<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 JUNE 30, 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
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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 / /
<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 August 7, 2000, there were 22,552,440 outstanding Common Shares
of Beneficial Interest. As of August 7, 2000 there were 2,319,915 outstanding
Common Shares of Beneficial Interest held by non-affiliates of the registrant.
<PAGE>
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THE PEREGRINE REAL ESTATE TRUST
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 1
Statements of Consolidated Operations -
For the Three Months and Six Months Ended
June 30, 2000 and 1999 2
Statements of Consolidated Cash Flows -
For the Six Months Ended
June 30, 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 11-18
Item 3: Quantitative and Qualitative Disclosure about
Market Risk 19
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 20-21
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Commercial and hotel properties, net of accumulated depreciation of
$11,012,000 and $10,230,000 at June 30, 2000 and December 31, 1999,
respectively $ 65,040,000 $ 69,418,000
Notes receivable, net of deferred gains of $76,000 at June 30, 2000 and
December 31, 1999. 319,000 322,000
------------ ------------
65,359,000 69,740,000
Cash 2,160,000 1,286,000
Restricted cash 230,000 224,000
Rents, accrued interest, and other receivables 767,000 842,000
Other assets 1,950,000 2,047,000
------------ ------------
Total assets $ 70,466,000 $ 74,139,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of Credit $ 32,283,000 $ 34,908,000
Senior Notes Payable 16,074,000 16,074,000
Long-term notes payable, collateralized by deeds of trust on commercial
properties 19,236,000 19,406,000
Accounts payable and accrued liabilities 1,693,000 2,703,000
Other liabilities 343,000 501,000
------------ ------------
Total Liabilities 69,629,000 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 June 30, 2000 and December 31, 1999 47,405,000 47,405,000
Accumulated deficit (46,568,000) (46,858,000)
------------ ------------
Total shareholders' equity 837,000 547,000
------------ ------------
Total liabilities and shareholders' equity $ 70,466,000 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Hotel property $ 5,117,000 $ 4,278,000 $ 9,402,000 $ 7,221,000
Commercial property 1,810,000 2,095,000 3,813,000 4,274,000
Interest 34,000 23,000 55,000 38,000
Other 152,000 8,000 194,000 13,000
------------ ------------ ------------ ------------
7,113,000 6,404,000 13,464,000 11,546,000
------------ ------------ ------------ ------------
EXPENSES:
Hotel property operating expenses 3,672,000 2,912,000 7,109,000 5,870,000
Commercial property operating expenses 527,000 628,000 1,080,000 1,328,000
Commercial property management fees -- 4,000 -- 7,000
Depreciation and amortization 1,377,000 1,302,000 2,156,000 2,200,000
Interest 1,714,000 1,361,000 3,408,000 3,069,000
General and administrative 1,079,000 823,000 1,940,000 1,714,000
------------ ------------ ------------ ------------
8,369,000 7,030,000 15,693,000 14,188,000
------------ ------------ ------------ ------------
Loss before gain on sale of
investments (1,256,000) (626,000) (2,229,000) (2,642,000)
GAIN ON SALE OF INVESTMENTS 1,323,000 842,000 2,519,000 4,821,000
------------ ------------ ------------ ------------
Net income before extraordinary item 67,000 216,000 290,000 2,179,000
EXTRAORDINARY ITEM - FORGIVENESS OF DEBT -- 55,000 -- 55,000
------------ ------------ ------------ ------------
Net income $ 67,000 $ 271,000 $ 290,000 $ 2,234,000
============ ============ ============ ============
Income per Common Share of Beneficial Interest:
Net income attributable to Common Shares
of Beneficial Interest $ 67,000 $ 271,000 $ 290,000 $ 2,234,000
============ ============ ============ ============
Net income per share attributable to
Common Share of Beneficial Interest,
basic and diluted $ .01 $ .01 $ .01 $ .10
============ ============ ============ ============
Weighted average number of Common Shares
of Beneficial Interest outstanding 22,553,000 22,553,000 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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 290,000 $ 2,234,000
------------ -------------
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Interest, fees and reimbursable expenses added to principal
balance of debt -- 552,000
Depreciation and amortization 2,156,000 2,200,000
Gain on sale of investments (2,519,000) (4,821,000)
Changes in other assets and liabilities:
(Increase) decrease in rents, accrued interest, and other
receivables 75,000 (112,000)
(Increase) decrease in other assets (142,000) 173,000
Decrease in accounts payable and accrued liabilities (1,010,000) (189,000)
(Decrease) increase in other liabilities (158,000) 31,000
------------ -------------
Total adjustments (1,598,000) (2,166,000)
------------ -------------
Net cash (used in) provided by operating activities (1,308,000) 68,000
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sales of investments 8,255,000 9,534,000
Improvements to commercial and hotel properties (3,220,000) (5,515,000)
Purchase of office equipment (55,000) (18,000)
Principal collections on notes receivable 3,000 3,000
------------ -------------
Net cash provided by investing activities 4,983,000 4,004,000
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term notes payable (170,000) (168,000)
Principal payments on Senior Notes -- (10,000,000)
Borrowings (repayments) on Line of Credit, net (2,625,000) 6,577,000
Increase in restricted cash (6,000) (4,000)
------------ -------------
Net cash used in financing activities (2,801,000) (3,595,000)
------------ -------------
Net increase in cash 874,000 477,000
Cash, beginning of period 1,286,000 165,000
------------ -------------
Cash, end of period $ 2,160,000 $ 642,000
============ =============
</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 June 30, 2000, Peregrine owned eight 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.
INTERIM FINANCIAL REPORTING
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article of
Regulation S-X. Accordingly, they do not included all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all necessary adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
have been included. The results of operations for the six month period ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the entire fiscal year or any other interim period.
PRINCIPLES OF CONSOLIDATION
For the period ended June 30, 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.
4
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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 Trust 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 CONCLUDED
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, 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 six months ended June 30, 2000, and 1999, was 22,553,000.
Common Shares of Beneficial Interest equivalents are anti-dilutive for the six
months ended June 30, 2000, and 1999, and are not considered in calculating net
loss per Common Share of Beneficial Interest.
2. INVESTMENT IN REAL ESTATE JOINT VENTURES
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. As part of the
agreement Peregrine will receive an asset management fee of 2.0% of gross cash
receipts for the office building.
On December 6, 1999, Peregrine and Oaktree formed Airport Boulevard
Holdings, L.L.C., ("ABH") a Delaware limited liability company. Pursuant to the
agreement, Oaktree contributed 100% of the acquisition price.
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. As part of the
agreement Peregrine will receive an asset management fee of 1.5 % to 3% of gross
operating revenues of the hotel. Pursuant to the agreement all income and losses
are allocated to Oaktree Capital Management.
6
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
3. RESTRICTED CASH
At June 30, 2000 and December 31, 1999 cash of $230,000 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,
was restricted as to use for a period of three years ending May 29, 2000, as
defined in the Indemnity Trust Agreement. As of June 30, 2000 the funds are
managed by a independent third-party trustee; however, Peregrine anticipates
that the trustee will be transferring the funds to Peregrine during the 3rd
quarter of 2000 pursuant to the terms of the indemnity trust agreement.
4. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
At June 30, 2000, Peregrine expects that the expenditures necessary to
complete refurbishments for the Concord hotel will total approximately
$1,650,000. Such refurbishments are required by Holiday Inn for a franchise
license to be granted for the hotel.
FINANCIAL STATUS OF PEREGRINE
At June 30, 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, which mature
on October 1, 2000. 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 (LOSS) ON SALE OF INVESTMENTS
On June 30, 2000, Peregrine sold a restaurant building located at 6245
Sunrise Boulevard, Sacramento, California, to the Patterson Family Trust for a
gross sales price of $1,350,000, resulting in a loss of $112,000.
On June 2, 2000, Peregrine sold an office building located at 2816 16th
Street, Sacramento, California, to Meyer Hotels L.L.C. for gross sales price of
$4,500,000 resulting in a gain of $1,435,000.
7
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
5. GAIN (LOSS) ON SALE OF INVESTMENTS CONCLUDED
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, resulting in a gain of $1,196,000.
On June 17, 1999, Peregrine sold a light industrial building located at
11167 Trade Center, Sacramento, California, to Sam's Airpack Plus, Inc. for a
gross sales price of 1,902,000 resulting in a gain of $842,000.
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.
6. RELATED PARTY TRANSACTIONS
For the six months ended June 30, 1999, Peregrine utilized the services
of one of its trustees, Michael Joseph (E.S. Merriman) to assist in negotiating
the terms of Peregrine's Line of Credit, and paid $275,000 for such services.
7. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
Cash paid for interest during the six-month periods ended June 30, 2000
and 1999, was $3,576,000 and $2,762,000, 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 three consecutive months.
8
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
8. LINES OF CREDIT (CONCLUDED)
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 six
months ended June 30, 2000 was 9.9%.
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 the Line of Credit, such as information related to asbestos operations
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. However,
Peregrine has not made any interest payments on the Senior Notes since June 1,
2000, and unpaid interest is included in accrued liabilities. Peregrine is
exploring various debt and equity financing alternatives to repay the balance on
the Senior Notes.
The Senior Notes are unsecured and are subordinate to the Line of
Credit.
9
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO FINANCIAL STATEMENTS
----------
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.
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.
<TABLE>
<CAPTION>
REVENUES
(EXCLUDING AMORTIZATION NET
INTEREST INTEREST OPERATING INTEREST & GAIN EXTRAORDINARY INCOME/ TOTAL
SEGMENT INCOME) INCOME EXPENSES EXPENSE DEPRECIATION ON SALES ITEM (LOSS) ASSETS
======= ========== ======== ========= ======== ============ ======== ============= ======= ======
(Numbers shown in thousands)
FOR SIX MONTHS ENDED JUNE 30, 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hotels $ 9,402 $ -- $ 7,109 $ 1,578 $ 1,235 $ -- $ -- $ (520) $ 36,629
Commercial 3,813 -- 1,080 1,830 755 2,519 -- 2,667 29,795
Corporate 194 55 1,940 -- 166 -- -- (1,857) 4,042
============ ========= ========== =========== ============ ========== ============= ========== ===========
Total $13,409 $ 55 $ 10,129 $ 3,408 $ 2,156 $ 2,519 $ -- $ 290 $ 70,466
============ ========= ========== =========== ============ ========== ============= ========== ===========
FOR SIX MONTHS ENDED JUNE 30, 1999
Hotels $ 7,221 $ -- $ 5,870 $ 1,148 $ 947 $ -- $ -- $ (745) $ 44,223
Commercial 4,274 -- 1,335 1,921 1,040 4,821 -- 4,799 34,431
Corporate 13 38 1,714 -- 213 -- 55 (1,820) 2,413
============ ========= ========== =========== ============ ========== ============= ========== ===========
Total $11,508 $ 38 $ 8,919 $ 3,069 $ 2,200 $ 4,821 $ 55 $ 2,234 $ 81,067
============ ========= ========== =========== ============ ========== ============= ========== ===========
</TABLE>
12. SUBSEQUENT EVENT
Peregrine has a non-recourse long-term mortgage note, which is secured
by a retail shopping center located at 7143 Greenback Lane in Sacramento,
California, which continued to be vacant during the first two quarters of 2000,
despite efforts to lease the property. The note requires a monthly debt service
payment (including tax impounds) of approximately $85,000. Due to negative cash
flow resulting from the required debt service payments, Peregrine ceased making
payments on the mortgage note as of August 2000. In August 2000, Peregrine was
notified that the lender had initiated judicial foreclosure proceedings on the
property securing the note.
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, this Form 10-Q 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 this Form 10-Q. 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 second quarter of 2000, Peregrine owned and operated a
portfolio of investments that included real property and two partnership
interests. In the first six months 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 and exploring alternatives to restructure its obligations
with respect to its debt obligations. The immediate priority continued to be
to meet Peregrine's debt obligations. 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.
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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 secured debt to the Senior Lender
Group. Under the terms of the Trust's Line of Credit and Senior Notes,
proceeds equal he collateral value from certain sales of property must be
paid to the Line of Credit. Further, 80% of the remaining for these sales of
properties, 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.
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<PAGE>
COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 TO THE THREE AND
SIX MONTHS ENDED JUNE 30, 1999
REVENUES
Total revenues were $13,464,000 during the six months ended June 30,
2000, an increase of $1,918,000, or 17%, from total revenues of $11,546,000 for
the six months ended June 30, 1999. Total revenues were $7,113,000 during the
three months ended June 30, 2000, compared to $6,404,000 for the three months
ended June 30, 1999, an increase of $709,000 or 11%.
HOTEL PROPERTY REVENUES. Hotel revenues were $9,402,000 during the six
months ended June 30, 2000, an increase of $2,181,000, or 30%, from revenues of
$7,221,000 for the six months ended June 30, 1999. Hotel revenues were
$5,117,000 during the three months ended June 30, 2000, compared to $4,278,000
for the three months ended June 30, 1999, an increase of $839,000 or 20%. The
increases are primarily attributable to improved occupancy and average daily
rates at the hotels.
COMMERCIAL PROPERTY REVENUES. Commercial property revenues were
$3,813,000 during the six months ended June 30, 2000, a decrease of $461,000, or
11%, from revenues of $4,274,000 for the six months ended June 30, 1999.
Commercial property revenues were $1,810,000 during the three months ended June
30, 2000, compared to $2,095,000 for the three months ended June 30, 1999, a
decrease of $285,000 or 14%. The decrease is primarily attributable to revenue
lost as a result of the sales of the One Sunrise and the 16th & K office
buildings in March 2000 and June 2000 respectively, and a restaurant building in
June 2000.
INTEREST REVENUE. Interest revenues were $55,000 during the six months
ended June 30, 2000, an increase of $17,000, or 45%, from revenues of $38,000
for the six months ended June 30, 1999. Interest revenues were $34,000 during
the three months ended June 30, 2000, compared to $23,000 for the three months
ended June 30, 1999, an increase of $11,000 or 48%. The increases are primarily
due to higher average cash balances held during the three and six months ended
June 30, 2000.
TOTAL EXPENSES
Total expenses were $15,693,000 during the six months ended June 30,
2000, an increase of $1,505,000, or 11%, from total expenses of $14,188,000 for
the six months ended June 30, 1999. Total expenses were $8,369,000 during the
three months ended June 30, 2000, compared to $7,030,000 for the three months
ended June 30, 1999, an increase of $1,339,000 or 19%.
13
<PAGE>
HOTEL PROPERTY OPERATING EXPENSES. Hotel operating expenses were
$7,109,000 during the six months ended June 30, 2000, an increase of $1,239,000,
or 21%, from expenses of $5,870,000 for the six months ended June 30, 1999.
Hotel expenses were $3,672,000 during the three months ended June 30, 2000,
compared to $2,912,000 for the three months ended June 30, 1999, an increase of
$760,000 or 26%. The increases are attributable to the increased hotel personnel
and other core expenses related to the increased revenues of the hotels.
COMMERCIAL PROPERTY OPERATING EXPENSES. Commercial operating expenses
were $1,080,000 during the six months ended June 30, 2000, a decrease of
$248,000, or 19%, from expenses of $1,328,000 for the six months ended June 30,
1999. Commercial property operating expenses were $527,000 during the three
months ended June 30, 2000, compared to $628,000 for the three months ended June
30, 1999, a decrease of $101,000 or 16%. The decrease is primarily attributable
to the absence of expenses for the One Sunrise and the 16th & K office
buildings, and a restaurant building, which were sold during the six months
ended June 30, 2000.
COMMERCIAL PROPERTY MANAGEMENT FEES. There were no commercial property
management fees during the six months ended June 30, 2000, a decrease of $7,000,
or 100%, from expenses of $7,000 for the six months ended June 30, 1999. There
were no commercial property management fees for the three months ended June 30,
2000, compared to $4,000 for the three months ended June 30, 1999, a decrease of
$4,000 or 100%. The decreases are attributable to the absence management fees
for the Downtown Mini-Storage facility, which was sold in December 1999.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was $2,156,000 during the six months ended June 30, 2000, a decrease of
$44,000, or 2%, from expense of $2,200,000 for the six months ended June 30,
1999. Depreciation and amortization expense was $1,377,000 during the three
months ended June 30, 2000, compared to $1,361,000 for the three months ended
June 30, 1999, an increase of $75,000 or 6%. The decrease is primarily
attributable to the absence of expenses for the One Sunrise and the 16th & K
office buildings, and a restaurant building, which were sold during the six
months ended June 30, 2000.
INTEREST EXPENSE. Interest expense was $3,408,000 during the six months
ended June 30, 2000, an increase of $339,000, or 11%, from expense of $3,069,000
for the six months ended June 30, 1999. Interest expense was $1,714,000 during
the three months ended June 30, 2000, compared to $1,361,000 for the three
months ended June 30, 1999, an increase of $353,000 or 26%. The increases are
primarily attributable to higher average balances outstanding under the Line of
Credit.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses were $1,940,000 during the six months ended June 30, 2000, an increase
of $226,000, or 13%, from expenses of $1,714,000 for the six months ended June
30, 1999. General and administrative expenses were $1,079,000 during the three
months ended June 30, 2000, compared to $823,000 for the three months ended June
30, 1999, an increase of $256,000 or 31%. The increases are primarily
attributable to an increase in wages and benefits resulting from increased staff
and the costs related to purchase and installation of computer software,
partially offset by a decrease in consulting costs and legal fees.
GAIN ON SALE OF INVESTMENTS
On June 30, 2000, Peregrine sold restaurant building located at 6245
Sunrise Boulevard, Sacramento, California, to the Patterson Family Trust for a
gross sales price of $1,350,000, resulting in a loss of $112,000.
On June 2, 2000, Peregrine sold an office building located at 2816 16th
Street, Sacramento, California, to Meyer Hotels L.L.C for gross sales price of
$4,500,000, resulting in a gain of $1,435,000.
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, resulting in a gain of $1,196,000.
On June 17, 1999, Peregrine sold a light industrial building located at
11167 Trade Center, Sacramento, California, to Sam's Airpack Plus, Inc. for a
gross sales price of 1,902,000 resulting in a gain of $842,000.
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.
DIVIDENDS
Peregrine made no cash distributions during the three or six months
ended June 30, 2000 and 1999. In addition, Peregrine is substantially restricted
from and does not anticipate making any cash distributions to shareholders in
the foreseeable future.
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OCCUPANCY
HOTEL AND COMMERCIAL PROPERTY OCCUPANCY. At June 30, 2000 and June 30,
1999, overall weighted average occupancy levels for the Trust's properties were
as follows:
<TABLE>
<CAPTION>
Overall Weighted Average Occupancy
PROPERTY TYPE JUNE 30, 2000 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C>
Retail Shopping Centers 67% 76%
Office Buildings 91% 86%
Industrial Buildings 90% 89%
Mini-Storage Facilities -- 95%
Hotels 69% 55%
</TABLE>
The overall weighted average occupancy level is calculated by
multiplying the occupancy by square footage (or rooms available) and dividing
the total by the total square footage (or rooms available) in the portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's unrestricted cash totaled $2,160,000 on June 30, 2000 an
increase from $1,286,000 at December 31, 1999. During the six months ended June
30, 2000, Peregrine's principal source of funds was from proceeds related to the
sales of investments. At June 30, 2000, $3,936,000 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 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.
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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 ranging from the six-month LIBOR plus 350 basis points to LIBOR
plus 400 basis points.
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
$1,207,000 during the six months ended June 30, 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 six months ended June
30, 2000 totaled $573,000. 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. However, Peregrine has not made cash payments for interest on the
Senior Notes since June 1, 2000.
At June 30, 2000, Peregrine's short and long-term cash commitments
include approximately $1,200,000, 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 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 retire the balance
on the Senior Notes, which mature on October 1, 2000 and various transactions
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<PAGE>
designed to reduce the costs incurred with Peregrine large shareholder base.
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 $874,000
for the six months ended June 30, 2000 as compared to a net increase in
unrestricted cash of $477,000 for the six months ended June 30, 1999. For the
six months ended June 30, 2000, net cash used in operating activities was
$1,308,000, compared to $68,000 net cash provided by operating activites for the
six months ended June 30, 1999. Net cash provided by investing activities during
the six months ended June 30, 2000 was $4,983,000 compared to $4,004,000 for the
six month period ended June 30,1999. The increase of $979,000 is primarily
attributable to a decrease in improvements to commercial and hotel properties,
offset by a decrease in the proceeds on the sale of investments in 2000 as to
compared to 1999. Net cash used in financing activities for the six months ended
June 30, 2000 was $2,801,000 compared to $3,595,000 for the six months ended
June 30, 1999. The decrease in net cash used in of $794,000 was primarily due to
a decrease in payments on the Senior Notes, offset by repayments 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.
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Item 3. Quantitative and Qualitative Disclosure about Market Risk
------------------------------------------------------------------------------
The Trust's exposure to market risk for changes in interest rates relate
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 rates
by expected maturity dates.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Notes $ 178,000 $ 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 -- $32,283,000 -- -- -- --
Average Interest Rate 9.9%
</TABLE>
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PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
None
Financial Data Schedule
(1) Incorporated herein by reference to Peregrine's Report on Form 8-K filed
October 7, 1994.
(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.
(14) Incorporated herein by reference to Peregrine's Report on Form 10-K for
the year ended December 31, 1998.
(15) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
the period ended September 30, 1998.
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(16) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
the period ended March 31, 1999.
(17) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
the period ended June 30,1999.
(18) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
the period ended September 30, 1999.
(19) Incorporated herein by reference to Peregrine's Report on Form 10-K for
the period ended December 31, 1999.
(20) Incorporated herein by reference to Peregrine's Report on Form 10-Q for
the period ended March 31, 2000.
(b) Reports on Form 8-K
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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, 2000 /s/ LARRY KNORR
--------------- ---------------
Date Larry Knorr
Vice President and
Chief Accounting Officer
22
