<PAGE>
FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURTIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
----------------
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>
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:
As of May 1, 2000, there were 22,552,440 outstanding Common Shares of
Beneficial Interest. As of May 1, 2000, there were 2,319,915 outstanding Common
Shares of Beneficial Interest held by non-affiliates of the registrant.
<PAGE>
- --------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
- --------------------------------------------------------------------------------
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 1
Statements of Consolidate Operations -
For the Three Months Ended
March 31, 2000 and 1999 2
Statements of Consolidated Cash Flows -
For the Three Months Ended
March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4 - 10
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 17
Item 3: Quantitative and Qualitative Disclosure about
Market Risk 18
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 19-22
<PAGE>
PART I: FINANCIAL INFORMATION
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- ---------------
ASSETS
Investments:
<S> <C> <C>
Commercial and hotel properties, net of accumulated depreciation of $10,411,000
and $10,230,000 at March 31, 2000 and December 31, 1999, respectively $ 68,713,000 $ 69,418,000
Notes receivable, net of deferred gains of $76,000 and $78,000 at March 31,
200 and December 31, 1999, respectively 320,000 322,000
-------------- ---------------
69,033,000 69,740,000
Cash 1,599,000 1,286,000
Restricted cash 228,000 224,000
Rents, accrued interest, and other receivables, net of allowance of $0 at
March 31, 2000 and December 31, 1999, respectively 803,000 842,000
Other assets 2,081,000 2,047,000
-------------- ---------------
Total assets $ 73,744,000 $ 74,139,000
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of Credit $ 35,077,000 $ 34,908,000
Senior Notes Payable 16,074,000 16,074,000
Long-term notes payable, collateralized by deeds of trust on commercial
Properties 19,332,000 19,406,000
Accounts payable and accrued liabilities 2,128,000 2,703,000
Other liabilities 363,000 501,000
-------------- ---------------
Total Liabilities 72,974,000 73,592,000
Commitments and contingencies (Note 5 to financial statements)
Common Shares of Beneficial Interest: 50,000,000 shares authorized; 22,553,000
shares outstanding at March 31, 2000 and December 31, 1999 47,405,000 47,405,000
Accumulated deficit (46,635,000) (46,858,000)
-------------- ---------------
Total Shareholders' Equity 770,000 547,000
-------------- ---------------
Total liabilities and shareholders' equity $ 73,744,000 $ 74,139,000
============== ===============
</TABLE>
See accompanying notes to financial statements
1
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
2000 1999
-------------- ---------------
REVENUES:
<S> <C> <C>
Hotel property $ 4,285,000 $ 2,943,000
Commercial property 2,003,000 2,180,000
Interest 21,000 14,000
Other 42,000 5,000
-------------- ---------------
6,351,000 5,142,000
============== ===============
EXPENSES:
Hotel property operating expenses 3,437,000 2,958,000
Commercial property operating expenses 553,000 700,000
Commercial and hotel property management fees -- 4,000
Depreciation and amortization 779,000 898,000
Interest 1,694,000 1,707,000
General and administrative 861,000 891,000
-------------- ---------------
7,324,000 7,158,000
-------------- ---------------
Loss before gain on sale or transfer of investments (973,000) (2,016,000)
GAIN ON SALE OR TRANSFER OF INVESTMENTS 1,196,000 3,979,000
-------------- ---------------
Net income $ 223,000 $ 1,963,000
============== ===============
Income per Common Share of Beneficial Interest:
Net income attributable to Common Shares of Beneficial
Interest $ 223,000 $ 1,963,000
============== ===============
Net income per share attributable to Common Shares of
Beneficial Interest, basic and diluted $ .01 $ .09
============== ===============
Weighted average number of Common Shares of Beneficial
Interest outstanding, basic and diluted 22,553,000 22,553,000
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 223,000 $ 1,963,000
------------- --------------
Adjustments to reconcile net income to net cash (used in)
operating activities:
Interest, fees and reimbursable expenses added to principal
balance of debt -- 552,000
Depreciation and amortization 779,000 898,000
Gain on sale of investments (1,196,000) (3,979,000)
Changes in other assets and liabilities:
Decrease in rents, accrued interest, and other receivables 39,000 256,000
Decrease (increase) in other assets (173,000) 115,000
(Decrease) in accounts payable and accrued liabilities (575,000) (115,000)
(Decrease) in other liabilities (138,000) (37,000)
------------- --------------
Total adjustments (1,264,000) (2,310,000)
------------- --------------
Net cash (used in) operating activities (1,041,000) (347,000)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sales of investments 2,696,000 7,750,000
Improvements to commercial and hotel properties (1,435,000) (3,248,000)
Purchase of office equipment -- (12,000)
Principal collections on notes receivable 2,000 1,000
------------- --------------
Net cash provided by investing activities 1,263,000 4,491,000
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term notes payable (74,000) (89,000)
Principal payments on Senior Notes -- (10,000,000)
Borrowings on Line of Credit, net 169,000 6,479,000
Increase in restricted cash (4,000) --
------------- --------------
Net cash provided by (used in) financing activities 91,000 (3,610,000)
------------- --------------
Net increase in cash 313,000 534,000
Cash, beginning of period 1,286,000 165,000
------------- --------------
Cash, end of period $ 1,599,000 $ 699,000
============= ==============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Peregrine Real Estate Trust (d.b.a. WinShip Properties),
("Peregrine" or the "Trust") was organized under the laws of the State of
California pursuant to a Restated Declaration of Trust dated October 7, 1994
(the "Effective Date").
At March 31, 2000, Peregrine owned ten commercial properties located
primarily in the Sacramento area, four hotel properties located in northern
California, two partnership interests, and one mortgage note secured by real
property.
PRINCIPLES OF CONSOLIDATION
For the period ended March 31, 2000, the financial statements include
the accounts of Peregrine and its subsidiary on a consolidated basis. All
significant intercompany balances and transactions have been eliminated in
consolidation.
COMMERCIAL AND HOTEL PROPERTIES
The Trust recognizes an impairment to reduce the carrying amount of
long-lived assets (including certain identifiable intangibles) to their
estimated fair value whenever events or changes in circumstances indicate that
such carrying amount may not be recoverable.
The allowance for depreciation and amortization has been
calculated under the straight-line method based upon the estimated useful lives
of the properties, which range from 24 to 34 years. Expenditures for
maintenance, repairs and betterments, which do not materially prolong the normal
useful life of an asset, are charged to operations as incurred. Expenditures
which prolong the useful life of an asset, are capitalized and depreciated.
OTHER ASSETS
The Trust amortizes leasing commissions on a straight-line basis over
the lives of the leases to which they relate. Financing costs are amortized over
the lives of the loans or other financial instruments to which they relate.
Corporate furniture, fixtures, and equipment are capitalized and depreciated on
a straight-line basis over their estimated useful lives.
4
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
INCOME TAXES
Deferred taxes are recorded based on the differences between financial
statement and income tax bases of assets and liabilities and available loss or
credit carryforwards. A "Valuation Allowance" is recorded against deferred tax
assets unless it is more likely than not that the asset will be realized in the
future.
REVENUE RECOGNITION
The Trusts recognizes rental revenues over the life of the lease. The
Trust recognizes interest income on notes receivable when it is estimated that
the fair value of the collateral related to the note is adequate.
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.
STOCK-BASED COMPENSATION
Peregrine has elected to continue to account for stock-based
compensation under the provisions of Accounting Principles Board Opinion No. 25
and adopt the disclosure-only provisions of Statement of Financial Accounting
Standard No. 123 ("SFAS 123"). Accordingly, the compensation costs of stock
options are measured using the intrinsic value-based method, whereby the excess,
if any, of the fair value of Peregrine's stock at the date of the grant over the
amount an employee must pay to acquire the stock represents compensation cost.
5
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS
In June1998, Financial Accounting Standard Board issued SFAS No.133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The statement
established accounting and accounting standards for the derivative instruments
and hedging activities. The effective date of this statement was deferred until
fiscal years beginning after June 15, 2000 with the issuance of SFAS No. 137.
The Trust is in the process of determining the impact of SFAS No. 133 on the
Trust's financial position and results of operations.
NET LOSS PER SHARE
The weighted-average number of Common Shares of Beneficial Interest
outstanding during the three months ended March 31, 2000, and 1999, was
22,553,000. Common Shares of Beneficial Interest equivalents are anti-dilutive
for the three months ended March 31, 2000, and 1999, and are not considered in
calculating net loss per Common Share of Beneficial Interest.
2. INVESTMENT IN REAL ESTATE JOINT VENTURES
On December 6, 1999, Peregrine and Oaktree Capital Management
("Oaktree"), which owns 27.5 percent of the Trust's outstanding stock, formed
Airport Boulevard Holdings, L.L.C., ("ABH") a Delaware limited liability
company.
In December 1999, ABH purchased a 301-room hotel in Burlingame,
California. Pursuant to the agreement, Oaktree contributed 100% of the
acquisition price. Peregrine did not make any capital contribution to ABH.
Peregrine is responsible for the management of the hotel.
Peregrine is also 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 periods ended March 31, 2000 and 1999, 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.
6
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
3. RESTRICTED CASH
At March 31, 2000 and December 31, 1999 cash of $228,000 and $224,000,
respectively, was restricted. The funds represent a portion of an Indemnity
Trust Fund that 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.
4. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
At March 31, 2000, Peregrine expects that the expenditures necessary to
complete refurbishments for the Concord hotel will total approximately
$2,200,000. Such refurbishments are required by Holiday Inn for a franchise
license to be granted for the hotel.
FINANCIAL STATUS OF PEREGRINE
At March 31, 2000, 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. Peregrine is exploring various debt and equity financing
alternatives to repay the balance on the Senior Notes. Also, borrowings under
the Line of Credit are available to fund capital improvements to certain
properties and improvements securing the Line of Credit and meet costs incurred
in the ordinary course of business in connection with Peregrine's acquisition of
income-producing commercial properties for its own account.
5. GAIN ON SALE OF INVESTMENTS
On February 23, 2000, Peregrine sold an office building located at 2893
Sunrise Boulevard, California, to the Blumefeld Properties, L.L.C. a for gross
sales price of $2,850,000 in cash, resulting in a gain of $1,196,000.
On March 12, 1999, Peregrine sold an office building located at 3900
Lennane, Sacramento, California, to the Parsons Family Partnership for a gross
sales price of $4,800,000 resulting in a gain of $1,999,000. In addition on
March 12, 1999, Peregrine sold a mini storage facility located at 1435
Sebastopol, Santa Rosa, California to James Ledwith, an individual, for a gross
sales price of $3,625,000 resulting in a gain of $1,980,000.
7
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
6. RELATED PARTY TRANSACTIONS
For the three months ended March 31, 1999, Peregrine utilized the
services of one of its trustees, Michael Joseph (E.S. Merriman), for negotiating
the terms of the Line of Credit, and was paid $275,000 for such services.
7. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
Cash paid for interest during the three-month periods ended March 31,
2000 and 1999, was $1,694,000 and $1,468,000, respectively.
8. LINES OF CREDIT
On March 10, 1999, Peregrine entered into a loan and security agreement
with Fremont Investment & Loan ("Fremont") to provide for up to $44,000,000 in
borrowing capacity under a revolving line of credit (the "Line of Credit"). The
maximum amount that may be borrowed under the Line of Credit is based upon the
appraised value of certain parcels of real estate owned by Peregrine. The
commitments made under the Line of Credit expire on April 1, 2001, but may be
extended until April 2, 2003 with Fremont's consent. The Line of Credit is
secured by a first lien on certain Peregrine properties. In connection with the
execution of the Line of Credit, the Trust entered into a Fifth Amendment to
Second Amended and Restated Note Agreement (the "Fifth Amendment") with the
Senior Lender Group to permit the Trust to enter into the Line of Credit, to
release collateral that had previously secured the Trust's obligations under the
Trust's outstanding Senior Notes and to allow interest on the outstanding Senior
Notes to be paid-in-kind rather than in cash if the Trust does not achieve
positive net cash flow in specified periods. Under the terms of the Fifth
Amendment and the Line of Credit, the Senior Notes held by the Senior Lender
Group are now unsecured. Principal amounts borrowed under the Line of Credit
bear interest at 8.6% for the first six months, then at a range from the
six-month LIBOR plus 350 basis points to LIBOR plus 400 basis points. The
average interest rate charged during the threee months ended March 31, 2000 was
8.8%.
8
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
8. LINES OF CREDIT CONTINUED
The Trust applied approximately $27,500,000 of borrowings incurred
under the Line of Credit to repay all amounts outstanding under its old line of
credit. An additional $10,000,000 of borrowings incurred under the Line of
Credit was used to repay a portion of the amounts outstanding on the Senior
Notes to the Senior Lender Group, which are held by entities that are also
significant shareholders of the Trust. The remaining borrowing capacity under
the Line of Credit is available to Peregrine only for i) capital improvements to
certain properties and improvements securing the Line of Credit, ii) costs
incurred in the ordinary course of business in connection with the Peregrine's
acquisition of income-producing commercial properties for its own account, or
iii) certain payments to Peregrine's public common shareholders. Borrowings
under the Line of Credit may not be applied for general corporate or working
capital purposes. The Line of Credit prohibits the Trust from incurring debt
other than specified mortgage indebtedness and permitted refinancing,
indebtedness and restricts the ability of the Trust to incur liens, distribute
assets, and make payments on Senior debt, and contains certain requirements as
to compliance with laws by the Trust, inspection of properties by the lender,
leasing of space, environmental matters, insurance, notices and information
required to be given to Fremont under Line of Credit, asbestos operations, and
maintenance, lead-based paint and hotel renovations.
9. SENIOR NOTES PAYABLE
In accordance with the Plan of Reorganization, restructured notes
payable in the face amount of $40,000,000, which bear interest at 8.5% per annum
and are due on October 1, 2000, were issued to the Senior Lender Group in
partial satisfaction of the $80,000,000 obligation owed to them. Interest was
payable in-kind through September 30, 1996, by means of interest deferral notes
issued quarterly. Since September 30, 1996, interest has been payable monthly in
cash (8.5%), with the first payment commencing November 1, 1996.
The restructured notes payable and interest deferral notes ("Senior
Notes Payable" or "Senior Notes") are unsecured and are subordinate to other
certain liens.
In connection with the execution of the Line of Credit, the Trust
entered into a Fifth Amendment to Second Amended and Restated Note Agreement
(the "Fifth Amendment") with the Senior Lender Group to permit the Trust to
enter into the Line of Credit, to release collateral that had previously secured
the Trust's obligations under the Trust's outstanding Senior Notes and to allow
interest on the outstanding Senior Notes to be paid-in-kind rather than in cash
if the Trust does not achieve positive net cash flow for three consecutive
months. Also, no principal payments may be paid to the Senior Lender Group
except from proceeds related to the sales of Peregrine properties. In the event
of default under the terms of the Line of Credit there are no payments allowed
to the Senior Lender Group. In addition, there are covenants related to events
or conditions, which could have or result in a material adverse effect as
defined in the applicable agreement.
9
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
10. OPERATING SEGMENTS
Peregrine's reportable segments consist of strategic real estate groups
that consist of different types of properties. The groups are managed separately
because each group requires different management and marketing strategies.
Peregrine's reportable segments are the hotel properties, the
commercial properties, and the corporate group, which manages the hotels and
commercial properties.
<TABLE>
<CAPTION>
(Numbers shown in thousands)
REVENUES
(EXCLUDING INTEREST OPERATING INTEREST GAIN/LOSS NET TOTAL
SEGMENT INTEREST INCOME EXPENSES EXPENSE DEPRECIATION ON SALES INCOME/ ASSETS
INCOME) (LOSS)
FOR THREE MONTHS ENDED
MARCH 31, 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hotels $4,285 $ -- $3,437 $ 754 $ 478 $ -- $ (384) $35,631
Commercial 2,003 -- 553 940 177 1,196 1,529 34,508
Corporate 42 21 861 -- 124 -- (922) 3,605
-----------------------------------------------------------------------------------------------
Total $6,330 $ 21 $4,851 $ 1,694 $ 779 $ 1,196 $ 223 $73,744
===============================================================================================
FOR THREE MONTHS ENDED
MARCH 31, 1999
Hotels $2,943 $ -- $2,958 $ 659 $ 269 $ -- $ (943) $32,708
Commercial 2,180 -- 704 1,048 544 3,979 3,863 45,409
Corporate 5 14 891 -- 85 -- (957) 2,666
-----------------------------------------------------------------------------------------------
Total $5,128 $ 14 $4,553 $ 1,707 $ 898 $ 3,979 $ 1,963 $80,783
===============================================================================================
</TABLE>
11. SUBSEQUENT EVENT
In April 2000, Peregrine and Oaktree Capital Management ("Oaktree"),
which owns 27.5 percent of the Trust's outstanding stock, formed Sacramento
Renaissance Holdings, L.L.C., ("SRH") a Delaware limited liability company.
In April 2000, SRH purchased a 28-story office building in Sacramento,
California. Pursuant to the agreement, Oaktree contributed 100% of the
acquisition price. Peregrine did not make any capital contribution to SRH.
Peregrine is responsible for the management of the building.
10
<PAGE>
- --------------------------------------------------------------------------------
Item 2: Management 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-K contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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, refurbishment, 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, loss of licenses or franchises, 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 elsewhere in the Form 10-K. 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 first quarter of 2000, Peregrine owned and operated a
portfolio of investments that included real property, two partnerships interest.
In the first quarter of 2000, the Trust's management continued its efforts to
improve property operations while simultaneously exploring alternative operating
strategies for the future designed to maximize shareholder value. The immediate
priority continued to be to meet Peregrine's debt obligations, including its
obligation to make cash interest payments on the Senior Notes. To achieve this
objective, emphasis remained on maximizing the income stream from the commercial
and hotel properties, reducing operating expenses, and the select disposition of
real estate assets with negative cash flow and/or which require significant
capital expenditures beyond the resources available to Peregrine.
11
<PAGE>
- --------------------------------------------------------------------------------
Item 2: Management Discussion and Analysis of Financial Condition and Results
of Operations concluded.
- --------------------------------------------------------------------------------
Management continued to explore long term strategies to maximize the
value of its assets, including analysis of current and expected property
valuations, regional and industry market trends and potential long-term growth
opportunities in single and multi-tenant buildings, retail centers and hotel
properties. The assessment of long-term strategies includes consideration of
financing or restructuring alternatives relating to Peregrine's first mortgage
debt and its long-term unsecured debt to the Senior Notes. Under the terms of
the Trust's line of credit and Senior Notes, 80% of the net proceeds from
certain sales of property, certain grants of options to purchase property,
certain refinancing indebtedness, certain new financing or refinancing secured
by a lien on the property must be paid to the Senior Lender Group, thus
restricting Peregrine from reinvesting in higher yielding investments or making
capital improvements to existing assets.
12
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED
MARCH 31, 1999
REVENUES
Total revenues were $6,351,000 during the three months ended March 31,
2000, an increase of $1,209,000, or 24%, from total revenues of $5,142,000
during the three months ended March 31, 1999.
HOTEL PROPERTY REVENUES. Hotel revenue was $4,285,000 for the three
months ended March 31, 2000, an increase of $1,342,000, or 46%, from $2,943,000
for the three months ended March 31, 1999. The increase is due to increased
revenue and occupancy for the Holiday Inn Sacramento, which re-opened during
January 1999. In addition, the Holiday Inns Chico and Walnut Creek had increased
occupancy and revenues.
COMMERCIAL PROPERTY REVENUES. Commercial property revenue was
$2,003,000 for the three months ended March 31, 2000, a decrease of $177,000, or
8%, from $2,180,000 for the three months ended March 31, 1999. The decrease is
primarily attributable to the sales of a mini-storage facility in fourth quarter
of 1999, offset by higher occupancy at certain of the Trust's office buildings.
INTEREST REVENUE. Interest revenue was $21,000 for the three months
ended March 31, 2000, an increase of $7,000, or 50%, from $14,000 for the three
months ended March 31, 1999. The increase is primarily due to higher average
cash balances held during the three months ended March 31, 2000.
TOTAL EXPENSES
Total expenses were $7,324,000 during the three months ended March 31,
2000, an increase of $166,000, or 2%, from total expenses of $7,158,000 during
the three months ended March 31, 1999.
HOTEL PROPERTY OPERATING EXPENSES. Hotel operating expenses were
$3,437,000 during the three months ended March 31, 2000, an increase of
$479,000, or 16%, from total expenses of $2,958,000 during the three months
ended March 31, 1999. The increase is attributable to an increase in operating
expenses related to the Holiday Inn Sacramento, which re-opened in January 1999.
In addition expenses increased for the Holiday Inn's Chico and Walnut Creek due
to improved revenues.
COMMERCIAL PROPERTY OPERATING EXPENSES. Commercial property operating
expenses were $553,000 during the three months ended March 31, 2000, a decrease
of $147,000, or 21%, from total expenses of $700,000, during the three months
ended March 31, 1999. The decrease is primarily attributable to the absence of
expenses for commercial properties sold in 1999 and first quarter of 2000.
13
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expenses were $779,000, during the three months ended March 31, 2000, a decrease
of $119,000, or 13%, from total expenses of $898,000, during the three months
ended March 31, 1999. The decrease is primarily attributable to a decrease in
depreciation and amortization at the commercial properties due to the sales of
properties during 1999; the decrease is slightly offset due to increase
deprecation and amortization for the hotels due to capital improvements
completed in 1999.
INTEREST EXPENSE. Interest expense was $1,694,000, during the three
months ended March 31, 2000, a decrease of $13,000, or 1%, from total expenses
of $1,704,000, during the three months ended March 31, 1999. The decrease is
primarily attributable lower interest expenses for Senior Lender Group due to a
principle payment March 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses were $861,000, during the three months ended March 31, 2000, a decrease
of $30,000, or 3%, from total expenses of $891,000, during the three months
ended March 31, 1999. The decrease is primarily attributable to a decrease in
consulting costs and legal fees.
GAIN ON SALE OF INVESTMENTS
On February 23, 2000, Peregrine sold an office building located at 2893
Sunrise Boulevard, California, to the Blumefeld Properties, L.L.C. for a gross
sales price of $2,850,000 in cash, resulting in a gain of $1,196,000.
On March 12, 1999, Peregrine sold an office building located at 3900
Lennane, Sacramento, California, to the Parsons Family Partnership for a gross
sales price of $4,800,000 resulting in a gain of $1,999,000.
On March 12, 1999, Peregrine sold a mini storage facility located at
1435 Sebastopol, Santa Rosa, California to James Ledwith, an individual, for a
gross sales price of $3,625,000 resulting in a gain of $1,980,000.
DIVIDENDS
Peregrine made no cash distributions during the three months ended
March 31, 2000 or 1999. In addition, Peregrine is substantially restricted from
and does not anticipate making any cash distributions to shareholders in the
foreseeable future.
14
<PAGE>
OCCUPANCY
HOTEL AND COMMERCIAL PROPERTY OCCUPANCY. At March 31, 2000 and March
31, 1999, overall weighted occupancy levels for the Trust's properties were as
follows:
OVERALL WEIGHTED AVERAGE OCCUPANCY
PROPERTY TYPE MARCH 31, 2000 MARCH 31, 1999
------------- -------------- --------------
Retail Shopping Centers 69% 76%
Office Buildings 93% 82%
Industrial Buildings 90% 80%
Mini-Storage Facilities N/A 93%
Hotels 58% 45%
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.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's unrestricted cash totaled $1,599,000 on March 31, 2000 an
increase from $1,286,000 at December 31, 1999. During the three months ended
March 31, 2000, Peregrine's principal source of funds was from proceeds related
to the sales of investments and funds available from the Line of Credit. At
March 31, 2000, $226,000 remained available through the Line of Credit; however,
pursuant to the Line of Credit Agreement, Peregrine is subject to certain
restrictions and limitations on borrowing. The remaining borrowing capacity
under the Line of Credit is available to Peregrine only for i) capital
improvements to certain properties and improvements securing the Line of Credit,
ii) costs incurred in the ordinary course of business in connection with the
Peregrine's acquisition of income-producing commercial properties for its own
account, or iii) certain payments to Peregrine's public common shareholders.
Borrowings under the Line of Credit may not be applied for general corporate or
working capital purposes.
On March 10, 1999, Peregrine entered into a loan and security
agreement with Fremont Investment & Loan ("Fremont") to provide for up to
$44,000,000 in borrowing capacity under a revolving line of credit (the "Line of
Credit"). The maximum amount that may be borrowed under the Line of Credit is
based upon the appraised value of certain parcels of real estate owned by
Peregrine. The commitments made under the Line of Credit expire on April 1,
2001, but may be extended until April 2, 2003 with Fremont's consent. The Line
of Credit is secured by a first lien on certain Peregrine properties. In
connection with the execution of the Line of Credit, the Trust entered into a
Fifth Amendment to Second Amended and Restated Note Agreement (the "Fifth
Amendment") with the Senior Lender Group to permit the Trust to enter into the
Line of Credit, to release collateral that had previously secured the Trust's
obligations under the Trust's outstanding Senior Notes and to allow interest on
the outstanding Senior Notes to be paid-in-kind rather than in cash if the Trust
does not achieve positive net cash flow in
15
<PAGE>
specified periods. Under the terms of the Fifth Amendment and the Line of
Credit, the Senior Notes held by the Senior Lender Group are now unsecured.
Principal amounts borrowed under the Line of Credit bear interest ranging from
the six-month LIBOR plus 350 basis points to LIBOR plus 400 basis points.
The borrowing capacity under the Line of Credit is available to
Peregrine only for, i) capital improvements to certain properties and
improvements securing the Line of Credit, ii) costs incurred in the ordinary
course in connection with the Peregrine's acquisition of income-producing
commercial properties for its own account, or iii) certain payments to
Peregrine's public common shareholders. Borrowings under the Line of Credit may
not be applied for general corporate or working capital purposes. The Line of
Credit prohibits the Trust from incurring debt other than specified mortgage
indebtedness and permitted refinancing, indebtedness and restricts the ability
of the Trust to incur liens, distribute assets, and make payments on Senior
debt, and contains certain requirements as to compliance with laws by the Trust,
inspection of properties by the lender, leasing of space, environmental matters,
insurance, notices and information required to be given to Fremont under Line of
Credit, asbestos operations and maintenance, lead-based paint and hotel
renovations.
Debt service paid on Peregrine's first mortgage notes totaled $539,000
during the three months ended March 31, 2000. Total debt service requirements on
first mortgage notes in 2000 are approximately $2,646,000. Interest paid on the
Senior Lender Group Notes during the three months ended March 31, 2000 totaled
$345,000. Interest on the Senior Lender Group Notes is required to be paid in
cash on a monthly basis, with aggregate interest payable during 2000 currently
estimated at $1,366,000, based on $16,074,000 principal outstanding.
At March 31, 2000, Peregrine's short and long-term cash commitments
include approximately $2,200,000, to complete the refurbishment at the Concord
hotel, which is required by Holiday Inn for the franchise license to be granted
to the hotel. The refurbishments will be financed by borrowings under the line
of credit. The Senior Notes mature in October 2000, and at such time Peregrine
will be obligated to repay all outstanding principal thereunder, currently
estimated at $16,074,000. In addition, the line of credit matures in April 2001,
unless the maturity of the Senior Notes is extended. Peregrine is exploring
various debt and equity financing alternatives to repay the amounts outstanding
under Senior Notes and the line of credit.
Based upon proceeds from sales of real estate investments 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. Peregrine is
exploring various debt and equity financing alternatives to repay the balance on
the Senior Notes. Also, borrowings under the Line of Credit are available to
fund capital improvements to certain properties and improvements securing the
Line of Credit and meet costs incurred in the ordinary course in connection with
Peregrine's acquisition of income-producing commercial properties for its own
account.
Peregrine experienced a net increase in unrestricted cash of $313,000
for the three months ended March 31, 2000 as compared to a net increase in
unrestricted cash of $534,000 for the three months ended March 31, 1999. For the
three months ended March 31, 2000, net cash used in operating activities was
$1,041,000, compared to $347,000 net cash used in operation for the
16
<PAGE>
three months ended March 31, 1999. Net cash provided by investing activities
during the three months ended March 31, 2000 was $1,263,000 compared to
$4,491,000 for the three month period ended March 31,1999. The decrease of
$3,228,000 is primarily attributable to a reduced amount of proceeds from the
sales of investments in 2000 as to compared to 1999. Net cash provided by
financing activities for the three months ending March 31, 2000 was $91,000
compared to net cash used in financing activities of $3,610,000 for the three
months ended March 31, 1999. The increase in net cash provided of $3,701,000 was
primarily due to principal payments paid on the Senior Notes in 1999 offset by
lower borrowings on the line of credit.
SIGNIFICANT CHANGES IN THE ECONOMIC ENVIRONMENT
Peregrine is exposed to market risk related to interest rate changes on
its variable rate debt. During 1999, both rental rates and real estate values
increased; therefore, the effect of inflation is not expected to have a
significant effect on Peregrine's operations in 2000.
17
<PAGE>
- --------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosure about Market Risk
- --------------------------------------------------------------------------------
The Trust's exposure to market risk for changes in interest rate relates
primarily to the Trust's current and future debt obligations. The Trust is
vulnerable to significant fluctuations of interest rates on its floating rate
debt, changes in the market value of fixed rate debt and future debt.
The following table presents information about the Trust's debt obligations. The
table presents principal cash flows and related weighted average interest rate
by expected maturity dates.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
<S> <C> <C> <C> <C> <C> <C>
Mortgage Notes $ 274,000 $ 382,000 $ 15,675,000 $ 159,000 $ 2,267,000 $ 575,000
Average Interest Rate 9.5% 9.5% 8.2% 8.7% 8.1% 8.5%
Senior Notes $ 16,074,000 -- -- -- --
Average Interest Rate 8.5%
Revolving Line of Credit -- $ 35,077,000 -- -- -- --
Average Interest Rate 8.5%
</TABLE>
18
<PAGE>
PART II. OTHER INFORMATION
(6) Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
(c) Exhibits
- --------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION
3.1(a) Restated Declaration of Trust of The Peregrine Real Estate
Trust (1)
3.1(b) Bylaws of The Peregrine Real Estate Trust (1)
10.1 Second Amended and Restated Note Agreement dated September 27,
1994, by and among Commonwealth Equity Trust, the Noteholders
named therein, and The Prudential Insurance Company of America
as Agent for the Noteholders (1)
10.1.1 First Amendment to Second Amended and Restated Note Agreement
dated February 16, 1995. (13)
10.1.2 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).
10.1.3 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. (10)
10.1.4 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. (10)
10.1.5 Fifth Amendment to the Second Amended and Restated Note
Agreement dated February 15, 1999. (13)
10.2. 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)
19
<PAGE>
10.2 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)
10.3.1 First Amendment to the Registration Rights Agreement (13)
10.4 Services and Confidentiality Agreement dated October 1, 1994,
between Commonwealth Equity Trust and FAMA Management, Inc.(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 Form of Indemnification Agreement (4)
10.8 The Peregrine Real Estate Trust Trustee Stock Option Plan (5)
10.9 Form of Indemnification Agreement (7)
10.10 Loan and Security Agreement dated December 4, 1997, by and
among The Peregrine Real Estate Trust and Fleet Capital
Corporation (8)
10.10.1 Amendment Number One To Loan and Security Agreement dated
June 30, 1998 by and between Fleet Capital Corporation and
Peregrine Real Estate Trust. (11)
10.11 Employment Agreement between The Peregrine Real Estate Trust
and Roger D. Snell, dated September 30, 1997 (9)
10.12 Exchange Agreement dated November 2, 1998. (12)
10.13 Agreement of Purchase and Sale dated March 23, 1998 between J.
Nebout and P. Nebout as trustees of the P. Nebout and J.
Nebout inter vivos trust dated July 20, 1995, as seller, and
The Peregrine Real Estate Trust, as buyer. (10)
10.14 Loan and Security Agreement dated February 15, 1999, by and
among The Peregrine Real Estate Trust, d.b.a. WinShip
Properties, and Fremont Investment & Loan. (13)
10.15 Secured Promissory Note dated February 15, 1999, by and among
The Peregrine Real Estate Trust, d.b.a. WinShip Properties,
and Fremont Investment & Loan. (13)
Financial Data Schedule
(1) Incorporated herein by reference to Peregrine's Report on Form 8-K filed
October 7, 1994.
20
<PAGE>
(2) Incorporated herein by reference to Peregrine's Report on Form 8-K filed
August 25, 1994.
(3) Incorporated herein by reference to Peregrine's Report on Form 8-K filed
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 filed
December 23, 1997.
(9) Incorporated herein by reference to Peregrine's Report on Form 10-K for the
year ended December 31, 1997.
(10) Incorporated herein by reference to Peregrine's Report on Form 8-K filed
on July 16, 1998.
(11) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
the period ended June 30, 1998.
(12) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
the period ended September 30, 1998.
(13) Incorporated herein by reference to Peregrine's Report on Form 8-K filed
March 22, 1999.
21
<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
MAY 12, 2000 /s/ LARRY KNORR
- ------------ -----------------------
Date Larry Knorr
Vice President and
Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,827
<SECURITIES> 0
<RECEIVABLES> 1,123
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,082
<PP&E> 79,123
<DEPRECIATION> (10,411)
<TOTAL-ASSETS> 73,744
<CURRENT-LIABILITIES> 2,491
<BONDS> 70,483
0
0
<COMMON> 47,405
<OTHER-SE> (46,635)
<TOTAL-LIABILITY-AND-EQUITY> 73,744
<SALES> 0
<TOTAL-REVENUES> 6,351
<CGS> 0
<TOTAL-COSTS> (3,990)
<OTHER-EXPENSES> (1,640)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,694)
<INCOME-PRETAX> (973)
<INCOME-TAX> 0
<INCOME-CONTINUING> (973)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,196
<CHANGES> 0
<NET-INCOME> 223
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
