SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1994
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8692
PACIFIC GATEWAY PROPERTIES, INC.
(Exact name of Registrant as specified in
its charter)
NEW YORK
04-2816560
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)
ONE RINCON CENTER, 101 SPEAR STREET, SUITE
215, SAN FRANCISCO, CALIFORNIA 94105
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including
area code (415) 543-8600
Not
Applicable
(Former name, former address and former
fiscal year, if changed since last report)
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
Indicate the number of shares outstanding
of each of the issuer's classes of common
stock, as of September 30, 1994:
$1.00 Par Value Common Stock
3,879,964
(Title of Class)
(Number of Shares
Outstanding)
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
INDEX
Part I - Financial Information: Page Number
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1994
and December 31, 1993 3
Consolidated Statements of Income for
the
Three and Nine Months Ended
September 30, 1994 and 1993 4
Consolidated Statements of Cash Flows
for the
Three and Nine Months Ended
September 30, 1994 and 1993 5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 9-12
Part II - Other Information
Item 1. Legal Proceedings None
Item 2. Changes in Security None
Item 3. Defaults upon Senior
Securities None
Item 4. Submission of Matters to a Vote
of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form
8-K None
Signatures 13
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands, Except Share Amounts)
<TABLE>
<S> <C> <C>
As of As of
September 30, December 31,
1994 1993
ASSETS
Cash and short-term investments $ 84 $ 743
Cash-restricted 1,801 --
Accounts receivable 1,088 993
Other current assets 264 163
Investment and hotel properties:
Land 16,476 16,516
Buildings 72,472 73,192
Other deferred costs 17,776 15,563
Subtotal investment and hotel properties 106,724 105,271
Less-accumulated depreciation
and amortization and net
realizable value reserve (31,183) (29,485)
Investment and hotel properties, net 75,541 75,786
Equity investment in and loans to Rincon Center
Associates 5,298 6,491
Note receivable 231 236
Other assets, net 213 178
Total assets $ 84,520 $ 84,590
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 2,274 $ 1,142
Accrued payroll, property and sales taxes 496 603
Prepaid rent 296 240
Accrued interest on debt 503 214
Other current liabilities 34 46
Reconstruction and tenant improvement costs
payable from restricted cash 436 --
Tenant security deposits 432 624
Debt 95,860 97,095
Other debt related to equity investment
in Rincon Center Associates 2,046 1,821
Excess of cash distributions received
over equity in earnings to date
of Golden Gateway Center 17,867 18,126
Total liabilities 120,244 119,911
Stockholders' deficit:
Common stock $1.00 par value--
Authorized--10,000,000 shares
Issued--4,010,150 shares 4,011 4,010
Paid-in-deficit (10,222) (10,223)
Retained deficit (29,321) (28,916)
Treasury stock, at cost--131,186 common shares (2,082) (2,082)
Warrants for common stock 1,890 1,890
Total stockholders' deficit (35,724) (35,321)
Total liabilities and stockholders'
deficit $ 84,520 $ 84,590
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Investment Properties:
Rental revenues $2,728 $3,643 $8,106 $10,852
Operating expenses (1,506) (1,788) (4,107) (5,094)
Income before depreciation and interest expense 1,222 1,855 3,999 5,758
Interest expense (944) (1,367) (2,593) (4,176)
Depreciation and amortization (518) (690) (1,518) (2,164)
Investment properties loss (240) (202) (112) (582)
Hotel Property:
Revenues 1,202 1,599 5,783 5,974
Operating expenses (1,205) (1,425) (4,102) (4,482)
Income before depreciation and interest expense (3) 174 1,681 1,492
Interest expense (212) (179) (604) (567)
Depreciation and amortization (99) (96) (285) (287)
Hotel income (loss) (314) (101) 792 638
Equity in Partnership Income (Loss):
Golden Gateway Center (GGC) 374 298 1,085 802
Rincon Center Associates (RCA) (447) (632) (1,704) (1,850)
Equity in partnership losses (73) (334) (619) (1,048)
General and administrative expenses (336) (345) (992) (1,120)
Interest expense on debt secured by equity investment
in GGC and other corporate debt (217) (131) (571) (391)
Interest and fee expense for debt related to equity
investment in RCA (50) (127) (161) (127)
Interest income 18 6 177 20
Other income 42 125 430 328
Loss before partnership and property
transactions, and income taxes (1,170) (1,109) (1,056) (2,282)
Gain on sale of partnership interest -- -- -- 3,607
Gain on sale of real estate assets 661 1,209 661 1,046
Income (loss) before income taxes (509) 100 (395) 2,371
Income tax provision -- -- (10) (4)
Net Income (loss) $ (509) $ 100 $ (405) $2,367
Income (loss) per share, primary and fully diluted $(0.12) $(0.03) $(0.10) $ 0.61
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
Cash flow from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $(509) 100 $(405) $2,367
Non-cash revenues and expenses included in income:
Provision for depreciation 618 805 1,842 2,509
Equity in loss of investment partnerships 73 334 620 1,047
Other non-cash charges relating to -- (62) -- (186)
investment partnerships
Gain (loss) on sale of real estate assets (661) (1,209) (661) (1,046)
Gain on sale of partnership interest -- -- -- (3,607)
Changes in assets and liabilities:
Accounts receivable and other operating assets (583) (273) (197) (24)
Other assets 53 (562) (71) (489)
Accounts payable and interest payable 942 1,007 1,059 275
Other liabilities 582 (56) 543 (166)
Cash flow generated by operating activities 515 84 2,730 680
Cash flow from investing activities:
Additions to investment and hotel properties (1,317) (315) (2,228) (884)
Proceeds from sale of properties, net 1,432 261 1,432 1,152
Proceeds from sale of partnership interest, net -- -- -- 1,781
Contributions to investment partnerships (60) (1,660) (511) (1,698)
Distributions from investment partnerships 310 265 826 708
Net cash (used in) generated by investing activities 365 (1,449) (481) 1,059
Cash flow from financing activities:
Borrowings under debt 367 -- 367 --
Borrowings in connection with equity investment, net 113 1,787 225 1,787
Payments on debt (579) (171) (1,602) (594)
Net decrease in line-of-credit borrowings -- -- -- (1,500)
Payment of loan costs and fees in connection
with equity investment (8) -- (99) --
Mortgages satisfied in connection with property
dispositions -- -- -- (767)
Proceeds from exercise of stock options 2 -- 2 --
Net cash used in financing activities (105) 1,616 (1,107) (1,074)
Increase in cash and short term investments 775 251 1,142 665
Balance at beginning of period 1,110 1,924 743 1,510
Balance at end of period $1,885 $2,175 $1,885 $2,175
Supplementary disclosures:
Cash paid for interest $1,847 $1,587 $3,799 $4,932
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
For the Quarter Ended September 30, 1994
1.Organization and Summary of Significant
Accounting Policies
The significant accounting policies and
other information regarding the
Registrant's financial statements are set
forth in the Notes to the Registrant's
Audited Consolidated Financial Statements
for the three years ended December 31,
1993, as set forth in the Registrant's
Annual Report on Form 10K. The Registrant
has made no significant changes to these
policies during 1994.
In the opinion of the Registrant, the
accompanying unaudited financial statements
reflect all adjustments necessary to
present fairly the Registrant's financial
position as of September 30, 1994, and its
results of operations and cash flows for
the three and nine month periods ended
September 30, 1994 and 1993.
Cash - Restricted
The Registrant has recorded restricted cash
in connection with the receipt of insurance
proceeds that are committed to the
reconstruction of a fire damaged building
and proceeds from the sale of a building in
July 1994, at Walnut Creek Executive Park.
The sale proceeds are restricted under an
agreement with the Registrant's mortgage
lenders on this project, and are designated
for future tenant improvements associated
with the AirTouch Communications lease at
Walnut Creek Executive Park.
Reclassifications
Certain prior year amounts have been
reclassified to be consistent with current
year classifications.
2. REAL ESTATE PARTNERSHIP INVESTMENTS
OPERATING PARTNERSHIPS
Golden Gateway Center Partnership (GGC)--
San Francisco, California
The Registrant owned a 32.5% general
partnership interest in GGC during 1992.
In connection with the sale of a portion of
its interest in 1991, the Registrant
entered into an arrangement whereby,
barring certain conditions, the Registrant
could put or the buyers could call an
additional 3% partnership interest, at
different points in time after December 31,
1992, at essentially the same price as the
1991 transaction. The Registrant put the
additional 3% partnership interest to the
buyers in February 1993 for cash proceeds
of $1,781,000, resulting in a gain of
$3,607,000. As of September 30, 1994, the
Registrant owns a 29.5% partnership
interest in GGC. On October 19, 1994, GGC
redeemed the Registrant's 29.5% partnership
interest for $21 million as more fully
discussed in the Subsequent Events
footnote. The Registrant has accounted for
its investment in GGC on the equity basis
since 1991.
<TABLE>
<PAGE>
Summary financial data for the nine months ended September 30, 1994 and 1993, for
GGC is as follows (in thousands):
1994 1993
Cash distributions to the Registrant
<S> <C> <C>
from GGC $ 826 $ 708
Income from operations:
Revenues $15,118 $14,446
Expenses:
Operating 5,113 5,515
Interest 5,556 5,442
Depreciation and amortization 771 803
11,440 11,760
Net income $3,678 $2,686
Registrant's share of net income of GGC $1,085 $ 802
</TABLE>
Rincon Center Associates Partnership (RCA)-
- -San Francisco, California
The Registrant owns general and
limited partnership interests in RCA
totalling approximately 23%, and is
responsible for 20% of cash requirements in
excess of available financing. The
Registrant's investment in RCA includes
contributions of $511,000 and $1,698,000
during the first nine months of 1994 and
1993, respectively, to fund operating costs
and debt repayments.
The Registrant has posted a letter-
of-credit in favor of the bank involved in
the RCA financing for $4.5 million. The
letter-of-credit expires June 1995 and is
secured by the Registrant's 410 First
Avenue property. The lender has requested
additional collateral, and the Registrant
is seeking to satisfy the collateral
request and/or further reduce the required
amount of the letter-of-credit; however,
its ability to do so is dependent upon the
cooperation of another lender.
The Registrant earns a fee from RCA
for posting the letter-of-credit and earns
a preferred return at the prime rate plus
2% on its advances to RCA. Since 1993, no
letter-of-credit fees or interest on its
advances have been accrued. During the
first nine months of 1994, RCA paid the
Registrant approximately $303,000 in
outstanding letter-of-credit fees and
$147,000 in outstanding interest on its
advances relating to prior years which the
Registrant has recorded as income. During
the third quarter of 1994, the Registrant
did not receive any outstanding letter-of-
credit fees or outstanding interest on its
advances to RCA relating to prior years. As
previously discussed, it is the
Registrant's policy not to recognize this
income until received.
The Registrant completed an agreement
in June 1993 with the other general partner
in RCA. This agreement provides the
Registrant with the flexibility to borrow
funds from the other general partner to
limit its future cash obligations to RCA.
Under this funding arrangement, all amounts
advanced, related fees and accrued interest
are non-recourse to the Registrant. This
agreement does not reduce the level of the
Registrant's general and limited
partnership interests in RCA. Interest
accrues and is expensed on the unpaid
portion of both the principal amount
advanced and related fees at the Bank of
America prime rate plus 2%. Amounts
advanced under this funding arrangement,
plus related fees and accrued interest, are
required to be repaid from future cash
distributed by RCA to the Registrant.
As of September 30, 1994, the
Registrant repaid a total of approximately
$144,000 toward the amounts advanced,
accrued fees, and accrued interest using
the payments received from RCA for
outstanding letter-of-credit fees and
interest on advances as previously
discussed. The total amount outstanding,
including accrued interest and fees, under
this funding arrangement as of September
30, 1994, was approximately $2,046,000.
<TABLE>
Summary financial statement data for
the nine months ended September 30, 1994
and 1993, for RCA is as follows (in
thousands):
1994 1993
Cash contributions from the
<S> <C> <C>
Registrant to RCA $ 511 $1,698
Income (loss) from operations:
Revenue $14,939 $14,539
Expenses:
Operating and lease expenses 7,265 9,125
Financing 12,019 10,501
Depreciation and amortization 3,121 3,019
22,405 22,645
Net loss $(7,466) $(8,106)
Registrant's share of net loss of RCA $(1,704) $(1,850)
</TABLE>
3. Per Share Data - Per share data is
based on the weighted average number of the
Registrant's common shares and common share
equivalents. Outstanding warrants and stock
options enter into the common shares
outstanding using the Treasury Stock
Method. The number of common share and
common share equivalents used in the
earnings per share calculations are as
follows:
<TABLE>
As of September 30, 1994 1993
<S> <C> <C>
Primary 4,113,823 3,879,827
Fully diluted 4,240,848 3,880,174
</TABLE>
4. Debt
Debt Secured by Partnership Interest
in Golden Gateway Center and Mortgages on
Real Estate From Primary Lender - In
December 1993, the Registrant completed a
restructuring of its non-revolving line-of-
credit, letter-of-credit, unsecured bonds,
and certain mortgages with its primary
lender.
Statement of Financial Accounting
Standards No. 15 requires the Registrant to
account for future interest resulting from
this transaction using an imputed interest
rate versus the stated rates on the debt.
The primary lender's cancellation of debt
of $4 million is not recognized as a gain
for financial reporting purposes. The
imputed interest rate as of September 30,
1994, was approximately 4.8%. As a result,
the amount of interest recorded for
financial reporting purposes is lower than
the stated interest on the face amount of
the debt by approximately $397,000 for the
first nine months of 1994. The $397,000
adjustment to interest expense was
allocated to reduce the recorded principal
outstanding on this debt.
The Mountain Bay Plaza property is
still in the process of foreclosure as more
fully described in the Registrant's 1993
Audited Consolidated Financial Statements.
The net book value of the property
continues to equal the amount of the
mortgage debt in the Registrant's
Consolidated Financial Statements as of
September 30, 1994.
5. Income Taxes
Except for actual state franchise tax
payments made of $10,000, no provision for
income taxes has been recorded in the first
nine months of 1994. The redemption of the
Registrant's partnership interest by GGC in
October 1994 will result in a tax liability
of approximately $2.1 million which will be
due in the fourth quarter.
6. Subsequent Events
On October 19, 1994, the Golden
Gateway Center Partnership (GGC) completed
a redemption of the Registrant's 29.5%
partnership interest in GGC for $21
million. The Registrant will record a gain
in connection with this redemption of
approximately $39 million for financial
reporting purposes in the fourth quarter of
1994. The Registrant will use $18.5
million of the proceeds to repay debt with
its primary lender. The balance of the
proceeds will be used for corporate income
taxes and other transaction costs.
ITEM 2. Management's Discussion and
Analysis of Financial Conditions and
Results of Operations
Financial Position
Capital Improvements, Tenant
Improvements and Other Deferred Costs -
During the first nine months of 1994 and
1993, additions to investment properties
amounted to approximately $2,228,000 and
$884,000, respectively, for tenant
improvements, capital improvements and
other deferred costs. Third quarter 1994
additions to investment properties amounted
to approximately $1,317,000 for tenant
improvements, capital improvements and
other deferred costs. The $1,317,000 of
capital expenditures during the third
quarter of 1994 is an increase from the
$315,000 expended in the third quarter of
1993 as a result of increased leasing
activity and commencement of the hotel's
renovation.
Financing - On September 30, 1994,
the face amount of the floating rate
mortgage debt totaled approximately $56.5
million, bearing interest at quarter-end
weighted average stated rate of 7%. The
face amount of the fixed rate mortgage debt
(excluding the Mountain Bay Plaza debt of
$18.8 million) totaled approximately $19.1
million bearing interest at quarter-end
weighted average stated rate of 9.9%.
Net Income
Investment Properties - During the
first nine months of 1994, the loss from
investment properties was $112,000 compared
to a loss of $582,000 during the first nine
months of 1993. The first nine months of
1994 compared to the first nine months of
1993, approximately $2,631,000 (of the
$2,746,000 reduction in rental revenues)
and $1,344,000 (of the net $987,000
reduction in operating expenses) is due to:
one property disposition in Boca Raton,
Florida during the first quarter of 1993,
the Mountain Bay Plaza foreclosure-in-
process, and two property dispositions in
the latter part of 1993 (Fairmount Square,
Phoenix, Arizona and the Longwood, Florida
buildings). For the remaining balance of
investment properties, there was a decrease
in rental revenue of approximately $115,000
and an increase in operating expenses of
approximately $357,000 for the first nine
months of 1994 compared to the first nine
months of 1993. The decrease in rental
revenue in the first nine months of 1994 is
primarily a result of tenant consolidations
in the Registrant's portfolio. The
increase in operating expenses is primarily
attributable to increases in certain fixed
operating expenses (i.e., repairs,
maintenance, property taxes and insurance),
tenant marketing costs, and other non-
capitalized improvements. Interest expense
decreased from the first nine months of
1993 amount of $4,176,000 to $2,593,000
during the first nine months of 1994 as a
result of the Registrant's 1993 debt
restructuring, certain asset dispositions,
the Mountain Bay Plaza foreclosure-in-
process, and higher interest rates.
During the third quarter of 1994, the
loss from investment properties was
$240,000 compared to a loss of $202,000
during third quarter of 1993. The impact
of tenant consolidations and overall
vacancy in the investment property
portfolio had a significant impact during
this period. The decrease in interest
expense <PAGE>
from $1,367,000 in the third quarter of
1993 to $944,000 in the third quarter of
1994 is primarily the result of the same
events that effected the nine month results
discussed above.
Hotel Property - The hotel property
income increased from $638,000 in the first
nine months of 1993 to $792,000 in the
first nine months of 1994. For the first
nine months of 1994 compared to 1993, the
bulk of the improvement relates to an
increase in the average occupancy and in
the average daily room rate. For the three
months ended September 30, 1994, the hotel
property loss was $314,000 compared to a
loss of $101,000 for the three months ended
September 30, 1993. The increase in the
loss for the third quarter of 1994 compared
to 1993 was a result of lower corporate
demand. In addition, the third quarter
operating results are traditionally lower
than the first two quarters because of the
seasonality of this operation's business.
Interest expense increased $37,000 from the
first nine months of 1993 amount of
$567,000 to $604,000 for the first nine
months of 1994, primarily as a result of
the effects of the Registrant's debt
restructuring with its primary lender in
December 1993 and higher interest rates
during the first nine months of 1994.
Equity in Partnership Income - Golden
Gateway Center (GGC) - Net income for GGC
during the first nine months of 1994 and
1993 was $3,678,000 and $2,686,000
respectively, reflecting continued
improvement in operations for the project.
Net income for GGC during the third quarter
of 1994 and 1993 was $1,269,000 and
$1,016,000, respectively.
Equity in Partnership Loss - Rincon
Center Associates (RCA) - The net loss for
Rincon Center decreased from $8,106,000 in
the first nine months of 1993 to a net loss
of $7,466,000 in the first nine months of
1994. The decrease in the net loss is a
result of lower operating costs and
increased rental revenue. The net loss for
RCA during the third quarter of 1994 and
1993 was $1,959,000 and $2,772,000,
respectively.
General and Administrative Expenses -
General and administrative expenses in the
first nine months of 1994 amounted to
$992,000 compared to $1,120,000 for the
first nine months of 1993. General and
administrative expenses for the third
quarter of 1994 and 1993 was $336,000 and
$345,000, respectively. The amount incurred
during the first nine months of 1994 and
1993 was what the Registrant anticipated
and reflects ongoing efforts to reduce
these costs.
Interest Expense on Debt Secured by
Equity Investment in GGC and Other
Corporate Debt - In 1994, corporate
interest expense relates to that portion of
the Registrant's debt with its primary
lender that is cross-collateralized by the
Registrant's partnership interest in GGC.
In 1993, corporate interest expense related
primarily to borrowings under the
Registrant's non-revolving line-of-credit
and unsecured bonds. Interest expense in
the first nine months of 1994 was $571,000
compared to $391,000 for the first nine
months of 1993. Interest expense in the
third quarter of 1994 was $217,000 compared
to $131,000 for the third quarter of 1993.
This increase is a result of the
Registrant's debt restructuring with its
primary lender which increased the amount
of debt cross-collateralized by the GGC
partnership interest and higher interest
rates during the first nine months of 1994.
Interest and Fee Expense for Debt
Related to Equity Investment in RCA -
During the first nine months of 1994 and
1993, the Registrant incurred approximately
$161,000 and $127,000, respectively, in
interest and fee expense related to the
funding arrangement with the other general
partner on Rincon Center, as previously
discussed. During the third quarter of
1994, the Registrant incurred approximately
$50,000 in interest and fee expense
relating to the RCA funding arrangement
compared to $127,000 for the third quarter
of 1993.
<PAGE>
Interest Income - During the first
nine months 1994 and 1993 interest income
was $177,000 and $20,000, respectively.
Interest income was $18,000 and $6,000
during the third quarter of 1994 and 1993,
respectively. A significant portion of the
interest income in the first nine months of
1994 is attributable to a payment by RCA
for a portion of the interest outstanding
on partner advances to RCA as previously
discussed.
Other Income - In the first nine
months of 1994, other income consists of
$387,000 for a payment by RCA for a portion
of the fees due its general partners for
posting a letter-of-credit, and the gain
from the sale of vacant land in Florida
and Colorado. Other income during the
first nine months of 1993 included
primarily amortization of intercompany
profit for RCA. This resulted from earlier
recognition of income by the Registrant for
its share of letter-of-credit fees that is
greater than its percentage interest in RCA
losses. This intercompany income was fully
amortized by the end of 1993.
Gain on Sale of Partnership Interest
- - In February 1993, the Registrant sold an
additional 3% partnership interest in
Golden Gateway Center as previously
discussed.
Gain (Loss) on Sale of Real Estate
Asset - In January 1993, the Registrant
disposed of its BOCA II property in Boca
Raton, Florida, to an unrelated third
party. In connection with this property
disposition, the Registrant realized a loss
of approximately $156,000 and net cash
proceeds of $103,000. In July 1993, the
Registrant completed the sale of a 6,000
square foot building located in Longwood,
Florida, to an unrelated third party for
$270,000. During the third quarter of
1993, the Registrant recorded the
disposition of the Fairmount Square
property which resulted in a non-cash gain
of $1,217,000 for financial reporting
purposes.
In July 1994, the Registrant
completed the sale of a separately
parcelled building at Walnut Creek
Executive Park to an unrelated third party.
In connection with this disposition, the
Registrant realized a gain of approximately
$661,000 and net cash proceeds of
approximately $1,432,000. The proceeds
from this sale are included as restricted
cash for use in future tenant improvement
cost at Walnut Creek Executive Park in
connection with the AirTouch Communications
lease.
Liquidity and Capital Resources
The bulk of the Registrant's
resources are committed to relatively
non-liquid real estate investments and
partnership interests. Traditionally,
these assets, due to their value and cash
flow, provided the Registrant with an
ability to generate capital as required,
both internally and externally, through
asset-based financings. In addition, in
1994, 1993 and 1992 assets or portions
thereof, were sold to provide further
liquidity.
During the first nine months of 1994
and throughout 1993, the Registrant took
several aggressive actions to generate and
conserve cash, and continues to review and
analyze additional potential actions. At
the same time, the Registrant is seeking to
retain value and identify future
opportunities for investment. The
Registrant's liquidity was under
significant strain throughout 1993 which
continues to be the case in 1994. The
Registrant has sought to reduce the strain
by minimizing its financial exposure to
properties secured by non-recourse mortgage
loans. The Registrant has actively pursued
potential sales of certain real estate
assets in the past, and may continue to do
so in the future in cases where a
transaction would generate acceptable
stockholder value and corporate liquidity.
During the first nine months of 1994 and
1993, the Registrant sold four properties
as previously discussed.
It is the Registrant's intent to
increase its liquidity in a variety of ways
including: (a) debt refinancings, (b) the
sale of properties which do not fit within
its long term strategy, and (c) infusion of
new capital through either a private
placement or public offering when market
conditions permit. Funds raised in the
preceding fashion would be used for such
things as tenant improvements and other
capital requirements, certain mandatory
debt reductions, and new investments.
The Registrant experienced more
stabilized operating results in 1993, and
expects this trend to continue since
certain unprofitable properties disposed of
in 1992 and 1993 will no longer affect
operating results. In addition, the
completion of certain leasing transactions,
during the second and third quarters of
1994, has substantially reduced the level
of vacancy in the Registrant's portfolio.
Since the rent commencement for the lease
transactions that were completed in July
1994 will not begin until late 1994 and
early 1995, the effect of these leases will
not impact the Registrant's financial
results until the second quarter 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the
Registrant has duly caused this report to
be signed on its behalf by the undersigned
thereunto duly authorized.
PACIFIC GATEWAY PROPERTIES, INC.
Registrant
Date: November 10, 1994
Roger D. Snell
Roger D. Snell
President and Chief Executive Officer
Date: November 10, 1994
Raymone V. Marino
Raymond V. Marino
Vice President and Controller
(Principal Financial and
Accounting Officer)
