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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ / Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required)
For the fiscal year ended December 31, 1997 Commission file number 1-9524
BURNHAM PACIFIC PROPERTIES, INC.
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(Exact name of Registrant as specified in its Charter)
Maryland 33-0204162
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
610 West Ash Street, San Diego, California 92101
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(Address of principal executive offices) (Zip Code)
(619) 652-4700
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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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
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Indicated by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K / /
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At March 18, 1998 the aggregate market value of the Registrant's shares
of common stock, $.01 par value, held by non-affiliates of the Registrant was
$ 332,893,400
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There were 23,463,852 shares of common stock outstanding at March 18,
1998.
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Part III and Item 5 incorporate certain provisions of the Registrant's
Proxy Statement for its 1998 Annual Meeting to be filed subsequently.
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FORWARD LOOKING STATEMENTS
The information contained and incorporated by reference in this Form
10-K contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "1934 Act"). A
number of factors could cause results to differ materially from those
anticipated by such forward-looking statements. These factors include, but
are not limited to, the competitive environment in the retail industry in
general and in the Company's specific market areas, changes in prevailing
interest rates and the availability of financing, inflation, economic
conditions in general and in the Company's specific market areas, labor
disturbances, demands placed on management by the recent substantial increase
in the number of properties owned by the Company (the "Properties"), changes
in the Company's acquisition plans and certain other factors described under
"Risk Factors" in Item 1 below. In addition, such forward-looking statements
are necessarily dependent upon assumptions, estimates and data that may be
incorrect or imprecise. Accordingly, any forward-looking statements included
or incorporated by reference in this Form 10-K do not purport to be
predictions of future events or circumstances and may not be realized.
Forward-looking statements can be identified by, among other things, the use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "pro forma," or "anticipates," or the negative thereof, or
other variations thereon or comparable terminology, or by discussions of
strategy or intentions.
PART I
ITEM 1. BUSINESS
GENERAL
Burnham Pacific Properties, Inc. (the "Company") is a fully-integrated
real estate operating company which acquires, rehabilitates, develops and
manages retail shopping centers on the West Coast. As of December 31, 1997,
the Company owned interests in 61 retail shopping centers, 59 of which were
fully operational, and two of which were in various stages of development.
Fifty-four of the properties were located in California, six in Washington
and 1 in New Mexico. At December 31, 1997, the Company also owned four
office/industrial properties located in Southern California, which are
considered non-strategic. Total Company owned-gross leasable area ("GLA") was
approximately 8.5 million square feet.
The Company was originally incorporated as a California corporation in
1986 and in 1987 became the successor to a publicly-traded real estate
limited partnership which was organized in 1963. The Company reorganized as
a Maryland corporation in May 1997. The Company has elected to qualify as a
REIT for federal income tax purposes.
OPERATING PARTNERSHIP FORMATION
The Company formed Burnham Pacific Operating Partnership, L.P. (the
"Operating Partnership") under the Delaware Revised Uniform Limited
Partnership Act in November 1997, and by year end had transferred to the
Operating Partnership or subsidiaries of the Operating Partnership legal or
beneficial ownership of substantially all of the real property and related
personal property owned by the Company and its subsidiaries and of the
beneficial
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interest owned by the Company and its subsidiaries in any partnership or
limited liability company that owns a direct or indirect interest in real
property and related personal property. The Company intends that the
Operating Partnership (including subsidiaries of the Operating Partnership)
will be the vehicle through which the Company will own its current assets,
will make its future acquisitions and generally conduct its business.
Effective January 1, 1998, the Operating Partnership has become the employer
and paymaster of all of the Company's employees. The Company's operating
partnership structure (frequently called an "UPREIT Structure") provides
sellers the opportunity to contribute properties to the Company (through the
Operating Partnership) on a tax-deferred basis in exchange for limited
partner units of the Operating Partnership. The Company believes that its
ability to offer tax-deferred transactions to sellers will enhance its
attractiveness to local owners and developers. References in this report to
the "Company" include the Operating Partnership and other consolidated
subsidiaries unless the context otherwise requires.
1995-1996 RESTRUCTURING
In October 1995, the Company appointed J. David Martin as its Chief
Executive Officer and President and as a member of its Board of Directors.
The Company simultaneously appointed Daniel B. Platt as its Chief Financial
Officer and Chief Administrative Officer and James M. Kessler as Director of
Development. Concurrently with these appointments, the Company acquired
interests in certain retail development projects from Mr. Martin and certain
affiliates ("The Martin Properties"). (For additional information regarding
these projects, see "Properties - Development Properties" and "Real Estate -
Development Properties" in Note 2 to the Financial Statements accompanying
this report.)
In November 1995, new management developed, and the Board of Directors
approved, a business plan for repositioning the Company which was executed in
late 1995 and in 1996. The focus of this plan was to position the Company
for future growth. The principal features of the plan included those
discussed below.
The Company increased its financial flexibility by reducing its
quarterly dividend, negotiating a new credit facility with increased
borrowing capacity, negotiating a joint venture relationship with a major
pension fund and developing a "DownReit" structure to pay for acquisitions
with limited partnership units which are exchangeable for common stock.
The Company concluded that it should focus exclusively on the
acquisition, rehabilitation, development and management of market/drug and
promotional retail centers and diversify its geographic focus throughout
California. Consistent with the new retail orientation, the Company disposed
of five of its non-strategic office and industrial properties in 1996 and
used the proceeds to pay down borrowings under its previous lines of credit.
The Company also increased its internal capabilities by internalizing
the management of the majority of its portfolio, investing in new property
management information systems, creating an acquisitions and dispositions
group, internalizing the leasing of a significant portion of its portfolio,
adding an experienced rehabilitations and development group and opening
regional offices in Los Angeles and San Francisco.
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During 1996, the Company engaged in development activities with respect
to two of the Martin Projects. It substantially completed construction of
Phase I of Hilltop Plaza in Richmond, California and began construction on
1000 Van Ness, a multi-use project in downtown San Francisco. See
"Properties - Development Properties."
1997 ACTIVITIES
In 1997, the Company built on the same guiding principles that formed
its October 1995 Business Plan while concentrating its efforts on the growth
of its retail portfolio by acquiring 42 properties totaling 5.6 million
square feet of Company-owned GLA for approximately $598.1 million. The
acquisition activity was notable, particularly in the fourth quarter, with
the acquisition of the six properties in the Pacific Northwest and the
acquisition on December 31, 1997 of a portfolio of 20 California shopping
centers (the "Golden State Properties") containing approximately 2.6 million
square feet of Company-owned GLA. In addition, the Company sold its Pacific
West Outlet Center which was considered to be non-strategic and sold 75%
interests in Ladera Center and Margarita Plaza to California Urban Investment
Partners, retaining a 25% interest in each center.
The Company continued its geographic diversification by expanding into
the Pacific Northwest through the opening of offices in Portland and Seattle.
The Company also strengthened its management team with the addition of two
senior executives with a combined total of 64 years experience in retail real
estate, much of it working for the type of retail companies that are the
Company's anchor tenants.
The Company financed its acquisition activities through a variety of
sources including the public issuance of common stock, the private issuance
of preferred stock and Operating Partnership units, mortgage indebtedness,
proceeds from the sale of non-strategic assets, the sale of interests in
certain properties to third parties, and borrowings under credit facilities.
The Company's development and rehabilitations group completed one
rehabilitation project, substantially completed the construction and leasing
of the 1000 Van Ness project, and obtained final approval from its Board of
Directors for the commencement of construction of the retail portion of the
Downtown Pleasant Hill project. See "Properties - Development Properties."
Throughout 1997, the Company engaged in discussions concerning
acquisitions and developments of retail properties that might be consistent
with its business plan. Some of these discussions have resulted in an
additional acquisition subsequent to year-end. See Note 18 - "Subsequent
Events" to the accompanying Financial Statements. As a part of its ongoing
business, the Company regularly engages in discussions with public and
private real estate entities regarding possible portfolio or asset
acquisitions or business combinations. See Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
discussions of various of the Company's activities during the year.
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Golden State Properties Acquisition
Pursuant to the terms of the acquisition agreement (the "Contribution
Agreement"), the then owners of the Golden State Properties (the "Golden
State Contributors") contributed 20 shopping centers to the Operating
Partnership in exchange for initial consideration of approximately $302.4
million. This initial consideration was comprised of approximately $50
million of Preferred Limited Partner Units ("Preferred Units") of the
Operating Partnership and approximately $252.4 million in cash. The Company
financed the cash portion of the purchase price through the privately
negotiated sale of $70 million of Series 1997-A Convertible Preferred Stock
("Series A Preferred Stock") and the borrowing by a bankruptcy-remote
subsidiary of the Operating Partnership of $150 million in first mortgage
debt collateralized by 19 of the Golden State Properties and $32.4 million of
additional borrowings under the Company's existing credit facility with
Nomura Asset Capital Corporation. The mortgage debt bears interest at 6.76%
annually (representing a spread of 95 basis points over the treasury bond
rates of comparable maturities) and is fixed for the ten year term. The
preferences and other economic terms of the Preferred Units are substantially
identical to those of the Series A Preferred Stock. A description of certain
terms of the Series A Preferred Stock, the Preferred units and the common
units of the Operating Partnership (the "Common Units") is contained in Item
5 ("Market for Registrant's Common Equity and Related Stockholder Matters -
Recent Issues of Unregistered Securities") of this report.
In addition, the Golden State Contributors have the right to receive
additional consideration of up to $41.6 million for additional income
resulting from the lease-up of certain specified portions of the Golden State
Properties and construction and lease-up of certain additional space. The
additional consideration, if any, will be paid out over an eighteen-month
period. The Golden State Contributors have the option of taking the
additional consideration in Common Units with the number of such Common Units
to be the amount of such additional value divided by the then fair market
value (as determined at the respective times of payment) of the Common Stock,
subject to certain conditions. The Golden State Contributors will have the
option of having the Company or the Operating Partnership immediately redeem
such Common Units for cash. Any leases for the unleased and unbuilt space
must adhere to certain standards as to use, creditworthiness and lease terms,
with the Contributors responsible for all leasing costs and the Company
retaining certain approval rights.
EMPLOYEES
At December 31, 1997, the Company had 72 employees.
PROPERTIES
Market/Drug centers comprise approximately 65% of the Company's retail
portfolio. The Company defines Market/Drug centers as those that serve a
fairly localized trade area and that offer an assortment of goods and
services, such as groceries and drugs, designed to meet the day-to-day needs
of consumers. Management believes that such centers are less susceptible to
economic downturns because purchases from supermarkets and drug stores tend
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to be less discretionary in nature, and further believes that supermarkets
and drugstores are strong anchor tenants because of the regular, recurring
nature of the shopping trips they generate. Because many supermarket and
drug chains continue to adjust the average size of their stores, many of
these centers also lend themselves to the Company's rehabilitation strategy.
Promotional centers comprise approximately 31% of the Company's retail
portfolio. The Company defines promotional centers as those centers with
multiple retailers as anchor tenants. The Company defines promotional
retailers as retailers which typically offer convenience, a broad selection
and low pricing on a fairly discrete category of retail merchandise, and
limited amounts of non-anchor space. Such retailers are sometimes referred
to as "category killers." Management believes that promotional retailers
provide a broad base of potential tenants for 15,000 to 45,000 square-foot
stores, typical of the Company's Promotional Centers, thereby mitigating its
releasing risk.
In addition, the Company looks for Market/Drug and Promotional centers
with an entertainment component (such as a multiscreen cinema), because the
entertainment component typically brings additional traffic to the center
during the evenings, extending the center's hours of operation.
The Company believes the characteristic common to these three retail
property types is the ability to attract tenants that can offer value-priced
products and services to a broad base of consumers. The Company defines
value pricing as a combination of price, quality, convenience and service.
RETAIL PROPERTIES - At December 31, 1997, the Company's operating retail
properties consisted of 45 Market/Drug centers, 10 promotional centers, one
entertainment center, two convenience centers and one factory outlet center.
These Properties range in size from approximately 9,000 square feet to
approximately 517,000 square feet, which contained in the aggregate
approximately 7,861,700 million square feet of Company-owned GLA. The
majority of these Properties are located in California, including 14 in the
San Diego region, 15 in the Los Angeles region and 21 in the San
Francisco/Sacramento region. In addition, six Properties are located in the
Pacific Northwest and one Property in New Mexico. The Company also owns
interests in two Market/Drug Centers in unconsolidated subsidiaries.
Fifty-three of these operating retail Properties are owned by the
Company (primarily through the Operating Partnership and subsidiaries) in
fee, and 5 are held under long-term ground leases with expiration dates
ranging from 2023 to 2089. In addition, the Company held a leasehold
interest in a 44,300 square foot free-standing building. The Company leased
these properties to approximately 1,148 different tenants and overall
occupancy at year-end 1997 was approximately 91%. No single tenant accounted
for as much as 10% of the Company's revenues for 1997.
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OFFICE/INDUSTRIAL PROPERTIES - At December 31, 1997, the Company also owned
four office properties located in Southern California, which are considered
non-strategic. These Properties range in size from approximately 29,000
square feet to approximately 338,000 square feet and aggregated approximately
591,000 square feet of GLA. At December 31, 1997, all of the buildings were
100% leased.
DEVELOPMENT PROPERTIES - The Company also holds interests in two development
properties as follows:
1000 VAN NESS, SAN FRANCISCO. Redevelopment of the historic 1000 Van
Ness building and adjacent new construction in downtown San Francisco. At
completion, the 209,000 square foot mixed-use facility will contain a 131,500
square foot entertainment component anchored by AMC Theaters and owned by the
Company, and a residential component owned by a residential developer. Total
project cost after the sale of a portion of the building to the residential
developer is estimated to be $53.5 million. Completion is scheduled for the
third quarter of 1998.
DOWNTOWN PLEASANT HILL, PLEASANT HILL. The Company has development
rights to purchase various parcels of land and construct a market,
promotional and entertainment anchored center containing approximately
360,000 square feet of GLA as part of the City of Pleasant Hill Downtown
Pleasant Hill Redevelopment project. The Company estimates the total
investment required to develop this project after the sale of various land
parcels to other developers for residential development to be approximately
$65 million. The Company began purchasing individual land parcels in late
1997 and anticipates that the project will be completed in late 1999.
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The following table sets forth the completed, operating properties owned
by the Company at December 31, 1997.
<TABLE>
<CAPTION>
12/31/97
Year Percent Company- Percent Principal Tenants
RETAIL PROPERTIES Acquired Owned Owned GLA Leased (Lease Expiration Date)
- ----------------- -------- ------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
SAN DIEGO REGION
Point Loma Plaza 1989 100% 213,229 98.5% Vons (12/31/08)
SAN DIEGO (POINT LOMA) Sport Chalet (11/21/07)
Miller's Outpost (1/31/98)
Family Fitness (5/31/04)
Mesa Shopping Center 1984 100% 142,532 100.0% Lucky's (11/30/09)
SAN DIEGO (MIRA MESA) Thrifty Drugs (5/31/99)
Navajo Shopping Center 1983 100% 110,420 86.8% Thrifty Drugs (12/31/16)
SAN DIEGO (LAKE MURRAY) 1993 Albertson's (8/12/22)
1995
Menifee Town Center 1997 100% 79,128 97.6% Ralph's (3/31/07)
MENIFEE
Poway Plaza 1988 100% 74,060 95.8% Thrifty Drugs (5/31/07)
POWAY
Olympiad Plaza 1997 100% 45,600 100.0% Sav-On Drugs (9/30/00)
MISSION VIEJO
San Marcos Lucky Plaza 1997 100% 36,151 93.7% Blockbuster Video (5/31/02)
SAN MARCOS
Silver Plaza 1997 100% 8,545 100.0% Video Stop (6/30/01)
SILVER CITY, NM
Wiegand Plaza II 1986 100% 110,843 94.5% AMC Theaters (12/31/02)
ENCINITAS 1988 TJ Maxx (5/21/05)
1990 Beverages & More (10/31/06)
K-Mart 1993 100% 98,194 100.0% K-Mart (8/31/06)
SAN YSIDRO
Independence Square 1983 100% 92,684 97.4% Ethan-Allen Interiors (11/30/14)
SAN DIEGO (KEARNEY MESA) Saddleback (11/30/05)
Santee Village Square 1985 100% 80,995 77.8% AMC Theaters (12/31/98)
SANTEE
San Diego Factory Outlet 1992 100% 156,980 96.3% Nike (5/31/04)
SAN YSIDRO Levi's (1/31/01)
Mikasa (12/27/98)
</TABLE>
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<TABLE>
<CAPTION>
12/31/97
Year Percent Company- Percent Principal Tenants
RETAIL PROPERTIES Acquired Owned Owned GLA Leased (Lease Expiration Date)
- ----------------- -------- ------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
Ruffin Village 1985 100% 44,594 88.2% Carl's Jr. (10/23/99)
SAN DIEGO (KEARNEY MESA) Subway (3/31/04)
Plaza Rancho Carmel 1988 100% 26,978 100.0% Graziano's Pizza (9/30/00)
SAN DIEGO (CARMEL MTN RANCH) ------ ------ ABC Daycare (12/31/02)
SUBTOTAL - SAN DIEGO REGION 1,320,933 95.3%
LOS ANGELES REGION
Westminster Center 1997 100% 365,699 92.0% Lucky (5/31/17)
WESTMINSTER Thrifty Drugs (5/31/16)
Home Depot (1/31/12)
Edwards Theatres (2/28/12)
Mountaingate Plaza 1997 100% 282,163 91.8% Michael's (2/28/99)
SIMI VALLEY Thrifty (5/31/04)
Edwards Theatres (5/31/11)
Bell Gardens Marketplace 1997 100% 159,838 87.2% Food 4 Less (8/1/15)
BELL GARDENS Thrifty Drugs (5/31/10)
Santa Fe Springs 1997 100% 163,630 89.6% Ralphs (9/30/07)
SANTA FE SPRINGS
Crenshaw Imperial 1997 100% 151,151 87.3% Ralphs (4/30/06)
INGLEWOOD Thrifty (5/31/09)
La Mancha Shopping Center 1988 100% 103,904 96.6% Ralphs (4/30/99)
FULLERTON Thrifty (5/31/99)
Buena Vista Marketplace 1997 100% 90,995 89.9% Ralphs (7/31/05)
DUARTE
Ralph's Center 1997 100% 66,700 100.0% Ralphs (12/31/06)
REDONDO BEACH
Centerwood Plaza 1997 100% 63,144 94.5% 32nd St Market (5/31/08)
BELLFLOWER Basically A Buck (5/31/08)
Central Shopping Center 1997 100% 62,314 84.8% Ralphs (8/31/02)
VENTURA
Ontario Village 1997 99% 39,954 84.6% One Price Clothing (7/31/99)
ONTARIO
West Lancaster Plaza 1997 99% 29,318 57.5% Blockbuster Video (6/30/98)
LANCASTER
Plaza at Puente Hills 1993 100% 516,538 91.6% IKEA (10/31/07)
CITY OF INDUSTRY Circuit City (1/31/08)
AMC Theaters (11/30/07)
Smart & Final (11/30/11)
</TABLE>
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<TABLE>
<CAPTION>
12/31/97
Year Percent Company- Percent Principal Tenants
RETAIL PROPERTIES Acquired Owned Owned GLA Leased (Lease Expiration Date)
- ----------------- -------- ------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
Valley Central Shopping Center 1997 99% 480,092 97.0% Wal-Mart (7/27/10)
LANCASTER Staples (3/31/03)
HomeBase (8/31/08)
Simi Valley Plaza 1997 100% 209,747 97.5% Edward's Theaters (6/30/19)
SIMI VALLEY ------- ------ HomeBase (1/31/11)
SUBTOTAL - L.A. REGION 2,785,187 92.2%
SAN FRANCISCO REGION
Prospector's Plaza 1997 100% 219,112 93.8% Lucky (11/30/06)
PLACERVILLE Longs Drugs (2/28/07)
K-Mart (10/31/06)
Santa Rosa Value Center 1997 100% 198,528 93.4% Food 4 Less (8/31/05)
SANTA ROSA Thrifty (5/31/09)
HomeBase (2/29/80)
Fremont Gateway Plaza 1997 100% 195,092 93.2% Raley's (12/31/20)
FREMONT Family Fitness (7/31/13)
Gateway Center 1997 100% 184,954 92.2% FoodsCo (9/30/21)
MARIN CITY Ross (1/31/07)
Southhampton Center 1997 100% 162,390 90.5% Raley's (11/30/13)
BENECIA
Silver Creek Plaza 1997 100% 134,018 88.8% Safeway (12/21/98)
SAN JOSE Walgreens (12/31/11)
Auburn Village 1997 100% 133,956 86.1% Bel Aire Markets (1/2/15)
AUBURN
Summerhills Shopping Center 1997 100% 133,614 83.2% Raley's (11/30/05)
SACRAMENTO
Shasta Crossroads 1997 100% 121,376 88.0% Food 4 Less (2/28/10)
REDDING
Creekside Shopping Center 1997 100% 116,215 83.0% Raley's (11/30/13)
VACAVILLE
580 Marketplace 1997 100% 101,153 96.1% PW Foods (6/30/05)
CASTRO VALLEY 24 Hr. Nautilus (12/31/02)
Cameron Park 1997 99% 97,434 73.8% Safeway (11/30/00)
CAMERON PARK
Discovery Plaza 1997 100% 93,398 94.5% Bel Aire Market (3/31/14)
SACRAMENTO
</TABLE>
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<TABLE>
<CAPTION>
12/31/97
Year Percent Company- Percent Principal Tenants
RETAIL PROPERTIES Acquired Owned Owned GLA Leased (Lease Expiration Date)
- ----------------- -------- ------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
Stanford Ranch 1997 100% 89,875 84.2% Bel Aire Market (7/23/15)
ROCKLIN
Sunset Center 1997 100% 85,268 95.9% Lucky (5/31/06)
SUISUN CITY Thrifty Drug (5/31/05)
Hallmark Town Center 1997 100% 85,066 87.9% Food 4 Less (8/6/06)
MADERA
Arcade Square 1997 100% 76,701 86.6% Raley's (4/1/98)
SACRAMENTO
Richmond Shopping Center 1995 98% 76,670 96.6% FoodsCo (9/30/13)
RICHMOND Walgreens (11/30/33)
Foothill Plaza 1997 100% 52,315 86.0% Payless Drugs (1/31/19)
LOS ALTOS
Fremont Hub 1997 100% 489,778 78.1% Safeway (10/31/04)
FREMONT General Cinema (12/31/07)
Ross (1/31/00)
Hilltop Plaza 1996 100% 183,549 93.6% Circuit City (1/31/17)
RICHMOND Barnes & Noble (5/20/07)
--------- -----
SUBTOTAL - S.F. REGION 3,030,462 88.1%
PACIFIC NORTHWEST REGION
Chambers Creek 1997 100% 58,179 100.0% Albertsons (6/15/18)
TACOMA
Fairwood Square 1997 100% 32,910 78.1% Coldwell Banker (7/31/98)
RENTON
Ernst - Redmond 1997 100% 44,324 100.0% Linens N Things (6/30/16)
REDMOND
Puget Park 1997 100% 40,988 100.0% Pay-Star Cleaners (1/1/99)
SOUTH EVERETT Craft Outlet (2/28/00)
Meridian Village 1997 100% 196,825 100.0% Home Depot (8/31/12)
BELLINGHAM Circuit City (10/31/04)
Design Market 1997 100% 88,487 100.0% Schoenfeld Interiors
BELLEVUE ------- ------ (9/30/99)
SUBTOTAL - PACIFIC N.W. REGION 461,713 98.4%
TOTAL RETAIL PROPERTIES 7,598,295 91.5%
</TABLE>
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<TABLE>
<CAPTION>
12/31/97
Year Percent Company- Percent Principal Tenants
OFFICE PROPERTIES Acquired Owned Owned GLA Leased (Lease Expiration Date)
- ----------------- -------- ------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
Anacomp Building 1992 100% 338,485 100.0% Anacomp (12/31/07)
POWAY
Bergen Brunswig Building 1992 100% 175,000 100.0% Bergen Brunswig Corp.
ORANGE (3/31/00)
Scripps Ranch Buildings 1987 100% 49,284 100.0% Edge Semiconductor
San Diego (Scripps Ranch) 1988 (3/31/04)
Marcoa Building 1989 100% 28,600 100.0% Marcoa Publishing Co.
SAN DIEGO (SORRENTO MESA) ------- ------ (9/30/99)
TOTAL OFFICE PROPERTIES 591,369 100.0%
GRAND TOTAL (1) 8,189,664 92.1%
</TABLE>
(1) Does not include two properties held through unconsolidated subsidiaries
in which the Company holds 25% joint venture interests.
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BANKRUPTCY REMOTE PROPERTIES
Twenty-six of the Company's Properties (listed in the table below),
having a net book value of approximately $466,033,000 at December 31, 1997,
(collectively, the "Bankruptcy Remote Properties" and, each a "Bankruptcy
Remote Property") are wholly-owned by various "Bankruptcy Remote Entities"
which are indirect subsidiaries of the Company. The assets of each
Bankruptcy Remote Entity, including the respective Bankruptcy Remote Property
or Properties owned by each, are owned by that Bankruptcy Remote Entity alone
and are not available to satisfy claims that any creditor may have against
the Company, its affiliates, or any other person or entity. No Bankruptcy
Remote Entity has agreed to pay or make its assets available to pay creditors
of the Company, any of its affiliates or any other person or entity.
Neither the Company nor any of its affiliates has agreed to pay or make its
assets available to pay creditors of any Bankruptcy Remote Entity (other than
any agreement by a Bankruptcy Remote Entity to pay its own creditors). No
affiliate of any Bankruptcy Remote Entity has agreed to pay or make its
assets available to pay creditors of any Bankruptcy Remote Entity.
<TABLE>
<CAPTION>
Owner Property
- ----- --------
<S> <C>
BPP/Valley Central, L.P. Valley Central Shopping Center, Lancaster, CA
BPP/Puente Hills, L.L.C. The Plaza at Puente Hills, Industry, CA
BPP/Crenshaw-Imperial, L.P. Crenshaw-Imperial Shopping Center, Inglewood, CA
BPP/Mountaingate, L.P. Mountaingate Plaza, Simi Valley, CA
BPP/Simi Valley, L.P. Simi Valley Plaza, Simi Valley, CA
BPP/Northwest Acquisitions, L.L.C. Design Market, Bellevue, WA
Fairwood Square, Renton, WA
BPP/Golden State Acquisitions, L.L.C. Creekside Shopping Center, Vacaville, CA
Sunset Center, Suisun City, CA
Discovery Plaza, Sacramento, CA
Summer Hills Shopping Center, Sacramento, CA
Arcade Square, Sacramento, CA
Prospector's Plaza, Placerville, CA
Santa Rosa Value Center, Santa Rosa, CA
580 Marketplace, Castro Valley, CA
Gateway Plaza, Fremont, CA
Southhampton Shopping Center, Benicia, CA
Silver Creek Plaza, San Jose, CA
Shasta Crossroads, Redding, CA
Centerwood Plaza, Bellflower, CA
Ralphs Center, Redondo Beach, CA
Westminster Center, Westminster, CA
Buena Vista Shopping Center, Duarte, CA
San Marcos Plaza, San Marcos, CA
Hallmark Town Center, Madera, CA
Menifee Town Center, Menifee, CA
</TABLE>
13
<PAGE>
LEASE EXPIRATIONS OF THE COMPANY'S PORTFOLIO
The following table sets forth scheduled lease expirations for leases in
effect as of December 31, 1997, for each of the next ten years for all of the
Company's Properties. The tables assume that none of the tenants exercises
renewal options or termination rights.
<TABLE>
<CAPTION>
Total Gross Annualized Base Rent
Number of Leasable
Leases Leases Area Percent of
Expiring in: Expiring (sq. ft.) Amount Total
- ------------ ----------------------------------------------------------
<S> <C> <C> <C> <C>
1998 246 598,476 $ 7,608,187 8.6%
1999 197 575,584 8,110,469 9.2
2000 198 722,027 11,732,276 13.3
2001 171 487,906 7,235,138 8.2
2002 188 531,348 8,041,294 9.1
2003 64 186,938 2,530,313 2.9
2004 46 358,751 3,295,489 3.7
2005 33 339,614 3,369,298 3.8
2006 25 453,095 3,624,466 4.1
2007 37 942,915 8,809,295 10.0
After 2007 124 2,350,410 23,993,317 27.2
</TABLE>
14
<PAGE>
INDEBTEDNESS
The Company's total outstanding consolidated mortgage debt secured by
interests in its properties (other than those properties secured under the
Credit Facility) was $350,758,180 at December 31, 1997. The following table
sets forth certain information regarding this debt.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Principal
Balance
Outstanding Interest Annual
Property 12/31/97 Maturity Date Rate Payment
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Golden State Prop. (19 properties) (1) $150,000,000 January 2008 (3) 6.76% $11,686,139
Plaza at Puente Hills (1) 32,814,955 March 2004 (3) 7.98% 3,060,656
Valley Central Shopping Center (1) 25,181,265 March 2004 (3) 7.98% 2,348,661
Mountaingate Plaza (1) 23,562,407 March 2006 (3) 8.05% 2,241,680
Gateway Center 16,947,459 October 2004 (3) 7.39% 1,492,976
Simi Valley Plaza (1) 16,241,806 June 2026 8.98% 1,579,268
Point Loma Plaza 15,343,655 December 1999 (3) 8.13% 1,772,896
Bergen Brunswig Building 9,529,315 October 1999 (3) 8.38% 912,096
Mesa Shopping Center 8,002,569 January 2002 (3) 10.00% 911,980
Wiegand Plaza 7,095,407 January 2002 (3) 10.00% 977,334
Richmond Shopping Center 6,953,694 January 2005 (3) 9.50% 755,280
Design Market (1) 6,600,000 December 2007 (3) 7.47% 552,152
Stanford Ranch 6,440,860 September 2005 (3) 7.88% 676,212
Olympiad 6,185,798 October 2007 (3) 7.49% 549,326
Crenshaw-Imperial Shopping Ctr. (1) 5,233,593 July 2020 8.80% 534,948
Ontario Village 3,643,633 July 1998 (3) 9.75% 411,461
San Diego Factory Outlet Center 2,772,312 September 2006 8.67% 453,138
Puget Park 2,565,502 July 2007 (3) 8.38% 267,384
Fairwood Square (1) 2,526,000 December 2007 (3) 7.47% 211,324
Chambers Creek 1,617,951 February 2017 (2) 8.75% 174,372
Mountaingate Plaza 1,200,000 October 1999 (3) 0.00% -
Silver City 300,000 September 2001 (3) 4.28% -
------------ -----------
Total $350,758,181 $31,569,283
------------ -----------
------------ -----------
</TABLE>
__________________
(1) "Bankruptcy Remote Property"
(2) Adjusted annually at February 1.
(3) Balloon payment at maturity.
Additionally, at December 31, 1997, the Company had $105,887,700 and
$74,981,500 outstanding under the secured and unsecured portions of its
Credit Facility, respectively. The following properties secured the secured
portion of the Credit Facility: San Diego Factory Outlet Center, Navajo
Shopping Center, Santee Village Square, Poway Plaza, Meridian Village, Auburn
Village, La Mancha Shopping Center, Independence Square, Santa Fe Springs,
Central Shopping Center, Foothill Plaza and Fremont Hub. For a discussion
concerning the Company's Credit Facility, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
In addition, the Company has a construction loan which matures in June
1998, which is secured by Hilltop Plaza. At December 31, 1997, $18,753,000
was outstanding under this loan at a rate of approximately 8.50%.
15
<PAGE>
For additional information concerning debt secured by the Company's
Properties, reference is made to Notes 2, 3, 4 and 5 to the Consolidated
Financial Statements.
SIGNIFICANT PROPERTIES
Only one Property, The Plaza at Puente Hills, accounted for 10 percent
or more of the Company's total revenues in 1997. No property accounted for
10 percent or more of the total assets of the Company at December 31, 1997.
THE PLAZA AT PUENTE HILLS represented 6% of the Company's total assets
at December 31, 1997 and 13% of the Company's total 1997 revenues. As of
December 31, 1997, annual base rentals ranged from $7.80 to $31.08 per square
foot. At December 31, 1997, one tenant, IKEA Furniture, occupied more than
10% of the rentable square footage (150,000 square feet) at a base rental as
of December 31, 1997 of $2 million per annum, for a term ending in 2007, with
four five-year renewal options. The 1997 property tax rate was 1.83%
resulting in a tax of approximately $1,300,000 (including special
assessments), substantially all of which was reimbursed by tenants under
their leases. Management believes that the Property is adequately covered by
insurance. During the period 1993 to 1997, this Property has experienced the
following average rental per square foot and occupancy percentage:
<TABLE>
<CAPTION>
Average Base Rental
Year-End Per Square Foot Occupancy %
-------- --------------- -----------
<S> <C> <C>
1993 $12.40 94%
1994 12.70 93
1995 12.77 92
1996 12.29 92
1997 12.99 92
</TABLE>
16
<PAGE>
The following tabulation shows the expiration schedule of leases at the
Plaza at Puente Hills as of December 31, 1997.
<TABLE>
<CAPTION>
Approximate
Total Number Gross Leasable Annualized Base Rent
Leases of Leases Area --------------------
Expiring In Expiring Square Feet (in Thousands) Percent of Total
- ----------- ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C>
1998 11 28,707 $ 464 8%
1999 4 18,250 216 4
2000 11 35,915 660 11
2001 8 34,030 550 9
2002 4 22,595 341 6
2003 4 24,968 384 6
2004 2 9,200 239 4
2005 0 0 0 0
2006 0 0 0 0
2007 2 191,141 1,978 32
Thereafter 6 108,127 1,310 21
</TABLE>
RISK FACTORS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Actual events, developments and results could differ materially from those
anticipated or projected in the forward-looking statements as a result of a
number of factors, including those listed below and elsewhere in this
document. However, because the Company operates in a rapidly changing
environment, there can be no assurance that the following factors include all
material risks to the Company at any given time. See "Forward-Looking
Statements" at the beginning of this report.
GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of
income generated and expenses incurred. If the Properties do not generate
sufficient income to meet operating expenses, including debt service and
capital expenditures, the Company's results of operations and ability to make
distributions to its shareholders will be adversely affected. The performance
of the economy in each of the areas in which the Company's Properties are
located affects occupancy, market rental and vacancy rates and expenses, and,
consequently, has an impact on the revenues from the Properties and their
underlying values. The financial results of major local employers may have an
impact on the revenues and value of certain of the Properties.
Revenues from the Company's Properties may be further adversely affected
by, among other things, the general economic climate, local economic conditions
in which the Properties are located, such as oversupply of space or a reduction
in demand for rental space, the attractiveness of the Properties to tenants,
competition from other available space, the ability of the Company to provide
for adequate maintenance and insurance and increased operating expenses
(including real estate taxes and utilities) which may not be passed through to
tenants; and the expense of periodically renovating, repairing and re-leasing
space. There is also the risk that as leases on the Properties expire, tenants
will enter into new leases on terms that are less favorable to the
17
<PAGE>
Company. Revenues and real estate values may also be adversely affected by
such factors as applicable laws (e.g., the Americans With Disabilities Act of
1990 and tax laws), interest rate levels and the availability and terms of
financing. In addition, real estate investments are relatively illiquid and,
therefore, will tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions.
Most of the leases of the Company's retail Properties, as is common with
many multi-tenant shopping centers, provide for tenants to reimburse the
Company for a portion (frequently based upon the portion of total retail
space in the Property that is occupied by the tenant) of the common area
maintenance, real estate taxes, insurance and other operating expenses of the
Property. To the extent that a Property has vacant rentable space, not only
will the Company be deprived of the base rent that it would receive if the
vacant space were occupied, but the Company itself will have to bear the
unreimbursed expense applicable to such vacant space. Likewise, such expenses
are generally not reduced when circumstances cause a reduction in rental
revenues from the Property. If a Property is mortgaged to secure the payment
of indebtedness and if the Company is unable to meet its mortgage payments, a
loss could be sustained as a result of foreclosure on the Property or the
exercise of other remedies by the mortgagee. Likewise, if a Property suffers
sustained reductions in revenues, the Company may sustain a writedown of the
asset value and a related charge to earnings.
GEOGRAPHIC CONCENTRATION
The Company's Properties are all located on the West Coast with
substantial concentration in the State of California, and within such state
primarily in the San Diego County, greater Los Angeles and San Francisco Bay
areas. This concentration of Properties subjects the Company to the strengths
or weaknesses of the California economy and the aforementioned local
economies in a number of ways. The performance of the economy in each
locality affects occupancy, market rental rates and expenses and,
consequently, has an impact on the revenues from the Company's Properties and
their underlying values. The financial results of major local employers may
have an impact on the revenues and value of certain of the Properties. A
downturn in the economy of California in general or of any of these local
economies could adversely affect the Company's results of operations and
ability to make distributions to its shareholders. In that regard, certain
areas of California (particularly the greater Los Angeles area) have in the
past been adversely affected by reductions in defense spending, and certain
other areas of California (particularly the San Francisco Bay area) may be
substantially influenced by conditions in the high technology industries.
Additionally, certain areas in California have been and remain subject to
various natural disasters, including earthquakes and floods.
INVESTMENT IN SINGLE INDUSTRY
The Company's current strategy is to acquire interests only in retail
shopping centers and related properties. As a result, the Company will be
subject to risks inherent in investments in a single industry. The effects on
cash available for distribution to the Company's shareholders resulting from
a downturn in the retail industry might be more pronounced than if the
Company's portfolio were more diversified as to property types.
Among the risks that the Company as an owner of Properties leased
primarily to retail tenants may face are the volatile nature of the retail
business and changes in consumer preferences, which may result in tenant
failures or changes in the physical requirements of retailers that the
Company may be required to accommodate in order to retain or attract tenants.
18
<PAGE>
Retail chains may overexpand in the same general market area, thereby
creating competition with their own stores that may be in one or more of the
Company's Properties. Because many anchor tenants frequently have negotiating
power to demand the exclusive or sole right to sell certain types of products
in a shopping center, the existence of such rights may adversely limit the
Company's ability to lease space in the center to retailers of potentially
competing products. The foregoing and similar factors may affect the
revenues, and resulting value, of the Company's Properties.
COMPETITION
Numerous retail properties compete with the Company's Properties in
attracting tenants to lease space. Some of these competing properties are
newer and better located or designed and may offer lower expenses or be
better capitalized than the Company's Properties. The number of competitive
commercial properties in a particular area could have a material adverse
effect on the Company's ability to lease space in its Properties or at newly
developed or acquired properties and on the rents charged.
Additionally, the Company may be competing for investment opportunities
with entities which have substantially greater financial resources than the
Company. These entities may generally be able to accept more risk than the
Company can prudently manage. Competition may generally reduce the number of
suitable investment opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell.
BANKRUPTCY AND FINANCIAL CONDITION OF TENANTS
At any time, a tenant of the Properties may seek the protection of the
bankruptcy laws, which could result in the rejection and termination of such
tenant's lease and thereby adversely affect the Company's results of
operations and ability to make distributions to its shareholders. Although
the Company has not experienced material losses from tenant bankruptcies, no
assurance can be given that tenants will not file for bankruptcy protection
in the future, or if any tenants file, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant
from time to time may experience a downturn in its business which may weaken
its financial condition and result in the failure to make rental payments
when due. If tenant leases are not affirmed following bankruptcy or if a
tenant's financial condition weakens, the Company's results of operations and
ability to make distributions to its shareholders may be adversely affected.
ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company intends to acquire existing retail commercial properties to
the extent that they can be acquired on acceptable terms and meet the
Company's investment criteria, including the availability of suitable
financing. Acquisitions of retail commercial properties entail general
investment risks associated with any real estate investment, including the
risk that investments will fail to perform as expected or that estimates of
the cost of improvements to bring an acquired property up to standards
established for the intended market position may prove inaccurate. The
Company also faces the risk that its pre-acquisition investigation of the
physical and legal attributes of properties that it acquires (e.g. concerning
such matters as engineering and environmental condition, compliance with
zoning and building codes, existence of easements,
19
<PAGE>
nature of tenancies, lease terms, creditworthiness of tenants) will not
reveal matters that the Company would expect to be aware of with respect to
properties that it has owned and operated for a significant period of time.
The Company is pursuing certain commercial property development projects
and expects to develop other projects. As a general matter, property
development projects typically carry a higher, and sometimes substantially
higher, level of risk than the acquisition of existing properties. For
example, development projects generally require various governmental and
other approvals, the receipt of which cannot be assured. Approvals frequently
require undertakings for public infrastructure improvements or other
activities to mitigate the effects of the proposed development, whose costs
also cannot be assured. The Company's development activities will entail a
variety of other risks, including the risk that funds will be expended and
management time will be devoted to projects which may not come to fruition;
the risk that construction costs of a project may exceed original estimates,
possibly making the project economically unfavorable to operate or requiring
a writedown of the carrying amount of the project; the risk that occupancy
rates and rents at a completed project will be less than anticipated; and the
risk that expenses at a completed development will be higher than
anticipated. These risks may adversely affect the Company's results of
operations and ability to make distributions to its shareholders.
The integration of a large number of acquisition and development
properties into the systems and procedures of the Company presents a
management challenge, and the failure to integrate such properties into the
Company's operating structures could have a material adverse effect on the
Company's results of operations and ability to make distributions to its
shareholders.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers, J.
David Martin, President and Chief Executive Officer of the Company, and
Daniel B. Platt, Executive Vice President, Chief Financial Officer and Chief
Administrative Officer of the Company, and the loss of their services could
have an adverse affect on the operations of the Company. The Company has an
employment agreement with Mr. Martin, which is terminable by either party at
will.
CONFLICTS OF INTEREST
The Company currently has various development projects which it acquired
from its President and Chief Executive Officer, J. David Martin, concurrently
with Mr. Martin's appointment as President and Chief Executive Officer in
1995. While the Company has adopted procedures for decision-making with
respect to such projects (including Mr. Martin's absence from Board of
Directors meeting discussions involving such projects), nevertheless the
arrangement could result in conflicts of interest in one or more of the
projects.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company has elected to qualify as a REIT under the Code. Although the
Company believes that it has operated in a manner which satisfies the REIT
qualification requirements since 1987, no assurance can be given that the
Company's qualification as a REIT will not be challenged by the Internal Revenue
Service for taxable years still subject to audit or that the
20
<PAGE>
Company will continue to qualify as a REIT in future years. A REIT generally
is not taxed on distributed income so long as it distributes to its
shareholders at least 95% of its real estate investment trust taxable income
currently. Qualification as a REIT involves the satisfaction of numerous
requirements (some on an annual or quarterly basis) established under highly
technical and complex Code provisions for which there are only limited
judicial or administrative interpretations and involves the determination of
various factual matters and circumstances not entirely within the Company's
control. If in any taxable year the Company were to fail to qualify as a
REIT, the Company would not be allowed a deduction for distributions to
shareholders in computing taxable income and would be subject to federal
income tax on its taxable income at regular corporate rates. Unless entitled
to relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following
the year during which qualification was lost. As a result, the funds
available for distribution to the Company's shareholders would be reduced for
each of the years involved. Although the Company currently intends to operate
in a manner designed to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause the Company to
fail to qualify as a REIT or may cause the Company's Board of Directors to
revoke the REIT election.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of such
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether
or not such facility is owned or operated by such person. In connection with
the ownership (direct or indirect), operation, management and development of
real properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, may be potentially liable for removal or
remediation costs. Certain environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties may seek
recovery from owners or operators of real properties for personal injuries
associated with asbestos-containing materials. The Company may be potentially
liable for removal or remediation costs, as well as certain other costs,
including governmental fines and costs related to injuries to persons and
property, resulting from the environmental condition of its Properties,
regardless of whether the Company itself actually contributed to such
condition.
RISKS OF LEVERAGE
Like many owners of real estate, the Company relies on borrowings to
assist it in acquiring, developing and holding its properties. The Company
currently has a line of credit facility (the "Credit Facility") that has
secured and unsecured portions and also owns various Properties that are
encumbered by deeds of trust or mortgages to various lenders. Neither the
Charter nor the Bylaws of the Company limit the amount of indebtedness the
Company may incur. Although financial covenants contained in the Credit
Facility limit the amount of additional indebtedness the Company may incur,
those covenants currently would permit the Company to incur substantial
additional indebtedness. Currently, the maximum committed
21
<PAGE>
amount available under the Company's Credit Facility is $205 million. The
Company has utilized the Credit Facility to finance certain recent
acquisitions and may use the Credit Facility to fund the acquisition of
additional properties and for other general corporate purposes. A portion of
the Credit Facility is currently secured by certain Properties owned by the
Company and the Credit Facility requires that the Company comply with a
number of financial covenants. The Company is also obligated by other
indebtedness secured by individual Properties. There can be no assurances
that the Company will be able to meet its debt service obligations or to
comply with the financial covenants in its debt instruments and, to the
extent that it cannot, the lenders typically would be entitled to demand
immediate repayment of the related indebtedness and to commence foreclosure
proceedings against the property securing such indebtedness, thereby
subjecting the Company to the risk of loss of some or all of its assets,
including certain of its Properties. Adverse economic conditions could cause
the terms on which borrowings become available to be unfavorable. In such
circumstances, if the Company is in need of capital to repay indebtedness in
accordance with its terms or otherwise, it could be required to liquidate one
or more investments in Properties at unfavorable prices. The Company will be
subject to the risks normally associated with debt financing, including the
risk that the Company's cash flow will be insufficient to meet required
payments of principal and interest, the risk of increases in interest rates
on indebtedness (such as borrowings under the Credit Facility) which bears
interest at floating rates, the risk that existing indebtedness cannot be
refinanced or that the terms of such refinancing will not be as favorable as
the terms of existing indebtedness. The Company's mortgage indebtedness
(other than indebtedness under the Credit Facility) is generally nonrecourse
to the Company. However, even with respect to nonrecourse mortgage
indebtedness, the lenders may have the right to recover deficiencies from the
Company in certain circumstances, including fraud, misapplication of funds
and environmental liabilities.
A significant portion of the Company's mortgage debt is represented by
mortgages or deeds of trust on properties ("Bankruptcy Remote Properties")
for which title is held by separate subsidiaries of the Company ("Bankruptcy
Remote Entities") whose sole purpose is to own and operate the specific
Property or Properties and to make the borrowing secured by the specific
mortgage or deed of trust. The mortgage notes secured by the Bankruptcy
Remote Properties are typically purchased and sold by the lender as a part of
what are commonly known as a Collateralized Mortgage Obligations ("CMO") or
Collateralized Mortgage-Backed Securities ("CMBS") pool or program serviced
by an independent servicing agent. The assets of each Bankruptcy Remote
Entity, including the respective Bankruptcy Remote Property or Properties
owned by each, are owned by that Bankruptcy Remote Entity alone and are not
available to satisfy claims that any creditor may have against the Company,
any of its affiliates, or any other person or entity. Neither the Company
nor any of its affiliates has agreed to pay or make its assets available to
pay creditors of any Bankruptcy Remote Entity (other than any agreement by a
Bankruptcy Remote Entity to pay its own creditors). No affiliate of any
Bankruptcy Remote Entity has agreed to pay or make its assets available to
pay creditors of any Bankruptcy Remote entity.
22
<PAGE>
INVESTMENTS IN JOINT VENTURES
The Company has two investments with an institutional investor,
California Urban Investment Partners ("CUIP"), represented by a 25% managing
member interest (with CUIP owning the remaining 75% managing member interest)
in two separate limited liability companies. Each of the properties
involved, Ladera Center and Margarita Plaza, was originally purchased by the
Company, with CUIP acquiring its interest in the property during 1997 by
reimbursing the Company for 75% of its original investment.
The Company may in the future acquire interests in limited and general
partnerships, limited liability companies, joint ventures and other
enterprises (collectively, "Joint Ventures") formed to own or develop real
property or interests in real property. The Company may acquire minority
interests in certain such Joint Ventures and also may acquire interests as a
passive investor without rights to actively participate in management of the
Joint Ventures. Investments in Joint Ventures involve additional risks,
including the possibility that the other participants may become bankrupt or
have economic or other business interests or goals which are inconsistent
with those of the Company, that the Company will not have the right or power
to direct the management and policies of the Joint Ventures and that such
other participants may take action contrary to the instructions or requests
of the Company and its policies and objectives or which could jeopardize the
Company's ability to maintain its qualification as a REIT. Such investments
may also have the potential risk of impasse on decisions, such as a sale,
because neither the Company nor any of the other participants have full
control over the Joint Ventures. The Company will, however, seek to maintain
sufficient control of such Joint Ventures to permit the Company's business
objectives to be achieved and its status as a REIT preserved, although there
can be no assurance that it will be successful in doing so, which could have
a material adverse effect on the Company and its ability to make
distributions to shareholders. There is no limitation under the Company's
organizational documents as to the amount of available funds that may be
invested in Joint Ventures.
INSURANCE COVERAGE LIMITATIONS
The Company carries comprehensive general liability coverage and
umbrella liability coverage on all of its Properties and with limits of
liability which the Company deems adequate (subject to deductibles and
subject to the limitations described below as insurance for losses caused by
earthquake or flood) to insure against liability claims and provide for the
cost of defense. Similarly, the Company is insured against the risk of direct
physical damage in amounts the Company estimates to be adequate (subject to
deductibles) to reimburse the Company on a replacement cost basis for costs
incurred to repair or rebuild each Property, including loss of rental income
during the reconstruction period. There are, however, certain types of
extraordinary losses which may be either uninsurable, or not economically
insurable. Should any uninsured loss occur, the Company could lose its
investment in, and anticipated revenues from, a Property, which could have a
material adverse effect on the Company and its ability to make distributions
to shareholders. Currently the Company also insures certain of its Properties
for loss caused by earthquakes in the aggregate amount of $50 million
(subject to deductibles) and one of its Properties for loss caused by flood.
Because of the high cost of this type of insurance coverage and the wide
fluctuations in price and availability, the Company has made the
determination that the risk of loss due to earthquake and flood does not
justify the cost to increase this coverage any further under current market
conditions. However, there can be no assurance that the occurrence of an
earthquake, flood or other natural disaster will not adversely
23
<PAGE>
affect the Company.
EFFECT OF VARIOUS MARKET FACTORS ON PRICE OF COMMON STOCK
A variety of factors may influence the price of the Company's Common
Stock in public trading markets. The Company believes that investors
generally perceive REITs as yield-driven investments and compare the annual
yield from distributions by REITs with yields on various other types of
financial instruments. Thus an increase in market interest rates generally
could adversely affect the market price of the Company's Common Stock.
Similarly, to the extent that the investing public has a negative perception
of companies in the retail business or REITs that own and operate retail
shopping centers and other properties catering to retail tenants, the value
of the Company's Common Stock may be negatively impacted in comparison to
shares of other REITs owning other types of properties and catering to
different types of tenants.
The market price for the Common Stock may be affected by factors such as
the announcement of new acquisitions or development projects by the Company
or its competitors, quarterly variations in the Company's operating results
or the operating results of the Company's competitors, changes in earnings
(losses) or other estimates by analysts or reported results that vary from
such estimates. In addition, the stock market may experience significant
price fluctuations which could affect the market price of the Company's
Common Stock which may be unrelated to the operating performance of the
Company. Following periods of volatility in the market price of the Company's
Common Stock, securities class action litigation could be initiated against
the Company which could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse
effect on the Company and its ability to make distributions to shareholders.
ITEM 2. PROPERTIES
The Properties of the Company owned at December 31, 1997 are described
under Item 1 "Business" and in Notes 2 and 3 to the Consolidated Financial
Statements. The Company has entered into leases with third party landlords
for the office space that it occupies for its regional offices. Such leases
are generally on commercially standard terms and do not involve any
commitments which management believes are material to its operations or
financial condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any material litigation nor, to
its knowledge, is any material litigation threatened against the Company or
its properties, other than routine litigation arising in the ordinary course
of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET DATA
Common Stock of the Company is listed on the New York Stock Exchange
under the symbol "BPP". The following table sets forth the high and low sale
prices of the Common Stock, as reported by the New York Stock Exchange
Composite Tape, and the per share dividends paid by the Company for each
calendar quarter during 1997 and 1996.
<TABLE>
<CAPTION>
Dividends
Quarter Ended High Low Paid
------------- ---- --- ----
<S> <C> <C> <C>
March 31, 1997 $15.50 $12.75 $.25
June 30, 1997 13.88 11.75 .25
September 30, 1997 14.81 13.50 .25
December 31, 1997 15.56 12.75 .25
March 31, 1996 11.13 9.75 .25
June 30, 1996 11.88 10.25 .25
September 30, 1996 13.00 11.00 .25
December 31, 1996 15.00 11.88 .25
</TABLE>
At December 31, 1997, there were approximately 2,626 holders of record
of the Company's Common Stock.
RECENT ISSUES OF UNREGISTERED SECURITIES
The following unregistered securities were issued by the Company (or by
the Operating Partnership) during the fourth quarter of the fiscal year ended
December 31, 1997. No registration statement for any of such issuances was
required in connection with the issuances, because the transactions did not
involve a public offering and were exempt under Section 4(2) of the
Securities Act. Each of the following transactions occurred as of December 31,
1997.
(i) The Company issued 2,800,0000 shares of Series 1997-A Convertible
Preferred Stock ("Series A Preferred Stock") at a cash price of $25 per share
pursuant to the Stock Purchase Agreement dated as of December 5, 1997 ("Stock
Purchase Agreement") among the Company, the Operating Partnership, Westbrook
Burnham Holdings, L.L.C. and Westbrook Burnham Co-Holdings, L.L.C. (the
latter two parties, collectively, the "Buyer"). The Series A Preferred Stock
has a dividend yield of 8% and is convertible after a period of approximately
25
<PAGE>
one year into Common Stock at a conversion price per share initially equal to
$15.375, which price represents 107% of the $14.375 base price per share of
the Common Stock at the time that the principal terms of the Series A
Preferred Stock were negotiated. The Company used the proceeds of the sale
to finance, in part, $70,000,000 of the cash portion of the initial
consideration paid for the Golden State Properties.
(ii) The Operating Partnership issued an aggregate of 4,800,000 Series
1997-A Preferred Limited Partner Units ("Preferred Units"). 2,000,000 of such
Preferred Units were issued at an agreed-upon price of $25 per Preferred Unit
upon the contribution to the Operating Partnership of the Golden State
Properties by investment funds affiliated with Blackacre Capital Group, L.P.
and Highridge Partners (the "Contributors"), representing $50,000,000 of the
initial consideration paid for the Golden State Properties. Each Preferred
Unit has a distribution priority of 8% and each Preferred Unit issued to the
Contributors is exchangeable after a specified period of time for a share of
Series A Preferred Stock of the Company on a 1-for-1 basis. The distribution
and liquidation preferences of the Preferred Units are substantially
identical to the preferences of the Series A Preferred Stock. Concurrently,
the Operating Partnership issued 2,800,000 Preferred Units to the Company, in
order that distributions paid by the Operating Partnership with respect to
its Preferred Units will provide the funds for the Company to pay
distributions with respect to the Series A Preferred Stock.
(iii) The Operating Partnership issued 574,483 common limited partner
units ("Common Units") to Simi Valley, LLC upon the contribution by Simi
Valley, LLC to the Operating Partnership of Simi Valley Plaza. The issuance
of such Common Units, which after a period of time and subject to various
conditions may be put to the Operating Partnership on a 1-for-1 basis for
shares of Common Stock of the Company or the cash value of such shares (such
consideration to be at the election of the Company), represented
approximately $8.3 million of the acquisition price of Simi Valley Plaza.
Incorporated herein by reference to the discussion under the indicated
captions of the Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders is a description of the "Series A Preferred Stock of the
Corporation", "Common Units of the Operating Partnership", "Preferred Units
of the Operating Partnership", and "Other Provisions" of the Golden State
Contribution Agreement and of the Stock Purchase Agreement with the Buyer,
which descriptions are qualified in their entirety by reference to the terms
of the specific securities, of the Golden State Contribution Agreement and of
the Stock Purchase Agreement filed as exhibits listed in Item 14 of this
Report.
26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read with Management's
Discussion and Analysis of Financial Condition and Results of Operations,
which is included in Item 7. (in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
OPERATING STATEMENT DATA 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $ 68,174 $ 47,314 $ 48,669 $ 51,387 $ 41,179
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (Loss) From Operations $ 12,676 $ 9,892 $(14,951) $ 13,164 $ 9,846
Gain on Sales of Real Estate 5,896 2,298 2,233 -- --
Distribution to Minority
Interest Holders (45) (35) -- -- --
Income from unconsolidated
subsidiaries 223 -- -- -- --
-------- -------- -------- -------- --------
Net Income (Loss) Before
Extraordinary Item $ 18,750 $ 12,155 $(12,718) $ 13,164 $ 9,846
Loss from Early
Extinguishment of Debt (52) (884) -- -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 18,698 $ 11,271 $(12,718) $ 13,164 $ 9,846
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings Per Share (Basic):
Income (Loss) Before
Extraordinary Item $ 0.88 $ 0.71 $ (0.75) $ 0.84 $ 0.77
Extraordinary Item -- (0.05) -- -- --
-------- -------- -------- -------- --------
Net Income (Loss) $ 0.88 $ 0.66 $ (0.75) $ 0.84 $ 0.77
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings Per Share (Diluted):
Income (Loss) Before
Extraordinary Item $ 0.87 $ 0.71 $ (0.75) $ 0.84 $ 0.77
Extraordinary Item -- (0.05) -- -- --
-------- -------- -------- -------- --------
Net Income (Loss) $ 0.87 $ 0.66 $ (0.75) $ 0.84 $ 0.77
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
DIVIDENDS PAID $ 21,856 $ 17,113 $ 22,564 $ 22,723 $ 18,324
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
DIVIDENDS PAID PER SHARE $ 1.00 $ 1.00 $ 1.33 $ 1.42 $ 1.39
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TAXABLE INCOME PER SHARE--
ORDINARY $ .93 $ -- $ .59 $ .95 $ .88
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TAXABLE INCOME PER SHARE--
CAPITAL GAIN $ -- $ -- $ .17 $ -- $ --
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BALANCE SHEET DATA
Total Assets $943,795 $356,195 $327,770 $358,022 $360,262
Total Indebtedness $550,380 $178,452 $142,806 $141,499 $162,607
Minority Interest $ 58,759 $ 434 $ 434 -- --
Preferred Stock $ 28,160
Total Stockholders' Equity $284,804 $173,725 $179,160 $212,771 $193,089
Number of Common Shares
Outstanding at Year End 23,449 17,096 17,082 16,905 14,987
Weighted Average Number of
Shares-Basic 21,335 17,084 17,016 15,732 12,768
Weighted Average Number of
Shares-Diluted 21,521 17,129 17,020 15,732 12,768
</TABLE>
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
OVERVIEW
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in
this Annual Report on Form 10-K. Historical results set forth in the
consolidated statements of income contained in the consolidated financial
statements, including trends which might appear, should not be taken as
indicative of future operations. References herein to the Company include
Burnham Pacific Operating Partnership L.P. (the "Operating Partnership") and
the other directly and indirectly owned subsidiaries of the Company unless
the context otherwise requires. Effective in the fourth quarter of 1997, the
Company formed the Operating Partnership and transferred the fee or
beneficial interest in substantially all of its assets to the Operating
Partnership or subsidiaries of the Operating Partnership, thereby becoming
what is commonly referred to as an "UPREIT."
The Company's strategic focus is the development, acquisition,
rehabilitation, and operation of retail shopping centers on the West Coast.
At December 31, 1997, the Company owned interests in 61 retail shopping
centers, 59 of which were fully operational, and two of which were in various
stages of development. Fifty-four of the properties are located in
California, six in Washington, and one in New Mexico. As of December 31,
1997, the Company also owned four office/industrial properties located in
Southern California, which are considered non-strategic.
As part of its ongoing business, the Company regularly engages in
discussions with public and private real estate entities regarding possible
portfolio or asset acquisitions or business combinations.
RESULTS OF OPERATIONS
COMPARISON OF 1997 TO 1996. NET INCOME increased $7,427,000 to
$18,698,000 in 1997 from $11,271,000 in 1996. The increase in net income is
primarily attributable to increased net operating income (total revenues less
rental operating expenses and provision for bad debt) aggregating
$15,157,000, resulting from new leasing and higher levels of expense
reimbursement of core portfolio properties, the 42 shopping centers acquired
or developed in 1997, an increase in income from unconsolidated subsidiaries
of $223,000, and an increase in gain on sales of real estate of $3,598,000.
The aforementioned increases to net income were partially offset by increases
in depreciation and amortization, general and administrative expenses and
interest expense of $4,025,000, $620,000, and $7,728,000, respectively.
Total REVENUES increased $20,860,000 to $68,174,000 in 1997 from
$47,314,000 in 1996. This increase is primarily attributable to the
acquisition activity in 1997.
RENTAL OPERATING EXPENSES increased $5,617,000 to $18,220,000 in 1997
from $12,603,000 in 1996. This increase is primarily attributable to the
addition of new properties in 1997.
28
<PAGE>
THE PROVISION FOR BAD DEBT increased $86,000 to $496,000 in 1997 from
$410,000 in 1996. This increase is primarily attributable to the increased
number of tenants resulting from the 1997 acquisitions.
INTEREST EXPENSE increased $7,728,000 to $18,472,000 in 1997 from
$10,744,000 in 1996. The overall increase in interest expense is primarily
related to the 1997 acquisitions. The debt outstanding (exclusive of
$15,035,000 of fixed rate mortgage debt in unconsolidated subsidiaries) on
December 31, 1997 and related weighted average interest rate was $550,380,000
and 7.56% respectively, compared to $178,452,000 and 8.0%, respectively on
December 31, 1996. Interest capitalized in conjunction with development and
expansion projects was $3,242,000 for 1997, as compared to $1,658,000 in 1996.
DEPRECIATION AND AMORTIZATION EXPENSES increased $4,025,000 to
$15,275,000 in 1997 from $11,250,000 in 1996. The increase is primarily
attributable to the growth related to the shopping centers acquired in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES increased $620,000 to $3,035,000 in
1997 from $2,415,000 in 1996. The increase is attributable to the growth of
the Company primarily related to the 1997 acquisitions and developments.
In February 1997, the Company disposed of a portion of its Plaza Rancho
Carmel Shopping Center for $735,000. On June 11, 1997, title to the
Company's Village Station Shopping Center was conveyed to the holder of the
$3,900,000 non-recourse mortgage secured by the property. No gain or loss
resulted from either of these events.
In December 1997, the Company disposed of its Pacific West Outlet Center
for approximately $38,500,000, resulting in a gain of $5,896,000.
COMPARISON OF 1996 TO 1995. In the fourth quarter of 1995, the Company
announced that its Board of Directors had approved a plan to dispose of a
portion of the Company's non-strategic properties and to redeploy the
proceeds from disposition into retail properties. As a result of the
decision to dispose of these properties, the Company took a one-time non-cash
charge of $21,373,000 in 1995 to write those assets down to their fair market
value. During 1996, all five of the written-down properties were sold,
resulting in a net gain on sale of $2,298,000. In 1995, the Company took
additional one-time charges of $1,047,000 to write down goodwill, outdated
computer equipment and a discontinued investment in a real estate advisor,
and $2,500,000 related to the implementation of the Company's new strategic
plan. There were no additional charges taken in 1996 related to the
implementation of the plan. The $2,500,000 charge included a non-cash
reduction in revenues of $1,278,000, primarily as a result of a change in the
formula used to estimate common area maintenance reimbursements and
percentage rents; and $975,000 in one-time general and administrative
expenses related to the transition to the new management team, studies by new
management of various organizational and operating policies of the Company,
and organizational and strategic changes resulting from those studies,
including the internalization of property management and the installation of
a new property management operating system.
Including these charges, NET INCOME increased $23,989,000 from a net
loss of $12,718,000 in 1995 to net income of $11,271,000 in 1996. If the
one-time charges in 1995 were excluded, net income before gain on sales of
real estate, minority interest, and
29
<PAGE>
extraordinary item would have decreased $77,000 from $9,969,000 in 1995 to
$9,892,000 in 1996. This decrease was net of several effects, but was
primarily attributable to the expiration of the McDonnell Douglas lease and
the subsequent sale of the building in June of 1996, the sale of the Beverly
Garland Hotel in December of 1995, lower rents received on the Anacomp
Building following the renegotiation of the Anacomp lease during the first
quarter of 1996, and higher expenses related to the opening of regional
offices in Los Angeles and San Francisco.
TOTAL REVENUES decreased $1,355,000 to $47,314,000 in 1996 from
$48,669,000 in 1995. Excluding the one-time charges in 1995, the decrease
was $2,633,000 from $49,947,000 in 1995 to $47,314,000 in 1996. This
decrease is primarily attributable to the sales of the McDonnell Douglas
Building and the Beverly Garland Hotel, and the renegotiation of the Anacomp
lease.
RENTAL OPERATING EXPENSE increased $536,000 to $12,603,000 in 1996 from
$12,067,000 in 1995. This increase is primarily attributable to the addition
of new properties, the expense associated with carrying the vacancy in the
Anacomp Building, and the opening of offices in Los Angeles and San Francisco.
THE PROVISION FOR BAD DEBT decreased $562,000 to $410,000 in 1996 from
$972,000 in 1995. This decrease is primarily attributable to fewer credit
problems amongst smaller tenants.
INTEREST EXPENSE decreased $1,216,000 to $10,744,000 in 1996 from
$11,960,000 in 1995. This decrease is primarily attributable to a lower
short-term interest rate environment in 1996 and slightly lower average
outstanding borrowings under the Company's lines of credit.
DEPRECIATION AND AMORTIZATION EXPENSES decreased $1,867,000 to
$11,250,000 in 1996 from $13,117,000 in 1995. This decrease reflects the
elimination of depreciation and amortization charges on the properties sold
in 1995 and 1996.
GENERAL AND ADMINISTRATIVE EXPENSES decreased $669,000 to $2,415,000 in
1996 from $3,084,000 in 1995. Exclusive of the one-time charges in 1995,
general and administrative expenses would have increased $306,000 in 1996.
This increase reflects the costs associated with the opening of offices in
Los Angeles and San Francisco as well as other increases commensurate with
the increasing level of operations in the Company.
In June 1996, the Company disposed of the McDonnell Douglas Building.
Proceeds from the disposition totaled $9,301,000, resulting in a gain of
$9,000. In July, 1996, the Company disposed of the Fireman's Fund and
Highlands Plaza Buildings. Proceeds from the dispositions totaled
$22,701,000, resulting in a gain of $291,000. In September, 1996, the
Company disposed of its 11.85% interest in the building in which its
corporate headquarters are located. Proceeds from the disposition totaled
$1,939,000, resulting in a gain of $1,981,000. In October, 1996, the Company
disposed of the Miramar Business Center. Proceeds from the disposition
totaled $6,934,000, resulting in a gain of $17,000. Proceeds from these
sales were used to reduce outstanding borrowings under the Company's lines of
credit.
In November 1996, the Company redeemed all of its outstanding 8-1/2%
convertible debentures due 2002, which aggregated $25,700,000 in principal
amount, incurring an extraordinary loss from the early extinguishment of debt
of $884,000.
30
<PAGE>
FUNDS FROM OPERATIONS
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 means net income (loss) (computed in
accordance with generally accepted accounting principles), before gains (or
losses) from debt restructuring and sales of property, plus depreciation of
real property. 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. In 1997, FFO increased $6,543,000 to $27,009,000 as
compared to $20,466,000 in 1996. The increase was net of several effects,
but was primarily attributable to the increase in revenues from core
portfolio properties, acquisitions, and developments. In 1996, FFO increased
$552,000 to $20,466,000 from $19,914,000 in 1995. If the one-time charges in
1995 were excluded, the Company would have reported a decrease in FFO in 1996
of $1,948,000. This decrease was net of several effects, but was primarily
attributable to the expiration of the McDonnell Douglas lease and the
subsequent sale of the building in June of 1996, the sale of the Beverly
Garland Hotel in December of 1995, lower rents received on the Anacomp
Building following the renegotiation of the Anacomp lease during the first
quarter of 1996, and higher expenses related to the opening of regional
offices in Los Angeles and San Francisco. FFO as presented here may not be
comparable to similarly titled measures used by other companies.
The Company's calculation of FFO is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income (Loss) $18,698 $11,271 $(12,718)
Adjustments:
Gain on Sales of Real Estate (5,896) (2,298) (2,233)
Impairments/Writedowns of Assets 22,420
Depreciation of Real Estate and Tenant
Improvements 13,586 9,841 11,980
Amortization of Leasing Costs 569 768 465
Early Extinguishment of Debt 52 884 -
------- ------- --------
Funds From Operations $27,009 $20,466 $ 19,914
------- ------- --------
------- ------- --------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash flow from operating activities will
continue to provide adequate capital for all payments on notes payable,
recurring tenant improvements, and dividend payments in accordance with REIT
requirements through the end of 1998. However, the Company will require
additional sources of capital to finance the acquisition and development of
additional properties. Sources of this additional capital may include cash on
hand, borrowings under credit facilities and mortgage indebtedness, proceeds
from sales of non-strategic assets, the sale of interests in certain properties
to third parties, the issuance of Operating Partnership Units to sellers of
properties and, to the extent market conditions permit, the issuance of debt or
equity securities. However, there can be no assurances that capital necessary
to finance future acquisitions and developments will be available on acceptable
terms or at all. Cash flow from
31
<PAGE>
operating activities for 1997 increased to $26,835,000 as compared to
$17,521,000 in 1996. The increase is primarily attributable to the
acquisitions and developments completed in 1997 and 1996 and new leasing of
the core portfolio properties.
The Company satisfied its REIT requirement under the Internal Revenue
Code of 1986 of distributing at least 95% of ordinary taxable income with
distributions to shareholders of $21,856,000 in 1997. Accordingly, Federal
income taxes were not incurred at the corporate level.
ACQUISITIONS AND DEVELOPMENTS
During 1997, the Company acquired interests in 42 shopping centers
aggregating 5.6 million square feet of Company-owned GLA (gross leasable
area) at an aggregate initial purchase price of approximately $598,100,000.
Twenty of these properties (the "Golden State Properties") aggregating
approximately 2.6 million square feet were acquired as a portfolio on
December 31, 1997. The initial purchase price was $302,400,000 which was
funded through $150,000,000 of secured indebtedness, $50,000,000 of Preferred
Limited Partner Units of the Operating Partnership, $70,000,000 of Preferred
Stock of the Company, and $32,400,000 of cash drawn principally from the
Company's credit facility. The Company is obligated to pay up to $41,600,000
of additional consideration for additional value resulting from the lease-up
of certain specified portions of the Golden State Properties and construction
and lease-up of certain additional space. The additional consideration, if
any, will be based upon incremental income and will be determined monthly
until $11,600,000 has been paid and thereafter as of December 31, 1998 and
June 30, 1999.
During 1997, the Company completed the first phase of a shopping center
development in Richmond, California, totaling 183,500 square feet, at an
aggregate cost of approximately $28,684,000. Construction also commenced on
the development of a 131,500 square foot entertainment complex in San
Francisco, California with a projected net cost of approximately $54,100,000.
Completion is scheduled for mid-1998.
In December 1996, the Company purchased a 76,744 square foot shopping
center in Huntington Park, California, for a purchase price of approximately
$9,568,000. In February 1997, the Company entered into a joint venture
agreement with California Urban Investment Partners, L.P. ("CUIP"), an
investment entity of CalPers, wherein the Company contributed this property
to an entity in which CUIP purchased a 75% interest in the venture and
reimbursed the Company for 75% of its acquisition cost. The Company retained
a 25% interest in the venture and continues to manage the property pursuant
to a management agreement.
In July 1996, the Company entered into a joint venture agreement with
CUIP into which the Company made an initial contribution of approximately
$20,125,000 to fund the acquisition of a 184,684 square foot shopping center
in Los Angeles, California. On August 1, 1997, CUIP funded its 75% interest
in the venture which was in turn distributed to the Company. In addition to
owning a 25% interest in the joint venture, the Company continues to manage
the property pursuant to a management agreement.
32
<PAGE>
FINANCING ACTIVITIES
The above acquisitions and developments were financed through cash
provided from operating activities, revolving credit facilities, new
mortgages, mortgages assumed, construction loans, issuance of Operating
Partnership units, and issuance of Preferred and Common Stock of the Company.
Total debt outstanding at December 31, 1997 was $550,380,000 compared to
$178,452,000 at December 31, 1996. In 1997, the Company increased total debt
by $371,928,000 primarily to fund acquisitions and developments.
During the third quarter of 1997, the Company obtained an increase in
the borrowing capacity under its revolving credit facility from $135,000,000
to $205,000,000 of which $135,000,000 is to be secured by various mortgages
and $70,000,000 is unsecured. At December 31, 1997, borrowings of
approximately $180,869,000 were outstanding of which $105,888,000 and
$74,981,000 (with the lender's consent) were outstanding under the secured
and unsecured portions, respectively. The Company also negotiated a
reduction of 25 basis points in the current interest rate to LIBOR plus 1.40%
and LIBOR plus 1.50% on the secured and unsecured portions, respectively. In
connection with the Company's transfer of substantially all of its assets to
the Operating Partnership in December 1997, the Operating Partnership became
the principal obligor under the credit facility which is now guaranteed by
the Company. The credit facility is scheduled to mature in November 1998,
with a one year extension option available.
At December 31, 1997, the Company had $18,753,000 outstanding under a
construction loan agreement with Comerica Bank, secured by one of the
Company's development properties. Borrowings under this loan bear interest
at the Bank's Eurodollar base rate plus 2.00% or at its Prime rate. The loan
is scheduled to mature in June 1998.
In May 1997, the Company issued 6,325,000 shares of Common Stock and
received net proceeds of approximately $73,175,000 which it used to retire
debt.
On December 31, 1997, the Company issued 2,800,000 shares of Series
1997-A Convertible Preferred Stock to affiliates of Westbrook Real Estate
Partnership II, L.P., and Westbrook Real Estate Co-Investment Partnership II,
L.P. and received $70,000,000 of proceeds. The Company used the proceeds to
finance, in part, the acquisition of the Golden State Properties portfolio.
The Series A Preferred Stock has a cumulative dividend yield of 8% and is
convertible into Common Stock in 25% increments between the first and second
anniversaries of the date of issuance at a conversion price per share
initially equal to $15.375, subject to anti-dilution adjustments. At the
same time, the Company issued 2,000,000 Series 1997-A Preferred Limited
Partner Units (the "Preferred Units") of the Operating Partnership to
Blackacre Capital Group, L.P. and Highridge Partners representing $50,000,000
of the initial consideration for the acquisition of the Golden State
Properties portfolio. The Preferred Units were issued on terms comparable to
the Company's Series A Preferred Stock and, after the passage of time and the
satisfaction of other conditions, are exchangeable on a 1-for-1 basis for
shares of Series A Preferred Stock. Although the acquisition of the Golden
State Properties portfolio and the issuance of the Series A Preferred Stock
and the Preferred Units (collectively "Preferred Securities") did not require
approval by the Company's stockholders, the issuance upon the exchange or
conversion of Preferred Securities of a number of shares of Common Stock
equal to or exceeding 20% of the number of shares of Common Stock outstanding
at the time of the acquisition does require such approval pursuant to NYSE
regulations. Accordingly, if the Company's stockholders do not approve the
issuance of such greater amount of Common Stock at a meeting to be held not
later than June 30, 1998, the Company will be required to redeem for cash by
that date an aggregate of
33
<PAGE>
approximately 2,000,000 shares of Series A Preferred Stock and Preferred
Units together having an aggregate stated value of approximately $50,000,000.
Portions of the consideration for six other shopping centers acquired
during 1997 consisted of an aggregate of 576,100 Common Units of the
Operating Partnership (or of other limited partnership subsidiaries of the
Operating Partnership). Subject to the passage of time and the satisfaction
of other conditions, each such Common Unit is exchangeable on a 1-for-1 basis
for a share of Common Stock of the Company.
At December 31, 1997, the Company's capitalization consisted of
$550,380,000 of debt (excluding the Company's proportionate share of joint
venture mortgage debt which is approximately 25% of $15,035,000),
$120,000,000 of Preferred Stock and Preferred Operating Partnership units,
and $368,569,000 of market equity (market equity is defined as outstanding
shares of Common Stock of the Company and Common Units of the Operating
Partnership, held by partners of the Operating Partnership other than the
Company, multiplied by the closing price of the shares of Common Stock on the
New York Stock Exchange at December 31, 1997 of $15.3125) resulting in a debt
to total market capitalization ratio of .53 to 1.0 compared to the ratios of
.41 to 1.0 and .46 to 1.0 at December 31, 1996 and 1995, respectively. At
December 31, 1997, the Company's total debt consisted of $349,140,000 of
fixed rate debt, and $201,240,000 of variable rate debt.
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 borrowings and public
offerings and private placements of debt and equity securities. At December
31, 1997, the Company had effective shelf registration statements on file
with the Securities and Exchange Commission relating to an aggregate of
$321,728,000 registered and unissued debt and equity securities.
YEAR 2000 ISSUES
In the operation of its business the Company uses commercial computer
software primarily purchased from or provided by independent software
vendors. After an analysis of the Company's exposure to the impact of "year
2000 issues" (i.e. issues that may arise resulting from computer programs
that use only the last two, rather than all four, digits of the year),
management has determined that such commercial software is already
substantially year 2000 compliant, and that completion of year 2000
compliance should not have a material impact on the Company's business,
operations or financial condition. Management is not in a position to
evaluate the extent (if any) to which any year 2000 issues that may affect
the economy generally, or any tenants, suppliers or others with whom the
Company does business, in particular would also be likely to affect the
Company.
34
<PAGE>
EFFECTS OF INFLATION
Substantially all of the Company's leases contain provisions designed to
mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. Such
escalation clauses are often related to increases in the consumer price index
or similar inflation indices. Most of the Company's leases require the
tenant to pay its share of operating expenses, including common area
maintenance, real estate taxes and insurance, thereby reducing the Company's
exposure to increases in these operating expenses resulting from inflation to
the extent that its properties are occupied. The Company periodically
evaluates its exposure to short-term interest rates and may, from time to
time, enter into interest rate protection agreements which mitigate, but do
not eliminate, the effect of changes in interest rates on its floating-rate
loans.
CERTAIN CAUTIONARY STATEMENTS
Certain statements in this Annual Report on Form 10-K may be deemed to
be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21 E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results of the Company to be materially different from historical
results or from any results expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, but are not
limited to, the competitive environment in the retail industry, national and
local economic conditions, changes in prevailing interest rates and in the
availability of financing, the illiquidity of real estate investment in
general, bankruptcy and financial condition of tenants, and environmental
risks. Reference is made to RISK FACTORS contained elsewhere in this Annual
Report on Form 10-K for a further discussion of these and other factors that
might cause actual results to differ materially from those set forth in the
forward-looking statements.
35
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Not applicable.
36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Burnham
Pacific Properties, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in Item 14(a). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Burnham Pacific Properties, Inc.
as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
//Deloitte & Touche LLP//
San Diego, California
February 12, 1998
37
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Real Estate $964,755 $389,634
Less Accumulated Depreciation (55,823) (48,978)
-------- --------
Real Estate-Net 908,932 340,656
Cash and Cash Equivalents 6,841 4,095
Restricted Cash 5,242
Receivables-Net 7,456 4,860
Investment in Unconsolidated Subsidiaries 3,683
Other Assets 11,641 6,584
-------- --------
Total $943,795 $356,195
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable and Other Liabilities $19,296 $ 2,655
Tenant Security Deposits 2,396 929
Notes Payable 369,511 105,552
Line of Credit Advances 180,869 72,900
-------- --------
Total Liabilities 572,072 182,036
-------- --------
Commitments and Contingencies
Minority Interest 58,759 434
-------- --------
Preferred Stock 28,160
--------
Stockholders' Equity:
Preferred Stock, Par Value $.01/share, 5,000,000
Shares Authorized, 4,800,000 Shares Designated as
Series 1997-A Convertible Preferred, 2,800,000
Shares Outstanding at December 31, 1997; and No
Par Value, 5,000,000 Shares Authorized, No
Shares Issued or Outstanding at December 31, 1996 17
Common Stock, Par Value $.01/share, 95,000,000
Shares Authorized, 23,448,852 Shares Outstanding
at December 31, 1997; and No Par Value, 40,000,000
Shares Authorized, 17,096,452 Shares Outstanding
at December 31, 1996 234 262,340
Paid in Capital in Excess of Par 376,326
Dividends Paid in Excess of Net Income (91,773) (88,615)
-------- --------
Total Stockholders' Equity 284,804 173,725
-------- --------
Total $943,795 $356,195
-------- --------
-------- --------
</TABLE>
See the Accompanying Notes
38
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
REVENUES
Rents $67,413 $ 46,864 $ 48,188
Interest 761 450 481
------- -------- --------
Total Revenues 68,174 47,314 48,669
------- -------- --------
COSTS AND EXPENSES
Interest 18,472 10,744 11,960
Rental Operating 18,220 12,603 12,067
Provision for Bad Debt 496 410 972
General and Administrative 3,035 2,415 3,084
Depreciation and Amortization 15,275 11,250 13,117
Impairments/Writedowns of Assets 22,420
------- -------- --------
Total Costs and Expenses 55,498 37,422 63,620
------- -------- --------
Income (Loss) from Operations Before
Gain on Sales of Real Estate,
Distribution to Minority Interest
Holders, Income from Unconsolidated
Subsidiaries and Extraordinary Item 12,676 9,892 (14,951)
Gain on Sales of Real Estate 5,896 2,298 2,233
Distribution to Minority Interest
Holders (45) (35)
Income from Unconsolidated Subsidiaries 223
------- -------- --------
Income (Loss) Before Extraordinary Item 18,750 12,155 (12,718)
Extraordinary Loss From Early
Extinguishment of Debt (52) (884)
------- -------- --------
Net Income (Loss) $18,698 $ 11,271 $(12,718)
------- -------- --------
Earnings Per Common Share (Basic):
Income (Loss) Before Extraordinary Item $ 0.88 $ 0.71 $ (0.75)
Extraordinary Item (0.05)
------- -------- --------
Net Income (Loss) $ 0.88 $ 0.66 $ (0.75)
------- -------- --------
------- -------- --------
Earnings Per Common Share (Diluted):
Income (Loss) Before Extraordinary Item $ 0.87 $ 0.71 $ (0.75)
Extraordinary Item (0.05)
------- -------- --------
Net Income (Loss) $ 0.87 $ 0.66 $ (0.75)
------- -------- --------
------- -------- --------
</TABLE>
See the Accompanying Notes
39
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Series Paid in Notes
1997-A Capital Receivable Dividends
Convertible in Directors' Paid in
Common Stock Preferred Excess Stock Excess of
Shares Amount Stock of Par Purchase Net Income Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 16,905,276 $ 260,262 $(47,491) $212,771
Issuance of Common Stock:
Dividend Reinvestment 222,894 2,546 2,546
Open Market Repurchase of
Common Stock (94,500) (1,279) (1,279)
Directors' Stock Purchase 48,000 601 $ (197) 404
Net Loss (12,718) (12,718)
Dividends Paid (22,564) (22,564)
---------- -------- ------- -------- --------
Balance, December 31, 1995 17,081,670 262,130 (197) (82,773) 179,160
Directors' Fees 15,000 210 210
Dividend Reinvestment --
Fractional Shares Retired (218)
Payment of Notes Receivable -
Stock Purchase Plan 197 197
Net Income 11,271 11,271
Dividends Paid (17,113) (17,113)
---------- -------- ------- -------- --------
Balance, December 31, 1996 17,096,452 262,340 0 (88,615) 173,725
Issuance of Common Stock:
Public Offering 6,325,000 73,125 73,125
Directors' Fees 23,400 76 252 328
Exercised Options 4,000 50 50
Change in Common Stock
Par Value (335,307) 335,307
Issuance of 2,800,000
Shares, Series 1997-A
Convertible Preferred Stock 17 40,717 40,734
Net Income 18,698 18,698
Dividends Paid (21,856) (21,856)
---------- -------- ------ -------- ------- -------- --------
Balance, December 31, 1997 23,448,852 $ 234 $ 17 $376,326 $ -0- $(91,773) $284,804
---------- -------- ------ -------- ------- -------- --------
---------- -------- ------ -------- ------- -------- --------
</TABLE>
See the Accompanying Notes
40
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 18,698 $ 11,271 $ (12,718)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 15,275 11,250 13,117
Gain on Sales of Real Estate (5,896) (2,298) (2,233)
Extraordinary Loss from Early Extinguishment of Debt 52 884
Provision for Bad Debt 496 410 972
Compensation Expense-Directors' Fees 328 210
Impairments/Writedowns of Assets 22,420
Changes in Other Assets and Liabilities:
Receivables and Other Assets (9,430) (2,300) 902
Accounts Payable and Other Liabilities 5,845 (1,667) 1,581
Tenant Security Deposits 1,467 (239) 37
--------- --------- ---------
Net Cash Provided by Operating Activities 26,835 17,521 24,078
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Acquisitions of Real Estate and
Capital Improvements (451,887) (75,111) (10,380)
Proceeds from Sales of Real Estate 65,496 40,875 12,619
Principal Payments on Notes Receivable 43 837 280
--------- --------- ---------
Net Cash (Used) Provided by Investing Activities (386,348) (33,399) 2,519
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Line of Credit Agreements 254,320 128,918 27,025
Repayments Under Line of Credit Agreements (146,351) (80,951) (28,092)
Principal Payments of Notes Payable (37,540) (1,896) (4,758)
Proceeds From Issuance of Notes Payable 245,753 15,275
Restricted Cash (5,242)
Dividends Paid (21,856) (17,113) (22,564)
Dividend Reinvestment 2,546
Issuance of Stock, Net 73,175
Redemption of Convertible Debentures (26,000)
Open Market Repurchase of Stock (1,279)
Repayments on Notes Receivable-
Directors' Stock Purchase 197 404
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities 362,259 18,430 (26,718)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 2,746 2,552 (121)
Cash and Cash Equivalents at Beginning of Year 4,095 1,543 1,664
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 6,841 $ 4,095 $ 1,543
--------- --------- ---------
--------- --------- ---------
(Continued)
</TABLE>
41
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
(continued)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Year for Interest,
net of capitalized amounts $ 17,803 $ 11,390 $ 11,929
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Notes Payable and Obligations Assumed $61,008 $ 7,132
Operating Partnership Units Issued
in Connection with Real Estate Acquisitions 58,325 434
Proceeds from Notes Payable 176,900
Cash Paid for Real Estate 104,533
Issuance of Convertible Preferred Stock 70,000
Other 3,107 1,838
--------- --------- ---------
Fair Value of Real Estate Acquired $ 473,873 $ -0- $ 9,404
--------- --------- ---------
--------- --------- ---------
Notes Receivable-Directors' Stock Purchase $ -0- $ -0- $ 601
--------- --------- ---------
--------- --------- ---------
(Concluded)
</TABLE>
See the Accompanying Notes
42
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Burnham Pacific Properties, Inc. (the "Company") is a fully integrated,
self-managed real estate company which acquires, rehabilitates, develops and
manages retail properties on the West Coast. On November 14, 1997, the
Company formed Burnham Pacific Operating Partnership, L.P. (the "Operating
Partnership") under the Delaware Revised Uniform Limited Partnership Act, and
subsequently transferred to the Operating Partnership legal or beneficial
ownership of substantially all of the real property and related personal
property owned by the Company and its subsidiaries and of the beneficial
interest owned by the Company and its subsidiaries in any partnership or
limited liability company that owns a direct or indirect interest in real
property and related personal property. The Operating Partnership is the
vehicle through which the Company will own its current assets, will make its
future acquisitions, and generally conduct its business.
As of December 31, 1997, the Company owns an approximately 84% economic
interest in the Operating Partnership and is its sole general partner.
The Company, primarily through the Operating Partnership and
subsidiaries of the Operating Partnership, owns interests in 59 retail
operating properties located in California, Washington and New Mexico as of
December 31, 1997. The Company also owns interests in two retail projects in
various stages of development, as well as four industrial and office
properties located in Southern California. The Company has elected to
qualify as a real estate investment trust ("REIT") for Federal income tax
purposes.
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company and the Operating Partnership and subsidiaries of the
Operating Partnership. All significant intercompany balances and
transactions have been eliminated in consolidation.
The 16% limited partner interest in the Operating Partnership not owned
by the Company is reflected in these financial statements as minority
interest.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
43
<PAGE>
Real Estate
Real Estate is stated at cost or, in the case of real estate which
management believes is impaired, at the lower fair value of such properties.
Additions, renovations and improvements are capitalized. Maintenance and
repairs which do not extend asset lives are expensed as incurred.
Depreciation is computed using the straight-line method over estimated useful
lives ranging from 14 to 30 years for buildings, 2 to 17 years for
improvements, and 3 to 10 years for furniture, fixtures and equipment.
Amortization
Deferred loan fees, direct lease costs and certain other costs are
amortized using the straight-line method over the related estimated life.
Straight-Line Rent
As of December 31, 1997 and 1996, approximately $2,463,000 and
$1,793,000, respectively, of straight-line rent is included in Other Assets.
Income Taxes
Income taxes have not been provided as the Company believes that it has
met all requirements in 1997, 1996 and 1995 to qualify as a REIT under
Internal Revenue Code Sections 856-860 including the distribution of at least
95% of ordinary taxable income to stockholders. Taxable income differs from
net income for financial reporting purposes principally because of
differences in the timing of recognition of interest, depreciation, rental
revenue, and sales of assets. The reported amounts of the Company's net
assets at December 31, 1997 was greater than their tax basis for Federal
purposes by approximately $32,143,000.
Net Income (Loss) Per Share
Net income (loss) per share is calculated using the weighted average
number of shares outstanding during each year. In February of 1997, the
Financial Accounting Standards Boards (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share (EPS). This
statement requires the presentation of earnings per share to reflect both
"Basic EPS" and "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 as if such equivalents were converted into common stock and is
calculated in substantially the same manner as fully Diluted EPS illustrated
in APB Opinion Number 15, "Earnings Per Share."
44
<PAGE>
The following tables are the reconciliations from the basic to the
diluted EPS computations for "net income (loss) before extraordinary item"
for 1997, 1996 and 1995 (dollars except per share amounts in thousands):
<TABLE>
<CAPTION>
For the Year Ended 12/31/97
-------------------------------------
Income Shares Per-Share
BASIC EPS (Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net Income Before Extraordinary Item $18,750 21,334,794 $0.88
-----
-----
Effect of Dilutive Securities:
Operating Partnership Units 45 55,044
Convertible Preferred Stock 15 12,474
Stock Options 118,944
DILUTED EPS
------- ----------
Net Income Before Extraordinary Item,
after assumed conversion of common
share equivalents $18,810 21,521,256 $0.87
------- ---------- -----
------- ---------- -----
</TABLE>
Options to purchase 230,877 shares at price ranges of $15.20 to $18.88
per share were outstanding as of December 31, 1997, but were not included in
the computation of diluted EPS because the options' exercise price was
greater than the market price of the common stock of the Company.
Subsequent to December 31, 1997, the Company's Board of Directors
granted options for 669,500 shares at exercise prices of $12.50 to $14.50 per
share (See Note 18).
<TABLE>
<CAPTION>
For the Year Ended 12/31/96
-------------------------------------
Income Shares Per-Share
BASIC EPS (Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net Income Before Extraordinary Item $12,155 17,084,498 $0.71
-----
-----
Effect of Dilutive Securities:
Operating Partnership Units 35 41,878
Stock Options 2,214
DILUTED EPS
------- ----------
Net Income Before Extraordinary Item,
after assumed conversion of common
share equivalents $12,190 17,128,590 $0.71
------- ---------- -----
------- ---------- -----
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended 12/31/95
-------------------------------------
Loss Shares Per-Share
BASIC EPS (Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net Loss Before Extraordinary Item ($12,718) 17,016,354 ($0.75)
-------
-------
Effect of Dilutive Securities:
Operating Partnership Units 3,442
DILUTED EPS
--------- ----------
Net Loss Before Extraordinary Item,
After assumed Conversion of common
Share equivalents ($12,718) 17,019,796 ($0.75)
--------- ---------- -------
--------- ---------- -------
</TABLE>
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and certificates of deposit with original maturities of less than 90
days.
Restricted Cash
Restricted cash is required to be held in escrow accounts as specified
by the terms of certain of the Company's Notes Payable at December 31, 1997.
The restricted cash is to be used to pay for insurance, taxes and capital
expenditures pertaining to the related real estate that collateralize the
notes payable.
Financial Instruments
The carrying values reflected in the consolidated balance sheets at
December 31, 1997 and 1996 reasonably approximate the fair values for cash
and cash equivalents, receivables, accounts payable, and line of credit
advances. In making such assessment, the Company has utilized discounted cash
flow analyses, estimates, and quoted market prices as appropriate. At
December 31, 1997, the Company estimated that the fair value of notes payable
was lower than their carrying value by approximately $9,736,000 and at
December 31, 1996 the Company estimated that the fair value of notes payable
was higher than their carrying value by approximately $2,100,000.
Accounting for Impairments
In the fourth quarter of 1995, the Company adopted Statement of
Accounting Standards Number 121 (FAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." FAS 121
requires that assets to be held and used be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset in question may not be recoverable (see Note 8).
46
<PAGE>
Redeemable Securities
Because the Company has a contingent obligation (see Note 10) to redeem
1,126,386 shares of its 2,800,000 shares of Series 1997-A Convertible
Preferred Stock outstanding, the value of such potentially redeemable shares
of approximately $28,160,000 is not included in Stockholders' Equity.
Reclassifications
Certain of the 1996 and 1995 amounts have been reclassified to conform
to the 1997 presentation.
2. REAL ESTATE
SUMMARY: Real Estate is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Retail Centers $845,536 $287,675
Office/Industrial Buildings 57,846 57,740
Retail Centers Under Development 56,443 41,297
Other 4,930 2,922
-------- --------
Total Real Estate 964,755 389,634
Accumulated Depreciation (55,823) (48,978)
-------- --------
Real Estate - net $908,932 $340,656
-------- --------
-------- --------
</TABLE>
The real estate is leased to tenants under leases expiring at various
dates through 2047. Certain of these leases contain provisions for rent
increases based on cost-of-living indices and certain leases contain renewal
options of up to 55 years. Future minimum rental income to be received by
the Company under the terms of these operating leases is as follows as of
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1998 $ 88,177
1999 81,493
2000 69,773
2001 61,459
2002 53,908
Later Years 352,755
--------
Total $707,565
--------
--------
</TABLE>
Forty-nine properties, including the 26 Bankruptcy Remote Properties
described in the following paragraph, having a net book value of
approximately $758,693,000 at December 31, 1997, are pledged as collateral
for notes payable described in Notes 4 and 5. In addition, the notes are
secured by assignments of rents on such real estate. Certain real estate is
located on land which is subject to noncancelable ground leases expiring at
various dates through 2089 with minimum annual lease payments of
approximately $1,520,000.
47
<PAGE>
BANKRUPTCY REMOTE PROPERTIES: Twenty-six properties having a net book value
of approximately $466,033,000 at December 31, 1997, (collectively the
"Bankruptcy Remote Properties," and each a "Bankruptcy Remote Property") are
wholly-owned by various "Bankruptcy Remote Entities." Each Bankruptcy Remote
Entity is an indirect subsidiary of the Company. The assets of each
Bankruptcy Remote Entity, including the respective Bankruptcy Remote Property
or Properties owned by each, are owned by that Bankruptcy Remote Entity alone
and are not available to satisfy claims that any creditor may have against
the Company, its affiliates, or any other person or entity. No Bankruptcy
Remote Entity has agreed to pay or make its assets available to pay creditors
of the Company, any of its affiliates, or any other person or entity.
Neither the Company nor any of its affiliates has agreed to pay or make its
assets available to pay creditors of any Bankruptcy Remote Entity (other than
any agreement by a Bankruptcy Remote Entity to pay its own creditors). No
affiliate of any Bankruptcy Remote Entity has agreed to pay or make its
assets available to pay creditors of any Bankruptcy Remote Entity.
DEVELOPMENT PROPERTIES: On September 28, 1995, the Company 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 Company's acquisition of
interests in six retail properties in the San Francisco Bay area (the "Martin
Properties"). Each of the Martin Properties is currently owned by a separate
limited partnership of which the Company is general partner and Mr. Martin
and various other persons affiliated with The Martin Group (collectively,
including Mr. Martin, the "Martin Group Affiliates") are the limited
partners. Each of the partnership agreements contemplates that the Company
will acquire or develop a specified Martin Property through the relevant
partnership and that upon completion and stabilization of rental revenues
from the property, the limited partners will receive a number of limited
partnership units determined as follows: (i) the annualized net operating
income of the Property will be multiplied by 10 in order to arrive at a
hypothetical value of the completed property, (ii) the cost of construction
and other project costs will be deducted from such hypothetical value in
order to "value" the equity interests of the limited partners in the
Property, and (iii) such equity interest will be stated as a number of
limited partnership units determined by dividing such limited partners'
equity by $16. Each holder of limited partnership units will have the right
to "put" such units to the partnership at a price equal to the then market
value of an equivalent number of shares of the Company's Common Stock. As a
result, the actual value which a holder of limited partnership units would be
entitled to receive upon exercise of such "put" option will depend upon the
market value of the Common Stock at the time, which may be more or less than
$16 per limited partnership unit. If such "put" is exercised, the Company
has the option of either purchasing the limited partnership units for cash or
delivering one share of Common Stock for each limited partnership unit.
Each partnership agreement specifies the maximum number of limited
partnership units that may be issued to the limited partners of that
partnership. If the hypothetical equity value of any such partnership is
determined to be less than originally 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 shares of Common Stock of the Company which may be
exchanged for such units will be reduced. Other than to reflect a stock
split or other capital adjustment of the shares of Common Stock, under no
circumstances can the number of units be increased above the number specified
in the applicable partnership agreement. Limited partnership units
exchangeable for 44,848 shares of Common Stock have been issued to the Martin
Group Affiliates as of December 31, 1997, and the Company had agreed to issue
limited partnership units exchangeable for an additional 90,000 shares of
Common Stock on January 1, 1998 (See Note 18 - Subsequent Events). At
December
48
<PAGE>
31, 1997 and 1996, these partnership units had a cost basis of $477,000 and
$434,000, respectively and are reflected as minority interest in the
accompanying consolidated financial statements. A maximum of 1,642,000
shares of Common Stock have been reserved for issuance upon exchange of the
maximum number of 1,642,000 limited partnership units that may be issued with
respect to the remaining four Martin Properties. In connection with each of
the Martin Properties, the Company entered into a registration rights
agreement with the limited partners of each limited partnership pursuant to
which such limited partners will have the right to require the Company to
register under the Securities Act the shares of Common Stock which are issued
upon the exchange of limited partnership units for offer and sale to the
public and to join in certain registrations of securities of the Company.
The total project costs (exclusive of partnership units representing the
equity interest of the limited partners) for the four remaining Martin
Properties are estimated at approximately $175,000,000 of which approximately
$73,000,000 has been expended through December 31, 1997.
3. ACQUISITIONS
During the year ended December 31, 1997, the Company and certain of its
subsidiaries completed the acquisition of 42 retail shopping centers
totalling approximately 5.6 million square feet of Company-owned GLA for an
aggregate purchase price of approximately $598,100,000. Included in this
acquisition activity was the acquisition on December 31, 1997, of a portfolio
of twenty shopping centers (the "Golden State Properties") containing
approximately 2.6 million square feet of gross leasable area, all of which
are located in California, and the related financing thereof. Pursuant to
the terms of the agreement to contribute dated as of December 5, 1997 (the
"Contribution Agreement") by and among the Company and certain investment
funds (the "Contributors"), on December 31, 1997, the Contributors
contributed the Golden State Properties to the Company's Operating
Partnership in exchange for initial consideration of approximately
$302,400,000. Of this consideration $50,000,000 was in the form of 2,000,000
preferred limited partner units of the Operating Partnership ("Preferred
Units") (see Note 10). The Company financed the cash portion of the
acquisition price of the Golden State Properties through the privately
negotiated sale of $70,000,000 of the Company's newly-designated and issued
Series 1997-A Convertible Preferred Stock (see Note 10), the borrowing of
first mortgage debt collateralized by nineteen of the Golden State Properties
(see Note 4) and additional borrowings under its existing credit facility
(see Note 5).
The Contributors have the right to receive additional consideration of
up to $41,600,000 for additional value resulting from the lease-up of certain
specified portions of the Golden State Properties and construction and
lease-up of certain additional space. The additional consideration, if any,
will be based upon incremental income and will be paid out over an
eighteen-month period. The Contributors have the option of taking the
additional consideration in common limited partner units of the Operating
Partnership ("Common Units") with the number of such Common Units to be equal
to the amount of such additional value divided by the then fair market value
(as determined at the respective times of payment) of the common stock, of
the Company (the "Common Stock"), except that $14.375 shall be deemed to be
the fair market value for shares issued for the first $11,600,000 of such
additional consideration. The Contributors will also have the option of
having the Company or the Operating Partnership immediately redeem such
Common Units for cash. Any leases for the unleased and unbuilt space must
adhere to certain standards as to use, creditworthiness and lease terms, with
the Contributors responsible for all leasing costs and the Company retaining
certain approval rights.
49
<PAGE>
During the year ended December 31, 1996, the Company acquired two retail
shopping centers totalling approximately 261,400 square feet for a total
purchase price of approximately $29,700,000.
4. NOTES PAYABLE
Notes payable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Notes payable at rates of up to 10.00%
Payable in monthly installments to 2026:
Collateralized Mortgage-Backed Securities $262,160
Banks and Savings and Loan Associations 18,753 $ 50,691
Insurance Companies 48,099 32,376
Pension Funds 22,052 22,485
Other 18,447
-------- --------
Total Notes Payable $369,511 $105,552
-------- --------
-------- --------
</TABLE>
Interest expense for the years ended December 31, 1997, 1996 and 1995 is
reported net of capitalized interest totaling approximately $3,242,000,
$1,658,000 and $97,000, respectively.
Principal maturities on the notes payable are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1998 $ 27,917
1999 29,100
2000 5,059
2001 5,196
2002 18,271
Later Years 283,968
--------
Total $369,511
--------
--------
</TABLE>
At December 31, 1997, the Company had $18,753,000 outstanding under a
construction loan agreement, secured by one of the Company's development
properties. Borrowings under this loan bear interest at the Bank's
Eurodollar base rate plus 2.00% or at its prime rate (approximately 8.50% at
December 31, 1997). The loan is scheduled to mature in June 1998, and
borrowings are included in notes payable.
During February 1997, the Company paid off mortgage loans secured by one
of its shopping centers with borrowings under the Company's credit
facilities. In addition, the Company refinanced a variable rate mortgage
loan secured by another property with a fixed rate mortgage loan. In
connection with these extinguishments of debt, the Company recorded an
extraordinary loss of $52,000.
On December 31, 1997, the Company, through a Bankruptcy Remote Entity
(see Note 2), sold to Nomura Asset Capital Corporation a 8.33%, $135,040,000
mortgage promissory note due December 31, 2007 for $150,000,000, being the
equivalent of a 6.76%, $150,000,000 mortgage promissory note with the same
maturity. The Company has accounted for the sale of the mortgage note and
the payment of principal and interest thereon as if the note were a 6.76%
$150,000,000 mortgage promissory note. The first mortgage debt is
collateralized by nineteen of the twenty Golden State Properties. The
proceeds of this mortgage financing were used to finance, in part, the
acquisitions of the Golden State Properties pursuant to the Contribution
Agreement (see Note 3).
50
<PAGE>
5. LINE OF CREDIT ADVANCES
In November 1996, the Company obtained a $90,000,000 revolving credit
facility secured by certain real estate on which outstanding borrowings
accrued interest at LIBOR (London Interbank Offer Rate) plus 1.65% and a
$45,000,000 unsecured credit facility under which outstanding borrowings
accrued interest at LIBOR plus 1.75%. During the third quarter of 1997, the
Company obtained an increase in the borrowing capacity under its revolving
credit facility from $135,000,000 to $205,000,000 of which $135,000,000 is to
be secured by various mortgages and $70,000,000 is unsecured. The Company
also negotiated a reduction of .25% in the interest rate to LIBOR plus 1.40%
and LIBOR plus 1.50% on the secured and unsecured portions, respectively. At
December 31, 1997, borrowings of approximately $180,869,000 were outstanding
of which $105,888,000 and $74,981,000 (with the lender's consent) were
outstanding under the secured and unsecured portions, respectively. The
credit facility is scheduled to mature in November 1998, with a one year
extension option available and is subject to various borrowing base and debt
service coverage limitations.
6. CONVERTIBLE DEBENTURES
On March 6, 1992, the Company issued $75,000,000 of 8-1/2% Convertible
Debentures due 2002 at $1,000 per Debenture. During November 1996, the
Company redeemed the remaining balance of these Convertible Debentures at par
($25,700,000). Proceeds for the redemption were obtained from borrowings
under the Company's credit facilities. In connection with this
extinguishment of debt, the Company recorded an extraordinary loss of
$884,000. Through December 31, 1995, 3,081,000 shares had been issued as a
result of the conversion of $49,309,000 of these Debentures; there were no
conversions during 1996.
7. GAIN ON SALES OF REAL ESTATE
At December 30, 1997, the Company sold the Pacific West Outlet Center.
Proceeds from the disposition totaled approximately $38,500,000, resulting in
a gain of approximately $5,896,000. Two other properties were disposed of
without realization of gain or loss during 1997. During 1996, the Company
disposed of the McDonnell Douglas Building, Highlands Plaza, the Fireman's
Fund Building, the Miramar Business Plaza and its interest in the building
which contains its corporate headquarters. Proceeds from the dispositions
totaled approximately $40,874,000, resulting in a gain of approximately
$2,298,000. During 1995, the Company disposed of A-Storage Place and the
Beverly Garland Hotel. Proceeds from the dispositions totaled approximately
$12,619,000, resulting in a gain of approximately $2,233,000. All such
proceeds were used to reduce borrowings under the Company's credit facilities.
8. IMPAIRMENTS/WRITEDOWNS OF ASSETS
During the fourth quarter 1995, the Company announced that its Board of
Directors had approved a plan to dispose of a portion of the Company's office
portfolio and to redeploy the proceeds from disposition into target retail
properties. As a result of the decision to dispose of these properties, the
Company took a one-time non-cash charge of $21,373,000. Fair market value
was based on estimated sales proceeds and discounted cash flows for the
related properties. In addition, the Company took additional one-time
charges of $1,047,000 to write down goodwill, outdated computer equipment, a
discontinued investment in a real estate advisor, and $2,500,000 related to
the implementation of the Company's new strategic plan. The $2,500,000
51
<PAGE>
charge included a non-cash reduction in revenues of $1,278,000 primarily as a
result of a change in the formula used to estimate common area maintenance
reimbursements and percentage rents; and $975,000 in one-time general and
administrative expenses related to the transition to a new management team,
studies by new management of various organizational and operating policies of
the Company, and organizational and strategic changes resulting from those
studies including the internalization of property management and the
installation of a new property management operating system.
9. DIVIDEND DISTRIBUTIONS
Based on information provided by the Company's regular tax advisor, the
status of the dividends distributed for 1997, 1996 and 1995 for Federal
income tax purposes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Taxable Portion:
Ordinary 93.3% 0% 44.4%
Capital Gain 0% 0% 12.4%
------ ------ ------
93.3% 0% 56.8%
Return of Capital 6.7% 100.0% 43.2%
------ ------ ------
Total 100.0% 100.0% 100.0%
------ ------ ------
------ ------ ------
</TABLE>
10. ISSUANCE OF SECURITIES
SERIES 1997-A CONVERTIBLE PREFERRED STOCK: On December 31, 1997, the
Company issued 2,800,000 shares of Series 1997-A Convertible Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock") in a
privately-negotiated sale at a price of $25.00 per share. The Series A
Preferred Stock has a cumulative dividend yield of 8%. On and after December
31, 1998, March 31, 1999, June 30, 1999, and September 30, 1999 (or earlier
in the event of certain defined events), each holder of shares of Series A
Preferred Stock will have the right to convert 25% of the shares of Series A
Preferred Stock held of record by the holder into a number of shares of
Common Stock equal to (i) the stated value plus the amount, if any, of the
per share amount of outstanding dividends as of the effective time of the
conversion, divided by (ii) the conversion price, initially equal to $15.375.
After the fifth anniversary of the date of the first issuance of shares of
Series A Preferred Stock, the Company may give notice of mandatory conversion
of all of the outstanding Series A Preferred Stock if the value of the
Common Stock (both on the day prior to the notice of conversion and on a
value weighted basis over a period of time prior to such date) is greater
than the initial conversion price; and after such notice all such outstanding
shares shall be mandatorily converted into Common Stock, except that each
holder of Series A Preferred Stock shall have the right, prior to the date
established for such mandatory conversion, instead to cause the Company to
redeem such holder's Series A Preferred Stock at its stated value plus
accrued dividends to the redemption date multiplied by a percentage equal to
105% if the redemption date is prior to December 31, 2003, decreasing by 1%
each year thereafter (but not less than 100% after December 31, 2007). The
Company used the proceeds of the sale to finance, in part, the acquisition of
the Golden State Properties (see Note 3).
COMMON STOCK: On May 2, 1997, the Company issued 6,325,000 shares of 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 offering were used to reduce borrowings under the
Company's credit facilities.
52
<PAGE>
PREFERRED OPERATING PARTNERSHIP UNITS: On December 31, 1997, 2,000,000
Series 1997-A Preferred Limited Partner Units of the Operating Partnership
(the "Preferred Units") were issued at a price of $25.00 per unit. After
approximately a year and subject to certain conditions, Preferred Units are
exchangeable at the option of the holder for Series A Preferred Stock on a
1-for-1 basis. Each Preferred Unit has substantially identical distribution
and liquidation rights as each share of Series A Preferred Stock. Such
Preferred Units are classified as minority interest at December 31, 1997.
The Company used the proceeds of the sale to finance, in part, the
acquisition of the Golden State Properties (see Note 3).
REDEMPTION CONTINGENCY: Under the rules of the New York Stock Exchange (on
which the Company's Common Stock is listed), the number of shares of Common
Stock which the Company may issue in connection with the conversion of Series
A Preferred Stock (including shares of Series A Preferred Stock issuable upon
the exchange of Preferred Units for such Series A Preferred Stock) is limited
to a number that is less than 20% of the outstanding shares of Common Stock
at December 31, 1997, unless the stockholders of the Company approve the
issuance of Common Stock upon the conversion of all such Preferred
securities. The Company intends to ask the holders of its Common Stock to
approve, at the Company's 1998 Annual Meeting or a special meeting to be held
not later than June 30, 1998, the issuance of Common Stock upon the
conversion of all $120,000,000 of such Preferred securities. In the event
that the stockholders do not approve such issuance, the Company will be
obligated to redeem 1,126,386 shares of Series A Preferred Stock and 804,561
Preferred Units having an aggregate stated value of approximately $48,274,000
not later than June 30, 1998, in order to reduce the number of shares of
Common Stock issuable upon conversion of the remaining unredeemed Preferred
securities to less than 20% of the outstanding shares of Common Stock at
December 31, 1997. Of this amount, $28,160,000 is classified as Preferred
Stock, and the remainder is classified as Minority Interest.
ISSUANCE OF PARTNERSHIP UNITS; "PUT" RIGHTS OF COMMON UNITS: Under the
partnership agreement of the Operating Partnership, whenever the Company
issues any shares of Common Stock or Preferred Stock, the Company must
contribute the proceeds of such issuance to the Operating Partnership and the
Operating Partnership will issue the same number of Common Units or Preferred
Units to the Company, so that the Company will at all times own the same
number of Common Units (including units held by the Company as general
partner as well as limited partner units owned by the Company) and Preferred
Units as there are outstanding shares of Common Stock or Preferred Stock of
the Company. Distributions by the Operating Partnership with respect to
Preferred Units and Common Units provide the funds to enable the Company to
make distributions to the holders of its Series A Preferred Stock and Common
Stock. The partnership agreement also provides that, approximately one year
after the issuance of Common Units (or earlier in the event of certain
extraordinary transactions), the holder of each Common Unit other than the
Company will have the right to require the Operating Partnership to redeem
each Common Unit at a redemption price equal to the then market value of a
share of Common Stock. Such redemption will be in cash, except that the
Company may assume the redemption obligation and pay the redemption in form
of shares of its Common Stock.
UNISSUED REGISTERED SECURITIES: As of December 31, 1997, the Company has
registered an aggregate of $321,728,125 of unissued securities under various
shelf registration statements.
53
<PAGE>
11. PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
Market Quotations
Dividends
Quarter Ended High Low Paid
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1995 $13.38 $11.88 $.36
June 30, 1995 13.50 11.63 .36
September 30, 1995 14.50 11.38 .36
December 31, 1995 11.88 9.50 .25
March 31, 1996 11.13 9.75 .25
June 30, 1996 11.88 10.25 .25
September 30, 1996 13.00 11.00 .25
December 31, 1996 15.00 11.88 .25
March 31, 1997 15.50 12.75 .25
June 30, 1997 13.88 11.75 .25
September 30, 1997 14.81 13.50 .25
December 31, 1997 15.56 12.75 .25
</TABLE>
Market quotations are from the New York Stock Exchange Index. As of
December 31, 1997, there were approximately 2,626 holders of record of the
Company's shares.
12. STOCK OPTIONS
The Company has a stock option and incentive plan which expires in 2006
and is administered by the Compensation Committee of the Board of Directors.
A maximum of 1,800,000 shares of Common Stock are reserved for issuance upon
the exercise of options or other stock-based awards that may be granted under
the plan. Options granted expire 10 years from the date of grant. The plan
as revised in 1996 also provides for grants from such reserved shares to each
non-employee director of the Company of restricted shares of the Company's
Common Stock in lieu of cash compensation. Restricted stock vests evenly
over a three year period or earlier upon such person's termination of service
as director. At December 31, 1997, 174,659 shares had been purchased pursuant
to the exercise of options or restricted stock granted under the plan,
unexercised options for 1,361,377 shares are outstanding (of which 316,833
are subject to future vesting requirements), and options or other awards for
263,964 shares are available for future awards under the plan (see Note 18).
54
<PAGE>
Activity under the stock option plan is summarized below:
<TABLE>
<CAPTION>
Exercise
Number Price
of Shares Per Share
---------------------------
<S> <C> <C>
Outstanding, January 1, 1995 399,537 $15.20-$18.88
Granted 683,000 $12.09-$12.88
Exercised (48,000) $12.50
--------- -------------
Outstanding, December 31, 1995 1,034,537 $12.09-$18.88
Granted 501,500 $12.50
Canceled (13,850) $15.20-$18.63
--------- -------------
Outstanding, December 31, 1996 1,522,187 $12.09-$18.88
Expired (19,250) $16.19
Repurchased (135,560) $16.19-$18.88
Exercised (4,000) $12.50
Canceled (2,000) $12.50
--------- -------------
Outstanding, December 31, 1997 1,361,377 $12.09-$18.88
--------- -------------
--------- -------------
</TABLE>
During 1997, the Company repurchased 135,560 options for an average
price of approximately $0.49 per option.
The following table summarizes information concerning options
outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ------------------------------------
Remaining
Contractual Exercise Weighted
Range of Outstanding at Life Price - Number at Average
Exercise December 31, Weighted Weighted December 31, Exercise
Prices 1997 Average Average 1997 Price
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.09-$12.88 1,130,500 8 years $12.65 813,667 $12.71
$15.20-$16.97 50,250 4 years 16.04 50,250 16.04
$17.59-$18.88 180,627 3 years 18.48 180,627 18.48
--------- ---------
1,361,377 1,044,544
--------- ---------
--------- ---------
</TABLE>
Financial Accounting Standards Number 123, "Accounting for Stock-Based
Compensation" ("FAS No. 123") was effective in 1996. FAS No. 123 requires
either the recording or disclosure of compensation cost for stock-based
employee compensation plans at fair value. The Company has adopted the
disclosure-only provisions of FAS No. 123. Accordingly, no compensation
costs have been recognized in 1997, 1996 or 1995. Had compensation cost for
the Company's Stock Option Plan been recognized based on the fair value at
the grant date for awards consistent with the provisions of FAS No. 123, the
Company's net income (loss) and basic earnings (loss) per share would have
been reflected as the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income (Loss) - pro forma $18,463 $11,251 $(13,664)
Basic Earnings (Loss) per share - pro forma .87 .66 (.80)
</TABLE>
55
<PAGE>
The pro forma effect on net income for 1997, 1996 and 1995 is not
representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to 1995. No options were granted during 1997. The
estimated fair value of options granted under the Company's stock option plan
during 1996 and 1995 were $705,000 and $946,000, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 8.0% dividend yield, volatility of 25%, risk
free rate of return of 6.00% and expected lives of 5 years. The estimated
fair value of options granted are subject to the assumptions made and if the
assumptions changed, the estimated fair value amounts could be significantly
different. The above weighted-average assumptions are an approximation of
historical information and are not intended to represent future events or
trends.
13. DIVIDEND REINVESTMENT PLAN
During 1995, the Company had a Dividend Reinvestment Plan which enabled
stockholders to invest their dividends in newly issued shares at a 5%
discount from "fair market value" (as defined in the Plan). For 1995,
222,894 shares were issued through the Plan. The Company suspended the
direct discounted reinvestment portion of the Plan effective January 1, 1996.
14. REPURCHASE OF STOCK
During the second quarter of 1995, the Company purchased 94,500 shares
of stock on the open market at an average price of $13.28.
15. TRANSACTIONS WITH RELATED PARTIES
The Company acquired two retail centers in July and December 1996,
having a net book value of $30,221,000 at December 31, 1996, with the
expectation that an institutional investor would ultimately acquire 75%
interests in such centers by paying the Company 75% of its acquisition costs
for these properties. On February 20, 1997 and August 1, 1997, the
institutional investor funded $7,173,000 and $15,254,000, respectively, to
acquire a 75% interest in each of the two retail centers. The Company is
advised that an entity controlled by a former director of the Company holds
an approximately 1.5% interest in, and is an advisor to, the institutional
investor.
In April 1995, the Company entered into an agreement to contribute up to
$650,000 as an investor in a real estate advisor organized to provide
advisory services to investment vehicles acquiring real property located in
the Republic of Mexico. The Company's chairman and two other unrelated
individuals were the managers of, and individually owned interests in, the
advisor. In November 1995, following the investment of $350,000 in the
advisor, and in conjunction with the Board of Directors' determination to
concentrate the Company's future activities on retail properties, the Company
terminated the contribution agreement and wrote off its investment in the
advisor.
The Company temporarily advanced the $200,000 purchase price for 16,000
shares of its Common Stock purchased during 1995 by each of three Company
directors, at the then fair market value of such stock. The note of one
director, for $197,000 bearing interest at the Company's cost of borrowing,
remained outstanding at December 31, 1995, and, was fully repaid early in
1996. The sales to the directors were a part of a stock purchase program
offered
56
<PAGE>
to all Company employees which, except for the purchases by the three
directors, was rescinded prior to the 1995 year-end.
For a description of transactions in which the Company's current
president and chief executive officer was an interested party prior to his
election to such positions and as a director, see "Development Properties" in
Note 2.
16. RETIREMENT SAVINGS PLAN
The Company has a contributory Retirement Savings Plan. The maximum
contribution is 15% of annual salaries of which up to 3% is matched by the
Company up to 75% of employee contributions. The Company's contributions to
this Plan for 1997, 1996 and 1995 were approximately $48,000, $33,000, and
$29,000, respectively.
17. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Net Income Per Share
--------------------
1997: Total Revenues Net Income Basic Diluted
-------------- ---------- ----- -------
<S> <C> <C> <C> <C>
First $ 12,977 $ 1,584 $ 0.09 $ 0.09
Second 16,987 3,444 0.16 0.16
Third 18,117 4,111 0.18 0.17
Fourth 20,093 9,559 0.45 0.45
-------- -------- ------ ------
Total $ 68,174 $ 18,698 $ 0.88 $ 0.87
-------- -------- ------ ------
-------- -------- ------ ------
1996:
First $ 12,245 $ 3,044 $ 0.18 $ 0.18
Second 12,167 2,785 0.16 0.16
Third 11,611 4,423 0.26 0.26
Fourth 11,291 1,019 0.06 0.06
-------- -------- ------ ------
Total $ 47,314 $ 11,271 $ 0.66 $ 0.66
-------- -------- ------ ------
-------- -------- ------ ------
</TABLE>
57
<PAGE>
18. SUBSEQUENT EVENTS
On January 1, 1998, 90,000 limited partnership units exchangeable for
90,000 shares of Common Stock were issued to the Martin Group Affiliates in
connection with the Company's acquisition of another Martin Property (see
Note 2). The partnership units had a cost basis of approximately $1,440,000
and were included in accounts payable and other liabilities at December 31,
1997.
In January 1998, the Company obtained a $44,457,000 construction loan,
secured by one of the Company's development properties. Borrowings under this
loan bear interest at LIBOR plus 1.90% or at the lender's prime rate plus
.50%. The loan is scheduled to mature in January 1999. The initial draw on
January 9, 1998 was approximately $10,222,000.
On February 2, 1998, the Company purchased a retail shopping center for
$14,825,000. The acquisition was financed with borrowings under a new
$7,000,000, 7.45%, 7-year mortgage loan secured by the retail shopping
center, with the balance coming from borrowings under the Company's credit
facility.
On January 14, 1998, the Company's Board of Directors, subject to
stockholder approval at the 1998 Annual Meeting, voted to increase the number
of shares of Common Stock for which awards may be granted under the stock
option and incentive plan (see Note 12) by 1,150,000 shares. Subject to the
approval of such increase, the Compensation Committee concurrently granted
options for an aggregate of 525,000 shares of Common Stock to certain key
executives, exercisable at $12.50 per share, the current value of the
Corporation's stock on the New York Stock Exchange at the time such options
were approved in December, 1996. On January 14, 1998, the Compensation
Committee also granted options for an aggregate of 144,500 shares of Common
Stock to other employees of the Company at an exercise price of $14.50 per
share, the closing price of the Corporation's stock on that day.
19. PRO FORMA FINANCIAL INFORMATION
As discussed in Notes 3 and 7, the Company and certain of its
subsidiaries acquired and disposed of interests in certain properties during
1997 and 1996. The acquisitions have been accounted for as a purchase. The
operating results of the acquisitions and disposals have been included in the
consolidated statements of income from the date of acquisition and disposal.
The following unaudited supplemental pro forma operating data is
presented for the years ended December 31, 1997 and 1996 as if each of the
following transactions had occurred as of the beginning of the respective
periods: (i) the acquisitions and dispositions by the Company of all
properties in 1997 and 1996, (ii) the completion of the sale by the Company
of 6,325,000 shares of Common Stock in May 1997 (see Note 10) and (iii) the
redemption of $25,700,000 aggregate principal amount of 8.5% Convertible
Debentures (See Note 6).
The unaudited pro forma financial information is presented for
informational purposes only and may not be indicative of what actual results
of operations would have been had the transaction occurred as of
January 1, 1997 or 1996, nor does it purport to represent the results of future
operations. (Amounts in thousands, except per share amounts.)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1997 1996
-------- --------
<S> <C> <C>
Revenues from rental property $111,813 $104,180
Net Income Before Extraordinary
Item 15,972 16,564
Net Income 15,920 15,680
Net Income Before Extraordinary
Item Per Common Share 0.68 0.71
Net Income per Common Share 0.68 0.67
</TABLE>
PART III
ITEMS 10 THROUGH 13.
Incorporated by reference to the following sections of the Company's
Proxy Statement for its 1998 Annual Meeting: "Nominees for Directors,"
"Executive Officers," "Beneficial Ownership of Management," "Beneficial
Ownership of Non-Management," and "Executive Compensation" under "PROPOSAL
I-ELECTION OF DIRECTORS" and "CERTAIN TRANSACTIONS WITH MANAGEMENT."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements and Independent Auditors' Report
are included under Item 8.
Independent Auditors' Report.
Consolidated Balance sheets as of December 31, 1997 and 1996.
Consolidated Statements of Income for each of the three years in the
period ended December 31, 1997.
58
<PAGE>
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1997.
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1997.
Notes to Consolidated Financial Statements, December 31, 1997, 1996, and
1995.
The following Supplemental Financial Schedules are included herein:
III - Real Estate and Accumulated Depreciation.
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included
in the financial statements and notes.
(b) REPORTS ON FORM 8-K
(i) Form 8-K Report filed November 17, 1997 (earliest event reported
August 15, 1997): Item 5, regarding acquisitions of Gateway
Retail Center, Mountaingate Plaza and the first acquisitions
under the Powell Portfolio and the letter of intent relating to
the Golden State Acquisition; and Item 7, exhibit relating to the
Golden State Acquisition.
(ii) Form 8-K Report filed December 16, 1997 (earliest event reported
November 7, 1997): Item 5, regarding Golden State Properties
Portfolio Transactions, Powell Portfolio Acquisition,
Mountaingate Plaza, Ernst Leasehold Portfolio Acquisition, Simi
Valley Plaza Acquisition, Meridian Village Shopping Center
Acquisition, Disposition of Pacific West Outlet Center, Operating
Partnership Formation, Designation of Series A Preferred Stock
and Description of Operating Partnership Units; and Item 7,
regarding Financial Statements, Pro Forma financial information,
and exhibits.
(iii) Form 8-K Report filed January 14, 1998 (earliest event reported
December 31, 1997): Item 2, regarding Golden State Properties
Acquisition and financing; Item 5, regarding substantial
completion of transfer of assets to Burnham Pacific Operating
Partnership, L.P. and admission of limited partners, and
acquisition of Simi Valley Plaza, and disposition of Pacific West
Outlet Center; Item 7 regarding Financial Statements and exhibits.
(c) EXHIBITS
3.1.1 Charter of the Company, as Amended and Restated May 6, 1997,
incorporated by reference to pages B-1 through B-13 of the Company's
Proxy Statement for its 1997 Annual Meeting, filed March 31, 1997.
3.1.2 Articles Supplementary relating to Series 1997-A Convertible
Preferred Stock, incorporated by reference to Exhibit 3.1.2 of the
Company's Form 8-K Report (earliest event reported December 31,
1997), filed January 14, 1998 (the "January 14, 1998 Form 8-K").
59
<PAGE>
3.2 Bylaws of the Company, as amended dated November 19, 1997,
incorporated by reference to the Company's report on Form 8-K
(earliest event reported November 7, 1997), filed December 16, 1997
(the "December 16, 1997 Form 8-K Report").
4.1 Form of stock certificate for common stock of the Company,
incorporated by reference to Exhibit 4.0 to Registration Statement
No. 33-20489 and subsequently overprinted to state "THE CORPORATION
IS NOW INCORPORATED IN THE STATE OF MARYLAND WITH $0.01 PAR VALUE
PER SHARE."
4.2 Stock Purchase Agreement dated as of December 5, 1997 by and among
Burnham Pacific Properties, Inc., Burnham Pacific Operating
Partnership, L.P., Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C., incorporated by reference to Exhibit
4.1 of the January 14, 1998 Form 10-K.
4.3 Registration Rights Agreement dated as of December 31, 1997 by and
among Burnham Pacific Properties, Inc., Westbrook Burnham Holdings,
L.L.C. and Westbrook Burnham Co-Holdings, L.L.C., incorporated by
reference to Exhibit 4.2.1 of the January 14, 1998 Form 8-K.
4.4 Registration Rights Agreement dated as of December 31, 1997 by and
among Burnham Pacific Properties, Inc. and the Existing Partners (of
Golden State Properties) listed on Exhibit A-1 thereto, incorporated
by reference to Exhibit 4.2.2 of the January 14, 1998 Form 8-K.
10.1.1 Agreement of Limited Partnership of Burnham Pacific Operating
Partnership, L.P. dated as of November 14, 1997, incorporated by
reference to Exhibit 10.1.1 of the December 16, 1997 Form 8-K.
10.1.2 First Amendment to Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P., dated as of December 31, 1997
(the "First Amendment"), incorporated by reference to Exhibit 10.1
of the January 14, 1998 Form 8-K.
*10.1.3 Exhibit C to the First Amendment (defining the rights of Preferred
Units and Common Units of Burnham Pacific Operating Partnership,
L.P.)
10.2 Agreement to Contribute among Burnham Pacific Properties, Inc., and
Burnham Pacific Operating Partnership, L.P. and the Contributors and
Existing Partners of the Golden State Properties party thereto,
dated as of December 5, 1997, incorporated by reference to Exhibit
10.2 to the December 16, 1997 Form 8-K.
10.3 Loan Agreement dated as of December 31, 1997 between BPP/Golden
State Acquisitions, Inc., L.L.C. and Nomura Asset Capital
Corporation, incorporated by reference to Exhibit 10.2 of the
January 14, 1998 Form 8-K.
10.4 Amended and Restated Revolving Loan Agreement dated as of December
31, 1997 by and between Burnham Pacific Operating Partnership, L.P.
and
60
<PAGE>
Nomura Asset Capital Corporation, incorporated by reference to
Exhibit 10.3 of the January 14, 1998 Form 8-K.
10.5 Stock Option and Incentive Plan of the Company as amended and
restated as of May 6, 1997, incorporated by reference to Appendix D
to the Company's Proxy Statement for its 1997 Annual Meeting.
10.6 Employment Agreement between the Company and J. David Martin dated
as of October 1, 1995, incorporated by reference to Exhibit 10.1 to
the Company's report on Form 10-Q for the quarter ended September
30, 1995.
10.7 Form of Indemnification Agreement entered into with each of the
Company's Directors and Officers, incorporated by reference to
Exhibit 10.6 filed with the Company's 1995 report on Form 10-K.
*21.1 List of subsidiaries of the Company.
*23.1 Consent of Deloitte & Touche LLP.
*27.1 Financial Data Schedule
*27.2 Financial Data Schedule
*27.3 Financial Data Schedule
*Filed herewith.
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ J. DAVID MARTIN
----------------------------------
J. David Martin, President
Dated: March 18, 1998
-------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ MALIN BURNHAM Chairman of the Board March 18, 1998
- ------------------------ ----------------------
Malin Burnham
/s/ J. DAVID MARTIN President, Director March 18, 1998
- ------------------------ ----------------------
J. David Martin
/s/ DANIEL B. PLATT Chief Financial Officer March 18, 1998
- ------------------------ ----------------------
Daniel B. Platt
/s/ DONNE P. MOEN Director March 18, 1998
- ------------------------ ----------------------
Donne P. Moen
/s/ RICHARD R. TARTRE Director March 18, 1998
- ------------------------ ----------------------
Richard R. Tartre
/s/ THOMAS A. PAGE Director March 18, 1998
- ------------------------ ----------------------
Thomas A. Page
/s/ PHILLIP S. SCHLEIN Director March 18, 1998
- ------------------------ ----------------------
Phillip S. Schlein
Director
- ------------------------ ----------------------
James D. Klingbeil
/s/ ROBIN WOLANER Director March 18, 1998
- ------------------------ ----------------------
Robin Wolaner
Director
- ------------------------ ----------------------
James D. Harper, Jr.
62
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY: COSTS CAPITALIZED
SUBSEQUENT TO ACQUISITION:
PROPERTY ENCUMBRANCES LAND BLDGS & IMPS LAND BLDGS & IMPS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SAN DIEGO REGION
ANACOMP BUILDING - 7,467,253 14,934,506 6,747 15,637
Poway, California
BERGEN BRUNSWIG BUILDING 9,529,315 7,878,067 15,756,135 10,754 148,645
Orange, California
INDEPENDENCE SQUARE - - 4,213,782 - 3,783,709
San Diego, California
K-MART 2,772,312 1,933,333 3,866,667 - -
San Diego, California
MARCOA BUILDING - 1,432,434 3,342,347 247 576
San Diego, California
MENIFEE TOWN CENTER - 3,952,698 7,905,397 - -
Menifee, California
MESA SHOPPING CENTER 8,002,569 2,962,405 5,924,810 18,169 2,675,034
San Diego, California
NAVAJO SHOPPING CENTER - 571,588 961,731 1,197,679 8,227,861
San Diego, California
OLYMPIAD PLAZA 6,185,798 3,413,703 6,871,283 - -
Mission Viejo, California
PLAZA RANCHO CARMEL - 1,837,304 3,848,014 - -
San Diego, California
POINT LOMA PLAZA 15,343,655 11,942,554 23,885,108 23,408 1,524,356
San Diego, California
POWAY PLAZA - 2,747,538 6,413,725 - 265,587
Poway, California
RUFFIN VILLAGE - - 3,779,139 - 250,054
San Diego, California
SAN DIEGO FACTORY OUTLET
CENTER - 4,533,576 9,067,910 2,156,882 6,720,890
San Diego, California
SAN MARCOS LUCKY PLAZA - 2,457,807 4,915,613 - -
San Diego, California
SANTEE VILLAGE - 3,019,122 4,528,684 - 950,085
San Diego, California
SCRIPPS RANCH - 2,085,891 2,081,981 - 2,684,505
San Diego, California
SILVER PLAZA - 318,364 675,644 - -
Silver City, New Mexico
WIEGAND PLAZA II 7,095,407 4,986,224 9,279,037 414,463 3,927,514
Encinitas, California
<CAPTION>
AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD:
LAND BLDGS & IMPS CARRYING ACCUMULATED DATE LIFE
COSTS DEPRECIATION ACQUIRED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SAN DIEGO REGION
ANACOMP BUILDING 7,474,000 14,950,143 22,424,143 2,491,484 Dec 1992 30
Poway, California
BERGEN BRUNSWIG BUILDING 7,888,821 15,904,780 23,793,601 2,775,997 Oct 1992 30
Orange, California
INDEPENDENCE SQUARE - 7,997,491 7,997,491 3,307,468 Sep 1983 3-25
San Diego, California
K-MART 1,933,333 3,866,667 5,800,000 537,037 Oct 1993 30
San Diego, California
MARCOA BUILDING 1,432,681 3,342,923 4,775,604 916,689 Sep 1989 30
San Diego, California
MENIFEE TOWN CENTER 3,952,698 7,905,397 11,858,095 - Dec 1997 30
Menifee, California
MESA SHOPPING CENTER 2,980,574 8,599,844 11,580,418 4,282,680 Jun 1984 25
San Diego, California
NAVAJO SHOPPING CENTER 1,769,267 9,189,592 10,958,859 1,777,589 Sep 1983 3-15
San Diego, California
OLYMPIAD PLAZA 3,413,703 6,871,283 10,284,986 114,808 Jun 1997 30
Mission Viejo, California
PLAZA RANCHO CARMEL 1,837,304 3,848,014 5,685,318 1,384,529 Jul 1988 30
San Diego, California
POINT LOMA PLAZA 11,965,962 25,409,464 37,375,426 7,242,491 Dec 1989 30
San Diego, California
POWAY PLAZA 2,747,538 6,679,312 9,426,850 2,150,035 Oct 1988 30
Poway, California
RUFFIN VILLAGE - 4,029,193 4,029,193 1,997,584 Dec 1985 25
San Diego, California
SAN DIEGO FACTORY OUTLET
CENTER 6,690,458 15,788,800 22,479,258 2,958,999 Jan 1992 30
San Diego, California
SAN MARCOS LUCKY PLAZA 2,457,807 4,915,613 7,373,420 - Dec 1997 30
San Diego, California
SANTEE VILLAGE 3,019,122 5,478,769 8,497,891 2,426,960 Jan 1985 30
San Diego, California
SCRIPPS RANCH 2,085,891 4,766,486 6,852,377 1,583,658 May-87 30
San Diego, California
SILVER PLAZA 318,364 675,644 994,008 5,284 Oct 1997 30
Silver City, New Mexico
WIEGAND PLAZA II 5,400,687 13,206,551 18,607,238 4,368,713 Sep 1986 30
Encinitas, California
</TABLE>
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY: COSTS CAPITALIZED
SUBSEQUENT TO ACQUISITION:
PROPERTY ENCUMBRANCES LAND BLDGS & IMPS LAND BLDGS & IMPS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOS ANGELES REGION
BELL GARDEN MARKETPLACE - - 11,854,933 - -
Bell Gardens, California
BUENA VISTA MARKETPLACE - 4,216,270 8,432,541 - -
Duarte, California
CENTERWOOD PLAZA - 2,108,031 4,216,062 - -
Bellflower, California
CENTRAL SHOPPING CENTER - 1,886,518 3,795,868 - -
Ventura, California
CRENSHAW-IMPERIAL 5,233,593 3,019,923 6,159,881 - -
Inglewood, California
LA MANCHA SHOPPING CENTER - 2,202,830 5,981,355 159,703 632,272
Fullerton, California
MOUNTAINGATE PLAZA 24,762,407 9,587,636 19,419,490 - -
Simi Valley, California
ONTARIO VILLAGE 3,643,633 1,582,802 3,195,733 - -
Ontario, California
THE PLAZA AT PUENTE HILLS 32,814,955 19,333,333 38,666,667 48,744 1,478,834
City of Industry,
California
RALPH'S CENTER - 3,686,051 7,372,102 - -
Redondo Beach, California
SANTA FE SPRINGS - 5,682,205 11,403,070 - -
Whitier, California
SIMI VALLEY PLAZA 16,241,806 8,219,957 16,439,914 - -
Simi Valley, California
VALLEY CENTRAL 25,181,265 13,291,904 26,680,586 - -
Lancaster, California
WEST LANCASTER - 635,257 1,274,663 - -
Lancaster, California
WESTMINSTER CENTER - 18,604,973 37,209,946 - -
Westminster, California
<CAPTION>
AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD:
LAND BLDGS & IMPS CARRYING ACCUMULATED DATE LIFE
COSTS DEPRECIATION ACQUIRED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LOS ANGELES REGION
BELL GARDEN MARKETPLACE - 11,854,933 11,854,933 - Dec 1997 30
Bell Gardens, California
BUENA VISTA MARKETPLACE 4,216,270 8,432,541 12,648,811 - Dec 1997 30
Duarte, California
CENTERWOOD PLAZA 2,108,031 4,216,062 6,324,093 - Dec 1997 30
Bellflower, California
CENTRAL SHOPPING CENTER 1,886,518 3,795,868 5,682,386 95,800 Apr 1997 30
Ventura, California
CRENSHAW-IMPERIAL 3,019,923 6,159,881 9,179,804 163,661 Apr 1997 30
Inglewood, California
LA MANCHA SHOPPING CENTER 2,362,533 6,613,627 8,976,160 4,441,407 Dec 1988 30
Fullerton, California
MOUNTAINGATE PLAZA 9,587,636 19,419,490 29,007,126 159,794 Oct 1997 30
Simi Valley, California
ONTARIO VILLAGE 1,582,802 3,195,733 4,778,535 100,053 Jan 1997 30
Ontario, California
THE PLAZA AT PUENTE HILLS 19,382,077 40,145,501 59,527,578 5,782,905 Oct 1993 30
City of Industry,
California
RALPH'S CENTER 3,686,051 7,372,102 11,058,153 - Dec 1997 30
Redondo Beach,
California
SANTA FE SPRINGS 5,682,205 11,403,070 17,085,275 284,036 Apr 1997 30
Whitier, California
SIMI VALLEY PLAZA 8,219,957 16,439,914 24,659,871 - Dec 1997 30
Simi Valley, California
VALLEY CENTRAL 13,291,904 26,680,586 39,972,490 813,385 Jan 1997 30
Lancaster, California
WEST LANCASTER 635,257 1,274,663 1,909,920 38,765 Jan 1997 30
Lancaster, California
WESTMINSTER CENTER 18,604,973 37,209,946 55,814,919 - Dec 1997 30
Westminster, California
</TABLE>
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY: COSTS CAPITALIZED
SUBSEQUENT TO ACQUISITION:
PROPERTY ENCUMBRANCES LAND BLDGS & IMPS LAND BLDGS & IMPS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SAN FRANCISCO REGION
580 MARKETPLACE - 5,575,805 11,151,611 - -
Castro Valley, California
ARCADE SQUARE - 2,779,626 5,559,253 - -
Sacramento, California
AUBURN VILLAGE - 4,828,725 9,773,678 - -
Auburn, California
CAMERON PARK - 1,898,032 3,810,110 - -
Cameron Park, California
CREEKSIDE SHOPPING CENTER - 2,883,083 5,766,165 - -
Vacaville, California
DISCOVERY PLAZA - - 9,216,732 - -
Sacramento, California
FOOTHILL PLAZA - 2,082,995 4,373,836 - -
Los Altos, California
FREMONT GATEWAY PLAZA - 9,898,097 19,796,193 - -
Fremont, California
FREMONT HUB - 15,750,424 33,274,814 - -
Fremont, California
HALLMARK TOWN CENTER - 2,797,702 5,595,405 - -
Madera, California
HILLTOP PLAZA 18,753,018 1,923,807 3,847,815 3,798,993 19,113,581
Richmond, California
MARIN/GATEWAY 16,947,459 - 23,041,102 - -
Richmond, California
PROSPECTOR'S PLAZA - 6,762,001 13,524,001 - -
Placerville, California
RICHMOND SHOPPING CENTER 6,953,694 3,139,965 6,264,175 71,473 261,199
Richmond, California
SANTA ROSA - 5,964,704 11,929,409 - -
Santa Rosa, California
SHASTA CROSSROADS - 4,554,787 9,109,575 - -
Redding, California
SILVER CREEK PLAZA 300,000 5,793,858 11,587,715 - -
San Jose, California
SOUTHAMPTON CENTER - 6,964,868 13,929,736 - -
Benicia, California
STANFORD RANCH 6,440,860 3,669,386 7,449,220 - -
Rocklin, California
SUMMERHILLS SHOPPING CENTER - 3,463,199 6,926,397 - -
Sacramento, California
SUNSET CENTER - 2,396,340 4,792,681 - -
Suisin City, California
<CAPTION>
AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD:
LAND BLDGS & IMPS CARRYING ACCUMULATED DATE LIFE
COSTS DEPRECIATION ACQUIRED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SAN FRANCISCO REGION
580 MARKETPLACE 5,575,805 11,151,611 16,727,416 - Dec 1997 30
Castro Valley,
California
ARCADE SQUARE 2,779,626 5,559,253 8,338,879 - Dec 1997 30
Sacramento, California
AUBURN VILLAGE 4,828,725 9,773,678 14,602,403 188,194 May 1997 30
Auburn, California
CAMERON PARK 1,898,032 3,810,110 5,708,142 115,865 Jan 1997 30
Cameron Park,
California
CREEKSIDE SHOPPING CENTER 2,883,083 5,766,165 8,649,248 - Dec 1997 30
Vacaville, California
DISCOVERY PLAZA - 9,216,732 9,216,732 - Dec 1997 30
Sacramento, California
FOOTHILL PLAZA 2,082,995 4,373,836 6,456,831 141,424 Feb 1997 30
Los Altos, California
FREMONT GATEWAY PLAZA 9,898,097 19,796,193 29,694,290 - Dec 1997 30
Fremont, California
FREMONT HUB 15,750,424 33,274,814 49,025,238 799,709 Apr 1997 30
Fremont, California
HALLMARK TOWN CENTER 2,797,702 5,595,405 8,393,107 - Dec 1997 30
Madera, California
HILLTOP PLAZA 5,722,800 22,961,396 28,684,196 300,690 Dec 1996 30
Richmond, California
MARIN/GATEWAY - 23,041,102 23,041,102 317,482 Aug 1997 30
Richmond, California
PROSPECTOR'S PLAZA 6,762,001 13,524,001 20,286,002 - Dec 1997 30
Placerville, California
RICHMOND SHOPPING CENTER 3,211,438 6,525,374 9,736,812 460,857 Dec 1995 30
Richmond, California
SANTA ROSA 5,964,704 11,929,409 17,894,113 - Dec 1997 30
Santa Rosa, California
SHASTA CROSSROADS 4,554,787 9,109,575 13,664,362 - Dec 1997 30
Redding, California
SILVER CREEK PLAZA 5,793,858 11,587,715 17,381,573 - Dec 1997 30
San Jose, California
SOUTHAMPTON CENTER 6,964,868 13,929,736 20,894,604 - Dec 1997 30
Benicia, California
STANFORD RANCH 3,669,386 7,449,220 11,118,606 143,674 May 1997 30
Rocklin, California
SUMMERHILLS SHOPPING
CENTER 3,463,199 6,926,397 10,389,596 - Dec 1997 30
Sacramento, California
SUNSET CENTER 2,396,340 4,792,681 7,189,021 - Dec 1997 30
Suisin City, California
</TABLE>
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY: COSTS CAPITALIZED
SUBSEQUENT TO ACQUISITION:
PROPERTY ENCUMBRANCES LAND BLDGS & IMPS LAND BLDGS & IMPS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PACIFIC NORTHWEST REGION
CHAMBERS CREEK 1,617,951 887,118 1,856,899 - -
Tacoma, Washington
DESIGN MARKET 6,600,000 3,765,179 7,892,149 - -
Bellevue, Washington
ERNST - - 3,474,379 - -
Redmond, Washington
FAIRWOOD SQUARE 2,526,000 1,684,060 3,568,011 - -
Renton, Washington
MERIDIAN VILLAGE - 7,001,009 14,002,019 - -
Bellingham, Washington
PUGET PARK 2,565,502 1,477,327 3,103,651 - -
Everett, Washington
219,511,199 265,539,648 588,971,055 7,907,263 52,660,339
-----------------------------------------------------------------
-----------------------------------------------------------------
<CAPTION>
AMOUNTS AT WHICH CARRIED
AT CLOSE OF PERIOD:
LAND BLDGS & IMPS CARRYING ACCUMULATED DATE LIFE
COSTS DEPRECIATION ACQUIRED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC NORTHWEST REGION
CHAMBERS CREEK 887,118 1,856,899 2,744,017 14,725 Oct 1997 30
Tacoma, Washington
DESIGN MARKET 3,765,179 7,892,149 11,657,328 62,489 Oct 1997 30
Bellevue, Washington
ERNST - 3,474,379 3,474,379 - Dec 1997 30
Redmond, Washington
FAIRWOOD SQUARE 1,684,060 3,568,011 5,252,071 27,955 Oct 1997 30
Renton, Washington
MERIDIAN VILLAGE 7,001,009 14,002,019 21,003,028 - Dec 1997 30
Bellingham, Washington
PUGET PARK 1,477,327 3,103,651 4,580,978 24,519 Oct 1997 30
Everett, Washington
273,446,912 641,631,394 $915,078,306 54,799,394
--------------------------------------------------
--------------------------------------------------
</TABLE>
<PAGE>
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III NOTES
DECEMBER 31, 1997
Note 1:
San Diego Factory Outlet Center, Navajo Shopping Center, Meridian Village,
Auburn Village Poway Shopping Center, Santee Village, Independence
Square, La Mancha Shopping Center, Santa Fe Springs, Central Shopping
Center, Foothill Plaza and Freemont Hub are jointly encumbered under
the Company's secured line of credit, under which $74,981,538 was
outstanding at at December 31, 1997, which was not included in the
above schedule.
Note 2:
Menifee Town Center, San Marcos Lucky Plaza, 580 Marketplace, Arcade
Square,Creekside Shopping Center Discovery Plaza, Fremont Gateway,
Hallmark Town Center, Prospector's Plaza, Santa Rosa, Shasta
Crossroads, Silver Creek Plaza, Southampton Ceenter, Summerhills Shopping
Center, Sunset Center Buena Vista Market Place, Centerwood Plaza,
Ralph's Center and Westminster Center are jointly encumbered under a
$150,000,000 Mortgage Loan.
Note 3: The amounts above do not include:
$4,931,353 of furniture fixtures and equipment and acquisitions in
progress and $1,023,805 of related accumulated depreciation, and
$44,745,761 of costs incurred to date on development of five retail
centers which are also classified with property in the financial
statements.
Note 4: The aggregate cost for federal income tax purposes for buildings and
improvements December 31, 1997 was approximately $624,634,000.
<TABLE>
<CAPTION>
Land Accumulated
Buildings & Depreciation
Improvements
------------- -------------
<S> <C> <C>
Balance at December 31, 1995 $ 362,914,846 $ 54,055,694
Additions during period 40,239,162 9,425,669
Cost of Real Estate sold (52,389,119) (15,158,685)
------------- ------------
Balance at December 31, 1996 350,764,889 48,322,678
Additions during period 636,986,047 13,107,995
Cost of Real Estate sold (72,672,630) (6,631,279)
------------- ------------
Balance at December 31, 1997 $ 915,078,306 $ 54,799,394
------------- ------------
------------- ------------
</TABLE>
(A) Additions during the period are broken down as follows:
<TABLE>
<CAPTION>
1997
-------------
<S> <C>
Cash Expenditures $ 447,653,868
Assumption of Debt 61,008,444
Operating Partnership Units Issued 58,323,735
Issuance of Convertible Preferred Stock 70,000,000
-------------
$ 636,986,047
-------------
-------------
<CAPTION>
1996
-------------
<S> <C>
Cash Expenditures $ 40,239,162
Assumption of Debt -
Operating Partnership Units Issued -
-------------
$ 40,239,162
-------------
-------------
</TABLE>
<PAGE>
EXHIBIT C
RIGHTS OF PREFERRED UNITS
AND COMMON UNITS
Terms of Series 1997-A Preferred Units and Common Units of
Burnham Pacific Operating Partnership, L.P. (the "OPERATING PARTNERSHIP")
Section 1. DESIGNATION AND AMOUNT.
Pursuant to Section 4.2.A. of the Agreement of Limited Partnership of
the Operating Partnership (the "Partnership Agreement"), the General Partner of
the Operating Partnership (the "GENERAL PARTNER") has designated 4,800,000 units
of Limited Partnership Interest as Series 1997-A Preferred Units (the "SERIES
1997-A PREFERRED UNITS"), which units shall have the preferences, exchange,
redemption and other rights, and voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption as set
forth below. All other Units of Limited Partnership Interest shall constitute
"Common Units" or "Units" that shall collectively have all of their rights of
the Limited Partners of the Operating Partnership except for those that are
expressly granted to the Series 1997-A Preferred Units in this Exhibit C.
Section 2. DISTRIBUTIONS.
(a) Holders of Series 1997-A Preferred Units will be entitled to
receive, when, as and if authorized by the General Partner out of funds legally
available for the payment of distributions, cumulative quarterly cash
distributions (rounded up to the nearest whole cent) equal to the greater of (i)
2.00% (per quarter) of $25.00 per Series 1997-A Preferred Unit (such $25.00, the
"STATED VALUE"), and (ii) the per unit Common Stock Dividend Amount (as
hereinafter defined) for each Series 1997-A Preferred Unit, payable in each case
in arrears on the last Business Day (as hereinafter defined) of each of March,
June, September and December of each year, commencing on the first such day
after the first issuance of Series 1997-A Preferred Units (each a "DISTRIBUTION
PAYMENT DATE"). The "COMMON STOCK DIVIDEND AMOUNT" applicable as of any
Distribution Payment Date shall mean the amount which is the product of (i) the
dividend payable on such Dividend Payment Date with respect to each share of
Common Stock, par value $.01 per share (the "CORPORATION COMMON STOCK"), of
Burnham Pacific Properties, Inc. (the "CORPORATION"), and (ii) the number of
shares of Corporation Common Stock for which each Series 1997-A Preferred Unit
may, at the option of the Corporation, be exchanged, at the Common Exchange Rate
(as hereinafter defined) then in effect and otherwise as set forth herein as of
the record date established for such Distribution Payment Date (determined, for
purposes of this computation, to the fourth decimal place); PROVIDED, HOWEVER,
that the Common Stock Dividend Amount
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shall be adjusted as to any Distribution Payment Date only when and to the
extent that the average amount of the dividends payable on or most closely to
such Distribution Payment Date and the three next preceding Distribution Payment
Dates exceeds the amount of the regular dividend ($.25 per share of Common Stock
per quarter (as adjusted for splits, share dividends and other similar events),
as the same may from time to time be reasonably and sustainably increased by the
Board of Directors by resolution stating that such increased dividend is
"regular". Such cumulative quarterly cash distributions will accrue daily on
the basis of a 360-day year of twelve 30-day months, and will, to the extent not
paid in full on a Distribution Payment Date, together with accruals thereon at
the compounded quarterly at a rate of 2.00% from such Distribution Payment Date
until payment is made, whether or not the Operating Partnership has earnings or
surplus. The distribution payable to the holder of each Series 1997-A Preferred
Unit on the first Distribution Payment Date after such unit is issued will be
the Accrued Distributions thereon calculated from the date of issuance to such
Distribution Payment Date. If any Distribution Payment Date is not a Business
Day, the distribution due on that Distribution Payment Date will be paid on the
first Business Day immediately succeeding that Distribution Payment Date. Each
Distribution Payment Date will be on a date which is the date fixed for payment
of dividends with respect to the shares of Corporation Common Stock or is not
more than five Business Days after the date fixed for payment of dividends with
respect to the shares of Corporation Common Stock. As used with regard to the
Series 1997-A Preferred Units, the term "DIVIDEND PAYMENT AMOUNT" means, as to
any quarter ending on a Distribution Payment Date, the cash dividend amount
declared and paid with respect to such quarter on each share of Corporation
Common Stock; "BUSINESS DAY" means a day on which both state and federally
chartered banks in New York, New York are required to be open for general
banking business; "ACCRUED DISTRIBUTIONS" means all accrued and due
distributions together with all accrued but not yet due distributions
(compounded as provided above and together with accruals thereon) (whether or
not declared or authorized); and "OUTSTANDING DISTRIBUTIONS" means all accrued
and due distributions (compounded as provided above together with accruals
thereon) (whether or not declared or authorized) but excluding all accrued but
not yet due distributions.
(b) Each distribution will be payable to holders of record of
Series 1997-A Preferred Units on a date (a "RECORD DATE") selected by the
General Partner which is not less than 10 nor more than 45 days before the
Distribution Payment Date on which the distribution is to be paid. No Record
Date will precede the close of business on the date the Record Date is fixed.
(c) Unless and until all Accrued Distributions on the Series 1997-A
Preferred Units under Section 2(a) through the most recent preceding
Distribution Payment Date have been paid (or are being paid contemporaneously
therewith), the Operating Partnership may not (i) declare or pay any
distribution (other than a distribution payable solely in Common Units), or set
aside any funds or assets for payment or distribution with regard to any Junior
Units (as hereinafter defined), (ii) redeem or purchase or set aside any funds
or other assets for the redemption or purchase of any Junior Units or (iii)
authorize, take or cause
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or permit to be taken any action that will result in (A) the declaration or
payment by the Operating Partnership of any distribution to its partners, or the
setting aside of any funds or assets for payment of any distributions to its
partners, or (B) the redemption or purchase, or the setting aside of any funds
or other assets for the redemption or purchase of, any partnership interests in
the Operating Partnership, except as otherwise set forth herein. As used
herein, the term "JUNIOR UNITS" means, with regard to the Series 1997-A
Preferred Units, all partnership interests in the Operating Partnership to which
the Series 1997-A Preferred Units are prior in rank with regard to payment of
distributions or payments upon the liquidation, dissolution or winding-up of the
Operating Partnership; the term "PERSON" shall mean an individual, partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government or other entity of whatever nature.
(d) While any Series 1997-A Preferred Units are outstanding, the
Operating Partnership may not pay any distribution, or set aside any funds for
the payment of a distribution, with regard to any units of any class or series
of the Operating Partnership which rank on a parity with the Series 1997-A
Preferred Units as to payment of distributions unless at least a proportionate
payment is made with regard to all Accrued Distributions on the Series 1997-A
Preferred Units (except, as to any Series 1997-A Preferred Units as to which a
Notice of Redemption (as hereinafter defined) has been furnished by the holder
thereof, at the effective time of redemption) under Section 2(a) through the
most recent preceding Distribution Payment Date. A payment of distributions
with regard to the Series 1997-A Preferred Units will be proportionate to a
payment of a distribution with regard to another class or series of units of
partnership interest if the distribution per Series 1997-A Preferred Units is
the same percentage of the Accrued Distributions (except as aforesaid) under
Section 2(a) through the most recent preceding Distribution Payment Date, with
regard to a Series 1997-A Preferred Unit that the distribution paid with regard
to a unit of the other class or series of partnership interest is of the Accrued
Distributions (except as aforesaid) under Section 2(a) through the most recent
preceding Distribution Payment Date, with regard to a unit of that other class
or series of partnership interest.
(e) Any distribution paid with regard to Series 1997-A Preferred
Units will be paid equally with regard to each outstanding Series 1997-A
Preferred Unit, except to the extent that Series 1997-A Preferred Units are
outstanding for differing amounts of time during the relevant distribution
period.
Section 3. VOTING RIGHTS.
The voting rights of the holders of Series 1997-A Preferred Units will
be only the following:
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(a) The holders of Series 1997-A Preferred Units will have the right
to vote on any matters on which the holders of Common Units are entitled to vote
on an "as converted" basis with holders of Common Units, as though part of the
same class as holders of Common Units, with such number of Common Units deemed
held of record by holders of Series 1997-A Preferred Units on any Record Date as
would be the number of Common Units into which the Series 1997-A Preferred Units
held by such holders would be entitled to be exchanged on such Record Date (such
number to be based upon the Common Exchange Rate). The holders of Series 1997-A
Preferred Units shall receive notice of any meetings of the holders of Common
Units, and all other notices and correspondence to the holders of Common Units
provided by the Operating Partnership, and shall be entitled to take such
actions, and shall have such rights, as are set forth herein or are otherwise
available to the holders of Common Units as set forth in the Operating
Partnership Agreement as are in effect on the date hereof, in each case with the
same effect as would be taken by holders of Series 1997-A Preferred Units if
deemed to be holders of such number of Common Units determined as aforesaid.
(b) While any Series 1997-A Preferred Units are outstanding, the
Operating Partnership will not, directly or indirectly, including through a
recapitalization or a merger or consolidation with any other Person, or
otherwise, without approval of holders of at least a majority of the outstanding
Series 1997-A Preferred Units, voting separately as a class, (i) issue in excess
of 4,800,000 Series 1997-A Preferred Units; (ii) increase the number of
authorized Series 1997-A Preferred Units; (iii) combine, split or reclassify the
outstanding Series 1997-A Preferred Units into a smaller or larger number of
units; (iv) exchange any Series 1997-A Preferred Units for other securities or
the right to receive cash, or propose or require an exchange other than as
provided herein, or reclassify any Series 1997-A Preferred Units, or authorize,
create, classify, reclassify or issue any class or series of units ranking prior
to or on a parity with the Series 1997-A Preferred Units either as to
distributions or upon liquidation, dissolution or winding-up of the Operating
Partnership or as to the rights of the Series 1997-A Preferred Units set forth
in this Section 3; (v) amend, alter or repeal, or permit to be amended, altered
or repealed, any provision of this First Amendment in a manner which would
affect adversely the rights and preferences of the holders of Series 1997-A
Preferred Units.
(c) While any Series 1997-A Preferred Units are outstanding, the
Operating Partnership will not, directly or indirectly, including through a
recapitalization or a merger or consolidation with any other Person, or
otherwise, without the approval of the holders of not less than a majority of
the outstanding Series 1997-A Preferred Units, voting separately as a class,
propose, authorize, take, or cause to be taken or allow to occur any of the
following actions: (i) the Transfer (as hereinafter defined) to a Person in a
single transaction or series of transactions of all or substantially all of the
assets of the Operating Partnership, including for such purpose to any Person
(but excluding from the applicability of this clause (i) any Person in which the
Operating Partnership has a direct or indirect minority interest such that a
sale,
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<PAGE>
transfer or assignment is not within Operating Partnership's control or a merger
or consolidation of the Operating Partnership with or into a wholly-owned
subsidiary of the Operating Partnership, in which the Operating Partnership
Capitalization (as hereinafter defined) is unchanged as a result thereof) owned
directly or indirectly by the Operating Partnership to the extent of the
Operating Partnership's attributed interest in such other Person; (ii) any
reorganization or recapitalization of the Operating Partnership in a single
transaction or in more than one transaction, in or as a result of which the
Common Unit Valuation (as hereinafter defined) is not in excess of $15.375;
(iii) any merger or consolidation of the Operating Partnership with any Person
(except a merger or consolidation of the Operating Partnership with or into a
wholly owned subsidiary in which the Operating Partnership Capitalization (as
hereinafter defined) is unchanged) in or as a result of which the Common Unit
Valuation is not in excess of $15.375; or (iv) a Change of Control (as defined
in Section 4 hereof). As used herein, "COMMON UNIT VALUATION" is the value of
each Common Unit determined, in connection with any reorganization, merger or
consolidation, absent manifest error, by reference to the opinion of a
nationally-recognized investment bank obtained by the Board of Directors of the
Corporation at the expense of the Operating Partnership for such purpose unless
the Operating Partnership and the holders of a majority in interest or the
Series 1997-A Preferred Units (exclusive of the Corporation) otherwise agree or,
if no such opinion is provided, by reference to Operating Partnership
Capitalization and assuming in each such case for the purposes of such
determination that the number of units is as assumed in the definition of
Operating Partnership Capitalization. As used herein, "OPERATING PARTNERSHIP
CAPITALIZATION" is the total market equity capitalization of the Operating
Partnership determined by reference to (i) outstanding (assuming for this
purpose the exercise of all then outstanding and exercisable warrants or other
rights to acquire Common Units issued in the ordinary course of business and the
exercise or conversion of all other then exercisable or convertible Common Unit
equivalents not otherwise referenced below and Series 1997-A Preferred Units)
Common Units and (ii) the number of Common Units which would be issued on
Mandatory Exchange of outstanding Series 1997-A Preferred Units (determined in
accordance with Section 5(b)). As used herein, "TRANSFER" means any sale,
transfer by operation of law or otherwise, assignment, disposition or
arrangement, whether voluntary or involuntary, which has the effect, directly or
indirectly, of altering the holding of or causing or permitting another Person
to succeed to, any voting control or economic interest, whether beneficial or of
record or both (other than as a nominee of the transferor), including any
arrangement for collateral purposes only, or which could, with the passage of
time or the occurrence of any event, or both, have such effect.
(d) With respect to any matter to be approved by holders of the
Series 1997-A Preferred Units, the General Partner will act in accordance with
Section 3(f) of the Articles Supplementary of the General Partner with respect
to any Series 1997-A Preferred Units held by the General Partner.
(e) Holders of Series 1997-A Preferred Units may enter into
agreements governing the exercise of their voting, consent, approval and other
rights as such holders.
5
<PAGE>
From and after the date that the General Partner has received on behalf of the
Partnership notice of any such agreement, (i) any valid action taken by a Holder
party to and under any such agreement shall be binding upon the Partnership,
(ii) any proxies delivered by holders of Series 1997-A Preferred Units under
such agreement shall be recognized by the Partnership and given effect in
accordance with their terms and (iii) the Partnership shall provide to each such
holder notice of any matter as to which any such holder in its capacity as a
holder of Series 1997-A Preferred Units is entitled to or given notice. Unless
otherwise provided in any such agreement, any party thereto may exercise its
rights with respect to Series 1997-A Preferred Units and as a partner of the
Partnership, solely in its own interest (and in so acting need not consider the
interests of others, including other partners of the Partnership), and shall not
by virtue of such agreement be deemed to be a fiduciary of or owe any duty,
including any fiduciary duty, to, any of the General Partner, any Limited
Partner, any holder of Common Units or any other holder of Series 1997-A
Preferred Units.
Section 4. CHANGE OF CONTROL; LIQUIDATION.
(a) Upon the occurrence of any event (a "CHANGE OF CONTROL EVENT")
which would permit the holders of Corporation Preferred Stock to receive a
Change of Control Preference as defined in Section 4(a) of the Articles
Supplementary of the Corporation as presently in effect, each holder of Series
1997-A Preferred Units may, at its option, receive, and, if so electing by
written notice to the Operating Partnership to such effect, will be entitled to
receive, out of the assets of the Operating Partnership available for
distribution to its partners, whether from capital, surplus or earnings, before
any distributions made to holders of any Junior Units, an amount per unit (the
"CHANGE OF CONTROL PREFERENCE") equal to the product of (A) the sum of (1)
Stated Value plus the per unit amount of Accrued Distributions with regard to
such Series 1997-A Preferred Unit to the date of final distribution and (2) 5%
of the sum of Stated Value and the per unit amount of Outstanding Distributions
with regard to such Series 1997-A Preferred Unit to the date of final
distribution. The Operating Partnership shall provide proper notice to each
holder of record of Series 1997-A Preferred Units of any Change of Control
Event.
(b) In the event of an involuntary liquidation, dissolution or
winding-up of the Operating Partnership, as a result of which the assets of the
Operating Partnership are sold to multiple unrelated Persons, and the holders of
the Operating Partnership's equity securities receive solely cash in a
distribution upon liquidation, each holder of Series 1997-A Preferred Units, may
at its option receive, and, if so electing by written notice to the Operating
Partnership to such effect, shall be entitled to receive, out of the assets of
the Operating Partnership available for distribution to its partners, whether
from capital, surplus or earnings, before any distributions made to holders of
any Junior Units, an amount per unit equal to the sum of (i) Stated Value plus
(ii) the per unit amount of Outstanding Distributions with respect to such
Series 1997-A Preferred Unit to the date of final distribution. In the event of
any other involuntary or a voluntary liquidation, dissolution or winding-up of
the Operating
6
<PAGE>
Partnership, each holder of Series 1997-A Preferred Units may, at its option,
receive, and, if so electing by written notice to the Operating Partnership to
such effect, shall be entitled to receive, out of the assets of the Operating
Partnership available for distribution to its partners, whether from capital,
surplus or earnings, before any distributions made to holders of any Junior
Units, an amount per unit equal to the sum of (i) Stated Value plus (ii) the per
unit amount of Accrued Distributions with respect to such Series 1997-A
Preferred Unit to the date of final distribution plus (iii) 5% of the sum of the
Stated Value and the per unit amount of Outstanding Distributions. All amounts
payable under this Section 4(b) shall be payable as a liquidation preference
(the "LIQUIDATION PREFERENCE").
(c) Holders of Series 1997-A Preferred Units other than the
Corporation as General Partner may further elect, when delivering the written
notice to the Operating Partnership with respect to the election under Section
4(a) or Section 4(b), in lieu of receiving the Change of Control Preference or
the Liquidation Preference, as the case may be, to receive Corporation Preferred
Stock or Common Units upon the redemption or exchange of Series 1997-A Preferred
Units, without regard to any time restriction on exchange established in Section
5(a) hereof (but subject to the limitations in Section 5(g) hereof), in the
manner and as provided in Section 5 hereof.
(d) If, upon any liquidation, dissolution or winding-up of the
Operating Partnership, the assets of the Operating Partnership, or proceeds of
those assets, available for distribution to the holders of Series 1997-A
Preferred Units and of units of all other classes or series which are on a
parity as to distributions on liquidation with the Series 1997-A Preferred Units
are not sufficient to pay in full the Change of Control Preference or the
Liquidation Preference, as the case may be, to the holders of Series 1997-A
Preferred Units which have not elected to redeem Series 1997-A Preferred Units
as provided in Section 4(c) by reference to Section 5 hereof, and any
liquidation preference of all other classes or series of units of Partnership
Interests which are on a parity as to distributions on liquidation with the
Series 1997-A Preferred Units, then the assets, or the proceeds of those assets,
which are available for distribution to such holders of Series 1997-A Preferred
Units and of the units of all other classes or series which are on a parity as
to distributions on liquidation with Series 1997-A Preferred Units, will be
distributed to the holders of Series 1997-A Preferred Units, and of the units of
all other classes or series which are on a parity as to distributions on
liquidation with the Series 1997-A Preferred Units, ratably in accordance with
the respective amounts of the Liquidation Preference, with respect to the Series
1997-A Preferred Units entitled thereto, and the liquidation preferences
applicable to the units of other classes or series which are on a parity as to
distributions on liquidation with the Series 1997-A Preferred Units, with
respect to the units of any such other class or series entitled thereto. After
payment of the full amount of the Change of Control Preference or the
Liquidation Preference, as the case may be, such holders of Series 1997-A
Preferred Units will not be entitled to any further distribution of assets of
the Operating Partnership and will not be entitled to redeem their Series 1997-A
Preferred Units as provided in Section 5 hereof.
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<PAGE>
As used herein, a "CHANGE OF CONTROL" of the Operating Partnership
shall be deemed to have occurred upon a Change of Control of the Corporation (as
defined in the Articles Supplementary of the Corporation as currently in
effect).
Section 5. REDEMPTION AND EXCHANGE.
(a) OPTIONAL REDEMPTION. Except as otherwise set forth in clause
(iii) below, each holder of Series 1997-A Preferred Units (other than the
General Partner) shall have the right (the "Redemption Right") to require the
Operating Partnership to redeem such Units at a redemption price equal to and in
the form of the Cash Amount (as hereinafter defined) to be paid by the Operating
Partnership. Any such Redemption Right shall be exercised pursuant to a Notice
of Redemption (a "NOTICE OF REDEMPTION") delivered to the Operating Partnership
(with a copy to the General Partner) by the holder of such Series 1997-A
Preferred Unit who is exercising the Redemption Right (the "REDEEMING HOLDER").
A holder may exercise the Redemption Right from time to time with respect to
part or all of the Series 1997-A Preferred Units that it owns, as selected by
the holder, provided, that a holder may not exercise the Redemption Right for
less than one thousand (1,000) Series 1997-A Preferred Units unless such holder
then holds less than one thousand (1,000) Series 1997-A Preferred Units, in
which event the Redeeming Holder must exercise the Redemption Right for all of
its Series 1997-A Preferred Units. "SPECIFIED REDEMPTION DATE" means the tenth
business day after receipt by the General Partner of a Notice of Redemption;
provided that if Corporation Common Stock is not then publicly traded, Specified
Redemption Date means the thirtieth business day after receipt by the General
Partner of a Notice of Redemption. "CASH AMOUNT" shall mean (i) an amount of
cash per Series 1997-A Preferred Unit equal to the greater of (x) the
Liquidation Preference per Series 1997-A Preferred Unit and (y) an amount of
cash equal to the product of the Common Exchange Rate and the Current Market
Price (as hereinafter defined). "COMMON EXCHANGE RATE" means that number of
shares of Corporation Common Stock into which a share of Corporation Preferred
Stock is then convertible, pursuant to the Articles Supplementary of the
Corporation in effect on the date hereof. "CURRENT MARKET PRICE" as of any date
of determination will be the average of the volume weighted average price per
share of the Corporation Common Stock (the "VWAP") on each of the twenty Trading
Days (as hereinafter defined), immediately preceding such date as the VWAP for
each day is reported by a nationally-recognized market quotation or information
service that is selected by the Corporation and approved by a majority in
interest of the holders of the Series 1997-A Preferred Units (exclusive of the
units held by the Corporation) which approval will not be unreasonably withheld.
As used herein, the term "TRADING DAY" means (A) if the Corporation Common
Stock is listed on at least one stock exchange, a day on which there is trading
on the principal stock exchange on the Corporation Common Stock is listed, (B)
if the Corporation Common Stock is not listed on a stock exchange, but sale
prices of the Corporation Common Stock are reported on an automated quotation
system a day on which trading is reported on the principal automated quotation
system on which sales of the Corporation Common Stock are reported, (C) if the
Corporation Common Stock is not listed on a stock exchange and sale prices of
the Corporation Common Stock are not reported
8
<PAGE>
on an automated quotation system, a day on which quotations are reported by
National Quotation Bureau Incorporated, or (D) if the Corporation Common Stock
is not so listed and sale prices are not so reported, any day other than a
Saturday, a Sunday or a bank holiday in New York, New York.
(A) The Redeeming Holder shall have no right to receive any
distributions paid after the Specified Redemption Date with respect to any
Series 1997-A Preferred Units so redeemed.
(B) The assignee of any holder may exercise the rights
(subject to applicable limitations) of such holder pursuant to this Section 5,
and such holder shall be deemed to have assigned such rights to such assignee
and shall be bound by the exercise of such rights by such holder's assignee. In
connection with any exercise of such rights by such assignee on behalf of such
holder, the applicable Cash Amount shall be paid by the Operating Partnership
directly to such assignee and not to such holder.
(C) At any time within five business days of receipt by the
General Partner of a written request of a holder of a Series 1997-A Preferred
Unit, the General Partner shall provide such holder with written notice of the
Common Exchange Rate.
(ii) GENERAL PARTNER ASSUMPTION OF RIGHT.
(A) If a Redeeming Holder has delivered a Notice of
Redemption, the General Partner may, in its sole and absolute discretion, elect
to assume directly and satisfy a Redemption Right (a) by paying to the Redeeming
Holder the Cash Amount or (b) issuing a number of fully paid and non-assessable
shares of Corporation Preferred Stock such that each Series 1997-A Preferred
Unit will be entitled to be exchanged for one share of Corporation Preferred
Stock. Unless the General Partner, in its sole and absolute discretion, shall
exercise its right to assume directly and satisfy the Redemption Right, the
General Partner shall not have any obligation to the Redeeming Holder or to the
Operating Partnership with respect to the Redeeming Holder's exercise of the
Redemption Right. If the General Partner shall exercise its right to satisfy
the Redemption Right in the manner described in the first sentence of this
Section 5(a)(ii)(A) and shall fully perform its obligations in connection
therewith, the Operating Partnership shall have no obligation to pay any amount
to the Redeeming Holder with respect to such Redeeming Holder's exercise of the
Redemption Right, and each of the Redeeming Holder, the Operating Partnership
and the General Partner shall, for federal income tax purposes, treat the
transaction between the General Partner and the Redeeming Holder as a sale of
the Redeeming Holder's Series 1997-A Preferred Units to the General Partner.
Nothing contained in this Section 5(a)(ii)(A) shall imply any right of the
General Partner to require any holder of Series 1997-A Preferred Units to
exercise the Redemption Right afforded to such holder pursuant to Section
5(a)(i).
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(B) Each Redeeming Holder agrees to execute such documents
as the General Partner may reasonably require in connection with any issuance of
such shares of Corporation Preferred Stock upon exercise of the Redemption
Right.
(iii) EXCEPTIONS TO EXERCISE OF REDEMPTION RIGHT.
Notwithstanding the provisions of Sections 5(a)(i) and 5(a)(ii), a holder of
Series 1997-A Preferred Units shall not be entitled to exercise the Redemption
Right pursuant to Section 5(a)(i) if (but only as long as) the delivery of
shares of Corporation Preferred Stock to such holder on the Specified Redemption
Date (A) (i) would, based upon the advice of outside counsel, be prohibited
under the charter of the Corporation (ii) would be prohibited under Section 5(g)
hereof or (iii) would, based upon the advice of outside counsel, be prohibited
under applicable federal or state securities laws or regulations (in each case
regardless of whether the General Partner would in fact assume and satisfy the
Redemption Right) and (B) if, (x) the holder is Blackacre Capital Group, L.P.
("Blackacre") or any affiliate of Blackacre, and (y) Blackacre will at the time
of redemption hold Corporation Preferred Stock that is convertible into more
than 9.8% of the Corporation Common Stock, such entity does not provide the
Corporation with a representation letter substantially in the form attached
hereto as Schedule 1.
(iv) NO LIENS ON SERIES 1997-A PREFERRED UNITS DELIVERED FOR
REDEMPTION. Each Redeeming Holder covenants and agrees with the General Partner
that all Series 1997-A Preferred Units delivered for redemption shall be
delivered to the Operating Partnership or the General Partner, as the case may
be, free and clear of all liens, and, notwithstanding anything contained herein
to the contrary, neither the General Partner nor the Operating Partnership shall
be under any obligation to redeem Series 1997-A Preferred Units which are or may
be subject to any liens.
(b) MANDATORY' EXCHANGE. Subject to Section 7 hereof, in the event
that the Corporation gives a Notice of Mandatory Conversion (as defined in the
Articles Supplementary of the Corporation relating to the right and preferences
of the Corporation Preferred Stock as in effect on the date of the First
Amendment) to holders of Corporation Preferred Stock, the Operating Partnership
shall have the right to exchange on the Mandatory Conversion Date (as defined in
such Articles Supplementary) not less than all of the outstanding Series 1997-A
Preferred Units into a number of fully paid and non-assessable Common Units such
that each Series 1997-A Preferred Unit will be entitled to be exchanged for a
number of Common Units equal to the Common Exchange Rate (assuming, for such
purpose that a Common Unit is equivalent to a share of Common Stock). In order
to elect to effect the mandatory exchange (the "Mandatory Exchange") of Series
1997-A Preferred Units, the Operating Partnership shall issue a notice that all
Series 1997-A Preferred Units are to be exchanged, setting forth the date of the
intended exchange (such notice, the "NOTICE OF MANDATORY EXCHANGE," and such
date, the "MANDATORY EXCHANGE DATE") to all holders of outstanding Series 1997-A
Preferred Units on a date (the "MANDATORY EXCHANGE NOTICE DATE") at least 90 but
not more than 120 days prior to the Mandatory Exchange Date. The Notice of
Mandatory Exchange shall also specify a record date (the "MANDATORY EXCHANGE
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RECORD DATE") selected by the Board of Directors of the General Partner which is
not less than 20 but not more than 45 days before the Mandatory Exchange Date
and the number of Common Units for which each Series 1997-A Preferred Unit will
be exchanged. If the Operating Partnership gives a Notice of Mandatory
Exchange, then, provided that the computation set forth in the Notice of
Mandatory Exchange is not clearly erroneous, the outstanding Series 1997-A
Preferred Units will be automatically exchanged for Common Units at the close of
business on the Mandatory Exchange Date and on such date the Operating
Partnership will pay holders of the Series 1997-A Preferred Units an amount
equal to all Accrued Distributions thereon through the Mandatory Exchange Date.
At the close of business on the Mandatory Exchange Date, the General Partner
shall cause appropriate amendments to the Partnership Agreement to be made to
reflect the Mandatory Exchange and shall deliver to the holders of the Series
1997-A Preferred Units a counterpart of the Partnership Agreement to reflect the
issuances of such Common Units to such holders. Any Common Units issued
pursuant to a Mandatory Exchange shall be immediately redeemable at any time
thereafter, at the option of the holder thereof, in accordance with the
redemption provisions of the Partnership Agreement.
(c) REDEMPTION AND EXCHANGE PROCEDURES.
(i) If Series 1997-A Preferred Units are noticed for redemption
or exchange between the close of business on a distribution payment Record Date
and the opening of business on the corresponding Distribution Payment Date ("EX
RECORD DATE UNITS"), the distribution with respect to those units will be
payable on the Distribution Payment Date to the holder of record of the Ex
Record Date Units on the distribution payment Record Date notwithstanding the
surrender of the Ex Record Date Units for redemption or exchange after the
distribution payment Record Date and prior to the Distribution Payment Date.
The Operating Partnership will make no payment or adjustment for Accrued
Distributions on Ex Record Date Units, whether or not in arrears, or for
distributions on the Common Units or shares of Corporation Preferred Stock
issued upon redemption or exchange of the Ex Record Date Units, other than to
make payment to the holder of record thereof on the Record Date. All Accrued
Distributions payable with respect to Series 1997-A Preferred Units noticed for
exchange during any period commencing with the close of business on each
Distribution Payment Date and ending with the opening of business on the next
succeeding Record Date will be paid to the holder redeeming or exchanging such
units on the related redemption or exchange date.
(ii) As promptly as practicable after a Specified Redemption
Date, or the Mandatory Exchange Date, as the case may be, the Operating
Partnership will issue and will deliver to the holder at the office of the
holder set forth in the Notice of Election to Exchange, or on the holder's
written order, a certificate or certificates representing the number of whole
shares of Corporation Preferred Stock or a fully executed counterpart of an
amendment to the Partnership Agreement reflecting the number of Common Units
issued upon exchange of the Series 1997-A Preferred Units.
11
<PAGE>
(iii) Each redemption or exchange will be deemed to have been
effected at the Specified Redemption Date or on the Mandatory Exchange Date, as
applicable, and the person in whose name a certificate for shares of Corporation
Preferred Stock, if any, or to whom a fully executed counterpart of an amendment
to the Partnership Agreement reflecting the ownership of Common Units, if any,
is to be issued upon a redemption or exchange, will be deemed to have become the
holder of record of the shares of Corporation Preferred Stock or the Common
Units represented by that certificate or amendment, as the case may be, at such
effective time. All shares of Corporation Preferred Stock and all Common Units
delivered upon redemption or exchange of Series 1997-A Preferred Units will upon
delivery be duly and validly issued and fully paid and non-assessable, free of
all liens and charges and not subject to any preemptive rights except such
preemptive rights as may exist with respect to the Corporation Preferred Stock
under the Articles Supplementary of the Corporation relating thereto. The
Series 1997-A Preferred Units so redeemed or exchanged will no longer be deemed
to be outstanding and all rights of the holder with respect to those shares will
immediately terminate, except the right to receive the shares of Corporation
Preferred Stock or the Common Units to be issued or distributed as a result of
the redemption or exchange and except that such Series 1997-A Preferred Units
that are redeemed or exchanged for Corporation Preferred Stock shall become the
property of the General Partner in order to reflect the shares of Corporation
Preferred Stock issued in exchange therefor.
(d) RECLASSIFICATION OF COMMON UNITS. If there is a reclassification
or change of outstanding Common Units or a merger or consolidation of the
Operating Partnership with any other entity that results in a reclassification,
change, conversion, exchange or cancellation of the outstanding Common Units, or
a sale or transfer of all or substantially all of the assets of the Operating
Partnership, upon any subsequent redemption or exchange of Series 1997-A
Preferred Units, each holder of Series 1997-A Preferred Units will be entitled
to receive the kind and amount of securities, cash and other property which the
holder would have received if a Mandatory Exchange had occurred immediately
before the first of those events and had retained all the securities, cash and
other assets received as a result of all those events. In the event that a
transaction may be viewed as causing this Section 5(d) to be applicable and
create a change in the Common Exchange Rate, then the change in the Common
Exchange Rate will be applicable and this provision will be applicable.
(e) RESERVATION OF CORPORATION PREFERRED STOCK AND CORPORATION COMMON
STOCK. The General Partner will at all times reserve and keep available, free
from preemptive rights, out of the authorized but unissued shares of Corporation
Preferred Stock, for the purpose of effecting the redemption of the Series
1997-A Preferred Units (and the subsequent conversion of Corporation Preferred
Stock into Corporation Common Stock), the maximum number of shares of
Corporation Preferred Stock and Corporation Common Stock which the General
Partner would be required to deliver upon the redemption of all the outstanding
Series 1997-A Preferred Units for Corporation Preferred Stock and the subsequent
conversion
12
<PAGE>
of such Corporation Preferred Stock into Corporation Common Stock. For the
purposes of this Section 5(f), the number of shares of Corporation Preferred
Stock or Corporation Common Stock which the General Partner would be required to
deliver upon the redemption of all outstanding shares of Corporation Preferred
Stock were held by a single holder.
(f) PAYMENT OF CERTAIN TAXES. The Operating Partnership will pay any
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Corporation Preferred Stock or Common Units upon
the redemption or exchange of the Series 1997-A Preferred Units; PROVIDED,
HOWEVER, that the Operating Partnership will not be required to pay any tax
which may be payable in respect of any transfer involved in the issue or
delivery of shares of Corporation Preferred Stock or of Common Units in a name
other than that of the holder of record of Series 1997-A Preferred Units to be
exchanged and no such issue or delivery will be made unless and until the person
requesting the issue or delivery has paid to the Operating Partnership the
amount of any such tax or has established, to the satisfaction of the Operating
Partnership, that the tax has been paid or is not payable.
(g) Notwithstanding anything to the contrary contained herein, the
Series 1997-A Preferred Units will not be redeemable in exchange for shares of
Corporation Preferred Stock, whether upon exercise of rights by the holders of
the Series 1997-A Preferred Units, the Operating Partnership, the Corporation or
otherwise, unless and until the approval by a majority of votes cast by the
holders, in person or by proxy, of the shares of capital stock of the
Corporation entitled to vote thereon is obtained, at a duly called and held
annual or special meeting of the stockholders of the Corporation at which a
quorum is present, with respect to the redemption into Corporation Preferred
Stock pursuant to the charter of the Corporation; provided, however, that the
restriction contained in this Section 5(g) shall not apply if a redemption of
the Series 1997-A Preferred Units and Corporation Preferred Stock issued
pursuant to the Preferred Stock Purchase Agreement (as defined below) for cash
pursuant to the Contribution Agreement (as defined below) and the Preferred
Stock Purchase Agreement has been effected such that the remaining outstanding
Series 1997-A Preferred Units and Common Units issued pursuant to the
Contribution Agreement together with the outstanding shares of Corporation
Preferred Stock issued pursuant to the Stock Purchase Agreement do not, on an
"as redeemed" or an "as converted" basis exceed 19.9% of the number of shares of
Corporation Common Stock outstanding immediately prior to closing under the
Contribution Agreement by and among the Corporation, the Operating Partnership
and each of the Contributors listed on Exhibit A-1 thereto (the "CONTRIBUTION
AGREEMENT"). For purposes of this Section 5(g), the term "Preferred Stock
Purchase Agreement" shall mean the Stock Purchase Agreement by and among
Westbrook Burnham Holding, L.C.C., Westbrook Burnham Co-holdings, L.L.C.,
Burnham Pacific Properties, Inc. and Burnham Pacific Operating Partnership, L.P.
dated as of December 5, 1997.
Section 6. STATUS.
13
<PAGE>
So long as any Series 1997-A Preferred Units are outstanding and held
by persons other than the General Partner, the Series 1997-A Preferred Units may
only be issued pursuant to the Contribution Agreement.
Section 7. REDEMPTION AFTER NOTICE OF MANDATORY EXCHANGE.
(a) Notwithstanding anything to the contrary contained in Section 5,
each holder of Series 1997-A Preferred Units prior to a Mandatory Exchange Date
will have the right, exercisable at any time after the Mandatory Exchange Notice
Date but prior to the Mandatory Exchange Date, to require the Operating
Partnership to redeem any or all of the number of Series 1997-A Preferred Units
specified in the Notice of Mandatory Exchange that are owned of record by the
holder (the number of units as to which each holder elects redemption under this
clause (a) being referred to as the "IDENTIFIED REDEMPTION UNITS"), at a
redemption price per share (the "REDEMPTION PRICE") equal to (i) the sum of
(A) Stated Value plus (B) the per unit amount of the sum of all Accrued
Distributions with regard to the Series 1997-A Preferred Units (whether or not
declared) through the Redemption Date (as hereinafter defined) times (ii) the
percentage determined in accordance with the following table:
<TABLE>
<CAPTION>
Redemption Date Percentage
--------------- ----------
<S> <C>
December 31, 2002 to December 31, 2003 105%
December 31, 2003 to December 31, 2004 104%
December 31, 2004 to December 31, 2005 103%
December 31, 2005 to December 31, 2006 102%
December 31, 2006 to December 31, 2007 101%
December 31, 2007 and thereafter 100%
</TABLE>
(b) In order to exercise a right to require the Operating Partnership
to redeem a holder's Series 1997-A Preferred Units under this Section 7, the
holder must deliver a request for redemption with respect to the Identified
Redemption Units to the Operating Partnership at any time prior to the Mandatory
Exchange Date. If such a request for redemption is given with regard to Series
1997-A Preferred Units, promptly (but in no event more than five Business Days)
after the request for redemption is given to the Operating Partnership, the
Operating Partnership will pay the holder cash equal to the Redemption Price of
the units. The date of such payment is referred to in this Section 7 as the
"REDEMPTION DATE."
(c) (i) If a request for redemption is delivered to the Operating
Partnership, on the Redemption Date distributions will cease to accrue with
regard to the Series 1997-A Preferred Units to be redeemed, and at the close of
business on that date the holders of those units will cease to be partners in
the Operating Partnership with respect to
14
<PAGE>
those units, will have no interest in or claims against the Operating
Partnership by virtue of such units (other than as described in clause (ii)
below) and will have no voting or other rights with respect to such units.
(ii) The distribution with respect to a Series 1997-A Preferred Unit
which is the subject of a request for redemption under this Section 7 delivered
on a day which falls between the close of business on a Record Date for the
payment of such distribution and the opening of business on the corresponding
Distribution Payment Date will be payable on the Distribution Payment Date to
the holder of record of the Series 1997-A Preferred Unit on the Record Date for
the payment of such distribution notwithstanding the redemption of the Series
1997-A Preferred Unit after the Record Date for the payment of such distribution
and prior to the Distribution Payment Date.
Section 8. RANKING. The Series 1997-A Preferred Units shall, with
respect to the payment of distributions, the right to redemption, the right to
receive the Change of Control Preference, the right to receive the Liquidation
Preference and any other assets on liquidation, dissolution or winding up of the
Operating Partnership, rank senior to any other class or series of partnership
interest of the Operating Partnership.
Section 9. MANDATORY REDEMPTION IN CERTAIN INSTANCES.
(a) If required under the rules of the New York Stock Exchange to
enable (i) the Initial Purchaser (as defined in the Articles Supplementary) to
fully convert all of the shares of Series 1997-A Convertible Preferred Stock
contemplated to be purchased by the Initial Purchaser under the Stock Purchase
Agreement and (ii) the holders of Series 1997-A Preferred Units and Units to
fully convert all of the Series 1997-A Preferred Units and Common Units
contemplated to be issued under the Contribution Agreement, the Corporation
shall seek the approval of its shareholders as to the issuance of the Common
Stock upon conversion of the Series 1997-A Convertible Preferred Stock, the
Series 1997-A Preferred Units and Common Units and any related matters at the
1998 annual meeting of shareholders, the date of which the Corporation will use
reasonable efforts to advance in time as reasonably possible and which shall in
any event be held on or before May 12, 1998. If such shareholder approval is
not obtained at such meeting, then the Corporation may, at its sole discretion,
convene a special meeting of shareholders for such purpose, PROVIDED, that the
same shall be called and held in sufficient time to enable the Corporation to
satisfy its obligations to such holders under this Section 9. In connection
with each such meeting of shareholders, the Corporation will recommend such
approval of its shareholders, and use its best efforts (including, without
limitation, the retention of a soliciting firm for customary services in this
regard) to cause such approval to be granted. In each such case, the
Corporation shall immediately notify the holders of the Series 1997-A Preferred
Units and Common Units issued under the Contribution Agreement as to whether
such shareholder approval has been obtained. If such approval is not obtained,
the Corporation shall, upon no less than ten Business Days prior written notice
and in any event no later than September 30,
15
<PAGE>
1998, redeem such number of shares of 1997-A Preferred Units issued under the
Contribution Agreement as shall be agreed upon by the holders thereof and the
Corporation in accordance with Section 4.20 of the Contribution Agreement (the
"REDEEMED UNITS") at a purchase price per share, in cash, paid to the holders
thereof, in an amount equal to the greater of (i) the Stated Value plus the per
share amount of Accrued Dividends (as defined in the Articles Supplementary), if
any, and (ii) the aggregate Current Market Price of a number of shares of Common
Stock (calculated to the nearest 1/100th of a share) equal to the Stated Value
plus the per share amount, if any, of Accrued Dividends as of the date of such
redemption (the "MANDATORY REDEMPTION DATE") divided by the Conversion Price
then in effect (such greater amount, the "MANDATORY REDEMPTION PRICE").
(b) On the Mandatory Redemption Date, dividends will cease to accrue
with regard to the Redeemed Units, and at the close of business on such date the
holders of Series 1997-A Preferred Units and Common Units issued under the
Contribution Agreement will have no interest in or claims against the
Corporation by virtue of such Redeemed Units and will have no voting or other
rights with respect to such Redeemed Units.
(c) The Mandatory Redemption Price shall be due and payable in full
on the Mandatory Redemption Date, which shall be no later than June 30, 1998.
In the event that the Corporation fails to deliver to the holders of Series
1997-A Preferred Units and Common Units issued under the Contribution Agreement
the Mandatory Redemption Price on or before such date, then the Mandatory
Redemption Price shall accrue interest on the principal amount thereof and
unpaid interest thereon, in each case at a rate equal to the lesser of 1.25% per
month and the highest lawful rate of interest, compounded until such time as the
Corporation pays to the holders of Series 1997-A Preferred Units and Common
Units issued under the Contribution Agreement all amounts due under this
Section 9.
Section 10 MISCELLANEOUS.
(a) Except as otherwise expressly provided herein, whenever a notice
or other communication is required or permitted to be given to holders of
Preferred Units, the notice or other communication will be deemed properly given
if deposited in the United States mail, postage prepaid, addressed to the
persons shown on the books of the Operating Partnership as the holders of the
Series 1997-A Preferred Units at the addresses as they appear on the books of
the Operating Partnership, as of the Record Date or dates determined in
accordance with applicable law and with the Partnership Agreement, as in effect
from time to time, with a copy sent to Blackacre Capital Group, L.P., 450 Park
Avenue, New York, New York 10022 Attention: Ronald J. Kravit in each case by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telex or other electronic transmission service.
16
<PAGE>
(b) Series 1997-A Preferred Units will not have any designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions and other distributions, qualifications or terms
and conditions of redemption, other than those specifically set forth herein, in
the Partnership Agreement, and as may be provided under applicable law.
(c) The headings of the various subdivisions herein are for
convenience only and will not affect the meaning or interpretation of any of the
provisions herein.
(d) The preferences, conversion and other rights, voting powers,
restrictions, limitations as to distributions and other distributions,
qualifications and terms and conditions of redemption of the Series 1997-A
Preferred Units may be waived, and any of such provisions of the Series 1997-A
Preferred Units may be amended, with the approval of holders of at least a
majority of the outstanding Series 1997-A Preferred Units (exclusive of any
Series 1997-A Preferred Units held by the Corporation and its affiliates),
voting separately as a class.
17
<PAGE>
Section 11 SEVERABILITY OF PROVISIONS.
Whenever possible, each provision hereof shall be interpreted in a
manner as to be effective and valid under applicable law, but if any provision
hereof is held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating or otherwise adversely affecting the remaining
provisions hereof. If a court of competent jurisdiction should determine that a
provision hereof would be valid or enforceable if a period of time were extended
or shortened or a particular percentage were increased or decreased, then such
court may make such change as shall be necessary to render the provision in
question effective and valid under applicable law.
18
<PAGE>
Exhibit 21.1
Subsidiaries of the Company
Wholly-Owned Corporate Subsidiaries of the Company:
BPP/Crenshaw-Imperial, Inc. (Delaware) (Consolidated)
BPP/Golden State Acquisitions, Inc. (Delaware) (Consolidated)
BPP/Mountaingate, Inc. (Delaware) (Consolidated)
BPP/Northwest Acquisitions, Inc. (Delaware) (Consolidated)
BPP/Puente Hills, Inc. (Delaware) (Consolidated)
BPP/Riley, Inc. (California) (Consolidated)
BPP/Simi Valley, Inc. (Delaware) (Consolidated)
BPP/Valley Central, Inc. (Delaware) (Consolidated)
Burnham Pacific L.P., Inc. (Delaware) (Consolidated)
Partnerships in which the Company holds interests:
BPP/Cameron Park L.P. (California) (Consolidated)
BPP/Crenshaw-Imperial, L.P. (Delaware) (Consolidated)
BPP/East Palo Alto L.P. (California) (Consolidated)
BPP/Hilltop L.P. (California) (Consolidated)
BPP/Marin L.P. (California) (Consolidated)
BPP/Mission Viejo, L.P. (California) (Consolidated)
BPP/Mountaingate, L.P. (Delaware) (Consolidated)
BPP/Pleasant Hill L.P. (California) (Consolidated)
BPP/Richmond L.P. (California) (Consolidated)
BPP/Riley L.P. (California) (Consolidated)
BPP/Simi Valley, L.P. (Delaware) (Consolidated)
BPP/Valley Central L.P. (California) (Consolidated)
BPP/Van Ness L.P. (California) (Consolidated)
Burnham Pacific Operating Partnership, L.P. (Delaware) (Consolidated)
La Mancha Partners L.P. (California) (Consolidated)
Limited Liability Companies in which the Company holds an interest:
BPP/Golden State Acquisitions, LLC (Delaware) (Consolidated)
BPP/Northwest Acquisitions, LLC (Delaware) (Consolidated)
BPP/Puente Hills, LLC (Delaware) (Consolidated)
Ladera Center Associates, LLC (Delaware) (Unconsolidated)
Margarita Plaza Associates, LLC (Delaware) (Unconsolidated)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
Burnham Pacific Properties, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
333-10559 on Form S-8 and 33-56555 and 333-31591 on Form S-3 of Burnham
Pacific Properties, Inc. of our report dated February 12, 1998 appearing in
this Annual Report on Form 10-K of Burnham Pacific Properties, Inc. for the
year ended December 31, 1997.
//Deloitte & Touche, LLP//
March 18, 1998
San Diego, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,083<F1>
<SECURITIES> 0
<RECEIVABLES> 8,767
<ALLOWANCES> 1,311
<INVENTORY> 0
<CURRENT-ASSETS> 34,863<F2><F3>
<PP&E> 964,755
<DEPRECIATION> 55,823
<TOTAL-ASSETS> 943,795
<CURRENT-LIABILITIES> 21,692
<BONDS> 550,380
28,160
40,734
<COMMON> 335,843
<OTHER-SE> (91,773)
<TOTAL-LIABILITY-AND-EQUITY> 943,795<F4><F5>
<SALES> 67,413
<TOTAL-REVENUES> 68,174
<CGS> 18,220
<TOTAL-COSTS> 18,220
<OTHER-EXPENSES> 18,310
<LOSS-PROVISION> 496
<INTEREST-EXPENSE> 18,472
<INCOME-PRETAX> 18,750<F6><F7><F8>
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,750
<DISCONTINUED> 0
<EXTRAORDINARY> (52)
<CHANGES> 0
<NET-INCOME> 18,698
<EPS-PRIMARY> .88
<EPS-DILUTED> .87
<FN>
<F1>Includes 5,242 of restricted cash
<F2>Includes 3,683 of Investment in Unconsolidated Subsidiaries
<F3>Also includes, 11,641 of Other Assets and 7,456 of Receivable-Net
<F4>Includes 376,326 of Paid in Capital in Excess of Par
<F5>Also Includes 58,759 of Minority Interest
<F6>Includes 45,000 Distribution to Minority Interest Holders
<F7>Also Includes 223,000 of Income from Unconsolidated Subsidiaries
<F8>Also Includes 5,896 of Gain from Sales of Real Estate
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 6,046 5,447 9,275
<SECURITIES> 0 0 0
<RECEIVABLES> 6,911 6,730 8,529
<ALLOWANCES> 1,919 1,722 1,518
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 21,326<F1><F2> 21,936<F4><F5> 20,994<F7><F8>
<PP&E> 442,117 560,744 571,337
<DEPRECIATION> 52,056 52,711 55,632
<TOTAL-ASSETS> 411,387 529,969 545,974
<CURRENT-LIABILITIES> 4,405 5,843 9,233
<BONDS> 235,411 281,723 295,951
0 0 0
0 0 0
<COMMON> 262,415 335,624 335,758
<OTHER-SE> (91,300) (93,678) (95,469)
<TOTAL-LIABILITY-AND-EQUITY> 411,387<F3> 529,969<F6> 545,974<F9>
<SALES> 12,803 29,601 47,559
<TOTAL-REVENUES> 12,977 29,964 48,081
<CGS> 3,504 8,140 12,792
<TOTAL-COSTS> 3,504 8,140 12,792
<OTHER-EXPENSES> 4,385 8,484 13,010
<LOSS-PROVISION> 125 246 371
<INTEREST-EXPENSE> 3,331 8,056 12,827
<INCOME-PRETAX> 1,636 5,080 9,191
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 1,636 5,080 9,191
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (52) (52) (52)
<CHANGES> 0 0 0
<NET-INCOME> 1,584 5,028 9,139
<EPS-PRIMARY> .09 .25 .43
<EPS-DILUTED> .09 .25 .42
<FN>
<F1>Includes 2,382 of Investment in Unconsolidated Subsidiaries.
<F2>Also includes 7,906 of Other Assets and 4,992 of Receivable-Net.
<F3>Includes 456 of Minority Interest.
<F4>Includes 2,387 of Investment in Unconsolidated Subsidiaries.
<F5>Also includes 9,094 of Other Assets and 5,008 of Receivable-Net.
<F6>Includes 457 of Minority Interest.
<F7>Includes 4,182 of Investment in Unconsolidated Subsidiaries.
<F8>Also includes 9,801 of Other Assets and 7,011 of Receivable-Net.
<F9>Includes 501 of Minority Interest.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
DEC-31-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996
SEP-30-1996
<CASH> 1,543 4,095 2,033 644
333
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 7,171 6,708 8,129 7,550
7,093
<ALLOWANCES> 1,524 1,848 1,635 1,627
1,797
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 15,070 15,539 16,226 20,032
12,506
<PP&E> 367,088 389,634 376,163 365,985
375,914
<DEPRECIATION> 54,388 48,978 56,408 53,694
50,560
<TOTAL-ASSETS> 327,770 356,195 335,981 326,400
337,860
<CURRENT-LIABILITIES> 5,370 3,584 4,846 3,720
3,862
<BONDS> 142,806 178,452 152,589 145,612
156,694
0 0 0 0
0
0 0 0 0
0
<COMMON> 262,130 262,340 262,151 262,151
262,240
<OTHER-SE> (82,970) (88,615) (84,039) (85,517)
(85,370)
<TOTAL-LIABILITY-AND-EQUITY> 327,770 356,195 335,981 326,400
337,860
<SALES> 48,188 46,864 12,134 24,192
35,701
<TOTAL-REVENUES> 48,669 47,314 12,245 24,412
36,023
<CGS> 12,067 12,603 3,124 6,326
9,538
<TOTAL-COSTS> 12,067 12,603 3,124 6,326
9,538
<OTHER-EXPENSES> 38,621 13,665 3,107 6,357
9,933
<LOSS-PROVISION> 972 410 102 210
310
<INTEREST-EXPENSE> 11,960 10,744 2,868 5,689
8,251
<INCOME-PRETAX> (14,951) 9,857 3,044 5,830
7,991
<INCOME-TAX> 0 0 0 0
0
<INCOME-CONTINUING> (14,951) 9,857 3,044 5,830
7,991
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 2,233 1,414 0 (1)
2,261
<CHANGES> 0 0 0 0
0
<NET-INCOME> (12,718) 11,271 3,044 5,829
10,252
<EPS-PRIMARY> (.75) (.66) .18 .34
.60
<EPS-DILUTED> (.75) (.66) .18 .34
.60
</TABLE>
