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 June 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 June 30, 1994:
$1.00 Par Value Common Stock 3,878,964
(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 Sheet as of June 30, 1994
and December 31, 1993 3
Consolidated Statement of Income for the
Three and Six Months Ended June 30, 1994
and 1993 4
Consolidated Statement of Cash Flows for the
Three and Six Months Ended June 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 10-11
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 12
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K None
Signatures 13
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEET (Unaudited)
(In Thousands, Except Share Amounts)
<TABLE>
As of As of
June 30, December 31,
1994 1993
ASSETS
<S> <C> <C> <C>
Cash and short-term investments $ 1,110 $ 743
Accounts receivable 671 993
Other current assets 98 163
Investment and hotel properties:
Land 16,516 16,516
Buildings 73,216 73,192
Other deferred costs 16,542 15,563
Subtotal investment and hotel properties 106,274 105,271
Less-accumulated depreciation
and amortization and net
realizable value reserve (30,670) (29,485)
Investment and hotel properties, net 75,604 75,786
Equity investment in and loans to Rincon Center
Associates, net 5,685 6,491
Note receivable 232 236
Other assets, net 266 178
Total assets $ 83,666 $ 84,590
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 1,747 $ 1,142
Accrued payroll, property and sales taxes 202 603
Prepaid rent 45 240
Accrued interest on debt 388 214
Other current liabilities 33 46
Tenant security deposits 531 624
Debt 96,073 97,095
Other debt related to equity investment
in Rincon Center Associates 1,932 1,821
Excess of cash distributions received
over equity in earnings to date
of Golden Gateway Center 17,932 18,126
Total liabilities 118,883 119,911
Stockholders' deficit:
Common stock $1.00 par value--
Authorized--10,000,000 shares
Issued--4,010,150 shares 4,010 4,010
Paid-in-deficit (10,223) (10,223)
Retained deficit (28,812) (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 (35,217) (35,321)
Total liabilities and stockholders'
deficit $ 83,666 $ 84,590
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
Investment Properties:
<S> <C> <C> <C> <C>
Rental revenues $2,519 $3,679 $5,378 $7,209
Operating expenses (1,384) (1,728) (2,601) (3,306)
Income before depreciation and interest expense 1,135 1,951 2,777 3,903
Interest expense (846) (1,415) (1,649) (2,809)
Depreciation and amortization (532) (727) (1,000) (1,474)
Investment properties income(loss) (243) (191) 128 (380)
Hotel Property:
Revenues, 1,875 1,993 4,581 4,374
Operating expenses (1,356) (1,488) (2,897) (3,056)
Income before depreciation and interest expense 519 505 1,684 1,318
Interest expense (207) (184) (391) (387)
Depreciation and amortization (94) (96) (186) (191)
Hotel income 218 225 1,107 740
Equity in Partnership Income (Loss):
Golden Gateway Center (GGC) 380 291 710 504
Rincon Center Associates (RCA) (712) (651) (1,257) (1,217)
Equity in partnership losses (332) (360) (547) (713)
General and administrative expenses (297) (372) (656) (775)
Interest expense on debt secured by equity investment
in GGC and other corporate debt (187) (123) (355) (260)
Interest and fee expense for debt related to equity
investment in RCA (51) -- (110) --
Interest income 17 7 159 14
Other income 52 118 387 200
Loss before partnership and property transactions,
and income taxes (823) (696) 113 (1,174)
Gain on sale of partnership interest -- (6) -- 3,602
Loss on sale of real estate asset -- -- -- (156)
Income (loss) before income taxes (823) (702) 113 2,272
Income tax provision (4) -- (10) (4)
Net Income (Loss) ($827) ($702) $103 $2,268
Income (loss) per share, primary and fully diluted ($0.20) ($0.18) $0.03 $0.58
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In Thousands)
<TABLE>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
Cash flow from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) ($826) ($702) $103 $2,268
Non-cash revenues and expenses included in income:
Provision for depreciation 645 861 1,224 1,703
Equity in loss of investment partnerships 332 360 547 713
Other non-cash charges relating to -- (62) -- (124)
investment partnerships
Loss on sale of real estate asset -- -- -- 156
Gain on sale of partnership interest -- -- -- (3,602)
Changes in assets and liabilities:
Accounts receivable and other current assets 538 414 388 248
Other assets (190) 65 (123) 84
Accounts payable and other current liabilities 121 (598) 153 (732)
Other liabilities 341 240 (76) (116)
Cash flow generated by operating actitivies 961 578 2,216 598
Cash flow from investing activities:
Additions to investment and hotel properties (710) (279) (913) (570)
Proceeds from sale of property -- -- -- 891
Proceeds from sale of partnership interest, net -- -- -- 1,781
Contributions to investment partnerships (111) -- (451) (38)
Distributions from investment partnerships 310 265 516 442
Net cash generated by (used in) investing activities (511) (14) (848) 2,506
Cash flow from financing activities:
Borrowings in connection with equity investment 580 -- 979 --
Payments on debt (264) (151) (1,022) (290)
Payment on debt, and accrued fees and interest in
connection with equity investment (492) -- (867) --
Payment on line-of-credit -- -- -- (1,500)
Payments on unsecured notes and bonds (7) (124) -- (133)
Payment of loan costs and fees -- -- (91) --
Mortgages satisfied in connection with property
dispositions -- -- -- (767)
Net cash used in financing actitivies (183) (275) (1,001) (2,690)
Increase in cash and short term investments 267 289 367 414
Balance at beginning of period 843 1,635 743 1,510
Balance at end of period $1,110 $1,924 $1,110 $1,924
Supplementary disclosures:
Cash paid for interest $1,238 $1,623 $2,392 $3,346
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 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 June 30, 1994, and its results of
operations and cash flows for the three and six month periods ended June
30, 1994 and 1993.
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 $1,795,000, resulting in a gain of
$3,602,000. As of June 30, 1994, the Registrant owns a 29.5% partnership
interest in GGC. The Registrant has accounted for its investment in GGC
on the equity basis since 1991.
Summary financial data for the six months ended June 30, 1994 and 1993, for GGC
is as follows (in thousands):
1994 1993
Cash distributions to the Registrant
from GGC $ 516 $ 442
Income from operations:
Revenues $10,032 $9,595
Expenses:
Operating 3,432 3,753
Interest 3,691 3,612
Depreciation and amortization 500 560
7,623 7,925
Net income $2,409 $1,670
Registrant's share of net income of GGC $ 710 $ 504
<PAGE>
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 $451,000 and $38,000 during
the first six 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 December 1994 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 six 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.
During the second quarter of 1994, the Registrant recorded approximately
$70,000 in outstanding letter-of-credit fees and $5,000 in 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 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 June 30, 1994, the Registrant repaid a total of approximately
$450,000 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 under this funding arrangement as of June 30, 1994, was
$1,932,000. All accrued fees and interest were paid in full as of June
30, 1994.
Summary financial statement data for the six months ended June 30,
1994 and 1993, for RCA is as follows (in thousands):
<TABLE>
1994 1993
Cash contributions from the
<S> <C> <C>
Registrant to RCA $ 451 $ 38
Income (loss) from operations:
Revenue $10,046 $ 9,683
Expenses:
Operating and lease expenses 6,075 6,083
Financing 7,409 6,937
Depreciation and amortization 2,069 1,997
15,553 15,017
Net loss $(5,507) $(5,334)
Registrant's share of net loss of RCA $ (1,257) $ (1,217)
</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, as follows:
<TABLE>
As of June 30, 1994 1993
<S> <C> <C>
Weighted average common shares outstanding 3,878,964 3,878,964
Common share equivalents 183,369 2,294
Total weighted average common shares
and common share equivalents 4,062,333 3,881,258
Weighted average common shares outstanding 3,878,964 3,878,964
Weighted average fully dilutive shares 207,780 2,294
Total weighted average common shares and
common share equivalents outstanding,
assuming full dilution 4,086,744 3,881,258
</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 from
the primary lender. In addition, the primary lender's cancellation of
debt of $4 million is not recognized for financial reporting purposes.
The imputed interest rate as of June 30, 1994, was approximately 4.63%.
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 $222,000 for the first six months of 1994. The $222,000
adjustment to interest expense was allocated to reduce the principal
outstanding on this debt.
Other Mortgages on Real Estate - The Registrant continues to
actively pursue potential sales of certain real estate assets in cases
where a transaction would generate acceptable stockholder value and
improve corporate liquidity. One property was sold in January 1993 which
generated a non-cash loss of $156,000 and resulted in satisfaction of the
outstanding $767,000 mortgage loan.
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 June 30, 1994.
5. Income Taxes
Except for actual state franchise tax payments made, no provision
for income taxes has been recorded in the first six months of 1994 since
the Registrant will utilize a portion of its net operating loss
carryforward to offset current year income, and any alternative minimum
tax is not considered material at this time.
6. Subsequent Events
On July 27, 1994, the Registrant completed a lease with AirTouch
Communications for approximately 130,000 square feet of office space at
the Walnut Creek Executive Park located in Walnut Creek, California. The
Registrant is in discussions with its primary lender to provide term loan
financing for the cost of tenant improvements, leasing commissions and
legal expenses associated with this lease. As a result of this lease, the
Walnut Creek Executive Park has achieved 95% occupancy.
The Registrant completed the sale of a separately parcelled building
at Walnut Creek Executive Park on July 29, 1994, to an unrelated third
party and received net sales proceeds of approximately $1,350,000. The
gain from this sale will amount to approximately $590,000. The Registrant
provided $70,000 in financing in connection with this sale which is
secured by a first deed of trust on the building. The note carries an
annual interest rate of 10% and is due January 1995.
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 six months of 1994 and 1993, additions to investment
properties amounted to approximately $913,000 and $570,000, respectively,
for tenant improvements, capital improvements and other deferred costs.
Second quarter 1994 additions to investment properties amounted to
approximately $710,000 for tenant improvements, capital improvements and
other deferred costs. The $710,000 of capital expenditures during the
second quarter of 1994 is an increase from the $279,000 expended in the
second quarter of 1993 as a result of increased leasing activity.
Financing - On June 30, 1994, the face amount of the floating rate
mortgage debt totaled approximately $58.1 million, bearing interest at
quarter-end weighted average stated rate of 6.5%. The face amount of the
fixed rate mortgage debt (excluding the Mountain Bay Plaza debt) totaled
approximately $19.2 million bearing interest at quarter-end weighted
average stated rate of 9.9%.
Net Income
Investment Properties - During the first six months of 1994, the
income from investment properties was $128,000 compared to a loss of
$380,000 during the first six months of 1993. Approximately, $102,000 of
income recorded in the first six months of 1994 was attributable to
Mountain Bay Plaza, which is in the process of being foreclosed by its
lender. On January 20, 1994, the Court appointed a receiver to operate
the property, and the Registrant's income does not reflect a full six
months of operations from this property in 1994. Regarding the second
quarter of 1994 compared to the second of quarter of 1993, approximately
$983,000 (of the $1,160,000 reduction in rental revenues) and $447,000 (of
the net $344,000 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 $177,000 and an
increase in operating expenses of $103,000 for the second quarter in 1994
compared to the second quarter in 1993. The decrease in rental revenue in
the second quarter 1994 is primarily a result of tenant consolidations in
the Registrant's portfolio compared to the second quarter in 1993. 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 six months of
1993 amount of $2,809,000 to $1,649,000 during the first six months of
1994 as a result of the Registrant's 1993 debt restructuring, certain
asset dispositions, and the Mountain Bay Plaza foreclosure-in-process, as
previously discussed.
<PAGE>
Hotel Property - The hotel property income increased from $740,000
in the first six months of 1993 to $1,107,000 in the first six months of
1994. For the three months ended June 30, 1994, the hotel property income
was $218,000 compared to income of $225,000 for the three months ended
June 30, 1993. The modest decrease in income for the second quarter of
1994 compared to 1993 was a result of lower corporate demand which was
offset by an increase in average daily rate. For the first six 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. Interest
expense increased $4,000 from the first six months of 1993 amount of
$387,000 to $391,000 for the first six 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
six months of 1994.
Equity in Partnership Income - Golden Gateway Center (GGC) - Net
income for GGC during the first six months of 1994 and 1993 was $2,409,000
and $1,670,000 respectively, reflecting continued improvement in
operations for the project. Net income for GGC during the second quarter
of 1994 and 1993 was $1,288,000 and $987,000, respectively.
Equity in Partnership Loss - Rincon Center Associates (RCA) - The
net loss for Rincon Center increased from $5,334,000 in the first six
months of 1993 to a net loss of $5,507,000 in the first six months of
1994. The increase in the net loss is a result of higher financing costs
associated with the terms of the 1993 refinancings. Revenue increased as
a result of stabilized occupancy and operating costs remained flat at
Rincon Center for the first six months of 1994 compared to 1993. The net
loss for RCA during the second quarter of 1994 and 1993 was $3,119,000 and
$2,851,000, respectively.
General and Administrative Expenses - General and administrative
expenses in the first six months of 1994 amounted to $656,000 compared to
$775,000 for the first six months of 1993. General and administrative
expenses for the second quarter of 1994 and 1993 was $297,000 and
$372,000, respectively. The amount incurred during the first six 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 six months of 1994 was $355,000 compared to $260,000
for the first six months of 1993. Interest expense in the second quarter
of 1994 was $187,000 compared to $123,000 for the second 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
six months of 1994.
Interest and Fee Expense for Debt Related to Equity Investment in
RCA - During the first six months of 1994, the Registrant incurred
approximately $110,000 in interest and fee expense related to the funding
arrangement with the other general partner on Rincon Center, as previously
discussed. During the second quarter of 1994, the Registrant incurred
approximately $51,000 in interest and fee expense relating to the RCA
funding arrangement. This funding arrangement did not exist during the
first six months of 1993.
Interest Income - During the first six months 1994 and 1993
interest income was $159,000 and $14,000, respectively. Interest income
was $17,000 and $7,000 during the second quarter of 1994 and 1993,
respectively. A significant portion of the interest income in the first
six 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 six months of 1994, other income of
$387,000 includes a payment by RCA for a portion of the fees due its
general partners for posting a letter-of-credit, and the proceeds from the
sale of vacant land in Longwood, Florida and Colorado Springs, Colorado.
Other income during the first six 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.
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 $156,000. The net cash proceeds from the
BOCA II disposition amounted to approximately $103,000.
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 six months 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. This has
been done when such expected exposure exceeded the total of estimated
future cash flow after debt service plus the estimated residual cash in
excess of the cost of servicing the mortgage, which a sale of such
property may generate. No properties were conveyed to lenders in 1993;
however, Mountain Bay Plaza may be conveyed to its lender in 1994.
Additionally, 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. In the first quarter of 1993, the
Registrant sold one such property as previously discussed.
It is the Registrant's intent to increase its liquidity in a variety
of ways including: (a) regular debt reductions, (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, as
previously discussed, 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 early 1995.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Registrant was held on May
10, 1994. At the meeting, shareholders elected five Directors and voted
against the proposal for the adoption of a 1994 Incentive Stock Option
Plan.
At the Annual Meeting, 3,475,388 shares of a total of 3,878,964
shares were represented; 2,737,912 shares voted in favor of all Nominees
for Director, and 737,476 shares were withheld from all Nominees; 934,484
shares voted in favor of the proposal for the adoption of a 1994 Incentive
Stock Option Plan, and 1,359,307 shares voted against the proposal.
<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: June 10, 1994 Roger D. Snell
Roger D. Snell
President and Chief Executive Officer
Date: June 10, 1994 Raymond V. Marino
Raymond V. Marino
Vice President and Controller
(Principal Financial and
Accounting Officer)
