<PAGE>
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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
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Commission file number 0-9097
THE PEREGRINE REAL ESTATE TRUST
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(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
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(Address of principal executive offices) (Zip Code)
(916) 929-8244
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(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
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<PAGE>
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, 1998
- ------------------------------------ -----------------------------
Common Shares of Beneficial Interest 4,881,122
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THE PEREGRINE REAL ESTATE TRUST
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<TABLE>
<CAPTION>
<S> <C>
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Balance Sheets -
June 30, 1998 and December 31, 19971 1
Statements of Operations -
For the Three Months and Six Months Ended
June 30, 1998 and 1997 2-3
Statements of Cash Flows -
For the Six Months Ended
June 30, 1998 and 1997 4
Notes to Financial Statements 5 - 11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 18
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 19 - 20
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
THE PEREGRINE REAL ESTATE TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
(UNAUDITED) (AUDITED)
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<S> <C> <C>
ASSETS
INVESTMENTS:
Rental properties, net of accumulated depreciation of $6,144,000 and
$4,684,000 at June 30, 1998 and December 31, 1997, respectively $ 65,262,000 $ 65,700,000
Notes receivable, net of deferred gains of $78,000 and $79,000 at
June 30, 1998 and December 31, 1997, respectively 329,000 332,000
Restricted marketable securities available-for-sale 100,000 117,000
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65,691,000 66,149,000
Cash 9,749,000 1,247,000
Restricted cash 205,000 183,000
Rents, accrued interest receivable, net of allowance of $7,000 and
$41,000 at June 30, 1998 and December 31, 1997, respectively 518,000 720,000
Other assets 1,828,000 1,584,000
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Total assets $ 77,991,000 $ 69,883,000
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LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Long-term notes payable, collateralized by deeds of trust on
rental properties $ 24,125,000 $ 24,291,000
Senior Lender Group Notes Payable 26,930,000 26,930,000
Line of credit 17,416,000 8,021,000
Accounts payable and accrued liabilities 2,046,000 2,064,000
Other liabilities 253,000 258,000
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70,770,000 61,564,000
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Commitments and contingencies (Note 4 to financial statements)
Redeemable Convertible Preferred Stock: 25,000,000 shares authorized;
16,347,000 and 15,555,000 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively; net of
unaccreted discount of $1,403,000 and $1,595,000 at June 30, 1998
and December 31, 1997, respectively; liquidation preference of
$32,694,000 and $31,110,000 at June 30, 1998 and December 31, 1997,
respectively 31,290,000 29,515,000
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Common Shares of Beneficial Interest: 50,000,000 shares authorized; 4,881,000
shares outstanding 13,356,000 13,356,000
Accumulated deficit (37,425,000) (34,552,000)
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Total liabilities and shareholders' equity (deficit) $ 77,991,000 $ 69,883,000
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Hotel $ 3,563,000 $ 3,604,000 $ 6,758,000 $ 6,926,000
Commercial Properties 2,413,000 2,457,000 4,595,000 4,754,000
Interest 30,000 89,000 67,000 175,000
Other 3,000 272,000 18,000 285,000
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6,009,000 6,422,000 11,438,000 12,140,000
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EXPENSES:
Hotel operating expenses 2,736,000 2,561,000 5,263,000 5,043,000
Commercial property operating expenses 723,000 712,000 1,459,000 1,383,000
Hotel and commercial property management -- 233,000 -- 396,000
Depreciation and amortization 813,000 802,000 1,624,000 1,562,000
Interest 1,341,000 1,475,000 2,672,000 2,975,000
General and administrative 775,000 848,000 1,519,000 1,556,000
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6,388,000 6,631,000 12,537,000 12,915,000
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Loss before gain on foreclosure
or sale of investments, valuation losses,
extraordinary item and minority interest (379,000) (209,000) (1,099,000) (775,000)
Gain on foreclosure or sale of investments -- 110,000 -- 1,122,000
------------- ------------- ------------- ------------
(Loss) income before valuation losses,
extraordinary item and minority interest (379,000) (99,000) (1,099,000) 347,000
Valuation losses -- -- -- --
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(Loss) income before extraordinary item and
minority interest (379,000) (99,000) (1,099,000) 347,000
Extraordinary item - debt forgiveness -- 418,000 -- 440,000
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Income (loss) before minority interest (379,000) 319,000 (1,099,000) 787,000
Minority interest -- -- -- --
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Net income (loss) $ (379,000) $ 319,000 $ (1,099,000) $ 787,000
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</TABLE>
See accompanying notes to financial statements.
2
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THE PEREGRINE REAL ESTATE TRUST
STATEMENTS OF OPERATIONS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Loss per Common Share of Beneficial Interest:
Net income (loss) $ (379,000) $ 319,000 $ (1,099,000) $ 787,000
Preferred Stock dividends, net of discounts (775,000) (690,000) (1,520,000) (1,354,000)
Accretion of discounts on Preferred Stock (131,000) (107,000) (255,000) (208,000)
-------------- ---------- ------------- -----------
Net loss attributable to Common Shares of
Beneficial Interest $ (1,285,000) $(478,000) $ (2,874,000) $ (775,000)
-------------- ---------- ------------- ------------
-------------- ---------- ------------- ------------
Loss per Common Share of Beneficial Interest
before extraordinary item $(0.26) $(0.19) $ (0.59) $ (0.25)
Extraordinary item per Common Share of
Beneficial Interest 0.00 0.09 0.00 .09
-------------- ---------- ------------- ------------
Net loss per share attributable to Common Shares
of Beneficial Interest $(0.26) $(0.10) $ (0.59) $ (0.16)
-------------- ---------- ------------- ------------
-------------- ---------- ------------- ------------
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>
THE PEREGRINE REAL ESTATE TRUST
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,099,000) $ 787,000
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Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Interest and fees added to principal balance of debt 435,000 0
Depreciation and amortization 1,624,000 1,562,000
Gain on foreclosure or sale of investments 0 (1,122,000)
Minority interest in net income -- --
Extraordinary item, forgiveness of debt 0 (440,000)
Valuation losses -- --
Changes in other assets and liabilities:
(Increase) decrease in rents, accrued interest and other
receivables 201,000 (162,000)
Increase in other assets (344,000) (321,000)
(Decrease) increase in accounts payable and
accrued liabilities (17,000) (626,000)
Increase in other liabilities (5,000) 11,000
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Total adjustments to net income (loss) 1,894,000 (1,098,000)
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Net cash (used in) provided by operating activities 795,000 (311,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 1,833,000 20,332,000
Purchase of marketable securities (1,816,000) (498,000)
Principal collections on marketable securities -- 315,000
Improvements to rental properties (1,029,000) (673,000)
Purchase of office equipment (56,000) (16,000)
Principal collections on notes receivable 3,000 7,000
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Net cash (used in) provided by investing activities (1,065,000) 19,467,000
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term notes payable (166,000) (253,000)
Principal (payments) borrowings on Line of Credit, net 8,960,000 (583,000)
Principal payments on Senior Lender Group Notes Payable -- (16,468,000)
Increase (decrease) in restricted cash (22,000) 878,000
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Net cash (used in) financing activities 8,772,000 (16,426,000)
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Net increase (decrease) in unrestricted cash 8,502,000 2,730,000
Unrestricted cash, beginning of period 1,247,000 5,972,000
Less unrestricted cash, beginning of period, attributable to CalREIT -- (4,698,000)(1)
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Unrestricted cash, end of period $ 9,749,000 $ 4,004,000
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</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>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Peregrine Real Estate Trust ("Peregrine" or the "Trust") (fka
Commonwealth Equity Trust) 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 bear interest at 8.5% per annum (the "Senior Lender Group
Notes" or "Senior Lender Group Notes Payable").
At June 30, 1998, Peregrine owned eighteen 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 June 30, 1998
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, 1997 audited financial statements and notes thereto,
included in The Peregrine Real Estate Trust's Annual Report on Form 10-K.
5
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THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
1. ORGANIZATION AND BASIS OF PRESENTATION, CONTINUED
NET LOSS PER SHARE
Net loss per Common Share of Beneficial Interest, basic and diluted, has
been computed and presented in accordance with Statement of Financial
Accounting Standard No. 128, "Earnings Per Share", ("SFAS 128") which was
issued in February 1997. The weighted-average number of Common Shares of
Beneficial Interest outstanding during the three and six months periods ended
June 30, 1998 and 1997, was 4,881,000. Common Shares of Beneficial Interest
equivalents are anti-dilutive for the three month periods ended June 30, 1998
and 1997, and are not considered in calculating net loss per Common Share of
Beneficial Interest.
COMPREHENSIVE NET INCOME
Effective January 1, 1998, the Trust adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income".
This statement requires that all items recognized under accounting standards
as components of comprehensive income be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. For the quarter ended June 30, 1998, the Trust had no
comprehensive income items.
RECLASSIFICATIONS
Certain reclassifications have been made in the presentation of the 1997
financial statements to conform to the 1998 presentation.
2. INVESTMENTS IN COMMERCIAL AND HOTEL PROPERTIES, NOTES RECEIVABLE AND
PARTNERSHIPS
At June 30, 1998, the commercial properties known as 11167 Trade Center
Drive, Commerce Street, and Consumer Circle, with a combined total carrying
value of $767,000 was classified as "held-for-sale". At December 31, 1997,
no commercial or hotel properties were classified as "held-for-sale".
6
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THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
3. INVESTMENTS IN MARKETABLE SECURITIES "AVAILABLE-FOR-SALE"
At June 30, 1998, the Trust had $100,000 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 June 30, 1998, Peregrine's "available-for-sale" securities consisted of
investment grade commercial paper whose interest rate was 5.430% and whose
maturity date was July 6, 1998. Unrealized gains and losses on marketable
securities were not significant at June 30, 1998. At December 31, 1997, the
Trust had $117,000 invested in U.S. Treasury Notes and investment grade
commercial paper classified, all of which were classified as restricted and
"available-for-sale".
4. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
At June 30, 1998, Peregrine is required by Holiday Inn, under the
License Agreements, to perform certain refurbishments at the Sacramento and
Walnut Creek hotels in order to comply with Holiday Inn standards. At June
30, 1998, the capital expenditures necessary to complete the required
refurbishments are estimated at approximately $2,700,000 and $750,000 for the
Sacramento and Walnut Creek hotels, respectively. If the required
refurbishments are not 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 both the Line of Credit and Senior Lender
Group Notes and could result in termination fees payable to Holiday Inn of
approximately $1,100,000 with respect to the Sacramento hotel and
approximately $900,000 with respect to the Walnut Creek hotel.
FINANCIAL STATUS OF PEREGRINE
At June 30, 1998, management of Peregrine believes that, because of the
Trust's borrowing capacity and the improving conditions of the economy and
the commercial and hotel industries, it will be able to fund its day-to-day
business operations, meet its debt service obligations on its first mortgage
notes and Senior Lender Group notes, and fund its capital expenditures for
the remainder of 1998.
7
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THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Peregrine's Redeemable Convertible Preferred Stock in the original face
amount of $22,500,000, carries a dividend of 10% per annum. Dividends are
payable in-kind through October 1, 1998, by means of additional shares of
Preferred Stock issued quarterly; thereafter, dividends are payable quarterly
in cash. The Preferred Stock automatically converts into Common Shares of
Beneficial Interest pursuant to an established formula if any cash dividend
payment is not made in full when due. If all dividends are paid in-kind
through September 30, 1998, no other Common Shares of Beneficial Interest are
issued, and the Preferred Stock dividends payable in cash on December 31,
1998 are not paid prior to April 10, 1999, the Preferred Stock would convert
to Common Shares of Beneficial Interest on April 10, 1999, and the Senior
Lender Group would, on account of that conversion, acquire approximately 78%
of the total Common Shares of Beneficial Interest outstanding after the
conversion, bringing their total holdings to approximately 90% of the
outstanding shares. It is anticipated that Peregrine will be unable to pay
the Preferred Stock dividend in cash commencing with the December 31, 1998
dividend due to the Line of Credit covenants and restrictions, and as a
result, the Preferred Stock will automatically convert to Common Shares of
Beneficial Interest on April 10, 1999.
The Preferred Stock is redeemable in cash (total redemption value of
$32,694,000 at June 30, 1998) on October 1, 2000, but in certain
circumstances, including the sale of all or substantially all the assets of
Peregrine, may be redeemed earlier.
The Preferred Stock has been recorded at a discount to its face amount
of $32,694,000, based on an imputed rate of return of 12%.
6. GAIN ON FORECLOSURE OR SALE OF INVESTMENTS
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.
8
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THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
7. 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, 1998.
8. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1998, Peregrine paid $10,000 to one
of its current officers, Brian Engstrom, for services performed as a
consultant prior to the commencement of his employment as an officer of the
Trust.
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. 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.
At June 30, 1997, Peregrine had amounts due from CalREIT aggregating
$7,000.
Peregrine utilized the services of certain of its former independent
Trustees during the six month periods ended June 30, 1997 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, in addition to the quarterly and meeting fees paid to the Trustees:
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1997
<S> <C>
The McMahan Group (John McMahan, former Trustee) $ 1,000
John F. Salmon, former Trustee $ 6,000
The Presidio Group (Kenneth T. Seeger, former Trustee) $ 65,000
Hickey & Hill, Inc. (E. Lawrence Hill, Jr., former Trustee) $ 5,000
</TABLE>
9
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THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
9. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
One parcel of land located in Sacramento with a carrying value of
$30,000 was sold at a county public auction during the six month period ended
June 30, 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.
Additionally, on June 30, 1998 and 1997, Peregrine issued Redeemable
Convertible Preferred Stock in the face amounts of $806,000 and $729,000,
respectively, as payment in kind for the dividends then due on the
outstanding Preferred Stock. During the six months ended June 30, 1998,
increases under the Line of Credit included $435,000 for interest, fees, and
reimbursable expenses incurred.
Cash paid for interest during the six month periods ended June 30, 1998
and 1997, was $2,276,000 and $1,449,000, respectively.
10. SUBSEQUENT EVENT
On July 1, 1998, pursuant to a purchase and sale agreement, as amended,
(the "Agreement of Purchase and Sale"), The Peregrine Real Estate Trust (the
"Trust") purchased a full service 191 room hotel located in Concord,
California for $9,000,000. Funding for the hotel acquisition was provided
from the Trust's existing $20,000,000 credit facility (the "Credit
Facility").
In connection with the purchase of the hotel, the Trust negotiated with
its Credit Facility lender, Fleet Capital Corporation ("Fleet") on July 27,
1998, to provide an additional $7,500,000 of borrowing capacity. This
increase expires on December 31, 1998 and, at such time, the Trust will be
required to repay any amounts outstanding on it Credit Facility in excess of
$20,000,000. There can be no assurance that the Trust will have sufficient
funds available to repay such outstanding amounts or that the Trust will be
able to refinance such indebtedness or alter the terms, if at all. In
addition, on June 30, 1998, the Trust and the Noteholders that are party to
the Trust's Senior Credit Agreement executed a Fourth Amendment to Second
Amended and Restated Note Agreement to permit the Trust to use the proceeds
from the Credit Facility to acquire the hotel and enter into an amendment to
the existing Credit Facility for additional borrowing capacity.
10
<PAGE>
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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.
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, 1998, management of Peregrine
continued to concentrate on the developing and implementing an operating
strategy designed 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.
11
<PAGE>
Due to capital constraints in 1996 and during the first half of 1997,
Peregrine was unable to complete certain refurbishments required by Holiday
Inn with respect to its Chico and Sacramento hotels within the required time
frame. As a result, in February 1997, Peregrine received notices of default
on its Holiday Inn Franchise Agreements with respect to its Chico and
Sacramento hotels. Peregrine was able to obtain an extension of time in
which to complete the necessary refurbishments. The refurbishments were
completed at the Chico hotel in September 1997, and in October 1997,
Peregrine received a written notice from Holiday Inn that the inspection had
been completed and the default had been cured. The refurbishments at the
Sacramento hotel are currently underway and in accordance with a new Holiday
Inn License Agreement for Sacramento, which is dated January 23, 1998 and
expires on December 12, 2010, Peregrine must complete them by September 23,
1998. The total cost of the required refurbishments at the Sacramento hotel
is estimated to be $2,700,000. Additionally, in accordance with the new
Holiday Inn License Agreement for Walnut Creek, Peregrine is required to
complete approximately $750,000 in refurbishments at the Walnut Creek hotel
prior to December 18, 1998. If the required refurbishments at the Sacramento
and Walnut Creek hotels are not 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 both the line of credit and Senior Lender
Group Notes and could result in termination fees payable to Holiday Inn of
approximately $1,100,000 with respect to the Sacramento hotel and
approximately $900,000 with respect to the Walnut Creek hotel. Currently,
Peregrine expects to complete refurbishments at the hotels that will comply
with the requirements of Holiday Inn.
COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 TO THE THREE AND SIX
MONTHS ENDED JUNE 30, 1997
REVENUES
Total revenues were $11,437,000 during the six months ended June 30, 1998,
down $703,000, or 6%, from total revenues of $12,140,000 during the six
months ended June 30, 1997. Total revenues were $6,009,000 during the three
months ended June 30, 1998, a decrease of $413,000, or less than 6%, from
revenues of $6,422,000 during the three months ended June 30, 1997.
HOTEL REVENUES. Hotel revenues decreased $168,000, or 2%, to $6,758,000 for
the six months ended June 30, 1998, and $41,000, or 1%, to $3,563,000 for the
three months ended June 30, 1998. This was down from $6,926,000 and
$3,604,000 for the six and three months ended June 30, 1997, respectively.
The decrease during the six months ended June 30, 1998 was attributable to
lower occupancy (which decreased by 6.9%), partially offset by higher average
daily rates. The decrease during the three months ended June 30, 1998 was
attributable to lower occupancy, partially offset by higher average daily.
COMMERCIAL PROPERTY REVENUES. Commercial property revenues for the six
months ended June 30, 1998 were $4,595,000, a decrease of $159,000, or 3%,
from revenues of $4,754,000 for the six months ended June 30, 1997.
Commercial property revenues decreased $44,000, or 2%, to $2,413,000 for the
three months ended June 30, 1998, down from $2,457,000 for the three months
ended June 30, 1997. The decrease is attributable to the absence of revenues
from the Pomona Road property, which was sold in December 1997; and an
overall combined decrease in revenues from all other commercial properties in
Peregrine's portfolio due primarily to decreased
12
<PAGE>
occupancy at the retail shopping centers, office buildings, and industrial
buildings; partially offset by an increase in occupancy at the mini-storage
facilities.
INTEREST REVENUE. Interest revenue decreased $109,000, or 62%, to $67,000
for the six months ended June 30, 1998, and $59,000, or 65%, to $31,000 for
the three months ended June 30, 1998. This was down from $175,000 for the
six months ended June 30, 1997, and $89,000 for the three months ended June
30, 1997. The decrease is primarily attributable to the absence of interest
revenue from a mortgage note which was paid in full in July 1997; and a
decrease in interest revenue on cash accounts resulting from a decreased cash
balance.
OTHER REVENUE. Other revenue decreased $267,000, or 94%, to $18,000 for the
six months ended June 30, 1998, and $269,000, or 99%, to $3,000 for the three
months ended June 30, 1998. This was down from $285,000 and $272,000 for the
six and three months ended June 30, 1997, 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.
TOTAL EXPENSES
Total expenses were $12,537,000 during the six months ended June 30, 1998,
down $378,000, or 3%, from total expenses of $12,915,000 during the six
months ended June 30, 1997. Total expenses were $6,388,000 during the three
months ended June 30, 1998, a decrease of $243,000 or 4%, from total expenses
of $6,631,000 during the three months ended June 30, 1997.
OPERATING EXPENSES. Hotel operating expenses increased $220,000, or 4%, from
$5,043,000 during the six months ended June 30, 1997, to $5,263,000 during
the six months ended June 30, 1998. Hotel operating expenses increased
$175,000, or 7%, to $2,736,000 during the three months ended June 30, 1998,
up from $2,561,000 for the three months ended June 30, 1997. The increase
for the three months ended June 30, 1998 was attributable to an increase in
wages of due to increased personnel and wage increased due to minimum wage
increase $94,000, an increase in general and administrative expense of
$54,000, and various other expenses totaling $27,000.
Commercial property operating expenses increased $76,000, or 5%, to
$1,459,000 for the six months ended June 30, 1998, and $11,000, or 2%, to
$723,000 for the three months ended June 30, 1998. This was up from
$1,383,000 and $712,000 for the six and three months ended June 30, 1997,
respectively. The increase is attributable an overall combined increase in
operating expenses at the commercial properties which was primarily the
result of increased repair and maintenance, landscaping, wages and benefits
for in-house property management, and increased insurance costs; offset by a
decrease resulting from the absence of expenses at the Pomona Road property
which was sold in December 1997.
13
<PAGE>
COMMERCIAL AND HOTEL PROPERTY MANAGEMENT FEES. Commercial and hotel property
management fees decreased $396,000, or 100%, from $396,000 for the six months
ended June 30, 1997, to zero for the six months ended June 30, 1998.
Management fees decreased $233,000, or 100%, to zero during the three months
ended June 30, 1998, down from $233,000 during the three months ended June
30, 1997. The decrease is attributable to the termination of the outside
management the contract in August 1997; and the absence of management fees at
the hotels due to the termination of the outside management contracts in
October 1997.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $62,000, or 4%, from $1,562,000 for the six months ended June 30,
1997, to $1,624,000 for the six months ended June 30, 1998. Depreciation and
amortization increased $11,000, or 1%, to $813,000 for the three months ended
June 30, 1998, up from $802,000 for the three months ended June 30, 1997. The
increase is primarily attributable to an increase in depreciation and
amortization at the hotel and commercial properties due to capital
improvements, tenant improvements and lease commissions completed and
incurred in 1997 and the 1998; offset by a decrease in depreciation at the
Pomona Road property as it was sold in December 1997.
INTEREST EXPENSE. Interest expense decreased $303,000, or 10%, from
$2,975,000 for the six months ended June 30, 1997, to $2,672,000 for the six
months ended June 30, 1998. Interest expense decreased $134,000, or 9%, to
$1,341,000 during the three months ended June 30, 1998, down from $1,475,000
during the three months ended June 30, 1997. The decrease is primarily
attributable to the absence of interest on the first mortgage note on the
3900 Lennane Drive property, which was paid in full in July 1997; a decrease
in interest expense on the Senior Lender Group Notes resulting from a lower
principal balance due to paydowns in 1997; and a decrease in interest expense
on the Line of Credit due to a lower average interest rate which was
partially offset by a higher average balance outstanding under the Line of
Credit.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $1,519,000 during the six months ended June 30, 1998, a decrease of
$37,000, or 2%, from expenses of $1,556,000 for the six months ended June 30,
1997. General and administrative expenses decreased $73,000, or 9%, to
$775,000 during the three months ended June 30, 1998, down from $848,000 for
the three months ended June 30, 1997. The decrease is primarily attributable
to a decrease in audit expenses; and a decrease in legal fees .
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, 1998, Peregrine recorded no
gains or losses on the foreclosure or sale of investments, as compared to
total gains on the foreclosure or sale of investments of $1,122,000 and
$110,000 during the six and three months ended June 30, 1997, respectively.
In the first quarter of 1997, Peregrine recorded a gain of $1,012,000 upon
the sale
14
<PAGE>
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.
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, 1998.
DIVIDENDS
Peregrine made no cash distributions during the six and three months ended
June 30, 1998 or 1997. 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 June 30, 1998 and June 30, 1997, overall average weighted occupancy levels
by property type were as follows:
<TABLE>
<CAPTION>
Overall Occupancy
Property Type June 30, 1998 June 30, 1997
------------- ------------- -------------
<S> <C> <C>
Retail Shopping Centers 75% 79%
Office Buildings 72% 77%
Industrial Buildings 81% 98%
Mini-Storage Facilities 99% 96%
Hotels 63% 70%
</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 as of June 30, 1998 was 78% and as of June
30, 1997 was 86%. The decrease is primarily due to vacancies at the Retail
Shopping Centers and Office Buildings. The decrease at the Industrial
Buildings in attributable to the absence of Pomona Road property, which sold
in December 1997.
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.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Peregrine had $9,749,000 in unrestricted cash at June 30, 1998, compared
to $1,247,000 in unrestricted cash at December 31, 1997. During the six
months ended June 30, 1998, Peregrine's principal sources of funds were from
operating income, and principal and interest payments on mortgage notes
receivable. At June 30, 1998, $2,584,000 remained available on the Line of
Credit. Subsequent to June 30, 1998, the unrestricted cash available was
reduced by approximately $9,000,000 as a result of a pending purchase of the
Concord Inn on July 1, 1998. The Line of Credit was increased by $7.5
million for a period of six months beginning July 1, 1998.
Debt service paid on Peregrine's first mortgage notes totaled $1,323,000
during the six months ended June 30, 1998. Total debt service requirements
on first mortgage notes in 1998 are approximately $2,975,000. Interest paid
on the Senior Lender Group Notes during the six months ended June 30, 1998
totaled $1,112,000. Interest on the Senior Lender Group Notes is required to
be paid in cash on a monthly basis, with aggregate interest payable during
1998 currently estimated at $2,224,000, based on actual interest during the
six months ended June 30, 1998, and interest for the second half of 1998
based upon the current principal balance outstanding of $26,930,000.
The face value of Preferred Stock dividends in-kind issued during the
six months ended June 30, 1998 totaled $1,583,000. Dividends on the
Preferred Stock are payable in-kind through September 30, 1998, and will be
required to be paid in cash thereafter. It is anticipated, however, that
Peregrine will not pay the Preferred Stock dividends in cash commencing with
the December 31, 1998 dividend due to a restrictive covenant contained in the
Line of Credit Agreement, and as a result the Preferred Stock will
automatically convert to Common Shares of Beneficial Interest on April 10,
1999, thereby substantially diluting the ownership interests of current
holders of Common Shares of Beneficial Interest.
At June 30, 1998, Peregrine's short and long term cash commitments
include approximately $3,450,000 to refurbish the Sacramento and Walnut Creek
hotel properties in accordance with Holiday Inn franchise standards; debt
service payments on it first mortgages of approximately $2,646,000 per year;
interest on its Senior Lender Group Notes currently estimated at $2,321,000
per year; repayment of its Line of Credit obligations on September 30, 2000;
and repayment of principal on the Senior Lender Group Notes in October 2000.
It is anticipated that the Preferred Stock cash dividend requirement will be
eliminated through the conversion to Common Shares of Beneficial Interest as
discussed above.
Based on cash flows from operations and its revolving Line of Credit,
Peregrine anticipates that it will be able to fund its day-to-day business
operations, meet its debt service obligations on its first mortgage notes and
Senior Lender Group Notes, and fund its capital expenditures through the end
of 1998.
Peregrine experienced a net increase in unrestricted cash of $8,502,000
for the six months ended June 30, 1998 as compared to a net increase in
unrestricted cash of $2,730,000 for the six months ended June 30, 1997, a
difference of $5,772,000. For the six months ended June 30, 1998 cash
provided by operating activities was $795,000, up $1,106,000 from cash (used
in) operating activities of $311,000 during the comparable period in 1997,
which is primarily attributable to changes in gains on foreclosure,
extraordinary items, and current assets and
16
<PAGE>
liabilities. Cash (used in) investing activities during the six months ended
June 30, 1998 was $1,065,000, down from cash provided by investing activities
of $19,427,000 during the six months ended June 30, 1997, a decrease of
$20,532,000. The decrease is primarily attributable to proceeds received
from the sale of CalREIT in 1997. Cash provided by financing activities was
$8,772,000 during the six months ended June 30, 1998, as compared to cash
(used in) financing activities of $16,426,000 during the six months ended
June 30, 1997, an increase of $25,198,000, which is primarily attributable to
the required payments made on the Senior Lender Group Notes in 1997, and an
increase in 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 during the remainder of 1998, as most of Peregrine's
debt obligations are at fixed interest rates. During 1997 and 1998, both
rental rates and real estate values have increased; therefore, the effect of
inflation is not expected to have a significant effect on Peregrine's
operations in 1998.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
Peregrine's computer programs or other date sensitive equipment may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations. Peregrine believes that it has identified all significant
computer applications and other date sensitive equipment that will require
modification to ensure Year 2000 compliance. The total cost of the
modifications is not expected to be material to the overall financial
statements of Peregrine.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
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)
10.3 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 Services and Confidentiality Agreement dated October 1, 1994, between
Commonwealth Equity Trust and FAMA Management, Inc. (1)
10.6 Third Amended Plan of Reorganization of Commonwealth Equity Trust (2)
10.7 Stock Purchase Agreement, dated as of January 3, 1997, by and between
The Peregrine Real Estate Trust and CalREIT Investors Limited
Partnership (3)
10.8 Form of Indemnification Agreement (4)
10.9 The Peregrine Real Estate Trust Trustee Stock Option Plan (5)
10.13 Form of Indemnification Agreement (7)
10.14 Loan and Security Agreement dated December 4, 1997, by and among The
Peregrine Real Estate Trust and Fleet Capital Corporation (8)
10.15 Second Amendment to Second Amended and Restated Note Agreement dated
December 4, 1997, by and among The Peregrine Real Estate Trust, the
Noteholders named therein, and The Prudential Insurance Company of
America as agent for the Noteholders (8)
10.16 Employment Agreement between The Peregrine Real Estate Trust and Roger
D. Snell, dated September 30, 1997 (9)
18
<PAGE>
<S> <C>
10.17 Third Amendment to the Second Amended and Restated Note Agreement
dated May 1, 1998, By and Among The Peregrine Real Estate Trust, the
Noteholders Named Therein, and The Prudential Insurance Company of
America as Agent for the Noteholders. (b)
10.18 Fourth Amendment to the Second Amended and Restated Note Agreement
dated June 30, 1998, By and Among The Peregrine Real Estate Trust, the
Noteholders Named Therein, and The Prudential Insurance Company of
America as Agent for the Noteholders. (b)
10.19 Amendment Number One To Loan And Security Agreement dated June 30,
1998 by and between Fleet Capital Corporation and Peregrine Real
Estate Trust.
</TABLE>
27 Financial Data Schedule
<TABLE>
<S> <C>
(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 the
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 10-Q for the
period ended March 31, 1997.
(7) Incorporated herein by reference to Peregrine's Report on Form 10-Q for the
period ended June 30, 1997.
(8) Incorporated herein by reference to Peregrine's Report on Form 8-K dated
December 23, 1997.
(9) Incorporated herein by reference to Peregrine's Report on Form 10-K for the
year ended December 31, 1997.
(b) Reports on Form 8-K
None.
</TABLE>
19
<PAGE>
SIGNATURES
Pursuant to the requirements 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
August 14, 1998 /s/ Larry Knorr
- --------------- ----------------------------------
Date Larry Knorr
Vice President and
Chief Accounting Officer
20
<PAGE>
Exhibit 10.19
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of June 30, 1998 by and between FLEET CAPITAL
CORPORATION, a California corporation ("Lender"), and THE PEREGRINE REAL
ESTATE TRUST, a California real estate trust ("Borrower"), with reference to
the following facts:
A. Lender and Borrower are parties to that certain Loan and Security
Agreement, dated as of December 4, 1997 (as amended, restated,
supplemented, or otherwise modified from time to time, the
"Agreement");
B. Borrower has requested Lender to amend the Agreement to, among other
things, permit the acquisition by Borrower of the Concord Holiday Inn
(as defined below) and the inclusion of same in the Borrowing Base as
Eligible Real Property, provide for a temporary increase of the dollar
amount of the Maximum Amount, increase the permitted maximum amount of
Capital Expenditures related to the Properties of Borrower that do not
compose the Eligible Real Property, and increase the permitted maximum
amount of Capital Expenditures generally;
C. Lender is willing to so amend the Agreement in accordance with the
terms and conditions hereof; and
D. All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement, as amended hereby.
NOW, THEREFORE, in consideration of the above recitals and the
mutual premises contained herein, Lender and Borrower hereby agree as follows:
1. AMENDMENTS TO THE AGREEMENT.
a. The first sentence of Section 1 of the Agreement hereby
is amended and restated in its entirety to read as follows:
Subject to the terms and conditions of, and in reliance upon
the representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $20,000,000
plus the Bridge Amount available upon Borrower's request therefor, as follows:
<PAGE>
b. Section 8.2.8 of the Agreement hereby is amended and
restated in its entirety to read as follows:
8.2.8 CAPITAL EXPENDITURES. (a) Make Capital
Expenditures (including, without limitation, by way of capitalized leases)
which, in the aggregate, exceed $25,000,000 during the period commencing on
October 1, 1997 and ending on September 30, 2000, or (b) Make Capital
Expenditures (including, without limitation, by way of capitalized leases)
related to the Properties of Borrower that do not compose the Eligible Real
Property which, in the aggregate, exceed, during the term of this
Agreement, an amount equal to the result of (i) (y) from and after the date
(if ever) that Lender receives evidence, satisfactory to Lender, that the
Regency Plaza Contract is in full force and effect, $8,000,000, or (z)
otherwise, $3,000,000, minus (ii) the amount of prepayments made pursuant
to SUBSECTION 8.2.15(a)(iv).
c. Section 8.2.15(a)(iv) of the Agreement hereby is amended and
restated in its entirety to read as follows:
(iv) prepayments in an amount equal to the greater of (y) the result of
$4,000,000 minus the amount of Capital Expenditures made pursuant to
SUBSECTION 8.2.8(b) hereof, and (z) zero (-0-),
d. The following definitions contained in APPENDIX A of the
Agreement are amended and restated in their entirety to read as follows:
BORROWING BASE - as at any date of determination, an amount equal
to the result of: (a) the sum of (i) 50% of the Borrowing Base Value
of Eligible Non-Hotel Real Property, PLUS (ii) 50% of the Borrowing
Base Value of Eligible Hotel Real Property; MINUS (b) until the
satisfaction, in full, of the Environmental Condition, a reserve in
the amount of $2,000,000; PROVIDED, HOWEVER, that in no event shall
the amount of Availability created under clause (a)(ii) of this
definition exceed 50% of the Borrowing Base Value of all Eligible Real
Property.
ELIGIBLE REAL PROPERTY - each of the parcels of real Property
identified on SCHEDULE E-1 hereto for so long as, with respect to any
particular parcel, Borrower continues to own such parcel. From and
after the date of consummation of the Bridge Refinancing Transactions,
the Bridge Refinancing Properties automatically shall no longer
constitute Eligible Real Property and shall be deleted from SCHEDULE
E-1 hereto.
MAXIMUM AMOUNT - as of any date of determination, the lesser of
(a) an amount equal to the sum of (i) $20,000,000 PLUS (ii) the then
extant Bridge Amount, as such amount may be reduced from time to time
pursuant to
2
<PAGE>
SUBSECTION 3.8 hereof, or (b) an amount equal to 2 times the
outstanding principal balance of the Senior Notes.
OTHER REAL PROPERTY - the parcels of real Property identified on
SCHEDULE O-1 attached hereto. From and after the date of consummation
of the Bridge Refinancing Transactions, the Bridge Refinancing
Properties automatically shall be deemed to constitute Other Real
Property and shall be included on SCHEDULE O-1 hereto.
TOTAL CREDIT FACILITY - $20,000,000 plus the Bridge Amount.
e. The following definitions are added to APPENDIX A of the
Agreement in proper alphabetical order:
BRIDGE AMOUNT - as of any date of determination, an amount equal
to: (a) prior to the First Amendment Closing Date, zero (-0-); (b)
from and after the First Amendment Closing Date and up to but not
including the Bridge Termination Date, $7,500,000; and (z) from and
after the Bridge Termination Date, zero (-0-).
BRIDGE REFINANCING PROPERTIES - the Concord Holiday Inn and any
other Eligible Real Property identified by Borrower as the subject of
the Bridge Refinancing Transactions in a written notice received by
Lender not less than 15 days prior to the consummation of the Bridge
Refinancing Transactions.
BRIDGE REFINANCING TRANSACTIONS - collectively, (a) the
refinancing or reduction by Borrower of a portion of the Obligations,
in an amount not less than the greater of (i) $7,500,000 and (ii) 50%
of the Borrowing Base Value of the Bridge Refinancing Properties,
pursuant to the sale by Borrower of, or the incurrence by Borrower of
Non-Recourse Indebtedness relative solely to, the Bridge Refinancing
Properties, (b) the receipt by Borrower of net cash proceeds from such
refinancing or sale in an amount not less than the greater of (i)
$20,000,000 or (ii) 50% of the Borrowing Base Value of the Bridge
Refinancing Properties, and (c) the use of such net cash proceeds to
repay, without premium, any Overadvance that would result from the
reduction of the Bridge Amount to zero.
BRIDGE TERMINATION DATE - the earlier to occur of (a) the date 6
months following the First Amendment Closing Date, and (b) the date of
consummation of the Bridge Refinancing Transactions.
CONCORD HOLIDAY INN - the parcel of real Property commonly
referred to as "Concord Holiday Inn" that is located at 1050 Burnett
Avenue, Concord,
3
<PAGE>
California (Contra Costa County) and which bears parcel
number 126-325-002.
FIRST AMENDMENT - that certain Amendment Number One to Loan and
Security Agreement, dated as of June 30, 1998, between Borrower and
Lender.
FIRST AMENDMENT CLOSING DATE - the date on which all of the
conditions precedent in Section 3 of the First Amendment are satisfied
and the initial Loan under the Agreement as amended by the First
Amendment is made.
REGENCY PLAZA CONTRACT - an agreement between Borrower and United
Artists Theaters, in form and substance reasonably satisfactory to
Lender, committing Borrower as lessor to make capital improvements, in
the approximate amount of $5,100,000, to the leased premises
comprising that certain United Artists theater complex (with
approximately 6 screens and 2,848 seats) located at the Regency Plaza
Shopping Center on Greenback Lane (between San Juan Avenue and Avenue
of the Fountains) in Citrus Heights, California in consideration for a
long term lease (on terms and conditions reasonably satisfactory to
Lender) of such premises by United Artists Theaters as lessee.
2. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Lender that (a) the execution, delivery, and performance of
this Amendment and of the Agreement, as amended by this Amendment, are within
its corporate powers, have been duly authorized by all necessary corporate
action, and are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, court,
or governmental authority, or of the terms of its charter or bylaws, or of
any contract or undertaking to which it is a party or by which any of its
properties may be bound or affected, and (b) this Amendment and the
Agreement, as amended by this Amendment, constitute Borrower's legal, valid,
and binding obligations, enforceable against Borrower in accordance with
their respective terms.
3. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AMENDMENT.
The effectiveness of this Amendment is subject to the fulfillment, to the
satisfaction of Lender and its counsel, of each of the following conditions:
a. Lender shall have received from counsel for Borrower a
legal opinion in form and substance satisfactory to Lender and its counsel.
b. A Mortgage, in form and substance satisfactory to Lender,
with respect to the Concord Holiday Inn shall have been duly executed and
delivered, and recorded in the appropriate filing office.
4
<PAGE>
c. Amendments of the Mortgages and the Subordination
Agreements, respectively, relative to each of the parcels of Eligible Real
Property (other than the Concord Holiday Inn), in each case in form and
substance satisfactory to Lender, shall have been duly executed and
delivered, and recorded in the appropriate filing office.
d. Financing statements and/or fixture filings relative to
the Concord Holiday Inn and related Collateral, in each case in form and
substance satisfactory to Lender, shall have been duly executed and
delivered, and recorded in the appropriate filing office.
e. Lender shall have received ALTA 1970 Form Lenders
Policies of Title Insurance in form and content acceptable to Lender
(including the absence of a survey exception), in its discretion, with
respect to each of the parcels of Eligible Real Property, including the
Concord Holiday Inn.
f. Lender shall have received, reviewed, and found
acceptable copies of Borrower's rent rolls, franchise agreements,
certificates of occupancy, leases, and insurance policies relative to the
Concord Holiday Inn. To the extent required by Lender, Lender also shall have
received estoppel agreements from any material lessees of the Concord Holiday
Inn.
g. Lender shall have received a phase-I environmental report
and a real estate survey shall have been completed with respect to the
Concord Holiday Inn and copies thereof delivered to Lender; the environmental
consultants and surveyors retained for such reports or surveys, the scope of
the reports or surveys, and the results thereof shall be acceptable to Lender
in its sole discretion.
h. Lender shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(1) each of the existing lender(s) relative to the
Concord Holiday Inn shall have executed and delivered a pay-off letter, which
shall be in form and substance satisfactory to Lender, together with UCC
termination statements, mortgage releases, and other documentation evidencing
the termination of its Liens on the Concord Holiday Inn and Collateral
related thereto.
(2) Lender shall have received evidence, in form and
substance reasonably satisfactory to Lender, of the consent of the Senior
Noteholders and the Senior Notes Agent to the consummation of the acquisition
by Borrower of the Concord Holiday Inn and this Amendment.
5
<PAGE>
i. Lender shall have received a certificate from a senior
officer of Borrower attesting to the resolutions of Borrower's Board of
Trustees authorizing its execution and delivery of this Amendment and all of
the other Loan Documents to which Borrower is a party contemplated under this
Amendment and authorizing specific officers of Borrower to execute same.
j. Lender shall have received a certificate from a senior
officer of Borrower as to the incumbency, and containing the specimen
signature or signatures, of the Person or Persons authorized to execute the
Loan Documents to which Borrower is a party on behalf of Borrower, together
with evidence of the incumbency of such Secretary.
k. Lender shall have received and reviewed copies, certified
as true and correct by an appropriate officer of Borrower, of the acquisition
documents relative to the Concord Holiday Inn, the form and substance of
which shall be reasonably satisfactory to Lender and its counsel, and the
acquisition of the Concord Holiday Inn shall have been consummated
substantially in accordance with the terms of such acquisition documents.
l. The representations and warranties in this Amendment, the
Agreement as amended by this Amendment, and the other Loan Documents shall be
true and correct in all material respects on and as of the date hereof, as
though made on such date (except to the extent that such representations and
warranties relate solely to an earlier date).
m. No Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein.
n. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force
by any governmental authority against Borrower, Lender, or any of their
Affiliates.
o. No material adverse change in the financial condition of
Borrower or in the value of the Collateral shall have occurred.
4. EFFECT ON AGREEMENT. The Agreement, as amended hereby, shall
be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Amendment shall not operate as a waiver of
or, except as expressly set forth herein, as an amendment, of any right,
power, or remedy of Lender under the Agreement, as in effect prior to the
date hereof.
6
<PAGE>
5. FURTHER ASSURANCES. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Lender, and take all actions as Lender may reasonably request from time to
time, to perfect and maintain the perfection and priority of Lender's
security interests in the Collateral and to fully consummate the transactions
contemplated under this Amendment and the Agreement, as amended by this
Amendment.
6. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each reference
in the Agreement to "this Agreement", "hereunder", "herein", "hereof" or
words of like import referring to the Agreement shall mean and refer to the
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference
in the Loan Documents to the "Loan Agreement", "thereunder", "therein",
"thereof" or words of like import referring to the Agreement shall mean and
refer to the Agreement as amended by this Amendment.
c. This Amendment shall be governed by and construed in
accordance with the laws of the State of California.
d. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by
signing any such counterpart. Delivery of an executed counterpart of this
Amendment by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Amendment. Any party delivering an
executed counterpart of this Amendment by telefacsimile also shall deliver an
original executed counterpart of this Amendment but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Amendment.
[remainder of page intentionally left blank]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first written above.
FLEET CAPITAL CORPORATION,
a Rhode Island corporation
By:____________________________
S-1
<PAGE>
Title:__________________________
THE PEREGRINE REAL ESTATE TRUST,
a California real estate trust
By:_____________________________
Title:__________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,954
<SECURITIES> 100
<RECEIVABLES> 854
<ALLOWANCES> (7)
<INVENTORY> 0
<CURRENT-ASSETS> 13,029
<PP&E> 71,847
<DEPRECIATION> (6,144)
<TOTAL-ASSETS> 77,991
<CURRENT-LIABILITIES> 2,299
<BONDS> 68,471
31,290
0
<COMMON> 13,356
<OTHER-SE> (37,425)
<TOTAL-LIABILITY-AND-EQUITY> 77,991
<SALES> 0
<TOTAL-REVENUES> 6,009
<CGS> 0
<TOTAL-COSTS> (3,459)
<OTHER-EXPENSES> (1,588)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,341
<INCOME-PRETAX> (379)
<INCOME-TAX> 0
<INCOME-CONTINUING> (379)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (379)
<EPS-PRIMARY> (0.26)<F1>
<EPS-DILUTED> (0.26)<F1>
<FN>
<F1>Common shares of beneficial interest equivalents were anti-dilutive. The
figures presented above are simple EPS and included the effects of stock
dividends discounts and accretion of discounts on redeemable convertible
preferred stocks.
</FN>
</TABLE>
