<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ________________
Commission file number 1-9524
BURNHAM PACIFIC PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 33-0204162
- ------------------------------------------ -------------------
(State of other jurisdiction (IRS Employer
of incorporation) Identification No.)
610 West Ash Street, San Diego, California 92101
- ------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
(619) 652-4700
--------------------------------------------------
Registrant's telephone number, including area code
NA
--------------------------------------------------
Former name, former address and former fiscal year
if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- -----
Number of shares of the Registrant's common stock outstanding at May 13, 1998:
31,911,008.
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Real Estate $1,006,750 $964,755
Less Accumulated Depreciation (61,681) (55,823)
---------- --------
Real Estate-Net 945,069 908,932
Cash and Cash Equivalents 15,811 6,841
Restricted Cash 4,550 5,242
Receivables-Net 6,351 7,456
Investment in Unconsolidated Subsidiaries 3,683 3,683
Other Assets 12,170 11,641
---------- --------
Total $ 987,634 $943,795
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable and Other Liabilities $16,162 $19,296
Tenant Security Deposits 2,428 2,396
Notes Payable 375,889 369,511
Line of Credit Advances 110,869 180,869
---------- --------
Total Liabilities 505,348 572,072
---------- --------
Commitments and Contingencies
Minority Interest 60,037 58,759
---------- --------
Preferred Stock 28,160 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
March 31, 1998 and December 31, 1997 17 17
Common Stock, Par Value $.01/share, 95,000,000 Shares
Authorized, 31,911,008 and 23,448,852 Outstanding at
March 31, 1998 and December 31, 1997, respectively 319 234
Paid in Capital in Excess of Par 489,539 376,326
Dividends Paid in Excess of Net Income (95,786) (91,773)
Total Stockholders' Equity 394,089 284,804
---------- --------
Total $ 987,634 $943,795
---------- --------
---------- --------
</TABLE>
See the Accompanying Notes
2
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1998 1997
------------- --------------
<S> <C> <C>
REVENUES
Rents $29,639 $12,803
Interest 228 174
------- -------
Total Revenues 29,867 12,977
------- -------
EXPENSES
Interest 9,466 3,331
Rental Operating 8,252 3,629
General and Administrative 1,111 843
Depreciation and Amortization 6,431 3,542
------- -------
Total Costs and Expenses 25,260 11,345
------- -------
Income From Operations Before Income from Unconsolidated
Subsidiaries, Distributions to Preferred Stockholders,
Distributions to Minority Interest Holders and Extraordinary
Item 4,607 1,632
Income from Unconsolidated Subsidiaries 95 15
Distributions to Preferred Stockholders (1,400)
Distributions to Minority Interest Holders (1,166) (11)
------- -------
Income before Extraordinary Item 2,136 1,636
Loss from Early Extinguishment of Debt - 0 - (52)
------- -------
Net Income $ 2,136 $ 1,584
------- -------
------- -------
BASIC AND DILUTED EARNINGS PER SHARE:
Income before Extraordinary Item $ 0.09 $ 0.10
Extraordinary Item - 0 - (.01)
------- -------
Net Income $ 0.09 $ 0.09
------- -------
------- -------
</TABLE>
See the Accompanying Notes
3
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1998 1997
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,136 $ 1,584
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation and Amortization 6,431 3,542
Provision for Bad Debt 175 125
Common Stock - Directors' Fees 87 81
Stock Options - Compensation Expense 88
Changes in Other Assets and Liabilities:
Receivables and Other Assets (173) (1,845)
Accounts Payable and Other Liabilities (1,039) 785
Tenant Security Deposits 32 36
-------- --------
Net Cash Provided By Operating Activities 7,737 4,308
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for Acquisitions of Real Estate and
Capital Improvements (42,650) (59,200)
Proceeds from Sales of Real Estate 7,852
-------- --------
Net Cash Used For Investing Activities (42,650) (51,348)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings Under Line of Credit Agreements 10,000 29,083
Repayments Under Line of Credit Agreements (80,000)
Principal Payments of Notes Payable (20,094) (35,727)
Proceeds from Issuance of Notes Payable 26,472 59,910
Restricted Cash 692
Dividends Paid (6,160) (4,275)
Issuance of Stock-Net 113,135
Payment for Minority Interest (162)
-------- --------
Net Cash Provided for Financing Activities 43,883 48,991
-------- --------
Net Increase in Cash and Cash Equivalents 8,970 1,951
Cash and Cash Equivalents at Beginning Of Period 6,841 4,095
-------- --------
Cash and Cash Equivalents at End Of Period $ 15,811 $ 6,046
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During Three Months For Interest $ 9,719 $ 4,469
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Notes Payable Assumed $3,693
Operating Partnership Units Issued in Connection with
Real Estate Acquisition 22
Proceeds from Notes Payable 25,400
Cash Paid For Real Estate 23,068
--------
Fair Value of Real Estate Acquired $ 52,183
--------
--------
</TABLE>
See the Accompanying Notes
4
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998, DECEMBER 31, 1997, AND MARCH 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are unaudited but, in
the opinion of management, reflect all normal recurring adjustments
necessary for a fair presentation of operating results. These financial
statements should be read in conjunction with the audited financial
statements of Burnham Pacific Properties, Inc. for the year ended December
31, 1997. Certain of the 1997 amounts have been reclassified to conform
to 1998 presentation.
Dividends Per Share - Dividends of .2625 cents per share were paid on
March 31,1998 to shareholders of record on March 24, 1998.
On March 18, 1998, the Emerging Issues Task Force of the Financial
Accounting Standard Board issued EITF Number 97-11, requiring the
expensing of internal acquisition costs in the period incurred,
effective on the date the standard was issued. Prior to this standard,
internal acquisition costs were capitalized into the related completed
acquisitions. The Company does not believe that the implementation of
this standard will have a material impact on future financial statements
of the Company.
2. NET INCOME PER SHARE
Net income per share is computed by dividing net income for the respective
periods by the weighted average number of shares outstanding during the
applicable period.
At December 31, 1997, the Company adopted the Financial Accounting
Standards Boards (FASB) 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" as well
as "Diluted EPS" on the face of the income statement. In general, Basic
EPS excludes dilution created by stock equivalents and is a function of
the weighted average number of common shares outstanding for the period.
Diluted EPS does reflect the potential dilution created by stock
equivalents if such equivalents are converted into common stock and is
calculated in the same manner as fully Diluted EPS illustrated in APB
Opinion Number 15, "Earnings Per Share."
5
<PAGE>
The following tables are the reconciliations from the basic to the diluted
EPS computations for "net income before extraordinary item" for the quarters
ended March 31, 1998 and 1997 (dollars except per share amounts in thousands):
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
For the Quarter Ended March 31, 1998
Basic EPS
Net Income Before Extraordinary Item $2,136 23,640,659 $0.09
Effect of Dilutive Securities:
Stock Options 125,513
Diluted EPS
Net Income Before Extraordinary Item, after
assumed conversion of common share
equivalents
------ ---------- -----
$2,136 23,766,172 $0.09
------ ---------- -----
For the Quarter Ended March 31, 1997
Basic EPS
Net Income Before Extraordinary Item $1,636 17,096,519 $0.10
Effect of Dilutive Securities:
Stock Options 6,734
Diluted EPS
Net Income Before Extraordinary Item,
after assumed conversion of common share
equivalents
------ ---------- -----
$1,636 17,103,253 $0.10
------ ---------- -----
------ ---------- -----
</TABLE>
3. ISSUANCE OF SECURITIES
On March 30, 1998, the Company issued 7,475,000 shares of Common Stock
at a public offering price of $14.125 per share. In addition, on March 30,
1998, the Company issued 965,518 shares of Common Stock to a Unit Investment
Trust at a price based upon the March 25, 1998 market value of $14.50 per
share. The combined shares were sold pursuant to the Company's shelf
registration statements. The net proceeds from the combined offerings of
$113,353,000 were used to reduce borrowings under the Company's Credit
Facility, pay off the balance outstanding under a construction loan agreement
secured by one of the Company's development properties and for general
working capital purposes.
At March 31, 1998, the Company had effective shelf registration
statements on file with the Securities and Exchange Commission relating to an
aggregate of $202,144,000 of registered and unissued debt and equity
securities.
6
<PAGE>
4. REAL ESTATE
Real Estate is summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Retail Centers $ 865,302 $845,536
Office/Industrial Buildings 57,861 57,846
Retail Centers Under Development 79,060 56,443
Other 4,527 4,930
---------- --------
Total Real Estate 1,006,750 964,755
Accumulated Depreciation (61,681) (55,823)
---------- --------
Real Estate-Net $ 945,069 $908,932
---------- --------
---------- --------
</TABLE>
On February 3, 1998, the Company purchased a retail shopping center for
approximately, $14,825,000. The acquisition was financed with a new
$7,000,000, 7-year mortgage loan bearing interest at 7.54% secured by
the shopping center, with the balance coming from borrowings under the
Company's Credit Facility.
5. SUBSEQUENT EVENT
On May 11, 1998, at the Company's 1998 Annual Meeting, the holders of the
Company's Common Stock approved the issuance of Common Stock upon the
conversion of $70,000,000 stated value of the Company's outstanding
Series A Preferred Stock. As a result, the Company's consolidated balance
sheet will be subsequently adjusted to reclassify $28,160,000 of
Preferred Stock into Stockholders' Equity.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
March 31, 1998 and 1997:
During the three months ended March 31, 1998, net income increased $552,000
or 35%, to $2,136,000 ($0.09 per share) compared to $1,584,000 ($0.09 per
share) for the same period in 1997. The increase in net income is primarily
attributable to increased net operating income (total rental revenues less
rental operating expenses) aggregating $12,213,000, resulting from new
leasing and higher levels of expense reimbursements of core portfolio
properties and the acquisition of approximately $598,100,000 of shopping
centers in 1997. The aforementioned increases to net income were partially
offset by increases in depreciation and amortization, general and
administrative expenses and interest expense of $2,889,000, $268,000, and
$6,135,000, respectively.
Total revenues increased $16,890,000 to $29,867,000 in 1998 from $12,977,000
in 1997. This increase is primarily attributable to the acquisition activity
in 1997.
Rental operating expenses increased $4,623,000 to $8,252,000 in 1998 from
$3,629,000 in 1997. This increase is primarily attributable to the addition
of new properties in 1997.
7
<PAGE>
Interest expense increased $6,135,000 to $9,466,000 in 1998 from $3,331,000
in 1997. The overall increase in interest expense is primarily related to
the 1997 acquisitions. The debt outstanding (exclusive of $14,985,000 of
fixed rate mortgage debt in unconsolidated subsidiaries) on March 31, 1998
and related weighted average rate were $486,758,000 and 7.53% respectively,
compared to $235,411,000 and 8.00% on March 31, 1997. Interest capitalized
in conjunction with development and expansion projects was $1,137,000 for the
three months ended March 31, 1998, as compared to $730,000 for the same
period in 1997.
Depreciation and Amortization expenses increased $2,889,000 to $6,431,000 in
1998 from $3,542,000 in 1997. The increase is primarily attributable to the
growth related to the shopping centers acquired in 1997.
General and Administrative expenses increased $268,000 to $1,111,000 in 1998
from $843,000 in 1997. The increase is attributable to the growth of the
Company primarily related to the 1997 acquisitions and developments.
FUNDS FROM OPERATIONS
March 31, 1998 and 1997
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 (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.
For the three months ended March 31, 1998, FFO increased $3,127,000 to
$8,086,000 as compared to $4,959,000 for the same period in 1997. The
increase was net of several effects, but was primarily attributable to the
increase in revenues from core portfolio properties, acquisitions, and
development. FFO as presented here may not be comparable to similarly titled
measures used by other companies.
8
<PAGE>
The calculation of FFO for the respective periods is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
------- ------
<S> <C> <C>
Net Income $ 2,136 $1,584
Adjustments:
Depreciation of Real Estate and Tenant Improvements 5,796 3,233
Amortization of Leasing Costs 154 90
Early Extinguishment of Debt -0- 52
------- ------
Funds from Operations-Basic 8,086 4,959
Effect of Dilutive Securities:
Operating Partnership Units 1,166 11
Convertible Preferred Stock 1,400 -0-
------- ------
Funds from Operations-Dilutive $10,652 $4,970
------- ------
------- ------
</TABLE>
MATERIAL CHANGES IN FINANCIAL CONDITION
March 31, 1998 compared to December 31, 1997:
On February 3, 1998, the Company purchased a retail shopping center for
approximately, $14,825,000. The acquisition was financed with a new
$7,000,000, 7-year mortgage loan bearing interest at 7.54% secured by the
shopping center, with the balance coming from borrowings under the Company's
Credit Facility.
As of March 31, 1998, and December 31, 1997 approximately $2,950,000 and
$2,463,000, respectively, of straight-lined rent are included in other assets.
The Company has a $205,000,000 Credit Facility of which $135,000,000 is
secured or to be secured by mortgages on various of the Company's properties
and $70,000,000 is unsecured. The Credit Facility bears interest at rates of
LIBOR (London Inter-Bank Offer Rate) plus 1.40% for secured borrowings or
LIBOR plus 1.50% for unsecured borrowings. The Credit Facility is scheduled
to mature in November 1998, with a one year extension option available. At
March 31, 1998, borrowings of approximately $110,869,000 were outstanding
under the secured portion of the Credit Facility and $0 was outstanding under
the unsecured portion.
At March 31, 1998, the Company had $19,472,000 outstanding under a
$44,457,000 construction loan, secured by one of the Company's development
properties. The remaining availability of $24,985,000 is expected to be used
to fund the completion of a 131,500 square foot entertainment center in
downtown San Francisco, California. Borrowings under this loan bear interest
at LIBOR plus 1.90% or at prime plus .50%. The loan matures in January 1999.
At March 31, 1998, the Company's capitalization consisted of $486,758,000 of
debt (excluding the Company's proportionate share of joint venture mortgage
debt which is approximately 25% of $14,985,000), $120,000,000 of preferred
stock and preferred operating partnership units, and $476,852,000 of market
equity (market equity is defined as (i) the sum of the number of outstanding
shares of Common Stock of the Company plus Common Units of the Operating
Partnership held by partners of the
9
<PAGE>
Operating Partnership other than the Company, multiplied by (ii) the closing
price of the share of Common Stock on the New York Stock Exchange at March
31, 1998 of $14.625) resulting in a debt to total market capitalization ratio
of .45 to 1.0 compared to the ratio of .53 to 1.0 at December 31, 1997. At
March 31, 1998, the Company's total debt consisted of $354,808,000 of fixed
rate debt, and $131,950,000 of variable rate debt.
On March 30, 1998, the Company issued 7,475,000 shares of Common Stock at a
public offering price of $14.125 per share. In addition, on March 30, 1998,
the Company issued 965,518 shares of Common Stock to a Unit Investment Trust
at a price based upon the March 25, 1998 market value of $14.50 per share.
The combined shares were sold pursuant to the Company's shelf registration
statements. The net proceeds from the combined offerings of $113,353,000
were used to reduce borrowings under the Company's Credit Facility, pay off
the balance outstanding under a construction loan agreement secured by one of
the Company's development properties and for general working capital purposes.
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, private placements of debt and equity securities and proceeds from
sales of non-strategic assets. At March 31, 1998, the Company had effective
shelf registration statements on file with the Securities and Exchange
Commission relating to an aggregate of $202,144,000 of registered and
unissued debt and equity securities.
FORWARD LOOKING STATEMENTS
The preceding comments in this Form 10-Q contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Reference is made to the
Company's Form 10-K Report for the year ended December 31, 1997 under the
caption "Risk Factors" for a discussion of certain factors which could cause
the Company's actual results to differ materially from those set forth in the
forward-looking statements.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
The Corporation was not a party to any material legal proceedings during the
period covered by this report or subsequently.
ITEM 2. CHANGES IN SECURITIES:
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
10
<PAGE>
Not Applicable.
ITEM 5. OTHER INFORMATION:
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following Exhibits are part of this report:
27.0 Financial Data Schedule.
(b) There were no reports on Form 8-K filed during or with respect to matters
occurring within the period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURNHAM PACIFIC PROPERTIES, INC.
Date: March 14, 1998 By: /s/ J. DAVID MARTIN
---------------------------------------
J. David Martin, Chief Executive Officer
Date: March 14, 1998 By: /s/ DANIEL B. PLATT
---------------------------------------
Daniel B. Platt, Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,361<F1>
<SECURITIES> 0
<RECEIVABLES> 7,926
<ALLOWANCES> (1,575)
<INVENTORY> 0
<CURRENT-ASSETS> 42,565<F2><F3>
<PP&E> 1,006,750
<DEPRECIATION> 61,681
<TOTAL-ASSETS> 987,634
<CURRENT-LIABILITIES> 18,590
<BONDS> 486,758
28,160
40,734
<COMMON> 353,355
<OTHER-SE> (95,786)
<TOTAL-LIABILITY-AND-EQUITY> 987,634<F4><F5>
<SALES> 29,639
<TOTAL-REVENUES> 29,867
<CGS> 8,252
<TOTAL-COSTS> 8,252
<OTHER-EXPENSES> 7,542
<LOSS-PROVISION> 175
<INTEREST-EXPENSE> 9,466
<INCOME-PRETAX> 2,136
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,136<F6><F7><F8>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,136
<EPS-PRIMARY> 0.9
<EPS-DILUTED> 0.9
<FN>
<F1>Includes 4,500 of restricted cash.
<F2>Includes 3,683 of Investment in Unconsolidated Subsidiaries.
<F3>Also includes 12,170 of Other Assets and 6,351 of Receivables-Net.
<F4>Includes 489,539 of paid in capital in excess of par.
<F5>Also includes 60,037 of Minority Interest.
<F6>Includes 1,400 Distribution to Preferred Stockholders.
<F7>Includes 1,166 Distribution to Minority Interest Holders.
<F8>Also includes 95 of Income from Unconsolidated Subsidiaries.
</FN>
</TABLE>
