SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
AMENDMENT #1
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8692
PACIFIC GATEWAY PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK
04-2816560
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
ONE RINCON CENTER, 101 SPEAR STREET, SUITE 215,
SAN FRANCISCO, CALIFORNIA 94105
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (415) 543-8600
Not Applicable (Former name, former
address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of March 31, 1995:
$1.00 Par Value Common Stock
(Title of Class)
3,892,596 (Number of Shares
Outstanding)
PACIFIC GATEWAY PROPERTIES, INC.
INDEX
Part I-Financial Information: Page #
Item 1.Financial Statements
Consolidated Balance Sheet as of
March 31, 1995 and
December 31, 1994 3
Consolidated Statement of Income for
the Three Months Ended March 31,
1995 and 1994 4
Consolidated Statement of Cash Flows
for the Three Months Ended March 31,
1995 and 1994 5
Notes to Financial Statement 6-9
Item 2.Management's Discussion
and Analysis of Financial
Condition and Results of Operation
Part II - Other Information
Item 1.Legal Proceedings None
Item 2.Changes in Security None
Item 3.Defaults Upon Senior
Securities None
Item 4.Submission of Matters to a
Vote of Security Holders None
Item 5.Other Information None
Item 6.Exhibits/Reports on Form 8-K None
Signatures 13
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Amounts)
As of As of
March 31, Dec 31,
1995 1994
(Unaudited) (Audited)
ASSETS
Cash & short-term investments $ 465 $ 359
Cash -restricted 484 597
Acounts receivable 858 785
Other current assets 117 42
Investment and hotel properties:
Land 15,230 15,230
Buildings 46,516 46,741
Other deferred costs 19,855 18,463
Subtotal investment and
hotel properties 81,601 80,434
Less-accumulated depreciation
and amortization and net
realizable value reserve (22,814) (22,075)
Investment and hotel
properties, net 58,787 58,359
Equity investment in and
loans to Rincon Center
Associates 3,550 4,020
Deferred tax asset 4,722 6,845
Note receivable 226 229
Other assets, net 173 198
Total assets $ 69,382 $ 71,434
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 911 $ 1,132
Accrued payroll,
property and sales taxes 593 328
Prepaid rent 250 210
Accrued interest on debt 418 459
Tenant security deposits 408 414
Income taxes payable 305 --
Other current liabilities 13 85
Debt related to corporate,
investment and hotel
properties 60,832 61,149
Other debt related to equity
investment in Rincon Center
Associates 2,348 1,950
Deferred tax liability 9,691 12,209
Total liabilities 75,769 77,936
Stockholders' deficit:
Common stock $1.00 par value--
Authorized--10,000,000 shares
Issued--4,011,150 shares 4,011 4,011
Paid-in-deficit (10,222)(10,222)
Retained deficit (29) (99)
Treasury stock, at
cost--(118,554 common shares
at March 31, 1995 and 131,186
common shares at
December 31, 1994) (2,037) (2,082)
Warrants for common stock 1,890 1,890
Total stockholders' deficit (6,387) (6,502)
Total liabilities and
stockholders'deficit $69,382 $71,434
The accompanying notes are an integral part of these consolidated
financial statements
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In Thousands, Except Per Share Amounts)
For the
Three Month
Ended March 31,
1995 1994
Investment Properties:
Rental revenues $ 3,178 $ 2,859
Operating expenses (1,262) (1,217)
Income before depreciation
and interest expense 1,916 1,642
Interest expense (855) (803)
Depreciation and
amortization (590) (468)
Investment properties
income 471 371
Hotel Property:
Revenues 2,616 2,706
Operating expenses (1,393) (1,541)
Income before depreciation
and interest expense 1,223 1,165
Interest expense (224) (185)
Depreciation and amortization (156) (92)
Hotel income 843 843
Equity in Partnership Loss:
Golden Gateway Center (GGC) -- 331
Rincon Center Associates (RCA) (785) (545)
Equity in partnership loss (785) (214)
General and
administrative expenses (353) (360)
Interest expense on debt
secured by equity investment
in GGC and other corporate
debt -- (168)
Interest and fee expense for
debt related to
equity investment in RCA (58) (59)
Interest income 5 142
Other income (expense) (1) 335
Income before income taxes 122 935
Income tax provision (50) (6)
Net income $ 72 $ 929
Income per share,
primary and fully diluted $ 0.02 $ 0.23
The accompanying notes are an integral part of these consolidated
financial statements
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In Thousands)
For the Three Month
Ended March 31,
1995 1994
Cash flow from operating activities:
Net income $ 72 $ 929
Non-cash revenues and
expenses included in income:
Provision for depreciation
and amortization 746 580
Equity in loss of investment
partnerships 785 214
Changes in assets and liabilities:
Accounts receivable and
other current assets (189) (150)
Other assets 69 67
Accounts payable and other
current liabilities (10) (371)
Current tax liability 305 --
Deferred tax (395) --
Other liabilities (27) (13)
Net Cash generated by
operating activities 1,356 1,256
Cash flow from investing activities:
Additions to investment
and hotel properties (1,174) (204)
Contributions to investment
partnerships (400) (340)
Distributions from
investment partnerships 85 206
Net cash used in
investing activities (1,489) (338)
Cash flow from financing activities:
Borrowings under property
and corporate debt 972 --
Borrowings in connection with
equity investment, net 398 24
Payments on property and
corporate debt (1,289) (758)
Payment of loan
costs and fees -- (84)
Issuance of treasury
stock 45 --
Net cash (generated by)used in
financing activities 126 (818)
Increase (decrease) in cash
and short term
investments (7) 100
Balance at beginning of
period 956 743
Balance at end of period
(Including $484 restricted at
March 31, 1995 and none
at March 31, 1994) $ 949 $ 843
Supplementary disclosures:
Cash paid for interest $1,327 $1,044
Cash paid for taxes $ 140 $ 0
The
accompanying notes are an integral part of these consolidated
financial statements
PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
For the Quarter Ended March 31, 1995
1. Organization and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements
should be read in conjunction with the 1994 Form 10-K of the
Registrant. These statements have been prepared in accordance
with the instructions of the Securities and Exchange Commission
Form
10-Q and do not include all of the information and footnotes
required by generally accepted accounting principles for complete
consolidated financial statements.
In the opinion of the Registrant, all material adjustments
considered necessary for a fair presentation of results of
operations for the interim periods have been included. The
results of consolidated operations for the three months ended
March 31, 1995 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995.
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
In October 1994, the GGC partnership completed a redemption
of the Registrant's remaining 29.5% partnership interest.
Summary financial data for the three months ended March 31, 1994
for GGC is as follows (in thousands):
1994
Cash distributions to the Registrant
from GGC $ 206
Income from operations:
Revenues
$4,941
Expenses:
Operating 1,751
Interest 1,839
Depreciation and amortization 230
------
3,820
Net income $1,121
Registrant's share of
net income of GGC $ 331
Rincon Center Associates Partnership (RCA)-- San Francisco,
California
The Registrant owns general and limited partnership
interests in RCA totalling approximately 23%, and is responsible
for 20% of cash requirements in excess of available financing.
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 Registrant 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 December 1995.
The Registrant earns a fee from RCA for posting the
letter-of-credit and earns a preferred return at the prime rate
plus 2% on its advances to RCA. Since 1993, no letter- of-credit
fees or interest on its advances have been accrued. Since
December 1994, the Registrant has recorded any letter-of-credit
fees and interest on advances paid by RCA as a reduction to
equity investment and loans to RCA. During the first quarter of
1995, RCA paid the Registrant approximately $85,000 in
outstanding letter-of-credit fees.
The Registrant entered into an agreement in June 1993 with
the other general partner in RCA. This agreement provides the
Registrant with the flexibility to borrow funds from the other
general partner to limit its future cash obligations to RCA.
Under this funding arrangement, all amounts advanced, related
fees and accrued interest are non-recourse to the Registrant.
This agreement does not reduce the level of the Registrant's
general and limited partnership interests in RCA. Interest
accrues on the unpaid portion of both the principal amount
advanced and related fees at the Bank of America prime rate plus
2%. Amounts advanced under this funding arrangement, plus
related fees and accrued interest, are required to be repaid from
future cash distributed by RCA to the Registrant, if any. The
total amount outstanding under this funding arrangement as of
March 31, 1995 was $2,348,000, and as of December 31, 1994 was $1,950,000.
Summary financial statement data for the three months ended
March 31, 1995 and 1994, for RCA is as follows (in thousands):
1995 1994
Registrant's share of contributions
to RCA, net $ (315) $(340)
Income (loss) from operations:
Revenue $ 5,374 5,040
Expenses:
Operating and lease
expenses 3,021 2,936
Financing 4,766 3,467
Depreciation and amortization 1,025 1,025
----- -------
8,812 7,428
Net loss $ (3,438) $ (2,388)
Registrant's share of
net loss of RCA $ (785) $ (545)
As of the date of this report, the Managing General Partner
of RCA had not completed the financial accounting for RCA
partnership. As a result, the Registrant has recorded an
estimate of revenue and expenses for the first quarter of 1995
based upon actual operating revenue and expenses for January and
February 1995. The Registrant has conferred with the Managing
General Partner of RCA and considers the projection a reasonable
estimate; however, actual results will differ from this
projection.
3. Per Share Data - Per share data is based on the weighted
average number of the Registrant's common shares and common share
equivalents. Outstanding warrants and stock options enter into
the common shares outstanding using the Treasury Stock Method.
The number of common shares and common share equivalents used in
the earnings per share calculation are as follows:
As of March 31, 1995 1994
Primary 4,106,282 4,105,808
Fully diluted 4,106,282 4,105,808
4. Debt
Debt Secured by Mortgages on Real Estate From Primary Lender
- - In December 1993, the Registrant completed a restructuring of
its non-revolving line-of-credit, letter-of- credit, unsecured
bonds, and certain mortgages with its primary lender.
Statement of Financial Accounting Standards No. 15 requires
the Registrant to account for future interest resulting from this
transaction using an imputed interest rate versus the stated
rates on the debt from the primary lender. In addition, the
primary lender's cancellation of debt of $4 million, at the time
of the restructuring, is not recognized for financial reporting
purposes. The imputed interest rate as of March 31, 1995, was
approximately 5.3%. 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 $44,000
for the first quarter of 1995. The face amount of the debt with
the primary lender as of March 31, 1995, was $28,692,000.
ITEM 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Financial Position
Capital Improvements, Tenant Improvements and Other Deferred
Costs - First quarter 1995 additions to investment and hotel
properties amounted to approximately $1,174,000 for tenant
improvements, capital improvements and other deferred costs.
Financing - On March 31, 1995, the face amount of the
floating rate mortgage debt totaled approximately $39.47 million,
bearing interest at quarter-end weighted average stated rate of
8.19%. The face amount of the fixed rate mortgage debt totaled
approximately $19.98 million bearing interest at quarter-end
weighted average stated rate of 9.43%.
Net Income
Investment Properties - During the first quarter of 1995,
the income for investment properties was $471,000 compared to
income of $371,000 during the first quarter of 1994. Rental
revenue increased approximately $920,000 as a result of new
leases completed in 1994 which was offset by approximately a
$600,000 reduction in rental revenue due to one property
disposition in January 1994, and tenant consolidations in late
1994 and January 1995; thus, resulting in a net increase in
rental revenue of approximately $320,000 for the first quarter of
1995 compared to 1994. Operating expenses increased
approximately $100,000 as a result of leases completed in 1994
which was offset by approximately a $55,000 reduction in
operating expenses due to one property disposition in January
1994, and tenant consolidations in late 1994 and January 1995;
thus, resulting in a net increase in operating expenses of
$45,000 for the first quarter of 1995 compared to 1994. Interest
expense increased for the first quarter of 1995 compared to 1994
primarly as a result of higher interest rates. Depreciation and
amortization expense increased as a result of commencing
depreciation of expenditures capitalized during 1994 relating to
the Registrant's leasing activites and capital improvement
projects.
Hotel Property - The hotel property income was $888,000 in
the first quarter 1994 compared to $844,000 in the first quarter
1995. As a result of lower corporate demand and the impact of
rooms that were unavailable during the final phase of the hotel's
refurbishment which was completed in January 1995, occupancy
decreased during the first quarter of 1995 compared to 1994.
However, the hotel was able to achieve an increase in average
daily rates during the first quarter of 1995 compared to 1994
which partially offset the impact from the decline in occupancy.
Interest expense of the hotel's debt increased as a result of
increased borrowings for the hotel's refurbishment and higher
interest rates. Depreciation expense increased in the first
quarter of 1995 compared to 1994 as a result of commencing
depreciation on the capital improvements completed in late 1994.
Equity in Partnership Income - Golden Gateway Center (GGC) -
In October 1994 the GGC partnership completed a redemption of the
Registrant's remaining 29.5% partnership interest.
Equity in Partnership Loss - Rincon Center Associates (RCA)
- -The net loss for Rincon Center increased from $2,388,000 in the
first quarter of 1994 to a net loss of $3,438,000 in the first
quarter of 1995. The increase in the net loss is primarily the
result of higher interest rates on Rincon Center's debt. The
Registrants equity share of the RCA loss amounted to $785,000 and
$545,000 in the first quarter of 1995 and 1994, respectively.
General and Administrative Expenses - General and
administrative expenses in the first quarter of 1995 amounted to
$353,000 compared to $360,000 for the first quarter of 1994.
Interest Expense on Other Corporate Debt - In 1994,
corporate interest expense related to that portion of the
Registrant's debt with its primary lender that was cross-
collateralized by the Registrant's partnership interest in GGC.
As a result of the redemption of the Registrant's GGC partnership
interest in October 1994, a portion of the proceeds repaid all of
the debt collateralized by the GGC partnership interest.
Interest and Fee Expense for Debt Related to Equity
Investment in RCA - During the first quarters of 1995 and 1994,
the Registrant incurred approximately $58,000 and $59,000 in
interest and fee expense, respectively, related to the funding
arrangement with the other general partner on Rincon Center.
Interest Income - During the first quarter of 1994
interest income was $142,000. A significant portion of the
interest income in the first quarter of 1994 was attributable to
a payment by RCA for a portion of the interest outstanding on
partner advances to RCA. Since December 1994, the Registrant
has recorded interest on its advances to RCA as a reduction to
equity investment and loans to RCA.
Other Income - In the first quarter of 1994, other income
includes a $233,000 payment by RCA for a portion of the fees due
its general partners for posting a letter-of- credit; and the
proceeds from the sale of vacant land in Longwood, Florida and
Colorado Springs, Colorado. Since December 1994, the Registrant
has recorded letter-of-credit fees from RCA as a reduction to
equity investment and loans to RCA.
Income Tax Provision - In the first quarter of 1995, the
Registrant recorded a provision for income taxes of $50,000
compared to $6,000 for the first quarter of 1994. As a result of
implementing Financial Accounting Standard No. 109, the
Registrant has recorded a deferred tax asset and liability as of
December 31, 1994; and consequently, a current tax provision has
been recorded at the Registrant's effective tax rate of 41% for
the first quarter of 1995.
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,
since 1992, assets or portions thereof, were sold to provide
further liquidity.
The Registrant has taken 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 which continues to be the case in 1995.
The Registrant has actively pursued potential sales of certain
real estate assets in the past, and may continue to do so in the
future in cases where a transaction would generate acceptable
stockholder value and corporate liquidity.
It is the Registrant's intent to increase its liquidity in a
variety of ways including: (a) debt refinancings, (b) the sale of
properties which do not fit within its long term strategy, and
(c) infusion of new capital through either a private placement or
public offering when market conditions permit. Funds raised in
the preceding fashion would be used for such things as tenant
improvements and other capital requirements, certain mandatory
debt reductions, and new investments.
The Registrant experienced more stabilized operating results
in 1994, and expects this trend to continue in 1995 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 these leases will
not impact the Registrant's financial results until the second
quarter of 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PACIFIC GATEWAY PROPERTIES, INC.
Registrant
Date: May 11, 1995 Roger D. Snell
Roger D. Snell
President and Chief Executive Officer
Date: May 11, 1995 Raymond V. Marino
Raymond V. Marino
Vice President
(Chief Financial
and Accounting
Officer)
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