<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 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> 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 August 5, 1997
- ------------------------------------ -----------------------------
Common Shares of Beneficial Interest 4,881,122
<PAGE> 3
THE PEREGRINE REAL ESTATE TRUST
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Balance Sheets -
June 30, 1997 and December 31, 1996 1
Statements of Operations -
For the Three Months and Six Months Ended
June 30, 1997 and 1996 2-3
Statements of Cash Flows -
For the Six Months Ended
June 30, 1997 and 1996 4
Notes to Financial Statements 5 - 16
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 17 - 28
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 29
Item 6: Exhibits and Reports on Form 8-K 30 - 31
</TABLE>
<PAGE> 4
PART I: FINANCIAL INFORMATION
THE PEREGRINE REAL ESTATE TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
(UNAUDITED) (AUDITED)
ASSETS
INVESTMENTS:
Rental properties, net of accumulated depreciation of $3,381,000 and
$1,986,000 at June 30, 1997 and December 31, 1996, respectively $ 68,077,000 $ 77,412,000
Notes receivable, net of deferred gains of $79,000 and $319,000 at
June 30, 1997 and December 31, 1996, respectively 713,000 2,296,000
Marketable securities available-for-sale -- 14,115,000
Restricted marketable securities available-for-sale 183,000 --
------------- -------------
68,973,000 93,823,000
Cash 4,004,000 5,972,000
Restricted cash 108,000 986,000
Rents, accrued interest receivable, net of allowance of $45,000 and
$1,153,000 at June 30, 1997 and December 31, 1996, respectively 1,192,000 1,706,000
Other assets 1,580,000 2,239,000
------------- -------------
Total assets $ 75,857,000 $ 104,726,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Long-term notes payable, collateralized by deeds of trust on
rental properties $ 26,549,000 $ 32,263,000
Senior Lender Group Notes Payable 27,999,000 44,467,000
Line of credit 8,000,000 8,583,000
Accounts payable and accrued liabilities 2,351,000 3,446,000
Other liabilities 284,000 343,000
------------- -------------
65,183,000 89,102,000
Commitments and contingencies (Note 12 to financial statements)
Minority interest -- 5,759,000
------------- -------------
Redeemable Convertible Preferred Stock: 25,000,000 shares authorized; 14,789,000
and 14,073,000 shares issued and outstanding at June 30, 1997 and December
31, 1996, respectively; net of unaccreted discount of $1,751,000 and
$1,881,000 at June 30, 1997 and December 31, 1996, respectively; liquidation
preference of $29,578,000 and $28,146,000 at June 30, 1997 and December 31,
1996,
respectively 27,827,000 26,265,000
------------- -------------
Common Shares of Beneficial Interest: 50,000,000 shares authorized; 4,881,000
shares outstanding 13,356,000 13,356,000
Unrealized holding losses on marketable securities available-for-sale -- (22,000)
Accumulated deficit (30,509,000) (29,734,000)
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 75,857,000 $ 104,726,000
============= =============
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 5
THE PEREGRINE REAL ESTATE TRUST
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Hotel $ 3,604,000 $ 3,180,000 $ 6,926,000 $ 6,367,000
Commercial Properties 2,457,000 2,857,000 4,754,000 5,808,000
Interest 89,000 345,000 175,000 724,000
Other 272,000 39,000 285,000 42,000
------------ ------------ ------------ ------------
6,422,000 6,421,000 12,140,000 12,941,000
------------ ------------ ------------ ------------
EXPENSES:
Hotel operating expenses 2,561,000 2,593,000 5,043,000 5,217,000
Commercial property operating expenses 712,000 1,027,000 1,383,000 2,020,000
Hotel and commercial property management 233,000 196,000 396,000 414,000
Depreciation and amortization 802,000 655,000 1,562,000 1,435,000
Interest 1,475,000 2,096,000 2,975,000 4,129,000
General and administrative 848,000 1,473,000 1,556,000 3,088,000
------------ ------------ ------------ ------------
6,631,000 8,040,000 12,915,000 16,303,000
------------ ------------ ------------ ------------
Loss before gain on foreclosure
or sale of investments, valuation losses,
extraordinary item and minority interest (209,000) (1,619,000) (775,000) (3,362,000)
Gain on foreclosure or sale of investments 110,000 233,000 1,122,000 532,000
------------ ------------ ------------ ------------
(Loss) income before valuation losses,
extraordinary item and minority interest (99,000) (1,386,000) 347,000 (2,830,000)
Valuation losses -- (559,000) -- (2,244,000)
------------ ------------ ------------ ------------
(Loss) income before extraordinary item and
minority interest (99,000) (1,945,000) 347,000 (5,074,000)
Extraordinary item - debt forgiveness 418,000 -- 440,000 --
------------ ------------ ------------ ------------
Income (loss) before minority interest 319,000 (1,945,000) 787,000 (5,074,000)
Minority interest -- 51,000 -- (54,000)
------------ ------------ ------------ ------------
Net income (loss) $ 319,000 $ (1,894,000) $ 787,000 $ (5,128,000)
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 6
THE PEREGRINE REAL ESTATE TRUST
STATEMENTS OF OPERATIONS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loss per Common Share of Beneficial Interest:
Net income (loss) $ 319,000 $(1,894,000) $ 787,000 $(5,128,000)
Preferred Stock dividends, net of discounts (690,000) (616,000) (1,354,000) (1,216,000)
Accretion of discounts on Preferred Stock (107,000) (87,000) (208,000) (168,000)
----------- ----------- ----------- -----------
Net loss attributable to Common Shares of
Beneficial Interest $ (478,000) $(2,597,000) $ (775,000) $(6,512,000)
=========== =========== =========== ===========
Loss per Common Share of Beneficial Interest
before extraordinary item $ (0.16) $ (0.53) $ (0.23) $ (1.33)
Extraordinary item per Common Share of
Beneficial Interest 0.06 0.00 0.07 0.00
----------- ----------- ----------- -----------
Net loss per share attributable to Common Shares
of Beneficial Interest $ (0.10) $ (0.53) $ (0.16) $ (1.33)
=========== =========== =========== ===========
Weighted average number of Common Shares of
Beneficial Interest outstanding 4,881,000 4,881,000 4,881,000 4,881,000
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 7
THE PEREGRINE REAL ESTATE TRUST
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 787,000 $ (5,128,000)
------------ ------------
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Interest and fees added to principal balance of debt -- 2,306,000
Depreciation and amortization 1,562,000 1,435,000
Gain on foreclosure or sale of investments (1,122,000) (532,000)
Minority interest in net income -- 54,000
Extraordinary item, forgiveness of debt (440,000) --
Valuation losses -- 2,244,000
Changes in other assets and liabilities:
(Increase) decrease in rents, accrued interest and other
receivables (162,000) 115,000
Increase in other assets (321,000) (450,000)
(Decrease) increase in accounts payable and
accrued liabilities (626,000) 198,000
Increase (decrease) in other liabilities 11,000 50,000
------------ ------------
Total adjustments to net income (loss) (1,098,000) 5,420,000
------------ ------------
Net cash (used in) provided by operating activities (311,000) 292,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 20,332,000 14,125,000
Purchase of marketable securities (498,000) (11,993,000)
Principal collections on marketable securities 315,000 --
Improvements to rental properties (673,000) (1,477,000)
Purchase of office equipment (16,000) --
Principal collections on notes receivable 7,000 31,000
------------ ------------
Net cash provided by investing activities 19,467,000 686,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term notes payable (253,000) (53,000)
Principal (payments) borrowings on Line of Credit, net (583,000) 2,338,000
Principal payments on Senior Lender Group Notes Payable (16,468,000) (585,000)
Increase (decrease) in restricted cash 878,000 (2,840,000)
------------ ------------
Net cash used in financing activities (16,426,000) (1,140,000)
------------ ------------
Net increase (decrease) in unrestricted cash 2,730,000 (162,000)
Unrestricted cash, beginning of period 5,972,000 5,079,000
Less unrestricted cash, beginning of period, attributable to CalREIT (4,698,000)(1) --
------------ ------------
Unrestricted cash, end of period $ 4,004,000 $ 4,917,000
============ ============
</TABLE>
(1) Amount is deducted to reflect Peregrine's sale of its 76% stock
ownership interest in CalREIT on January 3, 1997.
See accompanying notes to financial statements.
4
<PAGE> 8
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
The Peregrine Real Estate Trust ("Peregrine") was organized under the
laws of the State of California pursuant to a Declaration of Trust dated July
31, 1973, and pursuant to a plan of reorganization (the "Plan") under Chapter 11
of the United States Bankruptcy Code was reorganized under a Restated
Declaration of Trust dated October 7, 1994 (the "Effective Date"). Commencing
September 1, 1993, Peregrine became self-administered. Peregrine's obligation of
approximately $80,000,000 to a group of secured lenders (the "Senior Lender
Group") was satisfied by the Plan by the issuance of 52% of the Common Shares of
Beneficial Interest, Redeemable Convertible Preferred Stock ("Preferred Stock")
in the original face amount of $22,500,000, which carries a dividend of 10% per
annum and notes payable in the original face amount of $40,000,000, which bears
interest at 8.5% per annum (the "Senior Lender Group Notes Payable").
At June 30, 1997, Peregrine owned nineteen commercial properties located
primarily in the Sacramento area, three hotel properties located in Northern
California, a partnership interest and two mortgage notes secured by real
property. Peregrine's 76% stock ownership interest in the California Real Estate
Investment Trust ("CalREIT") was sold on January 3, 1997, for $20,222,000 in
cash.
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 June 30, 1997 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,
1996 audited financial statements and notes thereto, included in The Peregrine
Real Estate Trust's Annual Report on Form 10-K.
5
<PAGE> 9
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION, CONTINUED
BASIS OF PRESENTATION, CONTINUED
The accompanying unaudited financial statements as of and for the three
and six months ended June 30, 1997 reflect the accounts of Peregrine. The
accompanying audited balance sheet as of December 31, 1996, unaudited statements
of operations for the three and six months ended June 30, 1996 and unaudited
statements cash flows for the six months ended June 30, 1996 reflect the
consolidated accounts of Peregrine and its former majority-owned subsidiary
CalREIT, in which Peregrine had a 76% stock ownership interest until January 3,
1997, when it was sold for $20,222,000 in cash.
Herein, Peregrine and CalREIT, on a consolidated basis, are referred to
as the "Trust".
ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts or assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in the presentation of the 1996
financial statements to conform to the 1997 presentation.
2. INVESTMENTS IN RENTAL PROPERTIES, NOTES RECEIVABLE AND PARTNERSHIPS
At June 30, 1997, no rental properties were classified as
"held-for-sale". At December 31, 1996, 3900 Lennane Drive and CalREIT's two
directly owned properties with total carrying values of $1,895,000 and
$8,585,000, respectively, were classified as "held-for-sale".
At June 30, 1997, no notes receivable were classified as
"held-for-sale". At December 31, 1996, all notes receivable directly owned by
CalREIT with a carrying value of $1,576,000, were classified as "held-for-sale".
6
<PAGE> 10
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN RENTAL PROPERTIES, NOTES RECEIVABLE AND PARTNERSHIPS,
CONTINUED
At June 30, 1997 and December 31, 1996, Peregrine was a partner in CR
Properties, a general partnership, in which Peregrine owns a 50% interest. CR
Properties is a limited partner in a partnership which owns an office building
in Sacramento, California. No portion of the CR Properties partnership loss has
been recognized in the Trust's financial statements for the three and six month
periods ended June 30, 1997 and 1996, as the partnership agreement specifies
that net losses shall be allocated 100% to the other partner. As CR Properties
has a limited partnership interest, it has no contingent liability with respect
to the office building debt. Peregrine's investment in CR Properties had a
carrying value of $0 at June 30, 1997 and December 31, 1996. On July 3, 1997,
the general partner of CR Properties notified Peregrine that an offer to buy
the subject office building in Sacramento had been received. Under the terms of
the partnership agreement, Peregrine, the limited partner, has the first right
of refusal to acquire the property. Peregrine is currently evaluating its
options of either purchasing the property or selling the first right of refusal.
At June 30, 1997 and December 31, 1996, the Trust's investments are
recorded at reorganization value net of accumulated depreciation and
amortization and impairment losses ("valuation losses") recognized since the
Effective Date, unless they are CalREIT's investments, in which case they are
carried at cost, net of accumulated depreciation and amortization and impairment
losses recognized. The valuation allowances for possible investment losses
recorded through June 30, 1997 and December 31, 1996, represent the excess of
the carrying value of individual assets over their appraised or estimated fair
value (less estimated selling costs if "held-for-sale").
During the six month period ended June 30, 1997, the Trust reported no
valuation losses. During the six month period ended June 30, 1996, the Trust
reported total valuation losses of $2,244,000, which were attributable to an
impairment in the value of CalREIT's Fulton Square Shopping Center in
Sacramento, California ($559,000), an impairment in the value of Peregrine's
Timberlake Medical Building in Sacramento, California ($295,000), which was sold
in August 1996, and an impairment in the value of Peregrine's Placer Ranch
partnership investment ($1,390,000), which was sold in July 1996.
3. INVESTMENTS IN MARKETABLE SECURITIES
At June 30, 1997, Peregrine had $183,000 invested in marketable
securities, which were restricted. The funds represent a portion of an indemnity
trust fund (the "Indemnity Trust Fund") which was established to fund possible
indemnification obligations with respect to Peregrine's former Trustees and
officers. The Indemnity Trust Fund, which is managed by an independent third
party trustee, is restricted as to use for a period of three years ending May
29, 2000, as defined in the Indemnity Trust Agreement. At December 31, 1996, the
Trust had $14,115,000 invested in U.S. Government Agency mortgage-backed
securities classified as "available-for-sale", all of which were held by
CalREIT.
7
<PAGE> 11
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENTS IN MARKETABLE SECURITIES, CONTINUED
At June 30, 1997, the Trust's "available-for-sale" securities consisted
of the following:
<TABLE>
<CAPTION>
Unrealized Estimated
Cost Gains Losses Fair Value
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Ford Motor Credit Corporation
Commercial Paper, interest at 5.400%,
due July 2, 1997 $100,000 $ -- $ -- $100,000
US Treasury Note, interest at 5.875%,
due July 31, 1997 16,000 -- -- 16,000
US Treasury Note, interest at 6.000%,
due August 31, 1997 17,000 -- -- 17,000
US Treasury Note, interest at 5.750%,
due September 30, 1997 17,000 -- -- 17,000
US Treasury Note, interest at 5.750%,
due October 31, 1997 16,000 -- -- 16,000
US Treasury Note, interest at 6.000%,
due November 30, 1997 17,000 -- -- 17,000
-------- -------- -------- --------
$183,000 $ -- $ -- $183,000
======== ======== ======== ========
</TABLE>
4. Restricted Cash
At June 30, 1997 and December 31, 1996, cash of $108,000 and $986,000,
respectively, was restricted. Such funds represent the cash balance of the
Indemnity Trust Agreement discussed above in Note 3, and the balance of the net
proceeds from the sale of certain Peregrine assets, which is being held in an
escrow account for the benefit of the Senior Lender Group.
8
<PAGE> 12
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
5. LONG-TERM NOTES PAYABLE
At June 30, 1997 and December 31, 1996, the Trust had long-term notes
payable, other than the Senior Lender Group Notes Payable and the Line of
Credit, of $26,649,000 and $32,263,000, respectively. Most of the long-term
notes payable are collateralized by first deeds of trust on rental properties,
with an aggregate net book value of $31,026,000 and $38,695,000, at June 30,
1997 and December 31, 1996, respectively.
During 1996 and 1997, Peregrine's office building located at 3900
Lennane Drive continued to be vacant despite efforts to lease the property. In
addition, management continued its efforts to either sell the property or
restructure the debt due to negative cash flow resulting from the required debt
service payments (including tax impounds) of approximately $25,000 per month. In
February 1997, after all efforts to lease or sell the property or restructure
the debt to a manageable level failed, Peregrine ceased debt service payments.
In March 1997, Peregrine was notified that the lender had initiated judicial
foreclosure proceedings against the note. In June 1997, Peregrine's new
management team performed an in depth analysis of the property and determined
that the asset should be retained by Peregrine for investment purposes. Based
upon this, management negotiated with the lender for a discounted payoff of the
note, accrued interest and other obligations. On June 30, 1997, an agreement was
reached with the lender whereby Peregrine would purchase the note and related
obligations at a discount. On June 30, 1997, a $100,000 good faith deposit was
paid to the lender, with the remaining purchase price paid on July 3, 1997. The
difference between the purchase price and the unpaid balance of the note,
accrued interest and other obligations at the time of restructuring was
approximately $418,000, which was recorded as income from forgiveness of debt
during the quarter ended June 30, 1997. Management is currently performing minor
improvements at the property and is concentrating its efforts on leasing the
vacant building.
6. RELATED-PARTY TRANSACTIONS
Peregrine and CalREIT are both self-administered. During the six month
period ended June 30, 1997, Peregrine charged CalREIT $1,600 for direct services
provided by Peregrine employees based upon computed hourly rates, including
salary, taxes, and benefits. During 1996, Peregrine and CalREIT shared certain
costs, including personnel costs, for which CalREIT reimbursed Peregrine
pursuant to a cost allocation agreement based respective asset values. The cost
allocation agreement between Peregrine and CalREIT was terminated in January
1997, following Peregrine's sale of its 76% stock ownership interest in CalREIT.
During the six month period ended June 30, 1996, reimbursable costs charged by
Peregrine to CalREIT approximated $130,000.
At June 30, 1997 and December 31, 1996, Peregrine had amounts due from
CalREIT aggregating $7,000 and $31,000, respectively.
9
<PAGE> 13
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
6. RELATED-PARTY TRANSACTIONS, CONTINUED
Peregrine utilized the services of certain of its former independent
Trustees during the six month periods ended June 30, 1997 and 1996 in connection
with its analysis of alternative operating strategies, asset dispositions and
day-to-day management activities. In addition, certain of the former independent
Trustees were paid for time incurred in connection with a lawsuit filed against
Peregrine by MDC REIT Holdings, L.L.C. In connection with the consulting
services performed, the following amounts were paid to such Trustees (or
affiliated companies) during the six month periods ended June 30, 1997 and 1996,
in addition to the quarterly and meeting fees paid to the Trustees:
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1997 1996
------- ---------
<S> <C> <C>
The McMahan Group (John McMahan, former Trustee) $ 1,000 $46,000
John McMahan, former Trustee $ -- $68,000(1)
John F. Salmon, former Trustee $ 6,000 $29,000
The Presidio Group (Kenneth T. Seeger, former Trustee) $65,000 $15,000
Hickey & Hill, Inc. (E. Lawrence Hill, Jr., former Trustee) $ 5,000 $ --
</TABLE>
(1) Amount represents salary received for serving as Peregrine's interim CEO
for the period January 15 through May 31, 1996.
7. GAIN ON FORECLOSURE OR SALE OF INVESTMENTS
Components of the gain on foreclosure or sale of investments for the
three and six month periods ended June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months
June 30, June 30,
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Components
Sale of Corona Sherman Note $ 110,000 $ -- $ 110,000 $ --
Sale of Investment in CalREIT -- -- 1,012,000 --
Sale of Bekins Storage Facility -- (164,000) -- (164,000)
Sale of Sierra Oaks Shopping Center -- (63,000) -- (63,000)
Sale of Pavilions at Mesa Note -- 430,000 -- 430,000
Sale of Spacesaver Mini-Storage Note -- 30,000 -- 30,000
Sale of Redfield Commerce Center -- -- -- 299,000
---------- ----------- ----------- -----------
$ 110,000 $ 233,000 $ 1,122,000 $ 532,000
========== =========== =========== ===========
</TABLE>
10
<PAGE> 14
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
7. GAIN ON FORECLOSURE OR SALE OF INVESTMENTS, CONTINUED
In June 1997, Peregrine sold a $275,000 face value note collateralized
by a second deed of trust on real property in Corona, California to the borrower
for $110,000. The book value of the note was $0, resulting in the recognition
of a $110,000 gain.
On January 3, 1997, the date on which Peregrine sold its investment in
CalREIT, the book value of Peregrine's investment in CalREIT was $18,733,000.
CalREIT was sold for $20,222,000 in cash, with $477,000 in related selling costs
incurred, resulting in a gain of $1,012,000.
No gain or loss was recorded in June 1996, upon the early payoff of
Peregrine's mortgage note in the face value of $2,240,000, as the book value of
the note was equal to the face value of the note, which was paid in full.
In May 1996, CalREIT sold the Bekins Storage Facility. The book value of
the property on the date of the transaction was $3,103,000. The Bekins Storage
Facility was sold for $3,125,000 with $139,000 in related selling costs and
$47,000 in liabilities applied towards the selling price, resulting in a loss of
$164,000.
During the second quarter of 1996, CalREIT sold two mortgage notes
collateralized by deeds of trust on real property. One note, which was
collateralized by a first deed of trust on an office/commercial building in
Phoenix, Arizona, was sold for $6,735,000 with $141,000 in selling costs. The
book value of the note on the date of the sale was $6,164,000; resulting in a
gain of $430,000. The second note, which was collateralized by second deed of
trust on a commercial building in Pacheco, California, had a book value of
$546,000 on the transaction date and was sold $592,000. Selling costs of $16,000
were incurred in connection with the sale, resulting in a gain of $30,000.
In April 1996, Peregrine sold the Sierra Oaks Shopping Center for
$6,000,000. Selling costs of $219,000 were incurred in connection with the sale
and $5,040,000 in liabilities were applied towards the sales price. The book
value of the property on the transaction date was $5,844,000. A loss of $63,000
was recorded in connection with the sale of the Sierra Oaks Shopping Center.
In March 1996, CalREIT sold the Redfield Commerce Center. The book value
of the property on the date of the transaction was $734,000. The Redfield
Commerce Center was sold for $1,118,000 with $76,000 in related selling costs
and $9,000 in liabilities applied towards the selling price, resulting in a gain
of $299,000.
11
<PAGE> 15
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
7. GAIN ON FORECLOSURE OR SALE OF INVESTMENTS, CONTINUED
No gains or losses were recorded in 1997 or 1996, upon Peregrine's
transfer of vacant land parcels to the bondholders or upon the foreclosure of
CalREIT's Casa Grande Motor Inn in February 1996, as the value of the respective
properties was equal to the value of the corresponding debt.
8. EXTRAORDINARY ITEM, FORGIVENESS OF DEBT
On June 30, 1997, Peregrine entered into an agreement with the lender on
the 3900 Lennane Drive property to purchase the outstanding mortgage obligations
(note, accrued interest and other liabilities). On the date of the agreement,
the total obligations owing were in excess of the purchase price by
approximately $418,000, resulting in a discount of $418,000, which was recorded
as income from debt forgiveness.
Peregrine benefited from a forgiveness of debt related to the
extinguishment of certain debt related to the bankruptcy proceedings of $22,000
during the three month period ended March 31, 1997.
9. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
In connection with the sale and foreclosure of rental properties and notes
receivable the Trust entered into various non-cash transactions as follows:
<TABLE>
<CAPTION>
For the Six Months
June 30,
1997 1996
------------ ------------
<S> <C> <C>
Sales price less selling costs $ 110,000 $ 19,220,000
Notes payable assumed by buyer or
paid through escrow -- (4,976,000)
Other liabilities assumed by buyer or
applied to the sale price -- (119,000)
------------ ------------
Net cash received $ 110,000 $ 14,125,000
============ ============
</TABLE>
12
<PAGE> 16
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
9. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION, CONTINUED
One parcel of land located in Sacramento with a carrying value of
$30,000 was sold at a county public auction during the three month period ended
March 31, 1997. No gain or loss was recorded on this transaction, as the
carrying value of the land was equal to the carrying value of the liabilities.
Two parcels of land located in Sacramento with a carrying value of
$82,000 were returned to the bond holder in lieu of foreclosure during the three
month period ended March 31, 1996. No gain or loss was recorded on this
transaction, as the carrying value of the land was equal to the carrying value
of the liabilities.
CalREIT's Casa Grande Motor Inn, which was collateralized by notes
payable of $3,089,000, was foreclosed upon during the quarter ended March 31,
1996. The carrying value of the assets was equal to the carrying value of the
debt; therefore, no gain or loss on foreclosure was recorded.
Additionally, on March 31 and June 30, 1997, Peregrine issued Redeemable
Convertible Preferred Stock in the face amounts of $702,000 and $729,000,
respectively, as payment in kind for the dividends then due on the outstanding
Preferred Stock. Preferred Stock Dividends issued as payment in kind were in the
face amounts of $643,000 and $660,000, respectively, on March 31 and June 30,
1996. On March 31 and June 30, 1996, Interest Deferral Notes at 8.5% per annum
in the principal amount of $933,000 and $944,000, respectively, were issued as
payment in kind for the interest then due on the Senior Lender Group Notes.
During the three month periods ended March 31 and June 30, 1996, the
outstanding balance on the Line of Credit was increased by $169,000 and
$260,000, respectively, for interest and expenses incurred.
Cash paid for interest during the three month periods ended June 30,
1997 and 1996, was $1,449,000 and $860,000, respectively. Cash paid for interest
during the six month periods ended June 30, 1997 and 1996, was $3,015,000 and
$1,822,000, respectively.
10. PER SHARE DATA
Per share data for the three and six month periods ended March 31 and
June 30, 1997 and 1996, were computed in conformity with the provisions of
Accounting Principles Board Opinion 15 ("APB 15"). In accordance with APB 15,
the earnings per share calculation includes all dilutive Common Shares of
Beneficial Interest equivalents, based on stock options outstanding during the
period (using the treasury stock method). There 53,332 and 113,330 stock options
13
<PAGE> 17
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
10. PER SHARE DATA, CONTINUED
outstanding at June 30, 1996 and 1997, respectively; however, stock options had
an antidilutive effect on earnings per share and accordingly were excluded from
all earnings per share computations.
The weighted average number of shares used in the computation was
4,881,000 during the three and six month periods ended June 30, 1997 and 1996.
11. DISTRIBUTIONS
No cash distributions were made to the holders of Common Shares of
Beneficial Interest during the three and six month periods ended June 30, 1997
and 1996.
Under the terms of the agreements with respect to the Line of Credit
and the Senior Lender Group Notes, Peregrine is substantially restricted from
and does not anticipate making any distributions to shareholders in the
foreseeable future.
12. COMMITMENTS AND CONTINGENCIES
UNUSED LINE OF CREDIT
At June 30, 1997, $600,000 of the Line of Credit, the maximum amount of
which is $8,600,000, was unused. Subsequent to June 30, 1997, the Line of
Credit was paid down to $7,000,000.
LITIGATION
At June 30, 1997, Peregrine was a party to a number of lawsuits. Most
involved ordinary disputes common in the real property management business and
amounts immaterial to the overall financial position of Peregrine.
At June 30, 1997, Peregrine was a defendant in a case filed by MDC REIT
Holdings, L.L.C. ("MDC") in California state court, on December 24, 1996. MDC
alleges that Peregrine breached a certain stock purchase agreement pursuant to
which Peregrine was to have sold to MDC certain shares of the Common Shares of
Beneficial Interest of CalREIT that were owned by Peregrine. MDC is seeking
damages it allegedly incurred in excess of $900,000, and recovery of its
attorney fees, costs, and interest. Management believes, and has been advised by
its counsel, that MDC's claims are without merit. Peregrine has answered the
complaint, denying any breach of the stock purchase agreement and asserting
numerous affirmative defenses to MDC's claims; however, there can be no
assurances as to the outcome of any litigation, including the suit filed by
MDC, and any decision that is adverse to Peregrine could have a material
adverse effect on Peregrine. The financial statements do not include an accrual
for any losses related to the complaint.
14
<PAGE> 18
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES, CONTINUED
FINANCIAL STATUS OF THE PEREGRINE REAL ESTATE TRUST
The following matters raise substantial doubt about Peregrine's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
- Subsequent to its emergence from bankruptcy on October 7, 1994,
Peregrine has incurred cumulative losses through June 30, 1997, of
approximately $23,000,000.
- At June 30, 1997, Peregrine estimates that additional capital
expenditures of approximately $1,500,000 to $2,000,000 are necessary to
complete the refurbishments at the three hotel properties, in order to
comply with Holiday Inn franchise requirements. As a result of not
completing the required refurbishments within the time frame specified
by Holiday Inn, Peregrine received a 30-day notice of default under the
Holiday Inn License Agreements (the "Notice of Default") for its Chico
and Sacramento hotels in February 1997. Management negotiated with
Holiday Inn and received an extension of time to June 15, 1997 with
respect to the Chico Holiday Inn, and an extension of time to August 15,
1997 with respect to the Sacramento Holiday Inn, in which to complete
the refurbishments required. The refurbishments at the Chico Holiday Inn
are substantially complete; however, should the refurbishments not meet
Holiday Inn's requirements, the License Agreements could be terminated,
which could constitute events of default under the Line of Credit and
Senior Lender Group Notes and could result in termination fees payable
to Holiday Inn of approximately $500,000. Certain of the refurbishments
at the Sacramento Holiday Inn have been completed, however, due to time
constraints and the fact that the scope of the work required by Holiday
Inn is out dated, management met with representatives from Holiday Inn
in late July 1997 to discuss Holiday Inn's requirements and develop a
plan for completion of the required refurbishments. Based upon this,
Holiday Inn conducted a new Property Improvement Plan Inspection on
August 1, 1997; however, it is unknown at this time whether Holiday Inn
will grant an extension of time in which to complete the required
refurbishments or terminate the License Agreement on or after August 15,
1997. Should the License Agreement be terminated on or after August 15,
1997, it could constitute events of default under the Line of Credit and
Senior Lender Group Notes and could result in termination fees payable
to Holiday Inn of approximately $800,000. As a result of the sale of its
76% ownership interest in CalREIT on January 3, 1997, Peregrine believes
it has the necessary resources to complete the required refurbishments.
- Peregrine was required to begin paying interest in cash to its Senior
Lender Group in November 1996 and estimates that payments in 1997 will
be approximately $2,500,000.
15
<PAGE> 19
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES, CONTINUED
FINANCIAL STATUS OF THE PEREGRINE REAL ESTATE TRUST, CONTINUED
- The Line of Credit matures on October 7, 1997. Peregrine is currently
negotiating with several lending institutions, including its current
lender, to obtain a new line of credit. There can be no assurances,
however, that Peregrine will be able to obtain a new line of credit, or
that such financing will be available on acceptable terms. Failure to
obtain a new line of credit will have a material adverse effect on
Peregrine.
- At June 30, 1997, Peregrine was in compliance with the Line of Credit's
Tangible Net Worth Covenant; however, it is anticipated that prior to
the October 7, 1997 maturity date of the Line of Credit, Peregrine will
be unable to meet the financial covenant due to anticipated net losses.
- At June 30, 1997, Peregrine was a defendant in a case filed by MDC REIT
Holdings, L.L.C. ("MDC") in California state court, on December 24,
1996, as described above.
16
<PAGE> 20
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Form 10-Q. In addition,
as a result of Peregrine's sale of its 76% stock ownership interest in CalREIT
on January 3, 1997, operating and financial results for the three and six months
ended June 30, 1997 represent results of Peregrine only; operating and financial
results for the three and six months ended June 30, 1996 represent the results
of Peregrine and CalREIT on a consolidated basis. Historical results set forth
are not necessarily indicative of the future financial position and results of
operations of Peregrine.
In addition to historical information, the Form 10-Q contains forward-looking
statements such as those pertaining to Peregrine's ability to fund its
operations or otherwise satisfy capital requirements, both in the short and long
term; to undertake property repairs, maintenance, improvements, refurbishments,
or other capital expenditures; and to negotiate satisfactory terms with
creditors, licensors, franchisors, or others. Forward-looking statements involve
numerous risks and uncertainties. The following factors, among others discussed
herein, could cause results and future events to differ materially from those
set forth or contemplated in the forward-looking statements: increased interest
rates and operating costs, deteriorating market conditions affecting occupancy
or lease rates, difficulties in finding buyers for property dispositions,
environmental uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate laws, real property taxes, and
governmental regulation, as well as general economic trends and the factors
discussed herein. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management's analysis only as of the
date hereof. Peregrine assumes no obligation to update forward-looking
statements. Readers should refer to Peregrine's reports to be filed from time to
time with the Securities and Exchange Commission pursuant to the Exchange Act.
Overview
During the quarter ended June 30, 1997, management of Peregrine continued to
concentrate on the operating strategy developed in 1996 to maximize the income
stream from the commercial and hotel properties and to dispose of real estate
assets with negative cash flows and/or which require significant capital
expenditures beyond the resources available. Pursuant to this strategy,
management continued its efforts to improve the physical and operating condition
of its commercial and hotel properties by completing repairs and deferred
maintenance on the commercial properties, developing and implementing plans to
complete the required refurbishments at the hotel properties, controlling
property expenses and improving both occupancy levels and collections of rent.
In connection with this, Peregrine has begun the process of internalizing the
property management with respect to its commercial property portfolio.
On January 3, 1997, Peregrine sold its 76% stock ownership interest in CalREIT
for $20,222,000 in cash, a premium of approximately $1,500,000 over the book
value of Peregrine's CalREIT shares. Peregrine was unable to reach an agreement
17
<PAGE> 21
with the Senior Lender Group as to alternative uses of the sale proceeds. As a
result, 80% of the net sales proceeds were used to reduce outstanding
obligations to the Senior Lender Group, as required, and the balance is being
used for operating purposes, as discussed below.
On May 30, 1997, Peregrine held its Annual Meeting of Shareholders. At the
Annual Meeting, the Common Shareholders elected four new Trustees, replacing the
four Trustees which had been appointed in 1994 upon the emergence from
bankruptcy. The new Trustees are: Bruce A. Karsh, Richard Masson, Carson R.
McKissick and Matthew L. Witte. In addition, the Preferred Shareholders
re-elected Roger D. Snell as a Trustee. Mr. Snell has been appointed Chairman of
the Board Trustees. Following the Annual Meeting of Shareholders on May 30,
1997, the new Board of Trustees terminated the employment contract with then
President and Chief Executive Officer, Joseph M. Mock, and appointed Mr. Snell
as Peregrine's new President and Chief Executive Officer.
At June 30, 1997, Peregrine believes the following factors have adversely
affected, and in the future, could adversely affect its financial condition,
results of operations and liquidity:
- The capital structure of Peregrine resulting from the confirmed Plan of
Reorganization, including the leverage resulting from the Senior Lender
Group Notes, the first mortgage debt and the Preferred Stock, plus the
associated present and future debt service and dividend obligations;
- The additional $1,500,000 to $2,000,000 in estimated capital
improvements required to complete the refurbishments of Peregrine's
hotel properties in accordance with Holiday Inn franchise standards,
that if not completed, will result in the termination of the Holiday Inn
License Agreements and will have a material adverse affect on hotel
operations;
- Peregrine's general and administrative expenses, including costs
associated with its estimated 16,000 shareholder base and the ongoing
costs of being a public company;
- The limited sources and amount of funds currently available to Peregrine
from operations, its revolving Line of Credit, which matures on October
7, 1997, and from property dispositions, after payment of associated
indebtedness, and the inability of Peregrine to raise capital from third
parties in light of, among other things, its debt and capital structure,
operating history and contingent liabilities.
18
<PAGE> 22
Comparison of the Six Months and Three Months Ended June 30, 1997 to the Six
Months and Three Months Ended June 30, 1996
Net Income of $787,000 was reported by Peregrine for the six months ended June
30, 1997, an increase of $5,915,000 from the net loss of $5,128,000 for the six
months ended June 30, 1996. Net income of $319,000 was reported by Peregrine for
the three months ended June 30, 1997, an increase of $2,213,000 from the net
loss of $1,894,000 for the three months ended June 30, 1996. The increase during
the six months ended June 30, 1997, over the six months ended June 30, 1996, was
primarily the result of decreased interest expenses of $1,154,000, a decrease in
general and administrative expenses of $1,532,000, a decrease in valuation
losses of $2,244,000, an increase in gains on foreclosure or sale of investments
of $590,000 and income recognized from debt forgiveness of $440,000. The
increase during the three months ended June 30, 1997, over the three months
ended June 30, 1996, was primarily the result of a decrease in interest expense
of $621,000, a $625,000 decrease in general and administrative expenses, a
decrease in valuation losses of $559,000 and income recognized from debt
forgiveness of $418,000.
Revenues
Total revenues were $12,140,000 during the six months ended June 30, 1997, down
$801,000, or 6%, from total revenues of $12,941,000 during the six months ended
June 30, 1996. Total revenues were $6,422,000 during the three months ended June
30, 1997, an increase of $1,000, or less than 1%, over revenues of $6,421,000
during the three months ended June 30, 1996.
Hotel Revenues. Hotel revenue increased $559,000, or 9%, to $6,926,000 for the
six months ended June 30, 1997, and $424,000, or 13%, to $3,604,000 for the
three months ended June 30, 1997. This was up from $6,367,000 and $3,180,000 for
the six and three months ended June 30, 1996, respectively. The increase during
the six months ended June 30, 1997 was attributable to an overall increase in
revenue at the Chico, Sacramento and Walnut Creek Holiday Inns of $604,000 which
resulted from an overall increase in room occupancy, room rates and guest
services; offset by a decrease of $45,000, attributable to the absence of
revenue from the Park Terrace Inn, which was sold in October 1996. The increase
during the three months ended June 30, 1997 was attributable to an overall
increase in revenue at the Chico, Sacramento and Walnut Creek Holiday Inns of
$469,000 due to an overall increase in room occupancy, room rates, and guest
services; offset by a decrease of $45,000, attributable to the absence of
revenue from the Park Terrace Inn.
Commercial Property Revenues. Commercial property revenues for the six months
ended June 30, 1997 were $4,754,000, a decrease of $1,054,000, or 18%, from
revenues of $5,808,000 for the six months ended June 30, 1996. Commercial
property revenues decreased $400,000, or 14%, to $2,457,000 for the three months
ended June 30, 1997, down from $2,857,000 for the three months ended June 30,
1996. The decrease for the six months ended June 30, 1997 is primarily
attributable to the absence of $1,103,000 in revenues from CalREIT, which was
sold on January 3, 1997; the absence of $195,000 in revenues from the Sierra
Oaks Shopping Center, which was sold in April 1996; the absence of $53,000 in
revenues from the Timberlake Medical
19
<PAGE> 23
Building, which was sold in August 1996, offset by an overall increase in
revenues of $297,000 on the remaining commercial property portfolio,
attributable to an overall increase in occupancy. The decrease for the three
months ended June 30, 1997 is primarily attributable to the absence of $534,000
in commercial property revenues from CalREIT; the absence of $27,000 and $25,000
from Sierra Oaks and Timberlake, respectively, offset by an overall increase in
revenues of $186,000 on the remaining commercial property portfolio.
Interest Revenue. Interest revenue decreased $549,000, or 76%, to $175,000 for
the six months ended June 30, 1997, and $256,000, or 74%, to $89,000 for the
three months ended June 30, 1997. This was down from $724,000 for the six months
ended June 30, 1996, and $345,000 for the three months ended June 30, 1996. The
decrease for the six months ended June 30, 1997 is primarily attributable to the
absence of $548,000 of interest revenue from CalREIT, which was sold on January
3, 1997; and the absence of $92,000 in interest revenue from mortgage notes due
to the payoff of a $2,240,000 note in June 1996; offset by an increase in
interest revenue on cash accounts of $86,000, resulting from an increased cash
balance during the period. The decrease for the three months ended June 30, 1997
is primarily attributable to the absence of $247,000 in interest revenue from
CalREIT; and the absence of $44,000 in interest revenue from the $2,240,000
mortgage note paid off in June 1996; offset by an increase in interest earned on
cash accounts of $33,000.
Other Revenue. Other revenue increased $243,000, or 579%, to $285,000 for the
six months ended June 30, 1997, and $233,000, or 597%, to $272,000 for the three
months ended June 30, 1997. This was up from $42,000 and $39,000 for the six and
three months ended June 30, 1996, respectively. Other revenue during the six
months ended June 30, 1997 was primarily attributable to revenue of $250,000
recognized in connection with the settlement of two corporate lawsuits; $21,000
in revenue attributable to a settlement with a former tenant; and revenue of
$13,000 which resulted from prior year property tax refunds on properties
formerly owned by Peregrine. Other revenue during the three months ended June
30, 1997 was primarily attributable to the revenue of $250,000 recognized in
connection with the settlement of the corporate lawsuits and $21,000 recognized
in connection with a settlement with a former tenant, as discussed above. Other
revenues during the six and three months ended June 30, 1996, were primarily
attributable to revenue of $38,000 resulting from prior year property tax
refunds on properties formerly owned by Peregrine.
20
<PAGE> 24
TOTAL EXPENSES
Total expenses were $12,915,000 during the six months ended June 30, 1997, down
$3,388,000, or 21%, from total expenses of $16,303,000 during the six months
ended June 30, 1996. Total expenses were $6,631,000 during the three months
ended June 30, 1997, a decrease of $1,409,000 or 18%, from total expenses of
$8,040,000 during the three months ended June 30, 1996.
Operating Expenses. Hotel operating expenses decreased $174,000, or 3%, from
$5,217,000 during the six months ended June 30, 1996, to $5,043,000 during the
six months ended June 30, 1997. Hotel operating expenses decreased $32,000, or
1%, to $2,561,000 during the three months ended June 30, 1997, down from
$2,593,000 for the three months ended June 30, 1996. The decrease for the six
months ended June 30, 1997 was attributable to the absence of expenses at the
Park Terrace Inn of $192,000, which was sold in October 1996; offset by an
overall increase in operating expenses of $18,000 at the Chico, Sacramento and
Walnut Creek hotels, which was primarily attributable to overall increases in
franchise fees, travel agent commissions, salaries and wages and guest service
amenities resulting from increased occupancy; partially offset by an overall
decrease in property taxes, resulting from successful tax appeals. The decrease
for the three months ended June 30, 1997 was attributable to the absence of
expenses at the Park Terrace Inn of $74,000; offset by an overall increase in
operating expenses at the Chico, Sacramento and Walnut Creek Holiday Inn of
$42,000 as a result of an overall increase in occupancy, partially offset by an
overall decrease in property taxes.
Commercial property operating expenses decreased $637,000, or 32%, to $1,383,000
for the six months ended June 30, 1997, and $315,000, or 31%, to $712,000 for
the three months ended June 30, 1997. This was down from $2,020,000 and
$1,027,000 for the six and three months ended June 30, 1996, respectively. The
decrease during the six months ended June 30, 1997 was attributable to the
absence of $327,000 in operating expenses for CalREIT, which was sold on January
3, 1997; the absence of $87,000 in operating expenses at the Sierra Oaks
Shopping Center, which was sold in April 1996; the absence of $54,000 in
operating expenses at the Timberlake Medical Building, which was sold in August
1996; and an overall decrease in operating expenses of $169,000 on the remaining
commercial property portfolio, primarily attributable to decreased bad debt
expenses, legal expenses, and repair and maintenance expenses. In addition,
there was an overall decrease in property taxes which resulted from successful
property tax appeals.
21
<PAGE> 25
The decrease in operating expenses during the three months ended June 30, 1997
was due to the absence of $179,000 in expenses from CalREIT; the absence of
$26,000 and $28,000 in operating expenses at Sierra Oaks and Timberlake,
respectively; and an overall decrease in operating expenses of $82,000 on the
remaining commercial property portfolio, primarily attributable to decreased bad
debt, legal and property taxes expenses.
Commercial and Hotel Property Management Fees. Commercial and hotel property
management fees decreased $18,000, or 4%, from $414,000 for the six months ended
June 30, 1996, to $396,000 for the six months ended June 30, 1997. Management
fees increased $37,000, or 19%, to $233,000 during the three months ended June
30, 1997, up from $196,000 during the three months ended June 30, 1996. The
decrease during the six months ended June 30, 1997 was due to the absence of
$56,000 in management fees attributable to CalREIT, which was sold on January 3,
1997; the absence of $8,000 in management fees for the Sierra Oaks Shopping
Center, which was sold in April 1996; the absence of $2,000 in management fees
for the Timberlake Medical Building, which was sold in August 1996; the absence
of management fees of $18,000 at the Park Terrace Inn, which was sold in October
1996; offset by an overall increase in management fees of $66,000 on the
remaining commercial and hotel property portfolio, attributable to the increase
in hotel revenues. The increased management fees for the three months ended June
30, 1997, is the result of an overall increase of $78,000 on the commercial and
hotel property portfolio, resulting from increased hotel revenues; offset by the
absence of $29,000 in management fees attributable to CalREIT; the absence of
$2,000 and $1,000 in management fees attributable to Sierra Oaks and Timberlake,
respectively; and the absence of $9,000 in management fees at the Park Terrace
Inn.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased $127,000, or 9%, from $1,435,000 for the six months ended June 30,
1996, to $1,562,000 for the six months ended June 30, 1997. Depreciation and
amortization increased $147,000, or 22%, to $802,000 for the three months ended
June 30, 1997, up from $655,000 for the three months ended June 30, 1996. The
increase in depreciation and amortization during the six months ended June 30,
1997 is primarily attributable to an increase in depreciation and amortization
of $223,000 on the commercial and hotel property portfolio resulting from the
reclassification of University Village from "held-for-sale" to
"held-for-investment" in late 1996, increases resulting from the acquisition of
the Corona properties, which were acquired in September 1996 through foreclosure
of a note and increases resulting from additional building improvements, tenant
improvements and new lease commissions; offset by the absence of $25,000 in
depreciation and amortization from CalREIT, which was sold on January 3, 1997;
and the absence of depreciation and amortization on the Timberlake Medical
Building and the Park Terrace of $15,000 and $57,000, respectively, which were
sold in August and October 1996, respectively. The increase in depreciation and
amortization during the three months ended June 30, 1997 is primarily
attributable to an increase in depreciation and amortization of $189,000 on the
commercial and hotel property portfolio; offset by the absence of depreciation
and amortization of $20,000 and offset by the absence of depreciation and
amortization of $20,000 and $22,000 from CalREIT and the Park Terrace Inn,
respectively.
22
<PAGE> 26
Interest Expense. Interest expense decreased $1,154,000, or 28%, from $4,129,000
for the six months ended June 30, 1996, to $2,975,000 for the six months ended
June 30, 1997. Interest expense decreased $621,000, or 30%, to $1,475,000 during
the three months ended June 30, 1997, down from $2,096,000 during the three
months ended June 30, 1996. The decrease for the six months ended June 30, 1997
is primarily attributable to the absence of $274,000 in interest expense from
CalREIT, which was sold on January 3, 1997; the absence of $151,000 of interest
on the first mortgage note on the Sierra Oaks Shopping Center, which was paid in
full when the subject property was sold in April 1996; the absence of $21,000 in
interest expense on the first mortgage note on the Timberlake Medical Building,
which was paid in full when the subject property was sold in August 1996; the
absence of $90,000 in interest on the first mortgage note on the Park Terrace
Inn in Redding, California, which was paid in full when the subject property was
sold in October 1996; and a decrease in interest on the Senior Lender Notes of
$641,000 due to a reduction in the balance of notes due primarily to the
application of $15,578,000 in net proceeds from the sale of CalREIT on January
3, 1997; offset by an increase in interest expense on the Line of Credit of
$37,000 due to a slightly higher average outstanding balance and a higher rate
of interest during the six months ended June 30, 1997. The decrease during the
three months ended June 30, 1997 is primarily attributable to the absence of
interest expense from CalREIT of $137,000; the absence of interest expense of
$33,000, $11,000 and $45,000 attributable to Sierra Oaks, Timberlake and Park
Terrace, respectively; a decrease in interest on the Senior Lender Group Notes
of $340,000 attributable to a lower note balance during the period; and a
decrease in interest expense on the Line of Credit of $19,000 due to a lower
average balance outstanding during the period which was partially offset by a
higher rate of interest during the period.
General and Administrative Expenses. General and administrative expenses were
$1,556,000 during the six months ended June 30, 1997, a decrease of $1,532,000,
or 50%, from expenses of $3,088,000 for the six months ended June 30, 1996.
General and administrative expenses decreased $625,000, or 42%, to $848,000
during the three months ended June 30, 1997, down from $1,473,000 for the three
months ended June 30, 1996. The decrease for the six months ended June 30, 1997
is primarily attributable to the absence of $649,000 in general and
administrative expenses from CalREIT, which was sold on January 3, 1997; a
reduction of $345,000 attributable to the absence of fees to its investment
banker, which were incurred in 1996 and not in 1997; a decrease in salaries and
wages of $122,000 due primarily to differences between the severance pay
packages for Peregrine's two former Chief Executive Officers who were terminated
in January 1996 ($213,000 severance) and May 1997 ($45,000 severance), offset by
an increase in staffing; a decrease of $250,000 in consulting and appraisal
service expenses which in 1996, were primarily attributable to consulting
services performed by Peregrine's former independent Trustees, outside hotel
consulting fees and asset management fees; a reduction in legal fees of $167,000
due primarily to the absence of fees related to bankruptcy and CalREIT sale
matters; a decrease in accounting fees of $70,000 resulting from a reduction in
the 1996 audit and tax fees; and a decrease in bank charges of $19,000 resulting
from a higher average cash balance during the period; offset by $116,000 in
expenses related to 1996 annual report and proxy and 1997 annual shareholders
meeting which were not incurred in 1996 as no annual report and proxy were
prepared and no annual shareholders meeting was held. The decrease of $625,000
during the three months ended June 30, 1997 is primarily attributable to the
absence of $308,000 in general and administrative expenses from CalREIT; a
reduction of $95,000 attributable to the absence of fees to its investment
banker; a decrease in consulting and appraisal service expenses
23
<PAGE> 27
of $177,000; a reduction in legal fees of $202,000; a decrease in accounting
fees of $61,000 resulting from a reduction in the 1996 audit and tax fees; and a
decrease in bank charges of $9,000; offset by $116,000 in expenses related to
1996 annual report and proxy and 1997 annual shareholders meeting; and an
increase in salaries and wages of $100,000 due primarily to increased staffing.
Many of the administrative costs to service Peregrine's large shareholder base
and to meet public regulatory requirements are fixed costs. As a result,
Peregrine expects its general and administrative expenses to continue to be
disproportionately high compared to the size of its asset base; however,
Peregrine's new management team is currently analyzing general and
administrative expenses to determine those areas in which costs can be reduced.
Gain on Foreclosure or Sale of Investments
During the six and three months ended June 30, 1997, Peregrine recorded total
gains on the foreclosure or sale of investments of $1,122,000 and $110,000,
respectively, as compared to total gains on the foreclosure or sale of
investments of $532,000 and $233,000 during the six and three months ended June
30, 1996, respectively. In the first quarter of 1997, Peregrine recorded a gain
of $1,012,000 upon the sale of CalREIT. At the time of the transaction, January
3, 1997, the book value of Peregrine's investment in CalREIT was $18,733,000.
CalREIT was sold for $20,222,000 in cash, with $477,000 in related selling costs
incurred, resulting in a gain of $1,012,000. During the second quarter of 1997,
Peregrine recorded a gain of $110,000 when it sold a mortgage, which had been in
default since 1993 and whose book value was $0, back to the borrower. In the
first quarter of 1996, a gain of $299,000 was recorded by CalREIT upon the sale
of the Redfield Commerce Center. During the second quarter of 1996, gains of
$430,000 and $30,000 were recorded by CalREIT upon the sale of Mesa at Pavilions
and Spacesaver Mini-Storage Notes, respectively; offset by a loss of $164,000
recorded by CalREIT upon the sale of the Bekins Storage Facility; and a loss of
$63,000 recorded by Peregrine upon the sale of the Sierra Oaks Shopping Center.
Valuation Losses
During the six and three months ended June 30, 1997, Peregrine recorded no
valuation losses. During the six and three months ended June 30, 1996,
$2,244,000 and $559,000, respectively, in valuation losses were recorded. The
1996 amount was comprised of a $1,390,000 valuation loss recorded during the
first quarter by Peregrine against its former Placer Ranch Partnership
Investment and a $295,000 valuation loss recorded by CalREIT against its Fulton
Square Shopping Center in Sacramento, California. During the second quarter of
1996, a $295,000 valuation loss was recorded by Peregrine against the Timberlake
Medical Building and an additional valuation loss of $264,000 was recorded by
CalREIT against Fulton Square.
24
<PAGE> 28
Extraordinary Item, Forgiveness of Debt
During the second quarter 1997, Peregrine benefited from a forgiveness of debt
of $418,000 in connection with an agreement with the mortgage lender on 3900
Lennane Drive, and during the first quarter of 1997, Peregrine benefited from a
$22,000 forgiveness of debt related to the extinguishment of certain debt
related to the bankruptcy proceedings. No such amount was recorded during the
six and three months ended June 30, 1996.
Dividends
Peregrine made no cash distributions during the six and three months ended June
30, 1997 or 1996. In addition, Peregrine is substantially restricted from and
does not anticipate making any cash distributions to shareholders in the
foreseeable future.
Commercial and Hotel Property Operations
At June 30, 1997 and June 30, 1996, overall average weighted occupancy levels by
property type were as follows:
<TABLE>
<CAPTION>
Overall Occupancy
Property Type June 30, 1997 June 30, 1996
------------- ------------- -------------
<S> <C> <C>
Retail Shopping Centers 79% 85%
Office Buildings 77% 66%
Industrial Buildings 98% 88%
Mini-Storage Facilities 96% 92%
Hotels 70% 68%
CalREIT Properties N/A 87%
</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 Peregrine's commercial
portfolio (excluding CalREIT) as of June 30, 1997 was 86% and as of June 30,
1996 was 80%.
25
<PAGE> 29
Dispositions
On January 3, 1997, Peregrine sold its 76% stock ownership interest in CalREIT
to a third party, CalREIT Investors Limited Partnership, for $20,222,000 in
cash, or $2.91 per share of CalREIT previously held by Peregrine.
As a result of the sale of CalREIT on January 3, 1997, all assets, liabilities
and shareholders' equity (deficit) attributable to CalREIT included in the
balance sheet at December 31, 1996 were eliminated as follows: the investment in
rental properties decreased $8,585,000; the investment in notes receivable
decreased $1,576,000; the investment in marketable securities available-for-sale
decreased $14,115,000; unrestricted cash decreased $4,698,000; rents, accrued
interest and other receivables decreased $707,000; other assets decreased
$355,000; long-term notes payable collateralized by deed of trust on rental
properties decreased $5,169,000; accounts payable and accrued liabilities
decreased $295,000; other liabilities decreased $70,000; minority interest
decreased $5,759,000; and the unrealized holding losses on marketable securities
decreased $22,000. In addition, at the time of the sale, $32,000 due to
Peregrine from CalREIT was recorded as a receivable. Of the $20,222,000 in
proceeds received from the sale of CalREIT, $15,631,000 was required to be paid
to the Senior Lender Group as payment of principal and accrued interest on the
Senior Lender Group Notes Payable; the remaining $4,591,000 was paid to
Peregrine and available for operations.
Liquidity and Capital Resources
Peregrine had $4,004,000 in unrestricted cash at June 30, 1997, compared to
$5,972,000 in unrestricted cash at December 31, 1996, of which $4,698,000 was
held by CalREIT at December 31, 1996 and unavailable to Peregrine for operating,
working capital, or other purposes. During the six months ended June 30, 1997,
Peregrine's principal sources of funds were from operating income, principal and
interest payments on mortgage notes receivable, and proceeds from the sale of
CalREIT. At June 30, 1997, $600,000 remained available on the Line of Credit.
Subsequent to June 30, 1997, the unrestricted cash available was reduced to
approximately $800,000 as a result of a pay down on the Line of Credit and the
purchase of the first mortgage note on 3900 Lennare Drive.
26
<PAGE> 30
Debt service paid on Peregrine's first mortgage notes totaled $1,444,000 during
the six months ended June 30, 1997. Total debt service requirements on first
mortgage notes in 1997 are approximately $2,903,000. Interest paid on the Senior
Lender Group Notes during the six months ended June 30, 1997 totaled $1,377,000.
Interest on the Senior Lender Group Notes is required to be paid in cash on a
monthly basis, with aggregate interest payable during 1997 currently estimated
at $2,453,000, based on actual interest during the six months ended June 30,
1997, and interest for the second half of 1997 based upon the current principal
balance outstanding of $27,999,000.
At June 30, 1997, Peregrine's short and long term cash commitments include
approximately $1,500,000 to $2,000,000 in remaining capital expenditures to
complete the refurbishment of its hotel properties; the maturity of the Line of
Credit in October 1997; debt service payments on its first mortgage notes of
approximately $2,903,000 per year; interest on its Senior Lender Group Notes
currently estimated at $2,453,000 per year; cash dividend payments of
approximately $3,300,000 per year on the Preferred Stock commencing in October
1998; and repayment of principal on the Senior Lender Group Notes in October
2000. It is presently anticipated that Peregrine will be unable to pay the
Preferred Stock dividends in cash commencing October 1998, and as a result the
Preferred Stock will automatically convert to Common Shares of Beneficial
Interest in accordance with the Preferred Stock Agreement, thereby substantially
diluting the ownership interests of current holders of Common Shares of
Beneficial Interest.
Based on cash flows from operations, its revolving Line of Credit, and its 20%
share of the net proceeds received from its disposition of its 76% stock
ownership interest in CalREIT on January 3, 1997, Peregrine anticipates that it
will be able to fund its day-to-day business operations, and meet its debt
service obligations on its first mortgage notes and Senior Lender Group Notes
through the end of 1997. Management is currently negotiating with several
lending institutions, including its current Line of Credit lender, to obtain a
new line of credit. There can be no assurances, however, that Peregrine will be
able to obtain a new line of credit, or that financing will be available on
acceptable terms. Failure to obtain a new operating line of credit would have a
material adverse affect on the financial position and operations of Peregrine.
Peregrine's Line of Credit contains a financial covenant, among others, which
requires that Peregrine maintain a specific tangible net worth, as defined in
the Agreement, measured on a fiscal quarter-end basis. While Peregrine was in
compliance with the covenant at June 30, 1997, it is anticipated that prior to
the October 7, 1997 maturity date of the Line of Credit, Peregrine will be
unable to meet the financial covenant due to anticipated net losses, and will
require a waiver in relation to the covenant from the lender. Management also
expects to be able to fund the refurbishments at its three hotel properties from
existing resources; absent this expenditure and timely completion of the
refurbishments, two of the hotel properties will lose their Holiday Inn
licenses, the result of which will be a decline in occupancy levels and room
rental rates, which would have a material adverse impact on Peregrine's overall
financial performance. In the event that Peregrine is unable to obtain a new
line of credit, or it loses its Holiday Inn Licenses, Peregrine will face
significant liquidity issues and may be forced to sell certain of its assets or
pursue other restructuring alternatives.
Peregrine experienced a net increase in unrestricted cash of $2,730,000 for the
six months ended June 30, 1997 as compared to a net decrease in unrestricted
cash of $162,000 for the six months ended June 30, 1996, a difference of
$2,892,000. For the six months ended June 30, 1997 cash (used in) operating
activities was $311,000, down $603,000 from cash provided by operating
activities of $292,000 during the comparable period in 1996, which is primarily
attributable to increased cash interest payments as a result of interest on the
Senior Lender Group Notes being paid in cash commencing November 1, 1996. Cash
provided by investing activities during the six months ended June 30, 1997 was
$19,467,000 up from cash provided by investing activities of
27
<PAGE> 31
$686,000 during the six months ended June 30, 1996, an increase of $18,781,000.
The increase is primarily attributable to proceeds received from the sale of
CalREIT. Cash (used in) financing activities was $16,426,000 during the six
months ended June 30, 1997, as compared to cash (used in) financing activities
of $1,140,000 during the six months ended June 30, 1996, an increased use of
$15,286,000, which is primarily attributable to the required payments made on
the Senior Lender Group Notes from the proceeds of CalREIT and payments made on
the Line of Credit.
Significant Changes in the Economic Environment
Changing interest rates are not expected to have a significant effect on
Peregrine's operations in 1997, as most of Peregrine's debt obligations are at
fixed interest rates. The effect on inflation on Peregrine's operations and
properties is varied. In recent years, rental rates and real estate values have
decreased which has had a material impact both on revenues and asset values;
however, in 1996 and during the first and second quarters of 1997, the real
estate market showed increases in both rental rates and real estate values;
therefore, the effect of inflation is not expected to have a significant effect
on Peregrine's operations in 1997.
28
<PAGE> 32
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security-Holders
(a) Annual Meeting of Shareholders:
The Annual Meeting of Shareholders of The Peregrine Real Estate
Trust was held in Sacramento, California on May 30, 1997, to elect
five Trustees for a term of one year (or until their successors are
elected and qualified) and to ratify the appointment of Peregrine's
independent certified public accountants.
(b) Trustees Elected:
The following persons were elected as Trustees by the Common
Shareholders:
Mr. Bruce A. Karsh
Mr. Richard Masson
Mr. Carson R. McKissick
Mr. Matthew L. Witte
The following person was re-elected as a Trustee by the Preferred
Shareholders:
Mr. Roger D. Snell
(c) Results of the Election of Trustees and Ratification of Independent
Certified Public Accountants:
(1) Election of Trustees:
<TABLE>
<CAPTION>
Common Share Nominees Votes For Votes Withheld
--------------------- --------- --------------
<S> <C> <C>
John McMahan 947,797 137,375
E. Lawrence Hill, Jr. 974,701 110,471
John F. Salmon 974,297 110,875
Kenneth T. Seeger 974,432 110,740
Bruce A. Karsh 1,776,422 --
Richard Masson 1,776,422 --
Carson R. McKissick 1,776,422 --
Matthew L. Witte 1,776,422 --
Preferred Share Nominees Votes For Votes Withheld
------------------------ ---------- --------------
Roger D. Snell 10,006,781 --
</TABLE>
(2) Ratification of Coopers & Lybrand L.L.P. as Independent
Certified Public Accountants:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
2,707,201 8,035 145,703
</TABLE>
29
<PAGE> 33
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
------ -----------
3.1(a) Restated Declaration of Trust of The Peregrine Real Estate Trust
(1)
3.1(b) Bylaws of The Peregrine Real Estate Trust (1)
10.1 Second Amended and Restated Note Agreement dated September 27,
1994, by and among Commonwealth Equity Trust, the Noteholders
named therein, and The Prudential Insurance Company of America
as Agent for the Noteholders (1)
10.2 Loan and Security Agreement dated October 6, 1994, between
Commonwealth Equity Trust and Foothill Capital Corporation (1)
10.3 Redeemable Convertible Preferred Stock Purchase Agreement dated
as of October 1, 1994, by and among The Peregrine Real Estate
Trust, Pacific Mutual Life Insurance Company, The Prudential
Insurance Company of America, PRUCO Life Insurance Company, ORIX
USA Corporation, Weyerhaeuser Company Master Retirement Trust,
TCW Special Credits Fund IV, TCW Special Credits Plus Fund, TCW
Special Credits Trust IV, and TCW Special Credits Trust IVA (1)
10.4 Registration Rights Agreement dated as of October 1, 1994, by
and among The Peregrine Real Estate Trust, Pacific Mutual Life
Insurance Company, The Prudential Insurance Company of America,
PRUCO Life Insurance Company, ORIX USA Corporation, Weyerhaeuser
Company Master Retirement Trust, TCW Special Credits Fund IV,
TCW Special Credits Plus Fund, TCW Special Credits Trust IV, and
TCW Special Credits Trust IVA (1)
10.5 Third Amended Plan of Reorganization of Commonwealth Equity
Trust (2)
10.6 Stock Purchase Agreement, dated as of January 3, 1997, by and
between The Peregrine Real Estate Trust and CalREIT Investors
Limited Partnership (3)
10.7 The Peregrine Real Estate Trust Trustee Stock Option Plan (4)
10.8 Form of Indemnification Agreement (4)
10.9 The Peregrine Real Estate Trust Trustee Stock Option Plan (5)
30
<PAGE> 34
10.10 Employment Agreement between The Peregrine Real Estate Trust and
Joseph M. Mock, dated June 1, 1996 (5)
10.11 First Amendment to Employment Agreement between The Peregrine
Real Estate Trust and Joseph M. Mock, dated December 1, 1996 (5)
10.12 Second Amendment to Employment Agreement between The Peregrine
Real Estate Trust and Joseph M. Mock, dated April 30, 1997 (6)
10.13 Form of Indemnification Agreement
27 Financial Data Schedule
(1) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
October 7, 1994.
(2) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
August 25, 1994.
(3) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
January 17, 1997.
(4) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
period ended September 30, 1996.
(5) Incorporated herein by reference to Peregrine's Report on Form 10-K for
the year ended December 31, 1996.
(6) Incorporated herein by reference to Peregrine's Report on Form 10Q for
the period ended March 31, 1997.
(b) Reports on Form 8-K
Peregrine filed a Current Report on Form 8-K on June 10, 1997, reporting
under Item 1 of such Form, Changes in Control of Registrant, with
respect to the election of a new Board of Trustees of The Peregrine Real
Estate Trust at the Annual Meeting of Shareholders held May 30, 1997.
31
<PAGE> 35
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
September 5, 1997 /s/Wendy G. Powell
-------------------------------------------
Wendy G. Powell
Vice President and Chief Accounting Officer
32
<PAGE> 36
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C>
10.13 Form of Indemnification Agreement
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,112
<SECURITIES> 183
<RECEIVABLES> 2,029
<ALLOWANCES> (124)
<INVENTORY> 0
<CURRENT-ASSETS> 7,780
<PP&E> 71,458
<DEPRECIATION> (3,381)
<TOTAL-ASSETS> 75,857
<CURRENT-LIABILITIES> 2,635
<BONDS> 62,548
27,827
0
<COMMON> 13,356<F1>
<OTHER-SE> (30,509)
<TOTAL-LIABILITY-AND-EQUITY> 75,857
<SALES> 0
<TOTAL-REVENUES> 6,532
<CGS> 0
<TOTAL-COSTS> (3,506)
<OTHER-EXPENSES> (1,650)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,475
<INCOME-PRETAX> (99)
<INCOME-TAX> 0
<INCOME-CONTINUING> (99)
<DISCONTINUED> 0
<EXTRAORDINARY> 418
<CHANGES> 0
<NET-INCOME> 319
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
<FN>
<F1>COMMON 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 REDEEMABLE CONVERTIBLE
PREFERRED STOCK.
</FN>
</TABLE>
