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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
Pursuant to Section 12 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 17, 1997
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PACIFIC GATEWAY PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 1-8692 04-2816560
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(State or other jurisdiction of (Commission (IRS Employer
incorporation File Number) Identification No.)
ONE RINCON CENTER, 101 SPEAR STREET, SUITE 215, SAN FRANCISCO, CA 94105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415)543-8600
Not Applicable
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(Former name or former address and former fiscal year,
if changed since last report)
Not Applicable
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(Former name or former address, if changed since last report)
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Item 2. ACQUISITION OF ASSETS.
PROPERTY ACQUISITIONS. On January 17, 1997, Pacific Gateway Properties, Inc.
(the "Registrant") acquired two properties (the "Acquired Properties") for an
aggregate purchase price of $20,750,000. The equity required to purchase the
Acquired Properties was obtained from the Registrant's sale of an Arizona hotel
in December 1996 and cash on hand. Neither the Registrant, any subsidiary of
the Registrant nor any director or officer of the Registrant was affiliated with
or had a relationship with the respective sellers of the Acquired Properties
described below.
WEST VALLEY EXECUTIVE PARK ("WVEP", formerly known as Paulsen Office Park). On
January 17, 1997, Pacific Gateway Properties Hotels, Inc., a wholly owned
subsidiary of the Registrant, completed the purchase of WVEP which is a multi-
tenant, six building campus style office park located at 4000-4050 Moorpark
Avenue, San Jose, California for $17,500,000 or $106.06 per square foot. WVEP's
six buildings contain approximately 165,000 square feet and are situated on 7.7
acres. The Registrant purchased WVEP from Peter Paulsen. In connection with
this acquisition the Registrant assumed approximately $10,200,000 in debt from
Sun Life Assurance Company of Canada (U.S.) which is amortized over 20 years at
a fixed annual interest rate of 9.125%, and matures on June 30, 2005. The debt
continues to be assumable and is subject to a prepayment penalty if paid off
prior to maturity.
930 MONTGOMERY STREET. On January 17, 1997, Pacific Gateway Properties Hotels,
Inc., a wholly owned subsidiary of the Registrant, completed the purchase of 930
Montgomery Street which is a multi-tenant, 23,000 square foot six-story steel
frame office building located at 930 Montgomery Street, San Francisco,
California for $3,250,000 or $141.30 per square foot. The Registrant purchased
930 Montgomery Street from Donlon H. Gabrielsen and Agnes H. Gabrielsen. In
connection with this acquisition, the Registrant obtained new debt of $2,112,500
from Redwood Bank which is amortized over 25 years at a floating annual interest
rate of 3% over the one year treasury bond rate, adjustable every six months,
and maturing on February 1, 2002. This debt can be prepaid at any time without
a penalty.
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Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
PAGE
(a) Financial Statement Under Rule 3-14 of Regulation S-X. . . . . .
Report of Independent Public Accountants . . . . . . . . . . . . 4
Statement of Revenue and Certain Expenses of West Valley . . . .
Executive Park for the nine months ended September 30,1996 . . . 5
Notes to Statement of Revenue and Certain Expenses of West
Valley Executive Park for the nine months
ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . 6
(b) Pro Forma Financial Information (Unaudited). . . . . . . . . . . 8
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . 9
Pro Forma Condensed Consolidated Statement of Income (Loss)
for the nine months ended September 30, 1996 . . . . . . . . . . 10
Notes and Adjustments to Pro Forma Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 11
(c) Exhibits
1. Press Release dated January 21, 1997. . . . . . . . . . . . . 14
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Pacific Gateway Properties, Inc.:
We have audited the accompanying statement of revenue and certain expenses
for the West Valley Executive Park, as defined in Note 1, for the nine months
ended September 30, 1996. This statement is the responsibility of the
management of Pacific Gateway Properties, Inc. (the "Company"). Our
responsibility is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Company's Current Report on Form 8-K/A
dated March 20, 1997, and is not intended to be a complete presentation of the
revenues and expenses of West Valley Executive Park.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses of the West Valley Executive
Park for the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 4, 1997
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PACIFIC GATEWAY PROPERTIES, INC.
STATEMENT OF REVENUE AND CERTAIN EXPENSES OF WEST VALLEY EXECUTIVE PARK
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
RENTAL REVENUE $ 1,983
OTHER INCOME 79
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2,062
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CERTAIN EXPENSES:
Property operating and maintenance 685
Real estate taxes 95
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780
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REVENUE IN EXCESS OF
CERTAIN EXPENSES $ 1,282
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The accompanying notes are an integral part of this statement.
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PACIFIC GATEWAY PROPERTIES, INC.
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES OF
WEST VALLEY EXECUTIVE PARK
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SQUARE FEET AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY ACQUIRED
The accompanying statement of revenue and certain expenses includes the
operations (see "Basis of Presentation" below) of the West Valley Executive
Park ("WVEP", formerly known as the Paulsen Office Park) acquired by a
wholly owned subsidiary of Pacific Gateway Properties, Inc. (the "Company")
on January 17, 1997. WVEP is a campus style office park in San Jose,
California comprising five two-story buildings and one single-story
building situated on approximately 7.7 acres with approximately 165,000 net
rentable square feet. WVEP was approximately 98% occupied at September 30,
1996 and no individual tenants account for 10% or more of rental revenue.
BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses is presented on
the accrual basis of accounting. This statement is not intended to be a
complete presentation of the actual operations of WVEP for the period
presented. Certain items may not be comparable to the results expected to
be incurred by the Company in the proposed future operations; however, the
Company is not aware of any material factors relating to the WVEP that
would cause the reported information not to be indicative of future
operating results. Excluded expenses consist of interest, depreciation and
amortization, and other costs not directly related to the future operations
of the WVEP.
REVENUE RECOGNITION
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
USE OF ESTIMATES
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenue and certain expenses. Actual
results could differ from these estimates.
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2. FUTURE RENTAL REVENUE:
The minimum future rental revenue from noncancelable operating leases in
effect as of September 30, 1996, for the remainder of 1996 and annually
thereafter are as follows:
Year Amount
---- ---------
1996 (three months) $ 636
1997 1,779
1998 601
1999 111
2000 11
2001 5
Thereafter --
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Total $ 3,143
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Certain of the leases contain options to renew.
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ITEM 7 (b)
The following unaudited pro forma financial information has been prepared to
reflect the incremental effect of the December 11, 1996 sale of the Radisson
Suites Hotel (the "Hotel") and the January 17, 1997 acquisitions of the West
Valley Executive Park ("WVEP", formerly known as the Paulsen Office Park) and
the 930 Montgomery Street Building (WVEP and 930 Montgomery Street are
collectively referred to as the "Acquired Properties") as if (i) the sale of the
Hotel and the purchase of the Acquired Properties had occurred as of September
30, 1996 for pro forma condensed consolidated balance sheet purposes and (ii)
the sale of the Hotel and the purchase of the Acquired Properties had occurred
as of January 1, 1996 for pro forma condensed consolidated statement of income
(loss) purposes. The unaudited pro forma condensed consolidated financial
statements should be read in connection with the historical financial statements
and notes thereto of the Registrant. In the opinion of management, the pro
forma condensed consolidated financial information provides for all adjustments
necessary to reflect the effects of the sale of the Hotel and the purchase of
the Acquired Properties.
The pro forma information is unaudited and is not necessarily indicative of the
consolidated results that would have occurred if the transactions and
adjustments reflected therein had been consummated in the period or on the date
presented, or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods.
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ITEM 7 (b) PACIFIC GATEWAY PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Disposition Acquired
Historical of Hotel Properties Pro Forma
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<S> <C> <C> <C> <C>
ASSETS
Investment in real estate, net $47,640 $(14,366)(1) $20,750 (6) $54,024
Cash and short-term investments 2,839 7,235 (2) (8,422)(6) 1,652
Deferred tax asset 4,000 (1,584)(4) 1,003 (8) 3,419
Deferred financing and leasing costs, net 1,263 (35)(2) 125 (7) 1,353
Other assets 765 -- -- 765
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Total Assets $56,507 $(8,750) $13,456 $61,213
------- -------- -------- -------
------- -------- -------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Accounts payable and accruals $ 1,096 $ (330)(3) $ 216 (7) $ 982
Income taxes payable 91 2,852 (4) (2,852)(8) 91
Mortgage loans 42,511 (12,764)(1) 12,313 (6) 42,060
Deferred tax liability 11,715 (2,064)(4) 3,779 (8) 13,430
Other liabilities 3,861 -- -- 3,861
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Total Liabilities 59,274 (12,306) 13,456 60,424
------- -------- ------- -------
Stockholders' Equity (Deficit)
Common stock 4,011 -- -- 4,011
Paid-in-deficit (10,222) -- -- (10,222)
Accumulated earnings 3,591 3,556 (5) -- 7,147
Treasury stock, at cost (2,037) -- -- (2,037)
Warrants for common stock 1,890 -- -- 1,890
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Total stockholders' equity (deficit) (2,767) 3,556 -- 789
------- -------- ------- -------
Total liabilities and
Stockholders' equity (deficit) $56,507 $ (8,750) $13,456 $61,213
------- -------- ------- -------
------- -------- ------- -------
</TABLE>
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PACIFIC GATEWAY PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Disposition Acquired
Historical of Hotel Properties Pro Forma
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<S> <C> <C> <C> <C>
Revenues:
Rental income $ 13,287 $ (4,868) (9) $ 2,455 (10) $ 10,874
Interest and other income, net 252 -- 79 (10) 331
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Total revenue 13,539 (4,868) 2,534 11,205
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Operating Expenses:
Rental expenses 6,985 (3,205) (9) 820 (10) 4,600
Real estate taxes 625 (349) (9) 135 (10) 411
Interest expense 2,445 (276) (9) 856 (11) 3,025
Depreciation and amortization 1,899 -- 356 (12) 2,255
General and administrative
expenses 1,266 -- -- 1,266
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Total operating expenses 13,220 (3,830) 2,167 11,557
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Income (loss) before gains,
reserves, income taxes and
extraordinary items $ 319 $ (1,038) (9) $ 367 $ (352)
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Income (loss) before gains,
reserves, income taxes and
extraordinary items,
per common share--
primary and fully diluted $ 0.08 $ (0.08)
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Weighted average common shares
outstanding--
primary and fully diluted 4,208,196 4,208,196
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</TABLE>
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PACIFIC GATEWAY PROPERTIES, INC.
NOTES AND ADJUSTMENTS TO PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
1. These pro forma adjustments reflect the disposition of the assets
comprising property held for sale (land, buildings and furniture, fixtures
and equipment of $22,446, net of $8,080 of accumulated depreciation) and
the payoff of the mortgage relating to sale of the Radisson Suites Hotel
(the "Hotel") which closed on December 11, 1996.
2. The pro forma increase in cash of $7,235 reflects the gross sales proceeds
of $21,307 offset by (i) selling and other costs of $978, (ii) payoff of
the remaining debt collateralizing the Hotel ($12,764 of such debt was
outstanding as of September 30, 1996 for pro forma purposes), and (iii)
approximately $330 of property taxes, assessments and other taxes paid in
escrow closing.
3. Elimination of security deposits and other liabilities assumed by the
buyer.
4. Estimated reduction of the deferred tax asset and liability resulting from
the sale of the Hotel and the pro forma accrual of income taxes payable as
a result of the sale.
5 Includes the gain on the sale of the Hotel for financial reporting purposes
of $5,814.
6. These pro forma adjustments reflect the January 17, 1997 acquisitions of
the West Valley Executive Park ("WVEP", formerly known as the Paulsen
Office Park) and the 930 Montgomery Street building (WVEP and 930
Montgomery Street are collectively referred to as the "Acquired
Properties"). WVEP was purchased for $17,500 and the Company assumed
$10,200 in debt with fixed annual interest of 9.125%. 930 Montgomery
Street was purchased for $3,250 and the Company obtained a new mortgage in
the principal amount of $2,113, bearing variable interest at 3% over the
treasury bond rate, adjustable every six months.
7. Reflects the addition of deferred finance costs and security deposits.
8. The sale of the Hotel and the purchase of the Acquired Properties reflects
the culmination of a tax deferred exchange in accordance with Section 1031
of the Internal Revenue Code. Accordingly, the pro forma deferred tax
assets reflect the use of a portion of the Company's net operating loss
carry forward attributable to the gain on personal property relating to the
Hotel sale and the pro forma deferred tax liability reflects an increase
relating to the deferral of tax liability on the Hotel sale attributable to
the "Section 1031 exchange" for income tax purposes.
9. Elimination of operating activity due to the sale of the Hotel.
10. Reflects the incremental effect of the Acquired Properties as detailed
below.
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For the nine months ended September 30, 1996
--------------------------------------------
930 Montgomery
WVEP Street Total
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Revenues:
Rental Revenues $1,983 $ 472 $2,455
Other Income 79 -- 79
------ ------ ------
2,062 472 2,534
------ ------ ------
Certain Expenses:
Rental Expenses 685 135 820
Real Estate Taxes 95 40 135
------ ------ ------
780 175 955
------ ------ ------
Revenues in excess of
certain expenses $1,282 $ 297 $1,579
------ ------ ------
------ ------ ------
11. Reflects the incremental increase in interest expense relating to the debt
assumed and obtained in regard to the Acquired Properties (see Note 6).
12. Reflects the incremental depreciation and amortization of the Acquired
Properties and the deferred finance costs based upon the Acquired
Properties asset lives of 35 years and the life of the loans, respectively.
13. The accompanying pro forma condensed consolidated statement of income
(loss) presents such income (loss) before nonrecurring gains, reserves and
extraordinary items, and before income taxes. Excluding the deferred gain
referred to in Note 8, the Company does not expect that the disposition of
the Hotel and purchase of the Acquired Properties will have a material
effect on the Company's recurring taxable income.
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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 there unto duly authorized.
Dated: March 20, 1997
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PACIFIC GATEWAY PROPERTIES, INC.
(Registrant)
Raymond V. Marino
-------------------------------------
Raymond V. Marino
President and Chief Executive Officer
Felecia A. Vernon-Chancey
-------------------------------------
Felecia A. Vernon-Chancey
Vice President and Controller
(Principal Financial and Accounting Officer)
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Exhibit 1.1
NEWS RELEASE
FOR RELEASE: January 21, 1997
PACIFIC GATEWAY PROPERTIES
COMPLETES $20,750,000 IN ACQUISITIONS
AND A $9,450,000 REFINANCING
SAN FRANCISCO, CALIFORNIA ...Pacific Gateway Properties, Inc., (PGP-AMEX)
announced today that it has purchased two new properties to conclude a tax
deferred exchange of properties in connection with the previously reported
December 1996 sale of its Arizona hotel property. One of the new properties is
a six building, 165,000 square foot campus style office park on a 7.7 acre
parcel in San Jose, California purchased for $17,500,000 or $106.06 per square
foot including the assumption of a $10,200,000 mortgage loan. The second
property is a 23,000 square foot six-story office building in San Francisco,
California for which PGP paid $3,250,000 or $141.30 per square foot, $2,112,500
of which was financed by a new mortgage loan.
PGP also announced that on December 31, 1996 it refinanced its South Bay Office
Tower in San Jose, California replacing $6,370,000 of 12% fixed rate debt with a
new $9,450,000 ten year 8.65% fixed rate loan. Excess loan proceeds after
repayment of the existing loan and other required payments amounted to
approximately $2,200,000 which PGP may use for its general business purposes.
PGP is a publicly traded real estate investment and management company
headquartered in San Francisco, California. PGP primarily focuses on investing
in downtown and suburban office properties with current investments in Florida,
Massachusetts, Arizona and the San Francisco Bay Area.
FOR MORE INFORMATION CONTACT: RAYMOND MARINO, PRESIDENT AND CEO
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