SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
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 September
30, 1995:
$1.00 Par Value Common Stock
3,892,596
(Title of Class)
(Number of Shares Outstanding)
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
INDEX
Part I - Financial Information: Page Number
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994 3
Consolidated Statements of Income for the
Three and Nine Months Ended September 30,
1995
and 1994 4
Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30,
1995
and 1994 5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9-13
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 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands, Except Share Amounts)
As of As of
September 30, December 31,
1994 1995
ASSETS
Cash and short-term investments $ 192 $ 359
Cash reserved for capital improvements 212 597
Accounts receivable 682 785
State income tax receivable 220 --
Other current assets 71 42
Investment and hotel properties:
Land 15,170 15,230
Buildings 46,284 46,741
Furniture, fixtures and equipment 17,005 15,165
Subtotal investment and hotel properties 78,459 77,136
Less-accumulated depreciation and net
realizable value reserve (22,272) (20,352)
Investment and hotel properties, net 56,187 56,784
Equity investment in and loans to Rincon Center
Associates, net 1,690 4,020
Deferred tax asset 5,893 6,845
Note receivable 227 229
Capitalized loan costs, net of accumulated amortization
of $694 and $522 at September 30, 1995 and December
31, 1994, respectively 598 742
Capitalized lease commissions, net of accumulated
amortization of $1,465 and $1,295 at September 30, 1995
and December 31, 1994, respectively 763 833
Other assets, net 47 198
Total assets $66,782 $ 71,434
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 1,282 $ 1,132
Accrued payroll, property and sales taxes 529 328
Prepaid rent 362 210
Accrued interest on debt 338 459
Tenant security deposits 439 414
Other current liabilities 1 85
Debt related to corporate, investment
and hotel properties 59,203 61,149
Other debt related to equity investment
in Rincon Center Associates 2,589 1,950
Deferred tax liability 10,449 12,209
Total liabilities 75,192 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 (2,051) (99)
Treasury stock, at cost--118,554 common shares at
September 30, 1995 and 131,186 common shares at
December 31, 1994 (2,038) (2,082)
Warrants for common stock 1,890 1,890
Total stockholders' deficit (8,410) (6,502)
Total liabilities and stockholders'
deficit $66,782 $71,434
The accompanying notes are an integral part of these consolidated financial
statements
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except Per Share Amounts)
For the Three Months For the Nine Months
Ended September 30,Ended September 30,
1995 1994 1995 1994
Investment Properties:
Rental revenues $2,896 $2,728 $9,124 $8,106
Operating expenses (1,542) (1,506) (4,208) (4,107)
Interest expense (823) (944) (2,457) (2,593)
Depreciation and amortization (675) (518) (1,847) (1,518)
Investment properties income (loss) (144) (240) 612 (112)
Hotel Property:
Revenues 1,077 1,202 5,508 5,783
Operating expenses (954) (1,205) (3,623) (4,102)
Interest expense (157) (212) (516) (604)
Depreciation and amortization (171) (99) (482) (285)
Hotel income (loss) (205) (314) 887 792
Equity in Partnership Income (Loss):
Golden Gateway Center (GGC) -- 374 -- 1,085
Rincon Center Associates (RCA) (941) (447) (2,708) (1,704)
Equity in partnership losses (941) (73) (2,708) (619)
General and administrative expenses (387) (336) (1,045) (992)
Interest expense on debt secured by equity
investment in GGC and other corporate debt -- (217) -- (571)
Interest and fee expense for debt related to equity
investment in RCA (99) (50) (222) (161)
Interest income 14 18 29 177
Other income -- 42 -- 430
Income (loss) before property transactions,
income taxes and extraordinary items (1,762) (1,170) (2,447) (1,056)
Gain on sale of real estate assets, net -- 661 177 661
Loss before extraordinary item and
income taxes (1,762) (509) (2,270) (395)
Extraordinary write-off of unamortized loan fees
from debt refinancings -- -- (233) --
Loss before income taxes (1,762) (509) (2,503) (395)
Income tax (provision) benefit 364 -- 551 (10)
Net loss ($1,398) ($509) ($1,952) ($405)
Loss per share, primary and fully diluted ($0.34) ($0.12) ($0.48) ($0.10)
The accompanying notes are an integral part of these consolidated
financial statements
PACIFIC GATEWAY PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
For the Three Months For the Nine Months
Ended September 30,Ended September 30,
1995 1994 1995 1994
Cash flow from operating activities:
Net loss ($1,398) ($509) ($1,952) ($405)
Non-cash revenues and expenses included in income:
Provision for depreciation and
amortization 846 618 2,329 1,842
Equity in loss of investment
partnerships 941 73 2,708 620
Extraordinary write-off of unamortized loan fees
from debt refinancings -- -- 233 --
Gain on sale of real estate assets -- (661) (177) (661)
Change in assets and liabilities:
Accounts receivable, state income tax receivable
and other current assets 244 (583) (145) (197)
Other assets 58 53 154 (71)
Accounts payable and other current
liabilities 101 942 (5) 1,059
Deferred taxes (300) -- (808) --
Other liabilities 297 582 325 543
Cash flow generated by operating
activities 789 515 2,662 2,730
Cash flow from investing activities:
Additions to investment and
hotel properties (487) (1,317) (2,038) (2,228)
Proceeds from sale of properties, net -- 1,432 510 1,432
Contributions to Rincon Center
Associates (277) (60) (677) (511)
Distribution from Rincon Center
Associates 215 -- 300 --
Distributions from Golden Gateway Center -- 310 -- 826
Net cash (used in) generated by investing
activities (549) 365 (1,905) (481)
Cash flow from financing activities:
Borrowings under property and
corporate debt 76 367 20,986 367
Borrowings in connection with equity
investment, net 177 113 639 225
Payments on debt (673) (579) (22,532) (1,602)
Payment of loan costs and fees -- (8) (47) (99)
Mortgages satisfied in connection with property
dispositions (40) -- (400) --
Issuance of Treasury Stock -- -- 45 --
(Increase) decrease in cash reserved for
capital improvements 287 (1,801) 385 (1,801)
Proceeds from exercise of stock options -- 2 -- 2
Net cash used in financing activities (173) (1,906) (924) (2,908)
Increase (decrease)in cash and short term
investments 67 (1,026) (167) (659)
Balance at beginning of period 125 1,110 359 743
Balance at end of period $ 192 $ 84 $ 192 $ 84
Supplementary disclosures:
Cash paid for interest $1,011 $1,847 $3,366 $3,799
Cash paid for taxes $ 157 $ 4 $ 373 $ 10
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 and Nine Months Ended September 30,
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 of a normal recurring nature 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 and
nine months ended September 30, 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 of 1994, the GGC Partnership completed a
redemption of the Registrant's remaining 29.5%
partnership interest. Summary financial data for GGC is
as follows (in thousands):
Three Months Nine Months
ended September 30, ended September 30,
1994 1994
Cash distributions to the Registrant
from GGC $ 310 $ 826
Income from operations:
Revenues $5,086 $15,118
Expenses:
Operating 1,681 5,113
Interest 1,865 5,556
Depreciation and amortization 271 771
3,817 11,440
Net income $1,269 $3,678
Registrant's share of net
income of GGC $ 374 $ 1,085
Rincon Center Associates Partnership (RCA)--San
Francisco, California
The Registrant owns general and limited
partnership interests in RCA totaling approximately 23%,
and is responsible for 20% of RCA's cash requirements in
excess of available financing.
The Registrant earns a fee from RCA for posting a
$4.5 million letter-of-credit and earns a preferred
return at the prime rate plus 2% on its advances to RCA.
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 in and loans to
RCA. During the first nine months of 1995, RCA paid the
Registrant approximately $300,000 in outstanding
letter-of-credit fees and no interest on advances.
The letter-of-credit expires June 23, 1996.
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 September 30, 1995 was $2,589,151.
Summary financial statement data for RCA is as
follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Registrant's share of
contributions to
RCA, net $ 62 $ 60 $ 377 $ 511
Income (loss) from
operations:
Revenue $ 5,105 $ 4,893 $15,358 $14,939
Expenses:
Operating and
lease expenses 3,407 1,190 9,630 7,265
Financing 4,218 4,610 14,036 12,019
Depreciation and
amortization 1,608 1,052 3,558 3,121
9,233 6,852 27,224 22,405
Net loss ($4,128) ($1,959) ($11,866) ($7,466)
Registrant's share of
net loss of RCA ($941) ($447) ($2,708) ($1,704)
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 nine months of 1995 based upon
actual operating revenue and expenses for January
through August 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 share and common share equivalents used in the
earnings per share calculations are as follows:
As of September 30, 1995 1994
Primary 4,075,372 4,113,823
Fully diluted 4,075,372 4,240,848
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 September 30, 1995, was
approximately 4.5%. 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 $264,000 for the first nine months of
1995. The face amount of the debt with the primary
lender as of September 30, 1995 and 1994 was $17,184,000
and $46,116,000, respectively.
As a result of the refinancing of the Walnut Creek
Executive Park ("WCEP") mortgage, discussed below, the
Registrant achieved the level of debt repayments
necessary to cancel 650,000 warrants issued to the
primary lender in December 1993, leaving one million
exercisable warrants outstanding. However, in June
1995, the Registrant entered into a letter agreement
with its primary lender that allows the 650,000 warrants
to remain outstanding until the balance of the November
1994 construction loan is repaid in full in exchange for
the primary lender receiving lower release prices on the
June 1995 WCEP refinancing and the sale of the Walnut
Creek parcel of land. During the third quarter of 1995,
the remaining outstanding balance on the construction
loan was repaid in full and the 650,000 warrants were
canceled as of September 30, 1995.
Other Mortgages on Real Estate - In June 1995, the
Registrant completed the refinancing of $20,000,000 of
debt related to WCEP. This debt was due in the fourth
quarter of 1997. The new loan carries a 7.85% annual
interest rate until maturity with fixed monthly
amortization payments of approximately $162,000. The
loan is amortized over 20 years and is due July 1, 2005.
The new loan has a prepayment penalty and is non-recourse to the
Registrant. In addition, the new loan
requires the Registrant to fund a reserve for future
tenant improvements of $9,314 per month in the first
twenty four months of the loan, and increasing to
$17,647 per month in month 25 through 68 of the loan.
These funds are included as cash reserved for capital
improvements on the Registrant's Consolidated Balance
Sheet. As a result of this refinancing, the Registrant
has written off the unamortized portion of the loan fees
associated with the debt that was retired, which
amounted to $233,000 and is recorded as an extraordinary
item.
5. Subsequent Event - On October 18, 1995, the
Registrant entered into an agreement with an unrelated
third party to sell the Radisson Suite Hotel in Tucson,
Arizona for $21.3 million. In accordance with the
agreement, the buyer has up to sixty days to complete
certain due diligence, and as a result, the Registrant
can make no assurances that the sale will be completed.
The following summarizes the land, fixed assets, and
other deferred costs of the hotel which are included in
the Registrant's Consolidated Balance Sheet as of
September 30, 1995.
Land $ 3,584,000
Building 12,636,000
Furniture, fixtures and equipment 7,767,000
$23,987,000
Accumulated depreciation and
amortization (10,199,000)
13,788,000
Other deferred costs 563,000
$14,351,000
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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. At
September 30, 1995, the Registrant has $212,000 in
restricted cash, investment and hotel properties with a
net book value of $56.2 million, total fixed and
variable mortgage debt with a book value of $59.2
million and a stockholders' deficit of $8.4 million.
Accordingly, given the Registrant's desire to increase
its liquidity, the Registrant has actively pursued
potential sales of selected real estate assets in the
past, has restructured and refinanced its mortgage debt,
and has entered into an agreement with the other general
partner of RCA to limit the Registrant's cash
obligations to RCA. The Registrant continues to
evaluate alternatives to improve its liquidity through
debt refinancings and the sale of properties which do
not fit within its long term strategy. Funds raised in
the preceding fashion would be used for such things as
tenant improvements and other capital requirements,
certain mandatory debt reductions, and possible new
investments.
In June 1995, the Registrant completed a
refinancing of the Walnut Creek Executive Park which
fixed $20,000,000 in mortgage debt at a 7.85% annual
interest rate. This refinancing extended the maturity
date of this debt from the fourth quarter of 1997
through July 2005.
In June 1995, the Registrant completed the sale of
a parcel of land in Walnut Creek, California which
repaid $400,000 in mortgage debt, as previously
discussed.
At September 30, 1995, the Registrant has the
following debt outstanding:
Fixed rate, nonrecourse mortgage notes with a face
value of $32.1 million and a quarter end weighted
average stated interest rate of 8.7% per annum.
Variable rate mortgage notes with a face value
of $26.7 million and a quarter end weighted
average interest rate of 7.7% per annum. The
variable rate notes provide for certain
guarantees and recourse provisions applicable
to the Registrant.
Nonrecourse loans from the other general
partner in RCA in the principal amount of $2.6
million, interest at prime plus 2% (10.75% at
September 30, 1995), with principal and
interest payable from future cash distributions
to the Registrant by RCA, if any.
Scheduled principal maturities on the above described
debt over the next twelve months ending September 30,
1996 amount to approximately $1.5 million. As discussed
in Note 4 of the accompanying financial statements, the
Registrant is also obligated to fund a reserve for
tenant improvements in connection with one of its debt
agreements. Scheduled funding under such agreement over
the twelve months ending September 30, 1996 amounts to
approximately $112,000.
Additionally, the Registrant is contingently liable
under a bank letter-of-credit posted on behalf of RCA in
the amount of $4.5 million. The letter-of-credit is
undrawn at September 30, 1995 and matures on June 23,
1996. One of the Registrant's properties is pledged as
collateral for the letter-of-credit.
As co-general partner in RCA, the Registrant has
provided certain guarantees on RCA's debt.
Except as described above, at September 30, 1995, the
Registrant has no contractual commitments for any
material capital expenditures over the next twelve
months or beyond that are not expected to be funded from
the $212,000 in cash reserved for capital improvements
or future cash flow generated by operating activities.
Ongoing repair and maintenance expenditures are expected
to be funded from cash flow generated by operating
activities. Future tenant improvements and leasing
commissions will be funded, in part, from the reserve
described above, cash flow generated by operating
activities and funds generated from future debt
refinancings or property sales, if any.
As previously discussed, the Registrant has entered
into a purchase agreement with an unrelated third party
to sell its Radisson Suite Hotel in Tucson, Arizona.
Due to the hotel's low tax basis, the Registrant is
evaluating whether or not to complete a tax deferred
exchange. If the Registrant does not complete a tax
deferred exchange, there will be excess cash proceeds
after payment of taxes, debt and cost of the sale which
will be used for future capital improvements, leasing
costs and possible acquisitions. In addition, the
Registrant has two loan applications in process to
refinance its San Jose office building and the
industrial building in Tucson which will provide excess
debt proceeds to the Registrant, and reduce and fix the
mortgage interest rate at these properties,
respectively. The excess debt proceeds will be used to
provide reserves for future capital improvements and
leasing costs anticipated in the fourth quarter of 1995
and throughout 1996. The Registrant can make no
assurances that the sale of the hotel or refinancings
will be completed.
On October 1, 1995 a mandatory principal payment of
$250,000 was due to Citicorp Real Estate, Inc.(CREI)
which payment was not made. The face amount of CREI's
debt as of September 30, 1995 was $17.2 million and is
cross-collateralized by the Registrant's hotel property
and an industrial building in Tucson, Arizona, and an
office building in Weston, Florida . Under the terms of
the loan agreement with CREI, the Registrant's non-payment
of this October 1, 1995 mandatory principal
payment of $250,000 does not constitute an "Event of
Default" if, during the existing calender quarter and
prior three (3) calender quarters, the Registrant has
made payments to CREI under the terms of the loan equal
to at least one million dollars. Therefore, the
Registrant has until December 31, 1995 to make this
mandatory principal payment of $250,000, since the
Registrant has made principal payments of $750,000
during the prior three quarters. The Registrant
anticipates that it will be able to make the $250,000
principal payment that was due October 1, 1995 by
December 31, 1995, however, its ability to do so depends
upon the receipt by the Registrant of certain tax
refunds, or the completion of certain property
refinancings or the sale of the hotel, as previously
described.
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; however, the Registrant is
continuing to aggressively pursue new leases on
currently available space and successfully renewing
existing leases as they expire.
Material Changes in Results of Operations
Investment Properties - During the first nine months
of 1995, the income from investment properties was
$612,000 compared to a loss of $112,000 during the first
nine months of 1994. During the third quarter of 1995
loss from investment properties was $144,000 compared to
a loss of $240,000 during the third quarter of 1994.
The increase in income from investment properties for
the first nine months of 1995 compared to 1994 is
primarily attributable to increased occupancy in the
Registrant's portfolio and operating expenses remaining
relatively flat. Interest expense decreased during the
first nine months of 1994 from $2,593,000 to $2,457,000
during the first nine months of 1995 as a result of the
Registrant's 1993 debt restructuring which was offset by
an increase in interest rates on the Registrant's
floating rate mortgage debt. Depreciation and
amortization expense increased as a result of commencing
depreciation of expenditures capitalized during 1994 and
early 1995 relating to the Registrant's leasing
activities and capital improvement projects.
Hotel Property - The hotel property income was
$887,000 in the first nine months of 1995 compared to
$792,000 in the first nine months of 1994. For the
three months ended September 30, 1995, the hotel
property loss was $205,000 compared to a loss of
$314,000 for the three months ended September 30, 1994.
The increase in income for the first nine months of 1995
compared to 1994 was the result of a decrease in
operating expenses and interest expense. Interest
expense decreased during the first nine months of 1994
from $604,000 to $516,000 for the first nine months of
1995, primarily as a result of the effects of the
decrease in the effective interest rate in connection
with the Registrant's debt restructuring with its
primary lender in December 1993 which was offset by
increased borrowing in connection with the hotel's
refurbishment and higher interest rates during the first
nine months of 1995. Depreciation expense increased in
the first nine months 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
$7,466,000 in the first nine months of 1994 to
$11,866,000 in the first nine months of 1995. The
increase in the loss is primarily the result of an
increase in operating expenses and interest rates on the
project's floating rate debt. The net loss for RCA
during the third quarter of 1995 and 1994 was $4,128,000
and $1,959,000, respectively. The Registrant's equity
share of the RCA loss amounted to $2,708,000 and
$1,704,000 during the first nine months of 1995 and
1994, respectively. The Registrant's equity share of
the RCA loss amounted to $941,000 and $447,000 in the
third quarter of 1995 and 1994, respectively.
General and Administrative Expenses - General and
administrative expenses in the first nine months of 1995
amounted to $1,045,000 compared to $992,000 for the
first nine months of 1994. General and administrative
expenses for the third quarter of 1995 and 1994 were
$387,000 and $336,000, respectively. The increase is
primarily attributable to an increase in Directors and
Officers liability insurance premiums, compensation and
other professional service fees.
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 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 nine months of
1995 and 1994, the Registrant incurred $222,000 and
$161,000, respectively, in interest and fee expense
related to the funding arrangement with the other
general partner on Rincon Center, as previously
discussed. During the third quarters of 1995 and 1994,
the Registrant incurred approximately $99,000 and
$50,000, respectively, in interest and fee expense
relating to the RCA funding arrangement. The respective
increases are due to the increase in outstanding debt
related thereto and an increase in interest rates.
Interest Income - During the first nine months 1995
and 1994 interest income was $29,000 and $177,000,
respectively. Interest income was $14,000 and $18,000
during the third quarter of 1995 and 1994, respectively.
A significant portion of the interest income in the
first nine months of 1994 is attributable to a payment
by RCA for a portion of the interest outstanding on
partnership advances to RCA. Since December 1994, the
Registrant has recorded interest received on its
advances to RCA as a reduction to equity investment in
and loans to RCA.
Other Income - Other income was $430,000, and $42,000
during the first nine months and third quarter of 1994,
respectively. In the first nine months of 1994 other
income includes primarily a payment by RCA to the
Registrant for a portion of the fees due its general
partners for posting a letter-of-credit. Since December
1994, the Registrant has recorded letter-of-credit fees
received from RCA as a reduction to equity investment in
and loans to RCA.
Gain on Sale of Real Estate Asset - In June 1995,
the Registrant completed the sale of a parcel of land in
Walnut Creek, California to an unrelated third party.
In connection with this property disposition, the
Registrant realized a gain of $177,000.
In July 1994, the Registrant completed the sale of a
separately parceled building at Walnut Creek Executive
Park to an unrelated third party. In connection with
this building sale, the Registrant realized a gain of
$661,000.
Extraordinary Write-off of Unamortized Loan Fees from
Debt Refinancings - In June 1995, the Registrant
completed the refinancing of the mortgage debt at Walnut
Creek Executive Park. As a result, the Registrant had
written-off the unamortized portion of the loan fees
associated with the debt that was retired.
Income Tax Benefit (Provision) - A tax benefit is
recorded in connection with the net loss for the three
and nine months ended September 30, 1995 in accordance
with Statement of Financial Accounting Standards No.
109. In the first nine months of 1994, the Registrant
recorded a provision for income taxes of $10,000 which
primarily represents state franchise tax fees.
ITEM 5. Other Information
On October 26, 1995, the Registrant filed Form 10-Q/A
(Amendment No.1) to the Form 10-Q for the quarterly
period ended June 30, 1995. The Form 10-Q for the
quarterly period ended June 30, 1995 was amended to
include a sentence regarding the extension of the
expiration date of the $4.5 million letter-of-credit
posted in favor of Rincon Center from June 23, 1995 to
December 23, 1995. In addition, a typographical error
in Note 4 to the Registrant's Consolidated Financial
Statements was corrected which only appeared in the
Securities and Exchange Commission's electronically
filed copy.
ITEM 6. Exhibits and Reports on Form 8-K
On October 26, 1995, the Registrant filed Form 8-K/A
(Amendment No.1) to the Form 8-K filed October 28, 1994.
The Form 8-K dated October 28, 1994 was amended to
include certain pro forma financial information as
required by Item 7(b) of Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
PACIFIC GATEWAY PROPERTIES, INC.
Registrant
Date: November 13, 1995
Roger D. Snell
President and Chief
Executive Officer
Date: November 13, 1995
Raymond V. Marino
Vice President and Chief
Financial Officer
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] SEP-30-1995
[CASH] 404
[SECURITIES] 0
[RECEIVABLES] 1129
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 1377
[PP&E] 78459
[DEPRECIATION] 22272
[TOTAL-ASSETS] 66782
[CURRENT-LIABILITIES] 1282
[BONDS] 61792
[COMMON] 4011
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] (12421)
[TOTAL-LIABILITY-AND-EQUITY] 66782
[SALES] 0
[TOTAL-REVENUES] 3973
[CGS] 0
[TOTAL-COSTS] 2496
[OTHER-EXPENSES] 1826
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (1762)
[INCOME-TAX] 364
[INCOME-CONTINUING] (1398)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1398)
[EPS-PRIMARY] (0.34)
[EPS-DILUTED] (0.34)
</TABLE>