<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, 1997
/ / 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)
Maryland 33-0204162
- ---------------------------------------------- --------------------------------
(State of other jurisdiction of incorporation) (IRS Employer 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 14,
1997: 23,442,852
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Real Estate $571,337 $389,634
Less Accumulated Depreciation (55,632) (48,978)
-------- --------
Real Estate-Net 515,705 340,656
Investment in Unconsolidated Subsidiaries 4,182
Subsidiaries
Cash and Cash Equivalents 9,275 4,095
Receivables-Net 7,011 4,860
Other Assets 9,801 6,584
-------- --------
Total $545,974 $356,195
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable and Other Liabilities 7,796 2,655
Tenant Security Deposits 1,437 929
Notes Payable 142,345 105,552
Line of Credit Advances 153,606 72,900
-------- --------
Total Liabilities 305,184 182,036
-------- --------
Commitments and Contingencies
Minority Interest 501 434
-------- --------
Stockholders' Equity:
Par Value $.01/Share
Preferred Stock, 5,000,000 Shares
Authorized; No Shares Issued or Outstanding
Common Stock, $.01 Par Value,
95,000,000 Shares Authorized;
23,442,852 and 17,096,452 Shares
Outstanding at September 30, 1997, and
December 31, 1996, Respectively 335,758 262,340
Dividends Paid in Excess of Net Income (95,469) (88,615)
-------- --------
Total Stockholders' Equity 240,289 173,725
-------- --------
Total $545,974 $356,195
-------- --------
-------- --------
</TABLE>
See the Accompanying Notes
2
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVENUES THREE MONTHS ENDED NINE MONTHS ENDED
9/30/97 9/30/96 9/30/97 9/30/96
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rents $17,958 $11,509 $47,559 $35,701
Interest 159 102 522 322
---------- ---------- ---------- ----------
Total Revenues 18,117 11,611 48,081 36,023
---------- ---------- ---------- ----------
EXPENSES
Interest 4,771 2,562 12,827 8,251
Rental Operating 4,652 3,212 12,792 9,538
Provision for Bad Debt 125 100 371 310
General and Administrative 724 625 2,279 1,712
Depreciation and Amortization 3,802 2,951 10,731 8,221
---------- ---------- ---------- ----------
Total Costs and Expenses 14,074 9,450 39,000 28,032
---------- ---------- ---------- ----------
Income From Operations Before
Distribution to Minority Interest
Holders, Income from Unconsolidated Subsidiaries,
Gain on Sales of Real Estate and
Extraordinary Item 4,043 2,161 9,081 7,991
Distribution to Minority Interest Holders (11) (10) (33) (20)
Income from Unconsolidated Subsidiaries 79 - 143 -
Gain on Sales of Real Estate - 2,272 - 2,281
---------- ---------- ---------- ----------
Income before Extraordinary Item 4,111 4,423 9,191 10,252
Loss from Early Extinguishment of Debt - - (52) -
---------- ---------- ---------- ----------
Net Income $ 4,111 $ 4,423 $ 9,139 $10,252
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE:
Income before Extraordinary Item $ 0.18 $ 0.26 $ 0.44 $ 0.60
Extraordinary Item - - - -
---------- ---------- ---------- ----------
Net Income $ 0.18 $ 0.26 $ 0.44 $ 0.60
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted Average Number of Shares 23,433,982 17,084,452 20,601,118 17,082,499
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See the Accompanying Notes
3
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
9/30/97 9/30/96
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 9,139 $ 10,252
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation and Amortization 10,731 8,221
Provision for Bad Debt 371 310
Gain on Sales of Real Estate (2,281)
Common Stock - Directors' Fees 243 74
Changes in Other Assets and Liabilities:
Receivables and Other Assets (4,697) (891)
Accounts Payable and Other 3,800 (1,498)
Tenant Security Deposits 508 (70)
--------- --------
Net Cash Provided By Operating Activities 20,095 14,117
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for Acquisitions of Real Estate and
Capital Improvements (203,503) (50,701)
Proceeds from Sales of Real Estate 25,469 33,990
Principal Payments on Notes Receivable 40 114
--------- --------
Net Cash Used For Investing Activities (177,994) (16,597)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings Under Line of Credit Agreements 170,120 55,018
Repayments Under Line of Credit Agreements (89,414) (39,709)
Principal Payments of Notes Payable (36,788) (1,421)
Proceeds from Issuance of Notes Payable 61,979
Payment of Notes Receivable-Stock Purchase Plan 197
Net Proceeds from Sale of Stock 73,175
Dividends Paid (15,993) (12,815)
--------- --------
Net Cash Provided for Financing Activities 163,079 1,270
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 5,180 (1,210)
Cash and Cash Equivalents at Beginning Of Period 4,095 1,543
--------- --------
Cash and Cash Equivalents at End Of Period $ 9,275 $ 333
--------- --------
--------- --------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During Nine Months For Interest $ 14,295 $ 9,665
--------- --------
--------- --------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Notes Payable and Obligations Assumed $ 16,916
Operating Partnership Units Issued in
Connection with Real Estate Acquisitions 66
Proceeds from Notes Payable 25,400
Cash Paid For Real Estate 62,810
---------
Fair Value of Real Estate Acquired $ 105,192
---------
---------
</TABLE>
4
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, DECEMBER 31, 1996, AND SEPTEMBER 30, 1996
(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, 1996. Certain of the 1996 amounts have been reclassified to
conform to 1997 presentation.
Dividends Per Share - Dividends of 25 cents per share were paid on
September 30,1997 to shareholders of record on September 23, 1997.
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.
In February of 1997, the Financial Accounting Standards Boards (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128,
EARNING PER SHARE (EPS). This statement requires the presentation of
earnings per share to reflect both "Basic EPS" as well as "Diluted EPS"
on the face of the income statement. In general, Basic EPS excludes
dilution created by stock equivalents and is a function of the weighted
average number of common shares outstanding for the period. Diluted EPS
does reflect the potential dilution created by stock equivalents if such
equivalents are converted into common stock and is calculated in the same
manner as fully Diluted EPS illustrated in APB #15.
The Company will be required to adopt the new method of reporting EPS for
the year ending December 31, 1997. The Company's EPS as reflected in
this document includes Basic EPS for 1997 and 1996.
Based on the Company's current capital structure, the anticipated results
of implementing SFAS No. 128 would reflect EPS essentially the same as
currently reported.
3. SALE OF COMMON STOCK
On May 2, 1997, the Company issued 6,325,000 shares of its Common Stock
at a public offering price of $12.375 per share. The shares were sold
pursuant to a previously filed $200 million shelf registration statement.
The net proceeds of the
5
<PAGE>
offering were used to pay-off the Bridge Financing (See Note 4) and
reduce borrowings under the Company's Credit Facility. On July 18, 1997,
the Company filed with the Securities and Exchange Commission a further
shelf registration statement on Form S-3 covering $200 million of common
stock, preferred stock and debt securities. As a result of this and the
Company's previous shelf registration statement, the Company has
registered an aggregate of $321,728,125 of unissued securities.
4. REAL ESTATE
Real Estate is summarized as follows (in thousands):
September 30, 1997 December 31, 1996
------------------ -----------------
Retail Centers $451,567 $287,675
Office/Industrial Buildings 57,819 57,740
Retail Centers Under Development 59,425 41,297
Other 2,526 2,922
-------- --------
Total Real Estate 571,337 389,634
Accumulated Depreciation (55,632) (48,978)
-------- --------
Real Estate-Net $515,705 $340,656
-------- --------
-------- --------
On January 31, 1997, the Company purchased a portfolio of four retail
shopping centers. The purchase price of the portfolio was approximately
$52,100,000. The acquisition of the portfolio was financed by the
assumption of a $3,693,000 mortgage loan bearing interest at 9.75%, due
in July 1998, secured by one of the properties; a new $25,400,000, 7.98%,
7-year mortgage loan, secured by another of the properties; with the
balance coming from borrowing under the Company's Credit Facility. The
issuer of the $25,400,000 mortgage note is a bankruptcy remote, special
purpose, partnership in which the Company has substantially all economic
benefits.
On January 31, 1997, the Company sold a portion of Plaza Rancho Carmel
for $735,000. No gain or loss resulted from such sale. Proceeds were
used to reduce borrowings under the Company's Credit Facility.
On February 28, 1997, the Company purchased a retail shopping center for
approximately, $6,202,000. The acquisition was financed with borrowings
under the Company's Credit Facility.
On April 3, 1997, the Company purchased a retail shopping center for
approximately, $9,080,000. The acquisition was financed by the
assumption of an approximately $5,287,000 mortgage loan bearing interest
at 8.8%, maturity in 2020, with the remainder financed with borrowings
under the Company's Credit Facility.
On April 4, 1997, the Company purchased a portfolio of three retail
shopping centers. The purchase price of the portfolio was approximately
$69,800,000. In order to facilitate the closing of this acquisition, the
Company obtained a temporary increase in its Credit Facility of
$70,000,000 (the "Bridge Financing"). Of the total amount,
6
<PAGE>
$42,000,000 was secured by mortgages on the three properties so acquired
and $28,000,000 was unsecured. The secured and unsecured portions of the
Bridge Financing accrued interest at LIBOR (London Inter-Bank Offer
Rate), plus 1.65% and LIBOR plus 2.50%, respectively. The Bridge
Financing was repaid with proceeds from the Company's stock offering.
(See Note 3)
On May 30, 1997, the Company purchased a portfolio of two retail shopping
centers. The purchase price of the portfolio was approximately
$25,300,000. The acquisition of the portfolio was financed by the
assumption of a $6,536,902 mortgage loan, bearing interest at 7.875%, due
in September 2005, secured by one of the properties, with the remainder
financed with borrowings under the Company's Credit Facility.
On June 11, 1997, title of Village Station was passed on to the mortgagee
of the $3.9 million non-recourse mortgage secured by the property. No
gain or loss resulted from such transfer.
On June 26, 1997, the Company purchased a retail shopping center for
approximately $10,200,000. The acquisition was effected with borrowings
under the Company's Credit Facility and the issuance of partnership units
by a newly-organized partnership of which the Company is the general
partner and the seller is the limited partner, which units are
exchangeable for approximately 151 shares of common stock of the Company.
On August 1, 1997, the Company's joint venture investor in Ladera Center
Associates, LLC (the "LLC") funded its 75% interest in the Ladera
Shopping Center. The LLC in turn distributed the other member's
contribution to the Company, leaving the Company with an unconsolidated
25% interest in the LLC. Proceeds were used to reduce borrowings under
the Company's Credit Facility.
On August 15, 1997, the Company purchased a retail shopping center for
approximately $22,340,000. The acquisition was financed with borrowings
under the Company's Credit Facility. The Center was the fourth
acquisition of the six properties brought to the Company in October 1995,
as a part of the transaction that named David Martin as President and CEO
of Burnham Pacific.
5. LINE OF CREDIT ADVANCES
On July 21, 1997, the Company obtained an increase in its Credit Facility
capacity from $135,000,000 to $205,000,000, of which $135,000,000 is to
be secured by various mortgages and $75,000,000 is to be unsecured.
Effective August 15, 1997, the Company obtained a .25% decrease in its
interest borrowing rates on its Credit Facility. Borrowings under the
secured and unsecured portion of its Credit Facility beginning on August
15, 1997, bear interest rates of LIBOR (London Inter-Bank Offer Rate)
plus 1.40% or LIBOR plus 1.50%, respectively.
7
<PAGE>
6. SUBSEQUENT EVENTS
On October 15, 1997, the Company purchased a retail shopping center for
approximately $27,500.000. The acquisition was financed by the
assumption of a $23,592,000 mortgage loan bearing interest at 8.05%, due
in March 2006, secured by the Center; with the balance coming from
borrowings under the Company's Credit Facility. The entity which assumed
the mortgage note is a bankruptcy remote, special purpose corporation in
which the Company has substantially all economic benefits.
On October 29, 1997, the Company purchased a portfolio of five retail
shopping centers. The purchase price of the portfolio was approximately
$23,500,000. The acquisition of the portfolio was financed by the
assumption of a $1,623,358 mortgage loan bearing interest at 8.75%, due
in February, 2017, secured by one of the properties; the assumption of
another $2,578,447 mortgage loan bearing interest at 8.38%, due in July,
2007, secured by another of the properties; with the balance coming from
borrowings under the Company's Credit Facility. The Company also
announced that it had entered into an agreement to purchase an additional
five retail centers from the same seller, with the ability to purchase
three additional centers at a future date, two of which are under
development. The purchase of the additional eight centers is subject to
completion of due diligence and completion and leasing of those centers
currently under construction.
On November 5, 1997, the Company announced the signing of letters of
intent relating to a proposed acquisition of a 2.7 million square-foot
California retail portfolio, and simultaneous investments by two capital
groups of $120,000,000. The Company would issue $70,000,000 in
convertible preferred stock in one transaction. In the second
transaction, preferred partnership securities are presently expected to
be issued. The portfolio is being valued at an initial purchase price of
up to $314,000,000 and a total price of up to $344,000,000. The
convertible preferred securities will be priced at a conversion premium
of 7% over the negotiated price of $14.38 per share ($15.38 per share)
and carry a 8% dividend yield. The balance of the proceeds needed to
complete the transaction is expected to be provided by $150,000,000 in
first mortgage debt collaterialized by the portfolio at a fixed rate of
.85% over treasuries and by $55,000,000 from the Company's Credit
Facility. The closing of the transactions are subject to a number of
conditions including due diligence and definitive documents.
The Company has signed an agreement to sell its Pacific West Outlet
Center in Gilroy, California, to an unrelated buyer for approximately
$38,500,000. The sale is expected to close during December, 1997, and is
contingent upon a number of conditions including due diligence by the
buyer.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
September 30, 1997 and 1996:
During the three months ended September 30, 1997, net income decreased
$312,000 or 7%, to $4,111,000 ($0.18 per share) compared to $4,423,000 ($0.26
per share) for the same period in 1996. Included in 1996 was a gain on sales
of real estate of $2,272,000. If the gain were excluded, net income in 1997
would have increased $1,960,000 or 91% as compared to the same period in
1996. For the nine months ended September 30, 1997, net income decreased
$1,113,000 or 11% to $9,139,000 ($0.44 per share) compared to $10,252,000
($0.60 per share) for the same period in 1996. Included in 1996 was a gain
on sales of real estate of $2,281,000. If the gain were excluded, net income
in 1997 would have increased $1,168,000 or 15% as compared to the same period
in 1996. The principal reasons for these changes are discussed in the
following paragraphs.
Compared to the same period in 1996, revenues increased $6,506,000 for the
three month period and $12,058,000 for the nine month period. These increases
were primarily due to the improved operating results from the Company's
existing portfolio of properties, the acquisition of approximately
$204,000,000 of retail properties during December 1996 and the first nine
months of 1997 and the signing of a new lease with Anacomp, Inc. during the
third quarter of 1997.
Interest expense increased $2,209,000 for the 1997 three month period and
$4,576,000 for the 1997 nine month period, as compared to the same period in
1996. The increase is attributable to higher average outstanding balances
under the Company's Credit Facility and new mortgages placed or assumed in
connection with the acquisition of retail properties.
Rental operating expenses increased over 1996 by $1,440,000 for the 1997
three month period and $3,254,000 for the 1997 nine month period. This
increase reflects the previously mentioned acquisition of retail properties.
General and administrative expenses increased $99,000 and $567,000 for the
1997 three and nine month periods, respectively, as compared to the same
period in 1996. These increases reflect the growth in the Company as a result
of the pace of acquisitions in 1997.
Compared to the same period in 1996, depreciation and amortization expense
increased $851,000 for the 1997 three month period and $2,510,000 for the
1997 nine month period. This increase reflects the acquisition of retail
properties and depreciation taken on two retail structures undergoing
renovation at two centers.
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
9
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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 three and nine months ended September 30, 1997, FFO increased
$2,731,000 and $3,495,000, respectively, compared to the same period in 1996.
The primary reasons for these increases include improved operating results
from the Company's existing portfolio of properties, the acquisition of
retail properties during December 1996 and the first nine months of 1997 and
the signing of a new lease with Anacomp, Inc. during the third quarter of
1997. These increases were partially offset by higher general and
administrative expenses reflecting the growth in the Company as a result of
the pace of acquisitions in 1997.
The calculation of FFO for the respective periods is as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
------ ------- ------- -------
Net Income $4,111 $ 4,423 $ 9,139 $10,252
Adjustments:
Gain on Sales of Real Estate -- (2,272) -- (2,281)
Depreciation of Real Estate and
Tenant Improvements 3,353 2,576 9,608 7,179
Amortization of Leasing Costs 203 209 412 566
Early Extinguishment of Debt -- -- 52 --
------ ------- ------- -------
Funds from Operations $7,667 $ 4,936 $19,211 $15,716
------ ------- ------- -------
------ ------- ------- -------
MATERIAL CHANGES IN FINANCIAL CONDITION
September 30, 1997 compared to December 31, 1996:
On January 31, 1997, the Company purchased a portfolio of four retail
shopping centers. The purchase price of the portfolio was approximately
$52,100,000. The acquisition of the portfolio was financed by the assumption
of a $3,693,000 mortgage loan bearing interest at 9.75%, due in July 1998,
secured by one of the properties; a new $25,400,000, 7.98%, 7-year mortgage
loan, secured by another of the properties; with the balance coming from
borrowings under the Company's Credit Facility. The issuer of the
$25,400,000 mortgage note is a bankruptcy remote, special purpose,
partnership in which the Company has substantially all economic benefits.
On January 31, 1997, the Company sold a portion of Plaza Rancho Carmel for
$735,000. No gain or loss resulted from such sale. Proceeds were used to
reduce borrowings under the Company's Credit Facility.
On February 28, 1997, the Company purchased a retail shopping center for
approximately, $6,202,000. The acquisition was financed with borrowings
under the Company's Credit Facility.
10
<PAGE>
On April 3, 1997, the Company purchased a retail shopping center for
approximately, $9,080,000. The acquisition was financed by the assumption of
an approximately $5,287,000 mortgage loan bearing interest at 8.8%, maturity
in 2020, with the remainder financed with borrowings under the Company's
Credit Facility.
On April 4, 1997, the Company purchased a portfolio of three retail shopping
centers. The purchase price of the portfolio was approximately $69,800,000.
In order to facilitate the closing of this acquisition, the Company obtained
a temporary increase in its Credit Facility of $70,000,000 (the "Bridge
Financing"). Of the total amount, $42,000,000 was secured by mortgages on
the three properties so acquired and $28,000,000 was unsecured. The secured
and unsecured portions of the Bridge Financing accrued interest at LIBOR
(London Inter-Bank Offer Rate), plus 1.65% and LIBOR plus 2.50%,
respectively. The Bridge Financing was repaid with proceeds from the
Company's May 1997 Stock offering.
On May 30, 1997, the Company purchased a portfolio of two retail shopping
centers. The purchase price of the portfolio was approximately $25,300,000.
The acquisition of the portfolio was financed by the assumption of a
$6,536,902 mortgage loan, bearing interest at 7.875%, due in September 2005,
secured by one of the properties, with the remainder financed with borrowings
under the Company's Credit Facility.
On June 11, 1997, title of Village Station was passed on to the mortgagee of
the $3.9 million non-recourse mortgage secured by the property. No gain or
loss resulted from such transfer.
On June 26, 1997, the Company purchased a retail shopping center for
approximately $10,200,000. The acquisition was effected with borrowings
under the Company's Credit Facility and the issuance of partnership units by
a newly-organized partnership of which the Company is the general partner and
the seller is the limited partner, which units are exchangeable for
approximately 151 shares of common stock of the Company.
On August 1, 1997, the Company's joint venture investor in Ladera Center
Associates, LLC (the "LLC") funded its 75% interest in the Ladera Shopping
Center. The LLC in turn distributed the other member's contribution to the
Company, leaving the Company with an unconsolidated 25% interest in the LLC.
Proceeds were used to reduce borrowing the Company's Credit Facility.
On August 15, 1997, the Company purchased a retail shopping center for
approximately $22,340,000. The acquisition was financed with borrowings
under the Company's Credit Facility. The Center was the fourth acquisition
of the six properties brought to the Company in October 1995, as a part of
the transaction that named David Martin as President and CEO of Burnham
Pacific.
As of September 30, 1997, and December 31, 1996 approximately $2,981,000 and
$2,460,000, respectively, of straight-lined rent is included in other assets.
As of September 30, 1997, the Company had a $205,000,000 Credit Facility of
which $135,000,000 was secured or to be secured by mortgages on various of
the Company's properties and $70,000,000 was unsecured. As of August 15,
1997, borrowings under the secured and unsecured portions of the Credit
Facility bear interest at rates of LIBOR
11
<PAGE>
(London Inter-Bank Offer Rate) plus 1.40% or LIBOR plus 1.50%, respectively.
The Credit Facility is scheduled to mature in November 1998, with a one year
extension option available. At September 30, 1997, borrowings of
approximately $153,606,000 were outstanding under the Credit Facility, of
which $94,437,000 was secured and $59,169,000 was unsecured.
At September 30, 1997, the Company had $18,753,000 outstanding under a
construction loan, secured by one of the Company's development properties.
Borrowings under this loan bear interest at the bank's eurodollar base rate
plus 2.50% or at its prime rate. The loan is scheduled to mature in November
1997, and the Company is negotiating an extension for an additional year.
At September 30, 1997, the Company's capitalization consisted of
$295,951,000 of debt and $347,189,000 of market equity (market equity is
defined as shares of common stock outstanding multiplied by the closing price
on the New York Stock Exchange, which was $14.81 at September 30, 1997)
resulting in a debt to total market capitalization ratio of .46 to 1. At
September 30, 1997, the Company's total debt consisted of $123,592,000 of
fixed rate debt and $172,359,000 of variable rate debt. The average rates of
interest on the fixed and variable rate debt were 8.5% and 7.3%,
respectively, at September 30, 1997.
On October 15, 1997, the Company purchased a retail shopping center for
approximately $27,500.000. The acquisition was financed by the assumption of
a $23,592,000 mortgage loan bearing interest at 8.05%, due in March 2006,
secured by the Center; with the balance coming from borrowings under the
Company's Credit Facility. The entity which assumed the mortgage note is a
bankruptcy remote, special purpose corporation in which the Company has
substantially all economic benefits.
On October 29, 1997, the Company purchased a portfolio of five retail
shopping centers. The purchase price of the portfolio was approximately
$23,500,000. The acquisition of the portfolio was financed by the assumption
of a $1,623,358 mortgage loan bearing interest at 8.75%, due in February,
2017, secured by one of the properties; the assumption of another $2,578,447
mortgage loan bearing interest at 8.38%, due in July, 2007, secured by
another of the properties; with the balance coming from borrowings under the
Company's Credit Facility. The Company also announced that it had entered
into an agreement to purchase an additional five retail centers from the same
seller, with the ability to purchase three additional centers at a future
date, two of which are under development. The purchase of the additional
eight centers is subject to completion of due diligence and completion and
leasing of those centers currently under construction.
On November 5, 1997, the Company announced the signing of letters of intent
relating to a proposed acquisition of a 2.7 million square-foot California
retail portfolio, and simultaneous investments by two capital groups of
$120,000,000. The Company would issue $70,000,000 in convertible preferred
stock in one transaction. In the second transaction, preferred partnership
securities are presently expected to be issued. The portfolio is being valued
at an initial purchase price of up to $314,000,000 and a total price of up to
$344,000,000. The convertible preferred securities will be priced at a
conversion premium of 7% over the negotiated price of $14.38 per share
($15.38 per share) and carry a 8% dividend yield. The balance of the
proceeds needed to complete the transaction is expected to be provided by
$150,000,000 in
12
<PAGE>
first mortgage debt collaterialized by the portfolio at a fixed rate of .85%
over treasuries and by $55,000,000 from the Company's Credit Facility. The
closing of the transactions are subject to a number of conditions including
due diligence and definitive documents.
The Company has signed an agreement to sell its Pacific West Outlet Center in
Gilroy, California, to an unrelated buyer for approximately $38,500,000. The
sale is expected to close during December, 1997, and is contingent upon a
number of conditions including due diligence by buyer. The Company expects
to report a gain, as a result of the sale, of approximately $5,000,000.
The Company anticipates that cash flow from operating activities will
continue to provide adequate capital for required payments on notes payable,
recurring tenant improvements, and dividend payments in accordance with REIT
requirements through the end of 1997. However, the Company will require
additional sources of capital to finance the acquisition and development of
additional properties. It is management's intention that the Company have
access to the capital resources necessary to expand and develop its business.
Sources of additional capital may include borrowings under credit facilities
and mortgage indebtedness, proceeds from sales of non-strategic assets, the
sale of interests in certain properties to third parties and, to the extent
market conditions permit, the public or private issuance of debt or equity
securities. There can be no assurances that capital necessary to finance
future acquisitions and development will be available on acceptable terms or
at all.
At September 30, 1997, the Company had on file with the Securities and
Exchange Commission effective shelf registration statements on Form S-3
covering an aggregate of $321,728,125 of unissued common stock and debt
securities.
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. Reference is made to the
Company's Form 10-K Report for the year ended December 31, 1996 under the
caption "Risk Factors" for a discussion of certain factors which could cause
the Company's actual results to differ materially from those set forth in the
forward-looking statements.
13
<PAGE>
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:
On August 1, 1997, a partnership of which the Company is the general partner,
issued 2,969 limited partners units upon the release of funds escrowed at the
time of the Company's acquisition of the Richmond Shopping Center in 1995.
Each such limited partner unit is redeemable under certain circumstances for
a share of the Company's Common Stock. No registration statement was
necessary as the issuance did not involve a public offering.
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:
(a) The following Exhibits are part of this report:
27.0 Financial Data Schedule.
(b) The following reports on Form 8-K was filed during or with respect to
matters occurring within the period covered by this report:
Form 8-K Report filed August 7, 1997, (earliest event reported May 30,
1997): Item 5, regarding various individually insignificant acquisitions; and
Item 7, regarding Financial Statements and Pro Forma financial information.
14
<PAGE>
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: //11-14-97// By: //J. David Martin//
------------------------ -----------------------------------
J. David Martin, Chief Executive Officer
Date: //11-14-97// By: //Daniel B. Platt//
------------------------ -----------------------------------
Daniel B. Platt, Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,275
<SECURITIES> 0
<RECEIVABLES> 8,529
<ALLOWANCES> 1,518
<INVENTORY> 0
<CURRENT-ASSETS> 20,994<F1><F2>
<PP&E> 571,337
<DEPRECIATION> 55,632
<TOTAL-ASSETS> 545,974
<CURRENT-LIABILITIES> 9,233
<BONDS> 295,951
0
501
<COMMON> 335,758
<OTHER-SE> (95,469)
<TOTAL-LIABILITY-AND-EQUITY> 545,974
<SALES> 47,559
<TOTAL-REVENUES> 48,081
<CGS> 12,792
<TOTAL-COSTS> 12,792
<OTHER-EXPENSES> 13,010
<LOSS-PROVISION> 371
<INTEREST-EXPENSE> 12,827
<INCOME-PRETAX> 9,191
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,191
<DISCONTINUED> 0
<EXTRAORDINARY> (52)
<CHANGES> 0
<NET-INCOME> 9,139
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<FN>
<F1>Includes 4,182 of Investment in Unconsolidating Subsidiary
<F2>Also includes 9,801 of Other Assets and 7,011 of Receivables-Net
</FN>
</TABLE>
