interruptions would have a minor effect on the Company's operations. On
the other hand, a worst case Y2K scenario could be as far reaching as an
extended loss of utility service resulting from interruptions at the point of
power generation, on-line transmission, or local distribution to the Company's
Properties. Such an interruption could result in an inability to provide
tenants with access to their spaces thereby affecting the Company's ability to
collect rents and pay its obligations which could result in a material adverse
effect on the Company's operating results and financial position.
The statements contained in this Quarterly Report of Form 10-Q that are not
purely historical fact are forward looking statements, including statements
regarding the Company's expectations, budgets, estimates, contemplations and
Y2K compliance. All forward looking statements included in this document are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking statement. It
is important to note that the Company'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 and unexpected developments
surrounding the Y2K issues.
<PAGE> 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars
in Thousands)
The Operating Partnership's exposure to market risk is limited to
fluctuations in the general level of interest rates on its current and future
fixed and variable rate debt obligations. Even though its philosophy is to
maintain a fairly low tolerance to interest rate fluctuation risk, the
Operating Partnership is still vulnerable, however, to significant fluctuations
in interest rates on its variable rate debt, on any future repricing or
refinancing of its fixed rate debt and on future debt.
The Operating Partnership uses long-term and medium-term debt as a source
of capital. The Operating Partnership has $296,781 of fixed rate debt
consisting of $100,000 unsecured public bonds and $196,781 in mortgages and
notes secured by real estate. The various fixed rate debt instruments mature
starting in the year 2000 through 2095. The average rate of interest on the
fixed rate debt is 6.9%. When debt instruments of this type mature, the
Operating Partnership typically refinances such debt at the then-existing
market interest rates which may be more or less than the interest rates on the
maturing debt. In addition, the Operating Partnership may attempt to reduce
interest rate risk associated with a forecasted issuance of new fixed rate debt
by entering into interest rate protection agreements. The Operating Partnership
does not have any fixed rate debt maturing in 1999.
The Operating Partnership's credit facilities and existing construction
loans have variable interest rates and any fluctuation in interest rates could
increase or decrease the Operating Partnership's interest expense. At March 31,
1999, the Operating Partnership had approximately $175,483 in outstanding
variable rate debt. If the interest rate for the Operating Partnership's
variable rate debt increased or decreased by 1% during 1999, the Operating
Partnership's interest rate expense on its outstanding variable rate debt would
increase or decrease, as the case may be, by approximately $1,755.
Due to the uncertainty of fluctuations in interest rates and the specific
actions that might be taken by the Operating Partnership to mitigate the impact
of such fluctuations and their possible effects, the foregoing sensitivity
analysis assumes no changes in the Operating Partnership's financial structure.
<PAGE> 14
PART II
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Operating Partnership is not aware of any pending or threatened
litigation at this time that will have a material adverse effect on the
Operating Partnership or any of its properties.
ITEM 2. CHANGES IN SECURITIES
---------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT PAGE
Number Description Number
- ------- ------------
<S> <C> <C> <C>
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))**
10.15 Second Amendment to Amended and Restated Agreement of Limited Partnership of
Price Development Company, Limited Partnership (10.16)***
27. Financial Data Schedule
(b) Current Reports on Form 8-K
None
</TABLE>
- ----------------------
* 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.
*** Document was previously filed with Operating Partnership's Annual Report on
Form 10-K for the year ended December 31, 1998, under the exhibit numbered
in the parenthetical, and is incorporated herein by reference.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C> <C>
Price Development Company,
Limited Partnership
(Registrant)
May 11, 1999 /s/ G. Rex Frazier
- ----------------------------------- -----------------------------------
(Date) G. Rex Frazier
PRESIDENT, CHIEF OPERATING OFFICER,
AND DIRECTOR
May 11, 1999 /s/ M. Scott Collins
- ----------------------------------- -----------------------------------
(Date) M. Scott Collins
VICE PRESIDENT--CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL
& ACCOUNTING OFFICER)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
Number Description Number
- -------- ------------
<S> <C> <C> <C>
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))**
10.15 Second Amendment to Amended and Restated Agreement of Limited Partnership of
Price Development Company, Limited Partnership (10.16)***
27. Financial Data Schedule
(b) Current Reports on Form 8-K
None
</TABLE>
- ----------------------------
* 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.
*** Document was previously filed with Operating Partnership's Annual Report on
Form 10-K for the year ended December 31, 1998, under the exhibit numbered
in the parenthetical, and is incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PRICE
DEVELOPMENT COMPANY, LIMITED PARTNERSHIP FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> $11,355 $9,328
<SECURITIES> 0 0
<RECEIVABLES> 0<F1> 0<F1>
<ALLOWANCES> 0<F1> 0<F1>
<INVENTORY> 0 0
<CURRENT-ASSETS> 0<F2> 0<F2>
<PP&E> 0<F1> 0<F1>
<DEPRECIATION> 0<F1> 0<F1>
<TOTAL-ASSETS> 738,322 556,585
<CURRENT-LIABILITIES> 0<F2> 0<F2>
<BONDS> 0 0
0 0
0 0
<COMMON> 2 2
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 738,322 556,585
<SALES> 0 0
<TOTAL-REVENUES> 32,989 24,503
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 16,386<F3> 12,452<F4>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,359 3,958
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,221 7,991
<EPS-PRIMARY> $0.39<F5> $0.38<F5>
<EPS-DILUTED> $0.38<F5> $0.37<F5>
<FN>
<F1>The Company utilizes a condensed balance sheet format for 10-Q reporting.
Amounts are included in Other Assets.
<F2>The financial statements reflect an unclassifed balance sheet due to the
nature of the Company's industry - Real Estate.
<F3>Amount is comprised of $23,745 of expenses less interest expense of $7,359
reflected elsewhere in this Financial Data Schedule.
<F4>Amount is comprised of $16,410 of expenses less interest expense of $3,958
reflected elsewhere in this Financial Data Schedule.
<F5>Amount reflects new standard of FAS 128 for Basic Earnings Per Share and
Diluted Earnings Per Share.
</FN>
</TABLE>
