UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the transition period
from
to
Commission File Number 1-8692
PACIFIC GATEWAY PROPERTIES, INC.
(Exact name of Registrant as
specified in its charter)
NEW YORK04-2816560
(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
Securities registered pursuant to
Section 12 (b) of the Act:
Name of each
exchange
Title of each class on which
registered
Common Stock, $1.00 par value
American Stock Exchange
per share
Securities registered pursuant to
Section 12 (g) of the Act: None
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 by check mark if
disclosure of delinquent filers
pursuant to Item 405 of Regulation
S-K (229.405) of this chapter) is
not contained herein, and will not
be contained, to the best of
Registrant's knowledge, in
definitive proxy or information
statements incorporated by
reference in Part III of this Form
10-K or any amendment to this Form
10-K [X].
State the aggregate market value of
the voting stock held by non-
affiliates of the Registrant as of
March 15, 1995: Common Stock, Par
Value $1.00--$13,094,879
.
Indicate the number of shares
outstanding of each of the
Registrant's classes of common
stock, as of March 15, 1995:
Common Stock, Par Value $1.00 --
3,879,964 shares.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the definitive
Proxy Statement dated April 6,
1995, are incorporated by reference
into Part III.
PART I
ITEM 1. Business
General
Pacific Gateway Properties,
Inc. (the "Registrant") was
incorporated under the laws of the
State of New York in January of 1984
and began its operations in April of
1984 upon the transfer to it of
certain assets formerly owned by
Perini Corporation and the
distribution of shares of the
Registrant's Common Stock to the
stockholders of Perini Corporation
in May of 1984.
The Registrant holds interests
in income producing real estate. As
of December 31, 1994, the
Registrant's portfolio of operating
properties consists of economic
interests in the following:
(i) Walnut Creek
Executive Park, Walnut Creek,
California--a 427,000 square
foot office park consisting of
twelve low-rise (one- to
three-story) office buildings
and a restaurant building--100%
owned;
(ii) South Bay Office
Tower, San Jose, California--a
164,000 square foot,
twelve-story office building--
100% owned;
(iii) Radisson Suite
Hotel, Tucson, Arizona--a 306
suite hotel--100% owned;
(iv) North Tucson Business
Center, Tucson, Arizona--a
one-story, 91,000 square foot
office/industrial building--
100% owned;
(v) Village Commons
Shopping Center, West Palm
Beach, Florida--a 170,000
square foot shopping center--
100% owned;
(vi) 1200 Weston Road,
Weston (Fort Lauderdale),
Florida--a three-story, 15,000
square foot office building--
100% owned;
(vii) 410 First Avenue,
Needham, Massachusetts--a
single-story office/industrial
building totalling 38,000 square
feet located in a suburb of
Boston--100% owned; and
(viii) Rincon Center, San
Francisco, California--a mixed-use
(retail, office, apartment) complex
in downtown San Francisco. The two
phase project contains 78,000 square
feet of retail space, 423,000 square
feet of office space, 320 apartment
units and 720 parking spaces.
Registrant owns 22.8% in general and
limited partnership interests.
Management of Properties
The Radisson Suite Hotel has
its own management organization in
place which is supervised by the
Registrant. The Registrant manages
the remaining operating properties,
Rincon Center and other third party
owned properties.
Property Owned in Partnership with
Others
A significant portion of the
Registrant's portfolio consists of a
partnership interest in Rincon
Center Associates (RCA). The
Registrant is not the managing
general partner of the
aforementioned partnership.
Operating and other decisions with
respect to this partnership property
are generally controlled by the
managing general partner unrelated
to the Registrant; therefore, the
Registrant has less flexibility with
respect to such assets than if it
owned them outright.
Business Plan and Policies
The Registrant's overall
business plan has been to assemble a
substantial portfolio of income
producing properties. The
Registrant historically focused its
property acquisitions in four
markets: Northern California,
Arizona, Florida and Massachusetts.
The Registrant has invested in
mixed-use projects, office
buildings, apartments, industrial
buildings, a shopping center and a
hotel. The Registrant's long-term
objectives continue to be maximizing
net cash flow from operations and
achieving growth through
appreciation of asset values rather
than through reported earnings. The
current strategic plan of the
Registrant is to focus on real
estate investments on the West Coast
with a specific emphasis on the San
Francisco Bay Area. The current
investment emphasis will be in
commercial properties which require
aggressive management and leasing in
order to maximize their potential.
This strategy is influenced by the
following factors: (1) the
Registrant's current property
portfolio is concentrated on the
West Coast; and (2) the Registrant
believes that geographic
concentration will influence
operational efficiencies, as well as
new property investment and third
party property management service
opportunities.
During 1994, the Registrant
continued to examine each asset in
its portfolio, focusing on each
property's current cash flow,
anticipated cash requirements, the
economics of its local marketplace,
as well as the asset's position in
that market and the potential for
sale, refinancing, and return on
additional investment. In
conjunction with the above described
process, the Registrant has also
determined it appropriate to offer
for sale certain assets to reduce
its involvement in certain markets,
create liquidity and advance the
geographic and property type
concentration, and efficiency of the
Registrant's operations. In 1994
the Registrant sold a day care
center building in Walnut Creek,
California, and agreed to a
redemption of the Registrant's 29.5%
general partnership interest in
Golden Gateway Center.
The Registrant will continue to
make use of borrowed money or
leveraging, as is customary with the
types of properties it intends to
own. The amount of mortgage debt
supported by each project depends
on, among other factors, its cash
flow available to service such debt.
In December 1994, the Registrant
completed the refinancing of
approximately $6.5 million of debt
with one of its lenders. This
refinancing is more fully discussed
in the pages that follow.
Competition
Within its geographic areas of
operation, the Registrant is subject
to competition from a variety of
investors, including insurance
companies, pension funds, corporate
and individual real estate
developers, and investors with
similar investment objectives to
those of the Registrant. Some of
these competitors have greater
financial resources, larger staffs
and longer operating histories than
the Registrant. As an owner of
commercial real estate properties,
the Registrant competes with other
owners of similar properties in
connection with their financing,
sale, lease, or other disposition
and use.
Employees
As of December 31, 1994, the
Registrant has 160 full-time and 28
part-time employees, compared to 177
full-time and 43 part-time employees
as of December 31, 1993.
Financial Information About
Industry Segments, Seasonality and
Other Factors
The Registrant is engaged in
the business of owning and managing
income producing real estate. The
requirement for a presentation about
industry segments is not applicable.
The Registrant's business is not
affected by seasonal factors, except
for its hotel property. All of the
Registrant's operations are located
in the United States.
Property Insurance
The Registrant believes that
all of the wholly owned properties
and properties owned in partnership
with others are adequately covered
by insurance. One of the California
operating properties, Rincon Center,
does not maintain earthquake
insurance.
Tenants
There are no individual tenants
in any of the Registrant's wholly
owned properties that contribute 10%
or more to consolidated revenues and
the loss of which would have a
material adverse affect on the
Registrant taken as a whole.
Generally, lease terms range from
one to five years and leases of
approximately 83,000 square feet of
rental space (or approximately 9.2%
of the Registrant's investment
portfolio) will mature in 1995.
ITEM 2. Properties
As of December 31, 1994, the
Registrant had a total of eight
operating properties.
Information regarding
encumbrances on the Registrant's
properties is incorporated herein by
reference to Item 14, Schedule III,
Real Estate and Accumulated
Depreciation as of December 31,
1994.
The following table sets forth detailed information
regarding the Registrant's properties which were owned as of
December 31, 1994:
<PAGE>
ITEM 2. Properties, continued (dollar amounts in thousands)
Property General # of Units
Name Description Location Leasable sq. ft.
Walnut Creek 11 two story woodWalnut Creek,427,000 sq.ft. set on 29
Executive Parkframed garden officeCaliforniaacres with parking for
buildings, a three over 1,720 cars
story structural steel
frame office building,
8,000 sq. ft. restaurant
South Bay Twelve story officeSan Jose,164,000 sq.ft. office
Office Tower building Californiaspace and two levels of
subterranean parking
Radisson SuiteHotel operation underTucson, Arizona306 suites
Hotel a license agreement
with Radisson Hotels
International - 7
connected mid-rise
buildings
North Tucson Single story office/Tucson, Arizona91,000 sq. ft.
2 tenants;Registrant 100% $ 1,148 $485
Business Centerindustrial building 100% occupancy
(1) Funds from operations are defined as operating revenue less operating,
general and administrative expenses, and interest expense on debt,
excluding gains or losses, depreciation and amortization.
(2) The sale of a property or the partnership interest may result in a
substantial tax liability.
<PAGE>
Year End Calendar Year
1994 1994
# of Tenants and/orOwned% Registrant Tax Funds From
Occupancy % By Ownership Basis (2)Operations (1)
59% tenants; Registrant100% $17,215 $230
91% occupancy
48 tenants; Registrant100% $12,473 $200
86.5% occupancy
1994 average Registrant100% $10,499 $1,211
occupancy
was 73.5%
2 tenants Registrant100% $1,148 $485<PAGE>
ITEM 2. Properties, continued (dollar amounts in thousands)
Property General # of Units
Name Description Location Leasable sq. ft.
Village CommonsCommunity shoppingWest Palm Beach,170,000 sq. ft.
Shopping Centercenter Florida
1200 Weston Road3 story officeFort Lauderdale,15,000 sq. ft.
building Florida
410 First Avenue (3)Single tenant office/Needham,38,000 sq. ft.
industrial buildingMassachusetts
Rincon CenterMajor mixed useSan Francisco,320 Apartments
project in the SanCalifornia78,000 sq. ft. of
Francisco Financial retail space
District 423,000 sq. ft. of
office space
2 level garage
720 automobiles
(1) Funds from operations are defined as operating revenue less operating,
general and administrative expenses, and interest expense on debt,
excluding gains or losses, depreciation and amortization.
(2) The sale of a property or the partnership interest may result in a
substantial tax liability.
(3) Tenant lease expired in late 1994 and remained on a month to month basis
at a reduced rent and less square footage.
(4) The tax basis of this partnership investment is negative since the
Registrant's share of tax losses exceeds its investment in this partnership.
(5) Represents the Registrant's 22.8% equity share of Rincon Center's funds
from operations.
<PAGE>
Year End Calendar Year
1994 1994
# of Tenants and/orOwned% Registrant Tax Funds From
Occupancy % By Ownership Basis (2) Operations (1)
48 tenants; Registrant 100% $8,363 $645
84% occupancy
2 tenants; Registrant 100% $311 $260
100% occupancy
1 tenant; Registrant 100% $2,123 $494
28% occupancy
100% occupancyRincon Center 22.8% $(12,255)(4)$(1,557)(5)
32 tenants; Associates, a
94% occupancyCalifornai Limited
8 tenants; Partnership
100% occupancy<PAGE>
Other Matters Relating to
Properties
South Bay Office Tower Refinancing
In December 1994, the
Registrant completed the refinancing
of South Bay Office Tower with its
existing lender for $6.5 million.
The new loan carries an 11% annual
interest rate in year one, 12%
thereafter until maturity, with
fixed monthly payments of $68,000
with the balance due December 1997.
This new loan may be prepaid at any
time without penalty and is non-
recourse to the Registrant.
Radisson Suite Hotel Refurbishment
The hotel is operated by
employees of a corporate entity
owned by the Registrant under a
license agreement with Radisson
Hotels International, a part of The
Carlson Hospitality Group, Inc. As
a result of a 1993 refinancing, the
Registrant completed a $1.5 million
refurbishment of the property in
January 1995. The project primarily
focussed upon upgrading all of the
hotel's 306 suites.
Mountain Bay Plaza Settlement
In December 1993, the mortgage
loan matured on Mountain Bay Plaza
(MBP), and the lender was not
willing to extend the loan. In
March 1995, the Registrant and MBP's
lender signed a Settlement Agreement
and Mutual Release (the
"Agreement"). The Agreement
provides for a release of all claims
and counterclaims by and between the
Registrant and MBP's lender thus
allowing the lender to complete its
foreclosure on MBP.
410 First Avenue Pledged as
Collateral
In 1986 this property was
pledged as collateral to secure a
$6.25 million letter-of-credit in
favor of Rincon Center Associates'
lender. In July 1993, Rincon Center
Associates completed refinancing on
Phases One and Two, and the letter-
of-credit was reduced to $4.5
million. This property is occupied
by a single tenant, and the lease
for this tenant expired during the
fourth quarter of 1994. The tenant
currently occupies part of the space
on a month-to-month basis at a
reduced rent. The Registrant is
actively seeking to re-lease or sell
this building. As a result of a
decline in market rents for this
type of building, the Registrant has
recorded a $1 million provision for
write-down to net realizable value
as more fully discussed in the
Registrant's Consolidated Financial
Statements.
ITEM 3. Legal Proceedings
The Registrant is involved in
various other claims and lawsuits
incidental to its business. In the
opinion of the Registrant, these
other claims and lawsuits in the
aggregate will not have a material
adverse impact on the Registrant's
financial condition.
ITEM 4. Submission of Matters to a
Vote of Security Holders
Not applicable.
PART II
ITEM 5. Market for Registrant's
Common Equity and Related
Stockholder Matters
Common Stock
On March 15, 1995, there were
approximately 3,000 holders of
record of the Registrant's Common
Stock. The Registrant's Common
Stock is traded on the American
Stock Exchange under the symbol
"PGP".
The table below sets forth, for
the indicated periods, the high and
low prices per share of the
Registrant's Common Stock as
reported on the American Stock
Exchange Consolidated Reporting
System.
HighLow
1995
First Quarter (through March 15,
1995) $4 3/16 $3 3/8
1994
First Quarter 4 3 3/8
Second Quarter 3 7/8 3 1/16
Third Quarter 4 5/8 3 3/8
Fourth Quarter 4 1/4 2 7/8
1993
First Quarter 3 5/82 3/8
Second Quarter 3 3/82 1/2
Third Quarter 3 1/82 1/4
Fourth Quarter 3 3/42 7/16
<PAGE>
ITEM 6. Selected Financial Data. The selected financial data should be
read in conjunction with the Consolidated Financial Statements and
related notes in Item 14. The selected financial data is not covered by the
reports of the independent public accountants. (In thousands, except
per share data)
AS OF DECEMBER 31,
1994 1993 1992 1991 1990
FINANCIAL
POSITION
Investment and hotel
properties, net of
depreciation and
amortization $58,359$75,786$79,470$105,426$133,686
Equity investment
in Rincon Center
Associates 4,020 6,491 7,272 8,542 9,810
Deferred tax asset 6,845 -- -- -- --
Other assets 2,210 2,313 2,671 21,157 2,006
Total assets $71,434$ 84,590$ 89,413$135,125$145,502
Debt $63,099$ 98,916$107,732$146,023$163,576
Minority interests$ --$ --$ --$ --$ 411
Deferred tax
liability $12,209$ --$ --$ 902$ --
Excess of cash
distributions
received over
equity in
earnings
of Golden
Gateway Center$ --$ 18,126$ 19,839$ 19,795$ 23,790
Stockholders' deficit$ (6,502)$(35,321)$(41,795)$(38,964)$(49,863)
Stockholders' deficit
per share, primary$ (1.58)$ (9.10)$ (10.77)$ (10.04)$ (12.85)
Stockholders' deficit per share,
fully diluted$ (1.55)$ (9.05)$ (10.77)$ (10.04)$ (12.85)
<PAGE>
ITEM 6. Selected Financial Data, (continued) - The selected financial data
should be read in conjunction with the Consolidated Financial Statements and
related notes in Item 14. The selected financial data is
not covered by the reports of the independent public accountants.
(In thousands, except per share data)
FOR THE YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
INCOME RESULTS
Revenue from investment
properties $11,027$14,193$15,304$19,304$21,829
Revenue from hotel property 7,357 7,837 6,725 6,447 6,427
Equity in partnership income
(loss), net (1,298) (1,719) (2,749) (2,210) (3,849)
Provision for write-down to
estimated net
realizable value (1,000) (1,000) -- (2,538)(10,537)
Gain on sales of real estate
assets 664 1,045 2,807 23,611 --
Gain (loss) on disposition of
partnership interests 39,078 3,602 (2,031) -- --
Extraordinary items (325) 4,850 -- 2,967 --
Net income (loss)$28,817$ 4,583$ (2,831) $10,897$(24,346)
Income (loss) per share,
primary:
Income (loss) before extraordinary
items $ 7.10$ (0.07)$ (0.73)$ 2.04$ (6.27)
Extraordinary items (0.08) 1.25 -- 0.77 --
Net income (loss), primary$ 7.02$ 1.18$ (0.73)$ 2.81$ (6.27)
Number of common shares
and share equivalents
outstanding, primary 4,106 3,881 3,879 3,879 3,879
Income (loss) per share, fully diluted:
Income (loss) before extraordinary
items $ 6.96$ (0.07)$ (0.73)$ 2.04$ (6.27)
Extraordinary items (0.08) 1.24 -- .77 --
Net income (loss), fully
diluted $ 6.88$ 1.17$ (0.73)$ 2.81$ (6.27)
Number of common shares and
share equivalents outstanding,
fully diluted 4,187 3,904 3,879 3,879 3,879
<PAGE>
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
Capital Improvements, Tenant Improvements and
Other Deferred Costs -- In 1994 there were additions to
investment and hotel properties amounting to approximately
$5.9 million for tenant improvements, capital improvements
and other deferred costs which includes leasing commissions
and loan fees.
Financing -- A total of approximately $20.4 million of
debt was repaid in 1994 as a result of the redemption of the
29.5% partnership interest in Golden Gateway Center,
disposition of one property and scheduled debt amortization,
as more fully discussed in the Registrant's Consolidated
Financial Statements. In addition, approximately $18.9 of
debt was removed from the Registrant's consolidated Balance
Sheet as a result of the settlement reached with the lender of
Mountain Bay Plaza. The Registrant completed one
refinancing in 1994 related to its mortgage debt in the amount
of $6.5 million.
On December 31, 1994, the face amount of the floating
rate mortgage debt totaled approximately $39.6 million,
bearing interest at year-end weighted average rate of 8.23%.
The face amount of the fixed rate mortgage debt totaled
approximately $20.1 million bearing interest at year-end
weighted average rate of 9.43%. The book value of the
Registrant's debt differs from the face value as more fully
described in the Registrant's Consolidated Financial
Statements.
Net Income (Loss)
Investment Properties -- During 1994, the income
from investment properties was $385,000 compared to a loss
of $1,165,000 during 1993. Approximately $3,343,000 (of
the net $3,166,000 reduction in rental revenues) and
approximately $1,728,000 (of the net $1,624,000 reduction in
operating expenses) is due to several property dispositions in
1993 and 1994. For the remaining balance of investment
properties, there was an increase in rental revenue of
approximately $178,000 and an increase in operating expenses
of approximately $104,000 from 1993 to 1994. This increase
in rental revenue in 1994 is primarily a result of rental
payments commencing in the fourth quarter for a portion of
the new leases signed in mid 1994. The increase in operating
expenses is primarily attributable to increases in certain
operating expenses. Interest expense decreased from
$5,463,000 in 1993 to $3,356,000 in 1994 as a result of the
Registrant's 1993 debt restructuring, certain asset dispositions,
and the Mountain Bay Plaza foreclosure. The Registrant's
decrease in interest expense would have been greater, but
rising interest rates during 1994 on its floating rate mortgage
debt negatively impacted these results.
The reduction in the loss between 1993 and 1992 was
a result of a decrease in revenues of $1,111,000 that were
offset by a reduction in operating expenses of $347,000,
interest expense reduction of $415,000, and lower depreciation
and amortization of $535,000. The decrease in revenue of
$1,111,000 between 1993 and 1992 was attributable to a
combination of a decrease in revenues from property
dispositions in 1992 and 1993; tenant renewals at lower rental
rates, tenants downsizing and/or tenants vacating; a reduction
in expense recoveries from new and renewing tenants
receiving new expense base years; and to a lesser extent,
lower expense pass throughs due to overall property expense
reductions. These amounts were offset by new tenant lease
revenue in 1993.
Hotel Property -- The hotel property had income of
$827,000 in 1994 compared with income of $833,000 in 1993.
As a result of lower corporate demand and the impact of the
hotel's refurbishment during the third and fourth quarters of
1994, occupancy decreased from 1993 to 1994. However, the
hotel was able to achieve an increase in average daily rates
from 1993 to 1994 which partially offset the impact from the
decline in occupancy. Even though interest rates increased in
1994, interest expense on the hotel's debt remained flat
primarily as a result of the effects of the Registrant's debt
restructuring with its primary lender in December 1993. The
hotel property had income of $833,000 in 1993 compared with
a loss of $45,000 in 1992. The bulk of the improvement
relates to an increase in both the average daily rate and
occupancy between 1992 to 1993 and a decrease in operating
expenses. Interest expense decreased from $941,000 in 1992
to $744,000 in 1993 primarily as a result of lower floating
interest rates.
Partnership Operations -- Golden Gateway Center
(GGC) -- In October 1994 the GGC partnership completed a
redemption of the Registrant's partnership interest for $21
million. The equity in partnership income reflects only the
Registrant's share of income, expenses and distributions for
the first nine months of 1994. GGC's revenues increased 3.3%
in 1993 over 1992, while operating expenses decreased by
4.3%, resulting in a $1,984,000 increase in net operating
income from $9,769,000 in 1992 to $11,753,000 in 1993.
The increase in 1993 net operating income is due to increased
occupancy, rental rate increases and reductions in operating
expenses. The increase in interest expense resulted from
increased borrowings related to GGC's capital improvement
program. The Registrant sold 3% of its partnership interest
in February 1993 and owned 29.5% partnership interest for
the balance of 1993.
Rincon Center Associates (RCA) -- RCA's net loss
decreased from $11.9 million in 1993 to a net loss of $10.4
million in 1994. The decrease in the net loss is a result of
lower operating costs and depreciation and increased rental
revenues. Financing costs increased due to higher interest
rates. RCA's revenues were relatively flat between 1993 and
1992 since the project reached stabilized occupancy in 1992.
Operating expenses in 1993 included a one-time non-cash
charge of $560,000 from the amortization of deferred lease
costs relating to Rincon Center Phase One's master lease.
Excluding the one-time non-cash charge of $560,000,
operating expenses in 1993 decreased approximately 4% from
1992 as a result of continued cost reduction efforts. RCA's
interest expense decreased from $10,862,000 in 1992 to
$10,582,000 in 1993. This decrease in interest expense
resulted from a decrease in interest rates on the project's debt
during 1993 and a reduction of debt on the project as a result
of a paydown of the debt outstanding in 1993 in connection
with the two refinancings. A copy of the RCA audited
Financial Statements are included as an exhibit to this report.
General and Administrative Expenses -- General
and administrative expenses decreased from $1,593,000 in
1993 to $1,446,000 in 1994, and decreased from $1,837,000
in 1992 to $1,593,000 in 1993. The decrease in expenses
relates to a combination of cost reduction measures including
a reduction in personnel costs, other professional services,
directors' fees, and bonuses to former executives.
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 was cross-
collateralized by the Registrant's partnership interest in Golden
Gateway Center (GGC). Corporate interest increased from
$570,000 in 1993 to $754,000 in 1994. 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 1994.
Prior to 1994, interest expense related primarily to
borrowings under the Registrant's non-revolving line-of-credit,
unsecured notes and bonds, and unsecured notes payable to a
subsidiary of Perini Corporation. Interest expense related to
this corporate debt decreased from $740,000 in 1992 to
$570,000 in 1993. This decrease is mainly attributable to a
reduction in the non-revolving line-of-credit borrowings from
$10.5 million to $9 million in February 1993, relating to the
use of $1.5 million of proceeds from the sale of the
Registrant's 3% partnership interest in Golden Gateway
Center, and lower interest rates.
Interest and Fee Expense for Debt Related to
Equity Investment in RCA -- During 1994 and 1993, the
Registrant incurred approximately $199,000 and $161,000,
respectively, in interest and fee expense related to the funding
arrangement with the other general partner on Rincon Center
which is more fully discussed in the Registrant's Consolidated
Financial Statements. The funding arrangement with the other
general partner on Rincon Center did not exist in 1992.
Interest Income -- During 1994, 1993 and 1992,
interest income was $138,000, $18,000 and $219,000,
respectively. Interest income in 1994 consists primarily of
$82,000 for interest earned on the redemption of the
Registrant's GGC interest between September 30, 1994,
closing date, and the date when the Registrant received the
funding from the redemption in October 1994. Interest
income in 1993 consists primarily of interest earned on cash
invested. Interest income in 1992 consists primarily of
interest earned in connection with the sale of the Registrant's
12.2% partnership interest in GGC in December 1991.
Forgiveness of Accrued Interest -- In 1992, the
Registrant recorded a $400,000 gain from forgiveness of
accrued interest payable to a subsidiary of Perini Corporation.
Other Income -- In 1994 and 1993, other income
consists primarily of income from the sale of vacant land in
Colorado and Florida. The amounts for 1992 include primarily
accrued fees for RCA for posting a secured letter-of-credit and
amortization of a deferred gain on Golden Gateway Center.
Gain on Sale of Partnership Interests -- In
October 1994, the Golden Gateway Center (GGC) partnership
completed a redemption of the Registrant's remaining 29.5%
partnership interest in GGC resulting in a gain of
approximately $39 million as more fully discussed in the
Registrant's Consolidated Financial Statements. In February
1993, the Registrant disposed of a 3% partnership interest in
GGC resulting in a gain of approximately $3.6 million. The
1992 loss of approximately $2 million was recorded in
connection with the dissolution of the Southwest Village
partnership.
<PAGE>
Gain on Sales of Real Estate Assets, Net -- 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 $664,000. In 1993, the
Registrant recorded a loss of approximately $204,000 on the
sale of two Florida buildings and a non-cash gain of
$1,249,000 on the disposition of one building in Arizona.
Results for 1992 reflect the gain on a sale of real estate assets
from the sale of an industrial property to a subsidiary of Perini
Corporation.
Provision for Write-Down to Estimated Net
Realizable Value -- In 1994, the Registrant recorded a
provision for write-down to net realizable value of $1 million
as a result of the sole tenant of the 410 First Avenue building
not renewing its lease, and a downturn in market rental and
sales rates. In 1993, the Registrant recorded a provision for
write-down to net realizable value of $1 million in connection
with the funding of a $1 million letter-of-credit to the lender
on the Mountain Bay Plaza property, Mountain View,
California, as a result of the lender instituting foreclosure
proceedings. There were no write-downs of investment
properties' book values to their estimated net realizable value
in 1992.
Income Tax (Provision) Benefit -- The Registrant
used a portion of its net operating loss carryover to reduce its
1994 taxable income, which resulted in the Registrant
recording a net $7.4 million provision for income taxes as
more fully discussed in the Registrant's Consolidated Financial
Statements. The Registrant has used a portion of its net
operating loss carryover to eliminate 1993 and 1992 taxable
income, except for certain state franchise taxes. As a result
of utilizing its net operating loss carryover in 1992 to offset
the 1991 deferred tax liability, the Registrant recorded a
benefit for income taxes of $899,000 in 1992.
Extraordinary Gain (Loss) from Extinguishment of
Debt --In December 1994, the Registrant completed a
refinancing with the existing lender at South Bay Office Tower
(SBOT), San Jose, California, which resulted in additional
funding and a modification of terms. As a result, the
Registrant has written-off the unamortized portion of the 1993
loan fees of $325,000 and capitalized the 1994 loan fees. In
December 1993, the Registrant completed a discounted pay-off
and refinancing of the SBOT resulting in a gain from the
extinguishment of debt of $4,850,000.
Liquidity and Capital Resources
The bulk of the Registrant's resources are committed
to relatively non-liquid real estate assets. 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 1994, 1993 and 1992, 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 1994, 1993
and 1992; this condition continues to be the case in 1995. The
Registrant sought to reduce the strain by minimizing its
financial exposure to properties secured by non-recourse
mortgage loans. The Registrant conveyed three properties to
their respective lenders in 1992 in satisfaction of $21 million
of non-recourse debt. No properties were conveyed to lenders
in 1993. In 1994, Mountain Bay Plaza was transferred to its
lender in satisfaction of approximately $18.9 million of non-
recourse debt as previously discussed. In addition, the
Registrant actively pursued potential sales of certain real estate
assets in cases where a transaction would generate acceptable
stockholder value and corporate liquidity. In 1994, the
Registrant agreed to the redemption of its remaining 29.5%
partnership interest in Golden Gateway Center partnership and
sold one building.
In December 1993, the Registrant completed the
refinancing of South Bay Office Tower, San Jose, California,
with a new lender for $5.5 million. As a result, the
Registrant recorded an extraordinary gain from extinguishment
of debt of $4.85 million. In December 1994, the Registrant
refinanced the South Bay Office Tower with the same lender
for $6.5 million and a modification of loan terms, resulting in
an extraordinary loss from this refinancing as more fully
discussed above. The net proceeds from the refinancing will
be used to fund tenant improvements, leasing commissions and
capital improvements.
In December 1993, the Registrant completed a
restructuring of $49.3 million of existing debt consisting of its
non-revolving line-of-credit, letter-of-credit, unsecured bonds,
and mortgages with its primary lender on its Walnut Creek
Executive Park, North Tucson Business Center, Weston
Building, and Radisson Suite Hotel. In connection with the
restructuring, the Registrant issued to the primary lender
Warrants to acquire up to 2 million shares of the Registrant's
Common Stock as an inducement to complete the
restructuring. The exercise price for the Warrants is $2.875
per share. Warrants to acquire 1 million shares are
immediately exercisable. In addition, the primary lender is
entitled to amortization in the form of minimum quarterly
fixed payments plus a percentage of remaining cash flow.
There is also a restriction on the ability of the Registrant to
pay dividends, and the Registrant is required to pay the
primary lender a portion of any proceeds from the refinancing
or sale of collateralized property or any new capital raised.
The Registrant paid its primary lender $18.5 million
of the $21 million in proceeds from the redemption of the
Registrant's GGC partnership interest in October 1994, which
resulted in the cancellation of 350,000 warrants on January 31,
1995. An additional 650,000 warrants will be cancelled if the
Registrant repays the primary lender $1.5 million by March
31, 1996, in addition to the minimum $1 million annual debt
amortization. The Registrant will try to repay the primary
lender the amount necessary to cancel the 650,000 warrants
from the proceeds of either asset sales or mortgage
refinancings.
The Registrant recognizes that the issuance of the
remaining warrants, when and if exercised, may result in
significant dilution to the Registrant's shareholders. If the
remaining 1,650,000 warrants are exercised it would provide
$4.74 million of additional paid-in capital; however, there is
no assurance that the warrants will be exercised by the
Registrant's primary lender. Further details of this
restructuring and warrants are more fully discussed in the
Registrant's Consolidated Financial Statements.
The $4.5 million letter-of-credit posted by the
Registrant in favor of a Rincon Center Associates' lender was
extended to June 1995. This letter-of-credit is secured by the
Registrant's 410 First Avenue property which is currently
listed for sale, and the lender has requested additional
collateral. 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.
It is the Registrant's intent to attempt to increase its
liquidity in a variety of ways including: (a) debt refinancings,
(b) the sale of properties which do not fit 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 1994, 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 rent commencement for
the lease transactions that were completed in July 1994 did not
begin until late 1994 and early 1995, the effect of all of these
leases will not impact the Registrant's financial results until
the second quarter of 1995.
Impact of Inflation
The Registrant's management believes that inflation
has not had any appreciable negative impact on the
Registrant's operations because a substantial number of the
Registrant's and partnerships' commercial leases include
provisions requiring increases in rental payments based upon
increases in various consumer price indices as well as the
pass-through to tenants of specified operating expense
increases.
ITEM 8. Financial Statements and Supplementary Data
The Reports of Independent Public Accountants,
Consolidated Financial Statements, Supplementary Schedules
and Financial Statements of Rincon Center Associates are set
forth on the pages that follow in this Report and are hereby
incorporated herein.
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
PART III
ITEM 10. Executive Officers of the Registrant
Set forth below is certain information concerning
persons who are executive officers of the Registrant.
Roger D. Snell (Age 39). Mr. Snell has been a Director,
President and Chief Executive Officer of the Registrant since
July 1992. His responsibilities include carrying out the
decisions of the Board of Directors and overseeing all of the
Company's operations and investments on a daily basis. Prior
to joining PGP in July of 1993, Mr. Snell was the partner in
charge of commercial operations for Paragon Group in
Northern California. He began that operation in late 1985 and
was responsible for the development, acquisition, management
and leasing of over 2,650,000 square feet of properties. Mr.
Snell has a B.S. in Business Administration from the
University of California at Berkeley and an MBA from the
Harvard Business School. He is an active member in the
National Association of Real Estate Investment Trusts
(NAREIT), the Urban Land Institute (ULI), and is a former
member of the National Association of Office and Industrial
Parks (NAIOP) and the Society of Industrial and Office
Realtors (SIOR).
Raymond V. Marino (Age 36). Mr. Marino has been a Vice
President of the Registrant since August 1992. His
responsibilities include the management of personnel in the
property management and financial operations of the
Registrant, and assisting the Registrant's President with
investor relations and debt and equity financings. Previously,
he was with Hunting Gate Investments, a private British real
estate investment and management company, as Vice President
of Finance and Controller. Mr. Marino has a Bachelor of
Science Degree in Accounting from Santa Clara University
and a Masters Degree in Taxation from Golden Gate
University. Mr. Marino maintains an active license as a
California Certified Public Accountant, and is a member of the
American Institute of CPA's, California Society of CPA's,
and National Association of Real Estate Investment Trusts.
Christopher M. Watson (Age 36). Mr. Watson has been
Vice President of the Registrant since September 1992. His
responsibilities include the management of personnel in
marketing, leasing and construction operations of the
Registrant, and marketing of third party property management
services. Previously, he was Vice President for Coldwell
Banker Commercial Real Estate Services Inc., as a licensed
real estate agent representing both property owners and
investors in commercial real estate leasing and acquisitions.
Mr. Watson is a graduate from the University of California at
Berkeley.
Each executive officer holds office until
the first meeting of directors following the annual meeting of
stockholders and until his successor is duly chosen and
qualified.
Additional information called for by
Part III is hereby incorporated by reference from the
information set forth under the headings "Election of
Directors", "Ownership of Common Stock by Directors and
Officers", "Certain Other Beneficial Holders", "Executive
Compensation" and "Certain Transactions" in the Registrant's
definitive proxy statement for the Annual Meeting of
Stockholders to be held May 9, 1995, such definitive proxy
statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after
the end of the fiscal year covered by this Annual Report on
Form 10-K.
PART IV
ITEM 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K
(a)1. The following financial statements and supplementary
financial information are filed as part of this report:
Financial Statements of the
Registrant Page
Consolidated Balance Sheet as of December 31, 1994
and 1993 18
Consolidated Statement of Income (Loss) for the three
years ended December 31, 1994, 1993 and 199219
Consolidated Statement of Stockholders'
Deficit for the three years ended December, 1994, 1993 and
1992 20
Consolidated Statement of Cash Flows for the three
years ended December 31, 1994, 1993 and 199221
Notes to Consolidated Financial Statements22 - 32
Report of Independent Public Accountants33
(a)2.The following financial statement schedule is filed as part
of this report:
Report of Independent Public Accountants on Schedule34
Schedule III -- Real Estate and Accumulated
Depreciation as of December 31, 199435 - 36
All other schedules are omitted because of the absence of the
conditions under which they are required or because the
required information is included in the Consolidated Financial
Statements or in the Notes thereto.
Page
(a)3.Exhibits
Subsidiaries of the Registrant37
(b)During the quarter ended December 31, 1994, the
Registrant made one filing on Form 8-K in connection with the
redemption of the Registrant's 29.5% partnership interest in
Golden Gateway Center, as previously discussed.
(c)The following financial statements are filed as part of this
report:
Financial Statements of Rincon Center AssociatesPage
Report of Independent Public Accountants39
Balance Sheets--December 31, 1994 and 199340
Statements of Operations for the years ended
December 31, 1994, 1993 and 199241
Statements of Changes in Partner's Deficit for the
years ended December 31, 1994, 1993 and 199242
Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 199243
Notes to Financial Statements44 - 49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) 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)
By: Roger D. Snell
Roger D. Snell
President and Chief Executive Officer
Dated: March 23, 1995
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SignatureTitle
Date
Roger D. Snell
Roger D. SnellPresident and Chief
Executive Officer, and
Director
March 23, 1995
Raymond V. Marino
Raymond V. MarinoVice President (Chief Financial and
Accounting Officer) March 23, 1995
Robert P. Freeman
Robert P. FreemanDirector March 23, 1995
Marshall A. Jacobs
Marshall A. JacobsDirector March 23, 1995
David E. Post
David E. PostDirector March 23, 1995
Roderick A. Young
Roderick A. YoungDirector March 23, 1995
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1994, 1993 and 1992
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Amounts)
As of December 31,
1994 1993
ASSETS
Cash and short-term investments$ 359$ 743
Cash - restricted 597 --
Accounts receivable 785 993
Other current assets 42 163
Investment and hotel properties:
Land 15,230 16,516
Buildings 46,741 73,192
Other deferred costs 18,463 15,563
Subtotal investment and hotel properties 80,434 105,271
Less-accumulated depreciation
and amortization and net
realizable value reserve (22,075) (29,485)
Investment and hotel properties, net 58,359 75,786
Equity investment in and loans to Rincon Center Associates 4,020 6,491
Deferred tax asset 6,845 --
Note receivable 229 236
Other assets, net 198 178
Total assets $71,434 $ 84,590
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 1,132 $ 1,142
Accrued payroll, property and sales taxes328 603
Prepaid rent 210 240
Accrued interest on debt 459 214
Tenant security deposits 414 624
Other current liabilities 85 46
Debt related to corporate, investment
and hotel properties 61,149 97,095
Other debt related to equity investment
in Rincon Center Associates1,950 1,821
Deferred tax liability 12,209 --
Excess of cash distributions received
over equity in earnings to date
of Golden Gateway Center -- 18,126
Total liabilities 77,936 119,911
Commitments and contingencies (Notes 2, 3 and 5)
Stockholders' deficit:
Common stock $1.00 par value--
Authorized--10,000,000 shares
Issued--4,011,150 shares4,011 4,010
Paid-in-deficit (10,222) (10,223)
Retained earnings (deficit)(99) (28,916)
Treasury stock, at cost--131,186 common shares(2,082) (2,082)
Warrants for common stock 1,890 1,890
Total stockholders' deficit (6,502) (35,321)
Total liabilities and stockholders' deficit$ 71,434$ 84,590
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(In Thousands, Except Per Share Amounts)
For the Year Ended December 31,
1994 1993 1992
Investment Properties:
Rental revenues $11,027 $14,193 $15,304
Operating expenses (5,201) (6,825) (7,172)
Income before depreciation and interest expense 5,826 7,368 8,132
Interest expense (3,356)(5,463)(5,878)
Depreciation and amortization (2,085)(3,070)(3,605)
Investment properties income (loss) 385 (1,165) (1,351)
Hotel Property:
Revenues7,357 7,837 6,725
Operating expenses (5,367) (5,877) (5,474)
Income before depreciation and interest expense1,990 1,960 1,251
Interest expense (779) (744) (941)
Depreciation and amortization (384) (383) (354)
Hotel income (loss) 827 833 (44)
Equity in Partnership Losses:
Golden Gateway Center (GGC) 1,085 1,007 499
Rincon Center Associates (RCA) (2,383)(2,726)(2,952)
Southwest Villages -- -- (296)
Equity in partnership losses (1,298) (1,719) (2,749)
General and administrative expenses(1,446)(1,593)(1,837)
Interest expense on debt secured by
equity investment in GGC and
other corporate debt (754) (570) (740)
Interest and fee expense for debt related to equity
investment in RCA (199) (161) --
Interest income138 18 219
Forgiveness of accrued interest -- -- 400
Other income 122 447 1,596
Loss before partnership and property transactions,
reserves, income taxes and extraordinary item(2,225)(3,910)(4,506)
Gain (loss) on disposition of partnership interests39,078 3,602 (2,031)
Gain on sale of real estate assets, net 664 1,045 2,807
Provision for net realizable value (1,000) (1,000) --
Income (loss) before income taxes and extraordinary items36,517 (263) (3,730)
Income tax (provision) benefit (7,375) (4) 899
Income (loss) before extraordinary items29,142 (267) (2,831)
Extraordinary gain (loss) from extinguishment of debt (325) 4,850
Net income (loss) $28,817$ 4,583$ (2,831)
Income (loss) per share, primary:
Income (loss) before extraordinary items$ 7.10$ (0.07)$ (0.73)
Extraordinary items (0.08) 1.25 --
Net income (loss) $ 7.02$ 1.18$ (0.73)
Income (loss) per share, fully diluted:
Income (loss) before extraordinary items$ 6.96$ (0.07)$ (0.73)
Extraordinary items (0.08) 1.24 --
Net income (loss) $ 6.88$ 1.17$ (0.73)
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
WARRANTS
PAID-IN RETAINED FOR
COMMON CAPITAL EARNINGS TREASURY COMMON
STOCK (DEFICIT) (DEFICIT) STOCK STOCK TOTAL
Balance at January 31, 1992
$ 4,010 $(10,223) $(30,668) $ (2,082) $ --$(38,963)
Net Loss -- -- ( 2,831) -- -- ( 2,831)
Balance at December 31,
1992 4,010 (10,223)(33,499)(2,082) --$(41,794)
Net income -- -- 4,583 -- --4,583
Issuance of warrants for
common stock -- -- -- -- 1,890 1,890
Balance at December 31,
1993 4,010 (10,223)(28,916) (2,082) 1,890(35,321)
Net income -- -- 28,817 -- --28,817
Issuance of common stock
from exercise of stock
options 1 1 -- -- -- 2
Balance at December 31,
1994 $ 4,011 $(10,222)$ (99)$ (2,082)$ 1,890$ (6,502)
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
For the Year Ended December 31,
1994 1993 1992
Cash flow from operating activities:
Net income (loss) $28,817 $4,583$(2,831)
Non-cash revenues and expenses included in income:
Provision for depreciation2,529 3,530 3,959
Equity in loss of investment partnerships1,298 1,719 4,780
Provision for write-down to estimated net realizable value1,000 1,000 --
Other non-cash charges relating to investment partnerships--(187)(678)
Gain on sale of real estate assets, net(664)(1,045)(2,807)
Gain on disposition of partnership interests(39,078)(3,602)--
Extraordinary items 325 (4,850) --
Changes in assets and liabilities:
Accounts receivable and other current assets 370 (137) 17,429
Other assets (56) (107) 93
Deferred tax benefit, net 5,364 -- (902)
Accounts payable and other current liabilities70 (596)(3,845)
Other liabilities (231) (171) 113
Cash flow generated by (used in) operating activities (256) 137 15,311
Cash flow from investing activities:
Additions to investment and hotel properties (5,528)(1,135)(1,584)
Proceeds from sale of properties 1,419 895 5,172
Proceeds from sale of partnership interest, net 20,968 1,781 --
Distributions (contribs) to investment partnerships, net89(1,698)(1,557)
Distributions from GGC 929 1,120 975
Net cash generated by investing activities 17,877 963 3,006
Cash flow from financing activities:
Borrowings under property and hotel debt 8,750 5,500 400
Borrowings in connection with equity investment, net129 1,760 --
Payments on debt (25,930) (6,130)(5,197)
Net decrease in line-of-credit borrowings--(1,500)(9,984)
Payment of loan costs and fees in connection
with equity investment (359) (730) --
Mortgages satisfied in connection with property dispositions--(767) (4,500)
Proceeds from exercise of stock options 2 -- --
Net cash used in financing activities(17,408) (1,867)(19,281)
Increase (decrease) in cash and short term investments 213 (767) (964)
Balance at beginning of year 743 1,510 2,474
Balance at end of year ($597,000 restr at December 31, 1994)$956$ 743$1,510
Supplementary disclosures:
Cash paid for interest $ 4,842 $ 6,567$10,262
Return of property and other assets to lenders
in satisfaction of debt $18,766$ --$21,213
The accompanying notes are an integral part of these consolidated financial
statements<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the Three Years Ended December 31, 1994
1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Organization
Pacific Gateway Properties, Inc., (the Company) is a New
York corporation formed in 1984 for the purpose of investing
and managing income producing real estate.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries and
partnerships. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Partnerships in which the Company has less than a 50%
interest but has limited management influence, are accounted
for using the equity method.
Cash and Short-Term Investments
The Company's policy is to invest cash in excess of operating
requirements in income producing investments. Cash and
short-term investments include cash and money market
accounts, all of which have maturities of three months or less.
Cash - Restricted
The Company has recorded restricted cash in connection with
the receipt of insurance proceeds that are committed to the
reconstruction of a fire damaged building; proceeds from the
sale of a building in July 1994 which are designated for future
tenant improvements; and proceeds from the refinancing of
South Bay Office Tower which are to be used for future tenant
improvements, capital improvements and leasing commissions.
Investment Properties and Equity Investments in Real
Estate Partnership
Land, buildings and improvements are recorded at cost.
Depreciation on investment and hotel properties is provided
using the straight-line method over estimated useful lives
ranging from 28 to 40 years. Other deferred costs include
capital improvements, tenant improvements, leasing costs, and
deferred real estate mortgage costs. Deferred real estate
mortgage costs consist of loan fees, legal, accounting,
engineering, appraisal, and other costs associated with a
financing and are amortized using the straight-line method
over the primary term of related debt instrument. Costs
associated with a lease are amortized over the term of the
lease. The remaining deferred costs are amortized using the
straight-line method over the estimated useful life of the asset
to which they relate. Repairs and maintenance are charged to
expense as incurred.
In 1994, one property's net book value was reduced as a result
of a decrease in sales and rental rates in the market. In 1993,
one property's net book value, the Mountain Bay Plaza, was
reduced to the amount of the mortgage debt on the property in
connection with a lender commencing proceedings to foreclose
on the property, and in 1992 there was no adjustment to the
net realizable value reserve.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). Under SFAS 109, deferred taxes
are computed based on the difference between the financial
statement and income tax basis of assets and liabilities using
the enacted marginal tax rate. As permitted under the
provisions of SFAS 109, the Company elected not to restate
prior years.
<PAGE>
Real Estate Assets and Partnership Interest Sold
Gain (loss) on sales of real estate assets and partnership
interests are included in the Consolidated Statement of Income
(Loss) and consist of the following (in thousands):
1994 1993 1992
Boca II $ -- $ (196) $ --
Longwood -- (8) --
Fairmount Square -- 1,249 --
Easton Industrial Park -- -- 2,807
Walnut Creek Day Care Building 664 -- --
664 1,045 2,807
Southwest Villages -- (5) (2,031)
Golden Gateway Center 39,078 3,607 --
Total $39,742 $4,647 $ 776
Per Share Data
Per share data is based on the weighted average number of the Company'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:
As of December 31, 1994 1993 1992
Primary 4,105,808 3,881,024 3,878,964
Fully diluted 4,186,515 3,904,371 3,878,964
Going Concern
The Company's Consolidated Financial Statements have
been presented on a going concern basis which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. The weakening of the commercial
real estate markets has resulted in a continued strain on cash
flow in both 1994 and 1993. During 1994, the Company
continued its program of consolidating its property portfolio
commenced in 1991. In 1994 and 1992, the Company
eliminated the significant cash drain associated with three
properties which were transferred to their respective lenders
in satisfaction of mortgages totalling $18.9 million and $21.3
million, respectively. In 1994 the Company sold off the
balance of its interests in GGC to pay down a portion of its
debt with its primary bank lender and cancelled 350,000
warrants for common stock.
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
On December 31, 1991, the Company sold a 12.2%
partnership interest in GGC and, in a separate transaction,
disposed of its option to acquire the additional 21.6%
partnership interest.
The Company owned a 32.5% partnership interest in
GGC in 1992 which owns the Golden Gateway Center
apartment complex. In February 1993, the Company sold 3%
of its partnership interest to the other partners in GGC for
cash proceeds of $1,781,000, resulting in a gain of
$3,607,000. As of December 31, 1993, the Company owned
a 29.5% partnership interest in GGC. In October 1994, GGC
redeemed the Company's remaining 29.5% partnership interest
for $21 million, resulting in a gain of $39 million. The
Company accounted for its investment in GGC on the equity
basis since 1991.
Summary Financial data for GGC is as follows (in thousands):
As of December 31, 1993
Investment property, net $20,167
Other assets 1,307
$21,474
Mortgage debt and lines of credit $79,742
Other liabilities 2,604
Partners' deficit (60,872)
$21,474
For the Nine
Months Ended
September 30, 1994 1993 1992
Cash distributions to the Company from GGC$ 929$ 1,120$ 975
Income from operations:
Revenues $15,118 $19,296 $18,676
Expenses:
Operating 5,113 7,543 7,882
Interest 5,556 7,280 7,261
Write-off project costs -- -- 1,025
Depreciation and amortization 771 1,104 990
11,440 15,927 17,158
Net income 3,678 $ 3,369 $ 1,518
Company's share of net income of GGC$ 1,085 $ 1,007 $ 499
Rincon Center Associates Partnership (RCA)--San
Francisco, California
The Company 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 Company's investment in RCA
includes $511,000, $1,698,000 and $1,175,000, advanced
during 1994, 1993 and 1992, respectively, to fund
development, operating costs and debt repayments.
RCA sold Rincon Center Phase One to Chrysler
MacNally Corporation (Chrysler) in June 1988; subsequently,
RCA leased the property back under a master lease which is
treated as an operating lease for financial reporting purposes.
In July 1993, Chrysler completed a refinancing of Rincon
Center Phase One. The maturity date of this debt is July 1,
1998. Payments under the master lease agreement may be
adjusted to reflect adjustments in the rate of interest payable
by Chrysler on the Rincon Center Phase One debt. The
master lease also permits Chrysler to put the property back to
RCA at stipulated prices beginning January 1998 if long-term
financing meeting certain conditions is not obtained. RCA
intends to obtain financing meeting the conditions of the
master lease prior to January 1998. In September 1993, RCA
completed a refinancing of Rincon Center Phase Two with its
existing lender. The Company has also posted a $4.5 million
letter-of-credit in favor of the bank involved in a portion of the
RCA financing. This letter-of-credit is secured by the
Registrant's 410 First Avenue property in Needham,
Massachusetts. The letter-of-credit expires June 1995.
The Company earns a fee from RCA for posting the
letter-of-credit and earns a preferred return at a rate of prime
plus 2% on its advances to RCA. In 1994, the Company
received approximately $453,000 in letter-of-credit fees and
$147,000 of interest on its advances which is recorded as a
reduction to equity investment and loans to RCA. In 1993,
no letter-of-credit fees or preferred return payments on its
advances were accrued or received by the Company.
The Company entered into an agreement in June 1993
with the other general partner in RCA. This agreement
provides the Company 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 Company. The Company shall pay a related
fee to the extent of amounts advanced multiplied by the
percentage applicable to the year in which such funds are
advanced as set forth hereafter:
Calendar Applicable
Year Percentage
1993 6.0%
1994 6.0%
1995 10.0%
1996 17.5%
1997 and thereafter25.0%
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 Company, if any.
This agreement does not reduce the level of the
Company's general and limited partnership interests in RCA.
As of December 31, 1994, approximately $2,171,000 had
been advanced under this agreement since July 1993. In
addition, fees and accrued interest relating to the amount
advanced through December 31, 1994, of approximately
$199,000 and $161,000 was expensed by the Company in
1994 and 1993, respectively. The unpaid portion of advances,
fees and accrued interest as of December 31, 1994 and 1993,
was $1,950,000 and $1,821,000, respectively, and is recorded
as debt in the Company's Consolidated Balance Sheet.
Summary financial statement data for RCA is as follows (in thousands):
As of December 31, 1994 1993
Investment properties, net$116,613 $119,876
Other assets 25,312 26,730
$141,925 $146,606
Debt $ 60,895 $ 62,370
Amounts due to partners 129,150 119,389
Other liabilities 12,838 15,365
Partner's deficit (60,959) (50,518)
$141,925 $146,606
1994 1993 1992
Company's cash distributions from
(contributions to) RCA, net$ 89$ (1,698) $ (1,175)
Net loss from operations:
Revenue $ 20,285 $ 19,708 $ 19,796
Expenses:
Operating and lease expenses15,913 16,979 17,143
Financing 11,194 10,635 10,862
Depreciation and amortization 3,619 4,040 4,726
30,726 31,654 32,731
Net loss $(10,441) $(11,946) $(12,935)
Company's share of net loss of RCA$ (2,383)$ (2,726)$ (2,952)
<PAGE>
DEVELOPMENT PARTNERSHIPS
Southwest Villages Partnership (SWV)--Phoenix, Arizona
On December 31, 1992, the Company entered into an
agreement to sell the Southwest Villages property to an
unrelated third party and to dissolve the partnership (the
Company had a 50% partnership interest in SWV in 1992).
The buyer purchased the property for $8 million. This
project was funded with tax exempt Industrial Development
Bonds (IDB's), and after this sale, the unpaid balance of the
IDB's was approximately $4.4 million.
Each of the remaining general partners assumed 50%
of the remaining IDB's. The Company was obligated to pay
its $2.2 million share of the IDB's at a rate of $360,000 a
year into a bond sinking fund. The Company was relieved of
its obligation to fund the sinking fund obligation after
December 31, 1993, as a result of a debt restructuring with its
primary lender. The details of this restructuring are discussed
in footnote 3.
Net loss recorded on the dissolution of the partnership
at December 31, 1992, was $2,031,000. The Company made
a cash contribution of $382,000 to SWV in 1992.
Summary income statement data for SWV is as follows (in thousands):
1992
Loss from operations:
Revenue $ 1,574
Expenses:
Operating (1,086)
Financing (717)
Depreciation and amortization (362)
Loss on sale of project (3,844)
Net Loss $(4,435)
Company's share of net loss of SWV $ (296)
3. DEBT
As of December 31, 1994 and 1993, the Company had the following debt
outstanding (in thousands):
1994 1993
Debt related to corporate, investment and hotel properties:
Corporate debt and mortgages on real estate from
primary lender (in accordance with Generally
Accepted Accounting Principles, the recorded amount
of this debt differs from the face amount of the debt
as more fully discussed on the pages that follow).
The interest rate and security on this debt is also
described on the pages that follow.$29,446 $48,386
Other mortgages on real estate:
South Bay Office Tower, interest payable monthly,
fixed at 11% in year one, and 12% thereafter until
maturity. Principal due December 22, 1997.6,500 5,500
Mountain Bay Plaza, loan matured on December 1,
1993 and the property was subsequently foreclosed.--18,766
Walnut Creek Executive Park, interest fixed
at 8.5%, due October 1, 1997. 8,609 8,983
1994 1993
Village Commons Shopping Center,
interest variable at LIBOR plus 1.25%
(7.4% at December 31, 1994), due
September 30, 1996. 15,355 15,460
Construction loan:
Walnut Creek Executive Park, interest
variable at prime plus 2.75% or LIBOR plus
4.5% (11.25% at December 31, 1994),
due November 1, 1997. 1,239 --
$61,149 $97,095
Debt related to equity investment in RCA,
interest variable at prime rate plus 2%,
(10.5% at December 31, 1994). $ 1,950 $ 1,821
Corporate Debt and Mortgages on Real Estate From
Primary Lender
In December 1993, the Company completed a
restructuring of its non-revolving line-of-credit, letter-of-
credit, unsecured bonds, and certain mortgages with its
primary lender. The new loan is in the form of a Tranche A
and Tranche B Note. This restructuring was completed in
order to stabilize the Company's relationship with its primary
lender.
The Tranche A note (Note A) with a balance of
approximately $24 million is recourse debt to the Company
and its subsidiaries, and is cross collateralized with several
properties. Note A has a variable interest rate at LIBOR plus
2.5% payable monthly. The LIBOR rate may be fixed up to
one year for minimum contract amounts of $1 million. A
quarterly principal payment of $250,000 is due each year. In
addition, 75% of the Company's quarterly cash flow, as
defined in the loan agreement is due. No cash flow payments
were required in 1994. In addition to the quarterly
installments, the Note A also requires principal payments of
$5 million by January 31, 1995, and $15 million by March 31,
1996. In 1994, the Company satisfied the $5 million required
principal payment, and $13.5 million of the required $15
million with the $18.5 million paid to the primary lender in
October 1994 from a portion of the proceeds from the
redemption of its partnership interest in GGC. Note A
matures November 1, 1997.
The Tranche B Note (Note B) with a balance of
approximately $5.4 million (including accrued interest) is non-
recourse debt cross collateralized with the same partnership
interest and properties as Note A. Note B has a fixed interest
rate of 9% that accrues and defers until maturity at November
1, 1997.
In connection with the restructuring, the Company
issued to the primary lender warrants to acquire up to
2,000,000 shares of the Company's common stock. The
exercise price for the warrants is $2.875 per share. Warrants
to acquire 1,000,000 shares were immediately exercisable.
Warrants to acquire 350,000 shares were cancelled on January
31, 1995, in connection with a repayment of $18.5 million to
the primary lender in October 1994. Warrants to acquire an
additional 650,000 shares do not become exercisable if the
Company pays the required $15 million installment under the
Note A with the primary lender on or prior to March 31, 1996
(of which $13.5 million has already been paid). Warrants that
are exercisable expire on the later of November 1, 1997, or
two years after the amounts outstanding under both Note A
and Note B are repaid in full. The warrants have customary
anti-dilution protection that addresses stock splits, stock
dividends, recombinations and reclassifications, and certain
other issuances of additional common stock. The Company
also has a right of first offer to acquire the shares of common
stock or warrants prior to any transfer thereof. The Company
has valued the one million warrants that were exercisable at
December 31, 1993, at $1.89 million which is recorded as
equity in the Company's Consolidated Balance.
Statement of Financial Accounting Standards No. 15
requires the Company to account for future interest resulting
from this restructuring using an imputed interest rate versus
the stated rates on the Notes A and B. In addition, the
primary lender's cancellation of debt of $4 million at the time
of the restructuring was not recognized for financial reporting
purposes. The imputed interest rate as of December 31, 1994,
was approximately 5.4%. 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
$450,000 for 1994. The face amount of the debt with the
primary lender as December 31, 1994, was approximately $28
million.
Other Mortgages on Real Estate
South Bay Office Tower Refinancing
In December 1994, the Company completed the
refinancing of South Bay Office Tower with its existing lender
for $6.5 million. The new loan carries an 11% annual interest
rate in year one, 12% thereafter until maturity, with fixed
monthly amortization payments of $68,000 and is due
December 22, 1997. This new loan may be prepaid at any
time without penalty and is non-recourse to the Company. A
portion of the loan proceeds are subject to the terms and
conditions of a Disbursement Agreement with the lender to
fund tenant improvements, leasing commissions and capital
improvements. These funds are classified on the Company's
Consolidated Balance Sheet as restricted cash. As a result of
this refinancing, the Company has written off the unamortized
portion of the 1993 loan fees of $325,000 which is recorded
as an extraordinary item. The Company has capitalized
approximately $218,000 of loan fees in connection with the
1994 refinancing.
Mountain Bay Plaza (MBP) Settlement
The Company and MBP's lender entered into a
Settlement Agreement and Mutual Release (the "Agreement").
As a result, the Company has eliminated the asset and debt
from its Consolidated Balance Sheet as of December 31, 1994.
Construction Loan
In November 1994, the Company obtained a $4
million construction loan from its primary lender. The funds
from this loan are to be used exclusively to fund the tenant
improvement costs and leasing commissions. The loan has a
variable interest rate at either the prime rate plus 2.75% or
LIBOR plus 4.5%, payable monthly. A fixed monthly
principal payment of $257,634 is due each month commencing
December 15, 1994 through March 15, 1995, at which time
payments are based on a formula calculated from cash flows
as defined in the loan agreement. The Company has also
pledged the net sales proceeds upon the sale of a building to
repay this loan. The Company anticipates that it will not
borrow in excess of approximately $1.5 million under this
loan. The loan matures November 1, 1997.
Loan Maturities
The maturities of debt outstanding as of December
31, 1994 and required minimum principal payments in each of
the next five years are summarized as follows (in thousands):
Debt Related Debt
To Corporate,Related to
Investment Equity
and Hotel Investment
Properties in RCA
1995 $ 2,392 $ --
1996 16,745 --
1997 42,012 --
1998 -- --
1999 -- --
Thereafter -- 1,950
$61,149 $1,950
4. OTHER RELATED PARTY ITEMS
Directors and Officers
As of December 31, 1992, four of the Company's
eight directors were also directors of Perini Corporation
(Perini), and the two companies had the same controlling
stockholder group until mid 1993. Three of the four directors
that were directors of Perini were not slated as nominees for
another term in the Company's 1993 Proxy Statement. One
of the Company's five directors was a director of Perini as of
December 31, 1993 and 1994.
<PAGE>
Service Agreement
In 1992, $57,000 was paid to Perini for specific
administrative services provided and rent. No services were
provided in 1994 or 1993.
Property Sale
The Company sold an industrial property to a
subsidiary of Perini in 1992, for consideration of $5,000,000.
The Company recognized a gain on sale of $2,807,000 in the
1992 Consolidated Statement of Income (Loss).
5. INCOME TAXES
Effective January 1, 1993, the Company provides for
income taxes under the liability method in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". For years 1992 and prior,
the Company accounted for income taxes in accordance with
Accounting Principles Board Opinion No. 11. There was no
financial statement impact from the adoption of SFAS No.
109.
The deferred income tax provision (benefit) represents
the tax effect of temporary differences between income (loss)
determined for financial reporting and for income tax
purposes. The Company has a tax net operating loss
carryover for Federal purposes of approximately $10 million,
which will expire between 2005 and 2007. The Company has
an investment tax credit carryover totalling approximately $1.5
million which will expire between 2000 and 2003. The
Company also has an alternative minimum tax credit carryover
of approximately $700,000 which can be carried forward
indefinitely.
The components of the total deferred tax assets and total deferred tax
liabilities are as follows (in thousands):
Federal State Total
Deferred tax assets:
Cancellation of debt $ 581 $ 154 $ 735
Net operating loss carryover2,985 201 3,186
Tax credits carryover 2,147 -- 2,147
State deferred tax liability 777 -- 777
$ 6,490 $ 355 $ 6,845
Deferred tax liabilities:
Excess tax depreciation $(3,599) $ (956) $(4,555)
Excess partnership losses from RCA (6,047) (1,607) (7,654)
$(9,646) $(2,563) $(12,209)
The table below reconciles the difference between the statutory Federal
income tax rate and the effective rate in the
Consolidated Statement of Income (Loss).
Percentages
1994 1993 1992
Statutory Federal income tax rate 35% (34%) 34%
State income tax 6 -- --
Partnership taxable income
greater than book income -- -- (26)
Net operating losses not currently benefited -- -- 16
41 (34) 24
Change in valuation reserve (21) 34 --
Effective tax rate 20% --% 24%
The components of the provision (benefit) for income taxes were as follows
(in thousands):
1994 1993 1992
Federal-current $ 675 $ -- $ --
Federal - deferred 3,203 -- (902)
State - current 1,279 4 3
State - deferred 2,218 -- --
$7,375 $ 4 $(899)
6. LESSOR ARRANGEMENTS
As of December 31, 1994, approximately 790,000 of
a total of approximately 903,000 square feet or 87.5% of the
Company's (100% owned) commercial space was leased. The
terms of the leases generally require tenants to pay base rent
plus their proportionate share of certain operating expenses or
expense increases. Minimum rental amounts due to the
Company pursuant to these operating leases through expiration
are as follows (in thousands):
1995 $ 9,727
1996 8,747
1997 7,295
1998 6,213
1999 4,965
Thereafter 10,862
$47,809
7. STOCK AND EMPLOYEE BENEFIT PLANS
Restricted Stock Plan
Pursuant to the Company's restricted stock plan, 50,000
shares of the Company's common stock were reserved for
issuance to key employees at a price of $1.00 per share.
From 1984 to 1988, 48,567 shares were issued to key
employees and the Company discontinued this plan in 1993.
Incentive Stock Option Plan
Under the Company's incentive stock option plan, up
to 200,000 shares of the Company's common stock are
reserved for issuance. This plan provides for options to be
granted at fair market value on the date of grant and for the
options to become exercisable over a period of ten years. The
options shall have a term not exceeding ten years.
As of December 31, 1994, a total of 192,850 options
were outstanding and 6,150 shares were available for future
grants. Of the outstanding options, 145,000 are exercisable in
equal cumulative installments over five years beginning in
1993 at prices ranging from $2.344 to $3.625 per share. The
remaining 47,850 outstanding options are exercisable in equal
cumulative installments over five years beginning in 1995 at
prices ranging from $3.563 to $4.56 per share.
Simplified Employee Pension Plan
The Company has adopted a Simplified Employee
Pension Plan (SEP) pursuant to which the Company
contributes a percentage of each eligible employee's
compensation to an Individual Retirement Account maintained
by the employee. All SEP contributions are fully vested.
Contributions for 1993 and 1992 were $7,000 and $46,000
respectively. The continuation of the SEP and level of
contributions are subject to annual review and approval of the
Company's Board of Directors. As of the date of this report,
the Board of Directors had not convened to decide on the
amount of the 1994 contribution.
<PAGE>
8. QUARTERLY FINANCIAL DATA (Unaudited)
The following tables set forth unaudited quarterly financial data (in
thousands, except per share amounts) for each of the two
years ended December 31, 1994 and December 31, 1993.
By Quarter
1994 First Second Third Fourth Total
Investment properties income (loss)$ 371$ (243)$ (240)$ 497$ 385
Hotel property income (loss) 888 218 (314) 35 827
Equity in partnership loss (214) (332) (73) (679) (1,298)
Gain on disposition of partnership interest -- -- --39,078 39,078
Gain on sale of real estate asset -- -- 661 3 664
Extraordinary loss from
extinguishment of debt -- -- -- (325) (325)
Net income (loss) $ 929$ (827)$ (509) $29,224 $28,817
Income (loss) per share, primary:
Income (loss) before extraordinary item$ 0.23$ (0.20)$ (0.12)$ 7.19$ 7.10
Extraordinary item -- -- -- (0.08) (0.08)
Net income (loss) $ 0.23 $ (0.20)$ (0.12)$ 7.11 $ 7.02
Income (loss) per share, fully diluted:
Income (loss) before extraordinary item$ 0.22$ (0.20)$ (0.12)$ 7.06$ 6.96
Extraordinary item -- -- -- (0.08) (0.08)
Net income (loss) $ 0.22 $ (0.20)$ (0.12)$ 6.98 $ 6.88
<PAGE>
By Quarter
1993 First Second Third Fourth Total
Investment properties loss$ (189)$ (191)$ (202)$ (583)$(1,165)
Hotel property income (loss) 515 225 (101) 194 833
Equity in partnership loss (353) (360) (334) (672) (1,719)
Gain on disposition of partnership interest 3,608 (6) -- -- 3,602
Gain (loss) on sales of real estate assets (156) -- 1,209 (8) 1,045
Extraordinary gain from extinguishment -- -- -- 4,850 4,850
of debt
Net income (loss) $ 2,970 $ (702) $ 100 $2,215 $ 4,583
Net income (loss) per share
before extraordinary item, primary and
fully diluted $ 0.77$ (0.18) $ 0.03$ (0.69)$ (0.07)
Extraordinary item per share, primary
and fully diluted -- -- -- 1.24 1.24
Net income (loss) per share, primary and
fully diluted $ 0.77$ (0.18)$ 0.03$ 0.55 $ 1.17
<PAGE>
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To Pacific Gateway Properties, Inc.:
We have audited the accompanying consolidated
balance sheet of Pacific Gateway Properties, Inc. (a New York
corporation) and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income (loss),
stockholders' deficit and cash flows for each of the three years
then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Pacific Gateway Properties, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the
three years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 3, 1995
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
SCHEDULE III-- REAL ESTATE AND
ACCUMULATED DEPRECIATION
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS ON SCHEDULE
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS ON SCHEDULE
To Pacific Gateway Properties, Inc.:
We have audited, in accordance with generally
accepted auditing standards, the consolidated financial
statements of Pacific Gateway Properties, Inc., and have
issued our report thereon dated March 3, 1995. Our audit was
made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental schedule,
listed in the index on page 14, is the responsibility of the
Registrant's management and is presented for purposes of
complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
March 3, 1995
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
SCHEDULE III-- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1994
(In Thousands)
Initial Cost
to Company SubsequentGross Carrying Amount at
(Note 1) Cost,December 31, 1994
Building CapitalizedBuildings,
Improvements ImprovementsImprovements
and Other and Otherand Other
Deferred DeferredDeferred Total
Descirption Encumbrances Land Costs CostsCosts(Note 2)
Office Building--San Jose, CA$6,500$3,439$13,754$2,342$16,096$19,535
Office/Commercial Buildings --
Walnut Creek, CA. (Thirteen
Buildings) (Notes 4 and 6)8,6091,41612,3407,09519,43520,851
Hotel--Tucson, AZ. (Note 4)--3,58418,5831,93620,51924,103
Office/Industrial Building--
Tucson, AZ. (Notes 4 and 6)--148621 531 1,1521,300
Office/Industrial Building--
Needham, MA. (Note 5)--4944,006 189 4,195 4,689
Office Building--Fort Lauderdale,
FL. (Note 4 and 6)--44 299 14 313 357
Shopping Center--West Palm
Beach, FL. (Note 6)15,3556,1052,0271,0663,0939,198
Mortgage Debt and Loan Cost
Related to Primary Lender
(Note 4)$61,149$15,230$51,630$13,574$65,204$80,434
Accumulated
Depreciation
and
Amortization
and Net
Realizable
Value
Reserve Date ofDate
(Note 3) ConstructionAcquired
$ 4,529 1972 1985
4,271 1975to 19861988
9,724 1985 1985
183 1987 1988
2,397 1961 1984
61 1986 1988
983 1987 1988
(73)
$22,075
See accompanying notes on the following page <PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
SCHEDULE III-- REAL ESTATE AND ACCUMULATED DEPRECIATION --(Continued)
December 31, 1994
(In Thousands)
NOTE 1 The cost basis of the above properties for financial statement and tax
purposes is substantially the same.
NOTE 2 The changes in the total cost of land, buildings, improvements and
other deferred costs for the three years ended December 31, are as follows:
1994 1993 1992
Balance at beginning of period$105,271 $107,435 $140,736
Additions 5,562 1,135 1,584
Write-off of fully amortized items(1,183) (1,932) (836)
Cost of disposed properties (29,216) (1,367) (34,049)
Balance at end of period $ 80,434 $105,271 $107,435
NOTE 3 The changes in accumulated depreciation and amortization and the net
realizable value reserve for the three years ended December 31, are as follows:
1994 1993 1992
Balance at beginning of period$29,485 $27,965 $35,310
Provision for write-down to net realizable value1,0001,000 --
Depreciation expense 2,529 3,530 3,959
Write-off of fully amortized items(1,183) (1,932) (836)
Relief of accumulated balances and net realizable
value reserve related to disposed properties (9,756) (1,078) (10,468)
Balance at end of period $22,075 $29,485 $27,965
NOTE 4 Registrant's interest in these properties are pledged in support of
Registrant's primary lender's debt agreement. Such agreement also
provides for cross-collateralization with the primary lender's
mortgages on the Registrant's properties in Walnut Creek, Ca., Fort
Lauderdale Fl., and both the office/industrial building and the hotel
in Tucson, Az.
NOTE 5 This property is pledged in support of a $4.5 million letter-of-credit.
NOTE 6 These properties were obtained by Golden Gate Building Company pursuant
to tax-deferred exchanges of interests in the Alcoa Building and
distributed to the Registrant.
<PAGE>
Exhibit 21
PACIFIC GATEWAY PROPERTIES, INC.
SUBSIDIARIES OF THE REGISTRANT
Percentage
Place of Interest of Voting
Name Organization Securities Owned
Pacific Gateway Properties, Inc.New York
Pacific Gateway Properties California 100%
Management Corporation
Perini Investment Properties California 100%
Executive Suites, Inc.
Maritime Plaza Associates California 100%
Rincon Center Associates California Limited 22.8%
Partnership
Pacific Gateway Properties California 100%
Hotels, Inc.
<PAGE>
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Rincon Center Associates
A California Limited Partnership:
We have audited the accompanying balance sheets of Rincon Center Associates, A
California Limited Partnership as of December 31, 1994 and 1993, and the
related statements of operations, changes in partners' deficit and cash flows
for the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rincon Center Associates, A
California Limited Partnership as of December 31,1994 and 1993 and the
results of its operations and its cash flows for the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 7, 1995<PAGE>
<TABLE>
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS - DECEMBER 31, 1994 AND 1993
<S> <C> <C>
1994 1993
ASSETS
CASH $ 66,000 $ 120,000
ACCOUNTS RECEIVABLE, net of reserves of $45,000 and
$84,000 at December 31, 1994 and 1993, respectively 731,000 199,000
DEFERRED RENT RECEIVABLE 6,970,000 7,883,000
NOTES RECEIVABLE, net of reserves of $155,000 at
December 31, 1994 and 1993 15,361,000 15,673,000
REAL ESTATE USED IN OPERATIONS, net 114,552,000 118,021,000
LEASEHOLD IMPROVEMENTS, net 2,061,000 1,855,000
OTHER ASSETS, net 2,184,000 2,855,000
Total assets $141,925,000 $146,606,000
LIABILITIES AND PARTNERS' DEFICIT
CONSTRUCTION NOTES PAYABLE $ 60,895,000 $ 62,370,000
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2,920,000 3,416,000
ACCRUED GROUND RENT LIABILITY, net 6,978,000 7,307,000
ACCRUED LEASE LIABILITY, net 1,801,000 3,102,000
DEFERRED INCOME 1,140,000 1,540,000
ACCRUED INTEREST DUE GENERAL PARTNERS 41,107,000 33,901,000
DUE TO PERINI LAND AND DEVELOPMENT COMPANY 70,444,000 68,399,000
DUE TO PACIFIC GATEWAY PROPERTIES, INC 17,599,000 17,089,000
Total Liabilities 202,884,000 197,124,000
COMMITMENTS AND CONTINGENCIES (NOTES 3, 5 AND 6)
PARTNERS' DEFICIT (60,959,000) (50,518,000)
Total liabilities and partners' deficit $141,925,000 $146,606,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
1994 1993 1992
<S> <C> <C> <C>
Revenue:
Rental income $17,352,000 $17,083,000 $17,583,000
Parking and other income 1,267,000 1,260,000 1,150,000
Total revenue 18,619,000 18,343,000 18,733,000
Expenses:
Operating 4,952,000 5,132,000 5,448,000
Administrative and other 1,389,000 1,556,000 1,313,000
Property taxes and insurance 1,655,000 2,438,000 3,200,000
Leases 5,310,000 4,515,000 3,775,000
Ground rent 4,337,000 3,391,000
Depreciation and amortization 3,619,000 4,040,000 4,726,000
Total expenses 32,616,000 31,654,000 32,731,000
(13,997,000) (13,311,000) (13,998,000)
Property tax reduction 1,891,000 - -
Interest income 1,665,000 1,365,000 1,062,000
Net loss $(10,441,000)$(11,946,000)$(12,936,000)
The accompany notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
General Limited
Partners Partners Total
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 $(12,709,000)$(12,927,000)$(25,636,000)
Net loss (6,481,000) (6,455,000) (12,936,000)
BALANCE, DECEMBER 31, 1992 (19,190,000) (19,382,000) (38,572,000)
Net loss (5,985,000) (5,961,000) (11,946,000)
BALANCE, DECEMBER 31, 1993 (25,175,000) (25,343,000) (50,518,000)
Net loss (5,231,000) (5,210,000) (10,441,000)
BALANCE, DECEMBER 31, 1994 $(30,406,000)$(30,553,000)$(60,959,000)
PARTNERS' PERCENTAGE INTEREST 050.10 49.90 100.00
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
RINCON CENTER ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
1994 1993 1992
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(10,441,000)(11,946,000)$(12,936,000)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 3,619,000 4,040,000 4,726,000
(Increase) decrease in accounts receivable (531,000) 2,030,000 (1,620,000)
(Increase) decrease in deferred rent
receivable 913,000 (257,000) (479,000)
(Increase) decrease in other assets 357,000 (214,000) (598,000)
Increase (decrease) in accounts payable
and accrued liabilities (496,000) (191,000) 61,000
(Decrease) in accrued ground rent liability (329,000) (329,000) (329,000)
Increase (decrease) in accrued lease liability (1,301,000) 72,000 (500,000)
Increase in accrued interest due general
partners 7,206,000 6,469,000 5,271,000
Net cash used in operating activities (1,003,000) (326,000) (6,404,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Expenditure on real estate used in operations (362,000) (642,000) (369,000)
Additions to leasehold improvements (81,000) (118,000) -
Additions to fixed assets - (30,000) (73,000)
Increase in notes receivable - (6,000,000) (32,000)
Payments on notes receivable 312,000 312,000 440,000
Net cash used in investing activities (131,000) (6,478,000) (34,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from construction notes payable - - 858,000
Payments on notes payable (1,475,000) (1,854,000) -
Proceeds from advances from general
partners 2,555,000 8,506,000 5,634,000
Net cash provided by financing activities 1,080,000 6,652,000 6,492,000
INCREASE (DECREASE) IN CASH (54,000) (152,000) 54,000
CASH AT BEGINNING OF YEAR 120,000 272,000 218,000
CASH AT END OF YEAR $ 66,000 $ 120,000 $ 272,000
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. PARTNERSHIP ORGANIZATION:
Rincon Center Associates, A California Limited Partnership
(the Partnership) was formed on September 18, 1984, to
lease and develop land and buildings located in the Rincon
Point-South Beach Redevelopment Project Area in the City
and County of San Francisco, California. The Rincon
Center Project (the Project) compromises commercial and
retail space, 320 rental housing units and associated off-
street parking. The Project was developed in two distinct
segments: Rincon One and Rincon Two.
Profits and losses are shared by the partners in accordance
with their percentage interest as provided in the partnership
agreement and as shown in the statements of changes in
partners' deficit. Cash profits, as determined by the
managing general partner, are distributed to the partners in
the same percentage interest.
Perini Land and Development Company (PL&D) is the
managing general partner of the Partnership and has the
responsibility for general management, administration and
control of the Partnership's property, business and affairs.
In addition, PL&D provides project and general accounting
services to the Partnership (Note 7). Pacific Gateway
Properties, Inc. (PGP), formerly Perini Investment
Properties, Inc., is the other general partner.
2. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared
using the accrual basis of accounting.
Real Estate Used in Operations
Real estate used in operations includes all costs capitalized
during the development of the Project. These costs include
interest and financing costs, ground rent expense during
construction, property taxes, tenant improvements and other
capitalizable overhead costs.
Depreciation and Amortization
The Partnership uses the straight-line method of
depreciation. The significant asset groups and their
estimated useful lives are:
Structural components of buildings 60 years
Nonstructural components of buildings 25 years
All other depreciable assets 5-30 years
Leasehold improvements are amortized using the straight-
line method over the lesser of their useful lives or the lease
terms.
2. SIGNIFICANT ACCOUNTING POLICIES:
Continued
<PAGE>
Income Taxes
In accordance with federal and state income tax regulations,
no income taxes are levied on the Partnership; rather, such
taxes are levied on the individual partners. Consequently,
no provision or liability for federal or state income taxes is
reflected in the accompanying financial statements.
Rental Income
Certain lease agreements provide for periods of free rent or
stepped increases in rent over the lease term. In such cases,
revenue is recognized at a constant rate over the term of the
lease. Amounts recognized as income but not yet due under
the terms of the leases are shown in the accompanying
balance sheets as deferred rent receivable.
Statements of Cash Flows
Cash paid for interest was $2,191,000, $2,414,000 and
$3,199,000 in 1994, 1993 and 1992, respectively.
Accrued Lease Liability
The Partnership is leasing Rincon One from Chrysler
McNally (Chrysler) over a 25-year lease term (Note 3). In
connection with this lease, the Partnership was granted a
free rent concession for one year. The intent of Chrysler's
free rent provision was to match a similar provision granted
by the Partnership to an anchor sublease tenant of Rincon
One, whose lease is for 10 years. The Partnership expensed
rent in the first year of the lease and amortized the accrued
lease liability related to Rincon One over 10 years through
1993 and is amortizing the remaining balance over 50
months effective January 1, 1994 to match the expense with
the revenue recorded on the sublease.
Three amendments to the master lease agreement were made
in 1993 in connection with the extension of Chrysler's
existing financing on the property (Note 3). The rent
schedule was revised which resulted in an increase to the
accrued lease liability during 1993 in order to normalize the
rent expense over the remaining lease term.
Other Assets
Other assets include prepaid expenses, deferred lease
commissions and fixed assets. Deferred lease commissions
are amortized over the life of the lease. Fixed assets are
amortized over the life of the asset, which is generally five
years.
Reclassification of Prior Year Amounts
Certain prior year amounts have been reclassified to
conform with the current year presentation.
3.OPERATING LEASE, RINCON ONE:
On June 24, 1988, the Partnership sold Rincon One to
Chrysler and subsequently leased the property back under a
master lease with a basic term of 25 years and four 5-year
renewal options at the Partnership's discretion. The
transaction was accounted for as a sale and operating
leaseback and the gain on the sale of $1,540,000 was
deferred and is now being amortized over a 25-year period
which is recorded as a reduction to depreciation and
amortization in the accompanying statement of operations.
The Partnership had not recorded any amortization related
to this deferred gain through December 31, 1993.
In connection with the sale and operating leaseback of
Rincon One, Chrysler assumed and agreed to perform the
Partnership's financing obligations. The Partnership, in
accordance with the master lease and several amendments in
1993, agreed to obtain a financial commitment on behalf of
Chrysler to replace at least $43,000,000 of Chrysler's long-
term financing by July 1, 1993. To satisfy this
commitment, the Partnership successfully extended existing
financing to July 1, 1998. To complete the extension, the
Partnership had to advance funds sufficient to reduce the
financing from $46,500,000 to $40,500,000. At December
31, 1994, the financing obligation outstanding was
approximately $39,300,000. The Partnership received a
10% secured note in the principal amount of $6,000,000
from Chrysler upon the Partnership's advance of funds to
reduce the financing. In addition, as part of the obligations
of the extension, the Partnership will have to further
amortize the financing from its current level to $33,000,000
by July 1, 1998. If, by January 1, 1998, the Partnership
has not received a further extension or new commitment for
financing on the property for at least $33,000,000, Chrysler
will have the right under the lease to require the Partnership
to purchase the property for a stipulated amount
significantly in excess of the financing obligation
(approximately $18,800,000 in excess of the then
outstanding financing obligation). The Partnership intends
to obtain financing meeting the conditions of the lease prior
to January 1, 1998.
Payments under the master lease agreement may be adjusted
to reflect adjustments in the rate of interest payable by
Chrysler on the Rincon One debt. Future minimum lease
payments based on scheduled payments under the master
lease agreement are as follows:
1995 $ 6,570,000
1996 6,550,000
1997 5,952,000
1998 5,634,000
1999 5,875,000
Thereafter 79,246,000
4. NOTES RECEIVABLE:
<TABLE>
At December 31, 1994 and 1993, the Partnership had the following notes receivable:
1994 1993
<S> <C> <C>
Due from Chrysler secured by second deed of trust on Rincon
One, bearing interest at 10 percent, with monthly principal and
interest payments of $150,285 in 1994 and 1993; unpaid balance
due July 2013 $15,200,000 $15,469,000
Notes from tenants secured by tenant improvements, bearing
interest at 8 percent to 11 percent, with maturities from 1995
to 2001, due in monthly installments 161,000 204,000
$15,361,000 $15,673,000
</TABLE>
5. GROUND LEASE:
The Partnership entered into a 65-year ground lease with the
United States Postal Service for the Project property on
April 19, 1985. On June 24, 1988, this lease was
bifurcated into two leases (Rincon One and Rincon Two).
The terms of the original lease did not change; the dollar
amounts were simply split between the two properties.
Under the terms of the leases, the Partnership must make
monthly lease payments (Basic Rent) of $140,415 and
$239,085 for Rincon One and Rincon Two, respectively. In
April 1994, and every six years thereafter, the monthly base
payments can be increased based on the increase in the
Consumer Price Index subject to a minimum of 5 percent
per year and a maximum of 8 percent per year. In addition,
the Basic Rent can be increased based on reappraisal of the
underlying property on the occurrence of certain events if
those events occur prior to the regular reappraisal dates of
April 19, 2019, and each twelfth year thereafter for the
remainder of the lease term.
The lease agreement calls for the payment of certain
percentage rents based on revenues received from the
subleasing of the Rincon One building. Percentage rents
paid in 1994, 1993 and 1992, were $275,000, $259,000 and
$267,000, respectively.
This lease has been accounted for as an operating lease,
with minimum future lease payments of:
1995 $ 4,690,000
1996 4,690,000
1997 4,690,000
1998 4,565,000
1999 4,554,000
Thereafter 893,819,000
5. GROUND LEASE: Continued
At December 31, 1990, ground rent of approximately
$10,480,000 was capitalized and is included in real estate
used in operations in the accompanying balance sheets. The
capitalized ground rent is being amortized over 60 years.
Under the provisions of the original lease, no lease
payments were to be made from the inception of the lease
(April 19, 1985) until April 18, 1987, and one-half of the
regular monthly payment was due for the period from April
19, 1987 to April 18, 1988. However, as allowed by the
lease agreement, the Partnership deferred the payment of
Basic Rent until the initial occupancy date, February 8,
1988. At December 31, 1994 and 1993, the deferred Basic
Rent and interest for the period April 19, 1987 to April 18,
1988, amounted to $420,000 and $552,000, respectively,
and are being paid in 120 monthly installments together with
interest at a rate based on the average discount rates of 90-
day U.S. Treasury bills, which was approximately 4.625%
percent for the year ended December 31, 1994. The rate
will be adjusted every 90 days as long as a balance is due
on the deferred rent. The remaining deferred ground rent
related to the free rent period amounted to $6,558,000 and
$6,754,000 at December 31, 1994 and 1993, respectively,
and is being amortized over the lease term.
6. CONSTRUCTION NOTES PAYABLE:
Residential
The residential portion of the Project is being financed with
a $36,000,000 loan from the Redevelopment Agency of the
City and County of San Francisco (the Agency), of which
$33,500,000 and $34,100,000 was outstanding at December
31, 1994 and 1993, respectively. The Agency raised these
funds through the issuance of Variable Rate Demand
Multifamily Housing Revenue Bonds (Rincon Center
Project) 1985 Issue B (the Bonds).
The interest rate on the Bonds is variable at the rate
required to produce a market value for the Bonds equal to
their par value. At December 31, 1994, 1993 and 1992, the
effective interest rate on the bonds was 5.40 percent, 3.00
percent and 3.13 percent, respectively. Interest payments
are to be made on the first business day of each March,
June, September and December.
The Partnership has the option to convert the Bonds to a
fixed interest rate at any of the above interest payment
dates. The fixed rate will be the rate required to produce a
market value for the Bonds equal to their par value. After
conversion to a fixed rate, interest payments must be made
on each June 1 and December 1.
6. CONSTRUCTION NOTES PAYABLE: Continued
The Partnership must repay the residential loan as the Bonds
become due. The Bonds shall be redeemed in at least the
minimum amounts set forth below:
1995 $ 600,000
1996 700,000
1997 700,000
1998 900,000
1999 1,000,000
Thereafter 29,600,000
The Bonds are due December 1, 2006. The Bonds are
secured by an irrevocable letter of credit issued by Citibank
in the name of the Partnership in the amount of
approximately $34,546,000. In the event that drawings are
made on the letter of credit, the Partnership has agreed to
reimburse Citibank for such drawings pursuant to the terms
of a Reimbursement Agreement. The Partnership
obligations under the Reimbursement Agreement are secured
by a deed of trust on the Project and the equity letters of
credit and guarantees described below.
Commercial
The development and construction of the commercial
portion of the Project was financed pursuant to a
Construction Loan Agreement between the Partnership and
Citibank, of which $27,395,000 and $28,270,000 was
outstanding at December 31, 1994 and 1993, respectively.
The loan and the irrevocable letters of credit supporting the
residential bond are secured by a deed of trust on the
Project and the equity letters of credit currently in the
aggregate amount of $7,300,000, issued to Citibank by
Bank of America, N.T. & S.A. on behalf of the general
partners. PL&D has also provided a $3.5 million corporate
guarantee to support the Project financing. PGP and Perini
Corporation, the parent company of PL&D, have agreed to
reimburse Bank of America for any drawings under these
letters of credit. An annual fee equal to prime plus 1
percent of the aggregate amount is due to PGP and PL&D
for the use of these letters of credit. The loan is also
secured by the guarantees described in Note 7. As of
December 31, 1994 and 1993, $29,000 and $751,000,
respectively, of accrued letter of credit fees were included
in accrued liabilities in the accompanying balance sheets.
The total fee in 1994, 1993 and 1992 was $184,000,
$751,000 and $909,000, respectively. The fee in 1994
reflects a $421,000 reduction in letter of credit fees charged
to the general partners in prior years due to a reduction in
the equity letter of credits at the Partnership.
In 1993, the Partnership extended the loan to October 1,
1998, which required a $600,000 up front paydown and an
additional fee of $105,000. The loan requires the
Partnership to amortize $13,000,000 over the five years to
October 1, 1998. Amounts are payable as follows:
$2,192,000 in 1995; $2,708,000 in 1996; $3,150,000 in
1997; and the remainder in 1998. The Partnership obtained
a swap agreement with interest rates stepping up from
5.61% to 7.96% over the loan term. The effect of the swap
agreement in 1994 was to reduce interest expense by
approximately $135,000. At December 31, 1994 the rate
on the loan was 6.36%.
7. TRANSACTION WITH GENERAL PARTNERS:
PL&D has guaranteed the payment of both interest on the
financing of the Project and operating deficit, if any. It has
also guaranteed the master lease under the sale and
operating lease-back transaction (Note 3).
In accordance with the construction loan agreement (Note
6), the general partners have advanced monies to the
Partnership to fund project costs. At December 31, 1994
and 1993, the general partners had advanced $88,043,000
and $85,488,000, respectively. The advances accrue
interest at a rate of prime plus 2 percent. The related
accrued interest liability of $41,107,000 and $33,901,000 as
of December 31, 1994 and 1993, respectively, is reflected
in the accompanying balance sheets. For the years ended
December 31, 1994, 1993 and 1992, interest expense on
partner advances was $7,940,000, $6,469,000 and
$6,141,000, respectively.
Effective January 1, 1988, PL&D retained Pacific Gateway
Properties Management Corporation (PGPMC), a wholly
owned subsidiary of PGP, to provide management and
leasing services for the Project. As compensation for
managing the facilities, the Partnership paid PGPMC a base
management fee of $222,000 annually until leasing the
residential portion of the Project was completed. At such
time, the compensation increased to $319,200 per year or, if
greater, the sum of 3 percent of the first $13,000,000 of the
annual gross receipts plus 2 percent of receipts in excess of
the $13,000,000. The fees incurred for the years ended
December 31, 1994, 1993 and 1992 were $514,000,
$497,000 and $485,000, respectively, and were included in
administrative and other expenses in the accompanying
statements of operations. At December 31, 1994 and 1993,
$24,000 and $27,000, respectively, related to this fee had
not been paid and is included in accounts payable and
accrued liabilities. Additionally, the Partnership reimburses
PGPMC for certain payroll costs.
8. REAL PROPERTY TAX REDUCTION
The Partnership received reductions in real property tax
assessments for the tax years from 1990 to 1993 which
amounted to approximately $1,891,000, and has been
recorded as other income in the 1994 financial statements.
Professional service expenses related to the property tax
assessments approximated $330,000 and is recorded in the
accompanying statement of operations.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 956
<SECURITIES> 0
<RECEIVABLES> 785
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1783
<PP&E> 80434
<DEPRECIATION> 22075
<TOTAL-ASSETS> 71434
<CURRENT-LIABILITIES> 2214
<BONDS> 63099
<COMMON> 4011
0
0
<OTHER-SE> (10513)
<TOTAL-LIABILITY-AND-EQUITY> 6502
<SALES> 0
<TOTAL-REVENUES> 18384
<CGS> 0
<TOTAL-COSTS> 10568
<OTHER-EXPENSES> 6604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 953
<INCOME-PRETAX> 36517
<INCOME-TAX> 7375
<INCOME-CONTINUING> (2225)
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<EXTRAORDINARY> (325)
<CHANGES> 0
<NET-INCOME> 28817
<EPS-PRIMARY> 7.02
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</TABLE>
