<PAGE> 1
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 March 31, 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 of incorporation (I.R.S. Employer
or organization) Identification No.)
1300 Ethan Way, Suite 200, Sacramento, CA
-----------------------------------------
(Address of principal executive offices)
95825
-----------
(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> 2
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 March 31, 1996
- ------------------------------------ -----------------------------
Shares of Beneficial Interest 4,881,055
Par value one dollar per share
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements. Item 2. Management's Discussion and
Provide the Information required by Rule Analysis of Financial Condition and Results
of Regulation S-X (17 CFR Part 210). of Operations.
Furnish the information required by Item 303
Regulation S-K (Section 229.303 of this chapter).
</TABLE>
<PAGE> 3
- -------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 1
Consolidated Statements of Operations -
For the Three Months Ended
March 31, 1996 and 1995 2
Consolidated Statements of Cash Flows -
For the Three Months Ended
March 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4 - 13
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 20
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 21
Item 2: Changes in Securities 21
Item 3: Defaults Upon Senior Securities 21
Item 4: Submission of Matters to a Vote of Security Holders 21
Item 5: Other Information 21
Item 6: Exhibits and Reports on Form 8-K 21
</TABLE>
<PAGE> 4
PART I: FINANCIAL INFORMATION
THE PEREGRINE REAL ESTATE TRUST
AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
ASSETS
INVESTMENTS:
Rental properties $ 90,120,000 $ 94,500,000
Partnership interests 2,610,000 4,000,000
Notes receivable, net of deferred gains of $1,255,000
at March 31, 1996 and December 31, 1995 14,610,000 14,627,000
------------- -------------
107,340,000 113,127,000
Cash 5,447,000 5,079,000
Restricted cash 1,435,000 185,000
Rents and accrued interest receivable, net of allowance of $1,362,000
and $1,040,000 at March 31, 1996 and December 31, 1995, respectively 2,403,000 1,354,000
Other assets 2,316,000 2,048,000
------------- -------------
Total assets $ 118,941,000 $ 121,793,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Long-term notes payable, collateralized by
deeds of trust on rental properties $ 39,584,000 $ 42,703,000
Notes payable to Senior Lender Group 44,374,000 43,441,000
Line of Credit 7,545,000 5,526,000
Accounts payable and accrued expenses 7,117,000 6,673,000
------------- -------------
98,620,000 98,343,000
------------- -------------
Minority interests 5,963,000 5,858,000
------------- -------------
Redeemable convertible preferred stock: 25,000,000 shares authorized; 13,050,000
and 12,728,000 shares issued and outstanding at March 31, 1996 and December
31, 1995, respectively; net of unaccreted discount of $2,025,000 and
$2,063,000 at March 31, 1996 and December 31, 1995, respectively;
liquidation preference of $26,100,000 and $25,457,000 at March 31, 1996 and
December 31, 1995, respectively 24,075,000 23,394,000
Shares of beneficial interest: 50,000,000 shares authorized; 4,881,000
shares outstanding 13,356,000 13,356,000
Accumulated deficit (23,073,000) (19,158,000)
Commitments and contingencies
------------- -------------
Total liabilities and shareholders' equity $ 118,941,000 $ 121,793,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 5
THE PEREGRINE REAL ESTATE TRUST
AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
REVENUES:
Hotel $ 3,187,000 $ 3,057,000
Rent 2,954,000 3,376,000
Interest 379,000 420,000
----------- -----------
6,520,000 6,853,000
----------- -----------
EXPENSES:
Hotel operating expenses 2,624,000 2,502,000
Operating expenses 993,000 1,263,000
Property management 218,000 118,000
Depreciation and amortization 780,000 854,000
Interest 2,033,000 2,096,000
General and administrative 1,615,000 784,000
----------- -----------
8,263,000 7,617,000
----------- -----------
Loss before gain (loss) on foreclosure or
sale of investments, valuation losses,
extraordinary item and minority interest (1,743,000) (764,000)
Gain (loss) on foreclosure or sale of investments 299,000 (7,000)
----------- -----------
Loss before valuation losses, extraordinary
item and minority interest (1,444,000) (771,000)
Valuation losses (1,685,000) --
----------- -----------
Loss before extraordinary
item and minority interest (3,129,000) (771,000)
Extraordinary item -- 68,000
----------- -----------
Loss before minority interest (3,129,000) (703,000)
Minority interest in net income of affiliate (105,000) (58,000)
----------- -----------
Net loss $(3,234,000) $ (761,000)
=========== ===========
Loss per share before extraordinary item $ (0.66) $ (0.17)
=========== ===========
Income per share of extraordinary item $ -- $ 0.01
=========== ===========
Net loss per share of beneficial interest $ (0.66) $ (0.16)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 6
THE PEREGRINE REAL ESTATE TRUST
AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,234,000) $ (761,000)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 780,000 854,000
Valuation losses 1,685,000 --
(Gain) loss on foreclosure or sale of investments (299,000) 7,000
Extinguishment of debt -- (68,000)
Minority interest in net income of affiliate 105,000 58,000
Changes in other assets and liabilities
Increase in rents and accrued interest receivable (29,000) (140,000)
(Increase) decrease in other assets (315,000) (473,000)
Increase in accounts payable and accrued expenses 1,742,000 76,000
----------- -----------
Total adjustments to net loss 3,669,000 314,000
----------- -----------
Net cash provided by (used in) operating activities 435,000 (447,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to rental properties (654,000) (633,000)
Principal collections on notes receivable 17,000 820,000
----------- -----------
Net cash (used in) provided by investing activities (637,000) 187,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term notes payable (30,000) (22,000)
Borrowings on line of credit, net 1,850,000 285,000
----------- -----------
Net cash provided by financing activities 1,820,000 263,000
----------- -----------
Net increase in cash 1,618,000 3,000
Cash, beginning of period 5,079,000 5,366,000
----------- -----------
Cash, end of period $ 6,697,000 $ 5,369,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 7
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 which is expected to occur in 1996.
4
<PAGE> 8
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 March 31,
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) to which the Senior Lender
Group agreed to subordinate. The Credit Facility, which is
collateralized by certain of the Trust's real property, was obtained
prior to the Effective Date.
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.
5
<PAGE> 9
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 $26,100,000 and $25,457,000 at March 31, 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 Peregrine, may be redeemed earlier.
The Redeemable Convertible Preferred Stock has been recorded at a
discount to its face amount, which face amounts are $26,100,000 and
$25,475,000 at March 31, 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.
6
<PAGE> 10
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 March 31, 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.
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), a real estate investment trust in which the Trust owns a 76%
interest.
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.
7
<PAGE> 11
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Plan of Reorganization and Basis of Presentation,
continued:
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.
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 ended December 31, 1996.
8
<PAGE> 12
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Plan of Reorganization and Basis of Presentation,
continued:
Reclassifications
Certain reclassifications have been made in the presentation of the
1995 financial statements to conform to the 1996 presentation.
2. Investments:
At March 31, 1996, Sierra Oaks Shopping Center, University Village
Shopping Center, Timberlake Medical Building, System Integrators Office
Building, the Trust's Limited Partnership Investment in Placer Ranch
L.P., and all of CalREIT's properties, with total carrying value of
$31,908,000 were classified as held for sale. At December 31, 1995,
properties with total carrying value of $30,749,000 were classified as
held for sale.
At March 31, 1996 and December 31, 1995, all notes receivable owned by
CalREIT with carrying values of $10,490,000 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 recognized, the reduced carrying amount of the asset is
accounted for as its new cost. During the quarter ended March 31, 1996,
the Trust adopted the provisions of SFAS 121. Generally, fair values
are estimated using discounted cash flow, direct capitalization, and
market comparison analyses.
3. 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.
9
<PAGE> 13
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
3. Income Taxes, continued:
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).
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.
10
<PAGE> 14
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
4. 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 (real property and notes receivable) that is
negotiated annually. During the three month periods ended March 31,
1996 and March 31, 1995, reimbursable costs charged to CalREIT by the
Trust approximated $71,000 and $108,000, respectively.
At March 31, 1996 and December 31, 1995, the Trust had $26,000 and
$45,000, respectively, due from CalREIT.
5. Statement of Cash Flows Supplemental Information:
In connection with the sale and foreclosure of properties, the Trust
entered into various non-cash transactions as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
For the Three Months Ended
March 31,
1996 1995
----------- -------------
<S> <C> <C>
Sales price less selling costs $ 1,033 $ --
Amount due from buyer
(received in April 1996) (1,033) --
-------- -------------
Cash received $ -- $ --
======== =============
</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.
11
<PAGE> 15
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. Statement of Cash Flows Supplemental Information, continued:
Additionally, on March 31, 1996 and March 31, 1995, the Trust issued
Interest Deferral Notes at 8.5% per annum in the principal amount of
$933,000 and $867,000, 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
and $576,000, respectively, as payment in kind for the dividend then
due on the outstanding Redeemable Convertible Preferred Stock.
During the three month periods ended March 31, 1996 and March 31, 1995,
the outstanding balance on the Line of Credit was increased by $155,000
and $139,000, respectively, for interest and expenses incurred.
Cash paid for interest during the three month periods ended March 31,
1996 and March 31, 1995 was $962,000 and $2,231,000, respectively.
6. Per Share Data:
Per share data for the three months ended March 31, 1996 and March 31,
1995 is based on the weighted average number of shares of beneficial
interest, 4,881,000 and 4,884,000, respectively, outstanding during
each period.
7. Gain (Loss) on Foreclosure or Sale of Investments:
Components of the gain (loss) on foreclosure or sale of investments for
the three months ended March 31, 1996 and March 31, 1995 were as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
For the Three Months Ended
March 31,
Component 1996 1995
--------- ------- -------
<S> <C> <C>
Sale of Redfield property $ 299 $ --
Foreclosure of 425 University -- (73)
Recognition of deferred gains -- 66
------- -------
$ 299 $ 7
======= =======
</TABLE>
12
<PAGE> 16
THE PEREGRINE REAL ESTATE TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. Extraordinary Item:
Extraordinary item for the three months ended March 31, 1995 of $68,000
resulted from the extinguishment of certain debt payable to outside
parties.
13
<PAGE> 17
- ------------------------------------------------------------------------------
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 Peregrine 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 March 31, 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. In addition, during the quarter, the Trust
continued to assess disposition and other strategy relating to its 76% ownership
interest in CalREIT.
The assessment of longer-term operating strategies includes alternatives
relating to the Trust's $44,374,000 in long-term collateralized debt to the
Senior Lender Group (a lender group comprised of Prudential Insurance Company of
America, the Pacific Mutual Life Insurance Company, ORIX USA Corp. and TCW, for
which Prudential acts as agent), as well as $39,584,000 in first mortgage debt
which requires servicing. The note to the Senior Lender Group will accrue
interest in kind through September 1996 and will require cash interest payments
of approximately $4,000,000 per year commencing October 1996. Approximately
$26,100,000 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.
The Trust believes the following factors continue to adversely affect, and in
the future could adversely affect, the Trust's financial condition, results of
operation and liquidity:
- - The capital structure of the Trust resulting from the confirmed Plan of
Reorganization, including approximately $84,000,000 in senior and first
mortgage debt and approximately $26,000,000 at face value of Preferred
Stock at March 31, 1996, plus the associated present and future debt
service and dividend obligations.
14
<PAGE> 18
- - The estimated $6,500,000 to $7,000,000 in capital improvements required to
renovate and refurbish the Trust's hotel properties in accordance with
Holiday Inn franchise standards; and up to $4,500,000 in fees for
professional services 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 and expected 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 Three Months Ended March 31, 1996 to the Three Months Ended
March 31, 1995
Revenue
Total Revenues for the three months ended March 31, 1996 were $6,520,000 of
which $2,954,000, or 45%, was earned from rent; $3,187,000, or 49%, from hotel
revenue; and, $379,000, or 6% from interest. This represents a decrease of
$333,000, or 5%, in total revenues from $6,853,000 generated for the three
months ended March 31, 1995, of which $3,376,000, or 49%, was earned from rent;
$3,057,000, or 45%, from hotel revenue; and, $420,000, or 6%, from interest.
This decrease is primarily attributable to the loss of rental revenue from the
Trust's System Integrators Office Building in 1996, and the absence of rental
revenue from a medical office building sold in 1995.
15
<PAGE> 19
Expenses
Total Expenses for the three months ended March 31, 1996 were $8,263,000 of
which $2,624,000, or 32%, was attributable to hotel operating expenses;
$2,033,000, or 25%, to interest expense; $1,211,000, or 15%, to property
operating and management expenses; $1,615,000, or 19%, to general and
administrative expense; and, $780,000, or 9%, to depreciation and amortization.
During this same period in 1995, total expenses were $7,617,000 of which
$2,502,000, or 33%, of this total was attributable to hotel operating expenses;
$2,096,000, or 28%, to interest expense; $1,381,000, or 18%, to property
operating and management expenses; $784,000, or 10%, to general and
administrative expenses; and, $854,000, or 11%, to depreciation and
amortization. Total expenses for the Trust increased by $646,000, or 8%, in the
first quarter of 1996 compared to those during the same period in 1995.
Real Estate Expense. The largest expense categories, $3,835,000, or 46% of total
Trust expenses during the first quarter of 1996, are real estate related and
include all hotel, commercial property operating and property management
expenses.
Interest Expense. Of the $2,033,000 in interest expense during the first quarter
of 1996, $933,000 was on the Senior Debt (satisfied through the issuance of
Interest Deferral Notes), $928,000 on first mortgages, $155,000 on the line of
credit, and $17,000 on pre-petition property taxes.
Depreciation and Amortization Expense. The $74,000 decrease in depreciation and
amortization expense from the first quarter of 1996 compared to that of the
first quarter of 1995 is primarily attributable to properties sold in 1995, as
well as the cessation of depreciation on the Trust's and CalREIT's assets held
for sale.
General and Administrative Expenses. The $831,000 increase in general and
administrative expense from the first quarter of 1996 over that of the first
quarter of 1995 is comprised of a number of items, including administrative
costs to service the Trust's approximately 17,800 shareholders-of-record;
ongoing costs associated with the Bankruptcy Court; financial advisory fees;
and, the retirement of certain personal services contracts with a former officer
of the Trust. Many of the administrative costs to service the Trust's large
shareholder base and to meet public company 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.
Valuation Losses. As of the end of the first quarter of 1996, the Trust reported
total valuation losses of $1,685,000, attributable to an impairment in value of
the Timberlake Medical Building in Sacramento, California, as a reflection of
the properties current physical condition and changed market conditions, as well
as the exercise of the Put/Call Option of the Placer Ranch Partnership Agreement
by the General Partner.
16
<PAGE> 20
Net Loss
A net loss of ($3,234,000) was reported by the Trust for the three months ended
March 31, 1996, as compared to a net loss of ($761,000) for the three months
ended March 31, 1995.
Property Operations
Commercial Property Operations. At March 31, 1996 and March 31, 1995, overall
weighted occupancy levels by commercial property type were as follows:
<TABLE>
<CAPTION>
Overall Occupancy
Property Type March 31, March 31,
- ------------- --------- ---------
1996 1995
---- ----
<S> <C> <C>
Shopping Centers 81% 80%
Office Buildings 69% 83%
Industrial Buildings 75% 65%
Medical Buildings 31% 60%
Mini Storage Facilities 92% 89%
</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 both March 31, 1996 and March
31, 1995 was 79%.
The decline in occupancies and corresponding rental revenue within the Trust's
commercial property portfolio is attributable to a number of factors. The Trust
sold one medical office building in 1995 and the remaining medical office
building is only 31% occupied at March 31, 1996, despite ongoing leasing
efforts. 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
81% occupied as of March 31, 1996.
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. This tenant generated approximately $145,400, or 12% of the
center's annual revenue. The Trust has initiated eviction proceedings.
17
<PAGE> 21
A major tenant at the Hurley-Ethan I suburban office property has been acquired
by another firm and has given notice that it will be vacating in the second
quarter of 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 first quarter, substantial attention was
directed at the Trust's four directly-owned hotel properties. Remodeling and
refurbishing requirements were identified and in the first quarter of 1996
approximately $1,300,000 in initial improvements commenced. The Holiday Inn
Redding continued to be closed throughout the first quarter while redevelopment
work at the property was in progress. Without consideration of the Redding
hotel, the average weighted occupancy for the remaining three Holiday Inns was
73% during the three months ended March 31, 1996 compared to 53% during the same
period in 1995.
Dispositions. During the first quarter of 1996, certain of the Trust's
directly-owned retail and commercial properties were marketed for sale. One
property, Sierra Oaks Shopping Center in Roseville, California closed in April
1996. CalREIT sold the Redfield office/warehouse property in Scottsdale, Arizona
and its only hotel property in Arroyo Grande, California, was allowed to be
foreclosed upon after the lender refused a proposal from the trust to
restructure the debt terms. The net gain recognized from the sale of the
Scottsdale property was $299,000.
Liquidity and Capital Resources
The Trust had $5,447,000 in unrestricted cash at March 31, 1996, of which
$5,060,000 was held by CalREIT, compared to $5,079,000 at December 31, 1995, of
which $4,778,000 was held by CalREIT. 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 $10,000,000, which
bears interest at 2.25% over prime; and disposition of assets. The line of
credit is collateralized by a first lien on certain of the Trust's properties.
At March 31, 1996, $2,455,000 was available under the Line of Credit.
The Trust presently anticipates it will be able to meet its debt service
obligations through the remainder of the year. However, the Trust has not yet
obtained a source for the payment of up to $4,500,000 in bankruptcy related
professional fees described earlier, or for the $6,500,000 to $7,000,000 in
capital improvements at its hotel properties. Without (the "Professional Fee
Claims") capital improvements, the hotel properties will not be competitive and
may lose their Holiday Inn licenses. The resulting decline in occupancy and room
rental rates would have a material adverse impact on the Trust's overall
financial performance. 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.
18
<PAGE> 22
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 increase in cash of $1,618,000 for the three months
ended March 31, 1996 as compared to a net increase in cash of $3,000 for the
three months ended March 31, 1995, a difference of $1,615,000. For the three
months ended March 31, 1996, cash provided by operating activities was $435,000,
up $882,000 from ($447,000) during the comparable period in 1995. Cash used by
investing activities during the first quarter of 1996 was ($637,000) down from
$187,000 provided during the quarter ended March 31, 1995; and cash provided by
financing activities increased $1,557,000 from $263,000 as of March 31, 1995 to
$1,820,000 as of March 31, 1996.
At March 31, 1996, the Trust had included $3,000,000 in accrued expenses now
pending before the Bankruptcy Court relating to the Professional Fee Claims. In
early May 1996, a settlement agreement between the Trust and certain of the
professional firms was filed with the Bankruptcy Court, however, it is unknown
at this time if the agreement will be approved by the Court.
The note on the Totem Square Shopping Center of $4,284,000 was originally
scheduled to mature on April 1, 1996. CalREIT has received an extension from the
lender to May 30, 1996, under the same terms and conditions as the existing
agreement and anticipates signing an extension to May 1997.
Funds (Used By) From Operations and Funds Available for Distribution. REIT
analysts generally consider Funds From Operations (FFO) an appropriate measure
of performance in comparing the results of operations of REIT's. FFO is defined
by the National Association of Real Estate Investment Trusts as net income
computed in accordance with generally accepted accounting principles before
gains and losses on sales of property and from debt restructuring plus
depreciation and amortization. Funds Available for Distribution (FAD) is defined
as FFO less capital expenditures funded by operations and loan amortization. The
Trust believes that in order to facilitate a clear understanding of the
historical operating results of the Trust, FFO and FAD should be examined in
conjunction with net income (loss) as presented in this report. FFO and FAD
should not be considered as an alternative to net income (loss) as an indication
of the Trust's performance or to cash flow as a measure of liquidity.
19
<PAGE> 23
Funds (Used By) From Operations and Funds Available for Distribution for the
three month periods ended March 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
Calculation of Funds (Used By) From Operations and Funds Available for Distribution
(Dollars in thousands)
For the Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
(Loss) before gain (loss) on
foreclosure or sale of
investments, valuation losses,
extraordinary item and
minority interest $(1,743) $ (764)
Depreciation and amortization 780 854
------- -------
Funds (used by) from operations (963) 90
Capital improvements (654) (633)
Loan principal payments (30) (22)
------- -------
Funds available for
distribution $ -- $ --
======= =======
</TABLE>
20
<PAGE> 24
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
None
21
<PAGE> 25
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
May 15, 1996 /s/ John McMahan
- ------------ ------------------------------------
Date John McMahan
Chairman and Interim Chief Executive
Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,882
<SECURITIES> 0
<RECEIVABLES> 19,630
<ALLOWANCES> (2,617)
<INVENTORY> 0
<CURRENT-ASSETS> 28,821
<PP&E> 90,120
<DEPRECIATION> 0
<TOTAL-ASSETS> 118,941
<CURRENT-LIABILITIES> 13,080
<BONDS> 91,503
<COMMON> 13,356
24,075
0
<OTHER-SE> (23,073)
<TOTAL-LIABILITY-AND-EQUITY> 118,941
<SALES> 0
<TOTAL-REVENUES> 6,714
<CGS> 0
<TOTAL-COSTS> (3,835)
<OTHER-EXPENSES> (2,395)
<LOSS-PROVISION> (1,685)
<INTEREST-EXPENSE> (2,033)
<INCOME-PRETAX> (3,234)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,234)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)<F1>
<FN>
<F1>Shares of beneficial interest equivalents were anti-dilutive. The figures
presented above are simple EPS.
</FN>
</TABLE>
