<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-08723
WESTERN PROPERTIES TRUST
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-6100058
- --------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 POWELL ST., STE. 600, EMERYVILLE, CA 94608
- --------------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 597-0160
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
- ------------------------------------- --------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
SHARES OF BENEFICIAL INTEREST, WITHOUT PAR VALUE
- -------------------------------------------------------------------------------
(Title of class)
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
--- ---
<PAGE>
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 or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting shares held by nonaffiliates of the
registrant on March 1, 2000, based on the reported closing sales price of the
Company's shares of beneficial interest on the American Stock Exchange on such
date, was $175,000,000. (The Company defines affiliates as those required to
report under Section 16 of the Securities Exchange Act of 1934).
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Shares of Beneficial Interest, No Par Value - 17,297,250 shares as of
March 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's proxy statement with respect to its 2000 Annual
Meeting of Shareholders which will be filed with the Commission regarding the
fiscal year covered by this Form 10-K are incorporated by reference in Part III,
Items 10, 11 and 12.
2
<PAGE>
WESTERN PROPERTIES TRUST
INDEX TO 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1 Business 4-18
Item 2 Properties 18-21
Item 3 Legal Proceedings 22
Item 4 Submission of Matters to a Vote of Security Holders 22
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 22
Item 6 Selected Financial Data 23
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 24-33
Item 7A Quantitative and Qualitative Disclosures About Market Risk 33-34
Item 8 Consolidated Financial Statements 35-60
Consolidated Financial Statement Schedule 61-62
Additional Information: 1999 Building Improvement and
Leasing Related Cost Additions (unaudited) 63
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 64
PART III
Item 10 Directors and Executive Officers of the Registrant 64
Item 11 Executive Compensation 64
Item 12 Security Ownership of Certain Beneficial Owners and Management 64
Item 13 Certain Relationships and Related Transactions 65
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 65-67
Signatures 68
</TABLE>
3
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Western Properties Trust ("Western") is a real estate investment trust ("REIT")
and qualifies as such under Section 856 of the Internal Revenue Code. Western
was organized under the laws of the State of California in 1962 and commenced
real estate operations in 1964.
On August 19, 1999, Western changed its name from Western Investment Real Estate
Trust to Western Properties Trust.
In order that Western may continue to qualify as a REIT: (i) it must be taxable
as a domestic entity, (ii) beneficial ownership must be held by 100 or more
persons, (iii) at least 95% of its gross income must be derived from real estate
assets, dividends and interest, (iv) at least 75% of its gross income must be
derived from real estate assets, (v) at the close of each quarter of the taxable
year, at least 75% of the value of its total assets must be represented by real
estate assets, cash and government securities, and (vi) it must distribute
annually to its shareholders an amount equal to or exceeding 95% of its REIT
taxable income. Under the terms of its Declaration of Trust, Western is
permitted to invest its funds in the ownership of real estate, mortgages, deeds
of trust and certain financial instruments as permitted by law. Substantially
all of Western's funds have been invested in the ownership of real estate.
On January 8, 2000, Western engaged Donaldson, Lufkin and Jenrette ("DLJ") to
act as its financial advisor to undertake a review of a broad range of
strategic alternatives available to Western in light of the current and
prospective market conditions facing Western and the REIT industry. Senior
management and the Board is communicating regularly with DLJ in furtherance
of considering alternatives to enhance shareholder value. These alternatives
include a merger, sale, recapitalization, among other alternatives. In the
event of a transaction, Western would pay to DLJ a customary and significant
professional fee.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Western evaluates performance and makes resource-allocation decisions on an
individual property basis. For financial reporting purposes, Western has grouped
its properties into four segments: shopping centers, shopping centers under
development, single-tenant retail and other commercial properties. Investments
principally consist of real estate, but also include real estate secured loans
(three) and a real estate joint venture (one).
(c) NARRATIVE DESCRIPTION OF BUSINESS.
The following entities: Western; Western/Kienow's L.P., a Delaware limited
partnership; Western Pinecreek L.P., a Delaware limited partnership; GW100, a
general partnership; and Western's wholly owned subsidiary, WIRET Asset
Management Services (a California corporation and a licensed real estate
broker in the State of California) (collectively, "the Company"), are in the
business of acquiring, managing, leasing and developing retail, commercial
and industrial properties. Western is the sole general partner in
Western/Kienow's L.P. and owned a 60% interest therein as of December 31,
4
<PAGE>
1999. Western is also the sole general partner in Western Pinecreek L.P. and
owned a 75% interest therein as of December 31, 1999. The Company employed 57
people at December 31, 1999.
Through an unconsolidated real estate subsidiary, Western owns 11 properties
comprising approximately 465,497 square feet of retail gross leasable area
("GLA"). Throughout this Form 10-K reference to the unconsolidated real
estate subsidiary is a reference to this 11 property portfolio. The combined
GLA of Western and its unconsolidated real estate subsidiary at December 31,
1999 was approximately 5.6 million square feet.
The Company's executive office is located in the San Francisco Bay Area at 2200
Powell Street, Suite 600, Emeryville California, 94608, and Western's telephone
number is (510) 597-0160. Additionally, the Company maintains regional offices
in Granite Bay and Fresno, California and Portland, Oregon.
THE PROPERTIES
As of December 31, 1999, the Company (and its unconsolidated real estate
subsidiary) had 62 real estate investments which were comprised of 46 properties
owned directly, one investment in a joint venture, one shopping center
development-in-progress, three promissory notes in favor of Western, secured by
real estate and 11 properties owned by its unconsolidated real estate
subsidiary.
Effective October 30, 1998 the Company completed the acquisition of an
interest in Kienow's Food Stores, Inc. ("Kienow's"), a Portland, Oregon-based
corporation, which is described in the Company's financial statements as the
unconsolidated real estate subsidiary. (See Note 5 to the Consolidated
Financial Statements.). The acquisition was accomplished using a newly formed
downREIT limited partnership structure. The Company consolidates the downREIT
limited partnership (which accounts for its investment in Kienow's) on the
equity basis. The following information, unless otherwise indicated, includes
the 11 property Kienow's portfolio. The portfolio at December 31, 1999, is as
follows:
5
<PAGE>
<TABLE>
<CAPTION>
--------------------------------- ------------------------------------- ----------------------------
Unconsolidated Real
The Company Estate Subsidiary Combined
--------------------------------- ------------------------------------- ----------------------------
No. of Gross No of Gross No. of Gross
Investments Leasable Area Investments Leasable Area Investments Leasable
Area
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping centers 39 4,719,389 (1) 6 381,743 45 5,101,132
Single-tenant retail 3 228,822 4 83,754 7 312,576
-- ------- -- ------- -- ---------
Sub-total 42 4,948,211 10 465,497 52 5,413,708
Shopping center
under development 1 25,128 --- --- 1 25,128
Commercial and other 8 150,387 1 --- 9 150,387
-----------------------------------------------------------------------------------------------------
Total 51 5,123,726 11 465,497 (2) 62 5,589,223
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Included in shopping center gross leasable area is approximately
153,175 of square feet relating to a property under master lease.
During 1998, the Company entered into a master leasehold interest in
this property located in Dublin, California, that includes an option
to purchase the property in favor of Western at a fixed price during
the first quarter of 2001. Under the master lease, Western has full
control of all leasing, management and capital expenditure decisions
for the property. As part of the transaction, Western funded an $8.2
million, 8.5% per annum fixed-rate first trust-deed loan secured by
the property.
(2) This total does not include two non-core properties and two leaseholds
held by unconsolidated real estate subsidiary.
The average size of neighborhood and community shopping centers and other retail
properties owned by the Company and its subsidiary at December 31, 1999, was
approximately 100,000 square feet of GLA.
The Company (and its unconsolidated real estate subsidiary) leases a
substantial portion of its total GLA on a long-term, triple net basis. As of
December 31, 1999, approximately 61% of the Company's total retail GLA was
leased to anchor tenants. Of this space, 71% was leased to anchor tenant
grocery or drugstores. Exclusive of the unconsolidated real estate subsidiary
as of December 31, 1999, approximately 66% of the Company's total retail GLA
was leased to anchor tenants. Additionally, as of that date, approximately
74% of the Company's (and its unconsolidated real estate subsidiary's)
Annualized Base Rent (as herein defined) was derived from national or
regional retail tenants. The following tables set forth, as of December 31,
1999, certain information with respect to the properties owned by the Company
(and its unconsolidated real estate subsidiary):
6
<PAGE>
Shopping Centers and Retail - Anchor/Non-Anchor
<TABLE>
<CAPTION>
Unconsolidated
Real Estate Company
Company Subsidiary Percentage Portfolio
Portfolio Portfolio Combined of Monthly
Type of Tenant Space (4) GLA GLA (1) GLA (1) GLA (1) Base Rent(2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Anchor 3,066,459 231,291 3,297,750 61% $1,808,777
Non-anchor 1,583,711 148,116 1,731,827 32% 1,926,414
- ----------------------------------------------------------------------------------------------------------------------------------
Sub-total 4,650,170 379,407 5,029,577 93% 3,735,191
- ----------------------------------------------------------------------------------------------------------------------------------
Unleased 298,041 86,090 384,131 7%
- --------------------------------------------------------------------------------------------------------------
Total 4,948,211 465,497 5,413,708 100%
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Unconsolidated Real Annualized
Estate Base Rent
Subsidiary Combined Monthly Annualized Base Rent Percentage of Per Leased
Portfolio Base Rent Leased Annualized Square
Type of Tenant Space (4) Monthly Base Rent (1)(2) (1)(2) Space (3) Base Rent Foot
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Anchor $212,473 $2,021,250 $24,255,000 50% $ 7.36
Non-anchor 86,676 2,013,090 $24,157,080 50% $13.95
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-total 299,149 4,034,340 $48,412,080 100% $ 9.63
- ---------------------------------------------------------------------------------------------------------------------------------
Unleased
- ----------------------------
Total
- ----------------------------
- ----------------------------
</TABLE>
Shopping Centers and Retail - National/Regional/Local
<TABLE>
<CAPTION>
Unconsolidated
Real Estate Company
Company Subsidiary Portfolio
Portfolio Portfolio Combined Percentage Monthly Base
Type of Tenant Space (5) GLA GLA (1) GLA (1) of GLA (1) Rent (2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National 2,960,122 150,361 3,110,483 58% $2,060,476
Regional 840,825 78,526 919,351 17% 717,202
Local 849,223 150,520 999,743 18% 957,513
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-total 4,650,170 379,407 5,029,577 93% 3,735,191
- ---------------------------------------------------------------------------------------------------------------------------------
Unleased 298,041 86,090 384,131 7%
- ----------------------------------------------------------------------------------------------------------
Total 4,948,211 465,497 5,413,708 100%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Unconsolidated real Annualized Base
estate Subsidiary Percentage of Rent
Portfolio Monthly Combined Monthly Annualized Base Rent Annualized Base Per Leased
Type of Tenant Space (5) Base Rent (1)(2) Base Rent (1)(2) Leased Space (3) Rent Square Foot
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National $ 147,760 $2,208,236 $26,498,832 55% $ 8.52
Regional 45,766 762,968 9,155,616 19% $ 9.96
Local 105,623 1,063,136 12,757,632 26% $12.76
- ------------------------------------------------------------------------------------------------------------------------------
Sub-total 299,149 4,034,340 $48,412,080 100% $ 9.63
- ------------------------------------------------------------------------------------------------------------------------------
Unleased
- --------------------------------
Total
- --------------------------------
- --------------------------------
</TABLE>
(1) Excludes two non-core properties and two leaseholds held by the Company's
unconsolidated real estate subsidiary.
(2) "Monthly base rent" represents the minimum monthly rent in effect on
December 31, 1999.
(3) "Annualized Base Rent" represents the annualized minimum monthly rent in
effect on December 31, 1999.
(4) "Anchor" tenants means those tenants leasing 10,000 square feet or more.
(5) "National" tenants means those tenants with locations in multiple states.
"Regional" tenants means those tenants with three or more locations in one
state, and "Local" tenants means those tenants with fewer than three locations
and operate exclusively within one state.
7
<PAGE>
The combined portfolios of the Company (and its unconsolidated real estate
subsidiary) of 62 properties at December 31, 1999, is summarized as follows:
Shopping Centers, Retail and Commercial
<TABLE>
<CAPTION>
Unconsolidated
Real Estate
Company Subsidiary Company
Portfolio Portfolio Combined Percentage Portfolio
Total Portfolio GLA GLA (1) GLA(1) of GLA(1) Monthly Base rent(2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shopping Centers 4,719,389 381,743 5,101,132 91% $3,598,742
Shopping Center space under development 25,128 --- 25,128 --- 36,814
Single Tenant Retail 228,822 83,754 312,576 6% 136,449
Commercial and other 150,387 --- 150,387 3% 198,323
- ----------------------------------------------------------------------------------------------------------------------------------
Total 5,123,726 465,497 5,589,223 100% $3,970,328
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unconsolidated
Real Estate
Subsidiary Annualized Percentage of Annualized Base
Portfolio Monthly Combined Monthly Base Rent Annualized Per Leased
Total Portfolio Base Rent (1)(2) Base Rent (1)(2) Leased Space (3) Base Rent Square Foot
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shopping Centers $ 194,733 $3,793,475 $45,521,700 89% $8.92
Shopping Center space under development --- 36,814 441,768 1% $17.58
Single Tenant Retail 104,416 240,865 2,890,380 5% $9.25
Commercial and other --- 198,323 2,379,876 5% $15.83
- --------------------------------------------------------------------------------------------------------------------------------
Total $299,149 $4,269,477 $51,233,724 100% $9.17
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes two non-core portfolio and two leaseholds held by unconsolidated
real estate subsidiary.
(2) "Monthly base rent" represents the minimum monthly rent in effect on
December 31, 1999.
(3) "Annualized Base Rent" represents the annualized minimum monthly rent in
effect on December 31, 1999.
8
<PAGE>
The following table summarizes the composition of the real estate investments
owned by the Company and its unconsolidated real estate subsidiary as of
December 31, 1999, by type based on amounts invested:
<TABLE>
<CAPTION>
Company Portfolio
------------------------------------------------------------
Number of Amount of Percentage of
Investments Investments(1) Investment
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property Types
Real Estate Investments
Shopping Centers (2) 31 $355,660 94%
Single Tenant Retail 2 3,930 1%
Commercial 1 1,411 ---
Mortgage Notes 3 17,229 5%
- -----------------------------------------------------------------------------------------------------------
37 $378,230 100%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Real Estate Properties Held for Sale
Shopping Centers 8 $63,388 78%
Single Tenant Retail 1 4,220 5%
Commercial 5 14,089 17%
- -----------------------------------------------------------------------------------------------------------
14 $81,697 100%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Total Portfolios
Shopping Centers (2) 39 $419,048 91%
Single Tenant Retail 3 8,150 2%
Commercial 6 15,500 3%
Mortgage Notes 3 17,229 4%
- -----------------------------------------------------------------------------------------------------------
51 $459,927 100%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Unconsolidated Real Estate Subsidiary Portfolio
-------------------------------------------------------
Number of Amount of Percentage of
Investments Investments(1) Investments(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property Types
Real Estate Investments
Shopping Centers (2) 8 (3) $27,850 66%
Single Tenant Retail 3 11,594 27%
Commercial 1 2,936 7%
Mortgage Notes --- --- ---
- -------------------------------------------------------------------------------------------------
12 $42,380 100%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Real Estate Properties Held for Sale
Shopping Centers --- --- ---
Single Tenant Retail 1 895 44%
Commercial 2 1,163 56%
- -------------------------------------------------------------------------------------------------
3 $ 2,058 100%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Total Portfolios
Shopping Centers (2) 8 $27,850 63%
Single Tenant Retail 4 12,489 28%
Commercial 3 4,099 9%
Mortgage Notes --- --- ---
- -------------------------------------------------------------------------------------------------
15(4) $44,438 100%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the original cost plus capital improvements, before depreciation
and amortization.
(2) Includes the shopping center under development in Walnut Creek, California.
(3) Includes the subsidiary investment in two leasehold
properties.
(4) These 15 properties are comprised of 10 "core" properties (six shopping
centers and four single tenant retail properties, one of which is currently
held for sale); one non-GLA real property investment on which there are no
improvements; two non-core commercial properties held for sale; and two
leaseholds.
9
<PAGE>
The following table summarizes the composition of Leasable Square Feet and
Occupancy Percentage as of December 31, 1999, "Same Store" properties versus
real estate acquired between January 1, 1998 and December 31, 1999.
<TABLE>
<CAPTION>
--------------------------------------------------
Company Portfolio
--------------------------------------------------
Property Types Number of Leasable Square Occupancy
Investments Feet Percentage(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
"Same Store" Real Estate Investments (2)
Shopping centers 35 4,097,370 94.5%
Single-tenant retail 3 228,822 100.0%
Commercial & other (3) 7 150,387 93.9%
- ----------------------------------------------------------------------------------------------------------
45 4,476,579 94.8%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Real Estate Investments Acquired January 1, 1998
through December 31, 1999
Shopping centers 4 622,019 88.0%
Single Tenant retail --- --- ---
Commercial and other 1 --- ---
Shopping center under development 1 25,128 66.2%
- ----------------------------------------------------------------------------------------------------------
6 647,147 87.2%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Combined 51 5,123,726 93.8%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------
Company Portfolio
--------------------------------------------------
Property Types Number of Leasable Square Occupancy
Investments Feet Percentage(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
"Same Store" Real Estate Investments (2)
Shopping centers --- --- ---
Single-tenant retail --- --- ---
Commercial & other --- --- ---
- ----------------------------------------------------------------------------------------------------------
--- --- ---
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Real Estate Investments Acquired January 1, 1998
through December 31, 1999
Shopping centers 6 381,743 77.4%
Single Tenant retail 4 83,754 100.0%
Commercial and other (4) 1) --- ---
Shopping center under developmen 0 --- ---
- ----------------------------------------------------------------------------------------------------------
(5) 11 465,497 81.5%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Combined (5) 11 465,497 81.5%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Once a space is subject to an executed lease, the space is then
included in occupied space. Square footage continues to be
incorporated into our occupied space category until: (a) the related
lease expires and the tenant is no longer in legal possession of the
premises; or (b) the related lease is terminated and the tenant is no
longer in legal possession of the premises.
(2) "Same Store" real estate investments refer to those investments owned
for the entire two-year period commencing January 1, 1998 and ending
December 31, 1999.
(3) Count includes one non-GLA investment in Concord, California.
(4) Count includes one non-GLA investment in Lodi, California.
(5) Excludes two "non-core" properties and two leasehold properties held
by the unconsolidated real estate subsidiary.
10
<PAGE>
Weighted Average Age of the Company's Real Estate Properties
<TABLE>
<CAPTION>
Weighted
Property umber of Average Age
Type Investments (1) (in years) (2)
--------------------------------------------------------------------
<S> <C> <C>
Shopping centers................. 38 15.6
Single-tenant retail............. 3 23.9
Commercial.. 6 22.8
--------------------------------------------------------------------
Total/Weighted Average....... 47 16.2
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
(1) This table does not include the Company's three investments in
mortgages, properties under development, or assests held by the
unconsolidated real estate subsidiary.
(2) This calculation is weighted by Gross Leasable Area and is based on the
original construction date of the applicable property. As such, any
expansion or renovation occurring subsequent to the original
construction date is not reflected in this calculation.
COMPETITION
There is considerable competition for the consumer dollar in most of the areas
where the Company's community shopping center properties are located. The
Company believes that its major anchor tenants are strong competitors and will
continue to draw consumers to its shopping centers.
The Company competes for quality properties with other investors and engages in
a continuing effort to identify desirable properties for acquisition. If the
number of prospective buyers for the types of properties the Company considers
acquiring increases, the prices of such properties may increase and the yields
may decrease. The Company believes it can continue to compete effectively in the
current real estate environment because of its experienced staff and management
team.
The Company competes for tenants primarily on the basis of location, rental
rates, services provided and the design and condition of the properties. In some
of the geographic areas in which the Company owns properties, the available
supply of space for lease exceeds the demand by prospective tenants. In order to
compete effectively, the Company employs experienced property managers and
leasing agents.
MAJOR TENANTS
The Company's principal tenants include substantial, well-recognized retailers
such as Food-4-Less, Pak `N Save, Raley's, Rite Aid (Thrifty-Payless), Safeway
and Save Mart Supermarkets.
At December 31, 1999, Raley's (including its subsidiary, Nob Hill Foods) was the
Company's most significant tenant. Raley's is a grocery and drug retailer, and
as of December 31, 1999, it was a lessee in 20 of the Company's properties and
accounted for 18% of the Company's 1999 total revenues. Raley's, a privately
owned company, currently operates 149 stores in California, Nevada and New
Mexico. The Raley's organization has provided audited financial statements to
the Company indicating that its sales exceeded $2.6 billion in its fiscal year
ending June 26, 1999. In addition to the audited financial statements which the
Company uses to monitor Raley's financial position and results of operations,
the Company receives monthly sales reports for properties leased to Raley's and
uses this information to monitor store performance. Additionally, the Company is
11
<PAGE>
authorized to provide Raley's audited financial statements to Moody's Investors
Service and Standard & Poor's Rating Services, the Company's rating agencies. As
of December 31, 1999, the Company's Senior Notes carry "investment grade"
ratings from Moody's Investors Service (Baa3) and Standard & Poor's Rating
Services (BBB-).
The following table provides the location, size and expiration of the Raley's
and Nob Hill leases:
<TABLE>
<CAPTION>
Lease
Location Gross Leasable Area Expiration Date
-------------- ------------------- ---------------
<S> <C> <C>
1. Fallon, NV 0 (1) 6/30/03
2. Modesto, CA 49,800 5/31/04
3. Fair Oaks, CA 59,231 3/31/06
4. Yuba City, CA 61,842 9/01/08
5. Carson City, NV 59,018 8/31/12
6. Redding, CA 60,000 5/31/14
7. Yreka, CA 60,000 11/30/14
8. Chico, CA 61,046 4/30/15
9. Winnemucca, NV 63,024 12/31/15
10. Fallon, NV 60,114 2/28/16
11. Reno, NV 61,046 3/31/16
12. Ukiah, CA 61,046 6/30/16
13. Elko, NV 61,000 1/31/17
14. Vallejo, CA 60,114 9/30/17
15. Folsom, CA 60,114 12/31/17
16. Turlock, CA 60,114 2/28/18
17. Grass Valley, CA 60,114 4/30/18
18. Granite Bay, CA 60,114 6/30/18
19. Suisun City, CA 60,114 5/31/19
20. Oroville, CA 59,885 6/01/19
</TABLE>
(1) Although Raley's no longer occupies this Fallon, Nevada, property, it
guarantees the J.C. Penney and Stage Store leases for 45,051 of square
foot of GLA, and makes lease payments to the Company based upon the
rental short-fall of the tenants in occupancy.
12
<PAGE>
The following table summarizes information on the Company's ten most significant
tenants during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Percentage
Tenant Number Company GLA Percentage of of Total
------ of Stores (Square Feet) Company GLA Revenue
-------- ------------- ------------ -------
<S> <C> <C> <C> <C>
Raley's................................. 22 (1) 1,215,396 22% 18%
Safeway/Pak `N Save..................... 5 193,493 4% 4%
Rite Aid(Thrifty-PayLess ).............. 11 273,512 5% 3%
Save Mart............................... 7 228,678 4% 3%
Washington Mutual....................... 6 76,193 1% 3%
Food-4-Less (Fleming Foods)............. 3 142,625 3% 2%
Ross.................................... 3 81,428 1% 1%
Blockbuster Video....................... 8 56,463 1% 1%
Scolari's Supermarkets.................. 1 50,451 1% 1%
Hollywood Video......................... 6 37,194 1% 1%
----------- ------ ------
Total.............................. 2,355,433 42% 39%
----------- ------ ------
----------- ------ ------
</TABLE>
(1) As of December 31, 1999, 20 of the Company's properties were subject to
leases with Raley's (and its subsidiary Nob Hill Foods). During the 12
months ended December 31, 1999, the Company received rental income from
this tenant in connection with leases covering 22 of the Company's
properties. During 1999, the Company disposed of two of the properties
(Nob Hill Foods properties located in Hollister and Watsonville,
California).
No single property investment accounted for more than 4.0% of the Company's
total revenues in 1999.
The Company receives sales and other information on a monthly, quarterly or
annual basis from its retail tenants, including Raley's, pursuant to leases
which provide for such reports. The Company uses this information to monitor
performance and where applicable the payment of percentage rents. Virtually all
of the Company's existing leases include at least one of the following
provisions for payment of additional rent: (1) scheduled rent increases, (2)
percentage rent based on tenants' gross sales, or (3) CPI-based escalation
clauses. The Company endeavors to structure leases on a triple-net basis with
the lessees being responsible for most operating expenses, such as real estate
taxes, certain types of insurance, utilities, normal repairs and maintenance. To
the extent such provisions cannot be negotiated and incorporated into a lease,
the Company pays such expenses from current operating income.
13
<PAGE>
INSURANCE COVERAGE
Most of the Company's leases require the tenant to be responsible for, or
reimburse the Company for, liability and building insurance coverage on the
properties. The Company maintains umbrella liability insurance on all of its
properties and monitors tenant compliance with liability insurance coverage
requirements.
While the Company believes its properties are adequately insured, the Company
does not carry earthquake (except in the case of the Windsor, California
property, where the secured lender requires earthquake insurance), flood or
pollution coverage. However, most major anchor tenants are required to rebuild
or repair their leased premises if damaged or destroyed, regardless of the
cause. Most of the Company's properties are located in areas of California and
Nevada where earthquakes have been known to occur. In the event of a major
earthquake, Company properties in the area of any such earthquake could suffer
substantial damage or destruction. Since it commenced real estate operations in
1964, the Company has not incurred any material expense nor, to its knowledge,
have any of its properties incurred any material damage from earthquakes or
floods.
The Company periodically considers the merits of purchasing earthquake insurance
for its properties. To date, the Company has not purchased earthquake insurance
because of: (i) the high premiums and deductible; and (ii) the Company's
geographically diversified portfolio, which reduces the likelihood of material
loss as a consequence of earthquakes. Furthermore, the majority of properties in
the portfolio principally consist of relatively new, single-story buildings.
14
<PAGE>
TENANT LEASE EXPIRATIONS FOR ALL PROPERTIES
The tables on the following pages set forth information with respect to anchor
and non-anchor tenant lease expirations as of December 31, 1999:
<TABLE>
<CAPTION>
ANCHOR TENANTS (1) OF THE COMPANY
- -----------------------------------------------------------------------------------------------------------------------
Average Base
Gross Percentage of Annualized Base Rent Per
Number of Leasable Total Leased Rent Under Square Foot of
Lease Year Leases Area Gross Leasable Expiring Leases
Expiration Expiring (2) Expiring Area Expiring Leases (3) Expiring
- ------------ ------------ ----------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
2000................................ 6 105,212 3.3% $ 1,165,668 $11.08
2001................................ 5 172,978 5.4% 599,484 3.47
2002................................ 4 66,610 2.1% 186,324 2.80
2003................................ 10 242,728 7.6% 1,668,096 6.87
2004................................ 7 156,242 4.9% 1,420,044 9.09
2005................................ 1 26,368 0.8% 204,348 7.75
2006................................ 5 220,186 6.9% 1,645,128 7.47
2007................................ 2 43,904 1.4% 479,016 10.91
2008................................ 5 154,687 4.8% 1,505,964 9.74
2009................................ 0 0 0.0% 0 0.00
Thereafter.......................... 45 2,007,131 62.8% 16,163,641 8.05
------------ ----------- -------------- --------------- --------------
Total/Weighted
Average................. 90 3,196,046 100.0% $25,037,713 $7.83
------------ ----------- -------------- --------------- --------------
------------ ----------- -------------- --------------- --------------
<CAPTION>
NON-ANCHOR TENANTS OF THE COMPANY
- ---------------------------------------------------------------------------------------------------------------
Average Base
Gross Percentage of Annualized Base Rent Per
Number of Leasable Total Leased Rent Under Square Foot
Lease Year Leases Area Gross Leasable Expiring of Leases
Expiration Expiring (2) Expiring Area Expiring Leases (3) Expiring
- ----------- ------------ ---------- --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Month-to-month.................... 37 67,929 4.2% $1,000,000 $14.72
2000 ............................. 103 180,438 11.2% 2,623,574 14.54
2001 ............................. 129 233,300 14.5% 3,384,468 14.51
2002 ............................. 114 252,155 15.6% 3,672,781 14.57
2003 ............................. 122 273,912 17.0% 4,532,232 16.55
2004 ............................. 91 205,079 12.7% 3,176,244 15.49
2005 ............................. 27 94,227 5.8% 1,306,848 13.87
2006 ............................. 13 43,735 2.7% 961,308 21.9%
2007 ............................. 14 48,277 3.0% 1,066,320 22.90
2008 ............................. 14 59,121 3.7% 1,039,728 17.59
2009 ............................. 12 47,452 2.9% 860,676 18.14
Thereafter........................ 34 106,299 6.6% 2,302,440 21.66
------------ ---------- --------------- ---------------- ------------
Total/Weighted Average............ 710 1,611,924 100.0% $25,926,619 $16.08
------------ ---------- --------------- ---------------- ------------
------------ ---------- --------------- ---------------- ------------
</TABLE>
(1) Anchor tenants are defined as tenants leasing 10,000 square feet or more of
leasable area.
(2) Does not reflect extension options granted to certain tenants.
(3) Annualized Base Rent at lease expiration.
15
<PAGE>
<TABLE>
<CAPTION>
LEASE EXPIRATION DATA FOR ANCHOR (1) AND NON-ANCHOR
TENANTS OF THE COMPANY
-------------------------------------------------------------------------------------------------------
Average Base
Percentage of Annualized Base Rent Per
Number of Gross Total Leased Rent Under Square Foot
Lease Year Leases Leasable Area Gross Leasable Expiring of Leases
Expiration Expiring (2) Expiring Area Expiring Leases (3) Expiring
- -------------- ------------- -------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Month-to-month ............... 37 67,929 1.41% $ 1,000,000 $14.72
2000 ......................... 109 285,650 5.94% 3,789,242 13.27
2001 ......................... 134 406,278 8.45% 3,983,952 9.81
2002 ......................... 118 318,765 6.63% 3,859,105 12.11
2003 ......................... 132 516,640 10.75% 6,200,328 12.00
2004 ......................... 98 361,321 7.52% 4,596,288 12.72
2005 ......................... 28 120,595 2.51% 1,511,196 12.53
2006 ......................... 18 263,921 5.49% 2,606,436 9.88
2007 ......................... 16 92,181 1.92% 1,545,336 16.76
2008 ......................... 19 213,808 4.45% 2,545,692 11.91
2009 ......................... 12 47,452 0.99% 860,676 18.14
Thereafter ................... 79 2,113,430 43.96% 18,466,081 8.74
------------- -------------- -------------- ---------------- -------------
Total/Weighted Average ....... 800 4,807,970(4) 100.00% $50,964,332 $10.60
------------- -------------- -------------- ---------------- -------------
------------- -------------- -------------- ---------------- -------------
</TABLE>
<TABLE>
<CAPTION>
LEASE EXPIRATION DATA FOR ANCHOR (1) AND NON-ANCHOR
TENANTS OF THE UNCONSOLIDATED REAL ESTATE SUBSIDIARY
-------------------------------------------------------------------------------------------------------
Average Base
Percentage of Annualized Base Rent Per
Number of Gross Total Leased Rent Under Square Foot
Lease Year Leases Leasable Area Gross Leasable Expiring of Leases
Expiration Expiring (2) Expiring Area Expiring Leases (3) Expiring
- -------------- ------------- -------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Month-to-month ............... 20 45,879 12.09% $ 297,385 $ 6.48
2000 ......................... 16 37,497 9.88% 252,386 6.73
2001 ......................... 4 19,873 5.24% 105,400 5.30
2002 ......................... 7 47,600 12.55% 242,172 5.09
2003 ......................... 2 7,465 1.97% 31,488 4.22
2004 ......................... 4 10,237 2.70% 103,584 10.12
2005 ......................... 1 3,021 0.80% 14,556 4.82
2006 ......................... 1 25,845 6.81% 219,420 8.49
2007 ......................... 1 8,967 2.36% 21,720 2.42
2008 ......................... 0 0 0.00% 0 0.00
2009 ......................... 1 19,437 5.12% 130,620 6.72
Thereafter ................... 8 153,586 40.48% 2,765,149 18.00
------------- -------------- -------------- ---------------- -------------
Total/Weighted Average ....... 65 379,407 (5) 100.00% $4,183,880 $11.03
------------- -------------- -------------- ---------------- -------------
------------- -------------- -------------- ---------------- -------------
</TABLE>
(1) Anchor tenants are defined as tenants leasing 10,000 square feet or more
of leasable area.
(2) Does not reflect extension options granted to certain tenants.
(3) Annualized Base Rent at lease expiration.
(4) Total does not include 315,756 square feet GLA of unleased space.
(5) Total does not include 86,090 square feet GLA of unleased space.
16
<PAGE>
PROPERTY OPERATIONS
The Company is a fully integrated REIT that provides full property operation
services to all but two of its properties. Property services include property
management and leasing services. Direct property management provides for
regular interaction between the Company and its tenants and close supervision
of its properties. The Company believes the cost of direct property
management and leasing is generally less expensive than employing independent
property management and leasing firms due to lower commissions and fees, as
well as the benefits of certain economies of scale.
In order to facilitate its present and future property operating activities,
the Company maintains three branch offices which are centrally located to the
properties. The offices are located in Granite Bay and Fresno, California;
and Portland, Oregon.
One of the Company's properties is managed by an independent property manager
and one property is managed by the Company's joint venture partner.
Commercial Real Estate Service (CRES) provides management services with
respect to Serra Center, located in Colma, California, for fees equal to 3.5%
of gross rents. CRES is an affiliate of the co-owner of Serra Center and has
been managing the property for approximately 20 years. Gramor Development
Washington, LLC, provides management services for the partnership's shopping
center located in Blaine, Washington, for fees equal to 4% of gross rents. In
the event the operating return of the Blaine property is not adequate to
provide the Company with its preferential return, management fees to Gramor
Development are limited to $2,000 per month for such period. With the
exception of Gramor Development, none of the above-named property managers
are affiliated with the Company, its trustees, officers or any shareholder
owning 5% or more of the Company's shares.
Repairs and maintenance of the Company's properties not undertaken by tenants
under the terms of the Company's triple-net leases are performed by
independent contractors not affiliated with the Company, its trustees or
officers, or any shareholder owning 5% or more of the Company's shares.
POTENTIAL ENVIRONMENTAL RISKS
Investments in real property create a potential for environmental liability
on the part of the current owner and potentially on the part of the prior
owner of such real property. If hazardous substances are discovered on or
emanating from any of the Company's properties, the Company and/or others may
be held strictly liable for all costs and liabilities relating to the
clean-up of such hazardous substances.
17
<PAGE>
In order to seek to mitigate environmental risks, in 1989 the Company adopted
a policy of obtaining at least a Phase I environmental study (a preliminary
site assessment which does not include invasive environmental sampling,
monitoring or laboratory analysis) on each property it seeks to acquire. From
time to time, when the Company deems it appropriate, it has obtained
independent environmental analyses on properties acquired prior to 1989.
Although the Company is aware of contamination on certain properties, except
for one property (the Walnut Creek development project), the Company has
received "closure" letters (letters indicating no further action is
necessary) from the local city and state environmental agencies, or has
received indemnification agreements from third parties respecting such
potential liabilities. On the development project, the Company has determined
the cost of clean-up to be approximately $150,000, which was anticipated when
the Company acquired the property. The Company carries no insurance coverage
for the type of environmental risk described above.
ITEM 2. PROPERTIES.
Property information is presented on the following pages.
18
<PAGE>
Item 2: Properties
<TABLE>
<CAPTION>
Minimum Rent
-------------- 12/31/99 Year Year Last
Name Location 1999 1998 Occupancy (1) Completed Renovated
- ---- ---------- ------ ------ ------------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Minimum Rents
SHOPPING CENTER/RETAIL
Anderson Square Anderson, CA $411 $370 95.33% 1979
Angel's Camp Town Center Angel's Camp, CA 580 598 98.51% 1986
Skypark Plaza Shopping Center Chico, CA 1,494 1,372 93.64% 1985 1991
Coalinga Shopping Center (2) Coalinga, CA 306 298 73.34% 1977
Serra Center (30% interest) Colma, CA 592 531 100.00% 1972
Mercantile Row Shopping Center Dinuba, CA 804 745 98.93% 1990
Dublin Shopping Center Dublin, CA 848 288 69.14% 1970
Laguna 99 Shopping Center Elk Grove, CA 1,398 1,424 98.12% 1993
Northridge Shopping Center Fair Oaks, CA 778 714 94.12% 1958 1986
Commonwealth Square Shopping Center Folsom, CA 1,819 1,822 98.55% 1988
Victorian Walk Shopping Center (2) Fresno, CA 785 775 93.38% 1982 1994
Country Gables Shopping Center Granite Bay, CA 1,474 1,413 100.00% 1988
Pinecreek Shopping Center Grass Valley, CA 1,176 1,000 96.97% 1988
Heritage Oak Shopping Center (2) Gridley, CA 349 374 70.98% 1981
Centennial Plaza Shopping Center Hanford, CA 1,261 1,211 99.09% 1991
Plaza 580 Shopping Center Livermore, CA 1,635 1,492 96.13% 1993/1996
Canal Farms Shopping Center Los Banos, CA 762 868 95.73% 1988
Mission Ridge Shopping Center Manteca, CA 1,199 1,149 98.80% 1993
Century Center Modesto, CA 1,612 1,544 98.37% 1979
Currier Square Shopping Center (2) Oroville, CA 856 773 90.61% 1969 1989
Eastridge Plaza Shopping Center Porterville, CA 501 458 88.83% 1985
Belle Mill Landing (2) Red Bluff, CA 739 690 95.83% 1982 1995
Cobblestone Shopping Center Redding, CA 927 901 89.41% 1981
Kmart Center Sacramento, CA 403 403 93.62% 1964 1986
Elverta Crossing Shopping Center Sacramento, CA 1,332 1,282 100.00% 1991 1993
Heritage Park Shopping Center Suisun, CA 1,458 1,517 86.73% 1989
Heritage Place Shopping Center Tulare, CA 999 968 98.08% 1986
Blossom Valley Plaza Turlock, CA 1,094 1,086 97.69% 1988 1991
Ukiah Crossroads Shopping Center (2) Ukiah, CA 1,027 911 98.12% 1986
Park Place Shopping Center Vallejo, CA 1,470 1,546 90.78% 1987
Olympic Place Shopping Center Walnut Creek, CA 66 - 66.20% 1979
Lakewood Village Windsor, CA 1,843 1,675 94.66% 1995
Yreka Junction Yreka, CA 860 851 100.00% 1984
Raley's Shopping Center Yuba City, CA 1,024 922 96.89% 1963 1995
Eagle Station Shopping Center Carson City, NV 959 907 95.40% 1982
Elko Junction Shopping Center Elko, NV 1,544 1,515 95.23% 1979/1994/1996
Caughlin Ranch Shopping Center Reno, NV 1,083 1,132 92.48% 1990 1991
North Hills Shopping Center (2) Reno, NV 892 898 95.76% 1986
West Town Winnemuca, NV 462 462 100.00% 1978 1991
Blaine International Center Blaine, WA 969 243 86.78% 1991
------- -------
Sub-total - Shopping Center/Retail $39,791 $37,128
------- -------
SINGLE TENANT/RETAIL
Luckys (3) El Cerrito, CA $0 $241 SOLD 1964 1983
Nob Hill General Store (4) Hollister, CA 415 480 SOLD 1994
Kmart Center (6) Napa, CA 606 - 100.00% 1964
Nob Hill General Store (3) Newman, CA - 305 SOLD 1995
Nob Hill General Store (4) Watsonville, CA 137 195 SOLD 1982
Dodge Center (2) Fallon, NV 280 270 100.00% 1976 1995
</TABLE>
19
<PAGE>
Item 2: Properties (continued)
<TABLE>
<CAPTION>
Minimum Rent
------------ 12/31/99 Year Year Last
Name Location 1999 1998 Occupancy (1) Completed Renovated
- ---- -------- ---- ---- ------------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Raley's Supermarket (2) Fallon, NV 401 401 100.00% 1991
----- ------
Sub-total - Single Tenant/Retail $1,839 $1,892
------- ------
COMMERCIAL & OTHER
Old Dominion (3) Commerce City, CO $0 $102 SOLD 1984 1995
Coast Savings & Loan (4) Cupertino, CA 72 216 SOLD 1980
Heald Business College (4) Milpitas, CA 170 513 SOLD 1987 1995
Coast Savings & Loan (2) Monterey,CA 490 490 100.00% 1963
Redwood II (2) Petaluma, CA 460 99 77.90% 1985
Coast Savings & Loan (4) Salinas, CA 88 336 SOLD 1937
Coast Savings & Loan (Market St) (4) San Francisco, CA 273 317 SOLD 1964
Coast Savings & Loan (Taraval St) (2) San Francisco, CA 357 356 100.00% 1975
3450 California St (2) San Francisco, CA 343 253 100.00% 1957 1987
Viking Freight Systems (7) Santa Clara, CA 485 454 100.00% 1978
Coast Savings & Loan (2) Santa Cruz, CA 199 194 100.00% 1980
------- ------
Sub-total - Commercial & Other $2,937 $3,330
------- ------
Total Minimum Rent $44,567 $42,350
------- ------
------- ------
<CAPTION>
Percentage Rents
------------------
1999 1998
(in thousands)
Percentage Rents
SHOPPING CENTER/RETAIL
Anderson Square Anderson, CA $16 $47 95.33% 1979
Skypark Plaza Shopping Center Chico, CA 2 1 93.64% 1985
Coalinga Shopping Center (2) Coalinga, CA 37 37 73.34% 1977
Mercantile Row Shopping Center Dinuba, CA 1 - 98.93% 1990
Laguna 99 Shopping Center Elk Grove, CA 1 - 98.12% 1993
Northridge Shopping Center Fair Oaks, CA 39 25 94.12% 1958 1986
Commonwealth Square Shopping Center Folsom, CA - 1 98.55% 1988
Country Gables Shopping Center Granite Bay, CA - 38 100.00% 1988
Pinecreek Shopping Center Grass Valley, CA 12 3 96.97% 1988
Heritage Oak Shopping Center (2) Gridley, CA 27 31 70.98% 1981
Century Center Modesto, CA 469 144 98.37% 1979
Cobblestone Shopping Center Redding, CA 5 5 89.41% 1981
Kmart Center Sacramento, CA 52 41 93.62% 1964 1986
Heritage Park Shopping Center Suisun, CA - 1 86.73% 1989
Blossom Valley Plaza Turlock, CA 17 11 97.69% 1988
Ukiah Crossroads Shopping Center (2) Ukiah, CA 13 5 98.12% 1986
Park Place Shopping Center Vallejo, CA 6 6 90.78% 1987
Eagle Station Shopping Center Carson City, NV 38 13 95.40% 1982
Elko Junction Shopping Center Elko, NV 42 - 95.23% 1982
Dodge Center (2) Fallon, NV - 5 100.00% 1976 1995
Caughlin Ranch Shopping Center Reno, NV - - 95.76% 1990 1991
Blaine International Center Blaine, WA 63 13 86.78% 1991
----- -----
Sub-total - Shopping Center/Retail $840 $427
SINGLE TENANT/RETAIL
Kmart Center (6) Napa, CA ($5) $57 100.00% 1964
Nob Hill General Store (4) Watsonville, CA 51 55 SOLD 1982
----- -----
Sub-total - Single Tenant/Retail $46 $112
----- -----
Total Percentage Rent Income $886 $539
----- -----
----- -----
</TABLE>
20
<PAGE>
Item 2: Properties (continued)
<TABLE>
<CAPTION>
Direct Financing Leases (5)
--------------------------
1999 1998
---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Direct Financing Leases
Kmart Center (6) Napa, CA Single Tenant Retail $0 $27 100.00% 1964
Viking Freight Systems (7) Santa Clara, CA Industrial 66 78 100.00% 1978
----- -----
$66 $105
----- -----
----- -----
</TABLE>
(1) Once a space is subject to an executed lease, the space is then included in
occupied space. A space continues to be incorporated in our occupied space
until: 1) the related lease expires and the tenant is no longer in legal
possession, or 2) the related lease is formally terminated and the tenant
is no longer in legal possession.
(2) Property is being held for sale.
(3) Sold in 1998.
(4) Sold in 1999
(5) Included in Other Income.
(6) Kmart Center, Napa, California, is accounted for as a direct financing
lease. During 1999, the Company received $23,000 in minimum lease payments,
all of which is a non-revenue receipt accounted as principal reduction.
During 1998, the Company received $281,000 in minimum lease payments, of
which $27,000 comprised direct financing income and $254,000 is a
non-revenue receipt accounted as principal reduction.
This lease expired January 1999. On November 19, 1999, the Company
entered into a 20-year lease agreement with Wal-Mart. Wal-Mart will
construct and pay for an entirely new 103,000-square foot building, with
completion anticipated for the summer of 2000.
(7) Viking Freight Systems, Santa Clara, California, is accounted for as a
direct financing lease. During 1999, the Company received $189,000 in
minimum lease payments, of which $66,000 comprised direct financing income
and $123,000 is a non-revenue receipt accounted as principal reduction.
During 1998, the Company received $189,000 in minimum lease payments, of
which $78,000 comprised direct financing income and $111,000 is a
non-revenue receipt accounted as principal reduction. This lease expires
September 2003.
21
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal actions arising in the normal course
of business. After evaluation of these matters, including consideration of
legal counsel's evaluation, management is of the opinion that the outcome of
such litigation if determined adversely to the Company will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Principal Market:
The shares of beneficial interest of the Company, without par value, are
listed on the American Stock Exchange under the symbol "WIR." The following
table sets forth the high and low closing prices of the shares as reported by
the American Stock Exchange:
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends
- ------------- ---- --- ---------
<S> <C> <C> <C>
March 31, 1998 $15 5/16 $13 1/2 $0.28
June 30, 1998 $15 1/16 $12 5/8 $0.28
September 30, 1998 $14 $10 7/8 $0.28
December 31, 1998 $13 $11 1/16 $0.28
March 31, 1999 $12 7/16 $ 9 15/16 $0.28
June 30, 1999 12 11/16 10 5/8 0.28
September 30, 1999 11 3/4 10 9/16 0.28
December 31, 1999 11 9 3/8 0.28
Through
February 29, 2000 $10 5/8 $ 9 11/16 $0.28(1)
(1) Paid March 15, 2000
</TABLE>
Approximate number of equity security holders:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- -------------------------
(as of December 31, 1999)
<S> <C>
Shares of Beneficial Interest, without par value 1,830
</TABLE>
The Company estimates that there were over 18,000 beneficial owners of shares,
including owners whose shares were held in brokerage and trust accounts.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share and share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues (1)......................................... $58,698 $53,354 $47,551 $47,789 $46,290
Income before extraordinary item..................... 19,814 13,616 14,500 12,231 10,304
Extraordinary item................................... --- --- (1,620) --- ---
Net income .......................................... 19,814 13,616 12,880 12,231 10,304
Funds from operations (2) - Diluted.................. 26,129 23,435 22,392 22,274 21,017
Cash flows from operating activities................. 24,347 23,978 23,277 21,956 20,203
Cash dividends paid ................................. 19,337 19,300 19,207 19,102 18,882
Cash distributions paid to minority interest......... 1,604 --- --- --- ---
BASIC AND DILUTED EARNINGS PER SHARE DATA:
Income before extraordinary
item - Basic....................................... $ 1.15 $ 0.79 $ 0.84 $ 0.72 $ 0.61
Extraordinary item - Basic.......................... --- --- (0.09) --- ---
Net income - Basic................................... 1.15 0.79 0.75 0.72 0.61
Income before extraordinary
item - Diluted..................................... $ 1.15 $ 0.78 $ 0.84 $ 0.72 $ 0.61
Extraordinary item - Diluted......................... --- --- (0.09) --- ---
Net income - Diluted................................. 1.15 0.78 0.75 0.72 0.61
Cash dividends paid.................................. 1.12 1.12 1.12 1.12 1.12
Weighted average number
of shares outstanding -Basic.....................17,225,468 17,206,868 17,144,674 17,055,496 16,861,324
Weighted average number
of shares outstanding -Diluted...................18,699,731 17,487,443 17,158,292 17,068,701 16,861,324
BALANCE SHEET DATA:
Real estate investments (3)..........................$ 506,890 $ 501,195 $ 399,144 $ 400,711 $ 395,800
Total assets......................................... 427,266 426,891 337,521 339,629 344,571
Fixed-rate debt...................................... 134,630 134,803 124,766 111,207 114,609
Bank line............................................ 84,520 85,700 19,100 32,250 29,250
Shareholders' equity................................. 180,629 179,624 186,249 191,948 196,799
</TABLE>
(1) Revenues include minimum rents, percentage rents, recoveries from tenants,
interest income, income from unconsolidated real estate subsidiary and other
income.
(2) The Company considers Funds From Operations (FFO) to be an alternative
measure of an equity REIT's performance since FFO does not recognize
depreciation and amortization of real estate assets as reductions of income
from operations. For a further discussion of FFO, please refer to
Management's Discussion and Analysis on page 26.
(3) Real estate investments reflects acquisition costs and capitalized costs of
improvements before depreciation and amortization, investment in the
unconsolidated real estate subsidiary of the Company and mortgage notes
receivable.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of the consolidated financial condition
and results of operations of Western Properties Trust and its subsidiaries
(the "Company") should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this report on Form 10-K.
Historical results and percentage relationships set forth herein are not
necessarily indicative of future operations.
CAUTIONARY STATEMENTS
The discussions in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 that reflect management's current views with respect to future events
and financial performance. The matters described in such forward-looking
statements are subject to risks and uncertainties including, but not limited
to: the effects of future events on the Company's financial performance; the
risk that the Company may be unable to finance its planned acquisition and
development activities; risks related to the retail or commercial businesses
in which the Company's properties compete, including the potential adverse
impact of external factors, such as inflation, consumer confidence,
unemployment rates, consumer tastes and preferences, and the e-commerce
environment; risks associated with the Company's development activities, such
as the potential for cost overruns, delays and lack of predictability with
respect to the financial returns associated with these development
activities; the risk of potential increase in market interest rates from
current rates; and risks associated with real estate ownership, such as the
potential adverse impact of environmental contamination or changes in the
local economic climate on the revenues and the value of the Company's
properties.
OVERVIEW
Founded in 1962, Western Properties Trust ("Western") and its subsidiaries
own and operate community and neighborhood shopping centers located in the
western United States. At December 31, 1999, Western and its subsidiaries had
investments in 62 properties, primarily anchored by supermarkets and drug
stores, containing approximately 5.6 million square feet of gross leasable
area. The corporate office of this self-administered equity real estate
investment trust is located in the San Francisco Bay Area city of Emeryville,
California. Its shares are traded on the American Stock Exchange under the
symbol "WIR."
On August 19, 1999, Western changed its name from Western Investment Real Estate
Trust to Western Properties Trust.
24
<PAGE>
The accompanying Consolidated Financial Statements include the accounts of
Western, Western/Kienow's L.P., Western Pinecreek L.P. and GW100, a general
partnership (collectively, "the Company"). Western is the sole general
partner in Western/Kienow's L.P. and owned a 60% interest therein as of
December 31, 1999 and 1998. Western is also the sole general partner in
Western Pinecreek L.P. and owned a 75% interest therein as of December 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $24,347,000, $23,978,000 and
$23,277,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Operating cash flows exceeded dividends and distributions paid
of $20,941,000, $19,300,000 and $19,207,000 for 1999, 1998 and 1997,
respectively, by $3,406,000, $4,678,000 and $4,070,000 for 1999, 1998 and
1997, respectively.
Net cash used in investing activities was $1,028,000 and net cash used in
financing activities was $22,612,000 for the year ended December 31, 1999.
As of December 31, 1999, the Company's aggregate outstanding indebtedness of
$219,150,000 consisted of $124,822,000 in fixed-rate, long-term unsecured
senior notes, $84,520,000 of borrowings under the Company's variable-rate
credit facility (the "Bank Line") and $9,808,000 under a mortgage note
assumed in the acquisition of the Windsor, California property. Incurrence of
debt by the Company, in excess of the Bank Line of $100,000,000 and the
above-mentioned senior notes, would be subject to limitations imposed under
the Company's senior notes and Bank Line. The purpose of the Company's
variable-rate Bank Line is to provide working capital to facilitate the
funding of operating cash needs of the Company and property acquisitions and
development. The Bank Line bears interest at the London Interbank Offered
Rate ("LIBOR") plus 1.15%. The Company intends to renew or replace the Bank
Line before it expires on September 30, 2001.
The Company's ratio of debt to undepreciated cost of real estate on December
31, 1999 was 43%. The Company's interest coverage ratio for the year ended
December 31, 1999 was 2.8 times.
As of December 31, 1999, the Company was the obligor under a loan for
$9,808,000, which is secured by one property. However, if amounts due under
the Bank Line are not paid at maturity, the lender, at its option, can
require the Company to provide security interests in Company properties. The
Company has an ownership interest in one property where the co-owner is
obligated under a promissory note that is secured by the property.
The Company anticipates that cash flows provided by operations will continue
to provide adequate funds for all current principal and interest payments as
well as dividend payments required to maintain its status as a real estate
investment trust under the Internal Revenue Code. Cash on hand, proceeds from
the sale of properties held for sale and borrowings under the Bank Line, as
well as other debt and equity alternatives, are expected to provide
sufficient funds to finance the Company's future operations.
At December 31, 1999, the Company owned 14 properties that were held for
sale. These properties total approximately 966,000 leasable square feet and
have a net aggregate carrying value of $58,858,000.
25
<PAGE>
FUNDS FROM OPERATIONS
Industry analysts and the Company consider Funds From Operations ("FFO") to
be an alternative measure of an equity REIT's performance since such measure
does not recognize depreciation and amortization of real estate assets as
reductions of income from operations. Historical cost accounting for real
estate assets implicitly assumes that the value of real estate assets
diminishes predictably over time. Yet, since real estate values have
historically risen or fallen with market conditions, the Company, along with
most industry investors, considers presentation of operating results for real
estate companies that use historical cost accounting to be less than fully
informative.
The National Association of Real Estate Investment Trusts ("NAREIT") defines
FFO as net income calculated in accordance with generally accepted accounting
principles ("GAAP") plus depreciation and amortization of assets uniquely
significant to the real estate industry, reduced by gains and increased by
losses on (i) sales of property and (ii) extraordinary and "unusual items."
Effective January 1, 2000, net income will not be adjusted for unusual items
unless they qualify as extraordinary items under GAAP in calculating FFO.
This new interpretation will not have a significant impact on the Company.
FFO does not represent cash flows from operations as defined by GAAP and
should not be considered a substitute for net income as an indicator of the
Company's operating performance, or for cash flows as a measure of liquidity.
Furthermore, FFO as disclosed by other REITs may not be comparable to the
Company's calculation of FFO.
The table below provides a reconciliation of net income in accordance with
GAAP to FFO as calculated under NAREIT guidelines for the years ended
December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income......................................................... $19,814 $13,616 $12,880
Less: Gains on sales of real estate investments................. (6,854) (2,475) (4,898)
Plus: Real property depreciation................................ 10,038 10,763 9,799
Real property depreciation unconsolidated real estate..... 185 --- ---
Amortization of tenant improvement costs.................. 950 1,152 826
Amortization of leasing commission costs.................. 335 379 323
Cumulative effect of change in accounting principle....... 57 --- ---
Loss on early extinguishment of debt...................... --- --- 1,620
Management restructuring charge .......................... --- --- 1,842
---------------------------------------------
Funds From Operations, basic....................................... $24,525 $23,435 $22,392
Plus: Minority interest......................................... 1,604 --- ---
---------------------------------------------
Funds From Operations, diluted..................................... $26,129 $23,435 $22,392
---------------------------------------------
---------------------------------------------
</TABLE>
The dividend payout ratio for the years ended December 31, 1999, 1998 and 1997
(calculated as dividend distributions made by the Company for the applicable
period divided by diluted FFO) was 80%, 82% and 86%, respectively.
26
<PAGE>
Diluted FFO increased $2,694,000 to $26,129,000 in 1999 from $23,435,000 in
1998. The 1999 increase of 11% is primarily the result of increased revenues
partially offset by increased interest and other operating expenses. FFO
increased $1,043,000 to $23,435,000 in 1998 from $22,392,000 in 1997.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Net income increased $6,198,000 to $19,814,000, or $1.15 per diluted share,
in 1999, from $13,616,000, or $0.78 per diluted share, in 1998. This 46%
increase in net income is principally due to $4,379,000 of increased gains on
sales of properties in 1999. Additional significant contributions to this
increase resulted from increased revenues (minimum rents, recoveries from
tenants and interest income) and reduced depreciation and amortization,
partially offset by increased interest and other operating expenses.
DISPOSITIONS
The Company continually assesses its portfolio for possible dispositions of
properties that no longer fit its investment strategy criteria due to limited
prospects for growth in income, property type or for other reasons. During
1999, four office buildings, two single-tenant grocery stores and one parcel
of undeveloped land were sold, resulting in gains on sales of properties of
$6,854,000.
- On April 1, 1999, the Company sold an 18,253 square foot office
building located in Salinas, California, for $1,900,000, at a gain of
$68,000.
- On April 28, 1999, the Company sold a 47,150 square foot office
building located in Milpitas, California, for $6,726,000, at a gain of
$923,000.
- On April 29, 1999, the Company sold a 6,495 square foot office building
located in Cupertino, California, for $2,250,000, at a gain of
$1,122,000.
- On August 17, 1999, the Company sold a 35,326 square foot parcel of
undeveloped land located in Elko, Nevada, for $280,000, at a gain of
$189,000.
- On September 13, 1999, the Company sold a 26,500 square foot
single-tenant grocery store located in Watsonville, California, for
$3,000,000, at a gain of $2,124,000.
- On November 12, 1999, the Company sold a 44,420 square foot
single-tenant grocery store located in Hollister, California, for
$5,500,000, at a gain of $946,000.
- Also on November 12, 1999, the Company sold a 12,700 square foot office
building located on Market Street in San Francisco, California, for
$3,050,000, at a gain of $1,482,000.
ACQUISITIONS AND SIGNIFICANT LEASE
During 1999, the Company acquired (i) land that it intends to develop into a
shopping center and (ii) a shopping center interest. Also during 1999, the
Company entered into a lease on its Napa, California, property. These
transactions, along with a 12-month recognition of income generated
27
<PAGE>
from the 1998 investments, partially offset by the 1998 and 1999
dispositions, are the primary factors for increased revenues, interest
expense and property-related expenses. Certain 1999 transactions are
summarized below:
- On November 16, 1999, the Company acquired two parcels of land in the
downtown area of Walnut Creek, California, which will be part of a
retail development project. These parcels are located immediately north
of the Plaza Escuela (formerly Simon Hardware site) property on which
the Company is providing financing in the form of a participating
mortgage loan and development services. Total project costs for this
development project are expected to be approximately $33 million. The
Company expects to commence construction in the third or fourth quarter
of 2000. The Company anticipates financing the project through a joint
venture, property disposition proceeds, funding from the Bank Line
and/or through a third-party construction loan.
- On November 18, 1999, the Company acquired substantially all of the
remaining 50% interest of the Pine Creek Shopping Center in Grass
Valley, California, in a transaction valued at approximately $10
million. The Company acquired the other 50% ownership interest in 1989.
The 213,000 square foot shopping center is anchored by Raley's
Supermarket and J.C. Penney.The Company funded the purchase by using
approximately $4,500,000 from the Bank Line, $4,300,000 of proceeds
from tax deferred exchanges and by issuing 88,498 downREIT limited
partnership units valued at $1,283,000. The limited partnership units
are exchangeable into Western shares on a one for one basis after
certain conditions are met. The number of limited partnership units
issued was determined using a $14.50 share price for Western's shares.
The acquisition has been accounted for by the purchase method. The
Company consolidates the downREIT limited partnership. The interests of
the limited partners in the downREIT limited partnership are presented
as minority interests in the accompanying Consolidated Financial
Statements.
- On November 19, 1999, the Company entered into a 20-year lease
agreement with Wal-Mart for its Napa, California property, which was
previously leased to Kmart under a lease that expired in January 1999.
Wal-Mart will construct and pay for an entirely new 103,000-square-foot
building, with completion anticipated for the summer of 2000.
Interest income increased $823,000 to $1,756,000 in 1999 from $933,000
in 1998, primarily due to mortgage notes receivable, which were
originated in 1998 and were outstanding for the full year in 1999.
Income from the unconsolidated real estate subsidiary increased to $466,000
in 1999 from $12,000 in 1998. This increase reflects the benefit of
redevelopment and retenanting of eight of the Kienow's ten core properties.
The Company anticipates that the remaining two core properties will be leased
and generating rental income during 2000. (See Note 5 to the Consolidated
Financial Statements).
Other income increased $356,000 to $1,325,000 in 1999 from $969,000 in 1998.
This increase reflects development fees earned from third parties, partially
offset by decreased lease termination fee income in 1999 compared to 1998.
28
<PAGE>
The average occupancy for all property types (exclusive of the portfolio of
the unconsolidated real estate subsidiary, i.e., the Kienow's portfolio) was
93.8% at December 31, 1999 and 1998.
Interest expense for the years ending December 31, 1999, 1998 and 1997, was
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
INTEREST EXPENSE ON DEBT 1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Interest on unsecured Bank Line $5,381,000 $3,578,000 $1,884,000
Interest on unsecured senior notes 9,496,000 9,485,000 5,480,000
Interest on unsecured convertible debentures --- --- 4,159,000
Interest on mortgage loan payable 755,000 626,000 ---
Capitalized interest (1,307,000) (275,000) (12,000)
-----------------------------------------------------
Total interest expense $14,325,000 $13,414,000 $11,511,000
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
The average balance outstanding on the Bank Line and weighted average interest
rate for the years ending December 31, 1999, 1998 and 1997, was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
BANK LINE DATA 1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Average balance outstanding for the year $77,077,000 $49,275,000 $24,207,000
------------------------------------------------------
Weighted average interest rate 6.52% 6.83% 7.27%
------------------------------------------------------
------------------------------------------------------
</TABLE>
Interest expense increased $911,000 to $14,325,000 in 1999 due to increased
borrowings on the Bank Line during 1999. These balances largely resulted from
the fourth quarter 1998 acquisition of the unconsolidated real estate
subsidiary. This amount was offset in part by capitalized interest related to
projects under development.
Other operating expense increased $455,000 to $4,867,000 in 1999 from
$4,412,000 in 1998. The primary factors resulting in this increase are the
master lease payments on the Dublin property the Company entered into during
the third quarter of 1998, partially offset by capitalizing certain
development project costs in connection with the development and
redevelopment of properties.
General and administrative expense increased $515,000 to $3,248,000 in 1999
from $2,733,000 in 1998. This increase is primarily due to increased
compensation costs from the full year effect of the increased employee count
in 1998, the implementation of an employee performance bonus program and
higher executive compensation.
Minority interest expense was $1,604,000 in 1999. There was no minority
interest in income from consolidated subsidiaries in the year ended December
31, 1998. "Minority interest" refers to the earnings allocatable to the
outside partners in the Company's consolidated subsidiaries.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Net income increased $736,000 to $13,616,000, or $0.78 per share (calculated
using diluted weighted average shares outstanding), in 1998, from
$12,880,000, or $0.75 per share (calculated using diluted weighted average
shares outstanding), in 1997. This 6% increase in net income is principally
due to (i) increased revenues, (ii) the absence, in 1998, of the management
restructuring charge and loss on early extinguishment of debt incurred in
1997, partially offset by (iii) the
29
<PAGE>
reduction in gains on sales of properties of $2,423,000 between the years and
increased interest and other operating expenses.
During 1998, the Company entered into agreements to acquire or control the
operations of several shopping centers. These transactions are the primary
contributing factors for increased revenues, increased interest expense and
property related-expenses:
- On January 21, 1998, the Company acquired a 214,770 square
foot shopping center located in Modesto, California, for $17.5
million.
- On February 9, 1998, the Company acquired a 126,500 square
foot shopping center located in Windsor, California, for $20.9
million.
- On May 29, 1998, the Company entered into agreements to
redevelop and finance, by originating a $22.2 million
participating mortgage, a shopping center located in Walnut
Creek, California. On February 24, 1999, the participating
mortgage was amended to $26.5 million and on December 31,
1999, the participating mortgage was amended to provide
financing up to $42 million. Separate agreements also grant
the Company a right of first offer to purchase the property
and to receive development, leasing and management fees. The
participating mortgage, secured by the property, is expected
to earn a fixed interest rate of 9.0% per annum on fundings up
to $26.5 million and 10.5% per annum on fundings over $26.5
million, up to $42 million. In addition, the agreement
provides for the Company to participate in 25% of the
property's cash flow after debt service, as defined.
- On September 9, 1998, the Company entered into a master lease
agreement on a 154,000 square foot shopping center located in
Dublin, California, that provides the Company with an option
to purchase the property at a fixed price during the first
quarter of 2001. Under the master lease, the Company has full
control of all leasing, management and capital-expenditure
decisions for the property and receives all income from the
property. As part of the transaction, the Company funded an
$8.2 million, 8.5% per annum fixed-rate first trust-deed loan
secured by the property.
- On September 25, 1998, through a joint venture agreement, the
Company acquired a 127,600 square foot shopping center located
in Blaine, Washington, for $7.6 million.
- On October 30, 1998, the Company completed the acquisition of
an interest in Kienow's Food Stores, Inc., a Portland,
Oregon-based corporation, which is described in the Company's
financial statements as the unconsolidated real estate
subsidiary. (See Note 5 to the Consolidated Financial
Statements.)
Also during 1998, the Company sold two single-tenant retail properties, one
industrial property and one parcel of undeveloped land. The sale of these
properties resulted in partial offsets to increases in revenues, interest and
property-related expenses:
- On June 23, 1998, the Company sold a 58,704 square foot parcel
of undeveloped land located in North Reno, Nevada, for
$292,000, at a loss of $30,000.
30
<PAGE>
- On November 19, 1998, the Company sold a 20,300 square foot
industrial property located in Commerce City, Colorado, for
$1,100,000, at a loss of $19,000.
- On December 23, 1998, the Company sold a 41,013 square foot
freestanding grocery store located in Newman, California, for
$3,536,000, at a gain of $445,000.
- On December 29, 1998, the Company sold a 34,400 square foot
freestanding grocery store located in El Cerrito, California,
for $2,752,000, at a gain of $2,079,000.
The average occupancy for all property types (exclusive of the portfolio of
the unconsolidated real estate subsidiary) at December 31, 1998 was 93.8% as
compared to 92.2% at December 31, 1997.
Other income increased $264,000 to $969,000 in 1998 from $705,000 in 1997,
primarily due to fees earned on the Walnut Creek development.
Other operating expense increased $1,401,000 during 1998 to $4,412,000 from
$3,011,000 in 1997. This increase is due primarily to (i) increased
compensation costs for increased staffing associated with the Company's
enhanced acquisition, development and property operations capabilities, and
(ii) the master lease payment on the Dublin shopping center (see above).
General and administrative expense increased $992,000 during 1998 to
$2,733,000 from $1,741,000 in 1997. This increase is primarily due to
increased compensation costs.
INFLATION
Substantially all of the Company's leases with tenants contain provisions
that partially mitigate the impact of inflation. These provisions include,
but are not limited to, clauses providing for increases in base rent and/or
clauses enabling the Company to receive percentage rent based on tenants'
gross sales. Additionally, substantially all leases require the tenants to
pay their proportionate share of operating expenses, including common area
maintenance and real estate taxes, thereby reducing the Company's exposure to
increased costs and operating expenses resulting from inflation.
POTENTIAL FACTORS AFFECTING FUTURE OPERATING RESULTS
At December 31, 1999, the Company had total debt outstanding with a carrying
value of $219,150,000, including $84,520,000 outstanding under its Bank Line.
The Bank Line represents approximately 39% of the Company's total debt and
approximately 17% of the Company's historical cost of real estate owned. At
the present time, borrowings under the Company's Bank Line bear interest at a
floating rate. The weighted average interest rate on the Bank Line for the
year ended December 31, 1999 was 6.52% per annum. The Company recognizes that
its results from operations may be impacted negatively by future increases in
interest rates.
While the Company has historically been successful in renewing and reletting
space, the Company is subject to the risk that certain leases expiring in
2000 and beyond may not be renewed or the terms of renewal may be less
favorable to the Company than current lease terms. The Company expects to
incur costs in making improvements or repairs to its portfolio of properties
required by new or renewing tenants and expects to incur costs associated
with brokerage commissions payable in connection with the reletting of space.
31
<PAGE>
Many other factors affect the Company's actual financial performance and may
cause the Company's future results to be markedly outside of the Company's
current expectations.
COMPUTER SYSTEMS AND THE MILLENNIUM
As a result of computer programs being written using two digits (rather than
four digits) to define the applicable year, many computer systems will not be
able to process information beyond December 31, 1999. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. At December 31, 1999, a significant
portion of the Company's Local Area Network and Wide Area Network are Year
2000 compliant. Those nonessential systems, which are not Year 2000 compliant
and are destined to be retired soon, were simply shut-down temporarily during
the 1999 year-end. This did not result in any miscalculations or system
failures. At this writing (mid-March 2000), the Company knows of no
miscalculations or system failures, which occurred when the date passed
December 31, 1999.
The Company spent approximately $480,000 during 1999 on the conversion and
upgrade of its management information systems. It is anticipated that the new
systems will support planned future growth and increase efficiencies relating
to property operations. These costs were recorded as assets and are being
amortized.
Additionally, the Company undertook a survey of the key tenants, vendors,
banks and other parties it has significant business dealings with to
determine if reliance on these external sources could interrupt Company
operations. Based on the results of this survey, the Company does not expect
its operations to be significantly impacted. However, contingency plans were
considered in order to attempt to mitigate any potential disruption to
business operations as a result of noncompliant systems utilized by third
parties.
INCOME TAX STATUS AND TAXABILITY OF DIVIDENDS
The Company has elected to be taxed as a real estate investment trust under
the applicable provisions of the Internal Revenue Code and the comparable
California statutes. Under such provisions, the Company will not be taxed on
that portion of its taxable income currently distributed to shareholders,
provided that at least 95% of its real estate investment trust taxable income
is so distributed. Management believes that the Company has qualified, and
will continue to qualify, for tax purposes as a real estate investment trust.
As the Company intends to make distributions in excess of taxable income, no
provision is required to be made for federal or state income taxes in the
accompanying Consolidated Financial Statements.
Federal taxable income of the Company prior to the dividend-paid deductions
for the three years ended December 31, was: $13,600,000 in 1999; $14,619,000
in 1998; and $14,327,000 in 1997. The difference between net income for
financial reporting purposes and taxable income results primarily from
different methods of accounting for leases, depreciation of investment
properties and gains on property dispositions.
32
<PAGE>
The following table summarizes the taxability of distributions and dividends
paid during the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
Ordinary income................... 76.3% 78.1% 67.5%
Return of capital................. --- 20.3% 23.2%
Capital gains..................... 23.7% 1.6% 9.3%
----------------------------
Total............................. 100.0% 100.0% 100.0%
----------------------------
----------------------------
</TABLE>
No assurances can be made that future dividends and distributions will be
treated similarly. Each holder of stock may have a different basis in its stock
and, accordingly, each holder is advised to consult its tax advisors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate changes primarily as a result of its
Bank Line and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company's real estate portfolio and
operations. The Company's interest rate risk-management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower
its overall borrowing costs. The Company's objective with regard to long-term
debt is to borrow primarily at fixed rates.
Interest rate risk is monitored using a variety of techniques. The following
table presents the principal amounts, weighted average interest rates, fair
values and other terms required by year of expected maturity to evaluate the
expected cash flows and sensitivity to interest rate changes (in thousands
except for percentages):
<TABLE>
<CAPTION>
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
- --------------------------- --------- --------- --------- --------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable rate Bank Line -- $84,520 -- -- -- -- $84,520 $84,520
Average interest rate* 7.28%
Fixed rate senior notes -- -- -- -- $49,940 $74,882 $124,822 $114,930
Average interest rate* 7.92% 7.21%
Fixed rate mortgage note $217 $234 $252 $272 $8,833 -- $9,808 $9,808
Average interest rate* 7.61% 7.61% 7.61% 7.61% 7.61% --
*(per annum)
</TABLE>
33
<PAGE>
As the preceding table incorporates only those exposures that exist as of
December 31, 1999, it does not consider those exposures or positions that
could arise after that date. Moreover, because current and future funding
commitments are not presented in the table above, the information presented
therein has limited predictive value. As a result, the impact on the
Company's operating results with respect to interest rate fluctuations will
depend on the exposures that arise during the period, the Company's interest
rate risk management strategies at that time and interest rates.
This discussion of the Company's risk-management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.
34
<PAGE>
WESTERN PROPERTIES TRUST
Consolidated Financial Statements
and
Financial Statement Schedule
Form 10-K Item 8
December 31, 1999
35
<PAGE>
WESTERN PROPERTIES TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 37
Consolidated Balance Sheets - December 31, 1999 and 1998 38
Consolidated Statements of Income - For the Years Ended
December 31, 1999, 1998 and 1997 39
Consolidated Statements of Shareholders' Equity - For the Years Ended
December 31, 1999, 1998 and 1997 40
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1999, 1998 and 1997 41
Notes to Consolidated Financial Statements 42
Financial Statement Schedule III: Real Estate and
Accumulated Depreciation 61
</TABLE>
36
<PAGE>
Independent Auditors' Report
To the Trustees and Shareholders
Western Properties Trust:
We have audited the consolidated financial statements of Western Properties
Trust (formerly Western Investment Real Estate Trust) (a California real
estate investment trust) and subsidiaries as listed in the accompanying
index. In connection with our audit of the consolidated financial statements,
we have also audited the financial statement schedule listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Western
Properties Trust and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
San Francisco, California
February 8, 2000
37
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS WESTERN PROPERTIES TRUST
- ----------------------------------------------------------------------------------------------------------------------------
December 31,
ASSETS 1999 1998
---------------------- -------------------
(In thousands, except share data)
<S> <C> <C>
Real estate investments:
Real estate properties....................................................... $ 361,001 $ 410,183
Less accumulated depreciation and amortization............................... (73,189) (82,660)
----------- ----------
287,812 327,523
Real estate properties held for sale......................................... 81,697 30,288
Less accumulated depreciation and amortization............................... (22,839) (7,452)
----------- -----------
58,858 22,836
Unconsolidated real estate subsidiary (Note 5)............................... 46,963 44,564
Mortgage notes receivable.................................................... 17,229 16,160
---------- ----------
Net real estate investments............................................... 410,862 411,083
Cash and cash equivalents....................................................... 2,219 1,512
Accounts receivable, acquisition deposits, and other assets..................... 13,055 12,994
Deferred debt issuance costs, net............................................... 1,130 1,302
----------- -----------
$ 427,266 $ 426,891
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank line (Note 9).............................................................. $ 84,520 $ 85,700
Senior notes, net (Note 9)...................................................... 124,822 124,794
Mortgage payable................................................................ 9,808 10,009
----------- ----------
219,150 220,503
Interest payable................................................................ 3,561 3,670
Prepaid rents and security deposits............................................. 2,288 2,161
Other liabilities............................................................... 2,939 3,517
----------- ----------
8,788 9,348
----------- ----------
Total liabilities............................................................ 227,938 229,851
----------- ----------
Minority interest (Note 10)..................................................... 18,699 17,416
Shareholders' equity:
Preferred stock, 2,000,000 shares authorized;
Shares issued or outstanding.............................................. ---
Shares of beneficial interest, no par value,
Unlimited share authorization.
Issued and outstanding: December 31, 1999 - 17,236,470 shares.............
December 31, 1998 - 17,216,550 shares............. 242,269 241,741
Accumulated dividends in excess of net income................................ (61,640) (62,117)
----------- ----------
Commitments and contingencies (Notes 4, 6, 9 and 18)
Total shareholders' equity................................................... 180,629 179,624
----------- ----------
$427,266 $426,891
----------- ----------
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS WESTERN PROPERTIES TRUST
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands, except per share and share data)
<S> <C> <C> <C>
REVENUES:
Minimum rents....................................................... $44,567 $42,350 $37,845
Percentage rents.................................................... 886 539 552
Recoveries from tenants............................................. 9,698 8,551 8,088
Interest income..................................................... 1,756 933 361
Income from unconsolidated real estate subsidiary................... 466 12 ---
Other income........................................................ 1,325 969 705
---------- ---------- ----------
Total revenues......................................................... 58,698 53,354 47,551
---------- ---------- ----------
EXPENSES:
Interest............................................................ 14,325 13,414 11,511
Property operating costs............................................ 10,171 9,253 8,798
Depreciation and amortization....................................... 11,523 12,401 11,046
Other operating expenses............................................ 4,867 4,412 3,011
General and administrative.......................................... 3,248 2,733 1,741
Management restructuring charge..................................... --- --- 1,842
---------- ---------- ----------
Total expenses......................................................... 44,134 42,213 37,949
---------- ---------- ----------
Income before gains on sales of real estate
investments, minority interest and extraordinary item............ 14,564 11,141 9,602
Gains on sales of real estate investments........................... 6,854 2,475 4,898
Minority interest................................................... (1,604) --- ---
---------- ---------- ----------
Income before extraordinary item.................................... 19,814 13,616 14,500
Extraordinary item - loss on early extinguishments of debt.......... --- --- (1,620)
---------- ---------- ----------
Net income.......................................................... $19,814 $13,616 $12,880
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share data:
Income before extraordinary item.................................... $ 1.15 $ 0.79 $ 0.84
Extraordinary item -loss on early extinguishments of debt........... --- --- (0.09)
---------- ---------- ----------
Net income.......................................................... $ 1.15 $ 0.79 $ 0.75
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per share data:
Income before extraordinary item.................................... $ 1.15 $ 0.78 $ 0.84
Extraordinary item - loss on early extinguishment of debt........... --- --- (0.09)
---------- ---------- ----------
Net income.......................................................... $ 1.15 $ 0.78 $ 0.75
---------- ---------- ----------
---------- ---------- ----------
Cash dividends paid.................................................... $ 1.12 $ 1.12 $ 1.12
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares outstanding-Basic.................... 17,225,468 17,206,868 17,144,674
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares outstanding-Diluted.................. 18,699,731 17,487,443 17,158,292
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
39
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS WESTERN PROPERTIES TRUST
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except share data)
Accumulated
Dividends Total
Shares of in Excess of Share-
Beneficial Interest Net holders'
Number Amount Income Equity
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, January 1, 1997 17,138,432 $ 242,054 $ (50,106) $ 191,948
Net proceeds from issuance of shares........... 53,160 622 --- 622
Debenture redemptions.......................... 268 6 --- 6
Net income..................................... --- --- 12,880 12,880
Cash dividends paid............................ --- --- (19,207) (19,207)
---------- --------- --------- ---------
Balances, December 31, 1997 17,191,860 242,682 (56,433) 186,249
Net proceeds from issuance of shares........... 12,453 182 --- 182
Shares issued under restricted stock plan...... 12,237 176 --- 176
Loans to officers.............................. --- (1,299) --- (1,299)
Net income..................................... --- --- 13,616 13,616
Cash dividends paid............................ --- --- (19,300) (19,300)
---------- --------- --------- ---------
Balances, December 31, 1998 17,216,550 241,741 (62,117) 179,624
SHARES ISSUED UNDER RESTRICTED STOCK PLAN...... 19,920 268 --- 268
FORGIVENESS OF LOANS TO OFFICERS............... --- 260 --- 260
NET INCOME..................................... --- --- 19,814 19,814
CASH DIVIDENDS PAID............................ --- --- (19,337) (19,337)
---------- --------- --------- ---------
BALANCES, DECEMBER 31, 1999 17,236,470 $ 242,269 $ (61,640) $ 180,629
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
40
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS WESTERN PROPERTIES TRUST
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $ 19,814 $ 13,616 $ 12,880
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest...................................................... 1,604 --- ---
Depreciation and amortization.......................................... 11,523 12,401 11,046
Amortization of deferred debt issuance costs........................... 490 373 369
Gains on sales of real estate investments.............................. (6,855) (2,475) (4,898)
Earned compensation on restricted stock plan........................... 268 176 ---
Loss on early extinguishment of debt................................... --- --- 1,620
Loan forgiveness....................................................... 260 --- ---
Increase in accounts receivable and other assets....................... (1,561) (1,640) (418)
Increase in accrued rent receivable.................................... (636) (379) (471)
(Decrease) increase in interest payable................................ (109) 753 1,440
(Decrease) increase in prepaid rents, security deposits and other
liabilities............................................................ (451) 1,153 1,709
-------- -------- --------
Net cash provided by operating activities.............................. 24,347 23,978 23,277
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of real estate investments............................ 21,556 7,237 10,135
Proceeds from sale of marketable securities............................... --- 48 ---
Investment in mortgage note receivable.................................... (1,069) (14,869) (1,300)
Acquisition of real estate investments.................................... (15,999) (35,843) (283)
Investment in unconsolidated real estate subsidiary....................... (2,399) (27,148) ---
Funds released from escrow................................................ 2,625 7,117 ---
Funds escrowed pending acquisition........................................ --- (2,625) (7,117)
Improvements of real estate investments:
Build-to-suit developments............................................. (1,207) (335) (1,561)
New leases............................................................. (2,217) (2,725) (3,264)
General................................................................ (1,663) (668) (666)
Recovery of investment in direct financing leases......................... 145 364 316
Investment in unsecured note.............................................. (800) --- ---
-------- -------- --------
Net cash used in investing activities.................................. (1,028) (69,447) (3,740)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on Bank Line..................................................... 50,600 107,350 50,050
Principal payments on Bank Line........................................... (51,780) (40,750) (63,200)
Principal payments on real estate loan payable............................ (201) (156) ---
Loans to officers......................................................... --- (1,299) ---
Redemption of convertible debentures...................................... --- --- (61,310)
Net proceeds from issuance of shares...................................... --- 182 628
Net proceeds from senior notes offering................................... --- --- 74,851
Deferred long-term debt issuance costs.................................... (290) (509) (838)
Cash distributions to minority interest................................... (1,604) --- ---
Cash dividends paid....................................................... (19,337) (19,300) (19,207)
-------- -------- --------
Net cash (used in) provided by financing activities.................... (22,612) 45,518 (19,026)
-------- -------- --------
Net increase in cash and cash equivalents............................. 707 49 511
Cash and cash equivalents, at beginning of period......................... 1,512 1,463 952
-------- -------- --------
Cash and cash equivalents, at end of period............................... $ 2,219 $ 1,512 $ 1,463
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest net of capitalized interest of
$1,307,000, $275,000 and $12,000, in 1999, 1998 and 1997,
respectively............................................................ $ 13,945 $ 12,287 $ 9,702
-------- -------- --------
-------- -------- --------
NON CASH FINANCING ACTIVITY:
Real estate acquisition debt assumed...................................... $ --- $ 10,164 $ ---
-------- -------- --------
-------- -------- --------
Acquisitions through the issuance of partnership units.................... $ 1,283 $ 17,416 $ ---
-------- -------- --------
-------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
41
<PAGE>
WESTERN PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: ORGANIZATION AND BASIS OF PRESENTATION
Founded in 1962, Western Properties Trust ("Western") and its affiliates own and
operate community and neighborhood shopping centers located in the western
United States. At December 31, 1999, Western and its affiliates had investments
in 62 properties, primarily anchored by supermarkets and drug stores, containing
approximately 5.6 million square feet of gross leasable area. The corporate
office of the self-administered equity real estate investment trust is in the
San Francisco Bay Area city of Emeryville, California. Its shares are traded on
the American Stock Exchange under the symbol "WIR."
On August 19, 1999, pursuant to authority granted the Board of Trustees under
Western's Declaration of Trust, Western changed its name from Western Investment
Real Estate Trust to Western Properties Trust.
The accompanying Consolidated Financial Statements include the accounts of
Western, Western/Kienow's L.P., Western Pinecreek L.P. and GW100, a general
partnership in which Western has a controlling financial interest as of December
31, 1999 (collectively, the Company). Western is the sole general partner in
Western/Kienow's L.P. and owned a 60% interest as of December 31, 1999 and 1998.
Western is also the sole general partner in Western Pinecreek L.P. and owned a
75% interest as of December 31, 1999.
Western and its affiliates use the equity method of accounting to account for
investments that do not qualify for consolidation.
All significant intercompany accounts and transactions have been eliminated.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE INVESTMENTS
Properties comprising real estate investments are carried at the lower of
depreciated cost or fair value. Acquisition and development costs, which include
fees and costs incurred in acquiring or developing new properties, are
capitalized as incurred. Upon completion of acquisition or construction, these
costs are depreciated over the useful lives of the properties on a straight-line
basis. The estimated useful lives for properties range from 23 to 40 years for
buildings and 2 to 31 years for improvements.
When the Company decides to dispose of a property, it will assess the
recoverability of the net recorded value of the property and discontinue the
periodic depreciation of that property. Additionally, whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable, the recoverability of the carrying value of that property is
evaluated. If the sum of the undiscounted, expected future cash flows, exclusive
of interest, is less than the carrying value of that asset, a determination of
fair value of that asset is made. If the fair value is less than the carrying
value of that asset, an impairment charge is recognized. No impairment losses
have been recorded in the years ended December 31, 1999, 1998 or 1997.
42
<PAGE>
Included in real estate investments is a net investment in one direct financing
lease. This investment is carried at the aggregate minimum lease payments to be
received over the term of the lease, plus an estimated residual value, less
unearned income.
Expenditures for ordinary maintenance and repairs are expensed as incurred.
Significant renovations and improvements that enhance and/or extend the useful
life of a property are capitalized and depreciated over its estimated useful
life.
LEASING COMMISSIONS AND LEASING-RELATED COSTS
Direct incremental leasing commissions and leasing-related costs are capitalized
and amortized over the terms of the associated leases. The following table
provides a reconciliation of leasing commissions and leasing-related costs (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year.............. $1,975 $1,630 $1,587
Additions............................. 315 761 366
Dispositions.......................... (129) (37) ---
Amortization.......................... (335) (379) (323)
--------------------------------
Balance at end of year.................... $1,826 $1,975 $1,630
--------------------------------
--------------------------------
</TABLE>
RENTAL INCOME
The Company accrues base rental income (minimum contractual lease payments)
as earned. Certain of the Company's leases provide for additional rent based
on specified percentages of the lessee's store sales. Such percentage-based
rental income was recognized during 1996, 1997 and the first two quarters of
1998, based on estimates. Commencing on July 1, 1998, for the last two
quarters of 1998, the Company recognized percentage-based rental income in
accordance with EITF 98-9 issued in May 1998. EITF 98-9 permits revenue
recognition of percentage-based rental income only when tenants' sales exceed
the level at which such rents are contractually due.
The Company recognizes rental income and related accrued rental receivable in
accordance with FASB No. 13, ACCOUNTING FOR LEASES. Accrued rent receivable
(straight-line rental revenues in excess of contractually required payments)
included in income was $636,000 in 1999, $379,000 in 1998, and $471,000 in
1997.
INCOME TAX STATUS AND TAXABILITY OF DIVIDENDS
The Company has elected to be taxed as a real estate investment trust under
the applicable provisions of the Internal Revenue Code and the comparable
California statutes. Under such provisions, the Company will not be taxed on
that portion of its taxable income currently distributed to shareholders,
provided that at least 95% of its real estate investment trust taxable income
is so distributed. Management believes that the Company has qualified, and
will continue to qualify, for tax purposes as a real estate investment trust.
As the Company intends to make distributions in excess of taxable income, no
provision is required to be made for federal or state income taxes in the
accompanying Consolidated Financial Statements.
43
<PAGE>
The following table summarizes the taxability of distributions and dividends
paid during the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Ordinary income................... 76.3% 78.1% 67.5%
Return of capital................. --- 20.3% 23.2%
Capital gains..................... 23.7% 1.6% 9.3%
--------------------------------
Total............................. 100.0% 100.0% 100.0%
--------------------------------
--------------------------------
</TABLE>
No assurances can be made that future dividends and distributions will be
treated similarly. Each holder of stock may have a different basis in its stock
and accordingly, each holder is advised to consult its tax advisors.
CASH EQUIVALENTS
Cash equivalents comprise certain highly liquid investments with original
maturities of less than three months.
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs incurred in connection with the issuance of debt
are amortized over the term of the associated debt arrangements using a method
that approximates the interest method.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior-year financial statement amounts and related footnote
information for 1998 and 1997 have been reclassified to conform with the 1999
presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Financial Accounting Statement No. 133 (FASB
133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The
Company will adopt FASB 133 for interim periods beginning in 2001, the
effective date of FASB 133, as amended. Management believes that the adoption
of this Statement will not have a material impact on the Company's financial
statements.
44
<PAGE>
Note 3: REAL ESTATE INVESTMENTS
The following table provides a reconciliation of real estate properties,
properties held for sale and the related accumulated depreciation and
amortization for each (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REAL ESTATE PROPERTIES:
Balance at beginning of year........................................ $ 410,183 $ 392,470 $ 384,550
Increases: Acquisitions ........................................ 17,282 46,064 288
Improvements......................................... 4,714 2,967 4,878
Properties reclassified from held for sale........... 1,533 --- 3,070
Decreases: Properties reclassified as held for sale............. (72,495) (30,593) ---
Dispositions......................................... (71) (304) ---
Recovery of acquisition costs........................ --- (57) ---
Amortization of direct financing leases.............. (145) (364) (316)
--------- --------- ---------
Balance at end of year.............................................. $ 361,001 $ 410,183 $ 392,470
--------- --------- ---------
--------- --------- ---------
ACCUMULATED DEPRECIATION AND AMORTIZATION:
Balance at beginning of year........................................ $ 82,660 $ 77,642 $ 66,271
Increases: Depreciation expense................................. 10,988 11,915 10,625
Accumulated depreciation of properties
reclassified from held for sale................... --- --- 746
Decreases: Dispositions......................................... --- --- ---
Accumulated depreciation of properties
held for sale..................................... (20,459) (6,897) ---
--------- --------- ---------
Balance at end of year.............................................. $ 73,189 $ 82,660 $ 77,642
--------- --------- ---------
--------- --------- ---------
REAL ESTATE PROPERTIES HELD FOR SALE:
Balance at beginning of year........................................ $ 30,288 $ 5,382 $ 16,161
Increases: Improvements......................................... 58 --- 29
Properties reclassified as held for sale............. 72,495 30,593 --
Decreases: Properties no longer held for sale................... (1,533) --- (3,070)
Dispositions......................................... (19,611) (5,687) (7,738)
--------- --------- ---------
Balance at end of year.............................................. $ 81,697 $ 30,288 $ 5,382
--------- --------- ---------
--------- --------- ---------
ACCUMULATED DEPRECIATION AND AMORTIZATION:
Balance at beginning of year........................................ $ 7,452 $ 1,861 $ 5,525
Increases: Accumulated depreciation of properties
reclassified as held for sale..................... 20,459 6,897 ---
Decreases: Accumulated depreciation of properties
removed from market............................... --- --- (746)
Dispositions......................................... (5,072) (1,306) (2,918)
--------- --------- ---------
Balance at end of year.............................................. $ 22,839 $ 7,452 $ 1,861
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1999, the Company owned 14 properties that were held for sale.
These properties total 966,000 leasable square feet and have a net aggregate
carrying value of $58,858,000. The Company has determined that these properties
do not meet the Company's long-term strategic objectives, therefore, the Company
has developed disposition plans and is marketing the properties for sale.
Estimated fair values for these properties are in excess of recorded carrying
values. The Company ceases depreciation on assets classified as held for sale.
The net operating income from these properties included in 1999 operations was
$5,677,000. It is anticipated that these properties will be sold in 2000.
45
<PAGE>
As of December 31, 1999, only one of the Company's properties was security for a
mortgage. However, if amounts due under the Bank Line are not paid at maturity,
the lender, at its option, can require the Company to provide security interests
in Company properties. The Company has an ownership interest in one property
where the co-owner is obligated under a note that is secured by the property.
Most of the Company's leases require the tenant to be responsible for, or
reimburse the Company for, liability insurance coverage on the properties. The
Company maintains umbrella liability insurance on all of its properties and
monitors tenant compliance with liability insurance coverage requirements.
While the Company believes its properties are adequately insured, the Company
does not carry earthquake (except for the Windsor, California property, where
the secured lender requires earthquake insurance), flood or pollution coverage.
However, most major anchor tenants are required to rebuild or repair their
leased premises if damaged or destroyed, regardless of the cause. Most of the
Company's properties are located in areas of California and Nevada where
earthquakes have been known to occur. In the event of a major earthquake,
Company properties could suffer substantial damage or destruction. Since it
commenced real estate operations in 1964, the Company has not incurred any
material expense nor, to its knowledge, have any of its properties incurred any
material damage from earthquakes or floods.
The Company periodically considers the merits of purchasing earthquake insurance
for its properties. To date, the Company has not purchased earthquake insurance
because of (i) the high premiums and deductibles, and (ii) the Company's
geographically diversified portfolio that reduces the likelihood of material
loss as a consequence of earthquakes. Furthermore, the majority of properties in
the portfolio principally consist of relatively new, single-story buildings.
Note 4: CAPITAL EXPENDITURES
It is the Company's practice to capitalize costs that exceed $4,000 and are
associated with the improvement and rental of real estate investments.
Capitalized costs include leasing-related costs and property improvements.
Capital expenditures for the 12 months ended December 31, 1999, and 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
"Build to Suit" capital improvements................................ $ 1,207 $ 335
Capitalized costs incurred in connection with leasing previously
UNLEASED space.................................................. 99 78
Capitalized costs incurred in connection with leasing previously
LEASED space.................................................... 2,118 2,647
Capitalized costs that relate to improvements to common
areas........................................................... 1,663 668
------- ------
Total capitalized expenditures...................................... $ 5,087 $3,728
------- ------
------- ------
Improvements........................................................ $ 4,772 $2,967
Leasing-related costs............................................... 315 761
------- ------
Total capitalized expenditures...................................... $ 5,087 $3,728
------- ------
------- ------
</TABLE>
46
<PAGE>
During the year ended December 31, 1999, the Company entered into new leases
that obligate the Company to fund leasing commissions, tenant improvements and
build-to-suit developments. These obligations relate both to new leases and
lease renewals, a portion of which were funded during 1999 and are reflected in
the preceding table. In addition, a portion remains an obligation of the Company
at December 31, 1999 (See Note 18).
The aggregate and per square foot information representing expenditures
associated with leasing for the year ended December 31, 1999, is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
New Leases
- -------------------------------------------------------------------------------------------------------------------------
TENANT IMPROVEMENTS
Capitalized Costs All Expenditures
-------------------------------------- --------------------------------------
Per Per
Aggregate Square Square Aggregate Square Square
PROPERTY TYPE Amount Feet Foot Amount Feet Foot
------------- --------- ---- ---- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Shopping centers and
single-tenant retail
properties $ 1,972,640 202,401 $9.75 $ 2,011,525 260,869 $ 7.71
</TABLE>
- -------------------------------------------------------------------------------
LEASING COMMISSIONS
<TABLE>
<CAPTION>
Capitalized Costs All Expenditures
-------------------------------------- --------------------------------------
Per Per
Aggregate Square Square Aggregate Square Square
PROPERTY TYPE Amount Feet Foot Amount Feet Foot
------------- --------- ---- ---- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Shopping centers and
single-tenant retail
properties $ 315,998 156,498 $2.02 $ 324,030 260,869 $ 1.24
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Lease Renewals
- -------------------------------------------------------------------------------------------------------------------------
TENANTS IMPROVEMENTS
Capitalized Costs All Expenditures
-------------------------------------- --------------------------------------
Per Per
Aggregate Square Square Aggregate Square Square
PROPERTY TYPE Amount Feet Foot Amount Feet Foot
------------- --------- ---- ---- --------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Shopping centers and
single-tenant retail
properties $ 176,975 7,553 $ 23.43 $ 185,695 197,351 $ 0.94
</TABLE>
47
<PAGE>
Minimum rents per square foot data for new and renewal leases executed during
the 12 months ended December 31, 1999, is represented in the following table:
<TABLE>
<CAPTION>
Old New Old New
Coupon (1) to Coupon (2) Coupon (1) to Effective (3)
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
New leases $0.64 $0.93 $0.64 $0.97
Lease renewals $1.08 $1.13 $1.08 $1.18
Never before leased --- $1.19 --- $1.24
</TABLE>
(1) Old Coupon represents the LAST minimum monthly rent in effect
under the previous lease.
(2) New Coupon represents the INITIAL minimum monthly rent in effect
under the new lease.
(3) New Effective represents the AVERAGE minimum monthly rent in effect
under the new lease for the entire term of the lease.
Note 5: UNCONSOLIDATED REAL ESTATE SUBSIDIARY
In October 1998, the Company acquired Kienow's Food Stores, Inc. ("Kienow's"), a
Portland, Oregon-based grocery wholesaler and retailer, whose principal assets
were its real estate properties, in a transaction valued at approximately $55
million. Following an agreed-upon $11,000,000 stock redemption from Kienow's
cash on hand, the purchase price was paid $26,240,000 in cash and by issuance of
1,432,364 units in a newly formed downREIT limited partnership valued at
$17,416,000. The limited partnership units are exchangeable into Western shares
on a one-for-one basis. The number of limited partnership units issued was
determined using a $12.16 share price for Western's shares. The acquisition has
been accounted for by the purchase method. The Company consolidates the downREIT
limited partnership, which accounts for its investment in the newly formed
parent company of Kienow's, on the equity basis of accounting. The interests of
the limited partners in the downREIT limited partnership are presented as
minority interests in the accompanying Consolidated Financial Statements.
The Kienow's real estate portfolio included six shopping centers, four
freestanding stores (the "10 core properties"), seven non-core properties and
two leasehold properties. With this purchase, the Company intended to
discontinue the wholesale and retail grocery operations, retenant the
anchor-store space of the 10 core properties and dispose of non-core properties.
During 1999, the wholesale and retail grocery operations of the 10 core
properties were discontinued; four freestanding stores and four shopping centers
were redeveloped and retenanted and all but two of the seven non-core properties
were sold.
As of December 31, 1999, the summarized balance sheet information of Kienow's is
as follows (in thousands):
<TABLE>
<S> <C>
Net assets (primarily consisting of real estate properties)... $ 47,531
---------
---------
Other shareholders' equity.................................... $ (568)
---------
Company's share of equity..................................... $ 46,963
---------
---------
</TABLE>
For the 12 months ended December 31, 1999, the Company capitalized $1,299,000 of
interest cost.
Additionally, during the first quarter of 2000, the retail grocery operations
were discontinued at two locations under lease.
48
<PAGE>
Note 6: INVESTMENTS IN MORTGAGE LOANS
<TABLE>
<CAPTION>
December 31,
Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C> <C>
Loan on a retail property in Concord,
California, secured by a first deed of trust on
the property. Mortgage is due August 2007............. $1,236 $1,265 8.5% through August 31, 2002
9.0% after August 31, 2002
Loan on a shopping center in Dublin,
California, secured by a first deed of trust on
the property. Interest only is payable
monthly. Mortgage is due August 2004................. 8,200 8,200 8.5%
Participating loan on a shopping center under
development in Walnut Creek, California, secured
by a first deed of trust on the property. Total
loan commitment is $42 million. Mortgage is due
December 2008......................................... 7,793 6,695 9.0% on balances up to $26.5 million
--- --- 10.5% on balances above $26.5 million
------- --------
$17,229 $ 16,160
------- --------
------- --------
</TABLE>
Note 7: LEASES
OPERATING LEASE-RECEIVABLE
Future minimum lease payments scheduled to be received under operating leases
that have initial or remaining noncancelable lease terms in excess of one year
as of December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000............................. $ 44,289
2001............................. 41,536
2002............................. 38,311
2003............................. 33,533
2004............................. 27,659
Thereafter....................... 197,213
--------
Total............................ $382,541
--------
--------
</TABLE>
49
<PAGE>
DIRECT FINANCING LEASE - RECEIVABLE
At December 31, 1999, future minimum lease payments scheduled to be received
under a direct financing lease, range from $189,000 in 2000 to $142,000 in 2002.
At December 31, 1999, the Company's investment in one direct financing lease was
$863,000, and was determined by adding the estimated residual value of $275,000
to the total remaining minimum lease payments of $708,000, less unearned income
of $120,000. The original cost of the property subject to the direct financing
lease was $1,644,000. Included in other income is income recorded under direct
financing leases of $66,000, $105,000 and $155,000 in 1999, 1998 and 1997,
respectively.
OPERATING LEASE - PAYABLE
Future minimum lease payments scheduled to be paid that have initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000............................. $ 853
2001............................. 1,489
2002............................. 1,529
2003............................. 1,577
2004............................. 1,476
Thereafter....................... 13,764
--------
Total............................ $ 20,688
--------
--------
</TABLE>
Note 8: MAJOR TENANT
Raley's (including its subsidiary, Nob Hill Foods) leases 22 anchor store
properties from the Company. Rental revenues from these properties, which are
dispersed throughout California and Nevada, were $10,837,000, $10,413,000 and
$9,178,000 in 1999, 1998 and 1997, respectively. These amounts represented 18%,
20% and 19% of total revenues during 1999, 1998 and 1998, respectively. During
1999, two properties leased to Raley's were sold. Rental revenue in 1999 from
Raley's relating to the sold properties amounted to $678,000.
Note 9: BANK LINE, NOTES AND MORTGAGE PAYABLE
BANK LINE OF CREDIT
At December 31, 1999, the Company had $84,520,000 outstanding under its
$100,000,000 unsecured bank line of credit (the "Bank Line"). Interest on funds
drawn under the Bank Line is LIBOR plus 1.15% and is payable at the maturity of
each LIBOR contract. At December 31, 1999 and 1998, the weighted average
interest rate was 7.28% and 6.38% per annum, respectively. In addition, the
Company pays an annual fee of one quarter of one percent (0.25%) of the total
commitment. The Company is not required to pledge any assets or maintain
compensating balances for this Bank Line, although the Company has agreed to
certain covenants that impose limitations on the incurrence of debt and other
restrictions. Additionally, if amounts due under the Bank Line are not paid at
maturity, the lender, at its
50
<PAGE>
option, can require the Company to provide security interests in Company
properties. The Company intends to renew or replace this facility before it
expires on September 30, 2001.
In connection with the redevelopment of a property located in Walnut Creek,
California, the Company has obtained an irrevocable standby letter of credit in
the amount of $3,336,000 from one of the lenders with which the Company has its
Bank Line. The amount available under the Bank Line is reduced by the amount of
the letter of credit. This letter of credit expires April 30, 2006.
SENIOR NOTES
In February 1994, the Company sold $50,000,000 of unsecured senior notes (the
"1994 Notes") in a public offering. The 1994 Notes are due in 2004 and contain
certain covenants that impose limitations on the incurrence of debt and other
restrictions. These restrictions include a cap on total borrowings, minimum
shareholders' equity and income-coverage requirements. The 1994 Notes are not
redeemable prior to maturity.
In September 1997, the Company sold $75,000,000 of unsecured senior notes (the
"1997 Notes") in a public offering, comprising $25,000,000 due 2006, $25,000,000
due 2008 and $25,000,000 due 2010. The 1997 Notes were issued under the
Company's $150,000,000 shelf registration.
All senior notes outstanding at December 31, 1999 are summarized in the
following table (in thousands, except for interest rate and year data):
<TABLE>
<CAPTION>
Net Amount Coupon Interest Rate Due Date Years to Maturity
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$49,940 7.875% February 15, 2004 4
24,974 7.100% September 15, 2006 7
24,953 7.200% September 15, 2008 9
24,955 7.300% September 15, 2010 11
-------- ------ --
Total/Weighted
Average $124,822 7.470% 7
-------- ------ --
-------- ------ --
</TABLE>
As of December 31, 1999, the senior notes carried "investment grade" ratings
from Moody's Investor Service (Baa3) and Standard & Poor's Rating Services
(BBB-).
MORTGAGES PAYABLE
At December 31, 1999, the Company assumed a $9,808,000 mortgage note in its
acquisition of the Windsor, California shopping center. The note bears a fixed
rate of interest of 7.61% per annum, which is due May 2004 with a balloon
payment of $8,737,000.
Future minimum principal payments scheduled to be paid under the mortgage
payable as of December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000.............................. $ 217
2001.............................. 234
2002.............................. 252
2003.............................. 272
2004.............................. 8,833
-------
Total............................. $ 9,808
-------
-------
</TABLE>
51
<PAGE>
Note 10: MINORITY INTEREST
<TABLE>
<CAPTION>
Recorded Value of Indicated Value
Minority Interest No. of Units per Unit
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C> <C> <C>
Minority interest in limited partnership established October 1998
to acquire Kienow's in Portland, Oregon. Units are exchangeable
into Western shares on a one-for-one basis......................... $ 17,416 $ 17,416 1,432,364 $12.16
------
Minority interest in limited partnership established November 1999
to acquire interest in shopping center in Grass Valley, California.
Units are exchangeable into Western shares on a one-for-one basis
after certain conditions have been met............................. 1,283 -- 88,498 $14.50
-------- -------- --------- ------
$ 18,699 $ 17,416 1,520,862
-------- -------- ---------
-------- -------- ---------
</TABLE>
Note 11: LOANS TO RELATED PARTIES
In 1998, the Board of Trustees approved loans totaling $1.3 million to the
Company's Chief Executive Officer; Chief Financial Officer; Senior Vice
President, Investments; and Senior Vice President, Operations. The loan proceeds
were used to fund the purchase of Company shares of beneficial ownership by
these individuals in order to increase their ownership in the Company and to
more closely align their interests with those of shareholders. The loans bear
interest at a rate of 5.5% per annum (equal to the Applicable Federal Rate in
effect on the date the promissory notes were issued), are recourse and are
secured by a pledge of certain shares of beneficial ownership of the Company.
Because of the fulfillment of certain Company and individual goals, during
February 1999, the Board of Trustees forgave $260,000 of those loans granted to
such officers during 1998.
The Board of Trustees also approved loans to the Company's Chief Executive
Officer and Chief Financial Officer to fund their acquisition of the common
stock of Western Real Estate Services, Inc. (WRESI), in which the Company has a
97% economic interest. WRESI was formed to facilitate the acquisition of
Kienow's (see Note 5). The amount loaned to each individual was $283,750, with
interest at 7.5% per annum and maturity dates of October 30, 2008.
52
<PAGE>
Note 12: DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB No. 107 requires disclosure of fair value for all financial instruments.
The Company believes that the carrying amount approximates fair value for cash
and cash equivalents; accounts receivable, acquisition deposits, and other
assets; interest payable; security deposits; and other liabilities as of
December 31, 1999 and 1998, due to the short-term nature of these instruments.
The Company further believes that the carrying amounts of the mortgage notes
receivable, Bank Line and mortgage payable approximate fair value as of December
31, 1999 and 1998 because interest rates and terms for these instruments are
consistent with those currently available to the Company.
The estimated fair values of the Company's senior notes based on quoted market
prices as of December 31 are stated in the following table (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------- -------------------------
<S> <C> <C> <C> <C>
Senior notes ................ $ 124,822 $ 114,930 $ 124,794 $ 114,130
</TABLE>
Note 13: SEGMENT DISCLOSURE
FASB No. 131 requires disclosure about segments of the Company and related
information.
The Company evaluates performance and makes resource-allocation decisions on an
individual property basis. For financial reporting purposes, the Company has
grouped its properties into three segments: shopping centers (including shopping
centers under-development), single-tenant retail and other commercial
properties. Investments principally consist of real estate, but also include
real estate secured loans (three) and a real estate joint venture (one).
Nonsegment revenue consists of mainly interest income. Nonsegment assets include
cash, accounts receivable and deferred financing costs.
The accounting policies of the segments are the same as those described in
Note 1.
The Company assesses and measures segment operating results based on a
performance measure referred to as Funds From Operations ("FFO"). The National
Association of Real Estate Investment Trusts defines FFO as net income,
calculated in accordance with generally accepted accounting principles ("GAAP"),
plus depreciation and amortization of assets uniquely significant to the real
estate industry reduced by gains and increased by losses on (i) sales of
property and (ii) extraordinary and "unusual items." Effective January 1, 2000,
net income will not be adjusted for unusual items unless they qualify as
extraordinary items under GAAP in calculating FFO. This new interpretation will
not have a significant impact on the Company. FFO does not represent cash flows
from operations as defined by GAAP and should not be considered a substitute for
net income as an indicator of the Company's operating performance, nor for cash
flows as a measure of liquidity. Furthermore, FFO as disclosed by other REITs
may not be comparable to the Company's calculation of FFO.
53
<PAGE>
The revenues, profit (loss), assets and real estate investment capital
expenditures for each of the reportable segments are summarized as follows for
the years ended and as of December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Shopping centers.............................................. $ 51,787 $ 46,803 $ 41,121
Single-tenant retail.......................................... 2,079 2,320 2,722
Other commercial.............................................. 4,626 4,131 3,360
Nonsegment.................................................... 206 100 348
--------- --------- ---------
Total revenue.......................................... $ 58,698 $ 53,354 $ 47,551
--------- --------- ---------
--------- --------- ---------
PROFIT (LOSS)
Funds from operations:
Shopping centers...................................... $ 40,996 $ 37,166 $ 32,310
Single-tenant retail.................................. 1,927 2,185 2,591
Other commercial ..................................... 4,306 3,851 3,035
--------- --------- ---------
Total segment contribution to FFO............ 47,229 43,202 37,936
Interest income....................................... 187 90 359
Other income.......................................... 19 10 (11)
Interest expense...................................... (14,325) (13,414) (11,511)
Other operating expenses.............................. (3,590) (3,612) (2,542)
Personal property depreciation........................ (200) (108) (98)
General and administrative............................ (3,191) (2,733) (1,741)
--------- --------- ---------
Consolidated FFO............................. 26,129 23,435 22,392
Depreciation and amortization........................ (11,323) (12,294) (10,948)
Depreciation and amortization, unconsolidated real
estate.............................................. (185) --- ---
Minority interest.................................... (1,604) --- ---
Cumulative effect of change in accounting principle.. (57) --- ---
Gains on sales of real estate investments............ 6,854 2,475 4,898
Loss on early extinguishment of debt................. --- --- (1,620)
Management restructuring charges..................... --- --- (1,842)
--------- --------- ---------
Net income.................................................... $ 19,814 $ 13,616 $ 12,880
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Shopping centers.............................................. $ 387,075 $ 374,672
Single-tenant retail.......................................... 8,512 10,371
Other commercial.............................................. 22,343 28,146
Nonsegment.................................................... 9,336 13,702
--------- ---------
Total assets......................................... $ 427,266 $ 426,891
--------- ---------
--------- ---------
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REAL ESTATE INVESTMENT CAPITAL EXPENDITURES:
Acquisitions.................................................
Shopping centers..................................... $ 17,282 $ 35,843 $ 283
Single-tenant retail................................. --- --- ---
Other commercial..................................... --- --- ---
-------- -------- ------
Total acquisitions.............................. $ 17,282 $ 35,843 $ 283
======== ======== ======
Developments.................................................
Shopping centers..................................... $ 4,582 $ 2,691 $ 5,442
Single-tenant retail................................. 454 --- ---
Other commercial..................................... 51 1,037 49
-------- -------- -------
Total developments.............................. $ 5,087 $ 3,728 $ 5,491
-------- -------- -------
-------- -------- -------
</TABLE>
Note 14: STOCK OPTION PLAN
1988 STOCK OPTION PLAN
In May 1988, the Company adopted a nonqualified stock option plan (the "1988
Plan"). The purchase price of shares of beneficial interest purchased pursuant
to this plan is to be not less than the fair market value of the shares on the
date of grant. Options granted under the plan, which expire six years from the
grant date if not exercised, vest and become exercisable at a rate of 20% per
year from the date of grant until completely vested. A total of 300,000 shares
of beneficial interest have been authorized under the Plan. In 1998, as part of
adopting a new Equity Incentive Plan, the 1988 Plan was terminated;
consequently, no further options will be granted under the 1988 Plan.
Activity in the Company's 1988 share option plan during the three years ended
December 31, 1999, is summarized in the following table:
<TABLE>
<CAPTION>
Shares Available Options Weighted
for Future Granted and Average
Options Grants Outstanding Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/96 Balance 27,840 272,000 $12.67
- -----------------------------------------------------------------------------------------------------------------------
Exercised --- (53,160) $11.72
Expired 9,040 (9,040) $12.45
Granted (36,300) 36,300 $13.59
- -----------------------------------------------------------------------------------------------------------------------
12/31/97 Balance 580 246,100 $13.02
- -----------------------------------------------------------------------------------------------------------------------
Exercised --- (1,400) $11.46
Expired 8,300 (8,300) $12.76
Plan terminated (8,880) --- ---
- -----------------------------------------------------------------------------------------------------------------------
12/31/98 Balance --- 236,400 $13.03
- -----------------------------------------------------------------------------------------------------------------------
Exercised --- --- ---
Expired --- (66,800) $13.69
- -----------------------------------------------------------------------------------------------------------------------
12/31/99 Balance --- 169,600 $12.77
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
The following table summarizes information about the Company's 1988 Plan
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------- -----------------------------
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------- -----------------------------
Number of Weighted Weighted Weighted
Options Average Average Average
Range of Outstanding at Remaining Exercise Exercise
Exercise Prices December 31, 1999 Contractual life Price Options Price
- --------------------- -------------------------- ---------------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$11.00-$13.88 169,600 1.8 years $12.77 144,140 $12.69
</TABLE>
1998 EQUITY INCENTIVE PLAN
In May 1998, the Company adopted the 1998 Equity Incentive Plan (the "1998
Plan"). This Plan permits the Company to grant incentive stock options,
restricted stock, unrestricted stock, stock appreciation rights and nonqualified
stock options. A total of 850,000 shares of beneficial interest have been
authorized under the 1998 Plan.
Activity in the Company's 1999 Equity Incentive Plan is summarized in the
following table:
<TABLE>
<CAPTION>
- --------------------------- --------------- ---------------- ------------ --------------- ---------------- ------------ -----------
Shares Weighted
Available Non Stock Incentive Average
for Future -Qualified Restricted Unrestricted Appreciation Stock Exercise
Grants Stock Options Stock Stock Rights Options Price
- ---------------------------- -------------- ---------------- ------------- -------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/1997 Balance -0- -0- -0- -0- -0- -0- $ -0-
- ---------------------------- -------------- ---------------- ------------- -------------- ---------------- ------------ -----------
Plan adopted 850,000 --- --- --- --- --- $ ---
Options granted (532,000) 532,000 $13.92
Options expired 1,500 (1,500) $13.00
Restricted stock granted (41,500) 41,500 $14.36
Restricted stock issued (12,237) $14.40
- ---------------------------- -------------- ---------------- ------------- -------------- ---------------- ------------ -----------
12/31/1998 Balance 278,000 530,500 29,263 -0- -0- -0- $13.95
- ---------------------------- -------------- ---------------- ------------- -------------- ---------------- ------------ -----------
Options granted (215,400) 215,400 $11.15
Options expired 15,500 (15,500) $13.00
Restricted stock granted (20,000) 20,000 $11.25
Restricted stock issued (19,920) $13.40
- ---------------------------- -------------- ---------------- ------------- -------------- ---------------- ------------ -----------
12/31/1999 BALANCE 58,100 730,400 29,343 -0- -0- -0- $12.91
- ---------------------------- -------------- ---------------- ------------- -------------- ---------------- ------------ -----------
</TABLE>
The following table summarizes information about the Company's 1998 Equity
Incentive Plan grants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Grants Outstanding
- ---------------------------------------------------------------------------------------------------
Number of Weighted Weighted
Grants Average Average
Range of Outstanding at Remaining Exercise
Exercise Prices December 31, 1999 Contractual life Price
----------------------- ---------------------- ----------------------- ---------------------
<S> <C> <C> <C>
$10.56-$14.78 759,743 4.4 years $12.91
</TABLE>
56
<PAGE>
ACCOUNTING FOR STOCK-BASED COMPENSATION
Under FASB No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has
elected to continue to follow Accounting Principles Board Opinion 25 to account
for stock-based compensation and to make the disclosures set forth below as
required by FASB No. 123. Consequently, the Company has recorded no compensation
costs related to its stock options granted during 1999, 1998 and 1997.
The proforma effects on net income and net income per share data as if the
Company had elected to use the fair value approach to account for its employee
stock-based compensation plans are as follows (in thousands, except for per
share data):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------------------------ -------------------------------- ----------------------------
AS Adjusted As Adjusted As Adjusted
Reported Pro-Forma Reported Pro-Forma Reported Pro-Forma
-------------- --------------- --------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income................... $ 19,814 $ 19,516 $ 13,616 $ 13,299 $ 12,880 $ 12,852
Per share net income-Basic... $ 1.15 $ 1.13 $ 0.79 $ 0.77 $ 0.75 $ 0.75
Per share net income-Diluted $ 1.15 $ 1.13 $ 0.78 $ 0.76 $ 0.75 $ 0.75
</TABLE>
The weighted average fair value per option granted during the year ended
December 31, 1999, 1998 and 1997 was estimated on the date of grant using an
option-pricing model that approximates the Black-Scholes method.
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Fair value, per option....... $0.95 $1.48 $1.58
</TABLE>
The following assumptions were used for the options granted in 1999, 1998 and
1997. (The exercise price of options granted was the market price of the stock
on the date of grant.):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate...... 5.19% 4.67% 5.86%
Forfeiture rate.............. 3.48% 2.34% 8.63%
Share-volatility rate........ 21.10% 20.90% 21.10%
Dividend yield............... 10.04% 8.05% 8.18%
</TABLE>
Note 15: DIVIDEND REINVESTMENT PLAN
In accordance with the Dividend Reinvestment and Share Purchase Plan adopted by
the Company in 1990, dividend reinvestment proceeds of $551,000 were used to
purchase shares in the open market for participating shareholders during 1999.
During 1998, the Company received $166,000 net of issuance costs and issued
11,053 shares of beneficial interest. Additionally, $495,000 in dividend
reinvestment proceeds were used to purchase shares in the open market for
participating shareholders in 1998. During 1997, dividend reinvestment proceeds
of $699,000 were used to purchase shares in the open market for participating
shareholders.
57
<PAGE>
Note 16: EARNINGS PER SHARE
In February 1997, the FASB issued FASB No. 128, EARNINGS PER SHARE. The purpose
of this pronouncement is to show the effect of the exercise of certain options
and other convertible securities on earnings per share. A reconciliation of the
denominator used in the calculation of DILUTED EARNINGS PER SHARE for the years
ended December 31, 1999, 1998 and 1997 is shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding - Basic....................... 17,225,468 17,206,868 17,144,674
Plus: Options with exercise prices below year-end
market price of shares of beneficial interest ...... 1,645 11,931 13,618
Stock issued under restricted stock plan................ 29,343 29,263 ---
OP units convertible into shares of beneficial interest.. 1,443,275 239,381 ---
----------------------------------------------------
Adjusted weighted average shares outstanding - Diluted............ 18,699,731 17,487,443 17,158,292
</TABLE>
Additionally, during 1997 the Company had convertible debentures outstanding.
The principal balance of all debentures outstanding was redeemed during October
1997. The principal balance of the debentures at December 31, 1996 was
$61,310,000 and was convertible prior to maturity at a conversion price equal to
$22.23 per share. Conversion of these debentures would have had the effect of
increasing earnings per share for 1997, and as such, conversion was not assumed
in the above calculation.
The following stock options are not included in the diluted earnings per share
calculation because the options' exercise price was greater than the average
market price of the common shares for the year and, therefore, the effect would
be antidilutive:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C>
Number of options.................... 848,000 563,000 86,000
Range of exercise prices............. $11.25-$14.78 $13.31-$14.78 $13.81-$13.88
</TABLE>
58
<PAGE>
Note 17: QUARTERLY RESULTS OF OPERATIONS
The following is a summary of quarterly financial information for the last two
years:
<TABLE>
<CAPTION>
Unaudited Quarters
-------------------------------------------------------------
(In thousands, except per share and share data) First Second Third Fourth
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
- ----
TOTAL REVENUES................................................ $ 13,653 $ 14,696 $ 14,177 $ 16,172
--------- --------- --------- ---------
--------- --------- --------- ---------
INCOME BEFORE GAINS ON SALES OF REAL
ESTATE INVESTMENTS, MINORITY INTEREST
AND EXTRAORDINARY ITEM..................................... $ 3,224 $ 3,440 $ 3,318 $ 4,582
--------- --------- --------- ---------
--------- --------- --------- ---------
NET INCOME.................................................... $ 2,821 $ 5,154 $ 5,230 $ 6,609
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC EARNINGS PER SHARE...................................... $ 0.17 $ 0.30 $ 0.30 $ 0.38
DILUTED EARNINGS PER SHARE.................................... $ 0.17 $ 0.30 $ 0.30 $ 0.38
DIVIDENDS..................................................... $ 0.28 $ 0.28 $ 0.28 $ 0.28
WEIGHTED AVERAGE NUMBER OF SHARES-BASIC....................... 17,217,894 17,222,814 17,227,916 17,233,056
WEIGHTED AVERAGE NUMBER OF SHARES-DILUTED..................... 18,696,046 18,703,739 18,695,086 18,739,012
1998
- ----
Total revenues................................................ $ 11,872 $ 13,333 $ 12,969 $ 15,180
--------- --------- --------- ---------
--------- --------- --------- ---------
Income before gains on sales of real
estate investments, minority interest
and extraordinary item..................................... $ 2,391 $ 2,659 $ 2,737 $ 3,354
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income.................................................... $ 2,391 $ 2,629 $ 2,737 $ 5,859
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings per share...................................... $ 0.14 $ 0.15 $ 0.16 $ 0.34
Diluted earnings per share.................................... $ 0.14 $ 0.15 $ 0.16 $ 0.33
Dividends..................................................... $ 0.28 $ 0.28 $ 0.28 $ 0.28
Weighted average number of shares-Basic....................... 17,194,402 17,204,313 17,210,772 17,214,244
Weighted average number of shares-Diluted..................... 17,266,092 17,269,357 17,249,265 18,195,271
</TABLE>
Note 18: COMMITMENTS AND CONTINGENCIES
In connection with the redevelopment of a property located in Walnut Creek,
California, at December 31, 1999, the Company was committed to fund $34,207,000
on its $42 million note secured by a first deed of trust on the property under
development.
As of December 31, 1999, the Company has entered into several new leases that
call for approximately $1,515,000 in future real estate improvements and leasing
commissions.
The Company is routinely involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsel's evaluation
of such actions, management is of the opinion that such outcomes will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
59
<PAGE>
Investments in real property create a potential for environmental liability on
the part of the owner of such real property. If hazardous substances are
discovered on or emanating from any of the Company's properties, the Company
and/or others may be held strictly liable for all costs and liabilities relating
to the clean-up of such hazardous substances. The Company carries no insurance
coverage expressly for this type of environmental risk.
60
<PAGE>
Western Properties Trust Schedule III - Real Estate and Accumulated
Depreciation December 31, 1999 (In thousands except for dates of construction
and acquisition and depreciable lives)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D
- ------------------------------------------------ --------------- -------------------------- -----------------------------
Cost capitalized/(sold)
Initial cost to company subsequent to acquisition
------------------------- -----------------------------
Buildings and
Property Name Encumbrances Land Improvements Land Improvements
- ------------------------------------------------ --------------- ----------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
SHOPPING CENTER/RETAIL
Anderson Square, Anderson, CA $1,145 $2,125 $0 $450
Angel's Camp Town Center, Angels Camp, CA 580 4,447 0 148
Skypark Plaza Shopping Center, Chico, CA 2,854 10,454 0 2,292
Coalinga Shopping Center, Coalinga, CA (2) 816 2,144 0 977
Serra Center, Colma, CA (30% interest)(1) 433 914 0 459
Mercantile Row Shopping Center, Dinuba, CA 1,440 6,208 0 61
Dublin Shopping Center, Dublin, CA 0 0 0 66
Laguna 99 Shopping Center, Elk Grove, CA 2,791 11,194 0 20
Northridge Shopping Center, Fair Oaks, CA 1,666 6,830 0 661
Commonwealth Square Shopping Center, Folsom, CA 3,312 13,022 0 866
Victorian Walk Shopping Center, Fresno, CA (2) 1,120 7,356 0 234
Country Gables Shopping Center, Granite Bay, CA 2,704 12,684 0 919
Pinecreek Shopping Center, Grass Valley, CA 2,725 16,741 0 145
Heritage Oak Shopping Center, Gridley, CA (2) 1,603 3,597 0 367
Centennial Plaza Shopping Center, Hanford, CA 2,225 8,935 0 83
Plaza 580 Shopping Center, Livermore, CA 2,941 11,768 403 773
Canal Farms Shopping Center, Los Banos, CA 1,180 6,904 0 594
Mission Ridge Shopping Center, Manteca, CA 2,373 9,552 0 161
Century Center, Modesto, CA 2,950 14,568 0 80
Currier Square Shopping Center, Oroville, CA (2) 2,025 7,203 0 967
Eastridge Plaza Shopping Center, Porterville, CA 939 4,390 0 386
Belle Mill Landing, Red Bluff, CA (2) 2,247 6,043 0 1,957
Cobblestone Shopping Center, Redding, CA 2,375 7,969 0 236
On Broadway, Redwood City, CA 0 0 0 455
Kmart Center, Sacramento, CA 1,875 3,116 0 665
Elverta Crossing Shopping Center, Sacramento, CA 3,370 7,477 0 698
Heritage Park Shopping Center, Suisun, CA 3,575 12,187 0 772
Heritage Place Shopping Center, Tulare, CA 1,427 7,117 0 531
Blossom Valley Plaza, Turlock, CA 2,448 8,315 0 465
Ukiah Crossroads Shopping Center, Ukiah, CA (2) 1,925 8,119 0 362
Park Place Shopping Center, Vallejo, CA 3,850 11,291 109 1,123
Former Cal Fed Site, Walnut Creek, CA 5,659 2,818 0 101
Lakewood Village, Windsor, CA 9,808 4,175 16,761 0 23
Yreka Junction, Yreka, CA 1,350 5,846 288 2,087
Raley's Shopping Center, Yuba City, CA 2,101 5,151 0 1,823
Eagle Station Shopping Center, Carson City, NV 1,735 7,585 0 378
Elko Junction Shopping Center, Elko, NV 2,516 7,631 (184) 6,524
continued on next page
<CAPTION>
-------------------------------------------------------------------------------
Column E Column F Column G
---------------------------------------------------- ------------- ------------
Gross amount at which carried at close of period.
----------------------------------------------------
Properties
Operating
under Direct
Buildings and Financing Accumulated Date of
Land Improvements Leases Total Depreciation Construction
-------------- --------------- ------------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTER/RETAIL
Anderson Square, Anderson, CA $1,145 $2,575 $3,720 $1,018 1979
Angel's Camp Town Center, Angels Camp, CA 580 4,595 5,175 1,982 1986
Skypark Plaza Shopping Center, Chico, CA 2,854 12,746 15,600 4,548 1985/1991
Coalinga Shopping Center, Coalinga, CA (2) 816 3,121 3,937 1,359 1977
Serra Center, Colma, CA (30% interest)(1) 433 1,373 1,806 813 1972
Mercantile Row Shopping Center, Dinuba, CA 1,440 6,269 7,709 1,866 1990
Dublin Shopping Center, Dublin, CA 0 66 66 0 1990
Laguna 99 Shopping Center, Elk Grove, CA 2,791 11,214 14,005 2,038 1993
Northridge Shopping Center, Fair Oaks, CA 1,666 7,491 9,157 1,347 1958/1986
Commonwealth Square Shopping Center, Folsom, CA 3,312 13,888 17,200 4,289 1988/1997
Victorian Walk Shopping Center, Fresno, CA (2) 1,120 7,590 8,710 2,683 1988
Country Gables Shopping Center, Granite Bay, CA 2,704 13,603 16,307 3,924 1988
Pinecreek Shopping Center, Grass Valley, CA 2,725 16,886 19,611 2,889 1988
Heritage Oak Shopping Center, Gridley, CA (2) 1,603 3,964 5,567 1,461 1981
Centennial Plaza Shopping Center, Hanford, CA 2,225 9,018 11,243 1,636 1991
Plaza 580 Shopping Center, Livermore, CA 3,344 12,541 15,885 2,223 1993/1996
Canal Farms Shopping Center, Los Banos, CA 1,180 7,498 8,678 2,927 1988
Mission Ridge Shopping Center, Manteca, CA 2,373 9,713 12,086 1,768 1993
Century Center, Modesto, CA 2,950 14,648 17,598 942 1979
Currier Square Shopping Center, Oroville, CA (2) 2,025 8,170 10,195 2,732 1969/1989
Eastridge Plaza Shopping Center, Porterville, CA 939 4,776 5,715 1,878 1985
Belle Mill Landing, Red Bluff, CA (2) 2,247 8,000 10,247 2,937 1982/1987/1994
Cobblestone Shopping Center, Redding, CA 2,375 8,205 10,580 3,113 1984
On Broadway, Redwood City, CA 0 455 455 0
Kmart Center, Sacramento, CA 1,875 3,781 5,656 1,638 1964/1986
Elverta Crossing Shopping Center, Sacramento, CA 3,370 8,175 11,545 2,245 1991/1993
Heritage Park Shopping Center, Suisun, CA 3,575 12,959 16,534 4,007 1989
Heritage Place Shopping Center, Tulare, CA 1,427 7,648 9,075 3,177 1986
Blossom Valley Plaza, Turlock, CA 2,448 8,780 11,228 2,659 1988/1991
Ukiah Crossroads Shopping Center, Ukiah, CA (2) 1,925 8,481 10,406 2,911 1986
Park Place Shopping Center, Vallejo, CA 3,959 12,414 16,373 3,978 1987
Former Cal Fed Site, Walnut Creek, CA 5,659 2,919 8,578 4 1993/1995
Lakewood Village, Windsor, CA 4,175 16,784 20,959 1,039 1993/1995
Yreka Junction, Yreka, CA 1,638 7,933 9,571 2,347 1984/1997
Raley's Shopping Center, Yuba City, CA 2,101 6,974 9,075 2,391 1963/1984
Eagle Station Shopping Center, Carson City, NV 1,735 7,963 9,698 2,637 1982
1986/1991/1994
Elko Junction Shopping Center, Elko, NV 2,332 14,155 16,487 3,394 1996/1997
continued on next page
<CAPTION>
--------- ---------------
Column H Column I
--------- ---------------
Life on which
depreciation
in the latest
income
Date statement is
Acquired computed
--------- ----------------
<S> <C> <C>
SHOPPING CENTER/RETAIL
Anderson Square, Anderson, CA 1987 5 to 31
Angel's Camp Town Center, Angels Camp, CA 1985 5 to 31
Skypark Plaza Shopping Center, Chico, CA 1988 3 to 31
Coalinga Shopping Center, Coalinga, CA (2) 1987 3 to 31
Serra Center, Colma, CA (30% interest)(1) 1973/1988 6 to 31
Mercantile Row Shopping Center, Dinuba, CA 1990 3 to 31
Dublin Shopping Center, Dublin, CA 1990 10
Laguna 99 Shopping Center, Elk Grove, CA 1994 3 to 32
Northridge Shopping Center, Fair Oaks, CA 1994 5 to 31
Commonwealth Square Shopping Center, Folsom, CA 1990 3 to 31
Victorian Walk Shopping Center, Fresno, CA (2) 1988 5 to 31
Country Gables Shopping Center, Granite Bay, CA 1991 3 to 31
Pinecreek Shopping Center, Grass Valley, CA 1989 3 to 31
Heritage Oak Shopping Center, Gridley, CA (2) 1987 1 to 31
Centennial Plaza Shopping Center, Hanford, CA 1994 3 to 31
Plaza 580 Shopping Center, Livermore, CA 1994/1996 4 to 31
Canal Farms Shopping Center, Los Banos, CA 1986 3 to 32
Mission Ridge Shopping Center, Manteca, CA 1994 5 to 31
Century Center, Modesto, CA 1998 1 to 31
Currier Square Shopping Center, Oroville, CA (2) 1989 2 to 31
Eastridge Plaza Shopping Center, Porterville, CA 1985 3 to 35
Belle Mill Landing, Red Bluff, CA (2) 1987 3 to 31
Cobblestone Shopping Center, Redding, CA 1988 3 to 31
On Broadway, Redwood City, CA
Kmart Center, Sacramento, CA 1986 3 to 31
Elverta Crossing Shopping Center, Sacramento, CA 1990 3 to 31
Heritage Park Shopping Center, Suisun, CA 1990 3 to 31
Heritage Place Shopping Center, Tulare, CA 1987 2 to 31
Blossom Valley Plaza, Turlock, CA 1990 3 to 31
Ukiah Crossroads Shopping Center, Ukiah, CA (2) 1989 2 to 31
Park Place Shopping Center, Vallejo, CA 1990 3 to 31
Former Cal Fed Site, Walnut Creek, CA 1998 31
Lakewood Village, Windsor, CA 1998 5 to 31
Yreka Junction, Yreka, CA 1990/1997 5 to 31
Raley's Shopping Center, Yuba City, CA 1986 3 to 40
Eagle Station Shopping Center, Carson City, NV 1989 3 to 31
Elko Junction Shopping Center, Elko, NV 1988/1993 3 to 31
continued on next page
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D
- ------------------------------------------------ --------------- -------------------------- -----------------------------
Cost capitalized/(sold)
Initial cost to company subsequent to acquisition
------------------------- -----------------------------
Buildings and
Property Name Encumbrances Land Improvements Land Improvements
- ------------------------------------------------ --------------- ----------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
SHOPPING CENTER/RETAIL
Dodge Center, Fallon, NV (2) 405 1,595 0 32
Caughlin Ranch Shopping Center, Reno, NV 2,950 7,123 0 468
North Hills Shopping Center, Reno, NV (2) 5,406 6,911 (304) 282
Blaine International Center, Blaine, WA 1,509 6,102 0 131
-----------------------------------------------------------------------
Total Shopping Center/Retail 9,808 88,720 300,193 312 29,822
SINGLE TENANT/RETAIL
Kmart, Napa, CA 415
Raley's Supermarket, Fallon, NV (2) 1,000 3,220 0 0
West Town, Winnemuca, NV 130 3,386 0 0
-----------------------------------------------------------------------
Total Single Tenant/Retail 0 1,130 6,606 0 415
COMMERCIAL
Coast Savings & Loan, Monterey, CA (2) 911 2,189 0 0
Redwood II, Petaluma, CA (2) 1,017 3,052 0 814
Coast Savings & Loan (Taraval St), San Francisco, CA (2) 366 1,824 0 0
3450 California St., San Francisco, CA (2) 1,450 1,159 0 279
Viking Freight Systems, Santa Clara, CA 548 0 0 0
Coast Savings & Loan, Santa Cruz, CA (2) 205 823 0 0
-----------------------------------------------------------------------
Total Commercial 0 4,497 9,047 0 1,093
-----------------------------------------------------------------------
Total All Properties $9,808 $94,347 $315,846 $312 $31,330
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------
Column E Column F Column G
---------------------------------------------------- ------------- ------------
Gross amount at which carried at close of period.
----------------------------------------------------
Properties
Operating
under Direct
Buildings and Financing Accumulated Date of
Land Improvements Leases Total Depreciation Construction
-------------- --------------- ------------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTER/RETAIL
Dodge Center, Fallon, NV (2) 405 1,627 2,032 1,224 1976
Caughlin Ranch Shopping Center, Reno, NV 2,950 7,591 10,541 2,215 1990/1991
North Hills Shopping Center, Reno, NV (2) 5,102 7,193 12,295 2,605 1986
Blaine International Center, Blaine, WA 1,509 6,233 7,742 253 1991
--------------------------------------------------------------
Total Shopping Center/Retail 89,032 330,015 0 419,047 89,097
SINGLE TENANT/RETAIL
Kmart, Napa, CA 0 415 0 415 0 1964
Raley's Supermarket, Fallon, NV (2) 1,000 3,220 4,220 805 1991
West Town, Winnemuca, NV 130 3,386 3,516 2,003 1978/1991
--------------------------------------------------------------
Total Single Tenant/Retail 1,130 7,021 0 8,151 2,808
COMMERCIAL
Coast Savings & Loan, Monterey, CA (2) 911 2,189 3,100 1,182 1963
Redwood II, Petaluma, CA (2) 1,017 3,866 4,883 952 1985
Coast Savings & Loan (Taraval St), San Francisco, CA (2) 366 1,824 2,190 985 1975
3450 California St., San Francisco, CA (2) 1,450 1,438 2,888 735 1957/1987
Viking Freight Systems, Santa Clara, CA 548 0 863 1,411 N/A 1978
Coast Savings & Loan, Santa Cruz, CA (2) 205 823 1,028 269 1980
--------------------------------------------------------------
Total Commercial 4,497 10,140 863 15,500 4,123
--------------------------------------------------------------
Total All Properties $94,659 $347,176 $863 $442,698 $96,028
--------------------------------------------------------------
--------------------------------------------------------------
<CAPTION>
--------- ---------------
Column H Column I
--------- ---------------
Life on which
depreciation
in the latest
income
Date statement is
Acquired computed
--------- ----------------
<S> <C> <C>
SHOPPING CENTER/RETAIL
Dodge Center, Fallon, NV (2) 1977 31
Caughlin Ranch Shopping Center, Reno, NV 1990 3 to 31
North Hills Shopping Center, Reno, NV (2) 1988/1993 3 to 31
Blaine International Center, Blaine, WA 1998 31
Total Shopping Center/Retail
SINGLE TENANT/RETAIL
Kmart, Napa, CA 1966 N/A
Raley's Supermarket, Fallon, NV (2) 1991 31
West Town, Winnemuca, NV 1978 25 to 31
Total Single Tenant/Retail
COMMERCIAL
Coast Savings & Loan, Monterey, CA (2) 1985 25
Redwood II, Petaluma, CA (2) 1989 5 to 31
Coast Savings & Loan (Taraval St), San Francisco, 1985 25
3450 California St., San Francisco, CA (2) 1987 10 to 31
Viking Freight Systems, Santa Clara, CA 1978 N/A
Coast Savings & Loan, Santa Cruz, CA (2) 1986 40
Total Commercial
Total All Properties
</TABLE>
(1) Serra Center is encumbered by a note and deed of trust under which the
70% co-owner is the borrower.
(2) Western is holding this property for sale.
(3) The aggregate cost or adjusted basis of rental property for federal
income tax purposes reconciles to the amount reflected in the financial
statements at December 31, 1999 as follows:
Basis for federal income tax purposes 336,842
Direct financing leases capitalized for financial
reporting purposes (3,153)
Reduction in tax basis for deferred gains on
condemnation and other sales and discharge of
indebtedness 7,164
Miscellaneous differences (21)
-------------
Financial statement reporting basis 340,832
-------------
-------------
62
<PAGE>
WESTERN PROPERTIES TRUST
1999 BUILDING IMPROVEMENT AND LEASING RELATED COST ADDITIONS (Unaudited)
<TABLE>
<CAPTION>
NAME LOCATION BUILDING LEASING
- ---- -------- IMPROVEMENT RELATED COST
----------- ------------
SHOPPING CENTERS / RETAIL
-------------------------
<S> <C> <C> <C>
ANDERSON SQUARE ANDERSON, CA $75 $0
BLAINE INTERNATIONAL CENTER BLAINE, WA 17 20
EAGLE STATION CARSON CITY, NV 155 13
SKYPARK PLAZA CHICO, CA 32 -
COALINGA COALINGA, CA 18 -
MERCANTILE ROW DINUIBA, CA (3) -
DUBLIN DUBLIN, CA 66 -
LAGUNA 99 PLAZA ELK GROVE, CA 4 -
ELKO JUNCTION ELKO, NV 21 -
NORTHRIDGE FAIR OAKS, CA 486 -
COMMONWEALTH SQUARE FOLSOM, CA 20 -
VICTORIAN WALK FRESNO, CA 12 -
COUNTRY GABLES GRANITE BAY, CA 109 7
PINECREEK GRASS VALLEY, CA 21 5
HERITAGE OAK GRIDLEY, CA 249 20
CENTENNIAL PLAZA HANFORD, CA - 14
PLAZA 580 LIVERMORE, CA 7 5
CENTURY CENTER MODESTO, CA 119 4
NAPA NAPA, CA 305 150
CURRIER SQUARE OROVILLE, CA 6 4
EASTRIDGE PLAZA PORTERVILLE, CA 321 7
BELLE MILL LANDING RED BLUFF, CA 30 14
COBBLESTONE REDDING, CA 8 -
ON BROADWAY REDWOOD CITY 455 -
NORTH HILLS RENO, NV 192 7
CAUGHLIN RANCH RENO, NV 25 16
KMART CENTER SACRAMENTO, CA 15 5
ELVERTA CROSSING SACRAMENTO, CA 21 -
HERITAGE PARK SUISUN, CA 360 4
HERITAGE PLACE TULARE, CA 7 -
BLOSSOM VALLEY PLAZA TURLOCK, CA 26 -
CROSSROADS UKIAH, CA 14 -
PARK PLACE VALLEJO, CA 10 1
OLYMPIC PLACE WALNUT CREEK 71 -
LAKEWOOD VILLAGE WINDSOR 23 -
YREKA JUNCTION YREKA, CA 1,016 19
RALEY'S CENTER YUBA CITY, CA 408 -
-------- -------
SUBTOTAL - SHOPPING CENTERS / RETAIL $ 4,721 $ 315
-------- -------
COMMERCIAL
----------
PETALUMA OFFICE BUILDING PETALUMA, CA $1 $0
HEALD COLLEGE MILPITAS, CA 50 -
-------- -------
SUBTOTAL - COMMERCIAL $ 51 $ -
-------- -------
TOTAL $ 4,772 $ 315
-------- -------
-------- -------
</TABLE>
63
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
There have been no disagreements with the independent accountants on the
Company's accounting and financial disclosure. Additionally, there has been no
change of the independent accountant engaged to audit the Company's financial
statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the trustees and executive officers of the Company
is incorporated by reference to the section entitled "Trustees and Executive
Officers" of the Company's definitive Proxy Statement in connection with the
Annual Meeting of Shareholders to be held May 11, 2000, which will be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this Form 10-K, pursuant to General Instruction G to this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is incorporated by reference
to the sections entitled "Compensation of Trustees", "Compensation of Executive
Officers", "Compensation Pursuant to Plans or Arrangements", "Stock Option
Grants and Exercises" and "Report of Compensation Committee on Executive
Compensation" of the Company's definitive Proxy Statement in connection with the
Annual Meeting of Shareholders to be held May 11, 2000, which will be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this Form 10-K, pursuant to General Instruction G to this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners and
management is incorporated by reference to the section entitled "Ownership of
Shares" of the Company's definitive Proxy Statement in connection with the
Annual Meeting of Shareholders to be held May 11, 2000, which will be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this Form 10-K, pursuant to General Instruction G to this Form 10-K.
64
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following table details Officer loans with the Company as of December 31,
1999:
<TABLE>
<CAPTION>
Name Amounts Maturity Date Interest Rate
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Brad Blake $ 399,831 (1) February 28, 2001 5.58%
Dennis Ryan 240,000 (1) February 28, 2001 5.58%
Josh Smith 199,959 (1) February 28, 2001 5.58%
Jerry Hunt 200,000 (1) February 28, 2001 5.58%
Brad Blake 283,750 (2) October 30, 2008 7.50%
Dennis Ryan 283,750 (2) October 30, 2008 7.50%
-----------------------------------------------------------------------------
$1,607,290
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
(1) The loan proceeds were used to fund the purchase of Company shares of
beneficial ownership by these individuals in order to increase their
ownership in the Company and to more closely align their interests with
those of the shareholders. The loans bear interest at a rate of 5.58%
per annum (equal to the Applicable Federal Rate in effect on the date
the promissory notes were issued), are recourse and are secured by a
pledge of certain shares of beneficial ownership of the Company.
(2) The loan proceeds were used to fund their acquisition of the common
stock of Western Real Estate Services, Inc. (WRESI), in which the
Company has a 97% economic interest. WRESI was formed to facilitate
the acquisition of Kienow's (see Note 5 to the consolidated financial
statements).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) 1. Consolidated Financial Statements - Included in Item 8 PAGE
----
<S> <C>
Independent Auditors' Report 37
Consolidated Balance Sheets - December 31, 1999 and 1998 38
For the Years Ended
December 31, 1999, 1998 and 1997:
Consolidated Statements of Income 39
Consolidated Statements of Shareholders' Equity 40
Consolidated Statements of Cash Flows 41
Notes to Consolidated Financial Statements 42
2. Financial Statement Schedule III: Real Estate and
Accumulated Depreciation 61-62
3. Additional Information: 1999 Building Improvement
and Leasing Related Cost Additions (unaudited) 63
65
<PAGE>
<CAPTION>
(b) 1. Reports on Form 8-K. PAGE
----
<S> <C>
Form 8-K dated August 19, 1999 contained an Item 5
disclosure announcing the Company's name change
from Western Investment Real Estate Trust to
Western Properties Trust.
(c) Exhibits.
(3) Declaration of Trust, as amended (filed as Exhibit 3 to
Registrant's 10-Q for the quarter ended September 30, 1998,
and incorporated herein by reference.
(4.1) Form of Indenture relating to the Senior Notes (filed as
Exhibit 4.1 to Registration Statement on Form S-3
No. 33-71270 and incorporated herein by reference).
(4.2) Form of Senior Notes (filed as Exhibit 4.2 to Registration
Statement on Form S-3 No. 33-71270 and incorporated herein
by reference).
(4.3) Form of Supplemental Indenture relating to the 7.1% Senior
Notes (filed as Exhibit 4.5 on Form 8-K, dated September 24,
1997, and incorporated herein by reference).
(4.4) Form of Supplemental Indenture relating to the 7.2% Senior
Notes (filed as Exhibit 4.6 on Form 8-K, dated September 24,
1997, and incorporated herein by reference).
(4.5) Form of Supplemental Indenture relating to the 7.3% Senior
Notes (filed as Exhibit 4.7 on Form 8-K, dated September 24,
1997, and incorporated herein by reference).
(10.1) Company's Nonqualified Stock Option Plan (filed as Exhibit
4.2 to Registration Statement on Form S-8 No. 33-27016 and
incorporated herein by reference).
66
<PAGE>
<CAPTION>
PAGE
----
<S>
(10.2)** Compensation Agreement (filed as Exhibit 10.3 to
Registrant's 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by
reference).
(10.3)** Management Contracts (filed as Exhibit 10.4 to
Registrant's 10-Q for the quarter ended March 31,
1998, and incorporated herein by reference).
(10.4)** Company's 1998 Equity Incentive Plan (filed as
Exhibit 10.4 to Registrant's 10-Q for the quarter
ended June 30, 1998, and incorporated herein by
reference).
(10.5)** Stock Purchase and Contribution agreement dated
September 29, 1998 (filed as Exhibit 10.5 to
Registrant's 10-Q for the quarter ended September
30, 1998, and incorporated herein by reference).
(10.6) Agreement of Limited Partnership of Western/Kienow's,
LP dated October 30,1998 (filed as Exhibit 10.6 to
Registrant's 10-Q for the quarter ended September 30,
1998, and incorporated herein by reference).
(10.7)** Management Contract (filed as Exhibit 10.7 to
Registrant's 10-Q for the quarter ended September
30, 1999, and incorporated herein by reference.
(10.8)* Agreement of Limited Partnership of Western Pinecreek,
L.P. dated November 17, 1999.
(12)* Computation of Ratio of Earnings to Fixed Charges for
the year ended December 31, 1999, 1998, 1997, 1996, 1995. 69
(23) * Consent of Independent Certified Public Accountants 70
(27) * Financial Data Schedule
</TABLE>
- ----------
* Filed with this report.
** Management contract or compensatory plan or arrangement.
67
<PAGE>
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 there unto duly authorized.
WESTERN PROPERTIES TRUST
(Registrant)
By: s/ Dennis D. Ryan
-------------------------------------
Dennis D. Ryan
Executive Vice President,
Chief Financial Officer
Dated: March 27, 2000 and Trustee
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
s/Bradley N. Blake Chairman, President, March 27, 2000
- ------------------------- Chief Executive
Bradley N. Blake Officer and Trustee
s/Dennis D. Ryan Executive Vice President, March 27, 2000
- ------------------------- Chief Financial Officer
Dennis D. Ryan and Trustee
s/Joseph Colmery Trustee March 27, 2000
- -------------------------
Joseph Colmery
s/L. Michael Foley Trustee March 27, 2000
- -------------------------
L. Michael Foley
s/Reginald B. Oliver Trustee March 27, 2000
- -------------------------
Reginald B. Oliver
s/James L. Stell Trustee March 27, 2000
- -------------------------
James L. Stell
</TABLE>
68
<PAGE>
AGREEMENT
OF LIMITED PARTNERSHIP
OF
WESTERN/PINECREEK, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF WESTERN/PINECREEK, L.P. (this
"Agreement"), dated as of November ____, 1999, is entered into by and between
WESTERN PROPERTIES TRUST, a California business trust, as general partner (in
its capacity as General Partner) (the "General Partner"), and each person who is
a signatory hereto, as limited partner (each, a "Limited Partner" and
collectively, the "Limited Partners").
THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts,
understandings and intentions:
A. WESTERN/PINECREEK, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the State of Delaware by a Certificate of
Limited Partnership filed with the Secretary of State of Delaware on November
10, 1999.
B. On the date hereof, pursuant to that certain Contribution
Agreement dated as of November __, 1999 (the "Contribution Agreement") among the
General Partner, the Partnership and each Partner, the Partners are making
certain capital contributions to the Partnership as described in EXHIBIT A
hereto (the "Initial Capital Contributions").
C. Upon completion of the Initial Capital Contributions and related
transactions under the Contribution Agreement, the Partnership will be the
holder, directly or indirectly, and will be the sole owner of the Contributed
Properties (as defined in the Contribution Agreement).
D. Upon completion of the Initial Capital Contributions, the Limited
Partners will be admitted to the Partnership as Limited Partners with rights and
obligations as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and the covenants and
agreements between the parties hereto, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I.
DEFINED TERMS
The following defined terms used in this Agreement shall have the
meanings specified below:
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time.
1
<PAGE>
"ADDITIONAL LIMITED PARTNER" means a Person admitted to this Partnership
as a Limited Partner pursuant to Section 4.2 hereof.
"ADMINISTRATIVE EXPENSES" means (i) all administrative and operating
costs and expenses incurred by the Partnership and (ii) a management fee, in an
amount not to exceed the greater of (A) five percent (5%) of the gross revenues
of the Property to the extent that such management fees are reimbursable
pursuant to the terms of tenant leases of the Property or (B) three percent (3%)
of gross revenues of the Property.
"AFFILIATE" means, (i) any Person that, directly or indirectly, controls
or is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 5 % or more of the
outstanding capital stock, shares or equity interests. of such Person, or (iii)
any officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
"AGREEMENT" means this Agreement of Limited Partnership of the
Partnership.
"CAPITAL ACCOUNT" has the meaning provided in Section 4.4 hereof.
"CAPITAL CONTRIBUTION" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any Contributed Property that such
Partner contributes to the Partnership pursuant to Section 4.2 or 4.3 hereof,
including the Initial Capital Contributions. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Partnership Interest of such Partner.
"CAPITAL TRANSACTION" means the refinancing, sale, exchange,
condemnation, recovery of a damage award or insurance proceeds (other than
business or rental interruption insurance proceeds not reinvested in the repair
or reconstruction of Properties), or other disposition of any Property (or the
Partnership's interest therein).
"CASH AMOUNT" means an amount of cash per Limited Partnership Unit equal
to the value of the Common Shares Amount on the date of receipt by the General
Partner of a Notice of Conversion of Common Shares. The value of the Common
Shares Amount shall be based on the average of the daily market price of Common
Shares for the ten consecutive trading days immediately preceding the date of
receipt by the General Partner of a Notice of Conversion of Common Shares. The
market price for each such trading day shall be: (i) if the Common Shares are
listed or admitted to trading on any securities exchange, the sale price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, on such day, (ii) if
the Common Shares are not listed or admitted to trading on any securities
exchange, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner, or
(iii) if the Common Shares are not listed or admitted to trading on any
securities exchange and no such last reported sale price or closing bid and
asked prices are available, the average of the reported high bid and low asked
prices on such day, as reported by a reliable
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quotation source designated by the General Partner, or if there shall be no
bid and asked prices on such day, the average of the high bid and low asked
prices, as so reported, on the most recent day (not more than 10 days prior
to the date in question) for which prices have been so reported; provided
that if there are no bid and asked prices reported during the ten days prior
to the date in question, the value of the Common Shares shall be determined
by the General Partner acting in good faith on the basis of such quotations
and other information as it considers, in its reasonable judgment,
appropriate. In the event the Common Shares Amount includes rights that a
holder of Common Shares would be enttled to receive, then the value of such
rights shall be determined by the Company acting in good faith on the basis
of such quotations and other information as it considers, in its reasonable
judgment, appropriate.
"CERTIFICATE" means any instrument or document that is required under the
laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.2 hereof) and filed for recording in the
appropriate public offices within the State of Delaware or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the State of Delaware or such other
jurisdiction.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
succeeding provision of the Code.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMPANY" means Western Properties Trust, a California business trust.
"COMMON SHARE" means a share of beneficial interest in the Company.
"COMMON SHARES AMOUNT" shall mean a number of Common Shares equal to the
number of Limited Partnership Units offered for conversion by a Converting
Partner, multiplied by the Conversion Factor; provided that in the event the
Company issues to all holders of Common Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase Common Shares, or any other securities or property
(collectively, the "rights"), then the Common Shares Amount shall also include
such rights that a holder of that number of Common Shares would be entitled to
receive.
"CONTRIBUTED PROPERTY" means each item of Property or other asset, in
such form as may be permitted by the Act, but excluding cash, contributed or
deemed contributed to the Partnership (or deemed contributed to a "new"
partnership pursuant to Code Section 708).
"CONVERSION AMOUNT" means either the Cash Amount, or the Common Shares
Amount, as determined pursuant to Section 8.4(b) hereof.
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"CONVERSION FACTOR" means 1.0, PROVIDED THAT in the event that the
Company (i) declares or pays a dividend on its outstanding Common Shares in
Common Shares or makes a distribution to all holders of its outstanding Common
Shares in Common Shares, (ii) subdivides its outstanding Common Shares, or (iii)
combines its outstanding Common Shares into a smaller number of Common Shares,
the Conversion Factor shall be adjusted by multiplying the Conversion Factor by
a fraction, the numerator of which shall be the number of Common Shares issued
and outstanding on the record date for such dividend, distribution, subdivision
or combination (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and the denominator of
which shall be the actual number of Common Shares (determined without the above
assumption) issued and outstanding on such date. Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event; PROVIDED,
HOWEVER, that if the Company receives a Notice of Conversion after the record
date, but prior to the effective date of such dividend, distribution,
subdivision or combination, the Conversion Factor shall be determined as if the
Company had received the Notice of Conversion immediately prior to the record
date for such dividend, distribution, subdivision or combination.
"CONVERSION RIGHT" has the meaning provided in Section 8.4(a) hereof.
"CONVERSION SHARES" has the meaning provided in Section 8.5(a) hereof.
"CONVERTING PARTNER" has the meaning provided in Section 8.4(a) hereof.
"CURRENT GENERAL DISTRIBUTION AMOUNT" for any a fiscal period shall mean
Three Hundred Seventy-Nine Thousand Two Hundred Fifty Dollars ($379,250) per
fiscal year, as such amount may be proportionately reduced or increased for
fiscal periods shorter or longer than a full fiscal year.
"CURRENT LIMITED DISTRIBUTION AMOUNT" for any a fiscal period shall mean
One and 45/100 Dollars ($1.45) per fiscal year, as such amount may be
proportionately reduced or increased for fiscal periods shorter or longer than a
full fiscal year.
"DEBT" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
that, in accordance with generally accepted accounting principles, should be
capitalized.
"DEFAULTING LIMITED PARTNER" has the meaning provided in Section 5.2(b)
hereof.
"EFFECTIVE DATE" means the date of this Agreement.
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"EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.
"FUNDING LOAN" has the meaning provided in Section 4.3 hereof.
"GAAP" means generally accepted accounting principles, consistently
applied.
"GENERAL PARTNER" means the Company, any successor-in-interest to the
Company, as permitted under the terms hereof, and any Person who becomes a
substitute or additional General Partner as provided herein, and any of their
successors as General Partner.
"GENERAL PARTNERSHIP INTEREST" means the Partnership Interest held by the
General Partner.
"GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by
a Partner to the Partnership shall be the gross fair market value of such asset
as determined by the General Partner and agreed to by the contributing Partner.
The gross fair market value of the assets which constitute the Initial Capital
Contributions shall be as set forth on EXHIBIT A hereto.
(b) The Gross Asset Values of all Partnership assets
immediately prior to the occurrence of any event described in clause (i), clause
(ii), cause (iii), clause (iv) or clause (v) hereof shall be adjusted to equal
their respective gross fair market value, as determined by the General Partner
using such reasonable method of valuation as it may adopt, as of the following
times:
(i) the acquisition of an additional interest in the
Partnership (other than in connection with the execution of this
Agreement but including, without limitation, acquisitions pursuant to
Section 4.2 hereof or contributions by the General Partner pursuant to
such Section) by a new or existing Partner in exchange for more than a DE
MINIMIS Capital Contribution, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners in the partnership;
(ii) the distribution by the Partnership to a Partner of more
than a DE MINIMIS amount of Partnership property as consideration for an
interest in the
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Partnership, if the General Partnership reasonably determines that such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(iii) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor General Partner pursuant
to Section 7.2 hereof; and
(v) at such other times as the General Partner shall
reasonably determine necessary or advisable in order to comply with
Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed
to a Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner provided
that, if the distributee is the General Partner or if the distributee and the
General Partner cannot agree on such a determination, such gross fair market
value shall be determined by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.7041 (b)(2)(iv)(m); PROVIDED,
HOWEVER, that Gross Asset Values shall not be adjusted pursuant to this
subsection (d) to the extent that the General Partner reasonably determines that
an adjustment pursuant to subsection (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subsection (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subsection (a), subsection (b) or
subsection (d) above, such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for purposes of
computing Profits and Losses.
"HOLDER" means either (a) a Partner or (b) any permitted assignee
thereof, owning a Partnership Unit, that is treated as a member of the
Partnership for federal income tax purposes.
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason
of his status as the General Partner, a Limited Partner or an affiliate of
either of the foregoing, or a director or officer of the Partnership, a Limited
Partner or the General Partner or an affiliate of any of the foregoing and (ii)
such other Persons as the General Partner may designate in good faith from time
to time, in its reasonable discretion, giving consideration to the interest of
the Partnership.
"INITIAL CAPITAL CONTRIBUTIONS" has the meaning provided in the recitals
hereto.
"LIMITED PARTNER" means any Person named as a Limited Partner on
EXHIBIT A attached hereto, and any Person who becomes a Substitute Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
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"LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act. A Limited Partnership Interest may be expressed as a
number of Limited Partnership Units.
"LIMITED PARTNERSHIP UNIT" means an interest in the Partnership
representing a portions of the Limited Partnership Interests issued pursuant to
Sections 4.1 or 4.2 hereof. The initial allocation of Limited Partnership Units
among the Partners is as set forth on EXHIBIT A, as may be amended for time. to
time.
"LOSS" has the meaning provided in Section 5.1(h) hereof.
"NOTICE OF CONVERSION" means the Notice of Exercise of Conversion Right
substantially in the form attached as EXHIBIT B hereto.
"PARTNER" means any General Partner or Limited Partner.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse
Debt Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership by
either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability, and then aggregating the separately
computed gains. A Partner's share of Partnership Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record date established by the
General Partner for the distribution of cash pursuant to Section 5.2 hereof,
which record date shall be the same as the record date established by the
Company for a distribution to its shareholders of some or all of its portion of
such distribution.
"PERCENTAGE INTEREST" means, as to each Limited Partner, its interest in
the Limited Partnership Units as determined by dividing the Limited Partnership
Units owned by such Limited Partner by the total number of Limited Partnership
Units then outstanding. The initial Percentage Interest of each Limited Partner
is as set forth opposite its respective name on EXHIBIT A, as may be amended
from time to time. All Partnership allocations and distributions to the Limited
Partners will be made in accordance with each Limited Partner's Percentage
Interest.
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"PERSON" means any individual, partnership, corporation, joint venture,
trust or other entity.
"PREFERRED INVESTMENT" has the meaning provided in Section 4.3 hereof.
"PRIOR GENERAL DISTRIBUTION DEFICIENCY" on any date shall mean the
excess, if any, of the aggregate Current Distribution Amounts for all prior
periods (beginning with the date the Initial Capital Contributions are made)
over the aggregate amount theretofore distributed to the General Partner under
Sections 5.2(a)(i) and (iii) hereof.
"PRIOR LIMITED DISTRIBUTION DEFICIENCY" on any date shall mean the
excess, if any, of the aggregate Current Distribution Amounts for all prior
periods (beginning with the date the Initial Capital Contributions are made)
over the aggregate amount theretofore distributed to the Limited Partners under
Sections 5.2(a)(ii) and (iii) hereof.
"PROFIT" has the meaning provided in Section 5.1(h) hereof.
"PROPERTY" means any investment in which the Partnership holds an
ownership interest.
"PROPERTY DEBT" shall mean (i) that certain Debt existing as of the
date that the Limited Partners make their Initial Capital Contribution, the
repayment of which is secured by the lien of a mortgage or a deed of trust
encumbering Contributed Property that constitutes the Limited Partners'
Initial Capital Contribution, or (ii) any replacement or refinancing of such
Debt; provided, however, Property Debt shall be limited to Three Million
Seven Hundred Ninety-Two Thousand Five Hundred Dollars ($3,792,500), and any
Debt in excess of said amount shall not be considered Property Debt.
"REGULATIONS" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any succeeding provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through
860 of the Code.
"RESERVED CASH" means cash reasonably determined by the General Partner
as necessary to pay contemplated tenant improvements, leasing commissions,
unreimbursed maintenance expenses and capital expenditures, and other costs of
operating the Property; provided that Reserved Cash in an amount equal to
fifteen percent (15%) of revenues of the Property, up to an aggregate reserved
sum of _____________ dollars ($______) shall be deemed reasonable.
"RULE 144" has the meaning set forth in Section 8.5(a) hereof.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" has the meaning set forth in Section 8.4(a) hereof.
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"SERVICE" means the Internal Revenue Service.
"SPECIFIED CONVERSION DATE" means 30 days after the receipt by the
Company of the Notice of Conversion.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.3 hereof.
"TRANSFER" has the meaning set forth in Section 9.2(a) hereof.
ARTICLE II.
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.1 CONTINUATION. The Partners hereby agree to continue the
Partnership pursuant to the Act and upon the terms and conditions set forth in
this Agreement.
2.2 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership
shall be WESTERN/PINECREEK, L.P. The specified office and place of business of
the Partnership shall be 2200 Powell Street, Suite 600, Emeryville, California
94608. The General Partner may at any time change the location of such office,
provided the General Partner gives notice to the Partners of any such change.
The name and address of the Partnership's registered agent is _________________.
The sole duty of the registered agent as such is to forward to the Partnership
any notice that is served on him as registered agent.
2.3 PARTNERS.
(a) As of the date hereof, the General Partner of the
Partnership is Western Properties Trust, a California business trust. Its
principal place of business shall be the same as that of the Partnership.
(b) The Limited Partners shall be those Persons identified as
Limited Partners in Exhibit A hereto, as amended from time to time.
2.4 TERM AND DISSOLUTION.
(a) The term of the Partnership shall continue in full force
and effect until June 15, 2049 except that the Partnership shall be dissolved
upon the happening of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death or withdrawal of a General Partner
unless the business of the Partnership is continued pursuant to
Section 7.3(b) hereof; provided that if a General Partner is on the date
of such occurrence a partnership, the dissolution of such General Partner
as a result of the dissolution, death, withdrawal, removal or
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Event of Bankruptcy of a partner in such partnership shall not be an
event of dissolution of the Partnership if the business of such General
Partner is continued by the remaining partner or partners, either alone
or with additional partners, and such General Partner and such partners
comply with any other applicable requirements of this Agreement;
(ii) The passage of 90 days after the sale or other taxable
disposition of all or substantially all the assets of the Partnership;
provided that if the Partnership receives an installment obligation as
consideration for such sale or other disposition, the Partnership shall
continue, unless sooner dissolved under the provisions of this Agreement,
until such time as such note or notes are paid in full;
(iii) The conversion of all Limited Partnership Interests; or
(iv) The election by the General Partner that the Partnership
should be dissolved.
(b) Upon dissolution of the Partnership (unless the business
of the Partnership is continued pursuant to Section 7.3(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.6 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution, for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.5 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
ARTICLE III.
BUSINESS OF THE PARTNERSHIP
3.1 BUSINESS PURPOSE. The purpose and nature of the business to be
conducted by the Partnership is to conduct any business that may be lawfully
conducted by a limited partnership organized pursuant to the Act; provided,
however, that such business shall be limited to and conducted in such a manner
as to permit the General Partner at all times to qualify as a REIT, unless the
Company otherwise ceases to qualify as a REIT. The General Partner shall also
be empowered to do any and all acts and things necessary or prudent to ensure
that the Partnership will not be classified as a "publicly traded partnership"
for purposes of Section 7704 of the Code.
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3.2 REPRESENTATIONS AND WARRANTIES BY THE PARTIES.
(a) Each Partner (including, without limitation, each
Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner) that
is an individual represents and warrants to each other Partner(s) that (i)
the consummation of the transactions contemplated by this Agreement to be
performed by such Partner will not result in a breach or violation of, or a
default under, any material agreement by which such Partner or any of such
Partner's property is bound, or any statute, regulation, order or other law
to which such Partner is subject, (ii) subject to the last sentence of this
Section 3.2(a), such Partner is neither a "foreign person" within the meaning
of Code Section 1445(f) nor a "foreign partner" within the meaning of Code
Section 1446(e), (iii) this Agreement is binding upon, and enforceable
against, such Partner in accordance with its terms. Notwithstanding anything
contained herein to the contrary, in the event that the representation
contained in clause (ii) foregoing would be inaccurate if given by a Partner,
such Partner (w) shall not be required to make and shall not be deemed to
have made such representation, (x) shall deliver to the General Partner in
connection with or prior to its execution of this Agreement written notice
that it may not truthfully make such representation, (y) hereby agrees that
it is subject to, and hereby authorizes the General Partner to withhold, all
withholdings to which such a "foreign person" or "foreign partner", as
applicable, is subject under the Code and (z) hereby agrees to cooperate
fully with the General Partner with respect to such withholdings, including
by effecting the timely completion and delivery to the General Partner of all
internal revenue forms required in connection therewith.
(b) Each Partner (including, without limitation, each
Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner) that
is not an individual represents and warrants to each other Partner(s) that
(i) all transactions contemplated by this Agreement to be performed by it
have been duly authorized by all necessary action, including, without
limitation, that of its general partner(s), committee(s), trustee(s),
beneficiaries, directors and/or shareholder(s), as the case may be, as
required, (ii) the consummation of such transactions shall not result in a
breach or violation of, or a default under, its partnership or operating
agreement, trust agreement, articles, charter or by-laws, as the case may be,
any material agreement by which such Partner or any of such Partner's
properties or any of its partners, members, beneficiaries, trustees or
shareholders, as the case may be, is or are bound, or any statute,
regulation, order or other law to which such Partner or any of its partners,
members, trustees, beneficiaries or shareholders, as the case may be, is or
are subject, (iii) subject to the last sentence of this Section 3.2(b), such
Partner is neither a "foreign person" within the meaning of the Code Section
1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e),
and (iv) this Agreement is binding upon, and enforceable against, such
Partner in accordance with its terms. Notwithstanding anything contained
herein to the contrary, in the event that the representation contained in
clause (iii) foregoing would be inaccurate if given by a Partner, such
Partner (w) shall not be required to make and shall not be deemed to have
made such representation, (x) shall deliver to the General Partner in
connection with or prior to its execution of this Agreement written notice
that it may not truthfully make such representation, (y) hereby agrees that
it is subject to, and hereby authorizes the General Partner to withhold, all
withholdings to which such a "foreign person" or "foreign partner", as
applicable, is subject under the Code and (z) hereby agrees to cooperate
fully with the General
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Partner with respect to such withholdings, including by effecting the timely
completion and delivery to the General Partner of all internal revenue forms
required in connection therewith.
(c) Each Partner (including, without limitation, each
Substituted Limited Partner as a condition to becoming a Substituted Limited
Partner) represents, warrants and agrees that it has acquired and continues
to hold its interest in the Partnership for its own account for investment
purposes only and not for the purpose of, or with a view toward, the resale
or distribution of all or any part thereof, and not with a view toward
selling or otherwise distributing such interest or any part thereof at any
particular time or under any predetermined circumstances. Each Partner
further represents and warrants that it is a sophisticated investor, able and
accustomed to handling sophisticated financial matters for itself,
particularly real estate investments, and that is has a sufficiently high net
worth that it does not anticipate a need for the funds that it has invested
in the Partnership in what it understands to be a highly speculative and
liquid investment.
(d) The representations and warranties contained in Sections
3.2(a), 3.2(b), and 3.2(c) hereof shall survive the execution and delivery of
this Agreement by each Partner (and, in the case of an Additional Limited
Partner or a Substituted Limited Partner, the admission of such Additional
Limited Partner or Substituted Limited Partner as a Limited Partner in the
Partnership) and the dissolution, liquidation and termination of the
Partnership.
(e) Each Partner (including, without limitation, each
Substituted Limited Partner as a condition to becoming a Substituted Limited
Partner) hereby acknowledges that no representations as to potential profit,
cash flows, funds from operations or yield, if any, in respect of the
Partnership or General Partner have been made by any Partner or any employee
or representative or Affiliate of any Partner, and that projections and any
other information, including, without limitation, financial and descriptive
information and documentation, that may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind
or nature, express or implied.
ARTICLE IV.
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.1 CAPITAL CONTRIBUTIONS. The Partners shall make the Initial
Capital Contributions to the Partnership, whereupon the General Partner shall
own the sole General Partnership Interest in the Partnership with the rights
and obligations set forth herein, and each Limited Partner shall own Limited
Partnership Units in the amount set forth for such Partner on Exhibit A (as
the same may be amended from time to time by the General Partner to the
extent necessary to reflect accurately sales, exchanges or other transfers,
redemptions, Capital Contributions, the issuance of additional Partnership
Units, or similar events having an effect on a Partner's ownership of
Partnership Units), with the rights and obligations set forth herein. The
Initial Capital contributions shall be valued for Capital account purposes in
the manner set forth on Exhibit A. Any transfer tax owed as a result of the
Initial Capital Contributions shall be the responsibility of, and shall be
paid by, the Partnership.
4.2 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided in this Section 4.2, or in Section
4.3 or Section 5.6(b), the Partners
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shall have no right or obligation to make any additional Capital
Contributions, loans or preferred equity investments to the Partnership.
(a) ADDITIONAL GENERAL PARTNER CONTRIBUTIONS. Except as
provided in Article VII hereof, the Company shall at all times be the sole
General Partner of the Partnership. The General Partner may, but shall not
be obligated to, contribute additional capital to the Partnership, from time
to time, as determined by the General Partner in its sole discretion.
(b) ADDITIONAL LIMITED PARTNERSHIP INTERESTS. The General
Partner may not admit additional Limited Partners or issue additional Limited
Partnership Interests without the consent of a majority-in-interest of the
Limited Partners, such consent not to be unreasonably withheld. Upon the
issuance of any additional Limited Partnership Interest, the General Partner
shall amend Article V, Exhibit A and such other provisions hereof as may be
necessary or appropriate to reflect such issuance.
4.3 GENERAL PARTNER LOANS AND ADDITIONAL INVESTMENTS. The General
Partner may, but shall not be obligated to, from time to time advance funds
to the Partnership for any proper Partnership purpose as reasonably
determined by the General Partner, as a loan ("Funding Loan") or a preferred
equity investment ("Preferred Investment"), which shall provide a return at a
rate of ten percent (10%) per annum on such terms and conditions as the
General Partner it shall determine in its good faith discretion.
4.4 CAPITAL ACCOUNTS. A separate capital account (a "Capital
Account") shall be established and maintained for each Partner in accordance
with Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a DE
MINIMIS Capital Contribution, (ii) the Partnership distributes to a Partner
more than a DE MINIMIS amount of Partnership property as consideration for a
Partnership Interest, or (iii) the Partnership is liquidated within the
meaning of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall
revalue the property of the Partnership to its fair market value (as
determined by the General Partner and taking into account Section 7701(g) of
the Code) in accordance with Regulations Section 1.704-1(b)(2)(iv)(f). When
the Partnership's property is revalued by the General Partner, the Capital
Accounts of the Partners shall be adjusted in accordance with Regulations
Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require such Capital
Accounts to be adjusted to reflect the manner in which the unrealized gain or
loss inherent in such property (that has not been reflected in the Capital
Accounts previously) would be allocated among the Partners pursuant to
Section 5.1 if there were a taxable disposition of such property for its fair
market value (as determined by the General Partner and taking into account
Section 7701(g) of the Code) on the date of the revaluation.
4.5 PERCENTAGE INTERESTS. If the number of outstanding Limited
Partnership Units increases or decreases during a taxable year, each Limited
Partner's Percentage Interest shall be adjusted to a percentage equal to the
number of Limited Partnership Units held by such Limited Partner divided by
the aggregate number of Limited Partnership Units outstanding after giving
effect to such increase or decrease. If the Limited Partners' Percentage
Interests are adjusted pursuant to this Section 4.5, the Profits and Losses
for the taxable year in which the adjustment occurs shall be allocated
between the part of the year ending on the day of the adjustment and the part
of the year beginning on the following day either (i) as if the taxable year
had ended on the
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date of the adjustment or (ii) based on the number of days in each part. The
General Partner, in its sole discretion, shall determine which method shall
be used to allocate Profits and Losses for the taxable year in which the
adjustment occurs. The allocation of Profits and Losses for the earlier part
of the year shall be based on the Percentage Interests before adjustment, and
the allocation of Profits and Losses for the later part shall be based on the
adjusted Percentage Interests.
4.6 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
interest on its Capital Contribution.
4.7 RETURN OF CAPITAL CONTRIBUTIONS. Except as specifically
provided in this Agreement, no Partner shall be entitled to withdraw any part
of its Capital Contribution or its Capital Account or to receive any
distribution from the Partnership. Except as otherwise provided herein,
there shall be no obligation to return to any Partner or withdrawn Partner
any part of such Partner's Capital Contribution for so long as the
Partnership continues in existence.
4.8 NO THIRD PARTY BENEFICIARY. No creditor or other third party
having dealings with the Partnership shall have the right to enforce the
right or obligation of any Partner to make Capital Contributions or loans or
to pursue any other right or remedy hereunder or at law or in equity, it
being understood and agreed that the provisions of this Agreement shall be
solely for the benefit of, and may be enforced solely by, the parties hereto
and their respective successors and assigns. None of the rights or
obligations of the Partners herein set forth to make Capital Contributions or
loans to the Partnership shall be deemed an asset of the Partnership for any
purpose by any creditor or other third party, nor may such rights or
obligations be sold, transferred or assigned by the Partnership or pledged or
encumbered by the Partnership to secure any debt or other obligation of the
Partnership or of any of the Partners. In addition, it is the intent of the
parties hereto that no distribution to any Limited Partner shall be deemed a
return of money or other property in violation of the Act.
ARTICLE V.
PROFITS AND LOSSES; DISTRIBUTIONS
5.1 ALLOCATION OF PROFIT AND LOSS. Except as otherwise provided in
this Section 5.1 or in Section 5.6, Profit and Loss of the Partnership for
each fiscal year of the Partnership shall be allocated as follows:
(a) LOSS. Loss shall be charged 99% to the Capital Account
of the Limited Partners, in proportion to their Percentage Interests, and 1%
to the Capital Account of the General Partner.
(b) PROFIT.
(i) First, to the Partners' Capital Accounts, until
Profit Allocations under this Section 5.1(b)(i) are equal to the
total amount of Loss Allocations to such Partner under Section
5.1(a) and in the same proportion thereof.
(ii) Second, to the Capital Account of the General
Partner until all Profits allocated under this clause (b)(ii)
shall equal the amounts theretofore
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distributed to the General Partner under Section 5.2(a)(i), plus
the amounts theretofore of Partnership principal payments on
Property Debt that were subtracted in computing distributions
to the General Partner under Section 5.2(a)(i);
(iii) Third, to the Capital Accounts of the Limited
Partners, in proportion to their Percentage Interests, until all
Profits allocated under this clause (b)(iii) with respect to each
Limited Partnership Unit shall equal the amounts theretofore
distributed with respect to such Limited Partnership Unit under
Section 5.2(a)(ii) hereof;
(iv) Fourth, to the Capital Account of the General
Partner and the Capital Accounts of the Limited Partners (the
Limited Partners in proportion to their Percentage Interests)
until all Profits allocated under this clause (b)(iv) shall equal
the amounts theretofore distributed with respect to such General
Partner's Interest and Limited Partnership Unit, as the case may
be, under Section 5.2(a)(iii).
(v) Finally, 74.72% to the Capital Account of General
Partner and 25.28% to the Capital Account of the Limited Partner
(in proportion to their Percentage Interests).
(c) NONRECOURSE DEDUCTIONS, MINIMUM GAIN CHARGEBACK.
Notwithstanding any provision to the contrary, (i) any expense of the
Partnership that is a "nonrecourse deduction" within the meaning of
Regulations Section 1.704-2(b)(1), or a cost recovery deduction (depreciation
and amortization) under Sections 167 and 197 of the Code, shall be allocated
100% to the Capital Account of the Limited Partners, in proportion to their
Percentage Interests, (ii) any expense of the Partnership that is a "partner
nonrecourse deduction" within the meaning of Regulations Section
1.704-2(i)(2) shall be allocated to the Capital Accounts of the Partner in
accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net
decrease in Partnership Minimum Gain within the meaning of Regulations
Section 1.704-2(f)(1) for any Partnership taxable year, items of gain and
income shall be allocated among the Partners in accordance with Regulations
Section 1.704-2(f) and the ordering rules contained in Regulations Section
1.704-2(j), and (iv) if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any
Partnership taxable year, items of gain and income shall be allocated among
the Partners in accordance with Regulations Section 1.704-2(i)(4) and the
ordering rules contained in Regulations Section 1.704-2(j). For purposes of
determining its share of the nonrecourse liabilities of the Partnership
within the meaning of Regulations Section 1.752-3(a)(3), the deductions
attributable to Partnership nonrecourse liabilities shall be considered to be
allocated 100% to the Limited Partners.
(d) QUALIFIED INCOME OFFSET. If a Limited Partner receives
in any taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d)
that causes or increases a negative balance in such Partner's Capital Account
that exceeds the sum of such Partner's shares of Partnership Minimum Gain and
Partner Nonrecourse Debt Minimum Gain, as determined in accordance with
Regulations Sections 1.704-2(g) and 1.704-2(i), such Partner shall be
allocated specially for such
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taxable year (and, if necessary, later taxable years) items of income and
gain in an amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Regulations Section
1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or
gain to a Limited Partner in accordance with this Section 5.1(d), to the
extent permitted by Regulations Section 1.704-1(b), items of expense or loss
shall be allocated to such Partner in an amount necessary to offset the
income or gain previously allocated to such Partner under this Section 5.1(d).
(e) CAPITAL ACCOUNT DEFICITS. During such period that the
Partnership has Nonrecourse Debt, loss shall not be allocated to the General
Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum
of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain and liabilities allocated to such Partner under Regulation
Section 1.752-3(a). Any Loss in excess of that limitation shall be allocated
to the Limited Partners in accordance with their Percentage Interests. After
the occurrence of an allocation of Loss to the General Partner in accordance
with this Section 5.1(e), to the extent permitted by Regulations Section
1.704-1(b), Profit shall be allocated to such Partner in an amount necessary
to offset the Loss previously allocated to such Partner under this Section
5.1(e).
(f) CURATIVE ALLOCATIONS. The allocations set forth in
Section 5.1(b), (c), (d), and (e) hereof (the "Regulatory Allocations") are
intended to comply with certain regulatory requirements, including the
requirements of Regulations Section 1.704-1(b) and 1.704-2. The Regulatory
Allocations shall be taken into account in allocating other items of income,
gain, loss, and deduction among the Partners so that to the extent possible
without violating the requirements giving rise to the Regulatory Allocations,
the net amount of such allocations of other items and the Regulatory
Allocations to each Holder of a Partnership Common Unit shall be equal to the
net amount that would have been allocated to each such Holder if the
Regulatory Allocations had not been applied.
(g) ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE. If a
Partner transfers any part or all of its Partnership Interest, and the
transferee is admitted as a substitute Partner as provided herein, the
distributive shares of the various items of Profit and Loss allocable among
the Partners during such fiscal year of the Partnership shall be allocated
between the transferor and the substitute Partner either (i) as if the
Partnership's fiscal year had ended on the date of the transfer, or (ii)
based on the number of days of such fiscal year that each was a Partner
without regard to the results of Partnership activities in the respective
portions of such fiscal year in which the transferor and the transferee were
Partners. The General Partner, in its sole discretion, shall determine which
method shall be used to allocate the distributive shares of the various items
of Profit and Loss between the transferor and the substitute Partner.
(h) DEFINITION OF PROFIT AND LOSS. "Profit" and "Loss" and
any items of income, gain, expense, or loss referred to in this Agreement
shall be determined in accordance with federal income tax accounting
principles, as modified by Regulations Section 1.704-1(b)(2)(iv), except that
Profit and Loss shall not include items of income, gain and expense that are
specially allocated pursuant to Section 5.1(c), 5.1(d), or 5.1(e). All
allocations of income, Profit, gain, Loss, and expense (and all items
contained therein) for federal income tax purposes
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shall be identical to all allocations of such items set forth in this Section
5.1, except as otherwise required by Section 704(c) of the Code and
Regulations Section 1.704-1(b)(4). The General Partner shall have the
authority to elect the method to be used by the Partnership for allocating
items of income, gain, and expense as required by Section 704(c) of the Code
and such election shall be binding on all Partners.
(i) RECOURSE DEBT. Notwithstanding anything in this
Agreement to the contrary, in the event the Partnership refinances the
Property Debt with debt of the General Partner or its affiliate or incurs any
other recourse Property Debt, the Limited Partners shall absolutely and
unconditionally guaranty the entire amount of such Property Debt, without
right of indemnification, subrogation, contribution, or reimbursement from
the General Partner or the Partnership. Each Limited Partner shall enter
into a direct agreement with the lender consistent therewith, it being the
intention of the Partners that 100% of the liability will be treated as
recourse debt to the Limited Partners and the liability allocated 100% to the
Limited Partners under Regulation Section 1.752-2 in proportion to their
Partnership Interests.
5.2 DISTRIBUTION OF CASH.
(a) On such dates as determined by the General Partner, but
not less frequently than quarterly, the General Partner shall cause the
Partnership to distribute such cash in excess of the Reserved Cash, as the
General Partner, in its reasonable discretion, considers available for
distribution on such date, to the Holders of Partnership Interests on the
Partnership Record Date with respect to such distribution period. Following
payment of any amounts due with respect to Funding Loans and/or Preferred
Investments, such Distributions shall be made as follows:
(i) First, to the General Partner in an amount equal to
the sum of (A) the Current General Distribution Amount, plus (B)
any Prior General Distribution Deficiency, MINUS any interest or
principal payments made by the Partnership with respect to any
Property Debt since the prior cash distribution of the
Partnership;
(ii) Second, to the Limited Partners, in an amount equal
to the sum of (A) Current Limited Distribution Amount, plus (B)
the Prior Limited Distribution Deficiency per each Limited
Partnership Unit;
(iii) Thereafter, Seventy-Four and Seventy-Two One-
Hundredths percent (74.72%) to the General Partner and Twenty-
Five and Twenty-Eight One-Hundredths percent (25.28%) to the
Limited Partners, as such percentage may be adjusted based upon
variation from an aggregate number of Eighty-Eight Thousand Four
Hundred Ninety-Eight (88,498) outstanding Limited Partnership
Units (each Limited Partnership Unit representing 0.00028566%).
(b) Notwithstanding any other provision of this Agreement,
the General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any
withholding requirements established under the Code or any other federal,
state or local law including, without limitation, pursuant to Sections 1441,
1442,
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1445 and 1446 of the Code. To the extent that the Partnership is required to
withhold and pay over to any taxing authority any amount resulting from the
allocation or distribution of income to a Partner or assignee (including by
reason of Section 1446 of the Code), either (i) if the actual amount to be
distributed to the Partner or assignee equals or exceeds the amount required
to be withheld by the Partnership, the amount withheld shall be treated as a
distribution of cash in the amount of such withholding to such Partner or
assignee, or (ii) if the actual amount to be distributed to the Partner or
assignee is less than the amount required to be withheld by the Partnership,
the amount required to be withheld shall be treated as a loan (a "Partnership
Loan") from the Partnership to the Partner on the day the Partnership pays
over such amount to the applicable taxing authority. A Partnership Loan
shall be repaid through withholding by the Partnership with respect to
subsequent distributions to the applicable Partner or assignee. In the event
that a Limited Partner or assignee (either, a "Defaulting Limited Partner")
fails to pay any amount owed to the Partnership with respect to a Partnership
Loan within 15 days after demand for payment thereof is made by the
Partnership on the Defaulting Limited Partner, the General Partner, in its
sole discretion, may elect to make the payment to the Partnership on behalf
of such Defaulting Limited Partner. In such event, on the date of payment,
the General Partner shall be deemed to have extended a Funding Loan to the
Defaulting Limited Partner in the amount of the payment made by the General
Partner.
Any amounts treated as a Partnership Loan or a General Partner
Loan pursuant to this Section 5.2(b) shall bear interest at the lesser of (i)
the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in THE WALL STREET JOURNAL,
or (ii) the maximum lawful rate of interest on such obligation, such interest
to accrue from the date the Partnership or the General Partner, as
applicable, is deemed to extend the loan until such loan is repaid in full.
(c) In no event may a Partner receive a distribution of cash
with respect to a Limited Partnership Unit if such Partner is entitled to
receive a dividend with respect to a Common Share for which all or part of
such Limited Partnership Unit has been or will be exchanged.
5.3 NO RIGHT TO DISTRIBUTIONS IN KIND; GENERAL PARTNER'S RIGHT OF
SUBSTITUTION.
(a) Except as provided in paragraph (b) hereof, no Partner
shall be entitled to demand property other than cash in connection with any
distributions by the Partnership.
(b) The General Partner shall be permitted, without
obtaining the consent of any other Partner, to cause any item of real
property now owned or hereafter acquired by the Partnership (including,
without limitation, those items of real property included in the Initial
Capital Contributions) to be distributed in-kind to the General Partner;
provided, however, that no such distribution shall be permitted unless,
concurrently with such distribution, the General Partner shall contribute to
the Partnership one or more properties which the General Partner reasonably
expects will generate cash available for distribution in an amount at least
equal to the amount of cash expected to be generated by the Property or
Properties distributed for the remainder of the period described in Section
8.7 hereof.
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5.4 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS.
Notwithstanding any of the provisions of this Article V, no Partner shall
have the right to receive, and the General Partner shall not have the right
to make, a distribution which includes a return of all or part of Partner's
Capital Contributions, unless after giving effect to the return of a Capital
Contribution, the sum of all liabilities of the Partnership, other than the
liabilities to a Partner for the return of his Capital Contribution, does not
exceed the fair market value of the Partnership's assets.
5.5 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use
its reasonable efforts to cause the Partnership to distribute amounts
sufficient to enable the General Partner (i) to meet its distribution
requirement for qualification as a REIT as set forth in Section 857(a)(i) of
the Code and (ii) to avoid any federal income or excise tax liability imposed
by the Code.
5.6 DISTRIBUTIONS UPON LIQUIDATION.
(a) Upon liquidation of the Partnership, after payment of,
or adequate provision for, debts and obligations of the Partnership,
including any Partner loans, any remaining assets of the Partnership shall be
distributed to all Partners with positive Capital Accounts in accordance with
their respective positive Capital Account balances. For purposes of the
preceding sentence, the Capital Account of each Partner shall be determined
after all adjustments made in accordance with Sections 5.1 and 5.2 resulting
from Partnership operations. Gain or loss resulting from any disposition of
Partnership assets in connection with such liquidation (including, without
limitation, attributable to any in-kind distributions undertaken in
connection therewith) shall be credited or charged to the Capital Accounts of
the Partners so as to result, as nearly as possible, in liquidating
distributions with respect to each Partner to equal the amount of the
Partners' positive Capital Accounts. Any distributions pursuant to this
Section 5.6 should be made by the end of the Partnership's taxable year in
which the liquidation occurs (or, if later, within 90 days after the date of
the liquidation). To the extent deemed advisable by the General Partner,
appropriate arrangements (including the use of a liquidating trust) may be
made to assure that adequate funds are available to pay any contingent debts
or obligations.
(b) NEGATIVE CAPITAL ACCOUNTS - If any Partner has a
negative balance in its Capital Account following a liquidation of the
Partnership, as determined after taking into account all Capital Account
adjustments in accordance with this Article V resulting from Partnership
operations and from all sales and dispositions of all or any part of the
Partnership's assets, such Partner shall contribute to the Partnership an
amount of cash equal to the negative balance in its Capital Account and such
cash shall be paid or distributed by the Partnership to creditors, if any,
and then to the Partners with positive Capital Accounts, pro rata in
proportion thereto, in accordance with Section 5.6(a). Such contribution by
a Partner shall be made by the end of the Partnership's taxable year in which
the liquidation occurs (or, if later, within 90 days after the date of the
liquidation).
5.7 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners
that the allocations of Profit and Loss under the Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to
nonrecourse debt) within the meaning of Section 704(b) of the Code as
interpreted by the
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Regulations promulgated pursuant thereto. Article V and other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent.
ARTICLE VI.
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
6.1 MANAGEMENT OF THE PARTNERSHIP.
(a) Except as otherwise expressly provided in this Agreement,
the General Partner shall have full, complete and exclusive discretion to manage
and control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, lease and dispose of any real
property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of the
business of the Partnership, provided that the Partnership shall provide
thirty (30) days prior written notice to the Limited Partners of the sale
of all or substantially all of the Partnership Property;
(ii) subject to the terms of any applicable lease, to construct
buildings and make other improvements on the properties owned or leased
by the Partnership;
(iii) to borrow money for the Partnership, issue evidences of
indebtedness in connection therewith, refinance, guarantee, increase the
amount of, modify, amend or change the terms of, or extend the time for
the payment of, any indebtedness or obligation to the Partnership, and
secure such indebtedness by mortgage, deed of trust, pledge or other lien
on the Partnership's assets;
(iv) to pay, either directly or by reimbursement, for all
Administrative Expenses as set forth in this Agreement, whether to the
Company, the General Partner, an Affiliate of the General Partner or to
third parties;
(v) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the
termination date of the Partnership and whether or not any portion of the
Partnership's assets so leased are to be occupied by the lessee, or, in
turn, subleased in whole or in part to others, for such consideration and
on such terms as the General Partner may determine;
(vi) to prosecute, defend, arbitrate, or compromise any and all
claims or Liabilities in favor of or against the Partnership, on such
terms and in such manner as the General Partner may reasonably determine,
and similarly to prosecute, settle or defend litigation with respect to
the Partners, the Partnership, or the Partnership's assets; PROVIDED,
HOWEVER, that the General Partner may not,
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without the consent of all of the Partners, confess a judgment against
the Partnership;
(vii) to file applications, communicate, and otherwise deal with
any and all governmental agencies having jurisdiction over, or in any way
affecting, the Partnership's assets or any other aspect of the
Partnership business;
(viii) to make or revoke any election permitted or required of
the Partnership by any taxing authority;
(ix) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance for the protection of
the Partnership, for the conservation of Partnership assets, or for any
other purpose convenient or beneficial to the Partnership, in such
amounts and such types, as it shall determine from time to time;
(x) to determine whether or not to apply any insurance
proceeds for any property to the restoration of such property or to
distribute the same;
(xi) to retain legal counsel, accountants, consultants, real
estate brokers, and such other persons, as the General Partner may deem
necessary or appropriate in connection with the Partnership business and
to pay therefor such reasonable remuneration as the General Partner may
deem reasonable and proper;
(xii) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xiii) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of the
Partnership;
(xv) to distribute Partnership cash or other Partnership assets
in accordance with this Agreement;
(xvi) to form or acquire an interest in, and contribute property
to, any further limited or general partnerships, joint ventures or other
relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity interest from
time to time);
(xvii) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid
Partnership purpose;
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(xviii) to take such other action, execute, acknowledge,
swear to or deliver such other documents and instruments, and perform any
and all other acts the General Partner deems necessary or appropriate for
the formation, continuation and conduct of the business and affairs of
the Partnership (including, without limitation, all actions consistent
with allowing the Company at all times to qualify as a REIT unless the
Company voluntarily terminates its REIT status) and to possess and enjoy
all of the rights and powers of a general partner as provided by the Act;
and
(xix) to reimburse the General Partner and/or the Limited
Partners for reasonable out-of-pocket expenses incurred in connection
with the formation of the Partnership.
(b) Except as otherwise provided herein, to the extent the
duties of the General Partner require expenditures of funds to be paid to third
parties, the General Partner shall not have any obligations hereunder except to
the extent that Partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any individual
liability or obligation on behalf of the Partnership.
6.2 DELEGATION OF AUTHORITY. The General Partner may delegate any or
all of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
6.3 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
(a) To the fullest extent permitted by applicable law,
unless otherwise provided in this Agreement, the Partnership shall indemnify
each Indemnitee from and against any and all losses, claims, damages,
liabilities (joint or several), expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of the Partnership as set forth
in this Agreement in which such Indemnitee may be involved, or is threatened
to be involved, as a party or otherwise; provided, however, that the
Partnership shall not indemnify an Indemnitee: (i) for willful misconduct or
a knowing violation of the law or (ii) for any transaction for which such
Indemnitee received an improper personal benefit in violation or breach of
any provision of this Agreement. Unless otherwise provided in this
Agreement, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guarantee or otherwise, for any indebtedness
of the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is
hereby authorized to and empowered, on behalf of the Partnership, to enter
into one or more indemnity agreements consistent with the provisions of this
Section 6.3 in favor of Indemnitee having or potentially having liability for
any such indebtedness. It is the intention of this Section 6.3 that the
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Partnership indemnify each Indemnitee to the fullest extent permitted by law,
unless otherwise provided in this Agreement. The termination of any
proceeding by judgment, order or settlement does not create a presumption
that the Indemnitee did not meet the requisite standard of conduct set forth
in this Section 6.3. The termination of any proceeding by conviction of an
Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of probation against an Indemnitee prior
to judgment, does not create a presumption that such Indemnitee acted in a
manner contrary to that specified in this Section 6.3. Any indemnification
pursuant to this Section 6.3 shall be made only out of the assets of the
Partnership, and neither the General Partner nor any Limited Partner shall
have any obligation to contribute to the capital of the Partnership or
otherwise provide funds to enable the Partnership to fund its obligations
under this Section 6.3. Notwithstanding anything in this Section 6.3 to the
contrary, the Partnership shall not indemnify a Limited Partner against any
liability for recourse Property Debt as provided in Section 5.1(i).
(b) To the fullest extent permitted by law, unless otherwise
provided in this Agreement, expenses incurred by an Indemnitee who is a party to
a proceeding or otherwise subject to or the focus of or is involved in any
proceeding shall be paid or reimbursed by the Partnership as incurred by the
Indemnitee in advance of the final disposition of the proceeding upon receipt by
the Partnership of (i) a written affirmation by the Indemnitee of the
Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 6.3 has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
(c) The indemnification provided by this Section 6.3 shall be
in addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise, and shall continue as to an Indemnitee who has
ceased to serve in such capacity.
(d) The Partnership may, but shall not be obligated to,
purchase and maintain insurance, on behalf of the Indemnitees and such other
Persons as the General Partner shall determine, against any liability that may
be asserted against or expenses that may be incurred by such Person in
connection with the Partnership's activities, regardless of whether the
Partnership would have the power to indemnify such Person against such liability
under the provisions of this Agreement.
(e) For purposes of this Section 6.3, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.3; and actions taken
or omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
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(f) In no event may an Indemnitee subject the Limited Partners
to personal liability by reason of the indemnification provisions set forth in
this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole
or in part under this Section 6.3 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.3 are for the benefit of
the Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons.
6.4 LIABILITY OF THE GENERAL PARTNER.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith. Additionally, the General Partner shall not be in breach
of any duty that the General Partner may owe to the Limited Partners or the
Partnership or any other Persons under this Agreement or of any duty stated or
implied by law or equity, provided the General Partner, acting in good faith,
abides by the terms of this Agreement.
(b) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership, the Company and the
Company's shareholders collectively, and that the General Partner is under no
obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to the Limited Partners,
except as otherwise provided in Section 8.7 hereof) in deciding whether to cause
the Partnership to take (or decline to take) any actions. In the event of a
conflict between the interests of the shareholders of the Company on one hand
and the Limited Partners on the other, the General Partner shall endeavor in
good faith to resolve the conflict in a manner not adverse to either the
shareholders of the Company or the Limited Partners; provided the General
Partner shall not be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with such decisions, provided that the General Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner
set forth in Section 6.1 hereof, the General Partner may exercise any of the
powers granted to it under this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or
the Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the Company to
continue to qualify as a REIT or (ii) to prevent the Company from incurring any
taxes under
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Section 857, Section 4981, or any other provision of the Code, is expressly
authorized under this Agreement and is deemed approved by all of the Limited
Partners.
(e) Any amendment, modification or repeal of this Section
6.4 or any provision hereof shall be prospective only and shall not in any
way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 6.4 as in effect
immediately prior to such amendment, modification or repeal with respect to
matters occurring, in whole or in part, prior to such amendment, modification
or repeal, regardless of when claims relating to such matters may arise or be
asserted.
6.5 EXPENDITURES BY THE PARTNERSHIP.
(a) The General Partner shall not be compensated for its
services as general partner of the Partnership except as provided in this
Agreement (including the provisions of Article 4 hereof regarding
distributions, payments, and allocations to which it may be entitled in its
capacity as the General Partner).
(b) The General Partner is hereby authorized to pay
compensation for accounting, administrative, legal, technical, management and
other services rendered to the Partnership. All of the aforesaid
expenditures (including Administrative Expenses) shall be obligations of the
Partnership, and the General Partner shall be entitled to reimbursement by
the Partnership for any expenditure (including Administrative Expenses)
incurred by it on behalf of the Partnership which shall be made other than
out of the funds of the Partnership.
(c) To the extent practicable, Partnership expenses shall be
billed directly to and paid by the Partnership and reimbursements to the
General Partner or any of its Affiliates by the Partnership pursuant to this
Section 6.5 shall be treated as non-income reimbursements, and not as
"guaranteed payments" within the meaning of Code Section 707(c) or other
forms of gross income.
6.6 OUTSIDE ACTIVITIES. Subject to Section 6.7 hereof, it is
expressly understood and agreed that the General Partner, and any officer,
director, employee, agent, trustee, Affiliate or shareholder of the General
Partner, shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership,
including business interests and activities substantially similar or
identical to those of the Partnership. Neither the Partnership nor any of the
Limited Partners shall have any rights by virtue of this Agreement in any
such business ventures, interests or activities. None of the Limited
Partners nor any other Person shall have any rights by virtue of this
Agreement or the partnership relationship established hereby in any such
business ventures, interests or activities, and the General Partner shall
have no obligation pursuant to this Agreement to offer any interest in any
such business ventures, interests and activities to the Partnership or any
Limited Partner, even if such opportunity is of a character which, if
presented to the Partnership or any Limited Partner, could be taken by such
Person.
6.7 EMPLOYMENT OR RETENTION OF AFFILIATES.
(a) Any Affiliate of the General Partner may be employed or
retained by the Partnership and may otherwise deal with the Partnership
(whether as a buyer, lessor, lessee,
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manager, furnisher of goods or services, broker, agent, lender or otherwise)
and may receive from the Partnership any compensation, price, or other
payment therefor which the General Partner determines to be fair and
reasonable.
(b) The Partnership may transfer assets to joint ventures,
other partnerships, corporations or other business entities in which it is or
thereby becomes a participant upon such terms and subject to such conditions
as the General Partner deems are consistent with this Agreement and
applicable law.
(c) Except as expressly permitted by this Agreement, neither
the General Partner nor any of its Affiliates shall sell, transfer or convey
any property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair
and reasonable to the Partnership.
6.8 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner,
individually or collectively, shall have any ownership interest in such
Partnership assets or any portion thereof. Title to any or all of the
Partnership assets may be held in the name of the Partnership, the General
Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby
declares and warrants that any Partnership assets for which legal title is
held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit
of the Partnership in accordance with the provisions of this Agreement;
PROVIDED, HOWEVER, that the General Partner shall use its best efforts to
cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall
be recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
ARTICLE VII.
CHANGES IN GENERAL PARTNER
7.1 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST. The
General Partner may not transfer any of its General Partnership Interest or
withdraw as General Partner except (i) for transfers to a wholly-owned
subsidiary of the General Partner, or to a partnership or limited liability
company controlled by the General Partner, or (ii) in connection with a
merger, consolidation or other combination with or into another Person or a
sale of all or substantially all of its assets. In any such circumstance,
such transferee shall be admitted as a substitute General Partner hereunder.
7.2 ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL PARTNER.
Except in connection with a transaction described in Section 7.1, a Person
shall be admitted as a substitute or successor General Partner of the
Partnership only if the following terms and conditions are satisfied:
(a) a majority in interest of the Limited Partners shall
have consented in writing to the admission of the substitute or successor
General Partner;
(b) the Person to be admitted as a substitute or additional
General Partner shall have accepted and agreed to be bound by all the terms
and provisions of this Agreement by
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executing a counterpart thereof and such other documents or instruments as
may be required or appropriate in order to effect the admission of such
Person as a General Partner, and a certificate evidencing the admission of
such Person as a General Partner shall have been filed for recordation and
all other actions required by Section 2.5 hereof in connection with such
admission shall have been performed;
(c) if the Person to be admitted as a substitute or
additional General Partner is a corporation or a partnership it shall have
provided the Partnership with evidence satisfactory to counsel for the
Partnership of such Person's authority to become a General Partner and to be
bound by the terms and provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an
opinion (relying on such opinions from other counsel and the state or any
other jurisdiction as may be necessary) that the admission of the person to
be admitted as a substitute or additional General Partner is in conformity
with the Act, that none of the actions taken in connection with the admission
of such Person as a substitute or additional General Partner will cause (i)
the Partnership to be classified other than as a partnership for federal
income tax purposes, or (ii) the loss of any Limited Partner's limited
liability.
7.3 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A
GENERAL PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.4(a) hereof) or the
withdrawal, death or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Partnership shall be dissolved and
terminated unless the Partnership is continued pursuant to Section 7.3(b)
hereof.
(b) Following the occurrence of an Event of Bankruptcy as to
a General Partner (and its removal pursuant to Section 704(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that,
if a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after
such occurrence, may elect to reconstitute the Partnership and continue the
business of the Partnership for the balance of the term specified in Section
2.4 hereof by selecting, subject to Section 7.2 hereof and any other
provisions of this Agreement, a substitute General Partner by unanimous
consent of the Limited Partners. If the Limited Partners elect to
reconstitute the Partnership and admit a substitute General Partner, the
relationship with the Partners and of any Person who has acquired an interest
of a Partner in the Partnership shall be governed by this Agreement.
7.4 REMOVAL OF A GENERAL PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to, or
the dissolution of, a General Partner, such General Partner shall be deemed
to be removed automatically;
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provided, however, that if a General Partner is on the date of such
occurrence a partnership, the withdrawal, death, dissolution, Event of
Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such
General Partner is continued by the remaining partner or partners.
(b) If a General Partner has been removed pursuant to this
Section 7.4 and the Partnership is continued pursuant to Section 7.3 hereof,
such General Partner shall promptly transfer and assign its General
Partnership Interest in the Partnership to the substitute General Partner
approved by a majority in interest of the Limited Partners in accordance with
Section 7.3(b) hereof and otherwise admitted to the Partnership in accordance
with Section 7.2 hereof. At the time of assignment, the removed General
Partner shall be entitled to receive from the substitute General Partner the
fair market value of the General Partnership Interest of such removed General
Partner as reduced by any damages caused to the Partnership Interest of such
removed General Partner. Such fair market value shall be determined by an
appraiser mutually agreed upon by the General Partner and a majority in
interest of the Limited Partners within 10 days following the removal of the
General Partner. In the event that the parties are unable to agree upon an
appraiser, the removed General Partner and a majority in interest of the
Limited Partners each shall select an appraiser. Each such appraiser shall
complete an appraisal of the fair market value of the removed General
Partner's General Partnership Interest within 30 days of the General
Partner's removal, and the fair market value of the removed General Partner's
General Partnership Interest shall be the average of the two appraisals;
provided, however, that if the higher appraisal exceeds the lower appraisal
by more than 20% of the amount of the lower appraisal, the two appraisers, no
later than 40 days after the removal of the General Partner, shall select a
third appraiser who shall complete an appraisal of the fair market value of
the removed General Partner's General Partnership Interest no later than 60
days after the removal of the General Partner. In such case, the fair market
value of the removed General Partner's General Partnership Interest shall be
the average of the two appraisals closest in value.
(c) The General Partnership Interest of a removed General
Partner, during the time after default until transfer under Section 7.4(b),
shall be converted to that of a special Limited Partner; provided, however,
such removed General Partner shall not have any rights to participate in the
management and affairs of the Partnership, and shall not be entitled to any
portion of the income, expense, profit, gain or loss allocations or cash
distributions allocable or payable, as the case may be, to the Limited
Partners. Instead, such removed General Partner shall receive and be entitled
only to retain distributions or allocations of such items that it would have
been entitled to receive in its capacity as General Partner, until the
transfer is effective pursuant to Section 7.4(b).
(d) All Partners shall have given and hereby do give such
consents, shall take such actions and shall execute such documents as shall
be legally necessary and sufficient to effect all the foregoing provisions of
this Section.
ARTICLE VIII.
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
8.1 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
participate in the management or control of Partnership business nor shall
they transact any business for the
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Partnership, nor shall they have the power to sign for or bind the
Partnership, such powers being vested solely and exclusively in the General
Partner.
8.2 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably
appoints the General Partner his true and lawful attorney-in-fact, who may
act for each Limited Partner and in his name, place and stead, and for his
use and benefit, to sign, acknowledge, swear to, deliver, file and record, at
the appropriate public offices, any and all documents, certificates, and
instruments as may be deemed necessary or desirable by the General Partner to
carry out fully the provisions of this Agreement and the Act in accordance
with their terms, which power of attorney is coupled with an interest and
shall survive the death, dissolution or legal incapacity of the Limited
Partner, or the transfer by the Limited Partner of any part or all of his
Partnership Interest.
8.3 LIMITATION ON LIABILITY OF LIMITED PARTNERS. Except as
otherwise provided in Sections 5.1(i) and 5.6(b), no Limited Partner shall be
liable for any debts, liabilities, contracts or obligations of the
Partnership. After his Capital Contribution is fully paid, no Limited
Partner shall, except as provided in Sections 5.1(i) and 5.6(b) or otherwise
required by the Act, be required to make any further Capital Contributions or
other payments or lend any funds to the Partnership.
8.4 CONVERSION RIGHT.
(a) Subject to Sections 8.4(b)-(f), on or after the date
which is one (1) year after the Effective Date, each Limited Partner shall
have the right (the "Conversion Right") to require the General Partner to
convert on a Specified Conversion Date all or a portion of the Limited
Partnership Units held by such Limited Partner at a price equal to and in the
form of the Conversion Amount; provided that if any Common Shares are to be
issued in connection therewith they shall have been registered pursuant to a
registration statement declared effective under the Securities Act of 1933,
as amended (the "Securities Act"). The Conversion Right shall be exercised
pursuant to a Notice of Conversion delivered to the General Partner by the
Limited Partner who is exercising the Conversion Right (the "Converting
Partner"); provided, however, that the Partnership shall not be obligated to
satisfy such Conversion Right if the Company and/or the General Partner
elects to purchase the Limited Partnership Units subject to the Notice of
Conversion pursuant to Section 8.4(b) provided, however, that no Limited
Partner may deliver to the General Partner more than four (4) Notices of
Conversion during each calendar year; and further provided that such
Conversion Right shall terminate upon the sale of all or substantially all of
the Partnership Property where such sale is pursuant to the planned
liquidation of the Partnership. In addition to the restrictions on
conversion set forth in Section 8.5(h), a Limited Partner may not exercise
the Conversion Right for less than twenty thousand (20,000) Limited
Partnership Units or, if such Limited Partner holds less than twenty thousand
(20,000) Limited Partnership Units, all of the Limited Partnership Units held
by such Partner. The Converting Partner shall have no right, with respect to
any Limited Partnership Units so converted, to receive any distribution paid
with respect to Limited Partnership Units (including without limitation any
Prior Limited Distribution Deficiency) if the record date for such
distribution is on or after the Specified Conversion Date.
(b) Notwithstanding the provisions of Section 8.5(a), the
General Partner may, in its sole and absolute discretion, elect to purchase
directly and acquire Limited Partnership
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Units with respect to which the Conversion Right has been exercised by paying
to the Converting Partner either the Cash Amount, or, provided that the
Common Shares have been registered pursuant to a registration statement
declared effective under the Securities Act, the Common Shares Amount, as
elected by the General Partner (in its sole and absolute discretion), on the
Specified Conversion Date, whereupon the General Partner shall acquire the
Limited Partnership Units offered for conversion by the Converting Partner,
which shall upon such acquisition become a part of the General Partnership
Interest (and shall no longer be considered Limited Partnership Units
hereunder). Each Converting Partner agrees to execute such documents as the
General Partner may reasonably require in connection with the issuance of
Common Shares upon exercise of the Conversion Right.
(c) Any Cash Amount to be paid to a Converting Partner
pursuant to this Section 8.5 shall be paid within 30 days after the initial
date of receipt by the Company of the Notice of Conversion relating to the
Limited Partnership Units to be converted.
(d) In the event that the General Partner permits the pledge
of a Limited Partner's Partnership Units to a lender, the General Partner may
agree, in its sole discretion, to allow such lender, upon foreclosure of such
Limited Partnership Units, to convert such Limited Partnership Units prior to
the expiration of the one-year period described in Section 8.5(a); provided,
that any such conversion shall be effected in the form of the Cash Amount.
(e) Notwithstanding any other provision of this Agreement,
the General Partner shall place appropriate restrictions on the ability of
the Limited Partners to exercise their Conversion Rights as and if deemed
necessary to ensure that the Partnership does not constitute a "publicly
traded partnership" under Section 7704 of the Code.
(f) Without limiting the obligations of the General Partner
to deliver registered shares as provided in Section 8.5(b), each certificate,
if any, evidencing Common Shares that may be issued in redemption of Limited
Partnership Units under Section 8.5 above (the "Conversion Shares") shall, to
the extent such shares have not been registered pursuant to a registration
statement declared effective under the Securities Act, bear a restrictive
legend in substantially the following form:
The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities law. No
transfer of the Shares represented by this
certificate shall be valid or effective unless (A)
such transfer is made pursuant to an effective
registration statement under the Act, or (B) the
holder of the securities proposed to be transferred
shall have delivered to the Company either a no-action
letter from the Securities and Exchange Commission or
an opinion of counsel (who may be an employee of such
holder) experienced in securities matters to the effect
that such proposed transfer is exempt from the
registration requirements of the Act which opinion
shall be reasonably satisfactory to the Company.
8.5 REGISTRATION.
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(a) SHELF REGISTRATION. Prior to or on the first date upon
which the Limited Partnership Units owned by any Limited Partner may be
converted, at the request of a Limited Partner, the Company agrees to file
with the Commission, a shelf registration statement on Form S-3 under Rule
415 of the Securities Act, or any similar rule that may be adopted by the
Commission (the "Shelf Registration"), with respect to all of the Common
Shares issued or issuable to the Limited Partners pursuant to Section 8.4(b)
hereof (the "Conversion Shares"). The Company will use its best efforts to
have the Shelf Registration declared effective under the Securities Act and
to keep the Shelf Registration continuously effective until a date agreed
upon by the Company and a majority in interest of the Limited Partners or
until such time as all of the shares registered pursuant to such Shelf
Registration (i) have been disposed of pursuant to such Shelf Registration,
(ii) have otherwise been distributed pursuant to Rule 144 promulgated under
the Securities Act ("Rule 144"), or (iii) may be sold in the market without
restriction under Rule 144. The Company further agrees to supplement or make
amendments to the Shelf Registration, if required by the rules, regulations
or instructions applicable to the registration form utilized by the Company
or by the Securities Act or rules and regulations thereunder for the Shelf
Registration. No provision of this Agreement shall require the Company to
file a registration statement on any form other than Form S-3. The Company,
in the exercise of its reasonable judgment, shall have the right to delay the
filing of the Shelf Registration for up to 120 days.
(b) REGISTRATION AND QUALIFICATION PROCEDURES. The Company,
upon the written request of a Limited Partner, is required by the provisions
of Section 8.5(a) hereof to use its best efforts to have the Shelf
Registration declared effective under the Securities Act. Accordingly, the
Company will:
(i) prepare and file with the Commission a registration
statement, including amendments thereof and supplements relating thereto,
with respect to the Conversion Shares;
(ii) use its best efforts to cause the Shelf Registration to be
declared effective by the Commission;
(iii) keep the Shelf Registration effective and the related
prospectus current as described in Section 8.5(a) hereof; provided,
however, that the Company shall have no obligation to file any amendment
or supplement at its own expense or the Partnership's expense more than
90 days after the effective date of the Shelf Registration;
(iv) furnish to each holder of Conversion Shares such numbers
of copies of prospectuses, and supplements or amendments thereto, and
such other documents as such holder reasonably requests;
(v) register or qualify the securities covered by the
registration statement under the securities or blue sky laws of such
jurisdictions within the United States as any holder of Conversion Shares
shall reasonably request, and do such other reasonable acts and things as
may be required of it to enable such holders to consummate the sale or
other disposition in such jurisdictions of the
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Conversion Shares; provided, however, that the Company shall not be
required to (i) qualify as a foreign corporation or consent to a general
and unlimited service or process in any jurisdictions in which it would
not otherwise be required to be qualified or so consent or (ii) qualify
as a dealer in securities; and
(vi) keep the holders of Conversion Shares advised as to the
initiation and progress of the registration.
(c) ALLOCATION OF EXPENSES. The Company and the Partnership
shall each pay its proportionate share of all expenses in connection with the
Shelf Registration, including without limitation (i) all expenses incident to
filing with the National Association of Securities Dealers, Inc., (ii)
registration fees, (iii) printing expenses, (iv) accounting and legal fees
and expenses, except to the extent holders of Conversion Shares elect to
engage accountants or attorneys in addition to the accountants and attorneys
engaged by the Partnership or the Company, (v) accounting expenses incident
to or required by any such registration or qualification and (vi) expenses of
complying with the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification; provided, however,
neither Company nor the Partnership shall not be liable for (A) any discounts
or commissions to any broker attributable to the sale of Conversion Shares,
(B) any direct out-of-pocket costs incurred by any Limited Partner in
connection with the registration of Conversion Shares, including but not
limited to the Limited Partner's attorney and accountant's fees, travel
expenses and any consulting fees or (C) any other fees or expenses incurred
by holders of Conversion Shares in connection with such registration which,
according to the written instructions of any regulatory authority, either
such person is not permitted to pay.
(d) SALE OF CONVERSION SHARES. The Company may require in its
sole discretion that the Conversion Shares be sold in block trades through
underwriters or broker-dealers or that the sale of the Conversion Shares be
underwritten by investment banking firms selected by the Company.
(e) LISTING ON SECURITIES EXCHANGE. If the Company shall list
or maintain the listing of any Common Shares on any securities exchange or
national market system, it will at its expense and as necessary to permit the
registration and sale of the Conversion Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Conversion Shares.
8.6 "PIGGYBACK" REGISTRATION RIGHTS.
(a) NOTICE OF REGISTRATION. If, at any time commencing upon
the date upon which all or any portion of the Limited Partnership Units shall
have been converted into Conversion Shares (but not if such Limited Partnership
Units shall have been exchanged for cash in accordance with the provisions
hereof), the Company files a registration statement under the Securities Act
with respect to a firm commitment underwritten public offering of any securities
of the Company, the Company shall give thirty (30) days prior written notice
thereof to each Limited Partner and shall, upon the written request of any or
all of the Limited Partners, include in the underwritten public offering the
number of Conversion Shares that each such Limited Partner may request (except
as set forth in Section 8.6(b) below). The Company will keep such
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registration statement effective and current under the Securities Act
permitting the sale of Conversion Shares covered thereby for the same period
that the registration statement is maintained effective for the other persons
(including the Company) selling thereunder. In any underwritten offering,
however, the Conversion Shares to be included will be sold at the same time
and at the same price as the Company's securities. In the event that the
Company fails to receive a written request from a Limited Partner within
thirty (30) days of its written notice, then the Company shall have no
obligation to include any of the Conversion Shares in the offering. In
connection with any registration statement or subsequent amendment or similar
document filed pursuant to this Section 8.6, the Company shall take all
reasonable steps to make the securities covered thereby eligible for public
offering and sale under the securities or blue sky laws of the applicable
jurisdictions by the effective date of such registration statement; provided
that in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not so qualified at the time of filing such
documents or to take any action which would subject it to unlimited service
of process in any jurisdiction where it is not so subject at such time. The
Company shall keep such filing current for the length of time it must keep
any registration statement, post-effective amendment, prospectus or offering
circular effective pursuant hereto.
(b) UNDERWRITING. In the event of an offering by the Company
in which one or more Limited Partners wishes to include Conversion Shares under
this Section 8.6, and it is determined in good faith by the managing underwriter
of such offering, giving effect to the number of Conversion Shares to be offered
by the Company, that the total number of Conversion Shares that would
consequently be offered is in excess of the number of Conversion Shares that can
be sold at the proposed price, then the number of Conversion Shares of the
Limited Partners to be offered will be reduced ratably, based upon the number of
Conversion Shares each Limited Partner has requested to include in such
registration.
(c) OBLIGATION OF LIMITED PARTNERS UPON REGISTRATION. To
include Conversion Shares in any registration, each Limited Partner shall:
(i) Cooperate with the Company in preparing each such
registration and execute all such agreements as any underwriter may deem
reasonably necessary in favor of such underwriter;
(ii) Promptly supply the Company with all information,
documents, representations and agreements as such underwriter may deem
reasonably necessary in connection with such registration; and
(iii) Agree in writing not to sell or transfer any share of the
Conversion Shares not included in such underwritten offering for a period
of seven (7) days prior to and thirty (30) days after the effective date
of such registration without the underwriters' consent, but no Limited
Partner shall be required to make such agreement unless the other Limited
Partners included in any offering covered by such registration shall
similarly agree.
(d) COMPANY'S OBLIGATIONS UPON REGISTRATION. If and whenever
the Company is obligated by the provisions of this Section 8.6 to effect the
registration of any offering of
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Common Shares under the Securities Act, as expeditiously as possible the
Company will, or will use its best efforts to, as the case may be:
(i) Prepare and file with the SEC a registration statement
with respect to such Common Shares and, use its best efforts to cause
such registration statement to become effective;
(ii) Furnish to each Limited Partner so many copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such
Limited Partner may reasonably request; and
(iii) Register or qualify the securities covered by such
registration statement under such other securities or blue sky laws of
such jurisdictions as such Limited Partner shall reasonably request, and
do any and all other acts and things that may be reasonably necessary or
advisable to enable the Limited Partners to consummate the disposition in
such jurisdictions of such securities.
(e) EXPENSES. In connection with any filing or other
registration hereunder the Partnership shall bear its proportionate share of all
the expenses and professional fees which arise in connection with such filings
or registration (except for the Limited Partner's pro rata share of any
underwriters' discount) and all expenses incurred in making such filings and
keeping them effective and correct as provided hereunder and shall also provide
each Limited Partner with a reasonable number of printed copies of the
prospectus, offering circulars and/or supplemental prospectuses or amended
prospectuses in final and preliminary form; provided, however, each Limited
Partner will pay its own direct out-of-pocket costs incurred with the
registration of Common Shares, including but not limited to Limited Partner's
attorney and accountants fees, travel expenses and any consulting fees.
(f) INDEMNIFICATION BY THE COMPANY. The Company will
indemnify each Limited Partner, each of its officers and directors, and each
person controlling the Limited Partner, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 8.6,
against all claims, losses, damages, costs, expenses and liabilities
whatsoever (or actions in respect thereof) arising out of or based on (i) any
untrue statement (or alleged untrue statement) of a material fact contained
in any registration statement, prospectus, offering circular or other similar
document (including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made or
(ii) any violation by the Company of the Securities Act or any state
securities law or of any rule or regulation promulgated under the Securities
Act or any state securities law applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse the Limited
Partner, each of its officers and directors, and each person controlling the
Limited Partner, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, provided, however, that (x) the Company will not be
liable in any such case to the extent that any such claim, loss,
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damage, liability, or action arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission)
based upon written information furnished to the Company by an instrument duly
executed by the Limited Partner and stated to be specifically for use therein
or furnished by the Limited Partner to the Company in response to a request
by the Company stating specifically that such information will be used by the
Company therein, and (y) such indemnity agreement shall not inure to the
benefit of the Limited Partner, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission)
made in the preliminary prospectus or prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the amended prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities Act or in
any subsequent amended prospectus filed with the Commission prior to the
written confirmation of the sale of the Registrable Securities at issue
(collectively, the "Final Prospectus"), if a copy of the Final Prospectus was
not furnished to the person or entity asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(g) INDEMNIFICATION BY THE LIMITED PARTNERS. The Limited
Partners will, if Conversion Shares held by or issuable to such Limited
Partners are included in the Common Shares to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Common Shares
covered by such registration statement, and each person who controls the
Company within the meaning of the Securities Act against all claims, losses,
damages, costs, expenses and liabilities whatsoever (or actions in respect
thereof) arising out of or based on any untrue Statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other similar document (including any
related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances under which they were made, and will reimburse the
Company, such directors, officers, persons or underwriters for any legal or
any other expenses reasonably incurred in connection with investigation or
defending any such claim, loss, damage, costs, expense, liability or action,
in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by the Limited
Partners and stated to be specifically for use therein or furnished by any
Limited Partner to the Company in response to a request by the Company
stating specifically that such information will be used by the Company
therein, provided, however, that the foregoing indemnity agreement is subject
to the condition that, such indemity agreement shall not inure to the benefit
of the Company or any underwriter insofar as it relates to any such untrue
statements (or alleged untrue statements) or omission (or alleged omission)
made in the preliminary prospectus or prospectus but eliminated or remedied
in the Final Prospectus, if a copy of the Final Prospectus was not furnished
to the person or entity asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
(h) INDEMNIFICATION PROCEDURES. Each party entitled to
indemnification under this Section 8.6 (the "Indemnified Party") shall give
notice to the party required to provide
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indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld). The failure of any Indemnified Party to give
notice as provided herein shall relieve the Indemnifying Party of its
obligations under this Agreement only to the extent that such failure to give
notice shall materially prejudice the Indemnifying Party in the defense of
any such claim or any such litigation. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement that attributes any liability to the Indemnified Party, unless the
settlement includes as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. If any such Indemnified
Party shall have been advised by counsel chosen by it that there may be one
or more legal defenses available to such Indemnified Party that are different
from or additional to those available to the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such
action on behalf of such Indemnified Party and will reimburse such
Indemnified Party and any person controlling such Indemnified Party for the
reasonable fees and expenses of any counsel retained by the Indemnified
Party, it being understood that the Indemnifying Party shall not, in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys for each Indemnified Party or controlling
person (and all other Indemnified Parties and controlling persons which may
be represented without conflict by one counsel), which firm shall be
designated in writing by the Indemnified Party (or Indemnified Parties, if
more than one Indemnified Party is to be represented by such counsel) to the
Indemnifying Party. The Indemnifying Party shall not be subject to any
liability for any settlement made without its consent, which shall not be
unreasonably withheld.
If the indemnification provided for in this Section 8.6
from the Indemnifying Party is unavailable to an Indemnified Party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred
to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party and Indemnified Parties in connection with the
actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such Indemnifying Party or Indemnified
Parties, and the parties, relative intent, knowledge, access to information
and opportunity to correct or prevent such action. The amount paid or
payable by a party as a result of the losses claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
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The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8.6 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of section 11 (f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8.7 SALE OF 704(c) ASSETS. Notwithstanding anything herein to the
contrary, if, prior to the fifth anniversary hereof, the Partnership sells or
otherwise disposes of all or a portion of the Contributed Properties
contributed by the Limited Partner(s) and, as a result of such disposition,
the Limited Partner recognizes gain under Section 704(c) or 737 of the Code
(including, without limitation, pursuant to a liquidation of the Partnership
on or before such date), then the General Partner will indemnify and hold
harmless the Limited Partner, on an after-tax basis, from and against the
excess of (i) any federal or state income taxes owed by such Limited Partner
as a result of such disposition (including any penalties and interest
relating thereto) over (ii) the then-present value (utilizing then-prevailing
tax rates and a discount rate equal to 120 percent of the relevant
"applicable federal rate" then in effect under Section 1274 of the Code) of
the Federal and state income taxes that would have been owed by such Limited
Partner if such disposition had occurred on the fifth anniversary hereof.
The General Partner shall have the right to participate in any contest with a
governmental authority relating to whether any gain was recognized or any
such taxes are owed.
ARTICLE IX.
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.1 PURCHASE FOR INVESTMENT.
(a) Each Limited Partner hereby represents and warrants to
the General Partner and to the Partnership that the acquisition of his
Partnership Interest is made as a principal for his account for investment
purposes only and not with a view to the resale or distribution of such
Partnership Interest.
(b) Each Limited Partner agrees that he will not sell,
assign or otherwise transfer his Partnership Interest or any fraction
thereof, whether voluntarily or by operation of law or at judicial sale or
otherwise, to any Person who does not make the representations and warranties
to the General Partner set forth in Section 9.1(a) above and similarly agree
not to sell, assign or transfer such Partnership Interest or fraction thereof
to any Person who does not similarly represent, warrant and agree.
9.2 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
(a) Except as otherwise provided in Section 9.2(d) hereof
and except for the pledge rights contained in Section 9.2(f) hereof, no
Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise
transfer his Limited Partnership Interest, in whole or in part, whether
voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a "Transfer") without the written consent of the General
Partner, which consent may be withheld in the sole discretion of the General
Partner. The General Partner may require, as a condition of
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any Transfer, that the transferor assume all costs incurred by the
Partnership in connection therewith.
(b) No Limited Partner may effect a Transfer of his Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act or would otherwise
violate any applicable federal or state securities or "Blue Sky" law (including
investment suitability standards).
(c) No transfer by a Limited Partner of his Limited
Partnership Interest in whole or in part, may be made to any Person if such
transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code.
(d) Section 9.2(a) shall not apply to the following
transactions, except that the General Partner may require that the transferor
assume all costs incurred by the Partnership in connection therewith:
(i) any Transfer by a Limited Partner pursuant to the exercise
of its Conversion Right under Section 8.4 hereof;
(ii) any Transfer by a Limited Partner that is a corporation or
other business entity to any of its Affiliates or subsidiaries or to any
successor in interest of such Limited Partner; or
(iii) any donative Transfer by an individual Limited Partner to
his immediate family members or any trust in which the individual or his
immediate family members own, collectively, 100 % of the beneficial
interests. For purposes of this Section 9.2(d)(iii), the term "immediate
family member" shall be deemed to include only an individual Limited
Partner's spouse, children and grandchildren.
(e) Any Transfer in contravention of any of the provisions of
this Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
(f) No transfer of any Limited Partnership Interest may be
made to a lender to the Partnership or to any Person who is related (within the
meaning of Regulations Section 1.752-4(b)) to any lender to the Partnership
whose loan constitutes a non-recourse liability (within the meaning of
Regulations Section 1.752-1(a)(2)), without the consent of the General Partner,
which may be withheld in its sole and absolute discretion; provided, however,
that as a condition to such consent the lender will be required to enter into an
arrangement with the Partnership and the General Partner to exchange or redeem
for the Cash Amount any Limited Partnership Units in which a security interest
is held simultaneously with the time at which liabilities to such lender would
be deemed to be a partner in the Partnership for purposes of allocating
liabilities to such lender under Section 752 of the Code.
9.3 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
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(a) Subject to the other provisions of this Article IX, an
assignee of the Limited Partnership Interest of a Limited Partner (which
shall be understood to include any purchaser, transferee, donee, or other
recipient of any disposition of such Limited Partnership Interest) shall be
deemed admitted as a Limited Partner of the Partnership only upon the
satisfactory completion of the following:
(i) The assignee shall have accepted and agreed to be bound by
the terms and provisions of this Agreement by executing a counterpart or
an amendment thereof, including a revised EXHIBIT A, and such other
documents or instruments as the General Partner may require in order to
effect the admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate evidencing
the admission of such Person as a Limited Partner shall have been signed,
acknowledged and filed for record in accordance with the Act.
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.1(a) hereof and the agreement set
forth in Section 9.1(b) hereof.
(iv) If the assignee is a corporation, partnership or trust,
the assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's authority
to become a Limited Partner under the terms and provisions of this
Agreement.
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.2 hereof.
(vi) The assignee shall have paid all reasonable legal fees of
the Partnership and the General Partner and filing and publication costs
in connection with his substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of the
General Partner to its admission as a Substitute Limited Partner, which
consent may be given or denied in the exercise of General Partner's sole
and absolute discretion.
(b) For the purpose of allocating profits and losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section 9.3(a)(ii) hereof or, if no such filing is required, the later of the
date specified in the transfer documents or the date on which the General
Partner has received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person
seeking to become a Substitute Limited Partner by preparing the documentation
required by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to the admission of such
Person as a Limited Partner of the Partnership.
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9.4 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
(a) Subject to the provisions of Sections 9.1 and 9.2
hereof, except as required by operation of law, the Partnership shall not be
obligated for any purposes whatsoever to recognize the assignment by any
Limited Partner of his Partnership Interest until the Partnership has
received notice thereof.
(b) Any Person who is the assignee of all or any portion of
a Limited Partner's Limited Partnership Interest, but does not become a
Substitute Limited Partner and desires to make a further assignment of such
Limited Partnership Interest, shall be subject to all the provisions of this
Article IX to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of his Limited Partnership Interest.
9.5 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A
LIMITED PARTNER. The occurrence of an Event of Bankruptcy as to a Limited
Partner, the death of a Limited Partner or a final adjudication that a
Limited Partner is incompetent (which term shall include, but not be limited
to, insanity) shall not cause the termination or dissolution of the
Partnership, and the business of the Partnership shall continue. If an order
for relief in a bankruptcy proceeding is entered against a Limited Partner,
the trustee or receiver of his estate or, if he dies, his executor,
administrator or trustee, or, if he is finally adjudicated incompetent, his
committee, guardian or conservator, shall have the rights of such Limited
Partner for the purpose of settling or managing his estate property and such
power as the bankrupt, deceased or incompetent Limited Partner possessed to
assign all or any part of his Partnership Interest and to join with the
assignee in satisfying conditions precedent to the admission of the assignee
as a Substitute Limited Partner.
9.6 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be
acquired by two individuals as joint tenants with right of survivorship,
provided that such individuals either are married or are related and share
the same home as tenants in common. The written consent or vote of both
owners of any such jointly held Partnership Interest shall be required to
constitute the action of the owners of such Partnership Interest; provided,
however, that the written consent of only one joint owner will be required if
the Partnership has been provided with evidence satisfactory to the counsel
for the Partnership that the actions of a single joint owner can bind both
owners under the applicable laws of the state of residence of such joint
owners. Upon the death of one owner of a Partnership Interest held in a
joint tenancy with a right of survivorship, the Partnership Interest shall
become owned solely by the survivor as a Limited Partner and not as an
assignee. The Partnership need not recognize the death of one of the owners
of a jointly held Partnership Interest until it shall have received notice of
such death.
ARTICLE X.
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.1 BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with
generally accepted accounting principles, including: (a) a current list of
the full name and last known business address of each Partner, (b) a copy of
the Certificate of Limited Partnership and all certificates of amendment
thereto, (c) copies of the
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Partnership's federal, state and local income tax returns and reports, (d)
copies of the Agreement and any financial statements of the Partnership for
the three most recent years and (e) all documents and information required
under the Act. Any Partner or his duly authorized representative, upon
paying the costs of collection, duplication and mailing, shall be entitled to
inspect or copy such records during ordinary business hours.
10.2 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
(a) All funds of the Partnership not otherwise invested
shall be deposited in one or more accounts maintained in such banking or
brokerage institutions as the General Partner shall determine, and
withdrawals shall be made only on such signature or signatures as the General
Partner may, from time to time, determine.
(b) All deposits and other funds not needed in the operation
of the business of the Partnership may be invested by the General Partner in
investment grade instruments (or investment companies whose portfolio
consists primarily thereof), government obligations, certificates of deposit,
bankers' acceptances and municipal notes and bonds. The funds of the
Partnership shall not be commingled with the funds of any other Person except
for such commingling as may necessarily result from an investment in those
investment companies permitted by this Section 10.2(b).
10.3 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
Partnership shall be the calendar year.
10.4 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the
end of each fiscal year of the Partnership, the General Partner shall furnish
to each person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns
as shall be reasonably required by law.
10.5 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
(a) The General Partner shall be the Tax Matters Partner of
the Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to
take all actions authorized and required, respectively, by the Code for the
Tax Matters Partner. The General Partner shall have the right to retain
professional assistance in respect of any audit of the Partnership by the
Service and all out-of-pocket expenses and fees incurred by the General
Partner on behalf of the Partnership as Tax Matters Partner shall constitute
Partnership expenses. In the event the General Partner receives notice of a
final Partnership adjustment under Section 6223(a)(2) of the Code, the
General Partner shall either (i) file a court petition for judicial review of
such final adjustment within the period provided under Section 6226(a) of the
Code, a copy of which petition shall be mailed to all Limited Partners on the
date such petition is filed, or (ii) mail a written notice to all Limited
Partners, within such period, that describes the General Partner's reasons
for determining not to file such a petition. The taking of any action and
the incurring of any expense by the Tax Matters Partner in connection with
any such matter, except to the extent required by law, is a matter in the
sole and absolute discretion of the Tax Matters Partner and the provisions
relating
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to indemnification of the General Partner set forth in Section 6.3 hereof
shall be fully applicable to the Tax Matters Partner in its capacity as such.
(b) All elections required or permitted to be made by the
Partnership under the Code or under any applicable state law shall be made by
the General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of
this Agreement, any adjustments made pursuant to Section 754 shall affect
only the successor in interest to the transferring Partner and in no event
shall be taken into account in establishing, maintaining or computing Capital
Accounts for the other Partners for any purpose under this Agreement. Each
Partner will furnish the Partnership with all information necessary to give
effect to such election.
10.6 REPORTS TO LIMITED PARTNERS.
(a) As soon as practicable after the close of each fiscal
quarter, but in no event later than 45 days (other than the last quarter of
the fiscal year), the General Partner shall cause to be mailed to each
Limited Partner a quarterly report containing financial statements of the
Partnership, or of the Company if such statements are prepared solely on a
consolidated basis with the Company, for such fiscal quarter, presented in
accordance with generally accepted accounting principles. As soon as
practicable after the close of each fiscal year, the General Partner shall
cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, prepared in accordance with
generally accepted accounting principles. The annual financial statements
shall be audited by accountants selected by the General Partner.
(b) Any Partner shall further have the right to a private
audit of the books and records of the Partnership, provided such audit is
made for Partnership purposes, at the expense of the Partner desiring it and
is made during normal business hours.
ARTICLE XI.
AMENDMENT OF AGREEMENT
11.1 AMENDMENT OF AGREEMENT. The General Partner, without the
consent of the Limited Partners, may amend this Agreement in any respect;
provided, however, that the following amendments shall require the consent of
Limited Partners holding at least one half (1/2) of the Percentage Interests
of the Limited Partners:
(a) any amendment affecting the operation of the Conversion
Factor or Conversion Right (except as provided in Section 8.5(e) hereof) in a
manner adverse to the Limited Partners;
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(b) any amendment that would adversely affect the rights of
the Limited Partners to receive the distributions payable to them hereunder
other than with respect to the issuance of additional Limited Partnership
Units pursuant to Section 4.2 of this Agreement;
(c) any amendment that would alter the Partnership's
allocations of Profit and Loss to the Limited Partners in a manner adverse to
Limited Partners, other than with respect to the issuance of additional
Limited Partnership Units pursuant to Section 4.2 of this Agreement;
(d) any amendment that would impose on the Limited Partners
any obligation to make additional Capital Contributions to the Partnership
other than as provided in Section 4.2;
(e) any amendment to Section 8.6 above in a manner adverse
to any Limited Partner;
(f) any amendment to one or more of the following
provisions, in each case in a manner adverse to any Limited Partner:
Sections 6.5(a), 6.7(c), 6.8, 7.2, 8.5, 8.7, 10.4 or 10.6 hereof; and
(g) any amendment to this Article X1.
ARTICLE XII.
GENERAL PROVISIONS
12.1 NOTICES. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses
set forth in EXHIBIT A attached hereto; provided, however, that any Partner
may specify a different address by notifying the General Partner in writing
of such different address. Notices to the Partnership shall be delivered at
or mailed to its specified office.
12.2 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of
the Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.3 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all
further reasonable acts and execute, swear to, acknowledge and deliver all
further documents which may be reasonably necessary, appropriate or desirable
to carry out the provisions of this Agreement or the Act.
12.4 SEVERABILITY. If any provision of this Agreement shall be
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from this Agreement (to the extent
permitted by law) and in any event such illegality, invalidity or
unenforceability shall not affect the remainder hereof.
12.5 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior
written agreements and prior and contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof.
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12.6 PRONOUNS AND PLURALS. When the context in which words are used
in the Agreement indicates that such is the intent, words in the singular
number shall include the plural and the masculine gender shall include the
neuter or female gender as the context may require.
12.7 HEADINGS. The Article headings or Sections in this Agreement
are for convenience only and shall not be used in construing the scope of
this Agreement or any particular Article.
12.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the
same counterpart.
12.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Agreement of Limited Partnership, all as of date first set
forth above.
LIMITED PARTNERS: GENERAL PARTNER:
PENDOLA FAMILY TRUST WESTERN PROPERTIES TRUST, a
PARTNERSHIP, a California general California business trust
Partnership
By:________________________________ By: __________________________
Title: _______________________
Its: _______________________________
By: __________________________
Title: ________________________
44
<PAGE>
EXHIBIT A
SCHEDULE OF PARTNERS,
ALLOCATION OF PARTNERSHIP UNITS, LIMITED PARTNER PERCENTAGE INTERESTS AND
THE AGREED VALUE OF NON-CASH CAPITAL CONTRIBUTIONS
<TABLE>
<CAPTION>
Approximate
Adjusted Tax Basis of Value of Non- Limited Limited Partner
Date Non-Cash Capital Cash Capital Partnership Percentage
Admitted Name and Address of Partner Contribution Contribution Units Issued Interest
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . .
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit A-1
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF CONVERSION RIGHT
In accordance with Section 8.4 of the Agreement of Limited Partnership (the
"Agreement") of WESTERN/PINECREEK, L.P., the undersigned hereby irrevocably (i)
presents for Conversion ___ units of limited partnership interest ("Units") in
WESTERN/PINECREEK, L.P. (the "Partnership") in accordance with the terms of the
Agreement and the "Conversion Right" referred to in Section 8.5 thereof, (ii)
surrenders such Units and all right, title and interest therein, (iii)
surrenders herewith any certificate or other writing evidencing the Units (and
requests that any Units so evidenced that are not redeemed be evidenced by the
issuance of a new certificate or writing) and (iv) directs that the "Cash
Amount" or "Common Shares Amount") (as determined by the General Partner), as
defined in the Agreement, deliverable upon exercise of the Conversion Rights be
delivered to the address specified below, and if Common Shares are to be
delivered, such Common Shares be registered or placed in the name(s) and at the
address(es) specified below.
Dated: _____________
Name of Limited Partner:
________________________
(Signature of Limited Partner)
________________________
(Mailing Address)
________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
________________________
If Common Shares are to be issued, issue to:
________________________
________________________
________________________
Please insert social security or identifying number:
________________________
Exhibit B-1
<PAGE>
Exhibit 12
Western Properties Trust
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
------------------------------------------------------------------
Year ended December 31,
------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income.............................................. $19,814 $13,616 $12,880 $12,231 $10,304
Fixed charges - interest and amortization of loan fees.. 14,325 13,414 11,511 11,289 11,537
------- ------- ------- ------- -------
Earnings before interest and amortization of loan fees.. $34,139 $27,030 $24,391 $23,520 $21,841
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fixed charges - interest capitalized.................... 1,307 275 12 128 29
------- ------- ------- ------- -------
--- -- --
Total fixed charges..................................... $15,632 $13,689 $11,523 $11,417 $11,566
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of earnings to fixed charges...................... 2.18 1.97 2.12 2.06 1.89
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
<PAGE>
Exhibit 23
Consent of Independent Certified Public Accountants
The Trustees
Western Properties Trust:
We consent to incorporation by reference in the registration statement
(No. 33-71270) on Form S-3/A, the registration statement (No. 333-32721) on
Form S-3, the registration statement (No. 33-27016) on Form S-8, and the
registration statement (No. 33-60777) on Form S-8 of Western Properties Trust
of our report dated February 8, 2000; relating to the consolidated balance
sheets of Western Properties Trust as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999,
and the related financial statement schedule, which report appears in the
December 31, 1999, annual report on Form 10-K of Western Properties Trust.
KPMG LLP
San Francisco, California
February 8, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S STATEMENT OF INCOME FOR THE MONTH ENDED DECEMBER 31, 1999 AND THE
BALANCE SHEET AT DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2219
<SECURITIES> 0
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 361001
<DEPRECIATION> 73189
<TOTAL-ASSETS> 427266
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 219150
0
0
<COMMON> 242269
<OTHER-SE> (61640)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 427266
<SALES> 0
<TOTAL-REVENUES> 58698
<CGS> 0
<TOTAL-COSTS> 15038<F4>
<OTHER-EXPENSES> 14771<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14325
<INCOME-PRETAX> 19814
<INCOME-TAX> 0
<INCOME-CONTINUING> 19814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19814
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.15
<FN>
<F1>AMOUNT INSIGNIFICANT.
<F2>BALANCE SHEET IS NOT CLASSIFIED.
<F3>AMOUNT REPRESENTS ACCUMULATED DIVIDENDS IN EXCESS OF NET INCOME.
<F4>AMOUNT COMPRISED OF PROPERTY OPERATING COST (10,171) AND OTHER OPERATING
EXPENSES (4,867).
<F5>AMOUNT COMPRISED OF DEPRECIATION EXPENSE (11,523) AND GENERAL AND
ADMINISTRATIVE EXPENSE (3,248).
</FN>
</TABLE>
