<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER MARCH 31, 1996
Commission File Number 0-8725
PACIFIC REAL ESTATE INVESTMENT TRUST
A CALIFORNIA TRUST
I.R.S. Employer Identification No. 94-1572930
1010 El Camino Real, Suite 210
Menlo Park, CA 94025
Telephone: (415) 327-7147
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 close of the period covered by this report.
$10 Par Value, 3,706,845 shares
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<PAGE>
PACIFIC REAL ESTATE INVESTMENT TRUST
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
ITEM I - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C>
Rental revenues. . . . . . . . . . . . . . . . . $ 1,859,000 $ 2,898,000
-------------- --------------
Operating expenses (including related party
amounts of $144,000 and $239,000 in 1996 and 1995
respectively):
Operating . . . . . . . . . . . . . . . . . . 479,000 547,000
Property tax. . . . . . . . . . . . . . . . . 161,000 241,000
General and administrative. . . . . . . . . . 123,000 182,000
Depreciation and amortization . . . . . . . . 608,000 882,000
Property management fees. . . . . . . . . . . 64,000 109,000
-------------- --------------
Total operating expenses. . . . . . 1,435,000 1,961,000
-------------- --------------
Operating income . . . . . . . . . . . . . . . . 424,000 937,000
-------------- --------------
Other income/(expense):
Interest income. . . . . . . . . . . . . . . 156,000 153,000
Interest expense . . . . . . . . . . . . . . (1,070,000) 1,810,000)
Reincorporation expenses . . . . . . . . . . (67,000)
Gain on property sale. . . . . . . . . . . . 952,000
-------------- --------------
Total other income/(expense). . . . . . . . 38,000 (1,724,000)
-------------- --------------
Net income (loss) before minority interest . . . 462,000 (787,000)
Minority interest in joint venture . . . . . . . (99,000) (85,000)
-------------- --------------
Net income (loss). . . . . . . . . . . . . . . . $ 363,000 $ (872,000)
-------------- --------------
-------------- --------------
Net income (loss) per share of beneficial
interest . . . . . . . . . . . . . . . . . . . . $ 0.10 $ (0.24)
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
Page 2 of 7
<PAGE>
PACIFIC REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MAR 31, 1996 DEC 31, 1995
-------------- --------------
<S> <C> <C>
Investment in commercial properties:
Operating properties:
Land. . . . . . . . . . . . . . . . . . . . . $ 10,979,000 $ 14,308,000
Buildings and improvements. . . . . . . . . . 42,324,000 56,345,000
Accumulated depreciation. . . . . . . . . . . (16,019,000) (18,375,000)
------------- -------------
Operating properties - net. . . . . . . . . . 37,284,000 52,278,000
Mortgage notes receivable. . . . . . . . . . . . . 6,567,000 6,565,000
Tenant and other notes receivable - net. . . . . . 230,000 246,000
Cash . . . . . . . . . . . . . . . . . . . . . . . 790,000 308,000
Restricted cash. . . . . . . . . . . . . . . . . . 100,000 100,000
Accounts receivable (net of allowance of $169,000
in 1996 and $136,000 in 1995 . . . . . . . . . . . 991,000 891,000
Deferred lease commissions - net . . . . . . . . . 514,000 742,000
Deferred financing costs - net . . . . . . . . . . 279,000 440,000
Other assets . . . . . . . . . . . . . . . . . . . 1,262,000 1,305,000
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . $48,017,000 $62,875,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage loans. . . . . . . . . . . . . . . . . $ 25,976,000 $ 36,818,000
Short-term notes. . . . . . . . . . . . . . . . 7,090,000 11,190,000
Security deposits . . . . . . . . . . . . . . . 139,000 231,000
Accounts payable and other liabilities. . . . . 401,000 566,000
------------- -------------
Total liabilities . . . . . . . . . . . . . . 33,606,000 48,805,000
------------- -------------
Commitments and contingencies
Minority interest in joint venture . . . . . . . . 3,299,000 3,321,000
Shareholders' Equity:
Shares of beneficial interest, $10 par value,
authorized: 1996 and 1995, 10,611,863;
shares issued and outstanding: 1996 and 1995,
3,706,845 . . . . . . . . . . . . . . . . . . 37,068,000 37,068,000
Additional paid-in capital . . . . . . . . . . . . 11,009,000 11,009,000
Distributions in excess of net income. . . . . . . (36,965,000) (37,328,000)
------------- -------------
Shareholders' equity - net . . . . . . . . . . . . 11,112,000 10,749,000
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . $48,017,000 $62,875,000
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
Page 3 of 7
<PAGE>
PACIFIC REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
1996 1995
-------------- --------------
<S> <C> <C>
Cash Flow from Operating Activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ 363,000 $ (872,000)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 539,000 747,000
Amortization of note receivable discount. . . . . . . . . (5,000) (19,000)
Amortization of deferred cost . . . . . . . . . . . . . . 68,000 122,000
Minority interest in joint venture's operations . . . . . 99,000 85,000
Provision for doubtful receivables. . . . . . . . . . . . (26,000) 30,000
Gain on sale of property. . . . . . . . . . . . . . . . . (952,000)
Changes in operating assets and liabilities:
Accounts payable and other liabilities. . . . . . . . . . (156,000) (997,000)
Security deposits . . . . . . . . . . . . . . . . . . . . 31,000 (48,000)
Deferred lease commissions. . . . . . . . . . . . . . . . (44,000) (49,000)
Accounts receivable . . . . . . . . . . . . . . . . . . . (89,000) 4,000
Other assets. . . . . . . . . . . . . . . . . . . . . . (32,000) (40,000)
------------- -------------
Net cash used by operating activities. . . . . . . . . . . . . (204,000) (1,037,000)
------------- -------------
Cash Flow from Investing Activities:
Construction of properties. . . . . . . . . . . . . . . . (26,000) (29,000)
Collection of notes receivable. . . . . . . . . . . . . . 19,000 17,000
Proceeds from sale of Lakeshore . . . . . . . . . . . . . 14,043,000
Proceeds from sale of Menlo Center. . . . . . . . . . . . 5,025,000
------------- -------------
Net cash provided in investing activities. . . . . . . . . . . 5,018,000 14,031,000
------------- -------------
Cash Flow from Financing Activities:
Proceeds from short-term notes. . . . . . . . . . . . . . 100,000
Re-Payment of mortgage loans. . . . . . . . . . . . . . . (112,000) (4,324,000)
Re-Payment of short-term notes. . . . . . . . . . . . . . (4,100,000) (5,045,000)
Re-Payment of unsecured loans . . . . . . . . . . . . . . (3,000,000)
Distributions of joint venture partner. . . . . . . . . . (120,000) (120,000)
------------- -------------
Net cash used by financing activities. . . . . . . . . . . . . (4,332,000) (12,389,000)
------------- -------------
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . 482,000 605,000
Cash, January 1 . . . . . . . . . . . . . . . . . . . . . 308,000 666,000
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Cash, March 31. . . . . . . . . . . . . . . . . . . . . . $790,000 $1,271,000
------------- -------------
------------- -------------
</TABLE>
NON CASH TRANSACTIONS
Assumption of mortgage note payable by the buyers of Lakeshore Plaza
Shopping for $15,826,000 in 1995 and Menlo Center for $10,730,000 in 1996.
See notes to consolidated financial statements.
Page 4 of 7
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PACIFIC REAL ESTATE INVESTMENT TRUST
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
Basis of Presentation
The accompanying unaudited financial statements include all adjustments
which are, in the opinion of management, necessary for fair presentation of
the Trust's financial position, including changes therein, and results of
operations for the interim period reported upon. Such statements have been
prepared from the Trust's accounting records in accordance with the
instructions to Form 10-Q.
Income Taxes
The Internal Revenue Code provides that a trust qualifies as a real estate
investment trust if, among other things, the trust distributes each year at
least 95% of its taxable income to shareholders. If the Trust distributes
at least 95% of its taxable income to shareholders, such distributions can
be treated as deductions for income tax purposes. Because it is the policy
of the Trust to distribute amounts approximately equal to its taxable
income plus depreciation and amortization, no provision for incomes taxes
has been made in the accompanying financial statements.
Sale of Menlo Center
The Trust sold Menlo Center on February 29, 1996. The sale price was
$16,200,000. The buyer assumed the existing financing in the amount of
$10,730,000. After payment of the closing costs, transfer taxes, real
estate commissions and miscellaneous selling expenses, all totalling
approximately $445,000, the net proceeds of approximately $5,025,000 were
used to repay short-term debt and to provide working capital. Under the
terms of the sale contract, the Trust is obligated to subsidize the buyer's
net operating income to the extent necessary to assure the buyer of an 8.5%
investment yield from the operation of Menlo Center. The Trust's liability
in this respect extends to the maturity date of the existing First Trust
Deed financing which the buyer assumed in the purchase. The financing
expires in 2000.
Reclassifications
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
Related Party Transactions
Fees paid or payable to the Advisor and Menlo Management Company for three
months ended March 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
ADVISOR
Advisory fee - .1% of Assets. . . . . $ 14,000 $ 28,000
MENLO MANAGEMENT COMPANY
Property management fees. . . . . . . 64,000 109,000
Administrative services . . . . . . . 38,000 65,000
Lease commissions . . . . . . . . . . 23,000 18,000
Loan fee . . . . . . . . . . . . . . 28,000 37,000
Total . . . . . . . . . . . . . . . $ 167,000 $ 257,000
</TABLE>
Net Income Per Share of Beneficial Interest
Net income per share of beneficial interest is computed by dividing net
income the weighted average number of shares outstanding for the three
months ended March 31, 1996 and 1995 were as follows:
1996 1995
---- ----
Weighted average number of shares outstanding 3,706,845 3,706,845
Page 5 of 7
<PAGE>
PACIFIC REAL ESTATE INVESTMENT TRUST
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OF OPERATIONS.
(1) LIQUIDITY AND CAPITAL RESOURCES:
Cash flow used by operating activities was $204,000 for the three months ended
March 31, 1996 as compared to cash used of $1,037,000 for the three months ended
March 31, 1995. The net change is primarily due to both the sale of Lakeshore
Plaza Shopping Center in 1995 and Menlo Center in 1996.
Cash flow provided by investing activities was $5,018,000 for the three months
ended March 31, 1996 compared to $14,031,000 for the three months ended March
31, 1995. The results are from the proceeds from the sale of Menlo Center in
1996 compared to the proceeds from the sale of Lakeshore Plaza Shopping Center
in March 1995.
Cash flow used by financing activities was $4,332,000 for the three months ended
March 31, 1996 as compared to $12,389,000 for the three months ended March 31,
1995. The decrease in 1996 is due to repayment of short term notes payable due
to the sale of Menlo Center. The increase in 1995 is due to repayment of an
unsecured notes payable and short term notes payable due to the sale of
Lakeshore Plaza Shopping Center.
The Trust's other sources of liquidity include: (1) extension of short-term
notes payable for periods not to exceed five years; (2) approximately
$6,567,000 in mortgage loans receivable which mature at various dates over
the next four years.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH
31, 1996 VS. 1995:
Net income for the three months ended March 31, 1996 was $363,000 as compared to
a net loss of $872,000 for the three months ended March 31, 1995.
During the first three months rental revenues decreased from $2,898,000 in 1995
to $1,859,000 as a result of declining revenues at El Portal Shopping Center and
the sale of both Lakeshore Plaza Shopping Center in March 1995 and Menlo Center
in February 1996.
Operating expenses decreased from $547,000 in 1995 to $479,000 in 1996, a
decrease of $68,000 or 12% due to the sale of Lakeshore Plaza Shopping Center in
1995 and Menlo Center in 1996. This decrease was partially offset by an
increase in El Portal Shopping Center ground lease.
Property taxes decreased from $241,000 in 1995 to $161,000 in 1996, a decrease
of $80,000, or 33%. Property management fees decreased from $109,000 in 1995 to
$64,000 in 1996, a decrease of $45,000, or 41%. Depreciation and Amortization
decreased from $882,000 in 1995 to $608,000 in 1996, a decrease of $274,000, or
31%. Each of these decreases resulted from both the sale of Lakeshore Plaza
Shopping Center on March 13, 1995 and Menlo Center on February 29, 1996.
General and administrative expense decreased from $182,000 in 1995 to $123,000
in 1996, a decrease of $59,000 or 32% due to cost saving measures.
Interest expense decreased by $740,000, or 41%, from $1,810,000 in 1995 to
$1,070,000 in 1996. Of this decrease $330,000 is due to the sale of Lakeshore
Plaza Shopping Center in 1995, $93,000 is due to the sale of Menlo Center in
1996, and $295,000 is due to the repayment of unsecured note payable and short
term notes payable which were paid off in 1995 and 1996.
ITEM 6 (B) - Report on Form 8K was filed on March 14, 1996.
Page 6 of 7
<PAGE>
SIGNATURE
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.
PACIFIC REAL ESTATE INVESTMENT TRUST
Date: MAY 6, 1996 By: _____________________
------------ Robert Ch. Gould
VICE PRESIDENT
Date: MAY 6, 1996 By: _____________________
------------ Harry E. Kellogg
TREASURER
Page 7 of 7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 890,000
<SECURITIES> 0
<RECEIVABLES> 6,827,000
<ALLOWANCES> 169,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,881,000
<PP&E> 53,303,000
<DEPRECIATION> (16,019,000)
<TOTAL-ASSETS> 48,017,000
<CURRENT-LIABILITIES> 540,000
<BONDS> 33,066,000
0
0
<COMMON> 37,068,000
<OTHER-SE> (25,986,000)
<TOTAL-LIABILITY-AND-EQUITY> 48,017,000<F1>
<SALES> 0
<TOTAL-REVENUES> 2,015,000
<CGS> 0
<TOTAL-COSTS> 1,553,000<F2>
<OTHER-EXPENSES> 99,000<F3>
<LOSS-PROVISION> 207,000
<INTEREST-EXPENSE> 1,070,000
<INCOME-PRETAX> 363,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 363,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<FN>
<F1>Includes $3,299,000 of Minority Interest in joint venture
<F2>Includes a gain from the sale of a property of $952,000
<F3>Represents Minority Interest portion of Current Net Income
</FN>
</TABLE>
