<PAGE> 1
[PEREGRINE REAL ESTATE TRUST LETTERHEAD]
November 14, 1996
VIA EDGAR
Securities and Exchange Commission
Division of Corporate Finance
450 5th Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Transmitted via EDGAR for filing pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934, is Form 10Q for The Peregrine Real Estate
Trust (the Trust) for the quarter ended September 30, 1996. Manually signed
signature pages will be retained by the Trust for a period of five years.
If you have any questions regarding this filing, please contact the
undersigned at (916) 929-8244 Extension 17.
Sincerely
/s/ WENDY G. POWELL
- -------------------
Wendy G. Powell
Controller
<PAGE> 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
From the transition period from __________________ to __________________
Commission file number 0-9097
The Peregrine Real Estate Trust
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2255677
- --------------------------------- --------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1300 Ethan Way, Suite 200, Sacramento, CA 95825
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(916) 929-8244
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE> 3
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
- ------------------------------ ---------------------------------
Shares of Beneficial Interest 4,881,055
Par value one dollar per share
<PAGE> 4
- -----------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 1
Consolidated Statements of Operations -
For the Three Months and Nine Months Ended
September 30, 1996 and 1995 2-3
Consolidated Statements of Cash Flows -
For the Nine Months Ended
September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5 - 19
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 20 - 27
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 28
Item 2: Changes in Securities 28
Item 3: Defaults Upon Senior Securities 28
Item 4: Submission of Matters to a Vote of Security Holders 28
Item 5: Other Information 28
Item 6: Exhibits and Reports on Form 8-K 28
</TABLE>
<PAGE> 5
PART I: FINANCIAL INFORMATION
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
------------- -------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Rental properties, net of accumulated depreciation of $1,768,000 and
$6,001,000 at September 30, 1996 and December 31, 1995, respectively,
and valuation allowance of $12,963,000 at December 31, 1995 $ 80,407,000 $ 94,500,000
Partnership interests -- 4,000,000
Notes receivable, net of deferred gains of $373,000 and $1,237,000
at September 30, 1996 and December 31, 1995, respectively, and
valuation allowance of $8,229,000 at December 31, 1995 2,253,000 14,627,000
Marketable securities available-for-sale 15,606,000 --
------------- -------------
98,266,000 113,127,000
Cash 4,089,000 5,079,000
Restricted cash 4,503,000 185,000
Rents and accrued interest receivable, net of allowance of $997,000 and
$1,040,000 at September 30, 1996 and December 31, 1995, respectively 1,204,000 1,354,000
Other assets, net of valuation allowance of $310,000 at December 31, 1995 2,611,000 2,048,000
------------- -------------
Total assets $ 110,673,000 $ 121,793,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Long-term notes payable, collateralized by deeds of trust on
rental properties $ 34,218,000 $ 42,703,000
Notes payable to Senior Lender Group 44,880,000 43,441,000
Line of credit 8,539,000 5,526,000
Accounts payable and accrued expenses 5,466,000 6,126,000
Other liabilities 503,000 547,000
------------- -------------
93,606,000 98,343,000
------------- -------------
Minority interest 5,789,000 5,858,000
------------- -------------
Redeemable convertible preferred stock: 25,000,000 shares authorized;
13,722,000 and 12,728,000 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively; net of
unaccreted discount of $1,934,000 and $2,063,000 at September 30, 1996
and December 31, 1995, respectively; liquidation preference of
$27,444,000 and $25,457,000 at September 30, 1996 and December 31, 1995,
respectively 25,510,000 23,394,000
------------- -------------
Shares of beneficial interest: 50,000,000 shares authorized; 4,881,000
shares outstanding 13,356,000 13,356,000
Unrealized holding gains on marketable securities 14,000 --
Accumulated deficit (27,602,000) (19,158,000)
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 110,673,000 $ 121,793,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 6
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Hotel $ 3,166,000 $ 3,222,000 $ 9,533,000 $ 9,740,000
Rent 2,737,000 3,054,000 8,587,000 9,685,000
Interest 362,000 462,000 1,086,000 1,315,000
------------- ------------- ------------- -------------
6,265,000 6,738,000 19,206,000 20,740,000
------------- ------------- ------------- -------------
EXPENSES:
Hotel operating expenses 2,630,000 2,910,000 7,847,000 8,291,000
Operating expenses 905,000 1,020,000 2,925,000 3,246,000
Property management 215,000 181,000 629,000 458,000
Depreciation and amortization 714,000 951,000 2,149,000 2,786,000
Interest 2,041,000 2,149,000 6,170,000 6,381,000
General and administrative 658,000 1,058,000 3,746,000 3,016,000
------------- ------------- ------------ ------------
7,163,000 8,269,000 23,466,000 24,178,000
------------- ------------- ------------ ------------
Loss before gain (loss) on foreclosure
or sale of investments, valuation losses,
extraordinary item and minority interest (898,000) (1,531,000) (4,260,000) (3,438,000)
Gain (loss) on foreclosure or sale of investments 608,000 -- 1,140,000 (506,000)
------------- ------------- ------------ ------------
Loss before valuation losses,
extraordinary item and minority interest (290,000) (1,531,000) (3,120,000) (3,944,000)
Valuation losses (1,184,000) -- (3,428,000) --
------------- ------------- ------------ ------------
Loss before extraordinary item and
minority interest (1,474,000) (1,531,000) (6,548,000) (3,944,000)
Extraordinary item 151,000 258,000 151,000 652,000
------------- ------------- ------------- -------------
Loss before minority interest (1,323,000) (1,273,000) (6,397,000) (3,292,,000)
Minority interest 123,000 (23,000) 69,000 (92,000)
------------- ------------- ------------- -------------
Net loss $ (1,200,000) $ (1,296,000) $ (6,328,000) $ (3,384,000)
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 7
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Loss per share of beneficial interest:
Net loss $ (1,200,000) $ (1,296,000) $ (6,328,000) $ (3,384,000)
Preferred stock dividends, net of discounts (641,000) (574,000) (1,857,000) (1,655,000)
Accretion of discounts on preferred stock (91,000) (74,000) (259,000) (209,000)
------------ ------------ ------------ ------------
Net loss attributable to shares of
beneficial interest $ (1,932,000) $ (1,944,000) $ (8,444,000) $ (5,248,000)
============ ============ ============ ============
Loss per share of beneficial interest before
extraordinary item $ (0.43) $ (0.45) $ (1.76) $ (1.21)
Extraordinary item per share of beneficial
interest 0.03 .05 0.03 .13
============ ============ ============ ============
Net loss per share attributable to shares
of beneficial interest $ (0.40) $ (0.40) $ (1.73) $ (1.08)
============ ============ ============ ============
Weighted average number of shares of beneficial
interest outstanding 4,881,000 4,884,000 4,881,000 4,884,000
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 8
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,328,000) $ (3,384,000)
------------ ------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,149,000 2,786,000
(Gain) loss on foreclosure or sale of investments (1,140,000) 506,000
Minority interest in net (income) loss (69,000) 92,000
Extinguishment of debt (151,000) (652,000)
Valuation losses 3,428,000 --
Changes in other assets and liabilities
Decrease (increase) in rents and accrued interest receivable 138,000 (323,000)
Increase in other assets (1,059,000) (1,136,000)
Increase in accounts payable and accrued expenses 3,395,000 1,914,000
(Decrease) increase in other liabilities (7,000) 8,000
------------ ------------
Total adjustments to net loss 6,684,000 3,195,000
------------ ------------
Net cash provided by (used in) operating activities 356,000 (189,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 19,568,000 185,000
Purchase of marketable securities (15,849,000) --
Improvements to rental properties (1,909,000) (1,217,000)
Principal collections on notes receivable 43,000 1,493,000
Principal collections on marketable securities 257,000 --
------------ ------------
Net cash provided by investing activities 2,110,000 461,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term notes payable (71,000) (396,000)
Principal borrowings (payments) on line of credit, net 2,338,000 (7,000)
Principal payments on notes to Senior Lender Group (1,405,000) (606,000)
Increase in restricted cash (4,318,000) (159,000)
------------ ------------
Net cash used in financing activities (3,456,000) (1,168,000)
------------ ------------
Net decrease in cash (990,000) (896,000)
Cash, beginning of period 5,079,000 5,366,000
------------ ------------
Cash, end of period $ 4,089,000 $ 4,470,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 9
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Plan of Reorganization and Basis of Presentation:
Organization
The Peregrine Real Estate Trust (Trust) was organized under the laws
of the State of California pursuant to a Declaration of Trust dated
July 31, 1973 and reorganized under a Restated Declaration of Trust
dated October 7, 1994, which gave effect to the reorganization of the
Trust under Chapter 11 of the United States Bankruptcy Code.
Plan of Reorganization Under Chapter 11 Proceeding
On August 2, 1993, the Trust filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code, which case was heard
in the United States Bankruptcy Court for the Eastern District of
California, Sacramento Division, as In re Commonwealth Equity Trust
Case No. 93-26727-C-11. The proximate cause of the Trust's filing a
petition for reorganization was its falling out of compliance with a
restructuring agreement entered into on July 17, 1992 with a lender
group for which Pacific Mutual Life Insurance Company acted as agent.
CalREIT did not file for protection under Chapter 11.
On June 9, 1994, the Trust, the lender group including Prudential
Insurance Company of America, Pacific Mutual Life Insurance Company,
ORIX USA Corp. and Trust Company of the West for which Pacific Mutual
Life Insurance Company acted as agent (Senior Lender Group), the
Official Committee of Holders of Equity Interests (Equity Holders
Committee) and the Official Committee of Creditors Holding Unsecured
Claims (Creditors Committee) (collectively, Proponents) filed with the
Court the Third Amended Plan of Reorganization which was subsequently
modified by the First, Second, Third and Fourth Set of Plan
Modifications, filed on July 13, 1994, July 20, 1994, July 29, 1994
and August 2, 1994, respectively. The Third Amended Plan of
Reorganization as modified (Plan) was confirmed in all respects on
August 8, 1994.
The Effective Date of the Plan (the date on which the Trust emerged
from bankruptcy) was October 7, 1994. The Trust is under the
jurisdiction of the United States Bankruptcy Court until entry of a
final decree.
5
<PAGE> 10
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Plan of Reorganization and Basis of Presentation,
continued:
The Plan provided for inter alia: (a) the restructuring of virtually
all of the Trust's secured and unsecured debt; (b) the reduction in
the number of Shares of Beneficial Interest held by current
shareholders from approximately 25,100,000 (old) shares to 2,334,000
(new) shares (a reverse stock split); and the issuance of 2,550,000
new Shares of Beneficial Interest as well as a new class of Redeemable
Convertible Preferred Stock, of the Trust to the Senior Lender Group.
The authorized number of new Shares of Beneficial Interest is
50,000,000. From the Effective Date, the Senior Lender Group owns a
majority of the new Shares of Beneficial Interest and all of the new
Redeemable Convertible Preferred Stock. The Senior Lender Group also
received Restructured Secured Notes in the aggregate original
principal amount of $40,000,000.
The Plan provides for the reservation of 150,000 new Shares of
Beneficial Interest for options for Trustees who are neither employees
nor management of the Trust. Eighty thousand of these shares have
been reserved for the current independent Trustees.
The Plan also provides that the Trust, at the discretion of the Board
of Trustees, may adopt a stock option plan under which management may
be granted options exercisable into a maximum of five percent of the
Shares of Beneficial Interest, on a fully diluted basis. At September
30, 1996, 53,336 shares were under option pursuant to the Plan, all of
which were exercisable.
The Plan also required that the Trust obtain a $10,000,000 working
capital line of credit (Credit Facility or Line of Credit) to which
the Senior Lender Group agreed to subordinate. The Line of Credit,
which is collateralized by certain of the Trust's real property, was
obtained prior to the Effective Date. In June 1996, in accordance
with the Agreement, the Line of Credit was reduced to a maximum
$8,600,000 upon the release of certain collateral.
Capital Structure
The Trust's obligation of approximately $80,000,000 to the Senior
Lender Group was satisfied in the Plan by the issuance to the Senior
Lender Group of the following securities:
(a) Restructured Notes Payable in the amount of $40,000,000 which
bear interest at 8.5% per annum and which are due on October 1, 2000.
Interest is payable in kind through September 30, 1996, by means of
Interest Deferral Notes issued quarterly; thereafter, interest is
payable monthly in cash.
6
<PAGE> 11
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Plan of Reorganization and Basis of Presentation,
continued:
Interest Deferral Notes accrue interest at 8.5% per annum, from the
date of issuance. Interest payments on the original principal notes
and on interest deferral notes issued since the Effective Date shall
be payable monthly in cash commencing on November 1, 1996.
Restructured Notes Payable and Interest Deferral Notes (collectively,
Notes) are collateralized generally by all interests of the Trust in
real and personal property and are subordinated only to certain liens
which are specified in the Plan. The Notes contain certain covenants
and restrictions and limit the Trust's ability to incur additional
indebtedness and provide for the prepayment of principal in the amount
of 80% of the net proceeds from the sale of the collateral for the
Notes and from other specified sources. In addition, there are
covenants related to events or conditions which could have or result
in a material adverse effect as defined in the applicable agreement.
(b) Redeemable Convertible Preferred Stock in the original face
amount of $22,500,000 which carries a dividend of 10% per annum.
Dividends are payable in kind through October 1, 1998 by means of
additional shares of Redeemable Convertible Preferred Stock issued
quarterly; thereafter, dividends are payable quarterly in cash. The
Redeemable Convertible Preferred Stock automatically converts into
Shares of Beneficial Interest pursuant to an established formula if
any dividend payment is not made in full when due. If all dividends
were paid in kind through October 1, 1998, no other Shares of
Beneficial Interest were issued and the Redeemable Convertible
Preferred Stock were converted to Shares of Beneficial Interest on
October 1, 1998, the Senior Lender Group would, on account of that
conversion, acquire 77% of the total Shares of Beneficial Interest
outstanding after the conversion, bringing their total holdings to
approximately 89% of the outstanding shares.
The Redeemable Convertible Preferred Stock is redeemable in cash
(total redemption amount of $27,444,000 and $25,457,000 at September
30, 1996 and December 31, 1995, respectively) on October 1, 2000, but
in certain circumstances, including the sale of all or substantially
all the assets of the Trust, may be redeemed earlier.
The Redeemable Convertible Preferred Stock has been recorded at a
discount to its face amount, which face amounts are $27,444,000 and
$25,457,000 at September 30, 1996 and December 31, 1995, respectively,
based on an imputed rate of return of 12%.
(c) Shares of Beneficial Interest equal to approximately 52% of
the total outstanding Shares of Beneficial Interest.
7
<PAGE> 12
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Plan of Reorganization and Basis of Presentation,
continued:
Basis of Presentation
The accompanying financial statements are unaudited; however, they
have been prepared in accordance with generally accepted accounting
principles for interim financial information and in conjunction with
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation
of the financial statements for these interim periods have been
included. The results for the interim period ended September 30, 1996
are not necessarily indicative of the results to be obtained for the
full fiscal year. These financial statements should be read in
conjunction with the December 31, 1995 audited financial statements
and notes thereto, included in The Peregrine Real Estate Trust Annual
Report on Form 10-K, as amended.
The accompanying unaudited consolidated financial statements of The
Peregrine Real Estate Trust include the accounts of the Trust and its
majority-owned subsidiary, California Real Estate Investment Trust
(CalREIT), in which the Trust owns a 76% interest.
On September 19, 1996, the Trust announced that it had entered into an
agreement with MDC REIT Holdings L.L.C. (MDC), an affiliate of the
investment banking firm McCown DeLeeuw & Co., for the sale of its 76%
stock interest in CalREIT. Under the terms of the agreement, MDC
would purchase the stock for $20.5 million in cash plus a deferred
payment contingent on the value of one of CalREIT's assets. Closing
of the transaction is subject to financing and various other
conditions. Following the closing, CalREIT is expected to adopt a new
business strategy involving the acquisition, management, and
disposition of loans secured by real property.
8
<PAGE> 13
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Plan of Reorganization and Basis of Presentation,
continued:
Fresh Start Accounting
In accounting for the effects of the reorganization, the Trust
implemented Statement of Position 90-7 (SOP 90-7), "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code".
Fresh start accounting as defined by SOP 90-7 was applicable because
pre- reorganization shareholders received less than 50% of the Trust's
new Shares of Beneficial Interest and the reorganization value of the
assets of the reorganized Trust was less than the total of all
post-petition liabilities and allowed claims.
Under the principles of fresh start accounting, all of the Trust's
assets and liabilities were restated to reflect their reorganization
value which approximated fair value at the date of the reorganization,
October 7, 1994.
As a result of the implementation of fresh start accounting, the
statements of operations of the Trust after the consummation of the
Plan are not comparable to the Trust's statements of operations for
prior periods.
The reorganization value of the Trust's assets was primarily the
estimated fair value of the Trust's property and interest in CalREIT.
The aggregate property value was reached through the use of an eleven
year cash flow analysis discounted at rates generally ranging from 12%
to 15% and assuming a ten year holding period. The discounted cash
flow analysis also included an estimate of terminal value, which was
determined using the discounted value of estimated net operating
income of each of the respective properties beginning in the year
following the holding period. This analysis relied on estimates of
future property performance and the various market factors including
the supply, demand and price of competing product. Estimates were also
made as to property lease-up, required capital expenditures and
similar matters. All of these estimates may vary in the near term from
the actual future occurrences.
The interest in CalREIT was valued based on an income capitalization
approach, without any control premium being attributed to the Trust's
majority ownership position in CalREIT. The income capitalization
approach was also used to value the assets underlying the notes
receivable to determine the value of each note.
9
<PAGE> 14
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Plan of Reorganization and Basis of Presentation,
continued:
Stock-Based Compensation
In 1995, Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation" was issued. This
statement requires either recognition or disclosure of a hypothetical
charge for stock options. SFAS 123 also establishes fair value as the
measurement basis for transactions in which an entity acquires goods
or services from nonemployees in exchange for equity instruments. This
statement is effective for transactions entered into after December
15, 1995. The Trust does not intend to record this hypothetical charge
for stock options, but will instead provide required disclosures
beginning with the Form 10-K for the year ending December 31, 1996.
Reclassifications
Certain reclassifications have been made in the presentation of the
1995 financial statements to conform to the 1996 presentation.
2. Investments in Rental Properties and Notes Receivable:
At September 30, 1996, the University Village Shopping Center, the
System Integrators Office Building, the Park Terrace Inn, and
CalREIT's two remaining properties, with total carrying values of
$20,845,000, were classified as held for sale. At December 31, 1995,
properties with total carrying values of $30,749,000, were classified
as held for sale.
At September 30, 1996 and December 31, 1995, all notes receivable
owned by CalREIT with carrying values of $1,582,000 and $10,502,000,
respectively, were classified as held for sale.
In 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed
Of", (SFAS 121) was issued. SFAS 121, requires that an impairment be
recognized to reduce the carrying amount of long-lived assets to their
estimated fair value whenever events or changes in circumstances
indicate that such carrying amount may not be recoverable. After an
impairment is
10
<PAGE> 15
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Investments in Rental Properties and Notes Receivable, continued:
recognized, the reduced carrying amount of the asset is accounted for
as its new cost. The Trust adopted the provisions of SFAS 121 during
1996. Generally, fair values are estimated using discounted cash
flow, direct capitalization, and market comparison analyses.
As of the end of the third quarter of 1996, the Trust reported total
valuation losses of $3,428,000, attributable to impairments in the
value of CalREIT's Fulton Square Shopping Center in Sacramento,
California ($994,000) and the Totem Square property in Kirkland,
Washington ($749,000), and an impairment in the value of the Trust's
Timberlake Medical Building in Sacramento, California ($295,000),
which are reflections of the properties current physical conditions
and changed market conditions. Additionally, the Trust recorded a
valuation loss of $1,390,000 on its Placer Ranch partnership
investment when a Put/Call Option was exercised by the General
Partner, and the Trust was obligated to sell its interest.
3. Investments in Marketable Securities:
At September 30, 1996, the Trust had $15,606,000 invested in U.S.
Government Agency mortgage-backed securities classified as
"available-for-sale".
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", (SFAS 115) issued
in May 1993, requires that at the date of acquisition and at each
reporting date, debt and equity securities be classified as
"held-to-maturity", "trading", or "available for sale". Investments
in debt securities in which the Trust has the positive intent and
ability to hold to maturity are required to be classified as
"held-to-maturity". "Held-to-maturity" securities are required to be
stated at cost and adjusted for amortization of premiums and discounts
to maturity in the statement of financial position. Investments in
debt and equity securities that are not classified as
"held-to-maturity" and equity securities that have readily
determinable fair values are to be classified as "trading" or
"available-for-sale" and are measured at fair value in the statement
of financial position. Securities that are bought and held
principally for the purpose of selling classified as "trading" or
"available-for-sale" and are measured at fair value in the statement
of financial position. Securities that are bought and held
principally for the purpose of selling them in the near term are
classified as "trading". Unrealized
11
<PAGE> 16
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investments in Marketable Securities, continued:
holding gains and losses for "trading" securities are included in
earnings. Investments that are not classified as "held-to-maturity"
or "trading" "securities are classified as "available-for-sale".
Unrealized holding gains and losses for "available-for-sale"
securities are excluded from earnings and reported as a separate
component of shareholders' equity until realized.
In accordance with SFAS 115, the Trust determines the appropriate
classification at the time of purchase and reevaluates such
designation as of each balance sheet.
At September 30, 1996, the Trust's "available-for-sale" securities
consisted of the following:
<TABLE>
<CAPTION>
(In thousands)
Unrealized Estimated
Cost Gains Losses Fair Value
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Federal National Mortgage Association,
adjustable rate interest currently at 7.623%,
due April 1, 2024 $ 3,095 $ -- $ (13) $ 3,082
Federal Home Loan Mortgage Corporation,
adjustable rate interest currently at 6.656%,
due June 1, 2024 1,024 -- (4) 1,020
Federal National Mortgage Association,
adjustable rate interest currently at 7.320%,
due April 1, 2025 761 -- (4) 757
Federal National Mortgage Association,
adjustable rate interest currently at 5.155%,
due May 1, 2026 3,681 2 -- 3,683
Federal National Mortgage Association,
adjustable rate interest currently at 5.151%,
due June 1, 2026 7,031 33 -- 7,064
-------- ------- -------- --------
$ 15,592 $ 35 $ (21) $ 15,606
======== ======= ======== ========
</TABLE>
The maturity dates above are not necessarily indicative of expected
maturities as principal is often prepaid on such instruments.
12
<PAGE> 17
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Restricted Cash:
At September 30, 1996, cash of $4,503,000 is restricted to be used for
the payment of bankruptcy related professional fees, payments to the
Senior Lender Group, and Phase I hotel capital improvements. At
December 31, 1995, cash of $185,000, was restricted pending final
settlement of property taxes owed to the county relating to the sale
of the Woodland Medical Office Building in Milpitas, California. In
September 1996, it was determined that the property taxes were settled
and the amount was reclassified as unrestricted and allocated on an
80/20 basis, in accordance with the Senior Lender Group Note, to the
Senior Lender Group and Peregrine, respectively.
5. Income Taxes:
In 1977, the Trust elected to be and was taxed as a real estate
investment trust (REIT) through the year ended September 30, 1992. A
REIT is not taxed on that portion of its taxable income, which is
distributed to shareholders, provided that at least 95% of its real
estate investment trust taxable income is distributed and subject to
certain other requirements.
During the year ended September 30, 1993, the Trust did not qualify to
be taxed as a REIT. The termination of its REIT status was effective
as of October 1, 1992. The Trust may not be eligible to re-elect to
be taxed as a REIT prior to its fifth taxable year ended after
September 30, 1993.
The Trust has adopted Statement of Financial Accounting Standards No.
109 (SFAS 109) "Accounting for Income Taxes". SFAS 109 requires the
use of the liability method of accounting for income taxes. Deferred
taxes are recorded based on the differences between financial
statement and income tax bases of assets and liabilities and available
loss or credit carryforwards. A "Valuation Allowance" is recorded
against deferred tax assets unless it is more likely than not that the
asset will be realized in the future.
At December 31, 1995, the Trust had tax net operating loss
carryforwards (NOL) which may be applied against future taxable income
of $72,796,000 (Federal) and $31,888,000 (California).
13
<PAGE> 18
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income Taxes, continued:
As required by SOP 90-7, any future benefit realized from NOL's which
arose before the Effective Date of the Plan will be reported as a
direct addition to paid-in capital.
The Trust's alternative minimum tax operating loss carryforwards are
substantially the same as its NOL at December 31, 1995.
At the time of the prior change in ownership, when the Trust emerged
from bankruptcy, it elected to be governed by tax provisions
permitting the unlimited future use of NOL carryforwards. Under these
same tax provisions, the amount of the NOL carryforward was reduced by
$12,963,000 at the time of this election. If another ownership
change, as defined by the Internal Revenue Code, occurs within two
years after the ownership change of October 7, 1994, all NOL
carryforwards as of the date of the second ownership change will be
eliminated.
6. Related-Party Transactions:
The Trust and CalREIT are both self-administered. However, they share
certain costs, including personnel costs, for which CalREIT reimburses
the Trust pursuant to a cost allocation agreement based on each
trust's respective asset values that is subject to negotiation
annually. During the nine month periods ended September 30, 1996 and
1995, reimbursable costs charged to CalREIT by the Trust approximated
$188,000 and $333,000, respectively.
At September 30, 1996 and December 31, 1995, respectively, the Trust
had $46,000 and $45,000, due from CalREIT.
14
<PAGE> 19
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Statement of Cash Flows Supplemental Information:
In connection with the sale and foreclosure of properties and notes
receivable the Trust entered into various non-cash transactions as
follows:
<TABLE>
<CAPTION>
(In thousands)
For the Nine Months Ended
September 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
Sales price less selling costs $ 25,170 $ 2,768
Notes receivable -- (2,240)
Notes payable assumed by buyer and
other liabilities applied to sales price (5,602) (343)
-------- --------
Net cash received $ 19,568 $ 185
======== ========
</TABLE>
One property which collateralized notes payable of $3,089,000 was
foreclosed upon during the quarter ended March 31, 1996, resulting in
no gain or loss as the net book value of the property was equal to its
debt.
One property which collateralized notes payable of $2,764,000 was
foreclosed upon during the quarter ended March 31, 1995, resulting in
a loss of $73,000.
One note receivable which was collateralized by three industrial
buildings in Corona, California was foreclosed upon during the quarter
ended September 30, 1996. The properties were recorded at their
estimated fair market value ($1,300,000) which approximated the net
book value of the note ($1,200,000) plus the costs of foreclosure
($100,000), therefore, no gain or loss was recorded at the time of the
foreclosure.
15
<PAGE> 20
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Statement of Cash Flows Supplemental Information, continued:
Additionally, on March 31, June 30, and September 30, 1996 and 1995,
the Trust issued Interest Deferral Notes at 8.5% per annum in the
principal amount of $933,000, $944,000, and $967,000 and $868,000,
$884,000, and $913,000, respectively, as payment in kind for the
interest then due on the Restructured Notes Payable issued; and
Redeemable Convertible Preferred Stock in the face amount of $643,000,
$660,000, and $684,000 and $576,000, $597,000, $618,000, respectively,
as payment in kind for the dividend then due on the outstanding
Redeemable Convertible Preferred Stock.
During the three month periods ended September 30, 1996 and 1995, the
outstanding balance on the Line of Credit was increased by $245,000
and $156,000, respectively, for interest and expenses incurred. During
the nine month periods ended September 30, 1996 and 1995, the
outstanding balance on the Line of Credit was increased by $674,000
and $471,000, respectively, for interest and expenses incurred.
Cash paid for interest during the three month periods ended September
30, 1996 and 1995, was $848,000 and $1,334,000, respectively. Cash
paid for interest during the nine month periods ended September 30,
1996 and 1995 was $2,670,000 and $3,244,000, respectively.
8. Per Share Data:
Per share data for the three and nine month periods ended September
30, 1996, and September 30, 1995, were computed in conformity with the
provisions of Accounting Principles Board Opinion 15 (APB 15).
Earnings per share includes all dilutive beneficial interest
equivalents, based on stock options outstanding during the period
(using the treasury stock method). There were 26,668 and 53,336 stock
options outstanding during the three and nine month periods ended
September 30, 1995, and September 30, 1996, respectively; however,
stock options had an antidultive effect on earnings per share and
accordingly were excluded from consideration as beneficial interest
equivalents in all earnings per share computations.
The weighted average number of shares used in the computation was
4,884,000 during the three and nine month periods ended September 30,
1995, and the 4,881,000 during the three and nine month periods ended
September 30, 1996.
16
<PAGE> 21
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Gain (Loss) on Foreclosure or Sale of Investments:
Components of the gain (loss) on foreclosure or sale of investments
for the three and nine months ended September 30, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
(In thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Component
---------
Sale of investment in Placer Ranch Partnership $ 129 $ -- $ 129 $ --
Sale of Timberlake Medical Building (38) -- (38) --
Sale of Fountain View Office Building note 130 -- 130 --
Sale of Aster Avenue Industrial Complex note 387 -- 387 --
Sale of Sierra Oaks Shopping Center -- -- (63) --
Sale of Bekins Storage Facility -- -- (164) --
Sale of Pavilions at Mesa note -- -- 430 --
Sale of Spacesaver Mini-Storage note -- -- 30 --
Sale of Redfield Commerce Center -- -- 299 --
Sale of Milpitas Medical Building -- -- -- (508)
Sale of Northridge land -- -- -- 81
Sale of Florin Perkins lots -- -- -- (72)
Foreclosure of 425 University Avenue
Office Building -- -- -- (73)
Recognition of deferred gains -- -- -- 66
------ ------ ------ ------
$ 608 $ -- $1,140 $ (506)
====== ====== ====== ======
</TABLE>
10. Extraordinary item:
Extraordinary item for the three and nine month periods ended
September 30, 1996, of $151,000, resulted from the extinguishment of
debt related to professional fees incurred in connection with the
Bankruptcy Court proceedings.
Extraordinary item for the three and nine month periods ended
September 30, 1995 of $258,000 and $652,000, respectively, resulted
from extinguishment of certain debt payable to outside parties.
17
<PAGE> 22
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Options Plans:
On October 7, 1994 (the effective date), the Trust adopted a stock
option plan (Plan) which provides the members of the Board of Trustees
an opportunity to purchase Shares of Beneficial Interest. The
aggregate number of Shares of Beneficial Interest which may be issued
upon exercise of all Options granted under the plan shall not exceed
150,000.
Under the terms of the stock option plan, options may be granted to
members of the Board of Trustees who are not full time employees or
officers of the Trust or any subsidiary of the Trust, on a fully
diluted basis. The option price granted under the plan shall be the
greater of (1) the Fair Market Value of the Shares of Beneficial
Interest on the effective date, or (2) two dollars. The option price
granted under the Plan was two dollars per share. On the effective
date, each participant was granted an Initial Option to purchase 6,667
Shares of Beneficial Interest. Thereafter, each participant whose
commencement of services is after the effective date shall be granted
an Initial Option to purchase 6,667 Shares of Beneficial Interest as
of the date of the participant's commencement of service. Each
participant shall also be granted additional options to purchase 6,667
Shares of Beneficial Interest on each of the next two anniversaries of
the grant date of the Initial Option. On the effective date of the
Plan, options for the purchase of 26,668 Shares of Beneficial Interest
were granted under the Plan. On the one year anniversary of the
effective date of the Plan, options for the purchase of an additional
26,668 Shares of Beneficial Interest were granted under the Plan. All
options granted are exercisable, however, no options have been
exercised.
The Plan of Reorganization provides that the Trust, at the discretion
of the Board of Trustees, may adopt a stock option plan under which
management may be granted options exercisable into a maximum of five
percent of the Shares of Beneficial Interest, on a fully diluted
basis. No such plan has been adopted.
18
<PAGE> 23
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Significant Subsequent Events:
On September 30, 1996, the Bankruptcy Court issued its Final
Memorandum on Fee Applications (the Memorandum) and an Order on Final
Fee Applications (the Order) which awarded certain amounts to the
professional fee applicants (collectively, the Professionals). The
Trust believes that the Bankruptcy Court made certain inadvertent
mathematical errors in computing the respective amounts of the awards
to certain of the Professionals, and filed a motion for amendment or
reconsideration of the Order. Three of the Professionals filed
similar motions for amendment or reconsideration; three other
Professionals have appealed the Order to the U.S. District Court for
the Eastern District of California. The motions of the Trust and the
three Professionals will be heard by the Bankruptcy Court on November
13, 1996. Subsequent to September 30, 1996, the Trust paid certain
undisputed amounts to certain of the Professionals from cash on hand
and from the net proceeds received from certain asset dispositions.
The ultimate resolution and effect on the Trust of the motions and
appeals filed by the Professionals is uncertain.
On October 31, 1996, the Trust sold the Park Terrace Inn in Redding,
California, including personal property and the liquor license. The
net book value of the property was approximately equal to its purchase
price less selling costs. At the close of escrow the first mortgage
debt to Commercial Federal of approximately $1.9 million was paid in
full.
Under the terms of the Restructured Notes Payable Agreement with the
Senior Lender Group, cash interest payments on the original principal
notes and interest deferral notes were scheduled to commence on
November 1, 1996. The required monthly cash interest payment of
$329,000 was paid on November 1, 1996, in accordance with the
Restructured Note Agreement.
19
<PAGE> 24
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-Q.
In addition, unless otherwise noted, operating and financial results are
reported for the Trust and its subsidiary CalREIT on a consolidated basis.
Historical results set forth are not necessarily indicative of the future
financial position and results of operations of the Trust.
Overview
During the quarter ended September 30, 1996, management of the Trust continued
to concentrate on improving property operations while simultaneously exploring
alternative operating strategies for the future. In the near term, the
immediate priority continued to be to meet the Trust's present and medium term
debt obligations. To accomplish this objective, emphasis remained on
maximizing the income stream from the Trust's hotel and commercial properties
and the select disposition of real estate assets with negative cash flows
and/or which require significant capital expenditures beyond the resources of
the Trust. In addition, on September 19, 1996, the Trust announced that it had
entered into an agreement with MDC REIT Holdings L.L.C. (MDC), an affiliate of
the investment banking firm McCown DeLeeuw & Co., for the sale its 76% stock
interest in CalREIT. Under the terms of the agreement, MDC would purchase the
stock for $20.5 million in cash plus a deferred payment contingent on the value
of one of CalREIT's assets. Closing of the transaction is subject to financing
and various other conditions. Following the closing, CalREIT is expected to
adopt a new business strategy involving the acquisition, management, and
disposition of loans secured by real property.
The assessment of longer-term operating strategies includes alternatives
relating to the Trust's $44,880,000 in long-term collateralized debt to the
Senior Lender Group, as well as $34,218,000 in first mortgage debt which
requires servicing. The note to the Senior Lender Group accrued interest in
kind through September 1996 and will require cash interest payments of
approximately $4,000,000 per year commencing November 1996. Approximately
$27,444,000 at face value in Redeemable Convertible Preferred Stock also held
by the Senior Lender Group will accrue dividends in kind through September 1998
and will require cash dividend payments of approximately $3,300,000 per year
commencing in October 1998.
20
<PAGE> 25
The Trust believes the following factors continue to adversely affect, and in
the future could adversely affect, the Trust's financial condition, results of
operations and liquidity:
- - The capital structure of the Trust resulting from the confirmed Plan of
Reorganization, including approximately $79,000,000 in senior and first
mortgage debt and approximately $27,000,000 at face value of Preferred
Stock at September 30, 1996, plus the associated present and future debt
service and dividend obligations.
- - The estimated $2,000,000 to $3,000,000 in capital improvements required to
renovate and refurbish the Trust's hotel properties in accordance with
Holiday Inn franchise standards; and the approximately $2,900,000 in
professional fees being assessed against the Trust in connection with the
Bankruptcy Court proceedings.
- - The Trust's general and administrative expenses, including costs associated
with its 17,800 shareholder base and the expenses resulting from the
Trust's ongoing evaluation of its business strategies and asset valuations;
- - The limited sources and amount of funds currently available to the Trust
from operations, its revolving line of credit and from property
dispositions after payment of associated indebtedness; and the inability of
the Trust to raise capital from third parties in light of, among other
things, its debt and capital structure, operating history and contingent
liabilities discussed above; and
- - The overall lack of synergy and investment quality of the Trust's real
estate portfolio, the present softness in the Sacramento or other
California markets where most of the properties are located, and the
related declines in lease up and lease rates which adversely affect real
estate values.
Comparison of the Nine Months and Three Months Ended September 30, 1996 to the
Nine Months and Three Months Ended September 30, 1995
Net Loss of $6,328,000 was reported by the Trust for the nine months ended
September 30, 1996, an increase in loss of $2,944,000, or 87%, from the nine
months ended September 30, 1995. Net loss of $1,200,000 was reported by the
Trust for the three months ended September 30, 1996, a decrease in loss of
$96,000, or 7%, from the three months ended September 30, 1995. The increase
in loss for the nine months ended September 30, 1996, was primarily the result
of valuation losses of $3,428,000 partially offset by $1,140,000 in gains on
the foreclosure or sale of investments. The decrease in loss for the three
months ended September 30, 1996, was primarily the result of $608,000 in gains
on the foreclosure or sale of investments and decreased expenses, primarily
general and administrative, partially offset by valuation losses totaling
$1,184,000.
21
<PAGE> 26
Total Revenues decreased $1,534,000, or 7%, to $19,206,000 for the nine months
ended September 30, 1996. Total revenues decreased $473,000, or 7%, to
$6,265,000 for the three months ended September 30, 1996. This was down from
$20,740,000 and $6,738,000 for the nine and three months ended September 30,
1995, respectively. These decreases are attributable to decreases in hotel
revenue, rent revenue, and interest revenue.
Hotel revenue decreased $207,000, or 2%, to $9,533,000 for the nine months
ended September 30, 1996 and $56,000, or 2%, to $3,166,000 for the three months
ended September 30, 1996. This was down from $9,740,000 and $3,222,000 for the
nine and three months ended September 30, 1995, respectively. These decreases
were primarily attributable to the closure of the Park Terrace Inn in Redding,
California in October 1995 for renovation, offset slightly by increased revenue
at the Trust's three Holiday Inns.
Rent revenue decreased $1,098,000, or 11%, to $8,587,000 for the nine months
ended September 30, 1996 and $317,000, or 10%, to $2,737,000 for the three
months ended September 30, 1996. This was down from $9,685,000 and $3,054,000
for the nine and three months ended September 30, 1995. These decreases were
primarily attributable to the loss of rental revenue at the Trust's System
Integrators Building, Regency Plaza Shopping Center, and Town Center Office
Building resulting from a loss of tenants, combined with the absence of rental
revenue at the Milpitas Medical Building, the Sierra Oaks Shopping Center, and
the Timberlake Medical Building resulting from the sale of the properties in
May 1995, April 1996, and August 1996, respectively.
Interest revenue decreased $229,000, or 17%, to $1,086,000 for the nine months
ended September 30, 1996 and $100,000, or 22%, to $362,000 for the three months
ended September 30, 1996. This was down from $1,315,000 and $462,000 for the
nine and three months ended September 30, 1995, respectively. These decreases
were primarily due to a decrease in interest received from mortgage noteholders
offset by an increase in interest earned on cash accounts and marketable
securities.
Total Expenses decreased $712,000, or 3%, to $23,466,000 for the nine months
ended September 30, 1996. Total expenses decreased $1,106,000, or 13%, to
$7,163,000 for the three months ended September 30, 1996. This was down from
$24,178,000 and $8,269,000 for the nine and three months ended September 30,
1995, respectively. The decrease for the nine months ended September 30, 1996,
is attributable to decreases in hotel and rental property operating expenses,
depreciation and amortization expense, and interest expense. The decrease for
the three months ended September 30, 1996, is attributable to decreases in all
expense categories except property management fees.
22
<PAGE> 27
Real estate expenses which include all hotel and rental property operating
expenses and property management fees decreased $594,000, or 5%, to $11,401,000
for the nine months ended September 30, 1996 and decreased $361,000, or 9% to
$3,750,000 for the three months ended September 30, 1996. This was down from
$11,995,000 and $4,111,000 for the nine and three months ended September 30,
1995, respectively. These decreases were primarily attributable to decreased
operating expenses at the Park Terrace Inn in Redding, California resulting
from the closure of the hotel in October 1995 for renovation, decreased
operating expenses at the Sacramento Holiday Inn attributable to increased
efficiencies and cost savings gained when the hotel was turned over to an
outside management company, and decreased operating expenses at Milpitas and
Sierra Oaks resulting from the sale of the properties, partially offset by
increased property management fees on the hotel properties as a result of the
Trust contracting with outside hotel management companies in late 1995 to
operate the hotels.
Depreciation and amortization expense decreased $637,000, or 23%, to $2,149,000
for the nine months ended September 30, 1996 and decreased $237,000, or 35%, to
$714,000 for the three months ended September 30, 1996. This was down from
$2,786,000 and $951,000 for the nine and three months ended September 30, 1995,
respectively. These decreases are attributable to properties sold in 1995 and
early 1996, as well as the cessation of depreciation on the Trust's and
CalREIT's assets held for sale.
Interest expense decreased $211,000, or 3%, to $6,170,000 for the nine months
ended September 30, 1996. Interest expense decreased $108,000, or 5%, for the
three months ended September 30, 1996. This was down from $6,381,000 and
$2,149,000 for the nine and three months ended September 30, 1995,
respectively. These decreases are attributable to decreased interest on notes
collateralized by first mortgages resulting from the payment of such notes in
connection with the sale of properties, offset by increased interest on the
notes payable to the Senior Lender Group (satisfied through the issuance of
Interest Deferral Notes).
General and administrative expenses increased $730,000, or 24%, to $3,746,000
for the nine months ended September 30, 1996, and decreased $400,000, or 38%,
to $658,000 for the three months ended September 30, 1996. This was up from
$3,016,000 and down from $1,058,000 for the nine and three months ended
September 30, 1995, respectively. The increase and decrease were due to the
net effect of increases and decreases in various expense categories. The
increase for the nine months ended September 30, 1996, is primarily
attributable to increases generated by additional fees payable to CalREIT
Trustees related to CalREIT's strategic growth activities; and consulting fees
related to CalREIT's packaging and disposition of mortgage notes; financial
advisory fees; ongoing costs associated with the Bankruptcy Court; and
administrative costs to service the Trust's approximately 17,800
shareholders-of-record. The decrease for the three months ended September 30,
1996, is primarily attributable to decreased salaries and benefits due to a
reduction in personnel, and decreased legal costs.
Many of the administrative costs to service the Trust's large shareholder base
and to meet public regulatory requirements are fixed costs. As a result, the
Trust expects its general and administrative expenses to continue to be
disproportionately high compared to the size of its asset base.
23
<PAGE> 28
Valuation Losses. As of the end of the third quarter of 1996, the Trust
reported total valuation losses of $3,428,000, attributable to impairments in
the value of CalREIT's Fulton Square Shopping Center in Sacramento, California
($994,000) and the Totem Square property in Kirkland, Washington ($749,000),
and an impairment in the value of the Trust's Timberlake Medical Building in
Sacramento, California ($295,000), which are reflections of the properties
current physical conditions and changed market conditions. Additionally, the
Trust recorded a valuation loss of $1,390,000 on its Placer Ranch partnership
investment when a Put/Call Option was exercised by the General Partner, and the
Trust was obligated to sell its interest.
Extraordinary Item. During the nine and three months ended September 30, 1996,
the Trust reported gains of $151,000, resulting from the extinguishment of debt
related to professional fees incurred in connection with the Bankruptcy Court
proceedings. During the nine and three months ended September 30, 1995, the
Trust reported gains of $652,000 and $258,000, respectively, resulting from the
extinguishment of certain debt payable to outside parties.
Property Operations
Commercial Property Operations. At September 30, 1996 and September 30, 1995,
overall weighted occupancy levels by commercial property type were as follows:
<TABLE>
<CAPTION>
Overall Occupancy
Property Type September 30, September 30,
- ------------- ------------- -------------
1996 1995
---- ----
<S> <C> <C>
Shopping Centers 80% 85%
Office Buildings 72% 59%
Industrial Buildings 88% 71%
Medical Buildings N/A 42%
Mini Storage Facilities 96% 93%
</TABLE>
The weighted average occupancy level is calculated by multiplying the occupancy
by square footage and dividing the total by the total square footage in the
portfolio. The overall weighted average occupancy for the Trust's commercial
portfolio (including the CalREIT properties) as of September 30, 1996 was 80%
and as of September 30, 1995 was 75%.
The changes in occupancies and corresponding rental revenue within the Trust's
commercial property portfolio is attributable to a number of factors. The
Trust sold one of its medical office buildings in 1995 and one in 1996. Two
45,000 square foot office buildings in Sacramento were vacated in May 1995 by
System Integrators, Inc. while operating under the protection of Chapter 11.
Under the original lease, the space produced gross rents of approximately
$75,000 per month, while property operating expenses were approximately $3,000.
One of the buildings was sold in the fourth quarter of 1995 and the other
remains vacant despite re-leasing efforts. Without consideration of this
property, the Trust's office portfolio was approximately 80% occupied as of
September 30, 1996, as compared to approximately 86% as of September 30, 1995.
24
<PAGE> 29
A major tenant in the Regency Plaza Shopping Center in the Sacramento
metropolitan area has ceased paying rent and vacated its space. The tenant
occupied 29,650 square feet of space, or 21% of the net leasable space at the
center and generated approximately $216,000, or 14% of the shopping center's
annual rental revenue. Another major tenant, occupying 14,255 square feet of
space, or 10% of the net leasable space at the shopping center, ceased paying
rent in March 1996 and subsequently vacated the space. This tenant generated
approximately $145,400, or 12% of the center's annual revenue.
A major tenant at the Hurley-Ethan I suburban office property was acquired by
another firm and vacated its space in June 1996, approximately 5,800 square
feet, or 16% of the net leasable space at the property. This tenant generated
approximately $99,500 in annual revenue, or 26% of that property's total
revenue in 1995.
Hotel Operations. Throughout the third quarter, substantial attention was
directed at the Trust's four directly-owned hotel properties. Remodeling and
refurbishing requirements were identified and in the first three quarters of
1996 initial improvements commenced. The Park Terrace Inn in Redding,
California continued to be closed throughout the third quarter and was sold
subsequent to September 30, 1996. Without consideration of the Redding hotel,
the average weighted occupancy for the Trust's Holiday Inns was 69% and 69%
during the nine month period and three month period ended September 30, 1996,
respectively, compared to 68% and 67% during the same period in 1995,
respectively.
Acquisitions. During the third quarter of 1996, the Trust foreclosed on a note
which was collateralized by first deeds of trust on three industrial buildings
in Corona, California. The properties were recorded at their estimated fair
values at the date of foreclosure which approximated the net book value of the
note plus the costs of foreclosure incurred. Therefore, no gain or loss was
recorded by the Trust. Currently, it is the intent of the Trust to hold these
properties for investment purposes.
Dispositions. During the first three quarters of 1996, certain of the Trust's
directly-owned retail and commercial properties and all of CalREIT's properties
were marketed for sale. One property, Sierra Oaks Shopping Center in
Roseville, California was sold in April 1996 resulting in a loss of $63,000.
CalREIT sold the Redfield Commerce Center, an office/warehouse property in
Scottsdale, Arizona in March 1996 and the Bekins Storage Facility in Pasadena,
California in May 1996, resulting in a gain of $299,000 and a loss of $164,000,
respectively. In addition, CalREIT's only hotel property in Arroyo Grande,
California, (Casa Grande Motor Inn) was allowed to be foreclosed upon in
February 1996 after the lender refused a proposal to restructure the debt
terms. There was no gain or loss upon the foreclosure of the Casa Grande Motor
Inn as the net book value of the property was equal to its debt.
25
<PAGE> 30
During the second quarter of 1996, CalREIT sold two of its seven mortgage
notes. A gain of $430,000 was recognized upon the sale of the mortgage note
which was collateralized by a first deed of trust on an office/commercial
building in Phoenix, Arizona, and a gain of $30,000 was recognized upon the
sale of a mortgage note which was collateralized by a second deed of trust on a
commercial building in Pacheco, California. In addition, the Trust allowed the
Milpitas mortgage noteholder to refinance its mortgage note and payoff the note
prior to its scheduled maturity date. There was no gain or loss on this
transaction as the note was paid in full and the noteholder paid all closing
costs associated with the transaction.
During the third quarter of 1996, the Trust sold its interest in the Placer
Ranch Partnership, resulting in a gain of $129,000. In August 1996, the Trust
recognized a loss of $38,000 when it sold its one remaining medical building,
the Timberlake Medical Building in Sacramento, California. Also during the
third quarter of 1996, CalREIT sold two of its remaining five mortgage notes.
A gain of $130,000 was recognized upon the sale of the mortgage note which was
collateralized by a first deed of trust on an office building in Scottsdale,
Arizona, and a gain of $387,000 was recognized upon the sale of a mortgage note
which was collateralized by a second deed of trust on an office/industrial
building in Sunnyvale, California.
Liquidity and Capital Resources
The Trust had $4,089,000 in unrestricted cash at September 30, 1996, of which
$3,248,000 was held by CalREIT, compared to $5,079,000 at December 31, 1995, of
which $4,778,000 was held by CalREIT. Absent a dividend or other distribution
to the CalREIT shareholders, unrestricted cash held by CalREIT is not available
to the Trust for operating, working capital, or other Trust purposes. CalREIT
has not paid a dividend to its shareholders since the third quarter of 1994.
During the remainder of 1996, the Trust anticipates that its principal sources
of funds will be provided by operating income; a revolving line of credit in
the maximum amount of $8,600,000, which bears interest at 2.25% over prime; and
the disposition of assets. The line of credit is collateralized by a first
lien on certain of the Trust's properties. At September 30, 1996, $61,000 was
available under the Line of Credit. Under the terms of the notes payable to
the Senior Lender Group, 80% of the net proceeds received from the disposition
of the Trust's assets, including the proposed disposition of the Trust's 76%
stock interest in CalREIT, must be used to prepay principal under the notes. If
the proposed disposition of the Trust's interest in CalREIT is not consummated,
the Trust's liquidity could be adversely affected and alternative sources of
funds will be required to achieve present objectives.
The Trust has received approval from the Senior Lender Group to use a portion
of the net proceeds received from certain asset dispositions for the payment of
the bankruptcy related professional fees described earlier. However, the Trust
has not yet obtained a source for the capital improvements at its hotel
properties. In the first quarter of 1996, the Trust allocated approximately
$1,300,000 from its Line of Credit to begin Phase I of the redevelopment of the
hotel properties which are approximately 75% complete as of September 30, 1996.
26
<PAGE> 31
To meet its financial obligations, the Trust continues to pursue alternative
funding sources, including disposition of assets, as well as restructuring and
debt financing with banks, savings and loan institutions and other traditional
lenders. Approval of the Senior Lender Group is expected to be a condition to
obtaining financing for the redevelopment of the hotel properties and there is
no assurance such approval, if requested, will be granted.
The Trust experienced a net decrease in cash of $990,000 for the nine months
ended September 30, 1996 as compared to a net decrease in cash of $896,000 for
the nine months ended September 30, 1995, a difference of $94,000. For the
nine months ended September 30, 1996, cash provided by operating activities was
$356,000, up $545,000 from cash used in operating activities of $189,000 during
the comparable period in 1995. Cash provided by investing activities during
the nine months ended September 30, 1996 was $2,110,000 up from $461,000
provided during the nine months ended September 30, 1995; and cash used in
financing activities increased $2,288,000 from $1,168,000 for the nine months
ended September 30, 1995 to $3,456,000 for the nine months ended September 30,
1996.
At December 31, 1995, the Trust had included approximately $3,000,000 in
accrued expenses related to the Professional Fee Claims pending before the
Bankruptcy Court. On September 30, 1996, the Bankruptcy Court issued its
Memorandum on Final Fee Applications (the Memorandum) and an Order on Final Fee
Applications (the Order) which awarded certain amounts to the professional fee
applicants (collectively the Professionals). The Trust believes that the
Bankruptcy Court made certain inadvertent mathematical errors in computing the
respective amounts of the awards to certain of the Professionals, and filed a
motion for amendment or reconsideration of the Order. Three of the
Professionals filed similar motions for amendment or reconsideration; three
other Professionals have appealed the Order to the U.S. District Court for the
Eastern District of California. The motions of the Trust and the three
Professionals will be heard by the Bankruptcy Court on November 13, 1996.
Based on the Bankruptcy Court's Memorandum and Order, and negotiations with the
Professionals, the Trust believes that the total amount of professional fees
will not exceed approximately $2,850,000. Therefore, the Trust has reduced its
accrual by approximately $150,000. Subsequent to September 30, 1996, the Trust
paid certain of the undisputed professional fees awarded by the Court from
cash on hand and from the net proceeds received from certain asset
dispositions. The ultimate resolution and effect on the Trust of the motions
and appeals filed by the Professionals is uncertain.
The note on CalREIT's Totem Square Shopping Center of $4,265,000 was originally
scheduled to mature on April 1, 1996. CalREIT has received an extension from
the lender to May 1997, under the same terms and conditions as the original
agreement.
27
<PAGE> 32
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Stock Purchase Agreement, dated as of
September 18, 1996, by and between The
Peregrine Real Estate Trust and MDC REIT
Holdings, L.L.C.**
Exhibit 10.2 Form of Indemnification Agreement
Exhibit 27 Financial Data Schedules
(b) Reports on Form 8-K
The Trust filed a Current Report on Form 8-K on September
27, 1996, reporting under Item 5 of such Form, the
execution of a Stock Purchase Agreement with MDC REIT
Holdings, L.L.C. for the sale of the Trust's 76% stock
interest in the California Real Estate Investment Trust.
** Incorporated by reference from Form 8-K.
28
<PAGE> 33
SIGNATURES
Pursuant to the requirement 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.
THE PEREGRINE REAL ESTATE TRUST
November 14, 1996 /s/ Joseph M. Mock
- ----------------- ------------------------------------
Date Joseph M. Mock
Chief Executive Officer
and Principal Accounting Officer
29
<PAGE> 1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the 18th day of
September, 1996, between THE PEREGRINE REAL ESTATE TRUST, a California business
trust (the "Trust") and _____________________ ("Agent").
RECITALS
1. The Restated Declaration of Trust of the Trust (the
"Declaration") contains provisions indemnifying the Trust's current and former
trustees, officers, employees or agents, and authorizing the Trust to enter
into individual indemnification agreements with any person entitled to be
indemnified by the Trust, without specific approval of the shareholders of the
Trust, subject to certain requirements as set forth in the Declaration;
2. The Bylaws of the Trust (the "Bylaws") contain provisions
indemnifying the Trust's current and former trustees, officers, or agents;
3. The Agent is currently serving as a trustee, officer, employee
or agent of the Trust;
4. The Board of Trustees of the Trust (the "Board") has
determined that it is in the best interests of the shareholders of the Trust
for the Trust to provide Agent with additional assurance of protection against
personal liability; and
5. This Agreement is being entered into pursuant to and in
furtherance of the Declaration and the Bylaws, as authorized by the Board.
NOW, THEREFORE, in consideration of the foregoing recitals and of
other good and valuable consideration, the receipt of which is acknowledged,
the parties agree as follows:
1. Indemnification.
(a) The Trust shall hold harmless and indemnify the Agent
against any and all expenses, liabilities and losses (including, without
limitation, investigation expenses and expert witnesses' and attorneys' fees
and expenses, judgments, penalties, fines, ERISA excise taxes and amounts paid
or to be paid in settlement) actually incurred by the Agent (net of any related
insurance proceeds or other amounts received by Agent or paid by or on behalf
of the Trust on the Agent's behalf), in connection with any action, suit,
arbitration or proceeding (or any inquiry or investigation, whether brought by
or in the right of the Trust, any subsidiary or affiliate of the Trust, or
otherwise, that Agent in good faith believes might lead to the institution of
any such action, suit, arbitration or proceeding), whether civil, criminal,
administrative or investigative, or any appeal therefrom, in which the Agent is
a party, is threatened to be made a party, is a witness or is participating (a
"Proceeding") based upon, arising from, relating to, or by reason of the fact
that Agent was a trustee, officer, employee or agent of the Trust, whether or
not arising prior to the date of this Agreement;
1
<PAGE> 2
(b) If Agent is entitled under this Agreement to
indemnification by the Trust for some or a portion of the Indemnified Amounts
(defined below) but not, however, for all of the total amount thereof, the
Trust shall nevertheless indemnify Agent for the portion thereof to which Agent
is entitled.
2. Limitations on Indemnification. Notwithstanding any other
provision of this Agreement, Agent shall not be entitled to indemnification
under Section 1:
(a) if the claim, obligation or liability with respect to
which indemnity is sought shall have been determined by a court of competent
jurisdiction, by a final judgment or decree, or, in case of settlement, which
in the opinion of counsel for the Trust would, if determined by a court of
competent jurisdiction, likely have been determined to have arisen out of or
been based upon Agent's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty or for Agent's failure to act in good faith in the
reasonable belief that Agent's action was in the best interests of the Trust;
(b) if a court of competent jurisdiction shall determine,
by a final judgment or decree, that such indemnity is not permitted under
applicable law;
(c) on account of any suit in which judgment is rendered
for an accounting of profits made from the purchase or sale by Agent of
securities of the Trust in violation of the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, sate or local statutory law; or
(d) on account of any suit brought against Agent for
misuse or misappropriation of non-public information, or otherwise involving
Agent's status as an "insider" of the Trust in connection with any purchase or
sale by Agent of securities of the Trust.
3. Other Indemnification Arrangements. The Trust's purchase,
establishment and maintenance of insurance or similar protection or other
arrangements, including, but not limited to, providing a trust fund, letter of
credit, or surety bond ("Indemnification Arrangements") on behalf of the Agent
against any liability asserted against him or her or incurred by or on behalf
of him or her in such capacity as a trustee, officer, employee or agent of the
Trust, or arising out of his or her status as such, whether or not the Trust
would have the power to indemnify him or her against such liability under the
provisions of this Agreement or under applicable law, shall not in any way
limit or affect the rights and obligations of the Trust or of the Agent under
this Agreement except as expressly provided herein, and the execution and
delivery of this Agreement by the Trust and the Agent shall not in any way
limit or affect the rights and obligations of the Trust or the other party or
parties thereto under any such Indemnification Arrangement. All amounts
payable by the Trust pursuant to this Section 3 and to Section 1 of this
Agreement are herein referred to as "Indemnified Amounts."
2
<PAGE> 3
4. Advance Payment of Indemnified Amounts.
(a) The Agent hereby is granted the right to receive in
advance of a final, nonappealable judgment or other final adjudication of a
Proceeding (a "Final Determination") the amount of any and all expenses,
including, without limitation, investigation expenses, expert witnesses' and
attorney's fees and other expenses expended or incurred by the Agent in
connection with any Proceeding or otherwise expended or incurred by the Agent
(such amounts so expended or incurred being referred to as "Advanced Amounts").
(b) In making any written request for Advanced Amounts,
the Agent shall submit to the Trust a schedule setting forth in reasonable
detail the dollar amount expended or incurred or an estimate of the current
dollar amount expected to be expended. Each such listing shall be supported by
the bill, agreement, or other documentation relating thereto (if reasonably
available at that time). In addition, before the Agent may receive Advanced
Amounts from the Trust, the Agent shall provide to the Trust (i) a written
affirmation of the Agent's good faith belief that the applicable standard of
conduct required for indemnification by the Trust under this Agreement has been
satisfied by the Agent, and (ii) a written undertaking by or on behalf of the
Agent to repay the Advanced Amount if it shall ultimately be determined that
the Agent has not satisfied the applicable standard of conduct. The written
undertaking required from the Agent shall not be secured. The Company shall
pay to the Agent all Advanced Amounts within five (5) days after receipt by the
Trust of all information and documentation required to be provided by the Agent
pursuant to this paragraph.
5. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement, the
Agent shall submit to the Trust a written request for payment of the
appropriate Indemnified Amounts, including with such requests such
documentation and information as is reasonably available to the Agent and
reasonably necessary to determine whether and to what extent the Agent is
entitled to indemnification.
(b) The Company shall pay the Agent the appropriate
Indemnified Amounts unless it is established that the Agent has not met any
applicable standard of conduct provided in this Agreement or applicable law.
For purposes of determining whether the Agent is entitled to Indemnified
Amounts, in order to deny indemnification to the Agent the Trust has the burden
of proof in establishing that the Agent did not meet the applicable standard of
conduct. In this regard, a termination of any Proceeding by judgment, order or
settlement does not create a presumption that the Agent did not meet the
requisite standard of conduct; provided, however, that the termination of any
criminal proceeding by conviction, or a pleading of nolo contendere or its
equivalent, or any entry of an order of probation prior to judgment, creates a
rebuttable presumption that the Agent did not meet the applicable standard of
conduct.
(c) Any determination that the Agent has not met the
applicable standard of conduct required to qualify for indemnification shall be
made either (i) by the Board of
3
<PAGE> 4
Directors by a majority vote of a quorum consisting of directors who were not
parties of such action, suit or Proceeding; or (ii) by independent legal
counsel (who may be the outside counsel regularly employed by the Trust);
provided that the manner in which (and, if applicable, the counsel by which)
the right to indemnification is to be determined shall be approved in advance
in writing by both the highest ranking executive officer of the Trust who is
not party to the Proceeding (sometimes hereinafter referred to as "Senior
Officer") and by the Agent. In the event that such parties are unable to agree
on the manner in which any such determination is to be made, such determination
shall be made by independent legal counsel retained by the Trust especially for
such purpose, provided that such counsel be approved in advance in writing by
both the said Senior Officer and Agent, and provided further that such counsel
shall not be outside counsel regularly employed by the Trust. The fees and
expenses of counsel in connection with making said determination contemplated
hereunder shall be paid by the Trust, and, if requested by such counsel, the
Trust shall give such counsel an appropriate written agreement with respect to
the payment of their fees and expenses and such other matters as may be
reasonably requested by counsel.
(d) The Company will use its best efforts to conclude as
soon as practicable any requested determination pursuant to subparagraph (c)
above and promptly will advise the Agent in writing with respect to any
determination that the Agent is or is not entitled to indemnification,
including a description of any reason or basis for which indemnification has
been denied. Payment of any applicable Indemnified Amounts will be made to the
Agent within ten (10) days after any determination of the Agent's entitlement
to indemnification.
(e) Notwithstanding the foregoing, Agent may, at any time
after sixty (60) days after a claim for Indemnified Amounts has been filed with
the Trust (or upon receipt of written notice that a claim for Indemnified
Amounts has been rejected, if earlier) and before three (3) years after a claim
for Indemnified Amounts has been filed, petition a court of competent
jurisdiction to determine whether the Agent is entitled to indemnification
under the provisions of this Agreement, and such court shall thereupon have the
exclusive authority to make such determination unless and until such court
dismisses or otherwise terminates such action without having made such
determination. The court shall, as petitioned, make an independent
determination of whether the Agent is entitled to indemnification as provided
under this Agreement, irrespective of any prior determination made by the Board
or Directors or independent counsel. If the court shall determine that the
Agent is entitled to indemnification as to any claim, issue or matter involved
in the Proceeding with respect to which there has been no prior determination
pursuant to this Agreement or with respect to which there has been a prior
determination that the Agent was not entitled to indemnification hereunder, the
Trust shall pay all expenses (including attorneys' fees) actually incurred by
the Agent in connection with such judicial determination.
(f) Nothing set forth in this Section 5 shall limit or
affect the timing or amount, or the right of Agent to payment, of any Advanced
Amounts pursuant to Section 4 hereof.
4
<PAGE> 5
6. Agreement Not Exclusive: Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of and
shall not diminish any other rights the Agent may have to be indemnified or
insured or otherwise protected against any liability, loss, or expense by the
Trust, any subsidiary of the Trust, or any other person or entity under any
charter, bylaws, law, agreement, policy of insurance or similar protection,
vote of stockholders or directors, disinterested or not, or otherwise, whether
or not now in effect, both as to actions in the Agent's official capacity with
the Trust, and as to actions in another capacity while holding such office,
including Agent's right to contribution as may be available under applicable
law. The Company's obligations to make payments of Indemnified Amounts
hereunder shall be satisfied to the extent that payments with respect to the
same Proceeding (or part thereof) have been made to or for the benefit of the
Agent by reason of the indemnification of the Agent pursuant to any other
arrangement made by the Trust for the benefit of the Agent.
(b) In the event the Agent shall receive payment from any
insurance carrier or from the plaintiff in any Proceeding against such Agent in
respect of Indemnified Amounts after payments on account of all or part of such
Indemnified Amounts have been made by the Trust pursuant hereto, such Agent
shall promptly reimburse to the Trust the amount, if any, by which the sum of
such payment by such insurance carrier or such plaintiff and payments by the
Trust or pursuant to arrangements made by the Trust to Agent exceeds such
Indemnified Amounts; provided, however, that such portions, if any, of such
insurance proceeds that are required to be reimbursed to the insurance carrier
under the terms of its insurance policy, such as deductible or co-insurance
payments, shall not be deemed to be payments to the Agent hereunder. In
addition, upon payment of Indemnified Amounts hereunder, the Trust shall be
subrogated to the rights of Agent receiving such payments (to the extent
thereof) against any insurance carrier (to the extent permitted under such
insurance policies) or plaintiff in respect of such Indemnified Amounts and the
Agent shall execute and deliver any and all instruments and documents and
perform any and all other acts or deeds which the Trust deems necessary or
advisable to secure such rights. Such right of subrogation shall be terminated
upon receipt by the Trust of the amount to be reimbursed by the Agent pursuant
to the first sentence of this paragraph.
7. Insurance. In the event that the Trust maintains directors'
and officers' liability insurance to protect itself and any of its directors or
officers against any expense, liability or loss, such insurance shall cover the
Agent to at least the same extent as any other director or officer of the
Trust, provided that nothing in this Agreement shall require the Trust to
obtain coverage relating to any acts occurring prior to the date hereof.
8. Severability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provisions hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
5
<PAGE> 6
9. Further Assurances. The parties will do, execute and deliver,
or will cause to be done, executed and delivered, all such further acts,
documents and things as may be reasonably required for the purpose of giving
effect to this Agreement and the transactions contemplated hereby.
10. Successors: Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the Trust's
successors and assigns and by the Agent's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. The Company shall require any successor or assignee (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or asserts of the Trust, by written agreement
in form and substance reasonably satisfactory to the Trust and to the Agent,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Trust would be required to perform if no such
succession or assignment had taken place.
11. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
12. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is agreed to in writing signed by Agent and either the Chairman of the Board or
the President of the Trust or another officer of the Trust specifically
designated by the Board. No waiver by either party at any time of any breach
by the other party of, or of compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The
validity, interpretation, construction, and performance of this Agreement shall
be governed by the laws of the State of California, without giving effect to
the principles of conflict of laws thereof. The Agent may bring an action
seeking resolution of disputes or controversies arising under or in any way
related to this Agreement in the state or federal court jurisdiction in which
Agent resides or in which his or her place of business is located, and in any
related appellate courts, and the Trust consents to the jurisdiction of such
courts and to such venue.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
AGENT: THE PEREGRINE REAL ESTATE TRUST
By:
- ----------------------------- ----------------------------------
Name:
-------------------------------
Title:
-------------------------------
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,592
<SECURITIES> 15,606
<RECEIVABLES> 4,827
<ALLOWANCES> (1,370)
<INVENTORY> 0
<CURRENT-ASSETS> 30,266
<PP&E> 82,175
<DEPRECIATION> (1,768)
<TOTAL-ASSETS> 110,673
<CURRENT-LIABILITIES> 11,758
<BONDS> 87,637
25,510
0
<COMMON> 13,356
<OTHER-SE> (27,588)
<TOTAL-LIABILITY-AND-EQUITY> 110,673
<SALES> 0
<TOTAL-REVENUES> 6,996
<CGS> 0
<TOTAL-COSTS> (3,750)
<OTHER-EXPENSES> (1,372)
<LOSS-PROVISION> (1,184)
<INTEREST-EXPENSE> (2,041)
<INCOME-PRETAX> (1,351)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,351)
<DISCONTINUED> 0
<EXTRAORDINARY> 151
<CHANGES> 0
<NET-INCOME> (1,200)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)<F1>
<FN>
<F1>SHARES OF BENEFICIAL INTEREST EQUIVALENTS WERE ANTI-DILUTIVE. THE FIGURES
PRESENTED ABOVE ARE SIMPLE EPS AND INCLUDE THE EFFECTS OF STOCK DIVIDENDS
DISCOUNTS, AND ACCRETION OF DISCOUNTS ON PREFERRED STOCK.
</FN>
</TABLE>
