<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 September 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 November 14, 1997
- ------------------------------------ --------------------------------
Common Shares of Beneficial Interest 4,881,122
<PAGE> 3
- --------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEX PAGE
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1: Financial Statements
Balance Sheets -
September 30, 1997 and December 31, 1996 1
Statements of Operations -
For the Three Months and Nine Months Ended
September 30, 1997 and 1996 2-3
Statements of Cash Flows -
For the Nine Months Ended
September 30, 1997 and 1996 4
Notes to Financial Statements 5 - 18
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 19 - 30
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 31
Item 3: Default Upon Senior Securities 31
Item 5: Other Information 31
Item 6: Exhibits and Reports on Form 8-K 32 - 33
</TABLE>
<PAGE> 4
PART I: FINANCIAL INFORMATION
THE PEREGRINE REAL ESTATE TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
ASSETS
INVESTMENTS:
Rental properties, net of accumulated depreciation of $4,118,000 and
$1,986,000 at September 30, 1997 and December 31, 1996, respectively $ 67,877,000 $ 77,412,000
Notes receivable, net of deferred gains of $79,000 and $319,000 at
September 30, 1997 and December 31, 1996, respectively 333,000 2,296,000
Marketable securities available-for-sale -- 14,115,000
Restricted marketable securities available-for-sale 165,000 --
------------- -------------
68,375,000 93,823,000
Cash 1,985,000 5,972,000
Restricted cash 132,000 986,000
Rents, accrued interest receivable, net of allowance of $22,000 and
$1,153,000 at September 30, 1997 and December 31, 1996, respectively 675,000 1,706,000
Other assets 1,648,000 2,239,000
------------- -------------
Total assets $ 72,815,000 $ 104,726,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Long-term notes payable, collateralized by deeds of trust on
rental properties $ 24,371,000 $ 32,263,000
Senior Lender Group Notes Payable 27,849,000 44,467,000
Line of credit 7,598,000 8,583,000
Accounts payable and accrued liabilities 2,969,000 3,446,000
Other liabilities 272,000 343,000
------------- -------------
63,059,000 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; 15,167,000
and 14,073,000 shares issued and outstanding at September 30, 1997 and
December 31, 1996, respectively; net of unaccreted discount of $1,677,000
and $1,881,000 at September 30, 1997 and December 31, 1996, respectively;
liquidation preference of $30,334,000 and $28,146,000 at September 30, 1997
and December 31, 1996, respectively 28,657,000 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 (32,257,000) (29,734,000)
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 72,815,000 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Hotel $ 3,475,000 $ 3,166,000 $ 10,401,000 $ 9,533,000
Commercial properties 2,354,000 2,704,000 7,108,000 8,512,000
Interest 47,000 362,000 222,000 1,086,000
Other 25,000 33,000 310,000 75,000
------------ ----------- ------------ ------------
5,901,000 6,265,000 18,041,000 19,206,000
------------ ----------- ------------ ------------
EXPENSES:
Hotel operating expenses 2,681,000 2,630,000 7,724,000 7,847,000
Commercial property operating expenses 869,000 922,000 2,252,000 2,984,000
Hotel and commercial property management fees 83,000 198,000 479,000 570,000
Depreciation and amortization 815,000 714,000 2,377,000 2,149,000
Interest 1,401,000 2,041,000 4,376,000 6,170,000
General and administrative 970,000 658,000 2,526,000 3,746,000
------------ ----------- ------------ ------------
6,819,000 7,163,000 19,734,000 23,466,000
------------ ----------- ------------ ------------
Loss before gain on foreclosure
or sale of investments, valuation losses,
extraordinary item and minority interest (918,000) (898,000) (1,693,000) (4,260,000)
Gain on foreclosure or sale of investments -- 608,000 1,122,000 1,140,000
------------ ----------- ------------ ------------
Loss before valuation losses,
extraordinary item and minority interest (918,000) (290,000) (571,000) (3,120,000)
Valuation losses -- (1,184,000) -- (3,428,000)
------------ ----------- ------------ ------------
Loss before extraordinary item and
minority interest (918,000) (1,474,000) (571,000) (6,548,000)
Extraordinary item - debt forgiveness -- 151,000 440,000 151,000
------------ ----------- ------------ ------------
Loss before minority interest (918,000) (1,323,000) (131,000) (6,397,000)
Minority interest -- 123,000 -- 69,000
------------ ----------- ------------ ------------
Net loss $ (918,000) $(1,200,000) $ (131,000) $ (6,328,000)
========== =========== ============ ============
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
LOSS PER COMMON SHARE OF BENEFICIAL INTEREST:
Net loss $(918,000) $(1,200,000) $ (131,000) $(6,328,000)
Preferred Stock dividends, net of discounts (718,000) (641,000) (2,072,000) (1,857,000)
Accretion of discounts on Preferred Stock (112,000) (91,000) (320,000) (259,000)
----------- ----------- ----------- -----------
Net loss attributable to Common Shares of
Beneficial Interest $(1,748,000) $(1,932,000) $(2,523,000) $(8,444,000)
=========== =========== =========== ===========
Loss per Common Share of Beneficial Interest
before extraordinary item $ (0.36) $ (0.43) $ (0.61) $ (1.76)
Extraordinary item per Common Share of
Beneficial Interest -- 0.03 0.09 0.03
----------- ----------- ----------- -----------
Net loss per share attributable to Common Shares
of Beneficial Interest $ (0.36) $ (0.40) $ (0.52) $ (1.73)
=========== =========== =========== ===========
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>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (131,000) $ (6,328,000)
----------- ------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Interest and fees added to principal balance of debt 98,000 3,638,000
Depreciation and amortization 2,377,000 2,149,000
Gain on foreclosure or sale of investments (1,122,000) (1,140,000)
Minority interest in net income -- (69,000)
Extraordinary item, forgiveness of debt (440,000) (151,000)
Valuation losses -- 3,428,000
Changes in other assets and liabilities:
Decrease in rents, accrued interest and other
receivables 354,000 138,000
Increase in other assets (443,000) (1,059,000)
Decrease in accounts payable and accrued
liabilities (8,000) (243,000)
Increase in other liabilities (1,000) (7,000)
----------- ------------
Total adjustments to net loss 815,000 6,684,000
----------- ------------
Net cash provided by operating activities 684,000 356,000
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 20,332,000 19,568,000
Purchase of marketable securities (1,829,000) (15,849,000)
Principal collections on marketable securities 1,664,000 257,000
Improvements to rental properties (1,211,000) (1,909,000)
Purchase of office equipment (39,000) --
Principal collections on notes receivable 388,000 43,000
----------- ------------
Net cash provided by investing activities 19,305,000 2,110,000
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term notes payable (2,431,000) (71,000)
Principal (payments) borrowings on Line of Credit, net (1,083,000) 2,338,000
Principal payments on Senior Lender Group Notes Payable (16,618,000) (1,405,000)
Decrease (increase) in restricted cash 854,000 (4,318,000)
----------- ------------
Net cash used in financing activities (19,278,000) (3,456,000)
----------- ------------
Net increase (decrease) in unrestricted cash 711,000 (990,000)
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 $ 1,985,000 $ 4,089,000
============ ============
</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" or "Senior
Lender Group Notes").
At September 30, 1997, Peregrine owned nineteen commercial properties
located primarily in the Sacramento area, three hotel properties located in
Northern California, a partnership interest and one mortgage note 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 September 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 nine months ended September 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 nine months ended September 30, 1996 and
unaudited statements cash flows for the nine months ended September 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 of 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 September 30, 1997, the Pomona Road industrial building, located in
Corona, California, with a carrying value of $945,000 was 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 September 30, 1997, there were no notes receivable 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 September 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 nine month
periods ended September 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 September 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 has the first
right of refusal to acquire the property. On September 24, 1997, Peregrine
exercised its first right of refusal to acquire the property; however, at this
time it is uncertain whether the purchase will be consummated prior to the end
of the due diligence period or whether Peregrine will terminate the agreement.
At September 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 September 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 nine month period ended September 30, 1997, the Trust
reported no valuation losses. During the nine month period ended September 30,
1996, the Trust reported total valuation losses of $3,428,000, which were
attributable to impairment in the values of CalREIT's Fulton Square Shopping
Center in Sacramento, California of $994,000 and the Totem Square property in
Kirkland, Washington of $749,000, an impairment in the value of Peregrine's
Timberlake Medical Building in Sacramento, California of $295,000, which was
sold in August 1996, and an impairment in the value of Peregrine's Placer Ranch
Partnership Investment of $1,390,000, which was sold in July 1996.
7
<PAGE> 11
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
3. Investments in Marketable Securities
At September 30, 1997, Peregrine had $165,000 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 September 30, 1997,
Peregrine's "available-for-sale" securities consisted of U.S. Treasury Notes and
investment grade commercial paper whose interest rates range from 5.35% to 6.00%
and whose maturity dates range from October 1, 1997 to January 31, 1998.
Unrealized gains and losses on the marketable securities are not significant at
September 30, 1997. 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.
8
<PAGE> 12
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
4. Restricted Cash
At September 30, 1997 and December 31, 1996, cash of $132,000 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 account for the benefit of the Senior Lender Group.
5. Long-Term Notes Payable
At September 30, 1997 and December 31, 1996, the Trust had long-term
notes payable, excluding the Senior Lender Group Notes Payable and the Line of
Credit, of $24,371,000 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 $28,934,000 and $38,695,000, at September
30, 1997 and December 31, 1996, respectively.
On June 30, 1997, Peregrine reached an agreement with the first
mortgage note lender on the 3900 Lennane Drive property to purchase the
mortgage note and related obligations at a discount. 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. The note was paid off at a discount on July 3, 1997. Management is
currently performing improvements at the property and is concentrating its
efforts on leasing the vacant building.
9
<PAGE> 13
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
6. Related-Party Transactions
Peregrine and CalREIT are both self-administered. During the nine month
period ended September 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 on 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 September 30, 1997 and December 31, 1996, Peregrine had amounts due
from CalREIT aggregating $10,000 and $31,000, respectively.
Peregrine utilized the services of certain of its former independent
Trustees during the nine month periods ended September 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. (see Note 12 to
financial statements). In connection with the consulting services performed, the
following amounts were paid to such Trustees (or affiliated companies) during
the nine month periods ended September 30, 1997 and 1996, in addition to the
quarterly and meeting fees paid to the Trustees:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
The McMahan Group (John McMahan, former Trustee) $ 9,000 $69,000
John McMahan, former Trustee -- 68,000(1)
John F. Salmon, former Trustee 6,000 46,000
The Presidio Group (Kenneth T. Seeger, former Trustee) 59,000 41,000
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.
10
<PAGE> 14
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
7. Gain on Foreclosure or Sale of Investments
Components of the gain on foreclosure or sale of investments for the
three and nine month periods ended September 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
Components 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sale of Corona Sherman Note $ -- $ -- $ 110,000 $ --
Sale of Investment in CalREIT -- -- 1,012,000 --
Sale of Timberlake Medical Building -- (38,000) -- (38,000)
Sale of Investment in Placer Ranch Partnership -- 129,000 -- 129,000
Sale of Fountain View Office Building Note -- 130,000 -- 130,000
Sale of Aster Avenue Industrial Complex Note -- 387,000 -- 387,000
Sale of Bekins Storage Facility -- -- -- (164,000)
Sale of Sierra Oaks Shopping Center -- -- -- (63,000)
Sale of Pavilions at Mesa Note -- -- -- 430,000
Sale of Spacesaver Mini-Storage Note -- -- -- 30,000
Sale of Redfield Commerce Center -- -- -- 299,000
----- --------- ---------- ----------
$ -- $ 608,000 $1,122,000 $1,140,000
===== ========= ========== ==========
</TABLE>
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.
In August 1996, Peregrine sold the Timberlake Medical Building. The book
value of the property on the date of the transaction was $521,000. The
Timberlake Medical Building was sold for $550,000 with $67,000 in related
selling costs and credits to the buyer and $477,000 in liabilities applied
towards the selling price, resulting in a loss of $38,000.
In July 1996, Peregrine sold its Placer Ranch Partnership Investment,
which had a net book value of $2,610,000, for $2,739,000, resulting in a gain of
$129,000.
11
<PAGE> 15
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
7. Gain on Foreclosure or Sale of Investments, continued
During the third 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 building in Scottsdale,
Arizona, was sold for $753,000 with $15,000 in selling costs. The book value of
the note on the date of the sale was $608,000, resulting in a gain of $130,000.
The second note, which was collateralized by a first deed of trust on an
office/industrial building in Sunnyvale, California, had a book value of
$1,574,000 on the transaction date and was sold for $2,000,000. Selling costs of
$39,000 were incurred in connection with the sale, resulting in a gain of
$387,000.
No gain or loss was recorded in June 1996, upon the early payoff of
Peregrine's mortgage note with a 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 $3,150,000. 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.
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.
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 a 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 for $592,000. Selling costs of
$16,000 were incurred in connection with the sale, resulting in a gain of
$30,000.
In March 1996, CalREIT sold the Redfield Commerce Center. The book value
of the property on the date of the transaction was $743,000. 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.
12
<PAGE> 16
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
Peregine recorded income from debt forgiveness of $418,000 in
connection with the discounted payoff of the outstanding mortgage obligations
(note, accrued interest and other liabilities) on the 3900 Lennane Drive
property during the quarter ended June 30, 1997, and $22,000 during the quarter
ended March 31, 1997, in connection with the extinguishment of certain debt
related to the bankruptcy proceedings.
Peregine recorded income from debt forgiveness of $151,000 during the
quarter ended September 30, 1996, in connection with the extinguishment of
certain debt related to the bankruptcy proceedings.
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 Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Sales price less selling costs and credits $ 110,000 $ 25,140,000
Notes payable assumed by buyer or
paid through escrow -- (5,443,000)
Other liabilities assumed by buyer or
applied to the sale price -- (129,000)
--------- ------------
Net cash received $ 110,000 $ 19,568,000
========= ============
</TABLE>
13
<PAGE> 17
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
9. Statement of Cash Flows Supplemental Information, continued
One parcel of land located in Sacramento, California 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, California with a carrying
value of $82,000 were returned to the bondholder 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 asset was equal to the carrying value of the
debt; therefore, no gain or loss on foreclosure was recorded.
Additionally, on March 31, June 30, and September 30, 1997, Peregrine
issued Redeemable Convertible Preferred Stock in the face amounts of $702,000,
$729,000, and $756,000, 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, $660,000, and $684,000,
respectively, on March 31, June 30, and September 30, 1996. On March 31, June
30, and September 30, 1996, Interest Deferral Notes at 8.5% per annum in the
principal amount of $933,000, $944,000, and $967,000, 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, June 30, and September
30, 1997, the outstanding balance on the Line of Credit was increased by $0, $0,
and $98,000, respectively for interest and expenses incurred. During the three
month periods ended March 31, June 30, and September 30, 1996, the outstanding
balance on the Line of Credit was increased by $169,000, $260,000, and $245,000,
respectively, for interest and expenses incurred.
Cash paid for interest during the three month periods ended September
30, 1997 and 1996, was $1,381,000 and $848,000, respectively. Cash paid for
interest during the nine month periods ended September 30, 1997 and 1996, was
$4,396,000 and $2,670,000 respectively.
14
<PAGE> 18
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
10. Per Share Data
Per share data for the three and nine month periods ended September 30,
1997 and 1996, was 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 were 53,332 and 113,330 stock options outstanding
at September 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 computations were
4,881,000 during the three and nine month periods ended September 30, 1997 and
1996.
11. Distributions
No cash distributions were made to the holders of Common Shares of
Beneficial Interest during the three and nine month periods ended September 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
Litigation
At September 30, 1997, Peregrine was a party to a number of lawsuits.
Most involved ordinary disputes common in the real estate property management
business and the amounts were immaterial to the overall financial position of
Peregrine.
15
<PAGE> 19
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
12. Commitments and contingencies, continued
Litigation, continued
During the previous quarter, Peregrine was a defendant in a case filed
by MDC REIT Holdings, L.L.C. ("MDC") in California state court, on December 24,
1996. Peregrine believes that there was no merit as to the claims; however, in
an effort to limit its exposure to attorney fees and costs and possible losses,
Peregrine entered into a settlement agreement with MDC in September 1997. In
accordance with the settlement agreement, Peregrine paid MDC $250,000 in
exchange for a full and complete settlement of the action.
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.
- The Line of Credit matured on October 7, 1997, and Peregrine has not
repaid the amounts outstanding thereunder, resulting in an event of
default under the Line of Credit and the Senior Lender Group Notes.
Peregrine is currently negotiating the terms of a new line of credit
with another lender; however, there can be no assurance that Peregrine
and the lender will be able to agree upon the terms of a line of credit
and no assurance that an agreement will be signed or that the lender on
the existing Line of Credit or the holders of the Senior Lender Group
Notes will not exercise remedies that are available to them based upon
the default by Peregrine under the terms of their respective agreements
prior to the execution of a new line of credit. Failure to obtain a new
line of credit or the exercise by the lender on the existing Line of
Credit or holders of the Senior Lender Group Notes of their remedies for
the default under their respective agreements prior to the execution of
a new line of credit would have a material adverse effect on Peregrine.
See also Note 13 to Financial Statements.
- Subsequent to its emergence from bankruptcy on October 7, 1994,
Peregrine has incurred cumulative losses through September 30, 1997, of
approximately $24,000,000.
- At September 30, 1997, Peregrine estimates that additional capital
expenditures of approximately $1,500,000 to $2,000,000 are necessary at
the Sacramento hotel property in order to comply with Holiday Inn
franchise requirements; however, management expects to exceed Holiday
Inn's requirements and perform additional refurbishments at the hotel.
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 on February 4, 1997.
Management negotiated with Holiday Inn and received an extension of time
to September 19, 1997, with respect to both its Chico and Sacramento
hotels, in which to complete the refurbishments required. The
refurbishments at the Chico Holiday Inn were completed prior to
September 19, 1997, and on October 16, 1997, Peregrine received written
notice from Holiday Inn that an inspection had been completed and the
default had been cured. 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 was out
dated, management met with Holiday Inn representatives to discuss the
required refurbishments and develop a plan for completion of them. Based
upon this, Peregrine agreed to renew its Holiday Inn License for its
Sacramento hotel prior to the expiration of the existing License, in
exchange, Holiday Inn conducted a new Property Improvement Plan
Inspection on August 1, 1997, and issued a new list of required
refurbishments. The required refurbishments must be completed in
accordance with a milestone completion timetable issued by Holiday Inn
which requires that all refurbishments must be completed within nine
months of the execution date of the new License Agreement. The License
Agreement is expected to be executed before November 30, 1997, and the
refurbishments are expected to be completed prior to August 31, 1998.
Should the refurbishments not be completed in a timely manner or should
they not meet Holiday Inn's standards, Holiday Inn may assert that
Peregrine is in default of the License Agreement and Holiday Inn could
attempt to terminate the License Agreement. If the License Agreement is
terminated, 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 $850,000.
16
<PAGE> 20
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
12. Commitments and contingencies, continued
Financial Status of The Peregrine Real Estate Trust, continued
- 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 $2,569,000.
17
<PAGE> 21
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
13. Subsequent Events
On October 7, 1997, Peregrine's Line of Credit matured. Prior to the
maturity date, Peregrine began negotiations with the lender to extend the
maturity date of the Line of Credit because Peregrine did not have sufficient
capital resources to repay amounts outstanding under the Line of Credit.
Peregrine did not agree to the terms of the extension agreement proposed and
did not make the required payment on the Line of Credit on the maturity date,
resulting in an event of default on the Line of Credit. On October 10, 1997,
Peregrine received an official notice of default and demand for payment from
the lender. On the date that the Line of Credit matured, the outstanding
balance on the Line of Credit, including all accrued interest and fees, was
$7,618,000. Amounts outstanding under the Line of Credit bear interest at a
default rate of 4.75% over prime (as defined in the Line of Credit Agreement).
As of November 14, 1997, the default rate was 13.25% per annum. The default on
the Line of Credit resulted in a cross-default on the Senior Lender Group
Notes; however, no notice of default has been received from the Senior Lender
Group. The outstanding balance on the Senior Lender Notes on the date of
default, including accrued interest, was $27,895,000.
18
<PAGE> 22
- ------------------------------------------------------------------------------
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 nine
months ended September 30, 1997 represent results of Peregrine only; operating
and financial results for the three and nine months ended September 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 September 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.
19
<PAGE> 23
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
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.
In an effort to reduce costs, Peregrine terminated the outside management
contract relating to its commercial property portfolio in August 1997 and the
outside management contracts relating to its hotel properties in October 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;
20
<PAGE> 24
- The additional $1,500,000 to $2,000,000 in estimated capital improvements
required to complete the refurbishments of the Sacramento hotel property in
accordance with Holiday Inn franchise standards, that if not completed,
could result in the termination of the Holiday Inn License Agreement
which would 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; and
- The limited sources and amount of funds currently available to Peregrine
from operations and financial resources such as 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. The Line of
Credit matured on October 7, 1997 and Peregrine did not have sufficient
capital resources to pay amounts outstanding and due thereunder, resulting
in an event of default under the terms of the Line of Credit and a
cross-default on the Senior Lender Group Notes. While Peregrine is currently
negotiating to obtain alternative financing, there can be no assurance that
it will be able to obtain such financing or that the lender under the Line
of Credit or holders of the Senior Lender Group Notes will not exercise
their remedies under their respective agreements before Peregrine obtains
alternative financing.
Comparison of the Nine Months and Three Months Ended September 30, 1997 to the
Nine Months and Three Months Ended September 30, 1996
Net Loss of $131,000 was reported by Peregrine for the nine months ended
September 30, 1997, a decrease of $6,197,000 from the net loss of $6,328,000 for
the nine months ended September 30, 1996. Net loss of $918,000 was reported by
Peregrine for the three months ended September 30, 1997, a decrease of $282,000
from the net loss of $1,200,000 for the three months ended September 30, 1996.
Revenues
Total revenues were $18,041,000 during the nine months ended September 30, 1997,
down $1,165,000, or 6%, from total revenues of $19,206,000 during the nine
months ended September 30, 1996. Total revenues decreased $364,000, or 6%, from
total revenues of $6,265,000 during the three months ended September 30, 1996,
to total revenues of $5,901,000 during the three months ended September 30,
1997.
Hotel Revenues. Hotel revenues increased $868,000, or 9%, to $10,401,000 for the
nine months ended September 30, 1997, and $309,000, or 10%, to $3,475,000 for
the three months ended September 30, 1997. This was up from $9,533,000 and
$3,166,000 for the nine and three months ended September 30, 1996, respectively.
The increase during the nine months ended September 30, 1997 was attributable to
an overall increase in room occupancy, room rates and guest services of
$913,000; 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 September 30, 1997 was attributable to an overall
increase in room occupancy, room rates, and guest services of $309,000.
21
<PAGE> 25
Commercial Property Revenues. Commercial property revenues for the nine months
ended September 30, 1997 were $7,108,000, a decrease of $1,404,000, or 16%, from
revenues of $8,512,000 for the nine months ended September 30, 1996. Commercial
property revenues decreased $350,000, or 13%, to $2,354,000 for the three months
ended September 30, 1997, down from $2,704,000 for the three months ended
September 30, 1996. The decrease for the nine months ended September 30, 1997 is
primarily attributable to the absence of $1,585,000 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; and the absence of
$88,000 in revenues from the Timberlake Medical Building, which was sold in
August 1996; offset by an overall increase in revenues of $464,000 on the
remaining commercial property portfolio, attributable to an overall increase in
occupancy. The decrease for the three months ended September 30, 1997 is
primarily attributable to the absence of $481,000 in commercial property
revenues from CalREIT; and the absence of $35,000 from Timberlake; offset by an
overall increase in revenues of $166,000 on the remaining commercial property
portfolio.
Interest Revenue. Interest revenue decreased $864,000, or 80%, to $222,000 for
the nine months ended September 30, 1997, and $315,000, or 87%, to $47,000 for
the three months ended September 30, 1997. This was down from $1,086,000 for the
nine months ended September 30, 1996, and $362,000 for the three months ended
September 30, 1996. The decrease for the nine months ended September 30, 1997 is
primarily attributable to the absence of $837,000 of interest revenue from
CalREIT, which was sold on January 3, 1997; and the absence of $111,000 in
interest revenue from mortgage notes due primarily to the payoff of a $2,240,000
note in June 1996; offset by an increase in interest revenue on cash accounts of
$84,000, resulting from an increased cash balance during the period. The
decrease for the three months ended September 30, 1997 is primarily attributable
to the absence of $289,000 in interest revenue from CalREIT; and the absence of
$22,000 in interest revenue due to the $2,240,000 mortgage note paid off in June
1996, and a decrease in interest earned on cash accounts of $4,000.
Other Revenue. Other revenue increased $235,000, or 313%, to $310,000 for the
nine months ended September 30, 1997, up from $75,000 for the nine months ended
September 30, 1996. Other revenue decrease $8,000, or 24%, from $33,000 during
the three months ended September 30, 1996, to $25,000 for the three months ended
September 30, 1997. Other revenue during the nine months ended September 30,
1997 was primarily attributable to revenue of $250,000 recognized in connection
with the settlement of two corporate lawsuits; $45,000 in revenue attributable
to settlements with former tenants; 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 September 30, 1997 was primarily
attributable to revenue of $24,000 recognized in connection with settlements
from former tenants as discussed above. Other revenues during the nine months
ended September 30, 1996, were primarily attributable to revenue of $21,000
resulting from settlements with former tenants and vendors and revenue of
$46,000 resulting from prior year property tax refunds on properties formerly
owned by Peregrine. Other revenues during the three months ended September 30,
1996 were primarily attributable to revenue of $13,000 resulting from
settlements with former tenants and vendors and revenue of $9,000 resulting
from prior year property tax refunds on properties formerly owned by Peregrine.
22
<PAGE> 26
Total Expenses
Total expenses were $19,734,000 during the nine months ended September 30, 1997,
down $3,732,000, or 16%, from total expenses of $23,466,000 during the nine
months ended September 30, 1996. Total expenses were $6,819,000 during the three
months ended September 30, 1997, a decrease of $344,000 or 5%, from total
expenses of $7,163,000 during the three months ended September 30, 1996.
Operating Expenses. Hotel operating expenses decreased $123,000, or 2%, from
$7,847,000 during the nine months ended September 30, 1996, to $7,724,000 during
the nine months ended September 30, 1997. Hotel operating expenses increased
$51,000, or 2%, to $2,681,000 during the three months ended September 30, 1997,
up from $2,630,000 for the three months ended September 30, 1996. The decrease
for the nine months ended September 30, 1997 was attributable to the absence of
expenses at the Park Terrace Inn of $311,000, which was sold in October 1996;
offset by an overall increase in operating expenses of $188,000 at the remaining
hotels, which was primarily attributable to an overall increases in franchise
fees, travel agent commissions, salaries and wages and guest service amenities
resulting from increased occupancy, which was partially offset by an overall
decrease in property taxes, resulting from successful tax appeals. The increase
for the three months ended September 30, 1997 attributable to an overall
increase in operating expenses at the hotels of $171,000 as a result of an
overall increase in occupancy; offset by the absence of expenses at the Park
Terrace Inn of $120,000.
Commercial property operating expenses decreased $732,000, or 25%, to $2,252,000
for the nine months ended September 30, 1997, and $86,000, or 9%, to $836,000
for the three months ended September 30, 1997. This was down from $2,984,000 and
$922,000 for the nine and three months ended September 30, 1996, respectively.
The decrease during the nine months ended September 30, 1997 was attributable to
the absence of $475,000 in operating expenses for CalREIT, which was sold on
January 3, 1997; the absence of $89,000 in operating expenses at the Sierra Oaks
Shopping Center, which was sold in April 1996; the absence of $60,000 in
operating expenses at the Timberlake Medical Building, which was sold in August
1996; and an overall decrease in operating expenses of $108,000 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. The decrease in operating expenses during the three months
ended September 30, 1997 was due to the absence of $149,000 in expenses from
CalREIT; and the absence of $6,000 in operating expenses at Timberlake; offset
by an overall increase in operating expenses of $69,000 on the remaining
commercial property portfolio, primarily attributable to increased repair and
maintenance and landscaping expenses incurred as a result of previously deferred
maintenance and the wages and benefits directly attributable to the property
management staff hired by Peregrine when it internalized the property management
in August 1997; partially offset by decreased property taxes expenses which
resulted from successful property tax appeals.
23
<PAGE> 27
Commercial and Hotel Property Management Fees. Commercial and hotel property
management fees decreased $91,000, or 16%, from $570,000 for the nine months
ended September 30, 1996, to $479,000 for the nine months ended September 30,
1997. Management fees decreased $82,000, or 41%, to $116,000 during the three
months ended September 30, 1997, down from $198,000 during the three months
ended September 30, 1996. The decrease during the nine months ended September
30, 1997 was due to the absence of $76,000 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 $25,000 at the Park
Terrace Inn, which was sold in October 1996; and an overall decrease in
management fees at the commercial properties of $32,000 due primarily to the
termination of the outside management contract in August 1997 when Peregrine
internalized the management of its commercial property portfolio; offset by an
overall increase in management fees of $52,000 on the hotel property portfolio,
attributable to the increase in hotel revenues. The decreased management fees
for the three months ended September 30, 1997, was due to the absence of $20,000
in management fees attributable to CalREIT; the absence of $7,000 in management
fees at the Park Terrace Inn; an overall decrease in management fees at the
commercial properties of $35,000 due to internalizing the management of its
commercial property portfolio in August 1997; and an overall decrease of $20,000
on the hotel property portfolio, resulting from a change in management companies
at the Chico hotel in October 1996, which was partially offset by increased
management fees at the Sacramento and Walnut Creek hotels due to increased hotel
revenues.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased $228,000, or 11%, from $2,149,000 for the nine months ended September
30, 1996, to $2,377,000 for the nine months ended September 30, 1997.
Depreciation and amortization increased $101,000, or 14%, to $815,000 for the
three months ended September 30, 1997, up from $714,000 for the three months
ended September 30, 1996. The increase in depreciation and amortization during
the nine months ended September 30, 1997 is primarily attributable to an
increase in depreciation and amortization of $355,000 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 $44,000 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 Inn of
$15,000 and $68,000, respectively, which were sold in August and October 1996,
respectively. The increase in depreciation and amortization during the three
months ended September 30, 1997 is primarily attributable to an increase in
depreciation and amortization of $131,000 on the commercial and hotel property
portfolio; offset by the absence of depreciation and amortization of $19,000 and
$11,000 from CalREIT and the Park Terrace Inn, respectively.
24
<PAGE> 28
Interest Expense. Interest expense decreased $1,794,000, or 29%, from
$6,170,000 for the nine months ended September 30, 1996, to $4,376,000 for the
nine months ended September 30, 1997. Interest expense decreased $640,000, or
31%, to $1,401,000 during the three months ended September 30, 1997, down from
$2,041,000 during the three months ended September 30, 1996. The decrease for
the nine months ended September 30, 1997 is primarily attributable to the
absence of $410,000 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 $25,000 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 $134,000 in
interest on the first mortgage note on the Park Terrace Inn, which was paid in
full when the subject property was sold in October 1996; a decrease in interest
on the Senior Lender Notes of $1,002,000 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; and a decrease in interest expense on
pre-petition property taxes of $22,000 due to principal payments; offset by an
increase in interest expense on the Line of Credit of $15,000 due primarily to a
higher rate of interest during the nine months ended September 30, 1997. The
decrease during the three months ended September 30, 1997 is primarily
attributable to the absence of interest expense from CalREIT of $136,000; the
absence of interest expense of $4,000 and $45,000 attributable to Timberlake and
Park Terrace, respectively; a decrease in interest on the Senior Lender Group
Notes of $361,000 attributable to a lower note balance during the period; a
decrease in interest on pre-petition property taxes of $8,000; a decrease in
interest expense on the 3900 Lennane Drive mortgage of $57,000 due to the
discounted purchase of the mortgage note in July 1997; and a decrease in
interest expense on the Line of Credit of $22,000 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
$2,526,000 during the nine months ended September 30, 1997, a decrease of
$1,220,000, or 33%, from expenses of $3,746,000 for the nine months ended
September 30, 1996. General and administrative expenses increased $312,000, or
47%, to $970,000 during the three months ended September 30, 1997, up from
$658,000 for the three months ended September 30, 1996. The decrease for the
nine months ended September 30, 1997 is primarily attributable to the absence of
$885,000 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
of $302,000 in consulting and appraisal costs 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 decrease in
accounting fees of $67,000 resulting from a reduction in the 1996 audit and tax
fees; and a decrease in bank charges of $26,000 resulting from a higher average
cash balance during the period; offset by the $250,000 legal settlement fee to
MDC incurred in September 1997; and $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 increase of $312,000 during the three months ended
September 30, 1997 is primarily attributable to the $250,000 legal settlement
fee to MDC incurred in September 1997; an increase of $166,000 in legal costs
due primarily to costs
25
<PAGE> 29
incurred in connection with the MDC lawsuit, bankruptcy issues and Security and
Exchange filings due to changes in the Board of Trustees and independent
accountants; and an increase in salaries, wages and benefits of $96,000 due
primarily to increased staffing resulting from the internalization of property
management; offset by the absence of $235,000 in general and administrative
expenses from CalREIT.
Many of the administrative costs to service Peregrine's large shareholder base
and to fulfill its 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 nine and three months ended September 30, 1997, Peregrine recorded
total gains on the foreclosure or sale of investments of $1,122,000 and $0,
respectively, as compared to total gains on the foreclosure or sale of
investments of $1,140,000 and $608,000 during the nine and three months ended
September 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 note, 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. During the third quarter of 1996,
Peregrine recorded a gain of $129,000 when it sold its interest in the Placer
Ranch Partnership in July 1996 and a loss of $38,000 upon the sale of the
Timberlake Medical Building in August 1996. CalREIT recorded gains of $130,000
and $387,000 during the third quarter of 1996 upon the sale of two its mortgage
notes which were collateralized by a first deed of trust on an office building
in Scottsdale, Arizona and an office/industrial building in Sunnyvale,
California, respectively.
Valuation Losses
During the nine and three months ended September 30, 1997, Peregrine recorded no
valuation losses. During the nine and three months ended September 30, 1996,
recorded valuation losses totaled $3,428,000 and $1,184,000, respectively. 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
26
<PAGE> 30
Building and an additional valuation loss of $264,000 was recorded by CalREIT
against Fulton Square. Valuation losses of $749,000 and $435,000 were recorded
by CalREIT during the third quarter of 1996 against its Totem Square property in
Kirkland, Washington and its Fulton Square property in Sacramento, California,
respectively.
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. In 1996, Peregrine recorded $151,000 of
income from debt forgiveness related to the extinguishment of certain debt
related to the bankruptcy proceedings, during the quarter ended September 30,
1996.
Dividends
Peregrine made no cash distributions during the nine and three months ended
September 30, 1997 or 1996. In addition, Peregrine is substantially restricted
from paying dividends pursuant to the terms of the Line of Credit and Senior
Lender Group Notes and does not anticipate making any cash distributions to
shareholders in the foreseeable future.
Commercial and Hotel Property Operations
At September 30, 1997 and September 30, 1996, overall average weighted occupancy
levels by property type were as follows:
<TABLE>
<CAPTION>
Overall Occupancy
Property Type September 30, 1997 September 30, 1996
------------- ------------------ ------------------
<S> <C> <C>
Retail Shopping Centers 77% 80%
Office Buildings 75% 72%
Industrial Buildings 88% 90%
Mini-Storage Facilities 87% 95%
Hotels 71% 70%
CalREIT Properties N/A 84%
</TABLE>
The overall weighted average occupancy level is calculated by multiplying the
occupancy by square footage (or rooms available) and dividing the total by the
total square footage (or rooms available) in the portfolio. The overall weighted
average occupancy for Peregrine's commercial portfolio (excluding CalREIT) as of
September 30, 1997 was 81% and as of September 30, 1996 was 82%.
27
<PAGE> 31
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 $1,985,000 in unrestricted cash at September 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 nine months ended September 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 September 30, 1997, $1,002,000 remained available on the
Line of Credit.
Debt service paid on Peregrine's first mortgage notes totaled $4,206,000 during
the nine months ended September 30, 1997, which includes the discounted payoff
of the 3900 Lennane Drive mortgage note. Total debt service requirements on
first mortgage notes in 1997, excluding the 3900 Lennane Drive mortgage note,
are approximately $2,646,000. Interest paid on the Senior Lender Group Notes
during the nine months ended September 30, 1997 totaled $1,971,000. 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 $2,569,000,
based on actual interest during the nine months ended September 30, 1997, and
interest for the fourth quarter of 1997 based upon the current principal balance
outstanding of $27,849,000.
At September 30, 1997, Peregrine's short and long-term cash commitments include
approximately $1,500,000 to $2,000,000 in remaining capital expenditures
required to complete the refurbishment of its Sacramento hotel property in
accordance with Holiday Inn Franchise standards; the maturity of the Line of
Credit in October 1997; debt service payments on its first mortgage notes of
approximately $2,646,000 per year; interest on its Senior Lender Group
28
<PAGE> 32
Notes currently estimated at $2,367,000 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 20% share of the net proceeds received
from its disposition of its 76% stock ownership interest in CalREIT on January
3, 1997, and an operating line of credit, 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. In the event that Peregrine is unable to obtain a new line of
credit, or it loses its Holiday Inn License on its Sacramento hotel property,
Peregrine will face significant liquidity issues and may be forced to sell
certain of its assets or pursue other restructuring alternatives.
On October 7, 1997, Peregrine's Line of Credit matured. Prior to the maturity
date, Peregrine began negotiations with the lender to extend the maturity date
of the Line of Credit because Peregrine did not have sufficient capital
resources to repay amounts outstanding under the Line of Credit. Peregrine did
not agree to the terms of the extension agreement proposed and did not make the
required payment on the Line of Credit on the maturity date, resulting in an
event of default on the Line of Credit. On October 10, 1997, Peregrine received
an official notice of default and demand for payment from the lender. On the
date that the Line of Credit matured, the outstanding balance on the Line of
Credit, including all accrued interest and fees, was $7,618,000. Amounts
outstanding under the Line of Credit bear interest at a default rate of 4.75%
over prime (as defined in the Line of Credit Agreement). As of November 14,
1997, the default rate was 13.25% per annum. The default on the Line of Credit
resulted in a cross-default on the Senior Lender Group Notes; however, no
notice of default has been received from the Senior Lender Group. The
outstanding balance on the Senior Lender Group Notes on the date of default,
including accrued interest, was $27,895,000.
Peregrine is currently negotiating the terms of a new line of credit with
another lender; however, there can be no assurance that Peregrine and the
lender will be able to agree upon the terms of a line of credit and no
assurance that an agreement will be signed, or that the lender on the existing
Line of Credit or the holders of the Senior Lender Group Notes will not
exercise remedies that are available to them based upon the default by
Peregrine under the terms of their respective agreements prior to the execution
of a new line of credit. Failure to obtain a new line of credit or the exercise
by the lender on the existing Line of Credit or holders of the Senior Lender
Group Notes of their remedies for the default under their respective agreements
prior to the execution of a new line of credit would have a material adverse
effect on Peregrine.
Peregrine experienced a net increase in unrestricted cash of $711,000 for the
nine months ended September 30, 1997 as compared to a net decrease in
unrestricted cash of $990,000 for the nine months ended September 30, 1996, a
difference of $1,701,000. For the nine months ended September 30, 1997 cash
provided by operating activities was $815,000, down $5,869,000 from cash
provided by operating activities of $6,684,000 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
nine months ended September 30, 1997
29
<PAGE> 33
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 three 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.
30
<PAGE> 34
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
During the previous quarter, 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 alleged 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 was seeking
damages it allegedly incurred in excess of $900,000, and recovery of its
attorney fees, costs, and interest. Management believed, and had been advised by
its counsel, that MDC's claims were without merit. Peregrine answered the
complaint, denying any breach of the stock purchase agreement and asserting
numerous affirmative defenses to MDC's claims; however, there was no assurance
as to the outcome of this litigation and any adverse decision could have had a
material adverse effect on Peregrine. In an effort to limit its exposure to
attorney fees and costs and possible losses, Peregrine entered into a
settlement agreement with MDC in September 1997. In accordance with the
settlement agreement, Peregrine paid MDC $250,000 in exchange for a full and
complete settlement of the action.
Item 3: Default Upon Senior Securities
The Line of Credit matured on October 7, 1997 and Peregrine did not have
sufficient capital resources to pay amounts outstanding and due thereunder,
resulting in an event of default under the terms of the Line of Credit and a
cross-default on the Senior Lender Group Notes. On the date that the Line of
Credit matured, the outstanding balance on the Line of Credit, including all
interest and fees, was $7,618,000. The default on the Line of Credit resulted
in a cross-default on the Senior Lender Group notes; however, no notice of
default has been received from the Senior Lender Group. The outstanding balance
on the Senior Lender Group Notes on the date of default, including accrued
interest, was $27,895,000. The outstanding balance on the Line of Credit and
Senior Lender Group Notes, including accrued interest and fees, as of November
14, 1997, the date of this filing, was $7,729,000 and $27,941,000, respectively.
Item 5: Other Information
On October 7, 1997, Mr. Bruce Karsh resigned from the Board of Trustees and Mr.
Michael Joseph was appointed by the remaining Board of Trustees to fill the
vacancy.
31
<PAGE> 35
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
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)
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 (7)
27 Financial Data Schedule
</TABLE>
(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.
(7) Incorporated herein by reference to Peregrine's Report on Form 10Q for
the period ended June 30, 1997.
(b) Reports on Form 8-K
Peregrine filed a Current Report on Form 8-K on September 19, 1997,
reporting under Item 4 of such Form, Changes in Registrant's Certifying
Accountant, with respect to the termination of Coopers & Lybrand, LLP
and the appointment of Deloitte & Touche, LLP as Peregrine's independent
accountant.
32
<PAGE> 36
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEREGRINE REAL ESTATE TRUST
November 14, 1997 /s/Wendy G. Powell
- ----------------- ------------------------------
Wendy G. Powell
Vice President and Chief
Accounting Officer
33
<PAGE> 37
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,117
<SECURITIES> 165
<RECEIVABLES> 1,109
<ALLOWANCES> (101)
<INVENTORY> 0
<CURRENT-ASSETS> 3,290
<PP&E> 71,995
<DEPRECIATION> (4,118)
<TOTAL-ASSETS> 72,815
<CURRENT-LIABILITIES> 3,241
<BONDS> 59,818
28,657
0
<COMMON> 13,356
<OTHER-SE> (32,257)
<TOTAL-LIABILITY-AND-EQUITY> 72,815
<SALES> 0
<TOTAL-REVENUES> 19,163
<CGS> 0
<TOTAL-COSTS> (10,455)
<OTHER-EXPENSES> (4,903)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,376)
<INCOME-PRETAX> (571)
<INCOME-TAX> 0
<INCOME-CONTINUING> (571)
<DISCONTINUED> 0
<EXTRAORDINARY> 440
<CHANGES> 0
<NET-INCOME> (131)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)<F1>
<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>
