<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
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(MARK ONE)
[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-9109 COMMISSION FILE NUMBER 0-9110
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
(EXACT NAME OF REGISTRANT AS (EXACT NAME OF REGISTRANT AS
SPECIFIED IN ITS CHARTER) SPECIFIED IN ITS CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
95-3520818 95-3419438
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
301 WEST HUNTINGTON DRIVE, SUITE 405 285 WEST HUNTINGTON DRIVE
ARCADIA, CALIFORNIA 91007 ARCADIA, CALIFORNIA 91007
(ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES INCLUDING ZIP CODE) OFFICES INCLUDING ZIP CODE)
(818) 574-5550 (818) 574-7223
(REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE) INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
COMMON STOCK $.10 PAR VALUE COMMON STOCK $.10 PAR VALUE
(TITLE OF CLASS) (TITLE OF CLASS)
NEW YORK STOCK EXCHANGE NEW YORK STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH (NAME OF EACH EXCHANGE ON WHICH
REGISTERED) REGISTERED)
SANTA ANITA REALTY ENTERPRISES, INC.
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
NEW YORK STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH
REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE NONE
(TITLE OF EACH CLASS) (TITLE OF EACH CLASS)
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the paired voting stock of Santa Anita Realty
Enterprises, Inc. and of Santa Anita Operating Company held by nonaffiliates
on March 15, 1996 was $145,598,000.
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the close of business on March 15, 1996:
<TABLE>
<S> <C>
Santa Anita Realty Enterprises, Inc. Common Stock 11,383,000
Santa Anita Operating Company Common Stock 11,270,500
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in Part III of this
Joint Annual Report on Form 10-K: Joint proxy statement for the annual
meetings of shareholders of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company to be held on May 7, 1996.
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<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
The Companies hereby amend Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K for the purpose of filing Exhibit 99.1.
2
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
See Index to Financial Statements
2. Financial Statement Schedules
See Index to Financial Statement Schedules
3. Exhibits
See Exhibit Index
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during the
last quarter of the fiscal year ended December 31, 1995.
3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, REALTY AND OPERATING COMPANY HAVE DULY CAUSED THIS REPORT
TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
By: William C. Baker By: Stephen F. Keller
----------------------------------- -------------------------------
William C. Baker Stephen F. Keller
Chairman of the Board and Chairman of the Board, President
Chief Executive Officer and Chief Executive Officer
(Principal Executive Officer) (Principal Executive Officer)
Date: May 10, 1996 Date: May 10, 1996
By: Brian L. Fleming By: Richard D. Brumbaugh
----------------------------------- --------------------------------
Brian L. Fleming Richard D. Brumbaugh
Executive Vice President and Vice President--Finance and
Chief Financial Officer Chief Financial Officer
(Principal Financial and Accounting (Principal Financial and
Officer) Accounting Officer)
Date: May 10, 1996 Date: May 10, 1996
4
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
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<C> <S>
3.1 Certificate of Incorporation of Santa Anita Realty Enterprises, Inc.,
as amended through October 1993 (incorporated by reference to Exhibit
3.1 to the Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the year ended
December 31, 1993).
3.2 Certificate of Incorporation of Santa Anita Operating Company, as
amended through October 1993 (incorporated by reference to Exhibit 3.2
to the Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the year ended
December 31, 1993).
3.3 By-laws of Santa Anita Realty Enterprises, Inc., as amended through
February 1996 (incorporated by reference to Exhibit 3.3 of the Joint
Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December 31, 1995).
3.4 By-laws of Santa Anita Operating Company, as amended through February
1996 (incorporated by reference to Exhibit 3.4 of the Joint Annual
Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the year ended December 31, 1995).
4.1 Pairing Agreement by and between Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company, dated as of December 20, 1979
(incorporated by reference to Exhibit 5 to Registration Statement on
Form 8-A of Santa Anita Operating Company filed February 5, 1980).
4.2 Rights Agreement, dated June 15, 1989, among Santa Anita Realty
Enterprises, Inc., Santa Anita Operating Company, and Union Bank, as
Rights Agent (incorporated by reference to Exhibit 2.1 to Registration
Statement on Form 8-A of Santa Anita Realty Enterprises, Inc. filed
June 19, 1989).
4.3 Credit Agreement dated as of November 9, 1994 between First Interstate
Bank of California and Santa Anita Realty Enterprises, Inc.
(incorporated by reference to Exhibit 10.4 of the Joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the quarter ended September 30, 1994).
4.4 First Amendment dated as of May 31, 1995, to Credit Agreement dated as
of November 9, 1994 between First Interstate Bank of California and
Santa Anita Realty Enterprises, Inc. (incorporated by reference to
Exhibit 4.4 of the Joint Annual Report on Form 10-K of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company for the
year ended December 31, 1995).
4.5 Second Amendment dated as of January 26, 1996, to Credit Agreement
dated as of November 9, 1994 between First Interstate Bank of
California and Santa Anita Realty Enterprises, Inc. (incorporated by
reference to Exhibit 4.5 of the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1995).
Each other outstanding long-term indebtedness of Santa Anita Realty Enterprises,
Inc. and each outstanding long-term indebtedness of Santa Anita Operating
Company and its subsidiaries does not exceed 10% of the total assets of Santa
Anita Realty Enterprises, Inc. or Santa Anita Operating Company and its
subsidiaries on a consolidated basis, as the case may be. Each such company
agrees to furnish copies of such instruments to the Securities and Exchange
Commission upon request.
10.1 Anita Associates Articles of Limited Partnership dated as of April 6,
1972 (incorporated by reference to Exhibit 6(c) to Registration
Statement No. 2-65894).
10.2 First Amendment to Articles of Limited Partnership of Anita
Associates, dated December 26, 1979 (incorporated by reference to
Exhibit 10.13 to Registration Statement No. 2-72866).
10.3 Form of Compensation Agreement of certain officers of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company
(incorporated by reference to Exhibit 10.3 to Registration Statement
No. 33-27011).
</TABLE>
5
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
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<C> <S>
10.4 Form of Salary Reduction and Deferral Agreement of certain officers of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
(incorporated by reference to Exhibit 10.4 to Registration Statement
No. 33-27011).
10.5 Ground lease between Santa Anita Realty Enterprises, Inc. and Anita
Associates, dated as of April 6, 1972 (incorporated by reference to
Exhibit 10.5 to Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the year ended
December 31, 1992).
10.6 Second Amendment to ground lease between Santa Anita Realty
Enterprises, Inc. and Anita Associates dated as of December 29, 1993
(incorporated by reference to Exhibit 10.6 to the Joint Annual Report
on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1993).
10.7 Amended and Restated Lease, dated as of November 9, 1994, by and
between Santa Anita Realty Enterprises, Inc. and Los Angeles Turf
Club, Incorporated (incorporated by reference to Exhibit 10.3 to the
Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company for the quarter ended September
30, 1994).
10.8 Santa Anita Realty Enterprises, Inc. 1984 Stock Option Plan (as
amended and restated September 22, 1988) (incorporated by reference to
Exhibit 4.2 to Registration Statement No. 2-95228).
10.9 Amendment 1993-1 to Santa Anita Realty Enterprises, Inc. 1984 Stock
Option Program (incorporated by reference to Exhibit 10.11 to the
Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company for the year ended December 31,
1993).
10.10 Santa Anita Operating Company 1984 Stock Option Program (as amended
and restated September 22, 1988) (incorporated by reference to Exhibit
4.3 to Registration Statement No. 2-95228).
10.11 Amendment 1993-1 to Santa Anita Operating Company 1984 Stock Option
Program (incorporated by reference to Exhibit 4.3 to Registration
Statement on Form S-8 No. 33-51843).
10.12 Limited Partnership Agreement, dated as of March 16, 1988, among
Southern California Off Track Wagering Incorporated and the limited
partners listed therein (incorporated by reference to Exhibit 10.17 to
Registration Statement No. 33-27011).
10.13 Amended and Restated Partnership Agreement of H-T Associates, dated as
of July 28, 1987, between Ernest W. Hahn, Inc. and Santa Anita Realty
Enterprises, Inc. (incorporated by reference to Exhibit 10.18 to
Registration Statement No. 33-27011).
10.14 Amended and Restated Agreement of Joppa Associates, dated as of April
14, 1988, between Ernest W. Hahn, Inc., Santa Anita Realty Enterprises,
Inc. and DeChiaro Associates, a Maryland general partnership
(incorporated by reference to Exhibit 10.19 to Registration Statement
No. 33-27011).
10.15 Amendment dated November 1, 1989, to Partnership Agreement of H-T
Associates (incorporated by reference to Exhibit 10.21 of the Joint
Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December 31, 1989).
10.16 Partnership Agreement of French Valley Ventures dated November 1989,
between Santa Anita Realty Enterprises, Inc. and William J. Rousey,
Jr. (incorporated by reference to Exhibit 10.23 to the Joint Annual
Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the year ended December 31, 1989).
10.17 Indenture of Lease by and between Los Angeles Turf Club, Incorporated
and Oak Tree Racing Association, dated as of January 1, 1990
(incorporated by reference to Exhibit 10.21 to the Joint Annual Report
on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1990).
</TABLE>
6
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
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<C> <S>
10.18 Form of Severance Agreement of Certain Officers of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company (incorporated by
reference to Exhibit 10.22 to the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1992).
10.19 Schedule of omitted documents and differences in material details
regarding Severance Agreements of Certain Officers of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company
(incorporated by reference to Exhibit 10.1 of the joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the quarter ended September 30, 1994).
10.20 Purchase and Sale Agreement, dated as of November 15, 1993, between
Santa Anita Realty Enterprises, Inc., and Pacific Gulf Properties Inc.
(incorporated by reference to Exhibit 1 to the Current Report on Form
8-K of Santa Anita Realty Enterprises, Inc., dated February 18, 1994).
10.21 Registration Rights Agreement, dated as of February 1, 1994, between
Santa Anita Realty Enterprises, Inc. and Pacific Gulf Properties Inc.
(incorporated by reference to Exhibit 10.24 to the Joint Annual Report
on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1993).
10.22 Closing Agreement dated as of October 1, 1994, by and between Santa
Anita Realty Enterprises, Inc. and Pacific Gulf Properties Inc.
(incorporated by reference to Exhibit 10.2 of the Joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the quarter ended September 30, 1994).
10.23 Employment Agreement between Santa Anita Realty Enterprises, Inc. and
Sherwood C. Chillingworth dated as of March 16, 1994 (incorporated by
reference to Exhibit 10.25 to the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1993).
10.24 Employment Agreement between Santa Anita Operating Company, Los
Angeles Turf Club, Incorporated and Clifford C. Goodrich dated as of
January 1, 1994 (incorporated by reference to Exhibit 10.1 of the
Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company for the quarter ended June 30,
1994).
10.25 Employment Agreement between Santa Anita Operating Company and Stephen
F. Keller dated as of January 1, 1994 (incorporated by reference to
Exhibit 10.2 of the Joint Quarterly Report on Form 10-Q of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company for the
quarter ended June 30, 1994).
10.26 Employment Agreement between Santa Anita Realty Enterprises, Inc. and
Christopher T. Stirling dated as of March 25, 1994 (incorporated by
reference to Exhibit 10.3 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the quarter ended June 30, 1994).
10.27 Employment Agreement between Santa Anita Realty Enterprises, Inc. and
Brian L. Fleming dated as of May 9, 1994 (incorporated by reference to
Exhibit 10.4 of the Joint Quarterly Report on
Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended June 30, 1994).
10.28 Santa Anita Realty Enterprises, Inc. 1995 Share Award Plan
(incorporated by reference to
Exhibit 10.28 of the Joint Annual Report on Form 10-K of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company for the
year ended December 31, 1994).
10.29 Santa Anita Operating Company 1995 Share Award Plan (incorporated by
reference to Exhibit 10.29 of the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1994).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
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<C> <S>
10.30 Exchange Agreement between Santa Anita Operating Company and Stephen
F. Keller, dated as of December 15, 1994 (without appendix), as
amended by Amendment I to the Exchange Agreement, dated as of December
15, 1994, among Santa Anita Operating Company, Stephen F. Keller and
the Keller Family Trust (with appendix) (incorporated by reference to
Exhibit 10.30 of the Joint Annual Report on Form 10-K of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company for the
year ended December 31, 1994).
10.31 Exchange Agreement between Santa Anita Operating Company and Clifford
C. Goodrich, dated as of December 15, 1994 (with appendix)
(incorporated by reference to Exhibit 10.31 of the Joint Annual Report
on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1994).
10.32 Form of Indemnity Agreement between Santa Anita Operating Company and
its directors and officers and schedule of omitted documents relating
thereto (incorporated by reference to Exhibit 10.2 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company for the quarter ended March 31,
1995).
10.33 Form of Indemnity Agreement between Santa Anita Realty Enterprises,
Inc. and its directors and officers and schedule of omitted documents
relating thereto (incorporated by reference to Exhibit 10.3 of the
Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company for the quarter ended March 31,
1995).
10.34 Form of Consulting Agreement between Santa Anita Operating Company and
its directors and schedule of omitted documents relating thereto
(incorporated by reference to Exhibit 10.4 of the Joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the quarter ended March 31, 1995).
10.35 Form of Consulting Agreement between Santa Anita Realty Enterprises,
Inc. and its directors and schedule of omitted documents relating
thereto (incorporated by reference to Exhibit 10.5 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company for the quarter ended March 31,
1995).
10.36 Restricted Stock Agreement dated as of April 1, 1995 between Santa
Anita Operating Company, Stephen F. Keller and the Keller Family Trust
(incorporated by reference to Exhibit 10.6 of the Joint Quarterly
Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the quarter ended March 31, 1995).
10.37 Restricted Stock Agreement dated as of April 1, 1995 between Santa
Anita Operating Company and Clifford C. Goodrich (incorporated by
reference to Exhibit 10.7 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the quarter ended March 31, 1995).
10.38 Lease dated as of May 2, 1995 between Santa Anita Realty Enterprises,
Inc. and American Multi-Cinema, Inc. (incorporated by reference to
Exhibit 10.8 of the Joint Quarterly Report on Form 10-Q of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company for the
quarter ended March 31, 1995).
10.39 Repayment Guaranty dated as of May 18, 1990 between Santa Anita Realty
Enterprises, Inc. and The Mitsubishi Bank, Limited (incorporated by
reference to Exhibit 10.39 of the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1995).
10.40 First Amendment dated as of August 10, 1993 to Repayment Guaranty
dated as of May 18, 1990 between Santa Anita Realty Enterprises, Inc.
and The Mitsubishi Bank, Limited (incorporated by reference to Exhibit
10.40 of the Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the year ended
December 31, 1995).
</TABLE>
8
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
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<C> <S>
10.41 Unconditional Guaranty of Payment dated as of December 31, 1992
between Santa Anita Realty Enterprises, Inc. and Bank of America
National Trust and Savings Association (incorporated by reference to
Exhibit 10.41 of the Joint Annual Report on Form 10-K of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company for the
year ended December 31, 1995).
22 Subsidiaries of Santa Anita Operating Company (incorporated by
reference to Exhibit 22 to the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1992).
23.1 Consent of Ernst & Young LLP (to be incorporated by reference into the
Prospectus contained in Registration Statement No. 2-95228, the
Prospectus contained in Registration Statement No. 33-51843 and the
Prospectus contained in Registration Statement No. 33-58995).
23.2 Consent of Ernst & Young LLP (to be incorporated by reference into the
Prospectus contained in Registration Statement No. 2-95228, the
Prospectus contained in Registration Statement No. 33-51843 and the
Prospectus contained in Registration Statement No. 33-58995).
23.3 Consent of KPMG Peat Marwick LLP (to be incorporated by reference into
the Prospectus contained in Registration Statement No. 2-95228, the
Prospectus contained in Registration Statement No. 33-51843 and the
Prospectus contained in Registration Statement No. 33-58995).
23.4 Consent of KPMG Peat Marwick LLP (to be incorporated by reference into
the Prospectus contained in Registration Statement No. 2-95228, the
Prospectus contained in Registration Statement No. 33-51843 and the
Prospectus contained in Registration Statement No. 33-58995).
27(a) Financial Data Schedule for Santa Anita Realty Enterprises, Inc.
(incorporated by reference to Exhibit 27(a) of the Joint Annual Report
on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1995).
27(b) Financial Data Schedule for Santa Anita Operating Company
(incorporated by reference to Exhibit 27(b) of the Joint Annual Report
on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1995).
99.1 Consolidated financial statements and schedule of Pacific Gulf
Properties Inc. included in such company's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 1995.
</TABLE>
9
<PAGE>
EXHIBIT 99.1
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
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PAGE
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<S> <C>
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Report of Independent Auditors ............................... F-2
Consolidated Balance Sheets
as of December 31, 1995 and 1994 ......................... F-3
Consolidated and Combined Statements of Operations
for the years ended December 31, 1995, 1994 and 1993 ..... F-4
Consolidated and Combined Statements of Equity
for the years ended December 31, 1995, 1994 and 1993 ..... F-5
Consolidated and Combined Statements of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 ..... F-6
Notes to Consolidated and Combined Financial Statements ...... F-7
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III - Real Estate and Accumulated Depreciation ...... F-20
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Shareholders
Pacific Gulf Properties Inc.
We have audited the accompanying consolidated balance sheets of Pacific
Gulf Properties Inc. (the "Company") as of December 31, 1995 and 1994, and the
related consolidated and combined statements of operations, equity, and cash
flows of the Company and the multifamily and industrial operations acquired from
Santa Anita Realty Enterprises, Inc. (the "Predecessor Multifamily and
Industrial Operations") for the year ended December 31, 1995, for the periods
February 18, 1994 through December 31, 1994 and January 1, 1994 through February
17, 1994, and for the year ended December 31, 1993. Our audits also included the
financial statement schedule listed in the Index on page F-1. These financial
statements and schedule are the responsibility of the Company's and
Predecessor's management. Our responsibility is to express an opinion on these
financial statements and 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1995 and 1994, and the consolidated and combined results
of operations and cash flows of the Company and the Predecessor Multifamily and
Industrial Operations for the year ended December 31, 1995, for the periods
February 18, 1994 through December 31, 1994 and January 1, 1994 through February
17, 1994, and for the year ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Newport Beach, California
February 9, 1996
F-2
<PAGE>
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------------------
<S> <C> <C>
ASSETS
Real estate assets (Notes 2 and 3)
Land $ 75,011 $ 47,089
Buildings 225,142 163,507
--------------------
300,153 210,596
Accumulated depreciation (21,461) (17,139)
--------------------
278,692 193,457
Cash and cash equivalents 2,847 3,515
Accounts receivable 959 701
Other assets 6,093 4,846
--------------------
$288,591 $202,519
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable (Notes 2 and 3) $149,847 $ 69,480
Accounts payable and accrued liabilities (Note 5) 5,644 4,784
Dividends payable 1,943 1,869
Convertible subordinated debentures (Note 4) 55,659 55,526
--------------------
213,093 131,659
Minority interests in consolidated partnership (Note 6) 3,518 -
Commitments and contingencies (Note 7)
Shareholders' equity
Preferred shares, $.01 par value; 5,000,000
shares authorized; no shares outstanding - -
Common shares, $.01 par value; 25,000,000
shares authorized; shares issued and outstanding
4,856,937 (1995) and 4,792,919 (1994) 49 48
Excess shares, $.01 par value; 30,000,000
shares authorized; no shares outstanding - -
Outstanding restricted stock (Note 5) (669) -
Additional paid-in capital 77,979 76,990
Distributions in excess of earnings (5,379) (6,178)
--------------------
71,980 70,860
$288,591 $202,519
====================
</TABLE>
See accompanying notes.
F-3
<PAGE>
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
PREDECESSOR
MULTIFAMILY AND
COMPANY INDUSTRIAL OPERATIONS
---------------------------- ----------------------------
FEBRUARY 18 JANUARY 1
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 17, DECEMBER 31,
1995 1994 1994 1993
----------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Rental income
Multifamily properties $ 24,898 $ 16,783 $2,154 $ 15,150
Industrial properties 12,193 7,074 133 1,002
-------------------------------------------------------
37,091 23,857 2,287 16,152
EXPENSES
Rental property expenses
Multifamily properties 10,215 7,524 1,311 7,261
Industrial properties 2,567 1,475 66 245
-------------------------------------------------------
12,782 8,999 1,377 7,506
Depreciation and amortization 6,538 3,473 407 2,719
Amortization of debenture discount and costs 552 464 - -
Interest 13,057 6,726 815 5,943
General and administrative 2,423 1,522 203 1,538
Minority interests (Note 6) - - - (492)
Reduction in carrying value of Predecessor's
properties (Note 9) - - - 10,974
-------------------------------------------------------
35,352 21,184 2,802 28,188
-------------------------------------------------------
INCOME (LOSS) BEFORE GAIN ON SALE
OF PROPERTIES AND EXTRAORDINARY
ITEM 1,739 2,673 (515) (12,036)
Gain on sale of properties (Note 8) 6,664 - - -
-------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 8,403 2,673 (515) (12,036)
Extraordinary item
Loss from extinguishment of debt - 2,990 - -
-------------------------------------------------------
NET INCOME (LOSS) $ 8,403 $ (317) $ (515) $(12,036)
=======================================================
WEIGHTED AVERAGE COMMON SHARES 4,830,723 4,273,337
=========================
PER COMMON SHARE DATA (Note 1)
Income before extraordinary item $ 1.74 $ .63
Extraordinary item - (.70)
-------------------------
Net income (loss) $ 1.74 $ (.07)
=========================
DISTRIBUTIONS DECLARED PER COMMON
SHARE $ 1.57 $ 1.35
=========================
</TABLE>
See accompanying notes.
F-4
<PAGE>
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
(in thousands)
<TABLE>
<S> <C>
EQUITY, December 31, 1992 (a) $ 23,200
Net distributions (1,664)
Net loss (12,036)
Common shares issued 1
--------
EQUITY, December 31, 1993 (a) 9,501
Net distributions (626)
Net loss (515)
--------
EQUITY, February 18, 1994 (a) 8,360
Common shares issued (Note 9) 68,678
Distributions declared (5,861)
Net loss (317)
--------
EQUITY, December 31, 1994 70,860
Common shares issued 988
Outstanding restricted stock (Note 5) (669)
Distributions declared (7,602)
Net income 8,403
--------
EQUITY, December 31, 1995 $ 71,980
========
</TABLE>
(a) Amounts presented prior to February 18, 1994 represent the combined
equity of the Predecessor Multifamily and Industrial Operations.
See accompanying notes.
F-5
<PAGE>
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PREDECESSOR
MULTIFAMILY AND
COMPANY INDUSTRIAL OPERATIONS
------------------------------- --------------------------------
Year Ended February 18 January 1 Year Ended
December 31, through through December 31,
1995 December 31, 1994 February 17, 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 8,403 $ (317) $(515) $(12,036)
---------------------------------------------------------------
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation 6,081 3,345 390 2,634
Amortization 457 128 17
Amortization of debenture discount and costs 552 464 - -
Compensation recognized relating to restricted stock 83 - - -
Gain on sale of real estate properties (6,664) - - -
Reduction in carrying value of Predecessor's properties - - - 10,974
Loss from extinguishment of debt - 2,990 - -
Minority interests - - - (492)
Net (increase) decrease in accounts receivable (258) - - 255
Net (increase) decrease in certain other assets (2,295) (1,762) 594 59
Net increase (decrease) in certain liabilities 779 (1,130) (254) (172)
---------------------------------------------------------------
Net cash provided by operating activities 7,138 3,718 232 1,307
---------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to real estate assets (113,663) (99,504) - (15,323)
Proceeds from sale of real estate properties 29,183 - -
---------------------------------------------------------------
Net cash used in investing activities (84,480) (99,504) - (15,323)
---------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage notes payable 112,070 15,189 - -
Proceeds from revolving line of credit 4,300 39,147 - 10,275
Repayment of mortgage notes payable (8,725) (29,146) (25) (148)
Repayment of revolving line of credit (27,278) (44,425) - -
Net proceeds from issuance of convertible subordinated
debentures - 55,420 - -
Increase in deferred debenture costs - (3,006) - -
Issuance of common shares 317 68,678 - 1
Net increase in liabilities associated with issuance of common
shares and convertible debentures - 4,425 - -
Payment of costs associated with extinguishment of debt - (2,990) - -
Distributions paid (7,528) (3,992) - -
Contributions from minority interest in combined partnerships - - - 4,034
Minority interest contributions 3,518 - - 1,300
Net distributions to Predecessor - - (626) (1,664)
---------------------------------------------------------------
Net cash provided by (used in) financing activities 76,674 99,300 (651) 13,798
---------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (668) 3,514 (419) (218)
CASH AND CASH EQUIVALENTS - beginning of period 3,515 1 420 638
---------------------------------------------------------------
CASH AND CASH EQUIVALENTS - end of period $ 2,847 $ 3,515 $ 1 $ 420
===============================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Pacific Gulf Properties Inc. was incorporated in Maryland and operates as a Real
Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986, as
amended. Pacific Gulf Properties Inc. commenced operations on February 18, 1994
upon the receipt of proceeds from its initial public offerings (Note 9).
Basis of Presentation
The consolidated and combined financial statements include the accounts of
Pacific Gulf Properties Inc., and all subsidiaries and partnerships over which
it has control (the "Company") in addition to the combined accounts of the
assets and liabilities acquired from Santa Anita Realty Enterprises, Inc.
("Realty") on a combined historical cost basis (the "Predecessor Multifamily and
Industrial Operations"). The combined financial statements for periods prior to
February 18, 1994 are not intended to present the financial position, results of
operations or cash flows of either the Company or Realty. All intercompany
accounts and transactions have been eliminated in consolidation.
Real Estate Assets
The properties are carried at their historical cost which consists of land,
buildings and related improvements. The properties acquired from Realty were
recorded at Realty's historical cost basis. Depreciation is generally provided
on a straight-line basis over the estimated useful lives of the buildings and
improvements, ranging primarily from 15 to 40 years.
In 1995, the Company adopted Statement 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
that long-lived assets used in operations be written down to fair value and
impairment losses recognized when indicators of impairment are present and the
assets' carrying amount is greater than the sum of the future undiscounted cash
flows estimated to be generated by those assets. At December 31, 1995, no
indicators of impairment exist. Accordingly, the properties are carried at cost
less accumulated depreciation.
Expenditures which increase the service life of properties are capitalized; the
cost of maintenance and repairs is charged to expense as incurred. When
depreciable property is retired or disposed of, the related costs and
accumulated depreciation are removed from the accounts and any gain or loss
reflected in operations.
Cash and Cash Equivalents
Certificates of deposit and short-term investments with remaining maturities of
three months or less when acquired are considered cash equivalents.
F-7
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Debenture Costs
Costs relating to the convertible subordinated debentures offering are included
in other assets and amortized over the term of the debentures using a method
which approximates the effective interest method.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk are primarily cash investments and accounts receivable. Cash is
invested in investment-grade short-term instruments and the amount of credit
exposure to any one commercial issuer is limited. Concentration of credit risk
with respect to accounts receivable is limited due to the number of multifamily
and industrial tenants.
Fair Value of Financial Instruments
The carrying amounts of the Company's short-term investments and loans payable
approximate their fair values as of December 31, 1995.
The fair value as of December 31, 1995 of the Company's convertible subordinated
debentures, based on the closing price of the debentures on the last trading day
in 1995 on the American Stock Exchange, was $52,592,000.
Dividend Reinvestment Plan
In May 1995 the Company established a dividend reinvestment and stock purchase
plan. For the year ended December 31, 1995, the Company issued 422 shares under
the plan.
Rental Income
Rental income from residential leases is recognized when due from tenants.
Apartment units are rented under lease agreements with terms of one year or
less.
Rental income from industrial leases is recognized on a straight-line basis over
the related lease term. As a result, deferred rent is created when rental income
is recognized during free rent periods of a lease. The deferred rent is included
in other assets, evaluated for collectibility and amortized over the lease term.
F-8
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
Interest
Interest expense incurred for the years ended December 31, 1995, 1994 and 1993
totaled $13,057,000, $7,541,000 and $5,943,000, respectively. Interest expense
for 1995 and 1994 includes $4,736,000 and $4,052,000 related to the Company's
debentures (Note 4). Interest paid for the years ended December 31, 1995, 1994
and 1993 totaled $11,785,000, $4,764,000 and $5,868,000, respectively.
Income Taxes
The Company has elected to be taxed as a REIT. As a REIT, the Company is
generally not subject to income taxes. To maintain its REIT status, the Company
is required to distribute annually as dividends at least 95% of its REIT taxable
income, as defined by the Internal Revenue Code, to its shareholders, and also
to satisfy certain other requirements. The Company has estimated that
approximately 68% (unaudited) of the dividends paid to shareholders in 1995
represented a return of capital for income tax purposes.
Per Share Data
Per share amounts are calculated based upon weighted average common shares
outstanding and common share equivalents for the year ended December 31, 1995
and the period February 18, 1994 (date of initial public offering) through
December 31, 1994. Common stock equivalents include stock options which are
considered dilutive for purposes of computing primary earnings per share.
The debentures, if fully converted, would require the issuance of an additional
3,036,710 common shares (Note 4). If fully converted, the net income
attributable to each common share would not be diluted.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of the assets and liabilities
as of December 31, 1995 and 1994 and revenues and expenses for each of the three
years in the period ended December 31, 1995. Accordingly, actual results could
differ from those estimates in the near term.
Reclassifications
Certain financial statement amounts have been reclassified to conform to the
current year presentation.
F-9
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
2. REAL ESTATE ASSETS
The Company's multifamily and industrial portfolio consists of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
------------------------------
<S> <C> <C>
Multifamily properties
Land $ 45,785,000 $ 28,001,000
Buildings 141,997,000 95,942,000
------------------------------
187,782,000 123,943,000
Accumulated depreciation (11,903,000) (10,237,000)
------------------------------
175,879,000 113,706,000
------------------------------
Industrial properties
Land 29,226,000 19,088,000
Buildings 83,145,000 67,565,000
------------------------------
112,371,000 86,653,000
Accumulated depreciation (9,558,000) (6,902,000)
------------------------------
102,813,000 79,751,000
------------------------------
Total
Land 75,011,000 47,089,000
Buildings 225,142,000 163,507,000
------------------------------
300,153,000 210,596,000
Accumulated depreciation (21,461,000) (17,139,000)
------------------------------
$278,692,000 $193,457,000
==============================
</TABLE>
Multifamily Properties
At December 31, 1995, the Company owns and operates 21 multifamily properties
containing 3,945 apartment units located in Southern California and the Pacific
Northwest. During 1995, the Company disposed of four multifamily properties
comprising its entire Texas portfolio (Note 8). Additionally, the Company
purchased a multifamily property containing 368 apartment units located in the
Pacific Northwest.
Industrial Properties
At December 31, 1995, the Company owns and operates ten industrial properties,
containing an aggregate of 2,902,000 leasable square feet located in Southern
California and in the state of Washington. In 1995, the Company purchased an
industrial property in the state of Washington containing approximately 475,000
leasable square feet.
F-10
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
2. REAL ESTATE ASSETS (continued)
Industrial Properties (continued)
The Company's industrial properties are leased to tenants under operating leases
with terms ranging from 1 to 5 years. The minimum future lease payments to be
received from noncancelable industrial leases for each of the next five years
ending December 31 and thereafter, are as follows:
<TABLE>
<S> <C>
1996 $10,435,000
1997 6,327,000
1998 4,689,000
1999 3,144,000
2000 2,349,000
Thereafter -
-----------
$26,944,000
===========
</TABLE>
3. LOANS PAYABLE
Loans payable consist of mortgage notes and a revolving line of credit at
December 31 as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------
<S> <C> <C>
Mortgage notes $133,678,000 $30,333,000
Revolving line of credit 16,169,000 39,147,000
----------------------------
$149,847,000 $69,480,000
============================
</TABLE>
Mortgage notes payable at December 31, 1995 consist of conventional mortgage
notes and tax-exempt mortgage notes totaling $108,828,000 and $24,850,000,
respectively.
The Company's conventional mortgage notes consist of 19 notes at December 31,
1995 which are secured by multifamily and industrial properties, due in monthly
installments and mature at various dates through September 2025. Approximately
$87,477,000 or 14 conventional mortgage notes bear fixed rates of interest
ranging from 7.25% to 8.74% per annum. The remaining five conventional mortgage
notes include two notes payable totaling $15,101,000 which bear interest at
LIBOR plus 1.5% and three other notes payable totaling $6,250,000 which bear
interest based on the Federal Home Loan Bank - 11th District Rate plus 2.8%. The
weighted average interest rate of the Company's conventional mortgage notes at
December 31, 1995 was 7.99%. Subsequent to December 31, 1995, the Company
entered into an interest rate swap agreement with a bank which fixes the
interest rate at 7.35% for five years on one of the variable rate mortgage notes
in the amount of $11,500,000, commencing July 1, 1996. During the year ended
December 31, 1995, the LIBOR rate ranged from 5.69% to 6.19% and was 5.69% at
December 31, 1995.
F-11
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
3. LOANS PAYABLE (continued)
The Company's tax-exempt mortgage notes consist of five notes totaling
$24,850,000 at December 31, 1995 which are secured by multifamily properties and
bank letters of credit. The Company makes monthly interest payments on these
notes to a trustee who in turn pays the bondholders when interest is due. The
tax-exempt mortgage notes provide for floating interest rates, which adjust
weekly or monthly based on applicable indices. These floating interest rates
which ranged from 3.46% and 8.62% during the year ended December 31, 1995 were
based on indices such as the Kenny Rate and the Federal Home Loan Bank - 11th
District Rate. At December 31, 1995 both of these indices were 5.12%. The
weighted average interest rate of the Company's tax-exempt mortgage notes at
December 31, 1995 was 5.51%. The bank letters of credit mature at various dates
through April 1996. The tax-exempt mortgage notes mature at various dates
through 2018 and are callable should the supporting letters of credit not be
replaced upon their maturity.
The revolving line of credit as of December 31, 1995, which is payable to a
bank, is secured by certain of the Company's real estate properties and matures
in 1997. Under the terms of this revolving bank line of credit, the Company may
borrow funds up to $35,000,000 at LIBOR plus 1.75%. For the year ended December
31, 1995, the weighted average interest rate the revolving line of credit was
8.58%.
The Company's revolving line of credit agreement contains certain debt
covenants. The most significant covenants, as defined in the agreement, require
the Company to maintain a minimum tangible net worth, a debt coverage ratio in
excess of 1.45 (measured as a four quarter trailing average) and a debt-to-total
capitalization ratio of less than 80%. In addition, the revolving line of credit
agreement contains a provision restricting the payment of dividends in any
fiscal quarter to 92% of that quarter's Funds from Operations determined
utilizing the National Real Estate Investment Trust's Old Definition of Funds
From Operations. As of December 31, 1995, the Company was in compliance with all
debt covenants.
Principal payments due on loans payable as of December 31, are as follows:
<TABLE>
<S> <C>
1996 $ 6,692,000
1997 24,279,000
1998 27,491,000
1999 12,228,000
2000 7,022,000
Thereafter 72,135,000
------------
$149,847,000
============
</TABLE>
F-12
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
4. CONVERTIBLE SUBORDINATED DEBENTURES
The Company's $56,551,000 of convertible subordinated debentures are reflected
in the accompanying consolidated balance sheets net of unamortized discount of
$892,000 and $1,025,000 at December 31, 1995 and 1994, respectively, bear
interest at 8.375% annually (payable in semiannual installments due in February
and August of each year) and mature February 2001.
Debenture discount is amortized into expense producing an effective interest
rate of 8.76%. Costs incurred by the Company to issue the debentures were
capitalized and included in other assets. Deferred debenture costs upon issuance
totaled $3,006,000 of which $429,000 and $358,000 have been amortized and
included in amortization of debenture discount and costs in the consolidated and
combined statements of operations for the years ended December 31, 1995 and
1994, respectively.
The debentures are convertible into common shares at any time prior to maturity
at a conversion rate of 53.6986 common shares per thousand dollars of debenture
principal subject to certain restrictions, including ownership limits and other
adjustments more fully described in the debentures' indenture agreement. In
addition, the debentures are subordinate to all senior indebtedness of the
Company and are redeemable by the Company, at their outstanding principal
amount, at any time on or after February 15, 1999.
At December 31, 1995, the Company was in compliance with the debentures
covenants which impose certain restrictions on the payment of dividends by the
Company in the event of certain defaults, except when the Company is required to
pay such dividends in order to maintain its REIT status.
5. BENEFIT PLANS
Share Option Plan
The Company has a share option plan (the "Share Option Plan") to provide
incentives to attract and retain officers and employees. The Share Option Plan
provides for grants of options to purchase a specified number of common shares,
awards of restricted common shares and grants of stock appreciation rights. The
total number of shares available to the Share Option Plan for such purposes is
350,000 Common Shares (45,000 of which have been reserved for awards to
non-employee directors). Options for 40,500 Common Shares were granted to
officers, directors and employees during 1995 with an exercise price of $15.00
per share. Options for a total of 190,050 Common Shares were granted to officers
and employees effective upon the consummation of initial public offerings. The
options are exercisable at the initial stock offering price of $18.25 per share
and are subject to varying vesting periods. No options were exercised during
1995 and 1994.
In February of 1995, 7,296 shares of restricted stock were issued to employees
as performance-based compensation. At the time the shares were issued, the
market price of the stock was $13.75 per share. The shares vest over a
three-year period.
F-13
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
5. BENEFIT PLANS (continued)
Share Option Plan (continued)
In June of 1995, the Company issued 56,300 shares of restricted stock to certain
employees to replace substantially all of its liability to those employees
accrued under the existing deferred compensation agreements. Under the
restricted stock program, the 56,300 shares of stock issued vest over five to
twelve years and the Company's original obligation to the employees will be
satisfied through dividends and targeted appreciation in the value of the
shares. The value of the shares, totaling approximately $887,000 at the date of
grant, is being charged to compensation expense over the vesting period with the
unamortized portion reflected as outstanding restricted stock in the
shareholders' equity section. At the time the shares were issued, the market
price of the stock was $15.75 per share.
As of December 31, 1995, the unamortized amount of outstanding restricted stock
issued to employees which will be charged to compensation expense in future
periods totaled $669,000.
Retirement Income Plan
The Company has a defined benefit retirement plan for year-round employees who
are at least 21 years of age with one or more years of service. Plan assets
consist of investments in a life insurance group annuity contract. Plan benefits
are based primarily on years of service and qualifying compensation during the
final years of employment. Funding requirements comply with federal requirements
that are imposed by law. The Company assumed, in conjunction with the
establishment of it's Retirement Income Plan, the retirement plan obligations
attributable to employees associated with the Predecessor Multifamily and
Industrial Operations who were previously employed by Realty. The information
set forth below relates to the Company's retirement income plan.
The Company's net periodic pension cost includes amortization of past service
cost over a remaining period of 27 years. Based upon actuarial valuation dates
as of December 31, 1995 and 1994, the present values of accumulated plan
benefits were $459,000 and $436,000 (calculated using a discount rate of 7.5
percent), respectively, and the plan's net assets available for benefits were
$400,000 in 1995 and $385,000 in 1994.
F-14
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
5. BENEFIT PLANS (continued)
Retirement Income Plan (continued)
The Company's net periodic pension cost for the year ended December 31, 1995 and
for the period February 18, 1994 through December 31, 1994 included the
following components:
<TABLE>
<CAPTION>
1995 1994
----------------------
<S> <C> <C>
Service cost $ 64,000 $ 33,000
Interest cost on projected benefit obligation 41,000 35,000
Expected return on plan assets (34,000) (23,000)
Amortization of unrecognized prior service costs
and unrecognized net obligation 8,000 6,000
----------------------
Net periodic pension cost $ 79,000 $ 51,000
======================
</TABLE>
The following table sets forth the funded status of the Company's retirement
income plan and the related amounts recognized in the December 31, 1995 and 1994
consolidated balance sheets:
Actuarial present value of accumulated benefit obligations as of December 31:
<TABLE>
<CAPTION>
1995 1994
------------------------
<S> <C> <C>
Vested $ 417,000 $ 413,000
Nonvested 42,000 23,000
------------------------
459,000 436,000
Additional amounts related to projected future compensation levels 199,000 164,000
------------------------
Total actuarial projected benefit obligations for service rendered 658,000 600,000
Plan assets at fair value as of December 31 490,000 385,000
------------------------
Projected benefit obligations in excess of plan assets (168,000) (215,000)
Unrecognized net actuarial gain from difference in actual
experience from that assumed (18,000) 6,000
Initial unrecognized transition obligation being recognized over
27 years 181,000 188,000
Additional minimum liability - (30,000)
------------------------
Accrued pension liability $ (5,000) $ (51,000)
========================
</TABLE>
F-15
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
5. BENEFIT PLANS (continued)
Retirement Income Plan (continued)
Assumptions used in determining the status of the Company's retirement
income plan are as follows:
Weighted average discount rate 7.5%
Weighted average rate of increase in
compensation levels 5.0%
Expected long-term rate of return on
plan assets 8.5%
Deferred Compensation Agreements
At December 31, 1994, the Company had defined benefit deferred compensation
agreements which provided selected management employees with a fixed benefit at
retirement. The plan benefits were based primarily on years of service and
qualifying compensation during the final years of employment. In conjunction
with its initial public offerings, the Company assumed the deferred compensation
obligations attributable to employees who were previously employed by Realty.
During 1995, the deferred compensation agreements were substantially replaced
with restricted stock. (See "Share Option Plan.")
6. CONSOLIDATED REAL ESTATE PARTNERSHIP
In August 1995, the Company formed PGP Inland Communities, L.P., a Delaware
limited partnership (the "Partnership") for the purpose of acquiring and
operating 11 multifamily properties consisting of 1,368 apartment units located
in Southern California (the "Properties") which were contributed by unrelated
parties. In exchange for contributing the Properties to the Partnership, the
unrelated parties received limited partnership units representing an ownership
interest of approximately 22%. The Company is the sole general partner in the
Partnership and holds an ownership interest of approximately 78%. The terms of
the Partnership agreement provide that all net income (and cash flow) from the
Properties are to be allocated (distributed) to the Company until the Properties
have achieved a threshold net operating income of $6,200,000 for any given year,
and cumulatively for all prior years. The Partnership's results of operations in
1995 have been fully allocated to the Company.
F-16
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
6. CONSOLIDATED REAL ESTATE PARTNERSHIP (continued)
Condensed financial information for the Partnership as of December 31, 1995 and
for the period August 16, 1995 (inception) through December 31, 1995 follows:
<TABLE>
<S> <C>
Real estate assets (multifamily properties)
Land $19,827,000
Buildings 52,149,000
-----------
71,976,000
Accumulated depreciation (442,000)
-----------
71,534,000
Cash and other assets 658,000
-----------
$72,192,000
===========
Liabilities (primarily tax-exempt mortgage debt of
$24,850,000 and mortgage notes of $30,182,000) $56,305,000
Partners' equity
The Company 12,369,000
Minority interests 3,518,000
-----------
15,887,000
-----------
$72,192,000
===========
Revenues 3,722,000
Expenses (including depreciation and amortization
of $472,000) 3,537,000
-----------
Net income $ 185,000
===========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company's commitments and contingencies include the usual obligations
of real estate owners and operators in the normal course of business. In
the opinion of management, these matters will not have a material adverse
effect on the Company's consolidated financial statements.
The current lessee of an undeveloped ten-acre parcel and of a 55,656 square foot
building in one of the Company's industrial parks, has options to purchase both
the ten-acre parcel and the building and land underlying the building under the
terms of its leases. The lessee has exercised its options under both agreements.
Pursuant to the leases, as amended, the sale of these properties is required to
close by July 4, 1996. If the sale closes, the anticipated sales prices for the
ten-acre parcel and the building are $4,500,000 and $3,195,000, respectively.
Subsequent to its exercise, the lessee has proposed a restructuring of existing
leases to defer the purchase and continue leasing the properties. Current annual
rentals received from the existing leases are approximately $721,000 and
$278,000, respectively.
F-17
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
8. GAIN ON SALE OF PROPERTIES
In November 1995, the Company sold its Texas apartment portfolio to four
entities controlled by the same buyer. The Texas apartment portfolio consisted
of four properties containing 1,085 apartment units in San Antonio, Austin and
Houston, and represented the Company's entire holdings in the state of Texas.
The Company received consideration totaling $31,125,000: $30,125,000 in cash and
four notes receivable totaling $1,000,000. The notes receivable mature in seven
years, bear interest at 9%, require monthly interest-only payments and are
secured by limited partnership interests in the purchasing entities. Proceeds
from the sale were used to repay the mortgage notes payable secured by the Texas
apartment portfolio which totaled $14,438,000 and $2,000,000 of the Company's
revolving line of credit.
Gains on sales of properties are recognized by the Company when title to the
real estate passes to the buyer, an adequate down payment is received, the
collectibility of notes received from buyers is reasonably assured, and other
conditions necessary for gain recognition have been satisfied. Accordingly, the
Company recognized a gain utilizing the cost recovery method on the sale of the
Texas apartment portfolio totaling $6,664,000 (net of $1,000,000 deferred
gain). The deferred gain is presented as a reduction of the notes receivable
in the consolidated balance sheet.
9. INITIAL PUBLIC OFFERINGS AND FORMATION TRANSACTIONS
On February 18, 1994, the Company completed its initial public offerings of
3,900,000 shares of common stock (4,008,500 shares after exercise of
overallotment option) and $50,000,000 aggregate principal amount of 8.375%
Convertible Subordinated Debentures ($56,551,000 after exercise of overallotment
option). Prior to that date, the Company was a wholly owned subsidiary of
Realty. Proceeds raised by the Company totaled $64,214,000 (net of fees and
costs) from the stock offering and $55,420,000 (net of discount) from the
debenture offering.
On February 18, 1994, the Company acquired the Predecessor Multifamily and
Industrial Operations from Realty pursuant to a Purchase and Sale Agreement
between Realty and the Company dated November 15, 1993. The Predecessor
Multifamily and Industrial Operations consisted of ten multifamily properties
containing 2,654 apartments and three industrial properties containing an
aggregate of 185,000 leasable square feet and certain other assets and
liabilities of Realty, including the Company's headquarters. In connection with
the acquisitions from Realty, the Company paid $44,425,000 in cash (representing
the repayment of indebtedness outstanding on Realty's lines of credit related to
the Predecessor Multifamily and Industrial Operations), assumed $44,290,000 in
debt and other obligations (of which $29,025,000 was repaid with proceeds from
the initial public offerings) and issued 149,900 shares of common stock. In
October 1994, the Company acquired Realty's interest in the partnership that
owned Baldwin Industrial Park, which contains 623,000 leasable square feet of
industrial space, for 559,748 shares of common stock and issued 74,671 of common
stock shares to Realty as payment for the Company's corporate offices and
certain other assets. (The Company also acquired the interest of the other
partners in Baldwin Industrial Park for $9,760,000 of which $6,362,000 was paid
in 1994.) As a result of these transactions, Realty's
F-18
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
9. INITIAL PUBLIC OFFERINGS AND FORMATION TRANSACTIONS (continued)
ownership interest in the Company was reduced to 16%. In connection with the
extinguishment of $29,500,000 of mortgage indebtedness referred to above, the
Company incurred nonrecurring debt repayment costs totaling $2,990,000 which
have been reflected as an extraordinary item in the consolidated and combined
statement of operations for the year ended December 31, 1994.
In February of 1995, the Company acquired the land underlying Baldwin Industrial
Park building and improvements for $3,454,000 in cash. At the time, the Company
also repaid a $889,000 loan to an unrelated third party which bore interest at
11.1% and was secured by a portion of the land. The Company's land acquisition
was pursuant to an option available under the Baldwin Industrial Park
partnership agreement.
As a result of the Company's acquisition of the Predecessor Multifamily and
Industrial Operations, a loss of $10,974,000 was recognized by Realty relating
to the formation transactions. This nonrecurring loss, which resulted in a
reduction to the historical carrying value of the properties, has been reflected
in the 1993 combined statement of operations relating to the Predecessor
Multifamily and Industrial Operations for the year ended December 31, 1993. The
properties acquired from Realty have been recorded in the Company's financial
statements at Realty's historical cost basis which includes Realty's loss on
the formation transactions.
The Company also entered into a one-year management agreement with Realty, as
part of the formation transactions, under which the Company managed certain
properties owned by Realty that were not transferred to the Company. During
1994, the Company received $61,000 from Realty as payment for services performed
thereunder, which is shown in the consolidated financial statements as a
reduction of general and administrative expense. The Company terminated the
agreement in November 1994.
F-19
<PAGE>
PACIFIC GULF PROPERTIES INC.
Notes to Consolidated and Combined Financial Statements (continued)
10. SELECTED QUARTERLY DATA (UNAUDITED)
The following tables set forth the quarterly results of operations of the
Company for the year ended December 31, 1995 and for the period February 18,
1994 (the date the Company commenced operations upon completion of its initial
public offerings) through December 31, 1994:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 8,428,000 $ 8,409,000 $9,544,000 $10,710,000
Income before gain on sale of
properties $ 544,000 $ 529,000 $ 366,000 $ 300,000
Gain on sale of properties $ - $ - $ - $ 6,664,000
Net income $ 544,000 $ 529,000 $ 366,000 $ 6,964,000
Per common share data:
Income before gain on sale
of properties $ .11 $ .11 $ .08 $ .05
Net income $ .11 $ .11 $ .08 $ 1.44
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------
February 18
through Second Third Fourth
March 31, 1994 Quarter Quarter Quarter
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 2,733,000 $ 6,072,000 $6,838,000 $ 8,214,000
Income before extraordinary
item $ 458,000 $ 854,000 $ 794,000 $ 567,000
Extraordinary item -
extinguishment of debt $(2,990,000) $ - $ - $ -
Net income (loss) $(2,532,000) $ 854,000 $ 794,000 $ 567,000
Per common share data:
Income before
extraordinary item $ .11 $ .21 $ .19 $ .12
Net income (loss) $ (.61) $ .21 $ .19 $ .12
</TABLE>
F-20
<PAGE>
SCHEDULE III
PAGE 1 OF 2
PACIFIC GULF PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN $000s)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COST SUBSEQUENT TO
TO COMPANY ACQUISITION GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD
--------------------- LAND AND --------------------------------------------------
BUILDINGS AND BUILDING BUILDINGS AND ACCUMULATED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------- ------------ ------- ------------- ------------- ------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Multifamily Properties
California
Laguana Hills $ 4,787 $ 1,798 $ 5,981 $ 409 $ 1,798 $ 6,390 $ 8,188 $ 231
Santa Ana(h) 11,932 6,985 18,581 834 6,985 19,415 26,400 4,895
Santa Ana(h) -- 1,488 5,764 813 1,488 6,577 8,065 299
Covina 1,310 558 1,466 19 569 1,485 2,054 12
Diamond Bar 8,865 3,958 8,048 104 4,034 8,152 12,186 68
San Dimas 3,733 1,695 3,520 39 1,727 3,559 5,286 30
West Covina 9,170 3,856 9,848 124 3,930 9,972 13,902 82
San Dimas 5,897 2,390 6,123 90 2,436 6,213 8,649 52
San Dimas 1,207 432 1,312 20 440 1,332 1,772 11
Ontario 6,700 2,273 5,626 68 2,316 5,694 8,010 47
Ontario 7,690 2,654 5,671 60 2,705 5,731 8,436 47
San Dimas 5,670 1,306 5,448 48 1,331 5,496 6,827 46
Ontario 1,830 322 2,232 24 326 2,236 2,582 18
Ontario 2,960 385 3,223 33 391 3,235 3,646 29
Washington
Burien(i) 14,914 1,419 7,176 20 1,419 7,196 8,615 1,040
Burien 3,336 956 4,836 5 956 4,841 5,797 701
Everett(i) -- 3,254 7,171 34 3,254 7,205 10,459 1,494
Everett(i) -- 3,181 6,994 18 3,181 7,012 10,193 1,449
Kent(d) -- 2,635 10,709 244 2,635 10,953 13,588 438
Federal Way(d)(e) -- 2,876 9,646 64 2,895 9,710 12,605 21
Oregon
Beaverton 7,310 970 9,180 372 970 9,552 10,522 893
-------- ------- -------- ------- ------- --------- -------- -------
Total Multifamily 97,311 45,391 138,555 3,442 45,785 141,997 187,782 11,903
-------- ------- -------- ------- ------- --------- -------- -------
Industrial Properties
California
Baldwin Park 11,975 999 27,878 7,344( 4,453 31,868 36,321 6,612
Garden Grove(d) -- 4,230 4,564 230 4,230 4,794 9,024 189
Ontario 6,943 5,310 10,801 49 5,310 10,850 16,160 518
Rancho Cucamonga(d) -- 1,610 8,196 268 1,610 8,464 10,074 471
Rancho Cucamonga 1,000 1,666 3,367 110 1,666 3,477 5,143 95
Vista(d) -- 3,465 7,896 333 3,465 8,229 11,694 418
Washington
Seattle 4,684 1,808 4,637 149 1,808 4,786 6,594 1,233
Tukwila(e) 11,765 6,684 10,677 106 6,684 10,677 17,361 22
-------- ------- -------- ------- ------- --------- -------- -------
Total Industrial 36,367 25,772 78,016 8,589 29,226 83,145 112,371 9,558
-------- ------- -------- ------- ------- --------- -------- -------
Total Portfolio $133,678 $71,163 $216,571 $12,031 $75,011 $225,142 $300,153 $21,461
======== ======= ======== ======= ======= ========= ======== =======
<CAPTION>
Maximum
Life on Which
Depreciation in
Latest Income
Date of Date Statement is
Description Construction Acquired Computed
- ----------- ------------ -------- --------------
<S> <C> <C> <C>
Multifamily Properties
California
Laguna Hills 1994 1994 40 Years
Santa Ana(h) 1972 1994 33 Years
Santa Ana(h) 1990 1994 40 Years
Covina 1977 1995 40 Years
Diamond Bar 1978-79 1995 40 Years
San Dimas 1979 1995 40 Years
West Covina 1981 1995 40 Years
San Dimas 1981 1995 40 Years
San Dimas 1981 1995 40 Years
Ontario 1983 1995 40 Years
Ontario 1982 1995 40 Years
San Dimas 1984 1995 40 Years
Ontario 1983 1995 40 Years
Ontario 1985 1995 40 Years
Washington
Burien(i) 1987 1994 37 Years
Burien 1987 1994 37 Years
Everett(i) 1986 1994 29 Years
Everett(i) 1988 1994 29 Years
Kent(d) 1987 1994 40 Years
Federal Way(d)(e) 1985, 1986 1995 40 Years
Oregon
Beaverton 1990 1994 38 Years
Total Multifamily
Industrial Properties
California
Baldwin Park 1986 1994 30 Years
Garden Grove(d) 1979 1994 40 Years
Ontario 1991 1994 40 Years
Rancho Cucamonga(d) 1990 1994 40 Years
Rancho Cucamonga 1981 1994 40 Years
Vista(d) 1990 1994 40 Years
Washington
Seattle 1968, 1981 1994 24 Years
Tukwila(e) 1975-1979 1995 40 Years
Total Industrial
Total Portfolio
</TABLE>
F-21
<PAGE>
Schedule III
Page 2 of 2
PACIFIC GULF PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
(in $000s)
<TABLE>
<CAPTION>
1995 1994 1993
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(a) The changes in total real estate for the years ended
December 31, 1995, 1994, and 1993 are as follows:
Balance at beginning of period $210,596 $106,601 $102,218
Acquisition of Baldwin Park(f) 7,228 28,877 --
Acquisition of PGP Inland portfolio 73,718 -- --
Other acquisitions and improvements(e) 32,717 75,500 15,323
Sale of Texas multifamily portfolio(g) (24,106) -- --
Reduction in carrying value of Predecessor's properties(c) -- -- (10,862)
Other (382) (78)
-------- -------- --------
Balance at end of period $300,153 $210,596 $106,601
======== ======== ========
(b) The changes in accumulated depreciation for the years ended
December 31, 1995, 1994 and 1993 are as follows:
Balance at beginning of period $ 17,139 $ 8,903 $ 6,304
Additions -- depreciation expense 5,908 3,745 2,719
Accumulated depreciation Baldwin Park at date of acquisition -- 4,873
Retirements -- Texas multifamily portfolio(g) (1,586) -- --
Other (382) (120)
-------- -------- --------
Balance at end of period $ 21,461 $ 17,139 $ 8,903
======== ======== ========
</TABLE>
(c) Excludes $112 relating to the Company's corporate offices acquired from
Realty which is included in other assets.
(d) These properties collateralize borrowings under the Company's revolving
bank line of credit which has an outstanding balance of $16,169 as of
December 31, 1995.
(e) During 1995, the Company purchased two new properties including a
multifamily property located in Federal Way, Washington and an
industrial property located in Tukwila, Washington.
(f) Includes $3,954 of costs relating to the purchase of land at Baldwin
Park (Note 9).
(g) During 1995, the Company disposed of its Texas apartment portfolio
(Note 8).
(h) These properties collateralize borrowings under the same mortgage note
payable totaling $11,932.
(i) These properties collateralize borrowings under the same mortgage note
payable totaling $14,914.
F-22
