<PAGE>
UNITED STATES
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, 1996
/ / 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 Identification No.)
of incorporation)
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
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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 12,
1996: 17,090,452
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PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
ASSETS September 30, 1996 December 31, 1995
------------------ -----------------
Real Estate $375,914 $367,088
Less Accumulated Depreciation (50,560) (54,388)
-------------- -----------
Real Estate-Net 325,354 312,700
Cash and Cash Equivalents 333 1,543
Receivables-Net 5,296 5,647
Other Assets 6,877 7,880
-------------- -----------
Total $337,860 $327,770
-------------- -----------
-------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable and Other Liabilities 2,482 3,458
Accrued Interest on Convertible Debentures 397 943
Tenant Security Deposits 983 969
Notes Payable 90,752 92,173
Convertible Debentures 25,700 25,700
Line of Credit Advances 40,242 24,933
-------------- -----------
Total Liabilities 160,556 148,176
-------------- -----------
Minority Interest 434 434
-------------- -----------
Stockholders' Equity:
Preferred Stock, 5,000,000 Shares
Authorized; No Shares Issued or
Outstanding
Common Stock, No Par Value,
40,000,000 Shares Authorized;
17,090,452 and 17,081,670 Shares
Outstanding at September 30, 1996,
and December 31, 1995, Respectively 262,240 262,130
Notes Receivable-Stock Purchase Plan (197)
Dividends Paid in Excess of Net Income (85,370) (82,773)
-------------- -----------
Total Stockholders' Equity 176,870 179,160
-------------- -----------
Total $337,860 $327,770
-------------- -----------
-------------- -----------
See the Accompanying Notes
2
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BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVENUES THREE MONTHS ENDED NINE MONTHS ENDED
9/30/96 9/30/95 9/30/96 9/30/95
------- ------- ------- -------
<S> <C> <C> <C>
Rents $11,509 $12,249 $35,701 $36,999
Interest 102 164 322 405
------- ------- ------- -------
Total Revenues 11,611 12,413 36,023 37,404
------- ------- ------- -------
COSTS AND EXPENSES
Interest 2,562 3,000 8,251 8,935
Rental Operating 3,212 3,057 9,538 8,729
General and Administrative 625 581 1,712 1,614
Provision for Bad Debt 100 163 310 303
Depreciation and Amortization 2,951 3,277 8,221 9,524
------- ------- ------- -------
Total Costs and Expenses 9,450 10,078 28,032 29,105
------- ------- ------- -------
Income From Operations Before
Gain on Sales of Real Estate
and Distribution to Minority
Interest Holders 2,161 2,335 7,991 8,299
Gain on Sales of Real Estate 2,272 0 2,281 1,428
Distribution to Minority
Interest Holders (10) 0 (20) 0
------- ------- ------- -------
Net Income $ 4,423 $ 2,335 $10,252 $ 9,727
------- ------- ------- -------
------- ------- ------- -------
Net Income Per Share $ 0.26 $ 0.14 $ 0.60 $ 0.58
------- ------- ------- -------
Dividends Paid Per Share $ 0.25 $ 0.36 $ 0.75 $ 1.08
------- ------- ------- -------
Weighted Average Number
of Shares 17,084,452 17,125,862 17,082,499 16,886,617
---------- ---------- ---------- ----------
</TABLE>
See the Accompanying Notes
3
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
9/30/96 9/30/95
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $10,252 $9,727
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation and Amortization 8,221 9,524
Provision for Bad Debt 310 303
Gain on Sales of Real Estate (2,281) (1,428)
Common Stock - Director's Fees 74 0
Changes in Other Assets and Liabilities:
Receivables and Other Assets (891) (1,621)
Accounts Payable and Other (1,498) 64
Tenant Security Deposits (70) 9
------ ------
Net Cash Provided By Operating Activities 14,117 16,578
------ ------
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for Acquisitions of Real Estate and
Capital Improvements (50,701) (6,035)
Proceeds from Sales of Real Estate 33,990 2,619
Principal Payments on Notes Receivable 114 266
------- ------
Net Cash Used For Investing Activities (16,597) (3,150)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings Under Line of Credit Agreements 55,018 24,425
Repayments Under Line of Credit Agreements (39,709) (16,967)
Principal Payments of Notes Payable (1,421) (1,304)
Repurchase of Common Stock - (1,279)
Payment of Notes Receivable-Stock
Purchase Plan 197 320
Dividends Paid (12,815) (18,424)
Dividend Reinvestment 0 2,061
------- ------
Net Cash Provided (Used) for Financing
Activities 1,270 (11,168)
------- -------
Net (Decrease) Increase in Cash and Cash
Equivalents (1,210) 2,260
Cash and Cash Equivalents at Beginning
Of Period 1,543 1,664
------- ------
Cash and Cash Equivalents at End Of Period $ 333 $3,924
------- ------
------- ------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During Nine Months For Interest $9,665 $9,519
------- ------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Notes Receivable-Stock Purchase Plan $ 0 $2,608
------- ------
See the Accompanying Notes
4
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, DECEMBER 31, 1995, AND SEPTEMBER 30, 1995
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated 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 audited financial
statements of Burnham Pacific Properties, Inc. for the year ended December
31, 1995. Certain of the 1995 amounts have been reclassified to conform
to 1996 presentation.
Dividends Per Share -- Dividends of 25 cents per share were paid on
September 30, 1996 to shareholders of record on September 23, 1996.
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 Company filed with the Securities and Exchange
Commission a $200 million shelf registration statement on Form S-3. As of
September 30, 1996, no such issuances have occurred.
4. REAL ESTATE
Real Estate is summarized as follows (in thousands):
September 30, 1996 December 31, 1995
------------------ -----------------
Retail Centers $282,550 $261,045
Office/Industrial Buildings 61,628 102,149
Retail Centers Under Development 29,685 2,691
Other 2,052 1,203
-------- --------
Total Real Estate 375,914 367,088
Accumulated Depreciation (50,560) (54,388)
-------- --------
Real Estate-Net $325,354 $312,700
-------- --------
-------- --------
On July 11, 1996, the Company sold Highlands Plaza and the Fireman's Fund
Building. Net proceeds from the dispositions total approximately
$22,700,000, resulting in a gain of approximately $300,000. Such proceeds
were used to reduce borrowings under the Company's credit facilities. The
Fireman's Fund Building served as a portion of the collateral for the
Company's secured credit facility. With the
5
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sale of the Fireman's Fund Building the borrowing capacity under the
Company's credit facilities was reduced from $50,000,000 to
approximately $42,700,000.
On July 26, 1996, the Company made an initial contribution of
approximately $20,125,000 into a newly formed limited liability
company ("LLC"). Funds were provided by borrowings under the
Company's credit facilities. The LLC's purpose is to acquire, own,
operate, renovate, lease, develop, finance and invest in the Ladera
Shopping Center in Los Angeles, California (the "Center"). With the
Company's initial contribution proceeds, the LLC purchased the Center.
The Center is a 184,684 square foot, market-dominant community
shopping center on 15 acres of land and on the acquisition date was
93% occupied. Prior to December 31, 1996, the other LLC member is
required to fund approximately 75% of the LLC's cumulative
contributions, thereby reducing the Company's investment to 25% of the
LLC.
On August 12, 1996, the Company exercised its option to purchase the land
and building for the development of its 1000 Van Ness project for
approximately $9,000,000. Funds were provided by borrowings under the
Company's credit facilities.
On September 16, 1996, the Company sold its investment in the building
where its corporate headquarters are located. Net proceeds from the
disposition totaled approximately $2,000,000, resulting in a gain of
approximately $1,900,000. Such proceeds were used to reduce borrowings
under the Company's credit facilities.
5. SUBSEQUENT EVENT
On October 11, 1996, the Company sold Miramar Plaza. Net Proceeds
from the disposition totaled approximately $7,000,000, resulting in a
gain of approximately $14,000. Such proceeds were used to reduce
borrowings under the Company's credit facilities.
On October 15, 1996, the Company announced the November 20, 1996 call of
its convertible debentures. The call will be made at par plus accrued
interest. Funds for the call will be provided by borrowings under the
Company's credit facilities.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MATERIAL CHANGES IN FINANCIAL CONDITION
September 30, 1996 compared to December 31, 1995:
The Corporation experienced no material changes in financial condition during
the nine months ended September 30, 1996.
On January 31, 1996, the Company exercised its option to purchase the land for
the development of its Richmond Hilltop project for approximately $8,600,000.
On June 27, 1996, the Company sold the McDonnell Douglas Building, which had a
net book value at the time of sale of $9,289,000.
6
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On July 11, 1996, the Company sold Highlands Plaza and the Fireman's Fund
Building, which had a combined net book value at the time of sale of
$21,672,000.
On July 26, 1996, the Company made an initial contribution of approximately
$20,125,000 into a newly formed limited liability company ("LLC"). The LLC
in turn, purchased the Ladera Shopping Center in Los Angeles, California.
On August 12, 1996, the Company exercised its option to purchase the land and
building for the development of its 1000 Van Ness project for approximately
$9,000,000.
As of September 30, 1996, and December 31, 1995 approximately $2,582,000 and
$3,387,000, respectively, of straight-lined rent is included in other assets.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
September 30, 1996 and 1995:
During the nine months ended September 30, 1996, net income increased
$525,000 or 5%, to $10,252,000 ($0.60 per share) compared to $9,727,000
($0.58 per share) for the same period in 1995. Included in 1996 and 1995 net
income were gain on sales of real estate of $2,281,000 and $1,428,000,
respectively. If the gains were excluded, net income in 1996 would have
decreased $328,000 or 4% as compared to the same period in 1995. During the
three months ended September 30, 1996, net income increased $2,088,000 or
89%, to $4,423,000 ($0.26 per share) compared to $2,335,000 ($0.14 per share)
for the same period in 1995. Included in 1996 net income was a $2,272,000
gain on sales of real estate. If the gain was excluded, net income in 1996
would have decreased $184,000 or 8% as compared to the same period in 1995.
The principal reasons for these net income decreases are discussed in the
following paragraphs.
Compared to the same period in 1995, revenues decreased $1,381,000 and
$802,000 for the 1996 nine month and three month periods, respectively.
These decreases were primarily due to the sales of Beverly Garland's Holiday
Inn Hotel during 1995 and the McDonnell Douglas Building in June 1996, and
from lower rents received on the Anacomp Building following the renegotiation
of the Anacomp lease during the first quarter of 1996. These decreases were
partially offset by the fourth quarter 1995 acquisition of the Richmond
Shopping Center and the third quarter 1996 recognition of $355,000 of
previously deferred lease termination fees recognized upon the sale of the
Fireman's Fund Building.
Interest expense decreased $684,000 and $438,000 for the 1996 nine month and
three month periods, respectively, as compared to the same period in 1995.
The decreases are attributable to both lower prevailing short-term interest
rates in 1996 and lower average outstandings under the Company's line of
credit facilities.
Rental operating expenses increased over 1995 by $809,000 and $155,000 for
the 1996 nine month and three month periods, respectively. These increases
reflect generally higher property level costs, the acquisition of the
Richmond Shopping Center, and the renegotiation of the Anacomp lease. In
addition, expenses increased as a result of the opening of offices in Los
Angeles and San Francisco.
7
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General and administrative expenses increased $98,000 and $44,000 for the
1996 nine month and three month periods, respectively as compared to the same
period in 1995. These increases reflect the opening of offices in Los
Angeles and San Francisco.
Compared to the same period in 1995, depreciation and amortization expense
decreased $1,303,000 and $326,000 for the 1996 nine month and three month
periods, respectively. These decreases reflect discontinued depreciation on
the real estate which was held for sale and ultimately sold.
The Company considers Funds From Operations (FFO) to be a relevant
supplemental measure of the performance of an equity REIT since such measure
does not recognize depreciation and certain amortization expenses as
operating expenses. Management believes that reductions for these charges are
not meaningful in evaluating income-producing real estate, which historically
has not depreciated. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs and should
not be considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flow as a
measure of liquidity.
For the nine months and three months ended September 30, 1996, FFO decreased
$1,378,000 and $335,000, respectively compared to the same period in 1995.
The principal reasons for these decreases include the sales of Beverly
Garland's Holiday Inn and the McDonnell Douglas Building, the renegotiation
of the Anacomp lease, and the increases in rental operating expenses and
general and administrative expenses. These decreases were partially offset
by the decrease in interest expense and the purchase of the Richmond Shopping
Center.
The calculation of FFO for the respective periods is as follows (in thousands):
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
Net Income $10,252 $9,727 $4,423 $2,335
Adjustments:
Gain on Sales of Real Estate (2,281) (1,428) (2,272) 0
Depreciation of Real Estate
and Tenant Improvements 7,179 8,493 2,576 2,867
Amortization and
Leasing Costs 566 302 209 69
------- ------- ------- -----
Funds from Operations $15,716 $17,094 $4,936 $5,271
------- ------- ------- -----
------- ------- ------- -----
8
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LIQUIDITY
The Company anticipates that cash flow from operating activities will
continue to provide adequate capital for all principal payments on notes
payable, recurring tenant improvements, and dividend payments in accordance
with REIT requirements and that cash on hand, available borrowings under
credit facilities, proceeds from sales of non-strategic assets, and the use
of project financing, as well as other debt and equity alternatives, will be
adequate to provide the necessary capital to achieve growth.
CAPITAL RESOURCES
The Company has secured and unsecured credit facilities to provide additional
capacity. Borrowings under the facilities bear interest at rates of IBOR
(the bank's international reference rate) plus 1.75% or prime per annum and
IBOR plus 2.00% or prime per annum, respectively. These facilities in their
present form, are scheduled to mature on June 1, 1997. As of September 30,
1996, approximately $2,450,000 was available to be drawn under these
facilities. On July 11, 1996, the Company sold Highlands Plaza and the
Fireman's Fund Building. Net proceeds from the dispositions total
approximately $22,700,000. Such proceeds were used to reduce borrowings
under the Company's credit facilities. The Fireman's Fund Building served as
a portion of the collateral for the Company's secured credit facility. With
the sale of the Fireman's Fund Building, the borrowing capacity under the
Company's credit facilities was reduced from $50,000,000 to approximately
$42,700,000. On July 26, 1996, the Company made an initial contribution of
approximately $20,125,000 into a newly formed limited liability company
("LLC"). The LLC's purpose is to acquire, own, operate, renovate, lease,
develop, finance and invest in the Ladera Shopping Center in Los Angeles,
California. Prior to December 31, 1996, the other LLC member is required to
fund approximately 75% of the LLC's cumulative contributions, thereby
reducing the Company's investment to 25% of the LLC. On August 12, 1996,
the Company exercised its option to purchase the land and building for the
development of its 1000 Van Ness project for approximately $9,000,000. On
September 16, 1996, the Company sold its investment in the building where its
corporate headquarters are located. Net proceeds from the disposition
totaled approximately $2,000,000. On October 11, 1996, the Company sold
Miramar Plaza, net proceeds from the disposition of approximately $7,000,000
were used to reduce borrowings under the Company's credit facilities. On
October 15, 1996, the Company announced the November 20, 1996 call of its
convertible debentures. The call will be made at par plus accrued interest.
Funds for the call will be provided by borrowings under the Company's credit
facilities.
At September 30, 1996, the Company's capitalization consisted of
$156,694,000 of debt and $200,813,000 of market equity (market equity is
defined as shares outstanding multiplied by the closing price of the common
shares on the New York Stock Exchange at September 30, 1996 of $11.75)
resulting in a debt to total market capitalization rate of .44 to 1. At
September 30, 1996, the Company's total debt consisted of $82,517,000 of
fixed rate debt, including $25,700,000 of convertible debentures and
$74,177,000 of variable rate debt. The average rate of interest on the fixed
and variable rate debt was 8.8% and 7.7%, respectively, at September 30, 1996.
9
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It is management's intention that the Company have access to the capital
resources necessary to expand and develop its business. Accordingly, the
Company may seek to obtain funds through additional equity offerings or debt
financing in a manner consistent with its intention to operate with an
acceptable debt capitalization policy. The Company 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 corporate purposes. As of September 30, 1996, no such issuance
has occurred.
FORWARD LOOKING STATEMENTS
The preceding comments in this Form 10-Q contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. The Company's actual results
could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference include those
discussed in the section entitled "Future Effect of Certain Events" in Item 7
of the Company's Form 10-K for the year ended December 31, 1995, incorporated
herein by reference.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Not Applicable
10
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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 thereunto duly authorized.
BURNHAM PACIFIC PROPERTIES, INC.
Date: 11/14/96 By: /s/ J. David Martin
------------------------- -----------------------------------
J. David Martin,
Chief Executive Officer
Date: 11/14/96 By: /s/ Daniel B. Platt
------------------------- -----------------------------------
Daniel B. Platt,
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 333
<SECURITIES> 0
<RECEIVABLES> 7,093
<ALLOWANCES> 1,797
<INVENTORY> 0
<CURRENT-ASSETS> 12,506
<PP&E> 375,914
<DEPRECIATION> 50,560
<TOTAL-ASSETS> 337,860
<CURRENT-LIABILITIES> 3,862
<BONDS> 156,694
0
0
<COMMON> 262,240
<OTHER-SE> (85,370)
<TOTAL-LIABILITY-AND-EQUITY> 337,860
<SALES> 35,701
<TOTAL-REVENUES> 36,023
<CGS> 9,538
<TOTAL-COSTS> 9,538
<OTHER-EXPENSES> 9,933
<LOSS-PROVISION> 310
<INTEREST-EXPENSE> 8,251
<INCOME-PRETAX> 7,991
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,991
<DISCONTINUED> 0
<EXTRAORDINARY> 2,261
<CHANGES> 0
<NET-INCOME> 10,252
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
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