<PAGE>
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended SEPTEMBER 30, 2000
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
-----------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares of Beneficial Interest, No Par Value - 17,347,250 shares as
of October 26, 2000
<PAGE>
WESTERN PROPERTIES TRUST
INDEX TO 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited) 3
Consolidated Balance Sheets - September 30, 2000, and December 31, 1999 4
Consolidated Statements of Income - Three and Nine months ended
September 30, 2000 and 1999 5
Consolidated Statements of Shareholders' Equity - Nine months ended
September 30, 2000 and year ended December 31, 1999 6
Consolidated Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-19
Item 2. Management's Discussion and Analysis of Financial 20-25
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 27
Item 3. Defaults upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27-28
SIGNATURES 29
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
The financial statements included in this report have been prepared by the
Company, without audit, pursuant to the rules of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules. Interim
results are not necessarily indicative of results for a full year. The interim
financial statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented in accordance with the instructions to Form 10-Q.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K. When necessary, reclassifications have been made to prior
period balances to conform to current period presentation.
When used in the discussion in this Form 10-Q, the words "believes," "expects,"
"intends," "anticipates" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
discussed, including, but not limited to, those set forth in the section
entitled "Potential Factors Affecting Future Operating Results," in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Readers are cautioned not to place undue reliance on the
forward-looking statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to the
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS WESTERN PROPERTIES TRUST
--------------------------- -------------------------
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------------- -----------------
(In thousands, except share data)
<S> <C> <C>
Real estate investments:
Real estate properties....................................................... $ 381,583 $ 354,690
Less accumulated depreciation and amortization............................... (87,239) (73,189)
------------- -----------
294,344 281,501
Real estate properties held for sale......................................... 22,964 81,697
Less previous accumulated depreciation and amortization...................... (6,133) (22,839)
------------- -----------
16,831 58,858
Real estate under development............................................... 10,147 6,311
Unconsolidated real estate subsidiary....................................... 49,270 46,963
Mortgage notes receivable................................................... 23,707 17,229
------------- -----------
Net real estate investments.............................................. 394,299 410,862
Cash and cash equivalents....................................................... 1,923 2,219
Accounts receivable, exchange escrow and other assets........................... 14,339 13,055
Deferred debt issuance costs, net............................................... 1,032 1,130
------------- -----------
$ 411,593 $ 427,266
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank line....................................................................... $ 63,500 $ 84,520
Senior notes, net............................................................... 124,843 124,822
Mortgage payable................................................................ 9,647 9,808
------------- -----------
197,990 219,150
Interest payable................................................................ 852 3,561
Prepaid rents and security deposits............................................. 1,887 2,288
Other liabilities............................................................... 3,488 2,939
------------- -----------
6,227 8,788
------------- -----------
Total liabilities............................................................ 204,217 227,938
------------- -----------
Minority interests.............................................................. 18,118 18,699
Shareholders' equity:
Preferred Stock, 2,000,000 shares authorized;
No shares issued or outstanding -- --
Shares of beneficial interest, no par value,
Unlimited share authorization
Issued and outstanding: September 30, 2000 - 17,308,817 shares
December 31, 1999 - 17,236,470 shares............ 243,361 242,269
Accumulated dividends in excess of net income................................ (54,103) (61,640)
------------- -----------
Total shareholders' equity................................................... 189,258 180,629
---------- ----------
$ 411,593 $ 427,266
============= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME WESTERN PROPERTIES TRUST
--------------------------------- -----------------------------------------------------
(Unaudited. In thousands, except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
REVENUES:
Minimum rents............................................ $ 10,941 $ 10,939 $ 33,181 $ 33,039
Percentage rents......................................... 348 344 783 718
Recoveries from tenants............................... 2,194 2,092 6,715 6,521
Interest income.......................................... 617 425 1,741 1,296
Income from unconsolidated real estate subsidiary........ 929 113 1,587 258
Other income............................................. 347 264 777 694
--------- --------- --------- ---------
Total revenues................................................ 15,376 14,177 44,784 42,526
--------- --------- --------- ---------
EXPENSES:
Interest................................................. 3,713 3,500 11,220 10,550
Property operating costs................................. 2,286 2,251 6,995 7,012
Depreciation and amortization......................... 3,785 2,959 8,854 8,884
Other operating expenses................................. 1,317 1,437 4,160 3,872
Provision for loss on real estate investments............ -- -- 1,745 --
General and administrative............................... 1,028 712 2,856 2,226
--------- --------- --------- ---------
Total expenses................................................ 12,129 10,859 35,830 32,544
--------- --------- --------- ---------
Income before gains on sales of real estate investments.. 3,247 3,318 8,954 9,982
Gains on sales of real estate investments..................... 10,061 2,313 14,316 4,426
--------- --------- --------- ---------
Income before minority interest.......................... 13,308 5,631 23,270 14,408
Minority interest............................................. 401 401 1,203 1,203
--------- --------- --------- ---------
Net income.................................................... $ 12,907 $ 5,230 $ 22,067 $ 13,205
========== ========== ========== ==========
Basic net income per share.................................... $ 0.75 $ 0.30 $ 1.28 $ 0.77
========== ========== ========== ==========
Diluted net income per share.................................. $ 0.71 $ 0.30 $ 1.24 $ 0.77
========== ========== ========== ==========
Cash dividends paid per share................................. $ 0.28 $ 0.28 $ 0.84 $ 0.84
========== ========== ========== ==========
Weighted average number of shares outstanding--Basic......... 17,273,194 17,227,916 17,252,604 17,222,911
========== ========== ========== ==========
Weighted average number of shares outstanding--Diluted....... 18,813,211 18,695,086 18,779,328 17,260,494
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY WESTERN PROPERTIES TRUST
----------------------------------------------- ------------------------
(Unaudited. In thousands, except share data)
Nine Months Ended September 30, 2000, and
Year Ended December 31, 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Dividends Total
Shares of in Excess of Share-
Beneficial Interest Net Holders'
Number Amount Income Equity
------------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1999............................. 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....................................... -- -- (19,337) (19,337)
---------- ---------- ---------- ----------
Balance, December 31, 1999........................... 17,236,470 242,269 61,640 180,629
Shares issued in connection with OP unit conversion..
50,000 581 -- 581
Shares issued under restricted stock plan............ 22,347 251 -- 251
Forgiveness of loans to officers..................... -- 260 -- 260
Net income........................................... -- -- 22,067 22,067
Cash dividends....................................... -- -- (14,530) (14,530)
---------- ---------- ---------- ----------
BALANCE, SEPTEMBER 30, 2000.......................... 17,308,817 $243,361 $ (54,103) $189,258
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS WESTERN PROPERTIES TRUST
------------------------------------- ------------------------
(Unaudited. In thousands)
Nine Months Ended
September 30,
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 22,067 $ 13,205
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest............................................................ 1,203 1,203
Depreciation and amortization................................................ 8,854 8,884
Amortization of deferred debt issuance costs................................. 388 359
Gains on sales of real estate investments.................................... (14,316) (4,426)
Earned compensation on restricted stock plan................................. 251 199
Decrease (increase) in accounts receivable and other assets.................. 185 (2,220)
Increase in deferred rent receivable......................................... (201) (425)
Decrease in interest payable................................................. (2,709) (2,276)
(Decrease) increase in prepaid rents and security deposits and other (609) 454
liabilities..................................................................
Provision for loss on real estate investments................................ 1,745 --
Forgiveness of loans to officers............................................ 260 260
------------- ------------
Net cash provided by operating activities.................................... 17,118 15,212
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of real estate investments..................................... 43,775 13,451
Investment in notes receivable, net............................................... (6,478) (1,581)
Acquisition of real estate investments............................................ (8,899) --
Investment in unconsolidated real estate subsidiary................................ (2,307) (299)
Funds released from escrow..................................................... 10,714 2,625
Funds escrowed pending acquisition................................................. (13,207) (2,926)
Improvements of real estate investments:
Build-to-suit developments................................................... (16) (518)
New leases................................................................... (2,409) (1,619)
General...................................................................... (302) (818)
Development.................................................................. (1,204) --
Recovery of investment in direct financing leases............................ 101 114
------------- ------------
Net cash provided by investing activities................................... 19,768 8,429
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on bank line.............................................................. 46,600 33,000
Principal payments on bank line.................................................... (67,620) (41,550)
Principal payments on mortgage note payable........................................ (161) (150)
Deferred long term issuance costs.................................................. (268) (290)
Cash distributions to minority interest............................................ (1,203) (1,203)
Cash dividends paid................................................................ (14,530) (14,502)
------------- ------------
Net cash used in financing activities........................................ (37,182) (24,695)
------------- ------------
Net decrease in cash and cash equivalents.................................... (296) (1,054)
Cash and cash equivalents, at the beginning of period............................. 2,219 1,512
------------- ------------
Cash and cash equivalents, at the end of period.................................... $ 1,923 $ 458
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net of interest capitalized of $959 in
2000 and $1,052 in 1999............................................................ $ 13,541 $ 13,518
============= =============
NON CASH FINANCING ACTIVITIES:
Note received in connection with the sale of real estate investment................ $ 5,098 $ --
============= =============
Shares issued in connection with OP unit conversion................................ $ 581 $ --
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
WESTERN PROPERTIES TRUST
Notes to Consolidated Financial Statements
September 30, 2000
(Unaudited)
Note A: ORGANIZATION, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS
(1) DESCRIPTION OF ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Founded in 1962, Western Properties Trust ("WPT") and its affiliates own and
operate community and neighborhood shopping centers located in the western
United States. The corporate office of the self-administered equity real estate
investment trust is in the San Francisco Bay Area city of Emeryville,
California. WPT shares are traded on the American Stock Exchange under the
symbol "WIR".
Western Properties Trust's consolidated financial statements include the
accounts of the following entities: WPT; Western/Kienow's L.P., a Delaware
limited partnership; Western Pinecreek L.P., a Delaware limited partnership;
GW100, a general partnership; and WPT's wholly owned subsidiary, WIRET Asset
Management Services (a California corporation and a licensed real estate broker
in the State of California) (collectively, "Western"). These entities comprise
all of the subsidiaries over which WPT exercises direct or indirect voting
control. Western is in the business of acquiring, managing, leasing and
developing retail and commercial properties. WPT is the sole general partner in
Western/Kienow's L.P. and owned a 60% interest therein as of September 30, 2000.
WPT is also the sole general partner in Western Pinecreek L.P. and owned a 75%
interest therein as of September 30, 2000.
Through an unconsolidated real estate subsidiary, Western controls 11 properties
comprising approximately 457,222 square feet of retail gross leasable area
("GLA"). Throughout this Form10-Q reference to the unconsolidated real estate
subsidiary is a reference to the entity holding this 11 property portfolio. The
properties in this portfolio generally consist of the remaining Kienow's Food
Stores, Inc. properties, which were acquired by the unconsolidated real estate
subsidiary in 1998.
The combined GLA of Western and its unconsolidated real estate subsidiary at
September 30, 2000 was approximately 5.1 million square feet of GLA. At
September 30, 2000, Western and its unconsolidated real estate subsidiary's real
estate portfolio was comprised of 55 investments, 49 of which were retail
properties.
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES
The consolidated financial statements included in this report have been prepared
by Western, without audit, pursuant to the rules of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to such rules. Interim results
are not necessarily indicative of results for a full year. The interim
8
<PAGE>
consolidated financial statements reflect all adjustments which are, in the
opinion of management, normal and recurring and necessary to a fair presentation
of the results for interim periods.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in Western's latest
annual report on Form 10-K. When necessary, reclassifications have been made to
prior period balances to conform to current period presentation.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Financial Accounting Statement No. 133 (FASB 133),
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." Western 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 Western's consolidated financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101, "REVENUE
RECOGNITION IN FINANCIAL STATEMENTS." Prior to the contemplated merger
(discussed below) Western intended to adopt SAB 101 during the fourth quarter of
2000, the effective date of SAB 101, and did not contemplate that the adoption
of this Bulletin would have a material impact on Western's consolidated
financial statements.
Note B: PROPOSED MERGER WITH PAN PACIFIC
The board of directors of Pan Pacific Retail Properties, Inc. and the board of
trustees of Western Properties Trust have each unanimously approved a definitive
agreement under which Pan Pacific will acquire Western in a stock-for-stock
merger, subject to Pan Pacific Retail Properties, Inc. and Western Properties
Trust shareholder approval. Pan Pacific's existing senior management team will
manage the combined company. Management anticipates that the merger will be
completed in November, 2000.
When the merger is completed, each Western Properties shareholder shall receive
0.62 of a share of newly issued Pan Pacific common stock for each Western
Properties Trust share that he or she owns. Pan Pacific will issue up to
approximately 11.7 million shares of Pan Pacific common stock to Western
Properties' shareholders in the merger. These newly issued shares of Pan Pacific
common stock would represent 34.2% of the Pan Pacific common stock outstanding
after the merger, assuming the exchange of each company's subsidiary securities.
9
<PAGE>
Note C: REAL ESTATE INVESTMENTS
At September 30, 2000, Western and its unconsolidated real estate subsidiary
owned 55 investments, totaling 5.1 million square feet of GLA. Included in this
total are 4 properties, which were held for sale and total 255,000 square feet
of GLA.
Occupancy percentages for Western's portfolios for the applicable periods are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999 SEPTEMBER 30, 1999
------------------ ----------------- ------------------
<S> <C> <C> <C>
Shopping centers 94.6% 93.7% 93.2%
Single-tenant retail 100.0% 100.0% 62.2%(1)
Commercial and other 100.0% 93.9% 94.4%
Overall occupancy 94.7% 93.8% 91.6%
</TABLE>
Occupancy percentage is based on square footage of GLA leased as a percent of
total available square footage of GLA for lease.
(1) The Single-tenant retail occupancy rate reflects the January, 1999
expiration of the Kmart/Napa lease of 103,284 square feet, and vacancy
thereof, until this property was leased to Wal Mart in November, 1999.
Western's shopping center development-in-progress, Olympic Place, located in
Walnut Creek, California, is not included in the above occupancy percentages.
Additionally, the 11 retail properties which are held through an unconsolidated
real estate subsidiary are not included in the above occupancy percentages due
to the extensive re-tenanting and redevelopment currently taking place at these
properties. Including the portfolio in the unconsolidated real estate
subsidiary, overall occupancy would be 92.4%, 92.8% and 90.5% for September 30,
2000, December 31, 1999 and September 30, 1999, respectively.
During the third quarter of 2000, Western sold the following properties:
- On July 25, 2000, Western sold a 102,555 square foot shopping center
located in Gridley, California for $3,275,000, at a small loss. The net
sales proceeds were used to reduce the balance on the bank line.
- On August 16, 2000, Western sold a 28,743 square foot parcel of land
located in Reno, Nevada for $219,000, at a small gain. The net sales
proceeds were used to reduce the balance on the bank line.
- On September 13, 2000, Western sold a 87,020 square foot shopping center
located in Coalinga, California for $2,625,000, at a small loss. The net
sales proceeds were used to reduce the balance on the bank line.
- On September 13, 2000, Western sold a 103,702 square foot shopping center
located in Reno, Nevada for $9,250,000, at a gain of approximately
$3,229,000. The net sales proceeds were used to reduce the balance on the
bank line.
10
<PAGE>
- On September 28, 2000, Western sold a 58,022 square foot commercial
building located in Santa Clara, California for $8,850,000, at a gain of
approximately $7,213,000. The net sales proceeds were used to (a) acquire a
shopping center in Sacramento, California, through a tax-deferred exchange
and (b) reduce the balance on the bank line.
During the quarter ended September 30, 2000, Western completed the acquisition
of a 62,435 shopping center located in Sacramento, California for $6,125,000.
Western acquired this shopping center through a tax-deferred exchange.
Lastly, during the quarter ended September 30, 2000, Western removed seven
properties from the held for sale category. These properties have a gross book
value of approximately $72.7 million. As of September 30, 2000, Western had four
properties held for sale with a gross book value of $23.0 million.
Note D: UNCONSOLIDATED REAL ESTATE SUBSIDIARY
In October 1998, Western acquired, through its unconsolidated real estate
subsidiary, an interest in Kienow's Food Stores, Inc. ("Kienow's"), a Portland,
Oregon-based grocery wholesaler and retailer, whose principal assets were its
real estate properties comprising six shopping centers and four free-standing
stores, which comprise the "10 core retail properties" and eight non-core
properties. During 1999 and the first three quarters of 2000, Western's
unconsolidated real estate subsidiary caused Kienow's to sell the eight non-core
properties as well as one core free-standing store. The net proceeds from these
sales were reinvested using tax-deferred exchange rules into two properties -- a
free standing grocery store, located in Portland, Oregon, and land located in
Lodi, California. The land in Lodi is subject to a ground lease. Over the past
24 months, Western has been redeveloping and re-tenanting the core retail
properties, located in the greater Portland area. From inception to September
30, 2000, Western's unconsolidated real estate subsidiary has capitalized $
2,034,000 ($255,000 in 1998, $1,299,000 in 1999, $480,000 in 2000) of interest
in connection with the redevelopment and re-tenanting of the retail properties.
11
<PAGE>
Note E: INVESTMENTS IN MORTGAGE LOANS
The following table provides information summarizing Western's investment in
mortgage loans:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30 DECEMBER 31 INTEREST RATE
----------------------------------------------------------------------------------------------------------------------------------
2000 1999 (PER ANNUM)
---- ---- -----------
<S> <C> <C> <C>
(In thousands)
Loan on a retail property in Concord,
California, secured by a first deed of trust on
the property Western sold in 1997. Mortgage is
due August 2007.................................... $1,160 $1,236 8.5% through August 31, 2002
-- -- 9.0% thereafter
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.................................. 14,347 7,793 9.0% on amounts up to $26.5 million
-- -- 10.5% on amounts above $26.5 million
----------- ----------
$ 23,707 $ 17,229
=========== ==========
</TABLE>
12
<PAGE>
Note F: CAPITAL EXPENDITURES
It is Western's practice to capitalize certain expenditures that exceed $4,000
and which are associated with the improvement and rental of real estate
investments. Capitalized costs include leasing and legal costs and property
improvements. Capital expenditures for the three and nine months ended September
30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------------------- -----------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
"Build to Suit" capital improvements................. $ 2 $ 518 $ 16 $ 518
Capitalized costs incurred in connection with
leasing previously UNLEASED space............... 73 30 42 43
Capitalized costs incurred in connection with
leasing previously LEASED space................. 322 505 2,367 1,576
Capitalized costs which relate to
improvements to common areas.................... 90 140 302 818
Capitalized costs which relate to development........ 389 -- 1,204 --
------- ------- -------- ------
Total Capitalized expenditures ..................... $ 876 $ 1,193 $ 3,931 $2,955
======== ======= ======== ======
Improvements......................................... $ 818 $ 1,121 $ 3,672 $2,835
Leasing and legal costs.............................. 58 72 259 120
------- ------- -------- ------
Total capitalized expenditures ..................... $ 876 $ 1,193 $ 3,931 $2,955
======== ======= ======== ======
</TABLE>
During the three months ended September 30, 2000, Western entered into leases
that obligate Western to fund certain leasing commissions and property
improvements. These obligations relate to new leases, a portion of which was
paid and capitalized during the quarter ended September 30, 2000, and is
reflected in the preceding table.
13
<PAGE>
The aggregate and per square foot information representing expenditures
associated with leasing for the quarter ended September 30, 2000, is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
NEW LEASES
TENANT IMPROVEMENTS
-------------------
Property Type Capitalized Costs All Expenditures
-------------------------------------------------------------------------------------------------------------------
Per Per
Aggregate Square Square Aggregate Square Square
Amount Feet Foot Amount Feet Foot
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping center &
single-tenant retail
properties $153,911 39,201 $3.93 $158,161 49,903 $3.17
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LEASING COMMISSIONS
-------------------
Property Type Capitalized Costs All Expenditures
-------------------------------------------------------------------------------------------------------------------
Per Per
Aggregate Square Square Aggregate Square Square
Amount Feet Foot Amount Feet Foot
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping center &
single-tenant retail
properties $ 58,927 27,147 $2.17 $64,898 49,903 $1.30
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LEASE RENEWALS
TENANT IMPROVEMENTS
-------------------
Property Type Capitalized Costs All Expenditures
-------------------------------------------------------------------------------------------------------------------
Per Per
Aggregate Square Square Aggregate Square Square
Amount Feet Foot Amount Feet Foot
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping center &
single-tenant retail
properties $ -- -- $ -- $ 2,000 25,518 $ 0.08
</TABLE>
14
<PAGE>
Note G: SEGMENT DISCLOSURE
FASB No. 131 requires disclosure about segments of Western and related
information.
Western evaluates performance and makes resource-allocation decisions on an
individual property basis. For financial reporting purposes, Western has grouped
its properties into three segments: (i) shopping centers (including shopping
centers under development); (ii) single-tenant retail; and (iii) other
commercial properties. Investments principally consist of real estate, but also
include real estate secured loans (four) and real estate joint ventures (three).
Non-segment assets include cash, accounts receivable and deferred financing
costs.
The accounting policies of the segments are the same as those described in Note
2 to Western's annual report on Form 10-K for the year ended December 31, 1999.
Western assesses and measures segment operating results based on a performance
measure referred to as Funds From Operations ("FFO"). Prior to January 1, 2000,
the National Association of Real Estate Investment Trusts defined FFO as net
income, calculated in accordance with generally accepted accounting principles
(GAAP) plus depreciation and amortization of real estate rental property (a)
reduced by gains and increased by losses on (i) sales of property and (ii)
extraordinary and unusual items, and (b) after adjustments for unconsolidated
partnerships and joint ventures. Effective January 1, 2000, net income is not
adjusted for unusual items unless they qualify as extraordinary items under GAAP
in calculating FFO. This new interpretation did not have a significant impact on
Western. 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
Western's operating performance, or for cash flows as a measure of liquidity.
Furthermore, FFO as disclosed by other REITS may not be comparable to Western's
calculation of FFO for itself.
15
<PAGE>
The revenues and profit (loss), for each of the reportable segments are
summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------------- -----------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
REVENUES:
Shopping centers....................................... $ 14,136 $12,710 $40,914 $37,782
Single tenant retail................................... 457 428 1,316 1,254
Commercial and other................................... 724 1,013 2,354 3,342
Non-segment............................................ 59 26 200 148
-------- ------- ------- -------
Total revenues...................................... $ 15,376 $14,177 $44,784 $42,526
======== ======= ======= =======
PROFIT (LOSS):
Funds from operations:
Shopping centers....................................... $ 11,781 $10,300 $33,769 $30,210
Single tenant retail................................... 370 356 1,200 1,136
Commercial and other................................... 699 997 2,179 3,162
-------- ------- ------- -------
Total segment FFO................................... 12,850 11,653 37,148 34,508
Interest income........................................ 71 25 178 132
Other income........................................... (12) 2 22 16
Interest expense....................................... (3,713) (3,500) (11,220) (10,550)
Other operating expense................................ (974) (1,107) (3,062) (2,930)
Non real estate depreciation........................... (96) (57) (252) (148)
General and administrative............................. (1,028) (712) (2,856) (2,169)
-------- ------- ------- -------
Total FFO (assuming full conversion of all minority
interest Operating Partnership Units).............. 7,098 6,304 19,958 18,859
Gains (less loss) on sales of real estate investments.. 10,061 2,313 14,316 4,426
Gains on sale of unconsolidated real estate investments 1 -- 340 --
Provision for loss of real estate investments.......... -- -- (1,745) --
Depreciation and amortization.......................... (3,689) (2,986) (8,602) (8,820)
Depreciation and amortization, unconsolidated
real estate........................................ (163) -- (997) --
Minority interest...................................... (401) (401) (1,203) (1,203)
Change in accounting principle......................... -- -- -- (57)
-------- ------- ------- -------
Net income......................................... $ 12,907 $ 5,230 $22,067 $13,205
======== ======= ======= =======
</TABLE>
16
<PAGE>
The assets for each of the reportable segments are summarized as follows as of
September 30, 2000 and December 31, 1999, respectively:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------------- -----------------------
(In thousands)
<S> <C> <C>
ASSETS
Shopping centers............................................... $ 370,579 $ 387,075
Single tenant retail........................................... 5,176 8,512
Commercial and other........................................... 23,410 22,343
Non-segment.................................................... 12,428 9,336
--------- ---------
Total assets................................................ $ 411,593 $ 427,266
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, September 30,
2000 1999
----------------------- -----------------------
(In thousands)
<S> <C> <C>
REAL ESTATE INVESTMENT CAPITAL EXPENDITURES:
Developments:
Shopping centers............................................... $3,974 $2,592
Single tenant retail........................................... (62) 312
Commercial and other........................................... 19 51
--------- ---------
Total developments.......................................... $3,931 $2,955
========= =========
</TABLE>
17
<PAGE>
Note H: EARNINGS PER SHARE
In February 1997, the FASB issued FAS 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 three
and nine months ended September 30, 2000 and 1999 is shown below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding........................ 17,273,194 17,227,916 17,252,604 17,222,911
Plus: Options with exercise prices below period -end
market price of common stock......................... 14,651 342 1,358 3,119
Stock issued under restricted stock plan............. 54,504 34,464 54,504 34,464
Western/Kienow, L.P. OP units convertible into
shares of beneficial interest........................ 1,382,364 1,432,364 1,382,364 --
Western/Pinecreek, L.P. OP units convertible into
shares of beneficial interest........................ 88,498 -- 88,498 --
----------- ----------- ---------- -----------
Diluted weighted average shares outstanding................ 18,813,211 18,695,086 18,779,328 17,260,494
=========== =========== ========== ===========
</TABLE>
During the nine-months ended September 30, 1999, conversion of the
Western/Kienow, L.P. OP units would have had the effect of increasing earnings
per share, and as such, conversion was not assumed in the above calculation.
During August, 2000, one of the limited partners of the Western/Kienow, L.P.
partnership elected to convert 50,000 OP Units into Western shares.
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 shares of beneficial interest for the three and nine-months
ended September 30, 2000 and, therefore, the effect would be to increase
earnings.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 2000
------------------------------ ----------------------------
<S> <C> <C>
Anti-dilutive options.................................. 611,200 796,200
Range of exercise prices............................... $12.31 - $14.78 $11.25 - $14.78
</TABLE>
Note I: COMMITMENTS AND CONTINGENCIES
In connection with the redevelopment of a property located in Walnut Creek,
California (Plaza Escuela), Western committed to fund $42 million on a
participating note secured by a first deed of trust on the property under
development. At September 30, 2000, Western had funded a total of $14.3 million
relating to this investment.
18
<PAGE>
As of September 30, 2000, Western had commitments under several new and renewal
leases which will result in expenditures of approximately $660,000 in real
estate improvements and leasing commissions.
Note J: SUBSEQUENT EVENTS
During October 2000, Western sold a 98,520 square foot shopping center located
in Dinuba, California, for $7,170,000, at a gain of approximately $1,100,000. In
connection with the sale, Western received a $5,377,500, 10.5% interest per
annum, promissory note secured by a first deed of trust on the property. This
note is due ninety days from the note date of October 3, 2000. The net cash
sales proceeds of $1,611,000 were used to reduce the balance on the bank line.
19
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
INTRODUCTION
The following discussion and analysis of the consolidated financial condition
and results of operations of Western Properties Trust and its subsidiaries
("Western") should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this report on Form 10-Q.
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 Operation" 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 Western's financial performance; the risk that Western may be
unable to finance its planned acquisition and development activities; risks
related to the retail or commercial businesses in which Western'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 Western'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 increases in market interest rates
from current rates; risks associated with real estate ownership, such as the
potential adverse impact of earthquakes, environmental contamination or changes
in the local economic climate on the revenues and the value of Western's
properties; and the risks of the failure of the contemplated merger with Pan
Pacific Retail Properties, Inc. (discussed below).
OVERVIEW
Founded in 1962, Western Properties Trust ("WPT") and its affiliates own and
operate community and neighborhood shopping centers located in the western
United States. 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".
Western Properties Trust's consolidated financial statements include the
accounts of the following entities: WPT; Western/Kienow, L.P., a Delaware
limited partnership; Western/Pinecreek, L.P., a Delaware limited partnership;
GW100, a general partnership; and WPT's wholly owned subsidiary, WIRET Asset
Management Services (a California corporation and a licensed real estate
broker in the State of California) (collectively, "Western"). These entities
comprise all of the subsidiaries over which WPT exercises direct or indirect
voting control. Western is in the business of acquiring, managing, leasing
and developing retail, commercial and industrial properties. WPT is the sole
20
<PAGE>
general partner in Western/Kienow's L.P. and owned a 60% interest therein as of
September 30, 2000. WPT is also the sole general partner in Western Pinecreek
L.P. and owned a 75% interest therein as of September 30, 2000. Through an
unconsolidated real estate subsidiary, Western controls 11 properties comprising
approximately 457,000 square feet of retail gross leasable area ("GLA").
Throughout this Form 10-Q reference to the unconsolidated real estate subsidiary
is a reference to the entity holding this 11 property portfolio. The combined
GLA of Western and its unconsolidated real estate subsidiary at September 30,
2000 was approximately 5.1 million square feet of GLA. At September 30, 2000,
Western and its unconsolidated real estate subsidiary's real estate portfolio
was comprised of 55 properties, 49 of which were retail properties.
PROPOSED MERGER WITH PAN PACIFIC
The board of directors of Pan Pacific Retail Properties, Inc. and the board of
trustees of Western Properties Trust have each unanimously approved a definitive
agreement under which Pan Pacific will acquire Western in a stock-for-stock
merger, subject to Pan Pacific Retail Properties, Inc. and Western Properties
Trust shareholder approval. Pan Pacific's existing senior management team will
manage the combined company. Management anticipates that the merger will be
completed in November, 2000.
When the merger is completed, each Western Properties shareholder shall receive
0.62 of a share of newly issued Pan Pacific common stock for each Western
Properties Trust share that he or she owns. Pan Pacific will issue up to
approximately 11.7 million shares of Pan Pacific common stock to Western
Properties' shareholders in the merger. These newly issued shares of Pan Pacific
common stock would represent 34.2% of the Pan Pacific common stock outstanding
after the merger, assuming the exchange of each company's subsidiary securities.
LIQUIDITY AND CAPITAL RESOURCES
Western anticipates that cash flows provided by operations and other sources
available to Western 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, net proceeds from the sale of properties held for sale and
borrowings under the existing bank line, as well as other debt and equity
alternatives, are expected to provide the necessary funds to achieve future
growth. At September 30, 2000, four properties comprising 255,387 square feet of
GLA were held for sale. The book value of these properties (before deduction for
depreciation) was $22,964,000.
The agreements executed in connection with Western's senior notes and its bank
line contain certain covenants (including minimum shareholder's equity, maximum
ratio of debt to net worth and income coverage requirements) which impose
certain limitations on the incurrence of additional debt and other restrictions
on Western.
As of September 30, 2000, Western's aggregate outstanding indebtedness of
$197,990,000 consisted of $134,490,000 in fixed rate, long-term debt and
$63,500,000 of borrowings under Western's variable rate, unsecured bank line.
21
<PAGE>
As of September 30, 2000, Western had $33 million available under its $100
million bank line. The availability on the $100 million bank line is net of a
$3.5 million outstanding letter of credit which is related to Western's
investment in the Walnut Creek development. In the event the merger with Pan
Pacific is not completed, Western intends to replace or renew the bank line
before it expires on September 30, 2001.
COMMITMENTS AND CONTINGENCIES
In connection with the redevelopment of a property located in Walnut Creek,
California, Western committed to fund $42 million on a note secured by a first
deed of trust on the property under development. At September 30, 2000, Western
had funded a total of $14.3 million relating to this investment.
As of September 30, 2000, Western had commitments under several new and renewal
leases which will result in expenditures of approximately $660,000 in real
estate improvements and leasing commissions.
FUNDS FROM OPERATIONS
Industry analysts and Western 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, Western, along with many other industry investors, considers
presentation of operating results for real estate companies that use historical
cost accounting to be less than fully informative.
Prior to January 1, 2000, the National Association of Real Estate Investment
Trusts defined FFO as net income, calculated in accordance with generally
accepted accounting principles (GAAP) plus depreciation and amortization of real
estate rental property (a) reduced by gains and increased by losses on (i) sales
of property and (ii) extraordinary and unusual items, and (b) after adjustments
for unconsolidated partnerships and joint ventures. Effective January 1, 2000,
net income is not adjusted for unusual items unless they qualify as
extraordinary items under GAAP in calculating FFO. This new interpretation did
not have a significant impact on Western. 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 Western's operating performance, or for cash flows as
a measure of liquidity. Furthermore, FFO as disclosed by other REITs may not be
comparable to Western's calculation of FFO for itself.
22
<PAGE>
The table below provides a reconciliation of net income in accordance with GAAP
to FFO as calculated under NAREIT guidelines for the three month period ended
September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------------------------- --------------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income................................................. $ 12,907 $ 5,230 $ 22,067 $ 13,205
Less: Gains on sales of real estate investments......... (10,061) (2,313) (14,316) (4,426)
Real property depreciation........................ 3,332 2,560 7,707 7,745
Amortization of tenant improvement costs.......... 276 247 667 728
Amortization of leasing-commission costs.......... 81 95 228 263
Minority interest................................. 401 401 1,203 1,203
Provision for loss on real estate
Investments....................................... -- -- 1,745 --
Unconsolidated real estate subsidiary -
Gains on sales of real estate investments...... (1) -- (340) --
Real property depreciation..................... 158 84 401 84
Amortization of tenant improvement
costs.......................................... 3 -- 591 --
Amortization of leasing-commission
costs.......................................... 2 -- 5 --
Cumulative effect of change in accounting
principle......................................... -- -- -- 57
-------------- ------------ ------------- ------------
Funds From Operations...................................... $ 7,098 $ 6,304 $ 19,958 $ 18,859
============== =========== ============= ============
</TABLE>
23
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF QUARTER ENDED SEPTEMBER 30, 2000 AND 1999
Net income increased $7,677,000 to $12,907,000 for the quarter ended September
30, 2000 from $5,230,000 for the comparable quarter in 1999. On a per share
basis (calculated using diluted weighted average shares outstanding), net income
increased $0.41 to $0.71 for the quarter ended September 30, 2000 from $0.30 for
the comparable quarter in 1999. This increase in net income is principally due
to gains of $10,061,000 realized from the sale of four properties in the third
quarter of 2000, an increase of $7,748,000 over the third quarter 1999 gains
realized of $2,313,000. Other factors contributing to the increase include
increased interest income, and income from the unconsolidated real estate
subsidiary, as well as decreased other operating expenses, partially offset by
increased interest expense, depreciation and amortization expense and general
and administrative expense.
Interest income increased $192,000 to $617,000 for the quarter ended September
30, 2000 from $425,000 for the comparable 1999 quarter. This increase primarily
results from interest earned in connection with increased funding on the note
secured by a first deed of trust on the Plaza Escuela development.
Income from the unconsolidated real estate subsidiary increased $816,000 to
$929,000 for the quarter ended September 30, 2000 from $113,000 for the quarter
ended September 30, 1999. Most of this increase reflects the benefit of
redevelopment and re-tenanting of eight of the Kienow's core properties. Western
anticipates that the remaining two core properties will be leased and generating
rental income during the first quarter of 2001.
Other operating expenses decreased $120,000 from $1,437,000 for the three-month
period ended September 30, 1999 to $1,317,000 for the same period in 2000. This
decrease is primarily due to reduced costs associated with expensing of certain
costs relating to unconsummated acquisitions and dispositions in 2000 compared
to 1999.
Interest expense increased $213,000 from $3,500,000 for the quarter ended
September 30, 1999 to $3,713,000 for the quarter ended September 30, 2000. This
increase is primarily due to increased interest rates on Western's variable rate
bank line of credit in 2000. The average interest rate for the third quarter of
2000 was 8.0% per annum compared with 6.5% per annum in the same period of 1999.
Depreciation expense is $826,000 higher in the three-month period ended
September 30, 2000 from the same period in 1999. This increase is primarily due
to the nine properties removed from the market and the incurrence of associated
depreciation expense which had been discontinued while these properties were
being marketed.
General and administrative expense increased $316,000 to $1,028,000 for the
quarter ended September 30, 2000 as compared with $712,000 for the comparable
quarter in 1999. This increase primarily results from the expensing of costs
associated with the pending merger with Pan Pacific.
24
<PAGE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net income increased $8,862,000 to $22,067,000 for the nine months ended
September 30, 2000 as compared to $13,205,000 for the same period in 1999. On a
per share basis (calculated using diluted weighted average shares outstanding),
net income increased $0.47 from $0.77 for the nine-month period ended September
30, 1999 to $1.24 for the comparable period in 2000.
This increase primarily results from the sale of seven properties in 2000
resulting in gains of $14,316,000, as compared with the 1999 sale of five
properties resulting in gains of $4,426,000, an increase of $9,890,000 of gains
over 1999. This was partially offset by the $1,745,000 provision for loss on
real estate investment recorded earlier this year.
Other factors contributing to the higher net income are increased income from
Western's unconsolidated real estate subsidiary, which were partially offset by
increased interest expense, general and administrative and other operating
expenses.
Income from the unconsolidated real estate subsidiary increased $1,329,000 to
$1,587,000 for the nine-months ended September 30, 2000 from $258,000 for the
nine-months ended September 30, 1999. Most of this increase reflects the benefit
of redevelopment and re-tenanting of eight of the Kienow's core properties.
Western anticipates that the remaining two core properties will be leased and
generating rental income during the first quarter of 2001.
Interest expense increased $670,000 from $10,550,000 for the nine-months ended
September 30, 1999 to $11,220,000 for the nine-months ended September 30, 2000.
This increase is primarily due to increased interest rates on Western's variable
rate bank line of credit in 2000. The average interest rate for the nine-month
period ending September 30, 2000 was 7.6% per annum compared with 6.3% per annum
in the same period of 1999.
General and administrative expense increased $630,000 to $2,856,000 for the
nine-months ended September 30, 2000 as compared with $2,226,000 for the
comparable period in 1999. Other operating expenses increased $288,000 from
$3,872,000 for the nine-months ended September 30, 1999 to $4,160,000 for the
same period in 2000. This increase primarily results from costs associated with
the pending merger with Pan Pacific, in addition to increased accounting and
compensation costs, as well as reduced capitalization of development personnel
compensation expense in the current year.
25
<PAGE>
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Western is exposed to interest rate changes primarily through its bank line and
long-term debt used to maintain liquidity and fund capital expenditures and
expansion of Western's real estate portfolio and operations. Western'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. Western's
objective with regard to long-term debt is to borrow primarily at fixed rates.
At September 30, 2000, the outstanding balance on Western's variable rate bank
line was $63,500,000, and the weighted average interest rate was 7.8% per annum.
The bank line facility matures on September 30, 2001. At September 30, 2000, the
outstanding balance of Western's fixed rate senior notes was $124,843,000 and
the weighted average coupon interest rate for all senior notes was 7.47% per
annum. The senior notes mature in February 2004 ($49,951,000), September 2006
($24,977,000), September 2008 ($24,957,000) and September 2010 ($24,958,000). At
September 30, 2000, the outstanding principle balance of Western's fixed rate
mortgage note was $9,647,000, which bears an interest rate of 7.61% per annum.
This amortizing note is due May 2004 with a balloon payment of $8,737,000 due at
that time.
The preceding information incorporates only those exposures that exist as of
September 30, 2000, and 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 preceding paragraph, the information
presented therein has limited predictive value. As a result, the impact on
Western's operating results with respect to interest rate fluctuations will
depend on the exposures that arise during the period, Western' interest rate
risk management strategies at that time and interest rates.
This discussion of Western'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.
26
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 8, 2000, a class action lawsuit was filed in the
Superior Court of the State of California, County of Alameda against Western
Properties Trust, some of its executive officers and trustees, Pan Pacific
Retail Properties, Inc. and one of its officers. We received notice of the
lawsuit on November 9, 2000, shortly before a special meeting of our
shareholders held to vote upon our proposed merger with Pan Pacific Retail
Properties, Inc. At the meeting, the merger was approved. The lawsuit was
brought by the Bennett Family Trust, one of our shareholders, on behalf of
all of our shareholders who held our shares on the record date for the
special meeting, (I.E., September 29, 2000), and on behalf of the subclass of
those shareholders who voted against the merger. The lawsuit seeks damages in
an unspecified amount, together with attorneys' fees and costs. The lawsuit's
principal allegation is that our board of trustees breached its fiduciary
duties to our shareholders in approving the merger with Pan Pacific and in
recommending the merger to our shareholders. The lawsuit also alleges that
Western Properties' proxy statement for the special meeting was materially
false or misleading for failing to disclose the alleged inadequacy of the
terms of the merger with Pan Pacific. This lawsuit was filed one day before
this form 10-Q was filed with the SEC and is currently being evaluated
by Western Properties' attorneys. Western has not determined whether the
lawsuit is likely to delay the closing of its merger with Pan Pacific.
Western expects to vigorously defend the lawsuit.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 9, 2000, Western Properties held a special meeting
of shareholders to consider a proposal pursuant to which Western Properties
would incorporate as WPT, Inc. and then merge with and into Pan Pacific
Retail Properties, Inc. at which time each outstanding share of Western
Properties would be converted into 0.62 of a share of Pan Pacific common
stock. The proposal was approved by 67.5% of the shares eligible to vote and
94.9% of the shares represented at the meeting by person or proxy. The vote
was as follows:
For: 11,713,278 votes
Against: 458,003 votes
At the meeting there were 177,859 abstentions each of which
had the effect of a vote against the merger.
ITEM 5. OTHER INFORMATION
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(numbered in accordance with Item 601 of Regulation S-K)
(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).
(10.2)** Compensation Agreement (filed as Exhibit 10.3 to
Registrant's 10-K for the quarter 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,
27
<PAGE>
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, L.P.
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 Contracts
(27)+ Financial Data Schedule
(b) Reports on Form 8-K
None
--------------------------------------------------------------------------------
+ Filed with this report
** Management contract or compensatory plan or arrangement.
28
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN PROPERTIES TRUST
-------------------------
(Registrant)
Dated: NOVEMBER 8, 2000 By: /s/ BRADLEY N. BLAKE
-------------------------- ------------------------------
Bradley N. Blake
Chairman of the Board,
President, Chief Executive Officer
and Trustee
Dated: NOVEMBER 8, 2000 By: /s/ DENNIS D. RYAN
-------------------------- --------------------------------
Dennis D. Ryan
Executive Vice President,
Chief Financial Officer
and Trustee
29
