<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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 (I.R.S. Employer
of incorporation 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 CORPORATE ISSUERS:
As of November 2, 2000, there were 22,552,440 outstanding Common Shares of
Beneficial Interest. As of November 2, 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
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<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 1
Consolidated Statements of Operations -
For the Three Months and Nine Months Ended
September 30, 2000 and 1999 2
Statements of Consolidated Cash Flows -
For the Nine Months Ended
September 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4 - 11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 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
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
UNAUDITED
<S> <C> <C>
ASSETS
Investments:
Commercial and hotel properties,
net of accumulated depreciation of
$11,914,000 and $10,230,000 at September 30, 2000
and December 31, 1999, respectively $ 65,607,000 $ 69,418,000
Notes receivable, net of deferred gains of
$76,000 at September 30, 2000 and December 31, 1999 317,000 322,000
------------ ------------
65,924,000 69,740,000
Cash 2,099,000 1,286,000
Restricted cash -- 224,000
Rents, accrued interest, and other receivables 645,000 842,000
Other assets 1,968,000 2,047,000
------------ ------------
Total assets $ 70,636,000 $ 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 19,179,000 19,406,000
Accounts payable and accrued liabilities 2,474,000 2,703,000
Other liabilities 402,000 501,000
------------ ------------
Total Liabilities 70,412,000 73,592,000
Commitments and contingencies
(Note 4 to financial statements)
Common Shares of Beneficial Interest:
50,000,000 shares authorized; 22,553,000
shares outstanding at September 30, 2000
and December 31, 1999 47,405,000 47,405,000
Accumulated deficit (47,181,000) (46,858,000)
------------ ------------
Total shareholders' equity 224,000 547,000
------------ ------------
Total liabilities and shareholders' equity $ 70,636,000 $ 74,139,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES:
Hotel property $ 5,133,000 $ 4,297,000 $ 14,535,000 $ 11,518,000
Commercial property 1,296,000 2,078,000 5,109,000 6,353,000
Interest 42,000 22,000 97,000 60,000
Other 177,000 5,000 371,000 17,000
------------ ------------ ------------ ------------
6,648,000 6,402,000 20,112,000 17,948,000
------------ ------------ ------------ ------------
EXPENSES:
Hotel property operating expenses 3,269,000 3,480,000 10,378,000 9,351,000
Commercial property operating expenses 502,000 704,000 1,582,000 2,032,000
Commercial property management fees -- 12,000 -- 19,000
Depreciation and amortization 1,059,000 1,102,000 3,176,000 3,302,000
Interest 1,450,000 1,657,000 4,858,000 4,726,000
General and administrative 1,020,000 746,000 2,960,000 2,460,000
------------ ------------ ------------ ------------
7,300,000 7,701,000 22,954,000 21,890,000
------------ ------------ ------------ ------------
Loss before gain on sale of investments (652,000) (1,299,000) (2,842,000) (3,942,000)
GAIN ON SALE OF INVESTMENTS -- -- 2,519,000 4,821,000
------------ ------------ ------------ ------------
Net income (loss) before extraordinary item (652,000) (1,299,000) (323,000) 879,000
EXTRAORDINARY ITEM - FORGIVENESS OF DEBT -- 3,000 -- 58,000
------------ ------------ ------------ ------------
Net (loss) income $ (652,000) $ (1,296,000) $ (323,000) $ 937,000
============ ============ ============ ============
(Loss)/ Income per Common Share of
Beneficial Interest:
Net (loss) income attributable to Common
Shares of Beneficial Interest $ (652,000) $ (1,296,000) $ (323,000) $ 937,000
Net (loss) income per share attributable
to Common Share of Beneficial Interest,
basic and diluted $ (.03) $ (.06) $ (.01) $ .04
============ ============ ============ ============
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 consolidated financial statements.
2
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (323,000) $ 937,000
------------ ------------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Interest, fees and reimbursable expenses added to principal
balance of debt -- 552,000
Depreciation and amortization 3,176,000 3,303,000
Gain on sale of investments (2,519,000) (4,821,000)
Changes in other assets and liabilities:
Decrease in rents, accrued interest, and other receivables 197,000 32,000
(Increase) decrease in other assets (188,000) 347,000
Decrease in accounts payable and accrued liabilities (229,000) (223,000)
(Decrease) increase in other liabilities (99,000) 34,000
------------ ------------
Total adjustments 338,000 (776,000)
------------ ------------
Net cash provided by operating activities 15,000 161,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sales of investments 8,255,000 9,534,000
Improvements to commercial and hotel properties (4,796,000) (6,880,000)
Purchase of office equipment (38,000) (41,000)
Principal collections on notes receivable 5,000 4,000
------------ ------------
Net cash provided by investing activities 3,426,000 2,617,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term notes payable (227,000) (248,000)
Principal payments on Senior Notes -- (10,000,000)
(Repayments) borrowings on Line of Credit, net (2,625,000) 8,539,000
Decrease (increase) in restricted cash 224,000 (6,000)
------------ ------------
Net cash used in financing activities (2,628,000) (1,715,000)
------------ ------------
Net increase in cash 813,000 1,063,000
Cash, beginning of period 1,286,000 165,000
------------ ------------
Cash, end of period $ 2,099,000 $ 1,228,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED 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 September 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.
On September 26, 2000 Peregrine entered into a merger agreement pursuant to
which the Peregrine Real Estate Trust will merge with and into WinShip
Properties, with WinShip Properties as the surviving trust. WinShip is an entity
that will be owned following the merger by entities managed or controlled by
Oaktree Capital Management, LLC, Trust Company of the West and Prudential
Insurance Company of America, which entities are currently the majority owners
of the Trust. Consummation of the merger is subject to receipt of all necessary
third party consents and approvals, including, without limitations, ; approval
of at least 75% of the common shares and all filings required pursuant to
applicable state and federal securities laws. The holders of at least 75% of the
common shares have previously agreed to vote to approve the merger. The merger
will result in the acquisition of the approximate 10% of the outstanding common
shares that are publicly held by minority shareholders. If the transaction is
consummated, minority shareholders will receive $0.59 per share in cash for each
common share. Pursuant to merger agreement the Senior Lender Group agreed to
convert the Senior Notes into equity of WinShip Properties following the
consummation of the merger. The merger will cause WinShip to be privately owned
company. It is anticipated that the merger will be consummated during the fourth
quarter of 2000 or the first quarter of 2001.
INTERIM FINANCIAL REPORTING
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America (herein after referred to as 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 include 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 nine month period ended September 30, 2000 are
not necessarily indicative of the results that may be expected for the entire
fiscal year or any other interim period.
4
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
PRINCIPLES OF CONSOLIDATION
For the period ended September 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 loss to reduce the carrying amount of
long-lived assets 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 that prolong
the useful life of an asset, are capitalized and depreciated.
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 contingent rents upon receipt. 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.
5
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONCLUDED
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 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Financial Accounting Standard Board issued SFAS No.133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS
138. This statement requires balance sheet recognition of derivatives as assets
or liabilities measure at fair value. Accounting for gains and losses resulting
from changes in the value of derivatives is dependent on the use of the
derivatives and whether is qualifies for hedge account. The effective date of
this statement was deferred until fiscal years beginning after June 15, 2000
with 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 nine months ended September 30, 2000, and 1999, was
22,553,000. Common Shares of Beneficial Interest equivalents are anti-dilutive
for the nine months ended September 30, 2000, and 1999, and are not considered
in calculating net loss per Common Share of Beneficial Interest.
6
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
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. Pursuant to the agreement all income and
losses are allocated to Oaktree Capital Management.
On December 6, 1999, Peregrine and Oaktree 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. 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.
3. RESTRICTED CASH
No restricted cash was held at September 30, 2000. December 31, 1999
cash of $224,000, 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 September 30, 2000, the funds
which were managed by an independent third-party trustee were transferred to
the Trust pursuant to the terms of the indemnity trust agreement.
7
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
4. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
At September 30, 2000, Peregrine expects that the expenditures necessary to
complete refurbishments for the Concord hotel will total approximately
$1,584,000. Such refurbishments are required by Holiday Inn for a franchise
license to be granted for the hotel.
FINANCIAL STATUS OF PEREGRINE
At September 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 note. Peregrine is exploring various debt and equity financing
alternatives to repay the balance on the Senior Notes, which was due 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.
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. The amount of the
secured mortgage note is $8,477,000; estimated loss on foreclosure is $50,000.
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.
8
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
6. RELATED PARTY TRANSACTIONS
For the nine months ended September 30, 2000 the Trust has no related party
transactions. For the nine months ended September 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 nine-month periods ended September 30,
2000 and 1999, was $4,677,000 and $4,536,000, 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.
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 that was charged during the
nine months ended September 30, 2000 was 9.9% percent.
9
<PAGE>
THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. LINES OF CREDIT CONCLUDED
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, with interest at 8.5% per annum,
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, the terms of the Senior Notes were amended as of June 1, 2000,
so Peregrine was not require to pay interest in cash. Peregrine has not made any
interest payments on the Senior Notes since June 1, 2000, and unpaid interest is
included in accrued liabilities.
The Senior Notes are unsecured and are subordinate to the Line of Credit.
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.
In addition, on June 1, 2000 the Trust entered into a Sixth Amendment to
the Second Amended and Restated Note Agreement (the "Sixth Amendment') with the
Senior Lender Group to allow interest on the outstanding Senior Notes to be
paid-in-kind rather that in cash at any time at the option of the Trust.
10
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THE PEREGRINE REAL ESTATE TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
9. SENIOR NOTES PAYABLE CONCLUDED
The balance as of September 30, 2000 of $16,074,000 was due on October 1,
2000 to the Senior Lenders. Currently Peregrine is discussing with the Senior
Lenders various debt and equity financing alternatives to repay the balance on
the Senior Notes.
On September 26, 2000 Peregrine entered into a merger agreement with
WinShip Properties an entity owned by certain member of the Senior Lender Group.
Pursuant to merger agreement the Senior Lender Group agreed to convert the
Senior Notes into equity of WinShip Properties following the consummation of the
merger.
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 NINE MONTHS ENDED SEPTEMBER 30, 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hotels $ 14,535 $ -- $ 10,378 $2,579 $ 1,852 $ -- $ -- $ (274) $36,934
Commercial 5,109 -- 1,582 2,279 1,070 2,519 -- 2,697 29,607
Corporate 371 97 2,960 -- 254 -- -- (2,746) 4,096
---------- ----- -------- ------ ------- ------ ----- ------- -------
Total $ 20,015 $ 97 $ 14,920 $4,858 $ 3,176 $2,519 $ -- $ (323) $70,637
========== ===== ======== ====== ======= ====== ===== ======= =======
FOR NINE MONTHS ENDED SEPTEMBER 30, 1999
Hotels $ 11,518 $ -- $ 9,351 $1,796 $ 1,370 $ -- $ -- $ (999) $34,722
Commercial 6,353 -- 2,051 2,930 1,577 4,821 -- 4,616 44,086
Corporate 17 60 2,460 -- 355 -- 58 (2,680) 2,813
---------- ----- -------- ------ ------- ------ ----- ------- -------
Total $ 17,888 $ 60 $ 13,862 $4,726 $ 3,302 $4,821 $ 58 $ 937 $81,621
========== ===== ======== ====== ======= ====== ===== ======= =======
</TABLE>
11
<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 third quarter of 2000, Peregrine owned and operated a
portfolio of investments that included real property and two partnership
interests. In the first nine months of 2000, the Trust's management continued
its efforts to improve property operations while simultaneously exploring
alternative operating strategies and exploring alternatives to restructure
its debt obligation. 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 select real estate
assets with negative cash flow and/or which require significant capital
expenditures beyond the resources available to Peregrine.
Peregrine has approved a merger of the Peregrine Real Estate Trust with and
into WinShip Properties, with WinShip Properties as the surviving trust. WinShip
is an entity that will be owned following the merger by entities managed or
controlled by Oaktree Capital Management, LLC, Trust Company of the West and
Prudential Insurance Company of America, which entities are currently the
majority owners of the Trust. Consummation of the merger is subject to third
party consents; approval of at least 75% of the common shares and completion of
the appropriate filings with the Securities and Exchange Commission. The holders
of at least 75% of the common shares have previously agreed to vote to approve
the merger. The merger will result in the acquisition of
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the approximate 10% of the outstanding common shares that are publicly held by
minority shareholders. If the transaction is consummated, minority shareholders
will receive $0.59 per share in cash for each common share. The merger will
cause WinShip to be privately owned company. It is anticipated that the merger
will be consummated during the fourth quarter of 2000.
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Total revenues were $20,112,000 during the nine months ended September 30,
2000, an increase of $2,164,000, or 12%, from revenues of $17,948,000 for the
nine months ended September 30, 1999. Total revenues were $6,648,000 during the
three months ended September 30, 2000, compared to $6,402,000 for the three
months ended September 30, 1999, an increase of $246,000 or 4%.
HOTEL PROPERTY REVENUES. Hotel revenues were $14,535,000 during the nine
months ended September 30, 2000, an increase of $3,017,000, or 26%, from
revenues of $11,518,000 for the nine months ended September 30, 1999. Hotel
revenues were $5,133,000 during the three months ended September 30, 2000,
compared to $4,297,000 for the three months ended September 30, 1999, an
increase of $836,000 or 19%. The increases are primarily attributable to
improved occupancy and average daily rates at the hotels.
COMMERCIAL PROPERTY REVENUES. Commercial property revenues were $5,109,000
during the nine months ended September 30, 2000, a decrease of $1,244,000, or
20%, from revenues of $6,353,000 for the nine months ended September 30, 1999.
Commercial property revenues were $1,296,000 during the three months ended
September 30, 2000, compared to $2,078,000 for the three months ended September
30, 1999, a decrease of $782,000 or 38%. 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 revenue was $97,000 during the nine months ended
September 30, 2000, an increase of $37,000, or 62%, from revenues of $60,000 for
the nine months ended September 30, 1999. Interest revenue was $42,000 during
the three months ended September 30, 2000, compared to $22,000 for the three
months ended September 30, 1999, an increase of $20,000 or 91%. The increase for
the nine and three months ended September 30, 2000 is primarily due to an
increase of certain cash balances.
TOTAL EXPENSES
Total expenses were $22,954,000 during the nine months ended September 30,
2000, an increase of $1,064,000, or 5%, from expenses of $21,890,000 for the
nine months ended September 30, 1999. Total expenses were $7,300,000 during the
three months ended September 30, 2000, compared to $7,701,000 for the three
months ended September 30, 1999, a decrease of $401,000 or 5%.
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HOTEL PROPERTY OPERATING EXPENSES. Hotel property operating expenses were
$10,378,000 during the nine months ended September 30, 2000; an increase of
$1,027,000, or 11%, from expenses of $9,351,000 for the nine months ended
September 30, 1999. Hotel property operating expenses were $3,269,000 during the
three months ended September 30, 2000, compared to $3,480,000 for the three
months ended September 30, 1999, a decrease of $211,000 or 6%. The increase for
the nine months ending September 30, 2000 are attributable to the increased
hotel personnel and other core expenses related to the increased revenues of the
hotels. The decrease for the three months ended is attributable to lower costs
for the food and beverage department at the Holiday Inn Chico, which was leased
to a third party purveyor starting in third quarter of 2000.
COMMERCIAL PROPERTY OPERATING EXPENSES. Commercial property operating
expenses were $1,582,000 during the nine months ended September 30, 2000; a
decrease of $450,000, or 22%, from expenses of $2,032,000 for the nine months
ended September 30, 1999. Commercial property operating expenses were $502,000
during the three months ended September 30, 2000, compared to $704,000 for the
three months ended September 30, 1999, a decrease of $202,000 or 29%. The
decreases are primarily 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.
COMMERCIAL PROPERTY MANAGEMENT FEES. Commercial property management fees
were $0 during the nine months ended September 30, 2000; a decrease of $19,000,
or 100%, from expenses of $19,000 for the nine months ended September 30, 1999.
Commercial property operating management fees were $0 during the three months
ended September 30, 2000, compared to $12,000 for the three months ended
September 30, 1999, a decrease of $12,000 or 100%. The decreases are primarily
result of the sale of the Downtown Mini-Storage facility in December 1999.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was $3,176,000 during the nine months ended September 30, 2000; a
decrease of $126,000, or 4%, from expenses of $3,302,000 for the nine months
ended September 30, 1999. Depreciation and amortization expense were
$1,059,000 during the three months ended September 30, 2000, compared to
$1,102,000 for the three months ended September 30, 1999, a decrease of
$43,000 or 4%. The increase is primarily attributable to the sales of
commercial property, which was slightly offset by capital improvements for
the hotels for three months ended September 30, 2000.
INTEREST EXPENSE. Interest expense was $4,858,000 during the nine months
ended September 30, 2000; an increase of $132,000, or 3%, from expenses of
$4,726,000 for the nine months ended September 30, 1999. Interest expense was
$1,450,000 during the three months ended September 30, 2000, compared to
$1,657,000 for the three months ended September 30, 1999, a decrease of $207,000
or 12%. The increase for the nine months is 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 $2,960,000 during the nine months ended September 30, 2000; an increase of
$500,000, or 20%, from expenses of $2,460,000 for the nine months ended
September 30, 1999. General and administrative expenses were $1,020,000 during
the three months ended September 30, 2000, compared to $746,000 for the three
months ended September 30, 1999, an increase of $274,000 or 37%. The increases
are primarily attributable to an increase in wages and benefits resulting from
increased staff and the costs related to the purchase and installation of
computer software, partially offset by a decrease in consulting costs and legal
fees.
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.
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, resulting in a gain of $1,196,000.
DIVIDENDS
Peregrine made no cash distributions during the three or nine months ended
September 30, 2000 and September 30, 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 September 30, 2000 and
September 30, 1999, overall weighted average occupancy levels for the Trust's
properties were as follows:
<TABLE>
<CAPTION>
OVERALL WEIGHTED AVERAGE OCCUPANCY
PROPERTY TYPE SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------- ------------------ ------------------
<S> <C> <C>
Retail Shopping Centers 66% 70%
Office Buildings 81% 90%
Industrial Buildings 90% 90%
Mini-Storage Facilities -- 95%
Hotels 64% 59%
</TABLE>
The overall weighted average occupancy level is calculated by multiplying
the occupancy by square footage (or rooms available) and dividing the total by
the total square footage (or rooms available) in the portfolio. The hotel rooms
available do not reflect rooms which were temporarily not available due to the
remodeling of the Sacramento and Concord hotel properties.
LIQUIDITY AND CAPITAL RESOURCES
The Trust's unrestricted cash totaled $2,099,000 on September 30, 2000,
an increase of $813,000, from $1,286,000 on at December 31, 1999. During the
nine months ended September 30, 2000, Peregrine's principal source of funds
was from proceeds related to the sales of investments. On September 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, 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.
At March 10, 1999, Peregrine terminated its line of Credit with Fleet
Capital Line of Credit ("Old Line of Credit") with a new line of credit
pursuant to a loan and security agreement with Fremont Investment & Loan
("Fremont") provide up to $44,000,000, in borrowing capacity under a
revolving line of credit ("New 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. As of September 30, 2000,
the current borrowing capacity for the Line of Credit is $36,219,000. The
maximum borrowing on the Line of Credit has been reduced due to the sale of
certain collateralized properties.
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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 s and permitted refinancing, indebtedness and restricts
the ability of the Trust to incur liens, distribute assets, and make payments
on Senior debt. The Line of Credit also contains certain requirements as to
the compliance with laws by the Trust, inspection of properties by Fremont,
leasing of space, environmental matters, insurance, notices and information
required to be given to Fremont under the Line of Credit, asbestos operations
and maintenance, lead-based paint and hotel renovations.
Debt service paid on Peregrine's first mortgage notes totaled $1,810,000
during the nine months ended September 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 nine months ended
September 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 September 30, 2000, Peregrine's short and long-term cash commitments
include approximately $1,584,000, 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 were due October 1, 2000. In
addition, the Line of Credit matures in April 2001, unless the maturity of
the Senior Notes is extended. On September 26, 2000 Peregrine entered into a
merger agreement with WinShip Properties an entity owned by certain member of
the Senior Lender Group. Pursuant to merger agreement the Senior Lender Group
agreed to convert the Senior Notes into equity of WinShip Properties
following the consummation of the merger.
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 Peregrine's various transactions 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 of business in connection with Peregrine's
acquisition of income-producing commercial properties.
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<PAGE>
Peregrine experienced a net increase in unrestricted cash of $813,000 for
the nine months ended September 30, 2000 as compared to a net increase in
unrestricted cash of $1,062,000 for the nine months ended September 30, 1999.
For the nine months ended September 30, 2000, net cash provided by operating
activities was $15,000, compared to $160,000 in; the nine months ended September
30, 1999. Net cash provided by investing activities during the nine months ended
September 30, 2000 was $3,426,000 compared to $2,617,000 for the nine month
period ended September 30,1999. The increase of $809,000 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
compare to 1999. Net cash used in financing activities for the nine months ended
September 30, 2000 was $2,628,000 compared to $1,715,000 for the nine months
ended September 30, 1999. The decrease in net cash used in financing activities
of $913,000 was primarily due to a decrease in payments on the Senior Notes,
offset by repayments on the Line of Credit and a reduction of restricted cash.
SIGNIFICANT CHANGES IN THE ECONOMIC ENVIRONMENT
Peregrine is exposed to market risk related to interest rate changes on its
variable rate debt. During the first three quarters 2000, 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 $ 123,000 $ 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
The following exhibits of the Trust are included herein:
EXHIBIT NUMBER
10.1 Agreement and Plan of Merger dated September 26, 2000 by and among the
Company, WinShip Properties, TCW Special Credit Fund IV, TCW Special
Credits Plus Fund, TCW Special Credits Trust IV, TCW Special Credits
Trust IVA, TCW Special Credits, as investment manager of the
Weyerhaeuser Company Master Retirement Trust Separate Account, OCM Real
Estate Opportunities Fund A, L.P., OMC Real Estate Opportunities Fund
B, L.P. and Oaktree Capital Management, LLC as investment manager of
Gryphon Domestic VII, LLC Separate Account.
10.2 Sixth Amendment to Second Amended and Restated Note Agreement and
Consent dated June 1, 2000 by and among the Company, WinShip
Properties, TCW Special Credit Fund IV, TCW Special Credits Plus Fund,
TCW Special Credits Trust IV, TCW Special Credits Trust IVA, TCW
Special Credits, as investment manager of the Weyerhaeuser Company
Master Retirement Trust Separate Account, OCM Real Estate Opportunities
Fund A, L.P., OMC Real Estate Opportunities Fund B, L.P. and Oaktree
Capital Management, LLC as investment manager of Gryphon Domestic VII,
LLC Separate Account.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Trust filed a Form 8K on September 5, 2000
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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
NOVEMBER 14, 2000 /s/ LARRY KNORR
----------------- ----------------------------------
Date Larry Knorr
Vice President and
Chief Accounting Officer
21
