<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[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
[_] 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 1-9524
BURNHAM PACIFIC PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
California 33-0204162
- ------------------------------------------ -------------------------------
(State of other jurisdiction (IRS Employer
of incorporation) Identification No.)
610 West Ash Street, San Diego, California 92101
- ------------------------------------------ ------------------------------
(Address of principal executive offices) (Zip Code)
(619) 652-4700
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
NA
- --------------------------------------------------------------------------------
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
--- ---
Number of shares of the Registrant's common stock outstanding at November 9,
1995: 17,192,134
1
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PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
BURNHAM PACIFIC PROPERTIES, INC.
BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------- ------------------
<S> <C> <C>
ASSETS
Property $392,270 $387,959
Less Accumulated Depreciation (57,498) (49,506)
-------- --------
Property-Net 334,772 338,453
Cash and Cash Equivalents 3,924 1,664
Receivables-Net 8,533 9,109
Other Assets 9,392 8,796
-------- --------
Total $356,621 $358,022
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable and Other Liabilities $ 2,487 $ 1,877
Accrued Interest on Convertible
Debentures 397 943
Tenant Security Deposits 941 932
Notes Payable 88,495 89,799
Convertible Debentures 25,700 25,700
Line of Credit Advances 33,458 26,000
-------- --------
Total Liabilities 151,478 145,251
-------- --------
Stockholders' Equity:
Preferred Stock, 5,000,000 Shares
Authorized; No Shares Issued or
Outstanding
Common Stock, No Par Value,
40,000,000 Shares Authorized;
17,192,152 and 16,905,276 Shares
Outstanding at June 30, 1995, and
December 31, 1994, Respectively 263,638 260,262
Notes Receivable-Stock Purchase Plan (2,288)
Dividends Paid in Excess of Net Income (56,207) (47,491)
-------- --------
Total Stockholders' Equity 205,143 212,771
-------- --------
Total $356,621 $358,022
======== ========
</TABLE>
See the Accompanying Notes
2
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BURNHAM PACIFIC PROPERTIES, INC.
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVENUES THREE MONTHS ENDED NINE MONTHS ENDED
9/30/95 9/30/94 9/30/95 9/30/94
<S> <C> <C> <C> <C>
Rents $ 12,249 $ 12,838 $ 36,999 $ 38,300
Interest 164 109 405 301
----------- ----------- ----------- -----------
Total Revenues 12,413 12,947 37,404 38,601
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Interest 3,000 2,878 8,935 8,693
Rental Operating 3,220 3,104 9,032 9,040
General and Administrative 581 355 1,614 1,483
Depreciation and Amortization 3,277 2,886 9,524 8,733
----------- ----------- ----------- -----------
Total Costs and Expenses 10,078 9,223 29,105 27,949
----------- ----------- ----------- -----------
Income from Operations Before
Gain on Sale of Property 2,335 3,724 8,299 10,652
Gain on Sale of Property 0 0 1,428 0
----------- ----------- ----------- -----------
Net Income $ 2,335 $ 3,724 $ 9,727 $ 10,652
=========== =========== =========== ===========
Net Income Per Share $0.14 $0.23 $0.58 $0.69
=========== =========== =========== ===========
Dividends Paid Per Share $0.36 $0.355 $1.08 $1.055
=========== =========== =========== ===========
Weighted Average Number
of Shares 17,125,862 15,914,702 16,886,617 15,424,712
=========== =========== =========== ===========
</TABLE>
See the Accompanying Notes
3
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BURNHAM PACIFIC PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, September 30,
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 9,727 $ 10,652
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating
Activities:
Depreciation and Amortization 9,524 8,733
Gain on Sale of Property (1,428)
Changes in Other Assets and
Liabilities:
Receivables and Other Assets (1,318) (3,597)
Accounts Payable and Other 64 (925)
Tenant Security Deposits 9 (51)
-------- --------
Net Cash Provided By Operating
Activities 16,578 14,812
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for Acquisitions of Property
and Capital Improvements (6,035) (3,986)
Proceeds from Sale of Property 2,619
Principal Payments on Notes Receivable 266 770
-------- --------
Net Cash Used For Investing Activities (3,150) (3,216)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings Under Line of Credit
Agreements 24,425 16,660
Repayments Under Line of Credit
Agreements (16,967) (19,070)
Principal Payments of Notes Payable (1,304) (891)
Repurchase of Common Stock (1,279)
Repayment of Notes Receivable-Stock
Purchase Plan 320
Dividends Paid (18,424) (16,696)
Dividend Reinvestment 2,061 1,832
Issuance of Stock - Net 0 6,059
-------- --------
Net Cash Used for Provided by Financing
Activities (11,168) (12,106)
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents 2,260 (510)
Cash and Cash Equivalents at Beginning
Of Period 1,664 900
-------- --------
Cash and Cash Equivalents at End Of Period $ 3,924 $ 390
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During Nine Months For
Interest $ 9,475 $ 9,919
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Conversion of Debentures Into Common
Stock $ 0 $ 16,644
======== ========
Notes Receivable-Stock Purchase Plan $ 2,608 $ 0
======== ========
</TABLE>
See the Accompanying Notes
4
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995, DECEMBER 31, 1994, AND SEPTEMBER 30, 1994
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are unaudited but, in the opinion of
management, reflect all normal recurring adjustments necessary for a fair
presentation of operating results. These financial statements should be
read in conjunction with the latest audited financial statements of Burnham
Pacific Properties, Inc. for the year ended December 31, 1994. Certain of
the 1994 amounts have been reclassified to conform to 1995 presentation.
Dividends Per Share - Dividends of 36 cents per share were paid on
September 29, 1995 to shareholders of record on September 20, 1995.
2. NET INCOME PER SHARE
Net Income per share is computed by dividing net income for the respective
periods by the weighted average number of shares outstanding during the
applicable period.
3. REGISTRATION STATEMENT
During September 1993, the Corporation filed with the Securities and
Exchange Commission a $200 million shelf registration statement on Form S-
3. As of September 30, 1995, no such issuances have occurred.
4. DEVELOPMENT PROPERTIES
On September 28, 1995 the Corporation and various persons affiliated with
The Martin Group of Companies, Inc., a San Francisco-based real estate
development firm owned by J. David Martin, executed definitive documents
relating to the Corporation's acquisition of a portfolio of six retail
properties in the San Francisco Bay area (the "Martin Properties"). On
October 1, 1995, Mr. Martin became President and Chief Executive Officer of
the Corporation and a member of the Corporation's Board of Directors.
These actions culminated a several month search by the Corporation's
Directors for a new chief executive officer who might bring with him new
strategic opportunities for the Corporation.
The six Martin Properties consist of one completed retail center, one
center currently under construction, and four properties (the "Development
Properties"), to which the Martin Group affiliates have development rights
and that are in various stages of pre-construction development. The
completed retail center is the Richmond City Center, a 77,000 square foot
food and drugstore-anchored shopping center in Richmond. The center under
construction is Marin City USA Gateway Center, an approximately 85% pre-
leased, 182,000 square foot foodmarket/drugstore/promotional shopping
center in Marin County. The Development Properties are (i) Hilltop Plaza,
an approximately 80% pre-committed, 239,000 square foot power center
planned for construction in Richmond; (ii) Pleasant Hill,
5
<PAGE>
an approximately 50% pre-committed, 335,000 square foot foodmarket/
promotional/entertainment retail center to be constructed as a
part of a redevelopment in the City of Pleasant Hill; (iii) 1000 Van Ness,
an approximately 56% pre-leased, 135,000 square foot retail entertainment
center to be included in the redevelopment of an existing building complex
in Downtown San Francisco; and (iv) a portion of the multi-tenant retail
power center known as Gateway 101 in East Palo Alto on which approximately
272,000 square feet of retail space is proposed to be built in two phases
(87% of phase I has tenant pre-commitments).
The acquisition vehicles for the six Martin Properties are six separate
limited partnerships of which the Corporation is general partner and
affiliates of The Martin Group are the limited partners. Each of the
partnership agreements contemplates that the Corporation will acquire or
develop a specified Martin Property through the relevant partnership and
that upon completion and stabilization of the property the Corporation will
receive an initial 10% annual return on its investment. Under the terms of
the agreements entered into on September 28, 1995, the Martin Group
affiliates have contributed, or upon closing after receipt of certain third
party consents and satisfaction of certain other escrow conditions, will
contribute, all of their interest in the relevant Martin Properties in
exchange for limited partnership units in their respective partnerships.
Upon the closing of the completed and operating Richmond City Center, the
Corporation will pay approximately $1,425,000 of cash to acquire minority
interests and as general partner of the relevant partnership will become
responsible for mortgage indebtedness of approximately $7.2 million secured
by such property. For the Marin City USA Gateway Center the partnership
will only become effective upon completion of construction and
stabilization. At such time that partnership will become responsible for
mortgage indebtedness of approximately $19.2 million secured by such
property. Upon the closing of the acquisition of the development rights
for each of the Development Properties, the Corporation is obligated to
contribute funds to the partnership sufficient to reimburse the Martin
Group for its out-of-pocket costs with respect to the relevant Development
Property and thereafter to make further contributions to the partnership to
fund the Completion of the property. The Board of Directors of the
Corporation (exclusive of Mr. Martin) has authority to determine not to
proceed with the commencement of construction of a Development Property, in
which event the Martin Group affiliates would have the option to reacquire
the Property at the Corporation's cost.
The partnership agreement for Marin City USA Gateway Center and each of
the Development Properties provides that upon Completion of the Property,
the annualized stabilized net operating income of the Property will be
multiplied by 10 in order to arrive at the completed value of the Property,
the cost of construction and other project costs will be deducted from such
completed value in order to "value" the equity interests of the limited
partners in the property, and such equity interest will be stated as a
number of limited partnership units determined by dividing such limited
partners' equity by $16. The actual value of such limited partnership
units is intended to be the market value of an equivalent number of shares
of the Corporation's Common Stock, inasmuch as each holder of limited
partnership units will have the right to "put" such units to the
partnership at the then market value of an equivalent number of Corporation
shares. Upon the exercise of such "put", the Corporation has the option of
exchanging such units for Corporation shares on a 1-for-1 basis.
6
<PAGE>
The interest of the Martin Group affiliates in the limited partnership that
will acquire the one completed Property, Richmond City Center, has been
fixed at approximately 45,000 units subject to adjustment upon closing the
escrow of such Property following satisfaction of all closing conditions.
Current estimates of the total project cost, net operating income and the
resulting "value" of the Martin Group affiliates' equity interest in Marin
City USA Gateway Center and each of the Development properties have been
made, and based upon such estimates each partnership agreement specifies
the maximum number of units that may be issued to the limited partners of
that partnership and the Board of Directors of the Corporation has
accordingly reserved the same maximum number of shares of Common Stock that
may be issued pursuant to the exchanges for limited partnership units
described above. If the actual resulting equity is determined to be less
than currently estimated (either because project costs are higher than
estimated or because stabilized net operating income is less than estimated
or both), then the number of limited partnership units - and the
corresponding number of Corporation shares for which such units may be
exchanged - will be reduced. Other than to reflect a stock split or other
capital adjustment of the shares of Common Stock of the Corporation, under
no circumstances can the number of units be increased above the number
specified in the applicable partnership agreement. The Board of Directors
of the Corporation has reserved a maximum of 1,915,000 Corporation shares
for issuance upon exchange of the maximum number of 1,915,000 limited
partnership units that may be issued with respect to all six Martin
Properties.
Concurrently with the execution of the agreements on September 28, 1995,
the Corporation closed the acquisition of the development rights with
respect to two of the Martin Properties (East Palo Alto and Hilltop Plaza).
Included in accounts payable of the Corporation at September 30, 1995 was
$229,000, which represents pre-development costs of The Martin Group to be
reimbursed pursuant to the applicable limited partnership agreements. The
total cost to complete the development of these two Properties is estimated
to be $70 million.
The total project cost (exclusive of partnership units representing the
equity interest of the limited partners) for Marin City USA Gateway and all
four Development Properties is estimated to be $180 million.
On October 16, 1995, the Corporation closed the acquisition of a third
Development Property (1000 Van Ness). At closing, the Corporation
reimbursed the Martin Group for approximately $35,000 and a third party
approximately $145,000 of pre-development costs related to this Property.
The total development cost of this Property is estimated at $43 million.
During July 1995, the Corporation entered into a nonbinding letter of
intent with the advisor to an institutional investor relating to a possible
investment of $50 million by the investor in a joint venture with the
Corporation. The Corporation continues in discussions with the advisor
concerning the terms of such a joint venture.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
(1) MATERIAL CHANGES IN FINANCIAL CONDITION
September 30, 1995 compared to December 31, 1994:
The Corporation experienced no material changes in financial condition during
the nine months ended September 30, 1995.
As of September 30, 1995, other assets increased $596,000, or 7%, from December
31, 1994. This was primarily due to the straight-lining of rent in connection
with certain leases. As of September 30, 1995 approximately $1,784,000 of such
accrued rent is included in other assets.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995 and 1994:
During the nine months ended September 30, 1995, net income decreased $1.0
million, or 9%, to $9.7 million ($0.58 per share) compared to $10.7 million
($0.69 per share) for the same period in 1994.
Rental revenue decreased during the 1995 period by $1.3 million from $38.3
million in 1994 to $37 million reflecting the temporary vacancies at Wiegand
Plaza in 1995 which were necessary to assemble new space for the addition of
T.J. Maxx as an anchor tenant, a change in the formula used to estimate common
area maintenance reimbursements, recognition in 1994 of certain 1993 tenant
percentage rents that were not estimatable at the end of 1993, receipt in 1994
of a lease termination fee at Independence Square, and cessation of rents after
the sale of A-Storage.
Interest expense increased $200,000 to $8.9 million from $8.7 million in 1994.
This was primarily due to rising interest rates and increased borrowings due to
renovation construction at Wiegand Plaza, Independence Square, Miramar, and the
Beverly Garland Holiday Inn.
Depreciation and Amortization was $9.5 million for the nine months ended
September 30, 1995 and $8.7 million in 1994. This increase was primarily due to
construction during 1994 and early 1995 at Independence Square, San Diego
Factory Outlet Center, Wiegand Plaza and the Beverly Garland Holiday Inn.
The Corporation recognized a $1.4 million gain on the sale of A-Storage Place
in June 1995.
Three Months Ended September 30, 1995 and 1994.
During the three months ended September 30, 1995, net income decreased $1.4
million, or 38%, to $2.3 million ($0.14 per share) from $3.7 million ($0.23 per
share) for the same period in 1994.
During the 1995 period rental revenue decreased $600,000 to $12.2 million from
$12.8 million in 1994 reflecting a change in the formula used to estimate common
area maintenance reimbursements, lower estimates for tenant percentage rents,
and cessation of rents after the sale of A-Storage.
8
<PAGE>
Interest expense increased $100,000 to $3.0 million from $2.9 million in 1994.
This was primarily due to rising interest rates and increased borrowings due to
renovation construction at Wiegand Plaza, Independence Square, Miramar, and the
Beverly Garland Holiday Inn.
General and Administrative expenses increased $226,000 to $581,000 from $355,000
in 1994 as a result of reversing estimated first and second 1994 accruals in the
1994 period and costs related to the search for a chief executive officer in the
1995 period.
Depreciation and Amortization was $3.3 million for the three months ended
September 30, 1995 and $2.9 million for the same period in 1994. This increase
was primarily due to construction during 1994 and early 1995 at Independence
Square, San Diego Factory Outlet Center, Wiegand Plaza and the Beverly Garland
Holiday Inn.
Anticipated Results of Operations for Fourth Quarter 1995 and Fiscal 1996
Effective October 1, 1995, the Corporation elected a new senior management team,
including J. David Martin as President and Chief Executive Officer and David B.
Platt as Chief Financial Officer/Chief Administrative Officer. As discussed
elsewhere in this report, these appointments became effective shortly after
execution of definitive documents relating to the Corporation's acquisition of a
portfolio of six retail properties in Northern California (the "Martin
Properties") and culminated a several month search by the Corporation's Board of
Directors for a new chief executive officer who might bring with him new
strategic opportunities for the Corporation.
Management anticipates that the Corporation's operating revenues and rental
operating costs during the last three months of 1995 will generally be
consistent with the levels of operating revenues and rental operating costs
reported for the first nine months of 1995. However, management anticipates
that net income for the final quarter and for the year as a whole will be
further reduced by one-time charges related to costs associated with (i) the
installation of the new senior management team; (ii) studies by new management
of various organizational and operating policies of the Corporation; (iii)
possible reorganizational moves or strategic changes that may follow such
studies; and (iv) the acquisition of the Martin Properties to the extent
such costs are not capitalized. It is not currently practicable to estimate the
extent of such additional costs and therefore the extent of reduced net income
(and funds from operations, "FFO") for the fourth quarter or for 1995 as a
whole. The National Association of Real Estate Investment Trusts (NAREIT)
defines FFO as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures.
For 1996, management currently anticipates that the Corporation's operating
revenues and rental operating costs will be consistent with the levels of
operating revenues and rental operating costs reported for the first nine
months of 1995, but that such operating revenues, rental operating costs and
other costs and charges, and resulting net income and FFO, will be affected by
the following (among other) factors:
Management expects that operations of the Corporation's existing core
retail properties will generally be positive but will be negatively
impacted in the short term by planned rehabilitations at the Plaza at
Puente Hills and Navajo Shopping Center.
9
<PAGE>
The expiration of the McDonnell Douglas lease in July 1996 will negatively
impact revenues. The current rent is $234,000 per month. The extent of
such impact will depend upon when and at what rent some or all of the
vacated premises are relet.
Management expects that the completed and operating shopping center
(Richmond City Center) acquisition from Martin will be positive, as will
the other Martin Properties upon completion of construction and
stabilization of net operating income ("Completion") of each. However,
this impact is expected to be minimal in 1996, as completion of most of the
other Martin Properties is not expected until 1997.
The Corporation intends to focus its business plan on the ownership,
development, and operation of rental properties. This will result in the
redeployment of various non-strategic assets. In addition to gain or loss
on any such redeployment, the impact on the Corporation's operations will
depend on the amount of sales proceeds received from each asset sale, and
the timing and parameters of reinvestment opportunities.
The Corporation intends to implement in 1996 the changes suggested in the
"NAREIT White Paper on Funds From Operation, March 1995," published by the
National Association of Real Estate Investment Trusts, limiting
depreciation and amortization that may be added back to net income in
calculating FFO. Management estimates that the effect of these changes if
applied to 1995 operations would reduce FFO by approximately $.04 per
share.
In sum, management believes that 1996 (as well as the fourth quarter of 1995)
will be a period of transition during which the Corporation will refocus on the
ownership, development and operation of retail properties. Because of the
uncertainties involved in such transition, management is not now in a position
to estimate the effects on operating results or net income for 1996, although it
anticipates that net income for 1996 may be less than for 1995 on a per share
basis, with the expectation of improved results for 1997.
(3) LIQUIDITY AND CAPITAL RESOURCES
During March 1995, the maturities of the Corporation's revolving credit
facilities were extended from May 1995 to June 1, 1997. In addition, the $30.0
million secured facility was increased to a $40.0 million secured facility and
the $5.0 million unsecured facility was increased to a $10.0 million unsecured
facility.
As of September 30, 1995, the Corporation had $33.5 million outstanding under
its secured facility and nothing outstanding under its unsecured facility.
Outstanding borrowings resulted primarily from the October 1993 acquisition of
the Plaza at Puente Hills, and renovation construction during 1994 and 1995 at
Wiegand Plaza, Independence Square, Miramar, San Diego Factory Outlet Center and
the Beverly Garland Holiday Inn.
On September 28, 1995 the Corporation and various persons affiliated with The
Martin Group of Companies, Inc., a San Francisco-based real estate development
firm owned by J. David Martin, executed definitive documents relating to the
Corporation's acquisition of a portfolio of six retail
10
<PAGE>
properties in the San Francisco Bay area (the "Martin Properties"). On October
1, 1995, Mr. Martin became President and Chief Executive Officer of the
Corporation and a member of the Corporation's Board of Directors. These actions
culminated a several month search by the Corporation's Directors for a new chief
executive officer who might bring with him new strategic opportunities for the
Corporation.
The six Martin Properties consist of one completed retail center, one center
currently under construction, and four properties (the "Development
Properties"), to which the Martin Group affiliates have development rights and
that are in various stages of pre-construction development. The completed
retail center is the Richmond City Center, a 77,000 square foot food and
drugstore-anchored shopping center in Richmond. The center under construction is
Marin City USA Gateway Center, an approximately 85% pre-leased, 182,000 square
foot foodmarket/drugstore/promotional shopping center in Marin County. The
Development Properties are (i) Hilltop Plaza, an approximately 80% pre-
committed, 239,000 square foot power center planned for construction in
Richmond; (ii) Pleasant Hill, an approximately 50% pre-committed, 335,000 square
foot foodmarket/promotional /entertainment retail center to be constructed as a
part of a redevelopment in the City of Pleasant Hill; (iii) 1000 Van Ness, an
approximately 56% pre-leased, 135,000 square foot retail entertainment center to
be included in the redevelopment of an existing building complex in Downtown San
Francisco; and (iv) a portion of the multi-tenant retail power center known as
Gateway 101 in East Palo Alto on which approximately 272,000 square feet of
retail space is proposed to be built in two phases (87% of phase I has tenant
pre-commitments).
The acquisition vehicles for the six Martin Properties are six separate limited
partnerships of which the Corporation is general partner and affiliates of The
Martin Group are the limited partners. Each of the partnership agreements
contemplates that the Corporation will acquire or develop a specified Martin
Property through the relevant partnership and that upon completion and
stabilization of the property the Corporation will receive an initial 10% annual
return on its investment. Under the terms of the agreements entered into on
September 28, 1995, the Martin Group affiliates have contributed, or upon
closing after receipt of certain third party consents and satisfaction of
certain other escrow conditions, will contribute, all of their interest in the
relevant Martin Properties in exchange for limited partnership units in their
respective partnerships. Upon the closing of the completed and operating
Richmond City Center, the Corporation will pay approximately $1,425,000 of cash
to acquire minority interests and as general partner of the relevant partnership
will become responsible for mortgage indebtedness of approximately $7.2 million
secured by such property. For the Marin City USA Gateway Center the partnership
will only become effective upon completion of construction and stabilization.
At such time that partnership will become responsible for mortgage indebtedness
of approximately $19.2 million secured by such property. Upon the closing of
the acquisition of the development rights for each of the Development
Properties, the Corporation is obligated to contribute funds to the partnership
sufficient to reimburse the Martin Group for its out-of-pocket costs with
respect to the relevant Development Property and thereafter to make further
contributions to the partnership to fund the Completion of the property. The
Board of Directors of the Corporation (exclusive of Mr. Martin) has authority to
determine not to proceed with the commencement of construction of a Development
Property, in which event the Martin Group affiliates would have the option to
reacquire the Property at the Corporation's cost.
11
<PAGE>
The partnership agreement for Marin City USA Gateway and each of the
Development Properties provides that upon Completion of the Property, the
annualized stabilized net operating income of the Property will be multiplied by
10 in order to arrive at the completed value of the Property, the cost of
construction and other project costs will be deducted from such completed value
in order to "value" the equity interests of the limited partners in the
property, and such equity interest will be stated as a number of limited
partnership units determined by dividing such limited partners' equity by $16.
The actual value of such limited partnership units is intended to be the market
value of an equivalent number of shares of the Corporation's Common Stock,
inasmuch as each holder of limited partnership units will have the right to
"put" such units to the partnership at the then market value of an equivalent
number of Corporation shares. Upon the exercise of such "put", the Corporation
has the option of exchanging such units for Corporation shares on a 1-for-1
basis.
The interest of the Martin Group affiliates in the limited partnership that will
acquire the one completed Property, Richmond City Center, has been fixed at
approximately 45,000 units subject to adjustment upon closing the escrow of such
Property following satisfaction of all closing conditions. Current estimates of
the total project cost, net operating income and the resulting "value" of the
Martin Group affiliates' equity interest in Marin City USA Gateway and each of
the Development properties have been made, and based upon such estimates each
partnership agreement specifies the maximum number of units that may be issued
to the limited partners of that partnership and the Board of Directors of the
Corporation has accordingly reserved the same maximum number of shares of Common
Stock that may be issued pursuant to the exchanges for limited partnership units
described above. If the actual resulting equity is determined to be less than
currently estimated (either because project costs are higher than estimated or
because stabilized net operating income is less than estimated or both), then
the number of limited partnership units - and the corresponding number of
Corporation shares for which such units may be exchanged - will be reduced.
Other than to reflect a stock split or other capital adjustment of the shares of
Common Stock of the Corporation, under no circumstances can the number of units
be increased above the number specified in the applicable partnership agreement.
The Board of Directors of the Corporation has reserved a maximum of 1,915,000
Corporation shares for issuance upon exchange of the maximum number of 1,915,000
limited partnership units that may be issued with respect to all six Martin
Properties.
Concurrently with the execution of the agreements on September 28, 1995, the
Corporation closed the acquisition of the development rights with respect to two
of the Martin Properties (East Palo Alto and Hilltop Plaza). Included in
accounts payable of the Corporation at September 30, 1995 was $229,000, which
represents pre-development costs of The Martin Group to be reimbursed pursuant
to the applicable limited partnership agreements. The total cost to complete
the development of these two Properties is estimated to be $70 million.
The total project cost (exclusive of partnership units representing the equity
interest of the limited partners) for Marin City USA Gateway and all four
Development Properties is estimated to be $180 million.
On October 16, 1995, the Corporation closed the acquisition of a third
Development Property (1000 Van Ness). At closing, the Corporation reimbursed
the Martin Group for approximately $35,000 and a third party approximately
$145,000 of pre-development costs related to this Property. The total
development cost of this Property is estimated at $43 million.
12
<PAGE>
During July 1995, the Corporation entered into a nonbinding letter of intent
with the advisor to an institutional investor relating to a possible investment
of $50 million by the investor in a joint venture with the Corporation. The
Corporation continues in discussions with the advisor concerning the terms of
such a joint venture.
The Corporation has on file with the Securities and Exchange Commission a $200
million shelf registration statement on Form S-3. This registration statement
was filed for the purpose of issuing either common stock or debentures for the
purpose of repaying outstanding debt, potential future acquisitions of
commercial properties and for general corporation purposes. As of September 30,
1995, no such issuances have occurred.
The Corporation expects to use a combination of equity and/or debt securities
offerings (possibly involving the offering of a joint venture interest in one or
more of its properties), mortgage borrowings, proceeds from the possible sale of
one of more of its existing properties, and the use of construction financing
facilities to finance the construction of the Development Properties. The
Corporation anticipates that cash flow from operations, cash on hand, available
borrowings under credit facilities and the use of project financing, as well as
other debt and equity alternatives, will be adequate to fund debt service
obligations, dividend payments in accordance with REIT qualification
requirements and provide the necessary capital to achieve growth.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
The Corporation was not a party to any material legal proceedings during the
period covered by this report or subsequently.
ITEM 2. CHANGES IN SECURITIES:
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not Applicable.
ITEM 5. OTHER INFORMATION:
Not Applicable.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits 10.1 Employment Agreement between the Corporation and J. David
Martin, dated as of October 1, 1995.
(b) The following reports on Form 8-K were filed during the period covered by
this report:
September 28, 1995, Item 5, regarding the employment of David Martin as
president and chief executive officer of the Corporation and execution of
definitive documents relating to the purchase of a portfolio of development
retail properties.
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.
BURNHAM PACIFIC PROPERTIES, INC.
Date: 11/14/95 By: /s/ J. David Martin
-------- ----------------------------------------
J. David Martin, Chief Executive Officer
Date: 11/14/95 By: /s/ Daniel B. Platt
-------- ----------------------------------------
Daniel B. Platt, Chief Financial Officer
14
<PAGE>
EXHIBIT 10
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of the 28th day of September 1995, by and between Burnham
Pacific Properties, Inc., a California corporation with its main office in San
Diego, California (the "Company"), and J. David Martin (the "Executive").
WITNESSETH
In consideration of the mutual covenants contained herein, the Company and
the Executive agree as follows:
1. Employment. The Company agrees to employ the Executive and the
----------
Executive agrees to be employed by the Company on the terms and conditions
hereinafter set forth.
2. Capacity. The Executive shall serve the Company as its President and
--------
Chief Executive Officer and as a Director and shall serve the Company in such
additional offices in which the Executive may be requested to serve by the Board
of Directors of the Company (the "Board of Directors"). In such capacity or
capacities, the Executive shall have full authority to operate and manage the
business and operations of the Company with all authority customarily afforded
to such office subject to normal supervision and authority of the Company's
Board of Directors. The Executive shall also perform such services and duties
in connection with the business, affairs and operations of the Company
consistent with such offices as may be assigned or delegated to him from time to
time by or under the authority of the Board of Directors.
3. Effective Date. The effective date of this Agreement shall be October
--------------
1, 1995 (the "Effective Date").
4. Compensation and Benefits. The regular compensation and benefits
-------------------------
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
------
Agreement, the Company shall pay the Executive a base salary at the rate of
$250,000 per year, commencing as of the Effective Date and continuing through
December 31, 1995. Such base salary is to be subject to review and adjustment
in accordance with a comprehensive compensation policy to be established for all
employees of the Company, and which the Company expects to be adopted on or
before and effective as of January 1, 1996 (the "Comprehensive Compensation
Policy"). The Executive's base salary shall be payable in periodic installments
not less frequently than monthly in accordance with the Company's usual practice
for its senior executives.
(b) The Executive shall also be entitled to a bonus with respect to 1996
and each subsequent year in such amount as the Compensation Committee of the
Board of Directors determines consistent with the Comprehensive Compensation
Policy.
<PAGE>
(c) Stock Options
-------------
The Executive has been granted a non-transferable stock option for 250,000
shares of the Company's Common Stock (the "Initial Option") at an exercise price
of $12.875 per share, the New York Stock Exchange closing price and fair market
value of a share of such stock on July 19, 1995, the date of the original letter
of intent relating to the Executive's employment by and certain other
transactions with the Company. The Initial Option is intended to be a
Nonqualified Option under the Company's Stock Option Plan ("Plan"), which the
Company's Board of Directors has amended effective July 19, 1995 (such
amendment, however, being subject to the approval by the Company's shareholders
at the next meeting of shareholders) so as both (i) to increase the number of
shares available for option under the Plan by at least the number required by
this section 4(c) and (ii) to remove the 200,000 share limit on the aggregate
number of shares for which options may be granted to any individual during any
consecutive three-year period (the "Plan Amendment"). In the event that the
Plan Amendment is not approved at the next meeting of shareholders, the Initial
Option shall be considered to have been issued under the general authority of
the Company's Board of Directors to issue securities of the Company. In either
event, the Initial Option shall not vest prior to the later of the Effective
Date or the next meeting of shareholders of the Company and shall expire July
18, 2005. To the extent that the Executive exercises the Initial Option prior
to the first anniversary of the Effective Date and is then eligible for further
grants under the Plan, and provided that the shareholders have by then approved
the Plan Amendment, the Company will replenish the Initial Option with further
options for a like number of shares at the then market value of the Company's
shares. The Company shall as soon as practicable file a registration statement
under the Securities Act of 1933 on Form S-8 with respect to the Initial Option
and other options subject to the Plan Amendment and the shares to be issued upon
exercise of such option and to apply for the listing of such shares on the New
York Stock Exchange.
(d) Regular Benefits. The Executive shall also be entitled to participate
----------------
in any Executive benefit plans, medical insurance plans, life insurance plans,
disability income plans, retirement plans, vacation plans and other benefit
plans which the Company may from time to time have in effect for all or most
senior executives of the Company. Such participation shall be subject to the
terms of the applicable plan documents, generally applicable policies of the
Company, applicable law and the discretion of the Board of Directors or any
administrative or other committee provided for in or contemplated by any such
plan. Nothing contained in this Agreement shall be construed to create any
obligation on the part of the Company to establish any such plan or to maintain
the effectiveness of any such plan which may be in effect from time to time.
(e) Professional Memberships. The Company shall bear the costs of
------------------------
memberships in and the Executive's reasonable costs of participating on behalf
of the Company in the activities of the National Association of Real Estate
Investment Trusts, the International
2
<PAGE>
Association of Shopping Centers, the Urban Land Institute and (while the
Executive remains eligible) the Young Presidents Organization.
(f) Reimbursement of Business Expenses. The Company shall promptly
----------------------------------
reimburse the Executive for his reasonable business and entertainment expenses
incurred on behalf of the Company. Such expenses may include first class or
business class air travel when used by the Executive.
5. Reimbursement of Relocation Expenses. The Company shall reimburse the
------------------------------------
Executive for reasonable moving costs incurred in moving to San Diego and
reasonable costs of temporary lodging in San Diego.
6. Extent of Service. During the Executive's employment hereunder, the
-----------------
Executive shall, subject to the direction and supervision of the Board of
Directors, devote substantially his full business time, best efforts and
business judgment, skill and knowledge to the advancement of the Company's
interests and to the discharge of the Executive's duties and responsibilities
hereunder. The Executive shall resign as an active employee of The Martin Group
of Companies, Inc. (the "Martin Group") and any other company of which he may be
an employee and shall not engage in any other business activity, except as may
be disclosed to the Board of Directors; provided, however, that the Executive
-------- -------
may, so long as such activities do not impair his ability to perform his duties
and responsibilities under this Agreement:
(a) continue in his capacities as Chairman of the Board and sole
stockholder of The Martin Group;
(b) devote a reasonable portion of his time to the development of the Marin
City Retail Center;
(c) devote time to the construction of any of the properties that is the
subject of one of the limited partnership agreements being entered into
substantially concurrently herewith among the Company as general partner and
certain limited partners (each a "Limited Partnership Agreement") relating to
the development of Richmond Hilltop, Downtown Pleasant Hill Retail Center, East
Palo Alto Retail Center and 1000 Van Ness Retail Center (each a "Property") if
the Company declines to make contributions to the partnership that is the
subject of the Limited Partnership Agreement ("Partnership") necessary for the
construction of such Property and if the Executive and the other limited
partners named in the Limited Partnership Agreement have exercised their right
to purchase the Company's interest in the Partnership pursuant to the "Limited
Partner Purchase Rights" set forth in the Limited Partnership Agreement;
(d) serve as an outside director of other companies, including other REITs
whose business operations and investments are not competitive with the Company;
and
(e) engage in religious, charitable or other community or non-profit
activities.
3
<PAGE>
To the extent that The Martin Group pursues non-retail property
opportunities in the San Francisco Bay area during the Executive's employment by
the Company, the Executive agrees that such opportunities will be pursued
through other personnel of The Martin Group and not by the Executive. All
opportunities with respect to the development, acquisition, ownership or other
activities involving properties that are or will be primarily retail properties
which may come to the attention of the Executive during his employment by the
Company will be acted upon for the benefit of the Company. The Executive will
not make any future investments that will require significant time or attention
by him or that will impair his ability to fulfill his duties and
responsibilities under this Agreement. The Executive will advise the Board of
Directors of any real estate investments (other than passive investments of less
than 10% of the outstanding equity interests) in which the Executive has or may
acquire any interest and the nature of such interest.
7. Termination. The Executive's employment will be at-will, for no
-----------
definite term, and can be terminated with or without cause by either party upon
notice to the other party. Upon termination by either the Company or the
Executive, all payments of salary and bonus and benefits provided for in this
Agreement and other incidents of employment shall cease, except that the
Employee may receive any bonus with respect to the year in which termination
occurs or any prior year to the extent that such bonus is earned pursuant to
Section 4(b).
8. Litigation and Regulatory Cooperation. Both during the Executive's
-------------------------------------
employment with the Company and after its termination, the Executive shall
cooperate fully with the Company in the defense or prosecution of any claims or
actions which may be brought against or on behalf of the Company which relate to
events or occurrences that transpired while the Executive was employed by the
Company. The Executive's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. The Executive shall also cooperate
fully with the Company in connection with any examination or review of any
federal, state or local regulatory authority as any such examination or review
relates to events or occurrences that transpired while the Executive was
employed by the Company. If such cooperation is required after the Executive's
employment has terminated, the Company shall compensate the Executive for such
cooperation at a mutually agreeable rate payable monthly in arrears, and will
reimburse the Executive for any reasonable out-of-pocket expenses incurred in
connection therewith.
9. Confidential Information and Injunctions.
----------------------------------------
(a) Definition. As used in this Agreement, "Confidential Information"
----------
means information which the Company possesses or to which the Company has rights
which has commercial value. Confidential Information includes, by way of
example and without limitation, trade secrets, designs, configurations,
software, improvements, data, know-how, project and building concepts, plans and
specifications, marketing plans and strategies, sales and financial reports and
forecasts, and customer or tenant lists. Confidential Information includes
information developed by the Executive in the course of the Executive's
employment by the Company as well as other nonpublic information to which the
Executive may have access in connection with the Executive's employment,
including confidential information of others with which the Company has a
business relationship.
4
<PAGE>
(b) Confidentiality. The Executive understands and agrees that his
---------------
employment creates a relationship of confidence and trust between the Executive
and the Company with respect to all Confidential Information. At all times,
both during the Executive's employment with the Company and after its
termination, the Executive will keep in confidence and trust all such
Confidential Information and will not use or disclose any such Confidential
Information without the written consent of the Company, except as may be
necessary in the ordinary course of performing the Executive's duties to the
Company. The restrictions set forth in this Section 9(b) will not apply to
information which is generally known to the public or in the trade, unless such
knowledge results from an unauthorized disclosure by the Executive, but this
exception will not affect the application of any other provision of this
Agreement to such information in accordance with the terms of such provision.
(c) Documents, Records, etc. All documents, records, apparatus, equipment
-----------------------
and other physical property, whether or not pertaining to Confidential
Information, which are furnished to the Executive by the Company or are produced
by the Executive in connection with the Executive's employment will be and
remain the sole property of the Company. The Executive will return to the
Company all such materials and property as and when requested by the Company.
In any event, the Executive will return all such materials and property
immediately upon termination of the Executive's employment for any reason and
will not retain any such material or property or any copies thereof after such
termination, except to the extent that such material or property or copies
relate to any Property which the Executive has repurchased or has the right to
repurchase under a Repurchase Right described in any of the Limited Partnership
Agreements.
(d) Injunction. The Executive agrees that it would be difficult to
----------
measure any damages caused to the Company which might result from any breach by
the Executive of the promises set forth in this Agreement, and that in any event
money damages would be an inadequate remedy for any such breach. Accordingly,
the Executive agrees that if the Executive breaches, or proposes to breach, any
portion of this Agreement, the Company shall be entitled, in addition to all
other remedies that it may have and notwithstanding the provisions of Section
11, to an injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
10. Third-Party Agreements and Rights. The Executive represents to the
---------------------------------
Company that his execution of this Agreement, his employment with the Company
and the performance of his proposed duties for the Company will not violate any
obligations he may have to any previous employer or other party. In the
Executive's work for the Company, he will not disclose or make use of any
information in violation of any agreements with or rights of any previous
employer or other party.
11. Arbitration. Any controversy or claim for damages arising out of or
-----------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration under the auspices of the American Arbitration Association ("AAA")
in San
5
<PAGE>
Diego, California in accordance with the Employment Dispute Resolution Rules of
the AAA, including, but not limited to, the rules and procedures applicable to
the selection of arbitrators; provided, however, that this Section 11 shall not
-----------------
preclude the Company's seeking equitable relief as provided in Section 9(d).
Any awards for violation of any anti-discrimination law shall not exceed the
maximum award to which the Executive could be entitled under the applicable (or
most analogous) federal anti-discrimination or civil rights laws.
12. Withholding. All payments made by the Company under this Agreement
-----------
shall be net of any tax or other amounts required to be withheld by the Company
under applicable law.
13. Integration. This Agreement constitutes the entire agreement between
-----------
the parties with respect to the terms of employment of the Executive by the
Company and the termination thereof and supersedes all prior agreements between
the parties with respect to such subject matter, except for the limited purposes
such other agreements or documents have been specifically referenced herein.
14. Assignment; Successors and Assigns, etc. Neither the Company nor the
---------------------------------------
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided, however, that the Company may assign its rights under this
Agreement without the consent of the Executive in the event that the Company
shall hereafter effect a reorganization, consolidate with or merge into any
other corporation, partnership, organization or other entity, or transfer all or
substantially all of its properties or assets to any other corporation,
partnership, organization or other entity. This Agreement shall inure to the
benefit of and be binding upon the Company and the Executive, their respective
successors, executors, administrators, heirs and permitted assigns.
15. Enforceability. If any portion or provision of this Agreement shall
--------------
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
17. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Company or, in the case of the Company, at its main offices, attention of the
Chairman and at least one other member (not including the Executive) of its
Board of Directors.
18. Attorneys' Fees. If either party commences judicial or arbitration
---------------
proceedings for relief against the other party arising out of this Agreement,
the prevailing party shall be entitled to
6
<PAGE>
recover its reasonable attorneys' fees and court or arbitration costs incurred,
including but not limited to attorneys' fees after the award, and prior to the
payment, of any judgment or other settlement. The prevailing party shall be
that party receiving substantially the relief or result sought from the
proceeding, whether brought to final judgment or not.
19. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by a duly authorized
representative of the Company.
20. Governing Law. This is a California contract and shall be construed
-------------
under and be governed in all respects by the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized officer, and by the Executive, as of the
date first above written.
BURNHAM PACIFIC PROPERTIES, INC.
By: /S/Robert J. Lauer
------------------------------------------
Name: Robert J. Lauer
Title: Chairman, Compensation Committee
/S/ J. David Martin
----------------------------------------------
J. David Martin, an individual
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF OPERATION AND CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,924
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<RECEIVABLES> 9,273
<ALLOWANCES> 740
<INVENTORY> 0
<CURRENT-ASSETS> 21,849
<PP&E> 392,270
<DEPRECIATION> 57,498
<TOTAL-ASSETS> 356,621
<CURRENT-LIABILITIES> 3,825
<BONDS> 147,653
<COMMON> 263,638
0
0
<OTHER-SE> (58,495)
<TOTAL-LIABILITY-AND-EQUITY> 356,621
<SALES> 36,999
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<CGS> 8,730
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<OTHER-EXPENSES> 11,138
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