<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
/ /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 _______________
BURNHAM PACIFIC PROPERTIES, INC.
------------------------------------------
(Exact name of Registrant as specified in its Charter)
Maryland 33-0204162
------------------------ --------------------
(State of other jurisdiction of incorporation) (IRS Employer Identification No.)
110 West "A" Street, San Diego, California 92101
- ------------------------------------------ ---------------------
(Address of principal executive offices) (Zip Code)
(619) 652-4700
--------------------------------
Registrant's telephone number, including area code
610 West Ash Street, San Diego, California
--------------------------------
Former name, former address and former fiscal year if changed
since last report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO_____
Number of shares of the Registrant's common stock outstanding at
November 12, 1999: 32,268,296.
1
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS September 30, 1999 December 31, 1998
------------------------- --------------------------
<S> <C> <C>
Real Estate $1,027,840 $1,137,779
Less Accumulated Depreciation (63,586) (79,837)
------------------------- --------------------------
Real Estate-Net 964,254 1,057,942
Real Estate Held for Sale 21,671 -
Cash and Cash Equivalents 1,089 20,873
Restricted Cash 10,182 7,737
Receivables-Net 8,945 7,697
Investment and Advances in Unconsolidated Subsidiaries 62,028 3,438
Other Assets 17,965 16,489
------------------------- --------------------------
Total $1,086,134 $1,114,176
========================= ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable and Other Liabilities $ 35,302 $ 50,572
Tenant Security Deposits 2,565 2,982
Notes Payable 405,770 394,029
Line of Credit Advances 170,082 180,999
------------------------- --------------------------
Total Liabilities 613,719 628,582
------------------------- --------------------------
Commitments and Contingencies
Minority Interest 66,571 70,217
------------------------- --------------------------
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 September 30, 1999 and
December 31, 1998 28 28
Common Stock, Par Value $.01/share, 95,000,000 Shares
Authorized, 32,261,046 and 31,954,008 Shares
Outstanding at September 30, 1999 and
December 31, 1998, respectively 323 319
Paid in Capital in Excess of Par 528,834 524,957
Dividends Paid in Excess of Net Income (123,341) (109,927)
------------------------- --------------------------
Total Stockholders' Equity 405,844 415,377
------------------------- --------------------------
Total $1,086,134 $1,114,176
========================= ==========================
</TABLE>
See the Accompanying Notes
2
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
REVENUES 1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Rents $29,104 $34,112 $95,995 $95,650
Fee Income 2,092 248 4,058 248
Interest and Other 355 179 1,002 633
-------------- -------------- -------------- --------------
Total Revenues 31,551 34,539 101,055 96,531
-------------- -------------- -------------- --------------
EXPENSES
Interest 8,706 8,980 27,869 26,195
Rental Operating 8,897 9,374 27,812 26,222
General and Administrative 2,242 1,455 5,901 3,958
Restructuring Charge (Reversal) (147) - 1,353 -
Abandoned Acquisition Costs - - 748 -
Costs Associated with Unsolicited Proposal and
Litigation 1,797 - 2,672 -
Impairment Write-Offs 1,000 - 2,200 -
Depreciation and Amortization 6,670 7,741 20,795 20,922
-------------- -------------- -------------- --------------
Total Costs and Expenses 29,165 27,550 89,350 77,297
-------------- -------------- -------------- --------------
Income From Operations Before Income from
Unconsolidated Subsidiaries, Minority Interest
and Cumulative Effect of Change in Accounting
Principle 2,386 6,989 11,705 19,234
Income from Unconsolidated Subsidiaries 204 32 646 160
Minority Interest (1,567) (1,327) (3,950) (3,652)
Gain on Sales of Real Estate 9,499 - 9,499 -
-------------- -------------- -------------- --------------
Net Income Before Cumulative Effect of Change in
Accounting Principle 10,522 5,694 17,900 15,742
Cumulative Effect of Change in Accounting Principle - - (1,866) -
-------------- -------------- -------------- --------------
Net Income $10,522 $5,694 $16,034 $15,742
Dividends Paid to Preferred Stockholders (1,400) (1,400) (4,200) (4,200)
-------------- -------------- -------------- --------------
Income Available to Common Stockholders $9,122 $4,294 $11,834 $11,542
============== ============== ============== ==============
BASIC EARNINGS PER SHARE:
Net Income Before Cumulative Effect of Change in
Accounting Principle $0.28 $0.13 $0.43 $0.40
Cumulative Effect of Change in Accounting Principle
- - (0.06) -
-------------- -------------- -------------- --------------
Net Income $0.28 $0.13 $0.37 $0.40
============== ============== ============== ==============
DILUTED EARNINGS PER SHARE:
Net Income Before Cumulative Effect of Change in $0.28 $0.13 $0.43 $0.39
Accounting Principle
Cumulative Effect of Change in Accounting Principle
- - (0.06) -
-------------- -------------- -------------- --------------
Net Income $0.28 $0.13 $0.37 $0.39
============== ============== ============== ==============
(Continued)
</TABLE>
3
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (cont'd)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Pro Forma Amounts Assuming the Change in
Accounting Principle is Applied Retroactively:
Net Income $10,522 $5,662 $16,034 $15,429
Net Income Per Share - Basic $ 0.28 $ 0.13 $ 0.37 $ 0.39
Net Income Per Share - Diluted $ 0.28 $ 0.13 $ 0.37 $ 0.38
(Concluded)
</TABLE>
See the Accompanying Notes
4
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 16,034 $ 15,742
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation and Amortization 20,795 20,922
Gain on Sale of Assets (9,499) -
Impairment Write-offs 2,200 -
Cumulative Effect of Change in Accounting Principle 1,866 -
Abandoned Acquisitions Costs 748 -
Restructuring Charge 371 -
Provision for Bad Debt 627 519
Common Stock - Directors' Fees 192 256
Stock Options - Compensation Expense 201 221
Minority Interest 3,950 3,652
Income from Unconsolidated Subsidiaries (646) -
Changes in Other Assets and Liabilities:
Receivables and Other Assets (10,363) (1,321)
Accounts Payable and Other Liabilities (20,541) 2,515
Tenant Security Deposits (417) 541
----------- ------------
Net Cash Provided By Operating Activities 5,518 43,047
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for Acquisitions of Real Estate and
Capital Improvements (55,659) (138,963)
Reimbursement of Development Costs 7,450 -
Proceeds from Sale of Assets 44,726 13,182
Investment in Unconsolidated Subsidiaries (1,153) -
----------- ------------
Net Cash Used For Investing Activities (4,636) (125,781)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings Under Line of Credit Agreements 17,000 76,030
Repayments Under Line of Credit Agreements (27,917) (83,000)
Principal Payments of Notes Payable (4,407) (29,123)
Proceeds from Issuance of Notes Payable 30,945 38,925
Restricted Cash (2,445) (3,666)
Dividends Paid (29,448) (27,114)
Issuance of Stock-Net 43 113,101
Distributions Made to Minority Interest Holders (4,437) (3,923)
Payment for Minority Interest - (774)
----------- ------------
Net Cash Provided by (Used For) Financing Activities (20,666) 80,456
----------- ------------
Net Decrease in Cash and Cash Equivalents (19,784) (2,278)
Cash and Cash Equivalents at Beginning Of Period 20,873 6,841
----------- ------------
Cash and Cash Equivalents at End Of Period $ 1,089 $ 4,563
=========== ============
(Continued)
</TABLE>
5
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D.)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------- ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During Nine Months For Interest $ 31,792 $ 29,638
----------- ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Notes Payable Assumed $ - $ 23,596
Operating Partnership Units Issued in Connection with
Real Estate Acquisitions - 18,313
Liability due to Seller - 1,452
Cash Paid for Real Estate - 13,532
----------- ------------
Fair Value of Real Estate Acquired $ - $ 56,893
=========== ============
(Concluded)
</TABLE>
See the Accompanying Notes
6
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, DECEMBER 31, 1998, AND SEPTEMBER 30, 1998
(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, 1998. Certain of the 1998 amounts have been reclassified
to conform to 1999 presentation.
Common Dividends of approximately $ 8,467,000 ($0.2625 per share) were
paid on September 30, 1999 to common stockholders of record on
September 23, 1999.
Preferred dividends of $1,400,000 were paid on September 30, 1999 to
preferred stockholders.
Accounts Receivable is net of an allowance for doubtful accounts of
approximately $2,262,000 and $1,778,000 at September 30, 1999 and
December 31, 1998.
2. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share ("EPS") for the periods indicated. Basic EPS
excludes dilution created by stock equivalents and is computed by
dividing net income available to common stockholders for the respective
periods by the weighted average number of shares outstanding during the
applicable period. Diluted EPS reflects the potential dilution created
by stock equivalents if such equivalents are converted into common
stock (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $10,522 $ 5,694 $16,034 $15,742
Less:
Dividends Paid to Preferred Stockholders (1,400) (1,400) (4,200) (4,200)
-------------- -------------- -------------- --------------
Income Available to Common
Stockholders for Basic and Diluted
Earnings Per Share $ 9,122 $ 4,294 $11,834 $11,542
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Denominator:
Shares for Basic Earnings Per Share -
weighted average shares outstanding 32,063 31,933 31,993 29,161
Effect of Dilutive Securities:
Stock Options 17 191 15 188
-------------- -------------- -------------- --------------
Shares for Diluted Earnings Per Share 32,080 32,124 32,008 29,349
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Basic Earnings Per Share $ 0.28 $ 0.13 $ 0.37 $ 0.40
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Diluted Earnings Per Share $ 0.28 $ 0.13 $ 0.37 $ 0.39
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
7
<PAGE>
In 1999 and 1998, dividends and shares from conversion of Preferred
Stock and minority interest expense and shares from the conversion of
Burnham Pacific Operating Partnership, L.P. (the "Operating
Partnership") units were excluded from the diluted earnings per share
calculations because they were anti-dilutive.
3. REAL ESTATE
Real Estate is summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
-------------------------- -------------------------
<S> <C> <C>
Retail Centers $ 919,677 $1,038,978
Retail Centers Under Development 75,451 34,814
Office/Industrial Buildings 29,311 57,876
Other 3,401 6,111
-------------------------- -------------------------
Total Real Estate 1,027,840 1,137,779
Accumulated Depreciation (63,586) (79,837)
-------------------------- -------------------------
Real Estate-Net $ 964,254 $1,057,942
-------------------------- -------------------------
-------------------------- -------------------------
</TABLE>
On July 2, 1999, the Company sold its interest in four retail shopping
centers for approximately $44,400,000, resulting in a gain of
approximately $8,350,000. Proceeds were used to repay mortgage debt
secured by the centers sold, reduce borrowings under the Company's
$5,000,000 unsecured Revolving Credit Agreement with Union Bank and
repay borrowings under the Company's Credit Facility with Nomura
Asset Capital Corporation.
On August 18, 1999, the Company sold its interest in a retail shopping
center for approximately $3,500,000, resulting in a gain of
approximately $1,149,000. Proceeds were used to repay borrowings under
the Company's Credit Facility.
4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
On April 1, 1999, the Company contributed three retail properties
valued at approximately $22,800,000 into BPP Retail, LLC (the joint
venture between the Company and CalPERS - the "Joint Venture").
Simultaneously, the put option contained in the Agreement Regarding
Contribution of Certain Properties and Put Options entered into in
December 1998 between the Company's Operating Partnership and the Joint
Venture expired. The purpose of the option was to permit the Company's
Operating Partnership to contribute two retail properties (the
"Contributed Projects") into the Joint Venture even though CalPERS had
not received all the required information (such as appraisals) to
approve or disapprove the contribution. When the option agreement was
entered into, the Joint Venture provided the Operating Partnership
approximately $22,195,000 (the "Net Asset Value") in exchange for the
economic interests in the Contributed Projects.
On June 15, 1999, the Joint Venture obtained a $421,000,000 Credit
Facility of which $171,000,000 is supported by the Joint Venture
partners' commitment to contribute additional equity to the Joint
Venture by December 31, 2000 and $250,000,000 is unsecured. The Joint
Venture's Credit Facility bears interest at rates of Eurodollar plus
1.00% or prime for secured borrowings or Eurodollar plus 1.38% or prime
for unsecured borrowings. At September 30, 1999, the average rate of
interest on the Joint Venture's
8
<PAGE>
Credit Facility advances was approximately 6.5%. The secured
facility is scheduled to mature in December 2000. The unsecured
facility is scheduled to mature in June 2000.
On June 15, 1999, the Joint Venture completed the acquisition of nine
retail shopping centers contained in the first phase of the AMB
Portfolio. The purchase price was approximately $207,400,000. The
acquisition of the portfolio was financed primarily by $182,500,000 of
borrowings under the Joint Venture's Credit Facility with the balance
coming from CalPERS contributed capital. In connection with the closing
of the first phase of the AMB Portfolio, the Company granted to CalPERS
an option expiring June 30, 2000 to purchase 1 million shares of Common
Stock of the Company at an exercise price of $15.375 per share. The
value of the option as of the date of grant was estimated to be
approximately $234,000 and was included in investment in
unconsolidated subsidiaries on the consolidated balance sheet of the
Company.
On June 15, 1999, the Company contributed one additional retail
shopping center valued at approximately $15,900,000 into the Joint
Venture.
On August 4, 1999, the Joint Venture completed the acquisition of
twelve retail shopping centers contained in the second phase of the AMB
Portfolio. The purchase price was approximately $246,000,000. The
acquisition of the portfolio was financed primarily by $121,000,000 of
borrowings under the Joint Venture's Credit Facility, with the
remaining balance coming from CalPERS contributed capital.
On August 26, 1999, the Joint Venture completed the acquisition of a
retail shopping center. The purchase price was approximately
$17,600,000. The acquisition of the shopping center was financed
primarily from CalPERS contributed capital.
At September 30, 1999, the Company's equity interest in the Joint
Venture was approximately 11.23%. The Company accounts for this
investment using the equity method of accounting.
On June 1, 1999, the operating agreement of the Company's Joint Venture
with CalPERS, was amended to expand the permitted geographical scope of
the Joint Venture's investments from the western United States to
nationwide, in order to permit the acquisition of properties in the AMB
Portfolio. In addition, effective June 1, 1999, a newly formed limited
liability company, Burnham Pacific Employees LLC ("BP Employees LLC"),
was appointed the Manager of BPP Retail, LLC. The Operating Partnership
is the sole Managing Member of BP Employees LLC, and certain members of
the Company's management ("Employee Members") hold non-managing
membership interests in BP Employees LLC. Under the terms of the BPP
Retail, LLC joint venture, the Manager of BPP Retail, LLC is entitled
to an incentive distribution ("Incentive Distribution") calculated on
an annual basis. The right to Incentive Distributions is based and
contingent upon, among other things, appreciation in the value of the
BPP Retail, LLC assets over a calculated threshold during each year.
Under the terms of the BP Employees LLC limited liability company
agreement, one-half of any Incentive Distribution received by BP
Employees LLC will be distributed to the Operating Partnership and
one-half will be distributed to the Employee Members.
9
<PAGE>
During the nine months ended September 30, 1999, the Company's
Operating Partnership earned asset and property management, leasing and
acquisition fees from the Joint Venture totaling approximately
$3,964,000.
5. SEGMENT INFORMATION
The Company has two reportable segments: Retail Operating properties
and Office/Industrial properties. The Company focuses its investments
on retail shopping centers located in major metropolitan areas. As of
September 30, 1999, the Company owns interests in 104 retail operating
properties and has one retail project currently under development.
The Company also owns interests in four office and industrial
properties which it considers non-strategic and therefore does not
allocate a material amount of Company resources to this segment (see
Note 9). For the three months ended September 30, 1999 and 1998, there
was no tenant of the Company that accounted for ten percent or more of
the total revenues of the Company.
The Company evaluates the performance of its assets within these
segments based on the net operating income of the respective property.
Net operating income is calculated as rental revenues of the property
less its rental expenses (such as common area expenses, property taxes,
insurance and other owner's expenses). The summary of the Company's
operations by segment is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
September 30, 1999
----------------------------------------------------------
Retail Office Total
<S> <C> <C> <C>
Rental Revenues $27,210 $1,894 $29,104
--------------- --------------- ----------------
--------------- --------------- ----------------
Net Operating Income $20,626 $1,673 $22,299
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------------
Retail Office Total
<S> <C> <C> <C>
Rental Revenues $32,248 $1,864 $34,112
--------------- --------------- ----------------
--------------- --------------- ----------------
Net Operating Income $23,327 $1,659 $24,986
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------------------------
September 30, 1999
----------------------------------------------------------
Retail Office Total
<S> <C> <C> <C>
Rental Revenues $90,312 $5,683 $95,995
--------------- --------------- ----------------
--------------- --------------- ----------------
Net Operating Income $67,198 $5,043 $72,241
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------------
Retail Office Total
<S> <C> <C> <C>
Rental Revenues $90,012 $5,638 $95,650
--------------- --------------- ----------------
--------------- --------------- ----------------
Net Operating Income $64,666 $5,010 $69,676
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
<TABLE>
September 30, 1999 December 31, 1998
------------------------- -------------------------
<S> <C> <C>
Retail Real Estate $995,128 $1,073,792
Office Real Estate 29,311 57,876
------------------------- -------------------------
Total Real Estate $1,024,439 $1,131,668
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
10
<PAGE>
The following table reconciles the Company's reportable segments' rental
revenues and net operating income to consolidated net income of the Company
for the periods presented (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Total Rental Revenues for Reportable Segments $29,104 $34,112 $ 95,995 $95,650
Fee Income 2,092 248 4,058 248
Interest Revenue 355 179 1,002 633
------- ------- -------- -------
TOTAL CONSOLIDATED REVENUES $31,551 $34,539 $101,055 $96,531
======= ======= ======== =======
NET OPERATING INCOME:
------- ------- -------- -------
Total Net Operating Income for Reportable Segments $22,299 $24,986 $ 72,241 $69,676
------- ------- -------- -------
Additions:
Interest and Other Revenue 355 179 1,002 633
Restructuring Charge Reversal 147 - - -
Income from Unconsolidated Subsidiaries 204 32 646 160
Gain on Sales of Real Estate 9,499 - 9,499 -
------- ------- -------- -------
Total Additions 10,205 211 11,147 793
------- ------- -------- -------
Deductions:
Interest Expense 8,706 8,980 27,869 26,195
General and Administrative Expenses 2,242 1,455 5,901 3,958
Restructuring Charge - - 1,353 -
Abandoned Acquisition Costs - - 748 -
Costs Associated with Unsolicited Proposal and
Litigation 1,797 - 2,672 -
Impairment Write-offs 1,000 - 2,200 -
Depreciation and Amortization 6,670 7,741 20,795 20,922
Minority Interest 1,567 1,327 3,950 3,652
------- ------- -------- -------
Total Deductions 21,982 19,503 65,488 54,727
------- ------- -------- -------
Net Income Before Cumulative Effect of Change
in Accounting Principle $10,522 $5,694 $17,900 $15,742
Cumulative Effect of Change in Accounting Principle - - (1,866) -
------- ------- -------- -------
Net Income $10,522 $5,694 $ 16,034 $15,742
======= ======= ======== =======
</TABLE>
The following table reconciles the total real estate for the reportable
segments to consolidated assets for the Company at September 30, 1999
and December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------- -------------------------
<S> <C> <C>
Total Real Estate for Reportable Segments $1,024,439 $1,131,668
Other Real Estate 3,401 6,111
------------------------- -------------------------
Total Real Estate $1,027,840 $1,137,779
Accumulated Depreciation (63,586) (79,837)
------------------------- -------------------------
Real Estate, Net 964,254 1,057,942
Other Assets 121,880 56,234
------------------------- -------------------------
Consolidated Assets $1,086,134 $1,114,176
========================= =========================
</TABLE>
Other real estate includes assets related to the corporate offices of
the Company, which are not included in segment information.
11
<PAGE>
6. RESTRUCTURING
On March 18, 1999, the Board of Directors of the Company approved the
Company's plan to restructure its internal operations to outsource its
property management function to third party providers. The Company
estimated and recorded in the first quarter of 1999 a restructuring
charge of $1,500,000. This outsourcing is expected to benefit the
Company in several ways. First, it enables the Company to more
efficiently enter and exit selected markets and assets as opportunities
present themselves. This ability is key to the Company's focus on
maximizing the return on invested capital. Secondly, it allows the
Company to establish strategic relationships with national property
management companies as well as local providers. These relationships
should benefit the Company with increased opportunities and improved
services. Third, it allows the management team to focus more time on
value-added activities that will more directly impact the bottom line.
The outsourcing resulted in an approximately 26 percent reduction in
the Company's workforce and the closure of three of its property
management offices. The anticipated monthly recurring costs of
outsourcing to third party providers are approximately the same as the
current recurring internal costs ($250,000).
The restructuring charge is primarily attributable to personnel related
costs for the employees subject to the restructuring, and the costs
associated with reducing and eliminating offices, furniture and
equipment. The personnel related costs include severance benefits, the
Company's portion of related payroll taxes, insurance and 401(k) match.
During the week of March 22, 1999, all 37 employees in the Company's
property management department were notified of the terms of their
benefits package. The personnel related costs comprise approximately
one-half ($750,000) of the total reserve.
The costs attributable to reducing and eliminating offices include
lease termination fees, rental losses for vacated office spaces (offset
by sub-leases) and tenant improvements and design fees attributable to
abandoned office space. The costs attributable to reducing and
eliminating offices comprise approximately one-third ($500,000) of the
total reserve. The costs associated with reducing and eliminating
furniture and equipment include the write-off of the net book value of
the furniture and equipment for the terminated employees to the extent
that these assets could not be redeployed in other functional areas of
the Company. The costs attributable to eliminating the furniture and
equipment are approximately one-sixth ($250,000) of the total reserve.
During the quarter ended September 30, 1999, the Company completed the
hiring of its third party providers, its planned reduction in workforce
and the process of closing its property management offices. It was
determined during the third quarter of 1999 that $120,000 of the
reserve estimated for personnel related costs was not necessary due to
certain personnel leaving prior to earning severance benefits and that
$127,000 of the reserve estimated for the write-off of furniture and
equipment was not necessary due to the redeployment of certain
computers to other offices of the Company. In addition, it was
determined that $100,000 of additional reserve was needed for office
closures due to a change in the future value of sub-lease payments. As
a result of these changes in estimates, the Company reallocated
$100,000 of reserves from personnel related costs to office closures
and reversed $147,000 of reserve during the quarter ended September 30,
1999. The remaining reserve for personnel related costs ($30,000)
represents funds needed for consultants hired to assist with the
transition to third party managers. The remaining reserve for office
closures ($341,000) represents future obligated lease payments for
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<PAGE>
corporate offices which were closed, offset by future receipts for
sub-leases entered into with the Company for the related closed
office spaces. The following table reflects the composition of the
Company's restructuring reserve, the expenditures applied against it
and the portion of the reserve reversed as of September 30, 1999:
<TABLE>
<CAPTION>
Restructuring
Original Reserve
Restructuring Expenditures Reserve September 30,
Reserve Applied Reversed 1999
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Personnel Related Costs $ 750,000 $ (600,000) $(120,000) $ 30,000
Office Closures 500,000 (259,000) 100,000 341,000
Write-off of Furniture and Equipment 250,000 (123,000) (127,000) -
--------------- ---------------- --------------- ----------------
Total $1,500,000 $ (982,000) $(147,000) $371,000
=============== ================ =============== ================
</TABLE>
7. COSTS ASSOCIATED WITH UNSOLICITED PROPOSAL AND LITIGATION
On June 7, 1999, the Company received a proposal from Schottenstein
Stores Corporation ("Schottenstein") and its affiliates to negotiate a
business combination in which the Company would be merged into an
acquisition affiliate of Schottenstein and the holders of the Company's
Common Stock would receive $13 per share. The merger proposal was
subject to a number of conditions, including completion of due
diligence satisfactory to Schottenstein, obtaining new senior debt
financing, and the assumption of certain outstanding indebtedness of
the Company. The proposed transaction was also made conditional upon
approval of the Company's shareholders and the holders of units in the
Company's Operating Partnership.
On June 21, 1999, the Company announced that it had retained Goldman,
Sachs & Co. to assist the Company in evaluating the acquisition
proposal from Schottenstein and its affiliates. Also on June 19, 1999,
the Company's Board of Directors adopted a Shareholder Rights Agreement
(the "Rights Agreement") to help ensure that the Company's shareholders
receive fair and equal treatment in the event of any proposed
acquisition of the Company.
On July 14, 1999, the Company responded to a letter from Schottenstein
dated July 12, 1999, in which Schottenstein increased its contingent
offer to $13.50 per share. In its response, the Company assured
Schottenstein that the Board of Directors had been seriously evaluating
the Schottenstein offer and its revised offer, and that the Board of
Directors remains committed to acting in the best interests of all of
the Company's shareholders. The Company also stated that a
representative of the Company would contact Schottenstein or its
financial advisor once the Board of Directors was in a position to make
an informed response to the Schottenstein proposal. The letter from the
Company also indicated that its financial advisor, Goldman, Sachs &
Co., had been in contact with Schottenstein's financial advisor, had
offered to meet with them and had communicated to them that the Company
was seriously evaluating the Schottenstein proposal.
On July 23, 1999, after an extensive evaluation of the Schottenstein
proposal and after receiving advice from Goldman, Sachs & Co., the
Company's Board of Directors concluded that it would not be in the best
interests of the Company's Common
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<PAGE>
Shareholders to accept the proposal and unanimously voted to reject
Schottenstein's conditional and unsolicited proposal to purchase the
outstanding stock of the Company and the outstanding units of the
Company's Operating Partnership. Nevertheless, so long as this
proposal is outstanding, the Company will remain uncertain about its
ability to implement its current business plan and about its future
generally. This uncertainty may harm the Company's business and may
result in the loss of business opportunities that may be otherwise
pursued. Although the Company has entered into various arrangements
intended to preserve the attention and dedication of its employees,
including members of its senior management, as described below, the
Company's management team may be distracted from the day-to-day
operations of its business as a result of such uncertainty and some
may decide to leave their employment with the Company. The loss of
their services and their distraction could have a material adverse
effect on the Company's operations. In addition, the Company is
incurring (and may continue to incur) significant costs for
financial advisory, legal and other consulting services expended in
evaluating and responding to this proposal and its consequences. As
of September 30, 1999, the Company incurred approximately $2,672,000
of these related costs and expects to incur significant additional
costs prior to the end of 1999.
On June 19, 1999, the Company adopted an Executive Severance Plan, a
Management Severance Plan and a Rank and File Severance Plan. These
plans, as subsequently amended as of July 23, 1999 (collectively, the
"Plans"), are intended to reinforce and encourage the continued
attention and dedication of the Company's employees to their assigned
duties, as well as assist the Company in recruiting new employees,
notwithstanding the possibility, threat or occurrence of a change in
control of the Company. The Company believes that the possibility or
threat of a change in control inevitably creates distractions, risks
and uncertainties for its executives and other employees. Since the
Company considers it essential to the best interests of its
shareholders to foster the continuous employment of key management and
other personnel, and since the Company did not have any employment or
other severance agreements with any of its executives or employees that
could have served such function, the Company believes that the adoption
of the Plans was an appropriate mechanism by which to promote an
environment in which its executives and employees may continue
performing their duties without distraction.
For the same reasons cited above, on June 30, 1999, the Company entered
into Senior Executive Severance Agreements (the "Severance Agreements")
with certain of its most senior executives not otherwise entitled to
participate in the aforementioned Plans (i.e., J. David Martin, Joseph
William Byrne, James W. Gaube, Daniel B. Platt and Scott C. Verges (the
"Senior Executives")), whose leadership and management expertise is
vital to the continued operation of the Company's business. In general,
the Severance Agreements provide that in the event certain Terminating
Events (as defined in the Severance Agreements) occur with respect to a
Senior Executive following a Change in Control (as defined in the
Severance Agreements), then the Company shall pay the Senior Executive
an aggregate of three times such Senior Executive's then current annual
base salary plus three times such Senior Executive's then current
target annual bonus. In addition, the Severance Agreements provide for
the continuation of certain health, dental and life insurance and other
welfare benefits for thirty-six (36) months, provided that any such
benefits are offset against any amounts payable under any other Company
plan. The Severance Agreements also provide for the
14
<PAGE>
reimbursement of certain excise tax liabilities that may arise in
connection with the benefits provided pursuant thereto.
Effective as of August 1, 1999, the Company entered into Phantom
Shares Agreements (the "Phantom Agreements") with the Senior
Executives. The Phantom Share Awards (the "Phantom Awards") granted
pursuant to the Phantom Agreements, as subsequently amended as of
November 11, 1999, are used solely as a device for the measurement
and determination of certain amounts to be paid to the executive in
lieu of granting additional equity interests. In general, the Phantom
Awards as amended vest upon a Change of Control (as defined in the
Phantom Agreements), or upon the death or disability of the Senior
Executive. At vesting, the Company must redeem the Phantom Awards at
a price per award equal to the fair market value of one share of the
Company's common stock as of the vesting date. In addition, on
November 11, 1999, 66,667 shares of Phantom Awards were rescinded,
which brings the total adjusted number of Phantom Shares granted and
outstanding to 479,259 (See Note 9).
The above descriptions of the Rights Agreement, the Plans, the
Severance Agreements and the Phantom Agreements are not complete and
are qualified in their entirety by reference to such documents, all of
which have been filed as exhibits to reports of the Company on Form
8-K or herewith as it relates to amendments to the Phantom Agreements.
On November 12, 1999, the Company announced that the Board of Directors
had instructed management and Goldman, Sachs & Co. to expand the scope
of their activities to include actively pursuing a full range of
strategic alternatives in order to maximize shareholder value.
Separately, the Company has commenced the active marketing of certain
properties to provide the Company with additional liquidity and
financial flexibility.
8. SECURITIES
At September 30, 1999, 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.
During the three months ended September 30, 1999, 290,196 units of the
Operating Partnership, of which the Company is the general partner,
were tendered for redemption by the holders thereof and the Company
issued 290,196 shares of common stock in exchange therefor.
9. SUBSEQUENT EVENTS
On October 28, 1999, the Company sold its interest in an office
building for approximately $19,250,000, resulting in a gain on sale of
approximately $71,000. During the second quarter of 1999, the Company
took a one-time impairment write-down of $1,200,000 in anticipation of
this sale. Proceeds were used to repay mortgage debt secured by the
office building and repay borrowings under the Company's Credit
Facility. In connection with the sale the Company received a lease
termination payment of approximately $1,500,000. At September 30, 1999,
the adjusted net book value of this asset is reflected as "Real
Estate Held for Sale" on the consolidated balance sheet.
Subsequent to September 30, 1999, the Company entered into a letter
of intent to sell its interest in the Marcoa office building. The
Company expects to receive approximately $2,750,000, which will be used
to reduce borrowings under the Company's Senior bank debt. As a result,
the Company took a one-time impairment write-down of $1,000,000 during
the third quarter of 1999. The net book value of the office building
prior to the write-down was approximately $3,660,000. The Marcoa
building's net operating income for the three month and nine month
periods ended September 30, 1999 was $169,000 and $508,000,
respectively. At September 30, 1999, the adjusted net book value of
this asset is reflected as "Real Estate Held for Sale" on the
consolidated balance sheet.
The Company is in the process of negotiating with an institutional
lender for a new credit facility (the "Replacement Facility") that
would replace the existing Credit Facility as well as provide the
Company with additional working capital availability. It is expected
that the Replacement Facility will be secured by certain assets of
the Company and its subsidiaries, including 24 properties, and will
bear interest at a higher rate than the existing Credit Facility.
Management of the Company believes that the process for implementing
the Replacement Facility can be completed prior to the maturity date
of the existing Credit Facility. However, the Replacement Facility
may not be in place prior to such maturity date. The lender under
the proposed Replacement Facility may not be in place prior to such
maturity date. The lender under the proposed Replacement Facility is
not obligated to enter into it and it is subject to numerous closing
conditions, including a requirement that the mortgages and other
security interests in favor of the lender be in place. Therefore, no
assurance can be given as to when the Replacement Facility will be
available, if at all.
To date, the lender under the existing Credit Facility has been
unwilling to grant any extension of that facility beyond its current
maturity date. Absent such an extension, the failure of the Company
to repay its obligations under the existing Credit Facility in full
on November 18, 1999 would give rise to a default under that
facility. In addition to any other remedies that the lender may
have against the Company, including the right to foreclose on the
collateral, the interest rate payable on the amounts outstanding
under the Credit Facility would increase by five percentage points.
Moreover, such a default would constitute a cross-default under
other existing credit arrangements to which the Company and/or its
subsidiaries are parties. No assurances can be given regarding the
availability or terms of additional capital for the Company in the
future and no assurances can be given regarding the Company's
ability to successfully refinance or extend the maturity of existing
indebtedness. If the Company is unable to obtain an extension of the
maturity of the existing Credit Facility, is unable to successfully
refinance its existing indebtedness, or is unable to secure
additional sources of financing in the future, no assurance can be
given that the Company will be able to meet its financial
obligations as they come due without the substantial disposition of
assets, restructuring of debt, externally forced revisions of its
operations or similar actions. Additionally, no assurances can be
given that the lack of future financing would not have a material
adverse effect on the Company's financial condition and results of
operations.
As described in Note 7, on November 11, 1999, the Company's Board
of Directors and its executive officers agreed to amend the Phantom
Stock Agreement to discontinue the annual vesting and dividend
payment. These changes will reverse the previously reported dilutive
impact on earnings. In addition, 66,667 shares of Phantom Awards
were rescinded. For the agreements which remained in effect, vesting
will remain in the event of a Change of Control transaction as
defined in the agreement, or the death or disability of the Senior
Executives.
15
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q, including the footnotes to the Company's consolidated
financial statements, contains "forward-looking statements" as that term is
defined under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by the use of the words
"believe," "expect," "anticipate," "intend," "estimate," "assume," "plan,"
and other similar expressions in this Form 10-Q, that predict or indicate
future events or trends or that do not relate to historical matters. The
Company cannot assure the future results or outcome of the matters described
in these statements; rather, these statements merely reflect its current
expectations of the approximate outcome of the matter discussed. In addition,
information concerning the following are forward-looking statements:
- the completion, and the timing and cost of completion, of
properties under development or redevelopment;
- the timing of lease-up and occupancy of properties;
- the availability and timing of financing;
- cost, yield and earnings estimates; and
- the timing and effectiveness of Year 2000 compliance.
Forward-looking statements should not be relied on since they involve known
and unknown risks, uncertainties and other factors, some of which are beyond
the Company's control. These risks, uncertainties and other factors may cause
actual results, performance or achievements to differ materially from the
anticipated future results, performance or achievements expressed or implied
by such forward-looking statements. Some of the factors that could cause
actual results, performance or achievements to differ materially from those
expressed or implied by such forward-looking statements were disclosed in the
Company's Registration Statement on Form S-3 that was filed with the SEC on
August 13, 1999. The risk factors disclosed in that Form S-3, as well as any
supplements or modifications to that information that are contained in
filings made with the SEC after August 13, 1999, are hereby incorporated by
reference. The risk factors contained in that Form S-3 may not be
exhaustive. Therefore, the information in that Form S-3 should be read
together with other reports and documents that are filed by the Company with
the SEC from time to time, including this quarterly report on Form 10-Q,
which may supplement, modify, supersede or update those risk factors. Updated
information concerning certain risk factors would include the following:
- Debt and equity financing for the Company's business, including the
development and redevelopment of the Company's properties, may not
be available, or may not be available on favorable terms. In this
connection, the Company's existing Credit Facility with Nomura
Asset Capital Corporation matures on November 18, 1999. The
Company may encounter problems in attempting to replace this
indebtedness prior to or after that date, on favorable terms or at
all. Because the Company needs to make distributions to its
stockholders to qualify as a REIT, the Company may need to borrow
the funds necessary to make such distributions; however, the
Company may be unable to borrow such funds on favorable terms or
at all. See "Material Changes in Financial Conditions-September
30, 1999 compared to December 31, 1998."
- Because the Company borrows money to pay for the acquisition,
development, redevelopment and operation of properties and for
other general corporate purposes, if it is unable to replace its
existing Credit Facility on favorable terms or at all, it may be
unable to grow its asset base at rates consistent with its prior
operating history.
16
<PAGE>
- The Company may experience delays in developing or redeveloping its
properties, and such delays may adversely affect its ability to
lease those properties on schedule. Certain delays during the
third quarter of 1999 resulted in vacancies and the corresponding
loss of rental revenue. If this trend continues, the Company will
continue to generate less rental revenue than would otherwise be
possible or than the Company expects.
- The Company and its tenants and suppliers may experience
unanticipated delays or expenses in achieving Year 2000 readiness.
The Company's unaudited consolidated financial statements and notes included
in this report and the audited financial statements for the year ended
December 31, 1998 and the notes included in the Company's annual report on
Form 10-K should be read in conjunction with the following discussion.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three months ended September 30, 1999 compared to September 30, 1998:
Income Available to Common Stockholders for the three months ended September
30, 1999 totaled $9,122,000 as compared with $4,294,000 for the third quarter
of 1998. Income Available to Common Stockholders for the 1999 three- month
period was favorably impacted by a gain on sales of real estate of $9,499,000
and unfavorably impacted by an impairment write-off in the amount of
$1,000,000 related to the prospective sale of an office building and by costs
of $1,800,000 associated with the unsolicited proposal from Schottenstein
stores.
Total Revenues decreased $2,988,000 to $31,551,000 in the 1999 quarter from
$34,539,000 in the 1998 quarter. This decrease is primarily the result of
asset sales and property contributions to BPP Retail, LLC, the Company's
co-investment entity with CalPERS, which together reduced revenues by
approximately $4,145,000, and a decrease in lease termination fees of
$1,800,000. These decreases in revenues were offset by an increase in fee
income from BPP Retail, LLC in the amount of $1,844,000, and the acquisition
of four shopping centers during the third quarter of 1998.
Total Costs and Expenses increased approximately $1,615,000 during the three
months ended September 30, 1999 as compared to the same period of 1998,
partially due to the aforementioned costs associated with an unsolicited
proposal and litigation in the amount of $1,800,000, and the impairment
write-off of $1,000,000. Rental Operating Expenses decreased approximately
$477,000, Interest Expense decreased approximately $274,000 and Depreciation
and Amortization decreased approximately $1,071,000 as a result of the
shopping centers sold during 1999 and the centers contributed to BPP Retail,
LLC. General and Administrative Expenses increased approximately $787,000 as
a reuslt of the growth of BPP Retail, LLC.
Income From Unconsolidated Subsidiaries increased approximately $172,000 in
1999 as compared to the same three-month period of 1998, as a result of the
Company's investment in BPP Retail, LLC.
As indicated above, the Company's results for the three months ended
September 30, 1999 were negatively impacted by asset sales, decreases in
lease termination fees, and continued delays in new store openings. In
addition, same-center performance for the 1999 quarter was essentially
unchanged from the 1999 second quarter. The Company anticipates that these
factors will continue to affect its results in the fourth quarter of 1999 and
in 2000, and that results will also be adversely
17
<PAGE>
affected by increased borrowing costs. See "Material Changes in Financial
Condition--September 30, 1999 compared to December 31, 1998."
Nine months ended September 30, 1999 compared to September 30, 1998:
Income Available to Common Stockholders for the nine-months ended September
30, 1999 totaled $11,834,000 as compared to $11,542,000 for the first nine
months of 1998. Income Available to Common Stockholders for the 1999
nine-month period was favorably impacted by a gain on sales of real estate of
$9,499,000 and unfavorably impacted by the following charges: impairment
write-offs totaling $2,200,000; costs associated with an unsolicited proposal
and litigation totaling $2,672,000; a $1,353,000 restructuring charge;
abandoned acquisition costs of $748,000; and $1,866,000 recognized as the
cumulative effect of a change in accounting principle.
Revenues in 1999 increased approximately $4,524,000 as compared to the same
period of 1998 as a result of an increase in Fee Income in the amount of
$3,810,000 related to BPP Retail, LLC and an increase in rental revenues as a
result of the acquisition of shopping centers during 1998. These increases
were partially offset by a decrease in lease termination fees of
approximately $2,200,000 and a decrease in revenues due to the 1999
disposition of properties and the contribution of properties into BPP Retail,
LLC.
Total Costs and Expenses increased approximately $12,053,000 during the nine
months ended September 30, 1999 as compared to the same period of 1998. A
portion of this increase is attributable to the aforementioned charges for:
impairment write-offs totaling $2,200,000; costs associated with an
unsolicited proposal and litigation totaling $2,672,000; a restructuring
charge of $1,353,000; and abandoned acquisition costs of $748,000. Increases
in Interest Expense of $1,674,000, Rental Operating Expenses of $1,590,000,
and General and Administrative Expenses of $1,943,000 were related primarily
to acquisitions during 1998 and growth in BPP Retail, LLC, during 1999,
offset partially by properties sold in 1999 and properties contributed to BPP
Retail, LLC.
Income From Unconsolidated Subsidiaries increased approximately $486,000 in
1999 as compared to the same nine-month period of 1998 as a result of the
Company's investment in BPP Retail, LLC.
During the nine months ended September 30, 1999, the Company recorded a
$1,866,000 cumulative effect of a change in accounting principle. In April
1998, the American Institute of Certified Public Accountants issued Statement
of Positions ("SOP") 98-5, "Reporting on the Costs of Start-up Activities".
This SOP requires that entities expense the costs of start-up activities and
organization costs incurred and was effective for fiscal years beginning
after December 15, 1998. The Company implemented SOP 98-5 in the first
quarter of 1999. The adoption of SOP 98-5 is reported as a cumulative effect
of change in accounting principle and represents start-up and organization
costs previously carried and amortized as other assets. These costs of
approximately $1,866,000 represent unamortized costs related primarily to the
Company becoming self-advised in 1991, the conversion to an "UPREIT"
Structure in 1997 and the formation of its joint venture with CalPERS during
1998.
Costs Associated with Unsolicited Proposal and Litigation:
On June 7, 1999, the Company received a proposal from Schottenstein Stores
Corporation ("Schottenstein") and its affiliates to negotiate a business
combination in which the Company would be merged into an acquisition
affiliate of Schottenstein and the holders of the Company's Common Stock
would received $13 per share. The merger proposal was subject to a number of
18
<PAGE>
conditions, including completion of due diligence satisfactory to
Schottenstein, obtaining new senior debt financing, and the assumption of
certain outstanding indebtedness of the Company. The proposed transaction was
also made conditional upon approval of the Company's shareholders and the
holders of units in the Company's Operating Partnership.
On June 21, 1999, the Company announced that it had retained Goldman, Sachs &
Co. to assist the Company in evaluating the acquisition proposal from
Schottenstein and its affiliates. Also on June 19, 1999, the Company's Board
of Directors adopted a Shareholder Rights Agreement (the "Rights Agreement")
to help ensure that the Company's shareholders receive fair and equal
treatment in the event of any proposed acquisition of the Company.
On July 14, 1999, the Company responded to a letter from Schottenstein dated
July 12, 1999, in which Schottenstein increased its contingent offer to
$13.50 per share. In its response, the Company assured Schottenstein that the
Board of Directors had been seriously evaluating the Schottenstein offer and
its revised offer, and that the Board of Directors remains committed to
acting in the best interests of all of the Company's shareholders. The
Company also stated that a representative of the Company would contact
Schottenstein or its financial advisor once the Board of Directors was in a
position to make an informed response to the Schottenstein proposal. The
letter from the Company also indicated that its financial advisor, Goldman,
Sachs & Co., had been in contact with Schottenstein's financial advisor, had
offered to meet with them and had communicated to them that the Company was
seriously evaluating the Schottenstein proposal.
On July 23, 1999, after an extensive evaluation of the Schottenstein proposal
and after receiving advice from Goldman, Sachs & Co., the Company's Board of
Directors concluded that it would not be in the best interests of the
Company's Common Shareholders to accept the proposal and unanimously voted to
reject Schottenstein's conditional and unsolicited proposal to purchase the
outstanding stock of the Company and the outstanding units of the Company's
Operating Partnership. Nevertheless, so long as this proposal is outstanding,
the Company will remain uncertain about its ability to implement its current
business plan and about its future generally. This uncertainty may harm the
Company's business and may result in the loss of business opportunities that
may be otherwise pursued. Although the Company has entered into various
arrangements intended to preserve the attention and dedication of its
employees, including members of its senior management, as described below,
the Company's management team may be distracted from the day-to-day
operations of its business as a result of such uncertainty and some may
decide to leave their employment with the Company. The loss of their services
and their distraction could have a material adverse effect on the Company's
operations. In addition, the Company is incurring (and may continue to incur)
significant costs for financial advisory, legal and other consulting services
in exploring its strategic alternatives. As of September 30, 1999, the
Company incurred approximately $2,672,000 of these related costs and expects
to incur significant additional costs prior to the end of 1999.
On June 19, 1999, the Company adopted an Executive Severance Plan, a
Management Severance Plan and a Rank and File Severance Plan. These plans, as
subsequently amended as of July 23, 1999 (collectively, the "Plans"), are
intended to reinforce and encourage the continued attention and dedication of
the Company's employees to their assigned duties, as well as assist the
Company in recruiting new employees, notwithstanding the possibility, threat
or occurrence of a change in control of the Company. The Company believes
that the possibility or threat of a change in control inevitably creates
distractions, risks and
19
<PAGE>
uncertainties for its executives and other employees. Since the Company
considers it essential to the best interests of its shareholders to foster
the continuous employment of key management and other personnel, and since
the Company did not have any employment or other severance agreements with
any of its executives or employees that could have served such function, the
Company believes that the adoption of the Plans was an adequate mechanism by
which to promote an environment in which its executives and employees may
continue performing their duties without distraction.
For the same reasons cited above, on June 30, 1999, the Company entered into
Senior Executive Severance Agreements (the "Severance Agreements") with
certain of its most senior executives not otherwise entitled to participate
in the aforementioned Plans (i.e., J. David Martin, Joseph William Byrne,
James W. Gaube, Daniel B. Platt and Scott C. Verges (the "Senior
Executives")), whose leadership and management expertise is vital to the
continued operation of the Company's business. In general, the Severance
Agreements provide that in the event certain Terminating Events (as defined
in the Severance Agreements) occur with respect to a Senior Executive
following a Change in Control (as defined in the Severance Agreements), then
the Company shall pay the Senior Executive an aggregate of three times such
Senior Executive's then current annual base salary plus three times such
Senior Executive's then current target annual bonus. In addition, the
Severance Agreements provide for the continuation of certain health, dental
and life insurance and other welfare benefits for thirty-six (36) months,
provided that any such benefits are offset against any amounts payable under
any other Company plan. The Severance Agreements also provide for the
reimbursement of certain excise tax liabilities that may arise in connection
with the benefits provided pursuant thereto.
Effective as of August 1, 1999, the Company entered into Phantom Shares
Agreements (the "Phantom Agreements") with the Senior Executives. The Phantom
Share Awards (the "Phantom Awards") granted pursuant to the Phantom
Agreements, as subsequently amended as of November 11, 1999, are used solely
as a device for the measurement and determination of certain amounts to be
paid to the executive in lieu of granting additional equity interests. In
general, the Phantom Awards as amended vest upon a Change of Control (as
defined in the Phantom Agreements), or upon the death or disability of the
Senior Executive. At vesting, the Company must redeem the Phantom Awards at a
price per award equal to the fair market value of one share of the Company's
common stock as of the vesting date. In addition, on November 11, 1999,
66,667 shares of Phantom Awards were rescinded, which brings the total
adjusted number of Phantom Shares granted and outstanding to 479,259.
The above descriptions of the Rights Agreement, the Plans, the Severance
Agreements and the Phantom Agreements are not complete and are qualified in
their entirety by reference to such documents, all of which have been filed
as exhibits to reports of the Company on Form 8-K or herewith as it relates
to amendments to the Phantom Agreements.
On November 12, 1999, the Company announced that the Board of Directors had
instructed management and Goldman, Sachs & Co. to expand the scope of their
activities to include actively pursuing a full range of strategic
alternatives in order to maximize shareholder value. Separately, the Company
has commenced the active marketing of certain properties to provide the
Company with additional liquidity and financial flexibility.
Sales of Real Estate and Impairment Write-Offs:
On July 2, 1999, the Company sold its interest in four retail shopping
centers for approximately $44,400,000, resulting in a gain of approximately
$8,350,000. Proceeds were used to repay mortgage debt secured by the centers
sold, reduce borrowings under the Company's $5,000,000 unsecured Revolving
Credit Agreement with Union Bank and repay borrowings under the Company's
Credit Facility with Nomura Asset Capital Corporation.
On August 18, 1999, the Company sold its interest in a retail shopping center
for approximately $3,500,000, resulting in a gain of approximately
$1,149,000. Proceeds were used to repay borrowings under the Company's Credit
Facility.
20
<PAGE>
On October 28, 1999, the Company sold its interest in an office building for
approximately $19,250,000, resulting in a gain on sale of approximately
$71,000. During the second quarter of 1999, the Company took a one-time
impairment write-down of $1,200,000 in anticipation of this sale. Proceeds
were used to repay mortgage debt secured by the office building and repay
borrowings under the Company's Credit Facility. In connection with the sale
the Company received a lease termination payment of approximately $1,500,000.
At September 30, 1999, the adjusted net book value of this asset is reflected
as "Real Estate Held for Sale" on the consolidated balance sheet.
Subsequent to September 30, 1999, the Company has entered into a letter of
intent to sell its interest in the Marcoa office building. The Company
expects to receive sales proceeds of approximately $2,750,000, which will be
used to reduce the Company's senior bank debt. As a result, the Company took
a one-time impairment write-down of $1,000,000 during the third quarter of
1999. The net book value of the office building prior to the write-down was
approximately $3,660,000. The Marcoa building's net operating income for the
three month and nine month periods ended September 30, 1999 was $169,000 and
$508,000, respectively. At September 30, 1999, the adjusted net book value of
this asset is reflected as "Real Estate Held for Sale" on the consolidated
balance sheet.
Restructuring Charge:
On March 18, 1999, the Board of Directors of the Company approved the
Company's plan to restructure its internal operations to outsource its
property management function to third party providers. The Company estimated
and recorded in the first quarter of 1999 a restructuring charge of
$1,500,000. This outsourcing is expected to benefit the Company in several
ways. First, it enables the Company to more efficiently enter and exit
selected markets and assets as opportunities present themselves. This ability
is key to the Company's focus on maximizing the return on invested capital.
Secondly, it allows the Company to establish strategic relationships with
national property management companies as well as local providers. These
relationships should benefit the Company with increased opportunities and
improved services. Third, it allows the management team to focus more time on
value-added activities that will more directly impact the bottom line. The
outsourcing resulted in an approximately 26 percent reduction in the
Company's workforce and the closure of three of its property management
offices. The anticipated monthly recurring costs of outsourcing to third
party providers are approximately the same as the current recurring internal
costs ($250,000).
The restructuring charge is primarily attributable to personnel related costs
for the employees subject to the restructuring, and the costs associated with
reducing and eliminating offices, furniture and equipment. The personnel
related costs include severance benefits, the Company's portion of related
payroll taxes, insurance and 401(k) match. During the week of March 22, 1999,
all 37 employees in the Company's property management department were
notified of the terms of their benefits package. The personnel related costs
comprise approximately one-half ($750,000) of the total reserve.
The costs attributable to reducing and eliminating offices include lease
termination fees, rental losses for vacated office spaces (offset by sub-leases)
and tenant improvements and design fees attributable to abandoned office space.
The costs attributable to reducing and eliminating offices comprise
approximately one-third ($500,000) of the total reserve. The costs associated
with reducing and eliminating furniture and equipment include the write-off of
the net book value of the furniture and equipment for the terminated employees
to the extent that these assets could not be redeployed in other functional
areas of the Company. The costs attributable to eliminating the furniture and
equipment are approximately one-sixth ($250,000) of the total reserve.
21
<PAGE>
During the quarter ended September 30, 1999, the Company completed the hiring
of its third party providers, its planned reduction in workforce and the
process of closing its property management offices. It was determined during
the third quarter of 1999 that $120,000 of the reserve estimated for
personnel related costs was not necessary due to certain personnel leaving
prior to earning severance benefits and that $127,000 of the reserve
estimated for the write-off of furniture and equipment was not necessary due
to the redeployment of certain computers to other offices of the Company. In
addition, it was determined that $100,000 of additional reserve was needed
for office closures due to a change in the future value of sub-lease
payments. As a result of these changes in estimates, the Company reallocated
$100,000 of reserves from personnel related costs to office closures and
reversed $147,000 of the reserve during the quarter ended September 30, 1999.
The remaining reserve for personnel related costs ($30,000) represents funds
needed for consultants hired to assist with the transition to third party
managers. The remaining reserve for office closures ($341,000) represents
future obligated lease payments for corporate offices which were closed,
offset by future receipts for sub-leases entered into with the Company for
the related closed office spaces. The following table reflects the
composition of the Company's restructuring reserve, the expenditures applied
against it and the portion of the reserve reversed as of September 30, 1999:
<TABLE>
<CAPTION>
Original Restructuring
Restructuring Expenditures Reserve Reserve
Reserve Applied Reversed September 30,
1999
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Personnel Related Costs $ 750,000 $ (600,000) $(120,000) $30,000
Office Closures 500,000 (259,000) 100,000 341,000
Write-off of Furniture and Equipment 250,000 (123,000) (127,000) -
--------------- ---------------- --------------- ----------------
Total $1,500,000 $(982,000) $(147,000) $371,000
=============== ================ =============== ================
</TABLE>
Abandoned Acquisition Costs:
As noted above, during the three months ended March 31, 1999, the Company
recorded a $748,000 charge related to the abandonment of transactions in
process prior to the AMB portfolio acquisition.
FUNDS FROM OPERATIONS
September 30, 1999 and 1998:
The Company considers Funds from Operations ("FFO") to be a relevant
supplemental measure of the performance of an equity REIT because 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. Consistent with the standards established in the White
Paper on FFO approved by the Board of Governors of the National Association
of Real Estate Investment Trusts in March 1995, the Company defines FFO as
net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring, sales of property and non-recurring items,
plus real estate related depreciation and amortization and after adjustments
for unconsolidated partnerships and joint ventures. Management believes FFO
is helpful to investors as a measure of the performance of an equity REIT
because, along with cash flows from operating activities, financing
activities, and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital
22
<PAGE>
expenditures. The Company computes FFO in accordance with standards
established by the White Paper, which may differ from the methodology for
calculating FFO utilized by other equity REITs, and accordingly, may not be
comparable to such other REITs. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions, needed
capital replacements or expansions, debt service obligations, or other
commitments and uncertainties. The Company believes that in order to
facilitate a clear understanding of the combined historical operating results
of the Company, FFO should be examined in conjunction with net income as
presented in the consolidated financial statements and information included
elsewhere in this report.
For the three months ended September 30, 1999, FFO on a fully diluted basis
was $8,904,000 as compared to $14,092,000 for the same period in 1998.
Diluted FFO for the third quarter of 1999 does not assume the conversion of
the Company's convertible preferred stock and other common stock equivalents
because such conversion would be accretive to the Company. The remaining
decrease is a result of asset dispositions, asset contributions to BPP
Retail, LLC, a decrease in lease termination fees, and an increase in general
and administrative expenses, offset by fee income earned by BPP Retail, LLC.
For the nine months ended September 30, 1999, diluted FFO increased $998,000
as compared to the same period in 1998, primarily as a result of fee income
earned from BPP Retail, LLC and the acquisition of properties in 1998, offset
by asset dispositions, an increase in general and administrative expense, and
a decrease in lease termination fees.
The calculation of FFO for the respective periods is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income Available to Common Stockholders $9,122 $4,294 $11,834 $11,542
Adjustments:
Depreciation and Amortization of Real Estate and
Tenant Improvements 6,631 7,071 20,339 19,271
Cumulative Effect of Change in Accounting Principle - - 1,866 -
Restructuring Charge (147) - 1,353 -
Abandoned Acquisitions Costs - - 748 -
Costs Associated with Unsolicited Proposal and
Litigation 1,797 - 2,672 -
Impairment Write-offs 1,000 - 2,200 -
Gain on Sales of Real Estate (9,499) - (9,499) -
-------------- -------------- -------------- --------------
Funds from Operations-Basic $8,904 $11,365 $31,513 $30,813
Effect of Dilutive Securities:
Operating Partnership Units - 1,327 3,950 3,652
Convertible Preferred Stock - 1,400 4,200 4,200
-------------- -------------- -------------- --------------
Funds from Operations-Dilutive $8,904 $14,092 $39,663 $38,665
============== ============== ============== ==============
</TABLE>
The Company believes that the adjustments for costs associated with
unsolicited proposal and litigation, restructuring charges and abandoned
acquisition costs are appropriate FFO adjustments.
23
<PAGE>
The costs associated with unsolicited proposal and litigation relate to
certain events which were described elsewhere. Due to the unusual nature of
these events the Company believes that the related costs should be an
adjustment to FFO in order not to distort the comparative measurement of the
Company's performance.
As described elsewhere, the restructuring charge related to the Company's
decision to outsource its internal property management function to
third-party providers. The Company has traditionally provided all functions
necessary to run the business from internal sources. The Company previously
believed that a fully integrated company could operate more efficiently than
a company that relies on third party providers. Due to the Company's plans
for growth, the philosophy has changed. The Company believes that outsourcing
property management helps the Company be more efficient than having internal
property management. The restructuring plan requires the complete and
one-time elimination of the Company's property management function. The costs
incurred to complete the restructuring plan will not recur in future periods.
The abandoned acquisition costs relate to costs associated with projects that
the Company had to abandon in connection with its committing to the AMB
transactions and entering into a joint venture agreement with CalPERS. These
costs are unusual since the Company does not normally expend such costs until
it is reasonably assured that the associated properties will be acquired.
Also, these costs are nonrecurring since these costs will no longer be
incurred by the Company, but will be incurred by BPP Retail, LLC (the "Joint
Venture").
MATERIAL CHANGES IN FINANCIAL CONDITION
September 30, 1999 compared to December 31, 1998:
At September 30, 1999 and December 31, 1998, approximately $6,327,000 and
$5,567,000, respectively, of straight-lined rent escalations and free rent
are included in other assets.
The Company has a $205,000,000 Credit Facility with Nomura Asset Capital
Corporation 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. At
September 30, 1999 and December 31, 1998, the weighted average rate of
interest on line of credit advances was approximately 6.84% and 7.07%,
respectively. The Credit Facility is scheduled to mature on November 18,
1999. At September 30, 1999, borrowings of approximately $100,100,000 were
outstanding under the secured portion of the Credit Facility and $69,982,000
were outstanding under the unsecured portion. The lender has notified the
Company that, due to a change in strategic focus, it intends to liquidate its
line of credit business in 1999 and, therefore, would not entertain a request
to renew the Credit Facility at maturity. The Company intends to refinance
the Credit Facility with another lender prior to the maturity date.
The Company is in the process of negotiating with an institutional lender for
a new credit facility (the "Replacement Facility") that would replace the
existing Credit Facility as well as provide the Company with additional
working capital availability. It is expected that the Replacement Facility
will be secured by certain assets of the Company and its subsidiaries,
including 24 properties, and will bear interest at a higher rate than the
existing Credit Facility. Management of the Company believes that the process
for implementing the Replacement Facility can be completed prior to the
maturity date of the existing Credit Facility. However, the Replacement
Facility may not be in place prior to such maturity date. The lender under
the proposed Replacement Facility is not obligated to enter into it and it is
subject to numerous closing conditions, including a requirement that the
mortgages and other security interests in favor of the lender be in place.
Therefore, no assurance can be given as to when the Replacement Facility will
be available, if at all.
To date, the lender under the existing Credit Facility has been unwilling to
grant any extension of that facility beyond its current maturity date. Absent
such an extension, the failure of the Company to repay its obligations under
the existing Credit Facility in full on November 18, 1999 would give rise to
a default under that facility. In addition to any other remedies that the
lender may have against the Company, including the right to foreclose on the
collateral, the interest rate payable on the amounts outstanding under the
Credit Facility would increase by five percentage points. Moreover, such a
default would constitute a cross-default under other existing credit
arrangements to which the Company and/or its subsidiaries are parties. No
assurances can be given regarding the availability or terms of additional
capital for the Company in the future and no assurances can be given
regarding the Company's ability to successfully refinance or extend the
maturity of existing indebtedness. If the Company is unable to obtain an
extension of the maturity of the existing Credit Facility, is unable to
successfully refinance its existing indebtedness, or is unable to secure
additional sources of financing in the future, no assurance can be given that
the Company will be able to meet its financial obligations as they come due
without the substantial disposition of assets, restructuring of debt,
externally forced revisions of its operations or similar actions.
Additionally, no assurances can be given that the lack of future financing
would not have a material adverse effect on the Company's financial condition
and results of operations.
During January 1999, the Company entered into a $5,000,000 unsecured
Revolving Credit Agreement with a bank. Outstanding borrowings accrue
interest at LIBOR plus 2.00% or prime. The Company had no outstanding
borrowings under this Revolving Credit Agreement as of September 30, 1999.
This facility is scheduled to mature on November 18, 1999.
24
<PAGE>
On April 1, 1999, the Company contributed three retail properties valued at
approximately $22,800,000 into BPP Retail, LLC (the joint venture between the
Company and CalPERS - the "Joint Venture").
Simultaneously, the put option contained in the Agreement Regarding
Contribution of Certain Properties and Put Options entered into in December
1998 between the Company's Operating Partnership and the Joint Venture
expired. The purpose of the option was to permit the Company's Operating
Partnership to contribute two retail properties (the "Contributed Projects")
into the Joint Venture even though CalPERS had not received all the required
information (such as appraisals) to approve or disapprove the contribution.
When the option agreement was entered into, the Joint Venture provided the
Operating Partnership approximately $22,195,000 (the "Net Asset Value") in
exchange for the economic interests in the Contributed Projects.
On June 15, 1999, the Joint Venture obtained a $421,000,000 Credit Facility of
which $171,000,000 is supported by the Joint Venture partners' commitment to
contribute additional equity to the Joint Venture by December 31, 2000 and
$250,000,000 is unsecured. The Joint Venture's Credit Facility bears interest
at rates of Eurodollar plus 1.00% or prime for secured borrowings or
Eurodollar plus 1.38% or prime for unsecured borrowings. At September 30,
1999, the average rate of interest on the Joint Venture's Credit Facility
advances was approximately 6.5%. The secured facility is scheduled to mature
in December 2000. The unsecured facility is scheduled to mature in June
2000.
On June 15, 1999, the Joint Venture completed the acquisition of nine retail
shopping centers contained in the first phase of the AMB Portfolio. The
purchase price was approximately $207,400,000. The acquisition of the
portfolio was financed primarily by $182,500,000 of borrowings under the
Joint Venture's Credit Facility with the balance coming from CalPERS
contributed capital. In connection with the closing of the first phase of the
AMB Portfolio, the Company granted to CalPERS an option expiring June 30,
2000 to purchase 1 million shares of Common Stock of the Company at an
exercise price of $15.375 per share. The value of the option as of the date
of grant was estimated to be approximately $234,000 and was included in
investment in unconsolidated subsidiaries on the consolidated balance sheet
of the Company.
On June 15, 1999, the Company contributed one additional retail shopping
center valued at approximately $15,900,000 into the Joint Venture.
On August 4, 1999, the Joint Venture completed the acquisition of twelve
retail shopping centers contained in the second phase of the AMB Portfolio.
The purchase price was approximately $246,000,000. The acquisition of the
portfolio was financed primarily by $121,000,000 of borrowings under the
Joint Venture's Credit Facility, with the remaining balance coming from
CalPERS contributed capital.
On August 26, 1999, the Joint Venture completed the acquisition of a retail
shopping center. The purchase price was approximately $17,600,000. The
acquisition of the shopping center was financed primarily from CalPERS
contributed capital.
At September 30, 1999, the Company's equity interest in the Joint Venture was
approximately 11.23%. The Company accounts for its investment using the
equity method of accounting.
On June 1, 1999, the operating agreement of BPP Retail, LLC, the Company's
Joint Venture with CalPERS, was amended to expand the permitted geographical
scope of the Joint Venture's investments from the western United States to
nationwide, in order to permit the acquisition of properties in the AMB
Portfolio. In addition, effective June 1, 1999, a newly formed limited
25
<PAGE>
liability company, Burnham Pacific Employees LLC ("BP Employees LLC"), was
appointed the Manager of BPP Retail, LLC. The Operating Partnership is the
sole Managing Member of BP Employees LLC, and certain members of the
Company's management ("Employee Members") hold non-managing membership
interests in BP Employees LLC. Under the terms of the BPP Retail, LLC joint
venture, the Manager of BPP Retail, LLC is entitled to an incentive
distribution ("Incentive Distribution") calculated on an annual basis. The
right to Incentive Distributions is based and contingent upon, among other
things, appreciation in the value of the BPP Retail, LLC assets over a
calculated threshold during each year. Under the terms of the BP Employees
LLC limited liability company agreement, one-half of any Incentive
Distribution received by BP Employees LLC will be distributed to the
Operating Partnership and one-half will be distributed to the Employee
Members.
During the nine months ended September 30, 1999, the Company's Operating
Partnership earned asset and property management, leasing and acquisition
fees from the Joint Venture totaling approximately $3,964,000.
At September 30, 1999, the Company had $5,097,000 outstanding under a
construction loan, secured by one of the Company's properties. Borrowings
under this loan bear interest at LIBOR (London Inter-Bank Offered Rates) plus
1.90% or at prime plus .50%. As of September 30, 1999, the rate of interest is
approximately 7.19%. The loan matures in December 1999.
In May 1999, the Company obtained a $55,000,000 construction loan, secured by
one of the Company's development properties. Borrowings under this loan bear
interest at LIBOR plus 2.00% or prime. The loan is scheduled to mature in
November 2000. The initial draw in May 1999 of approximately $18,400,000 was
used to reduce borrowings under the Company's Credit Facility. The balance
outstanding at September 30, 1999 was approximately $28,002,000 with an
average interest rate of approximately 7.13%.
The debt outstanding (exclusive of approximately $318,162,000 of debt in
unconsolidated subsidiaries) on September 30, 1999 and related weighted
average rate were $575,852,000 and 7.35% respectively, compared to
$576,808,000 and 7.56% on September 30, 1998. Interest capitalized in
conjunction with development and expansion projects was approximately
$1,514,000 and $3,874,000 for the three and nine months ended September 30,
1999, respectively, as compared to approximately $1,731,000 and $4,877,000
for the same periods in 1998.
At September 30, 1999, the Company's capitalization consisted of $575,852,000
of debt (excluding the Company's proportionate share of joint venture debt
which is approximately $37,749,000), $120,000,000 of preferred stock and
preferred Operating Partnership units, and $357,754,000 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 Operating Partnership other than the Company,
multiplied by (ii) the closing price of the shares of Common Stock on the New
York Stock Exchange at September 30, 1999 of $10.56), resulting in a debt to
total market capitalization ratio of .55 to 1.0 compared to the ratio of .52
to 1.0 at December 31, 1998. At September 30, 1999, the Company's total debt
consisted of $356,048,000 of fixed rate debt, and $219,804,000 of variable
rate debt.
26
<PAGE>
At September 30, 1999, 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.
YEAR 2000 READINESS
The Company has substantially completed its Year 2000 evaluation of the
systems used to run property operating systems such as security, energy,
elevator and safety systems as well as the software and hardware used to run
the Company's information systems. The Company will continue to identify and
monitor Year 2000 issues throughout the end of the year. The Company will
continue to test the time-sensitive property level systems that it has been
informed are believed to be Year 2000 ready and will reprogram or replace the
systems found not to be Year 2000 ready before the end of the year. The
Company does not believe that the costs associated with becoming Year 2000
ready will exceed $250,000.
The manufacturer of the accounting software that the Company uses has
indicated that its software is Year 2000 ready, and the Company has installed
this software during the second quarter of 1999. The Company has tested this
accounting software during the third quarter of 1999, and believes it to be
Year 2000 ready. The Company has hired a Year 2000 consulting firm to test
the Company's information systems. During the second quarter of 1999, the
consultant evaluated, assessed and tested both the Company's hardware and
other software systems. The consultant concluded that the hardware and other
software was substantially Year 2000 ready but required minor modifications.
These modifications and/or upgrades were obtained from the computer
manufacturers and were installed prior to the end of the third quarter.
The Company's ability to complete all Year 2000 modifications prior to any
anticipated impact on its operating systems is based on assumptions of future
events and depends upon the ability of third party manufacturers to make
necessary modifications to current versions of their products, the
availability of resources to install and test the modified systems and other
factors. Accordingly, these modifications may not be successful.
Even if all of the Company's systems are Year 2000 ready, its business
could still be disrupted if its tenants, business partners, suppliers and
other parties are not ready. The Company is currently surveying and
monitoring its material vendors and tenants regarding the Year 2000 readiness
status of their computer hardware and software systems. Informational letters
were sent to all of the Company's tenants advising them of the Year 2000
issue in the fourth quarter of 1998. Also in the fourth quarter of 1998, the
Company's Year 2000 survey was sent to its material tenants. Responses to the
survey were returned to the Company beginning in the first quarter of 1999.
To date, approximately 71% of those surveyed have responded, and there have
been no major deficiencies noted. The Company's survey was sent to its
material vendors, including its landlords, in the fourth quarter of 1998.
Responses to the survey were returned to the Company beginning in the first
quarter of 1999. To date, approximately 83% of those surveyed have
responded, and there have been no major deficiencies noted. The Company will
continue to review the results of these surveys, assess the impact of the
results on its operations and take whatever action it deems necessary.
Testing may be required for several, but not all, third parties. Test
strategies and schedules will be unique to each situation once the Company
understands the respective requirements and readiness levels. The Company's
business
27
<PAGE>
could be harmed if other entities, including governmental units and utility
companies, that provide services to the Company's properties, tenants and
customers fail to be Year 2000 ready. Accordingly, in addition to its
significant tenants, the Company is seeking to ascertain the Year 2000
readiness of:
- - each utility company servicing each property; and
- - each city, town, county or other governmental unit providing police, fire,
traffic control and other governmental services relevant to the efficient
operation of the property.
The Company's survey was sent to such utility companies and governmental
units during the first quarter of 1999. To date, approximately 91% of those
surveyed have responded and there have been no major discrepancies noted.
After the Company surveys the Year 2000 readiness of other parties, it
intends to determine if it will need any contingency plans to deal with the
non-readiness of others. At the present time, the Company does not believe
that Year 2000 non-readiness of tenants is likely to have any significant
effect on it and its operations. However, if a major tenant of any of its
properties is not Year 2000 ready, its business could suffer, which in turn
could result in:
- - that tenant's inability to pay rent; and
- - a decrease in customer traffic and business of other tenants at that
property.
The Company does not anticipate that it will need contingency plans to deal
with tenant non-readiness. However, the Company does recognize that it may
need to develop contingency plans to provide for the continued operation of
one or more individual properties whose suppliers of services necessary for
the efficient operation of the property may not be fully Year 2000 ready by
January 1, 2000. The Company believes that the most reasonable worst-case
year 2000 scenario that may affect its business would be a prolonged failure
of a supplier of these services, particularly utility services, that may harm
operations of one or several of its tenants.
28
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On June 23, 1999 (and subsequently amended on September 17, 1999), a class
action lawsuit was filed in the Superior Court of the State of California,
County of San Diego, against the Company and its Board of Directors. The
complaint was purportedly filed on behalf of the public shareholders of the
Company and alleges that the Board of Directors violated their fiduciary
duties to the Company's shareholders by adopting a shareholder rights
agreement, failing to respond to the Schottenstein proposal and adopting
severance and other compensatory arrangements. The plaintiffs seek, among
other relief, to enjoin the adoption of the shareholder rights agreement. The
Company believes the complaint is without merit and intends to vigorously
defend against the lawsuit. However, there can be no assurance that such
defense will be successful. If the Company does not prevail, the suit could
render the shareholder rights plan ineffective, thereby making the Company
more vulnerable to unsolicited acquisition proposals and increasing the
possibility that the Company will have to allocate material amounts of
financial and management resources to protect the Company from unwanted
takeover attempts that may not maximize shareholder value.
ITEM 2. CHANGES IN SECURITIES:
During the three months ended September 30, 1999, 290,196 units of the
Operating Partnership of which the Company is the general partner, tendered
for redemption and the Company issued 290,196 shares of common stock in
exchange therefor. No registration statement was necessary as the issuance did
not involve a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not Applicable.
ITEM 5. OTHER INFORMATION:
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following Exhibits are part of this report:
10.1 Burnham Pacific Properties, Inc. Executive Severance Plan,
dated as of June 19, 1999 (the "Executive Severance Plan").
(Incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K filed with the SEC on August 9, 1999.)
10.2 First Amendment to the Executive Severance Plan, dated as of
July 23, 1999. (Incorporated by reference to Exhibit 10.2 to
the Company's Form 8-K filed with the SEC on August 9, 1999.)
10.3 Burnham Pacific Properties, Inc. Management Severance Plan,
dated as of June 19, 1999 (the "Management Severance Plan").
(Incorporated by reference to Exhibit 10.3 to the Company's
Form 8-K filed with the SEC on August 9, 1999).
29
<PAGE>
10.4 First Amendment to the Management Severance Plan, dated as of
July 23, 1999. (Incorporated by reference to Exhibit 10.4 to
the Company's Form 8-K filed with the SEC on August 9, 1999.)
10.5 Burnham Pacific Properties, Inc. Rank and File Severance Plan,
dated as of June 19, 1999 (the "Rank and File Severance
Plan"). (Incorporated by reference to Exhibit 10.5 to the
Company's Form 8-K filed with the SEC on August 9, 1999.)
10.6 First Amendment to the Rank and File Severance Plan, dated as
of July 23, 1999. (Incorporated by reference to Exhibit 10.6
to the Company's Form 8-K filed with the SEC on August 9,
1999).
10.7 Senior Executive Severance Agreement, dated as of June 30,
1999, between Burnham Pacific Properties, Inc. and J. David
Martin. (Incorporated by reference to Exhibit 10.7 to the
Company's Form 8-K filed with the SEC on August 9, 1999.)
10.8 Senior Executive Severance Agreement, dated as of June 30,
1999, between Burnham Pacific Properties, Inc. and Joseph
William Byrne. (Incorporated by reference to Exhibit 10.8 to
the Company's Form 8-K filed with the SEC on August 9, 1999.)
10.9 Senior Executive Severance Agreement, dated as of June 30,
1999, between Burnham Pacific Properties, Inc. and James W.
Gaube. (Incorporated by reference to Exhibit 10.9 to the
Company's Form 8-K filed with the SEC on August 9, 1999.)
10.10 Senior Executive Severance Agreement, dated as of June 30,
1999, between Burnham Pacific Properties, Inc. and Daniel B.
Platt. (Incorporated by reference to Exhibit 10.10 to the
Company's Form 8-K filed with the SEC on August 9, 1999.)
10.11 Senior Executive Severance Agreement, dated as of June 30,
1999, between Burnham Pacific Properties, Inc. and Scott C.
Verges. (Incorporated by reference to Exhibit 10.11 to the
Company's Form 8-K filed with the SEC on August 9, 1999.)
10.12 Phantom Shares Agreement, dated as of August 1, 1999, between
Burnham Pacific Properties, Inc. and J. David Martin.
(Incorporated by reference to Exhibit 10.12 to the Company's
Form 8-K filed with the SEC on August 9, 1999.)
10.13 Phantom Shares Agreement, dated as of August 1, 1999, between
Burnham Pacific Properties, Inc. and J. David Martin.
(Incorporated by reference to Exhibit 10.13 to the Company's
Form 8-K filed with the SEC on August 9, 1999.)
10.14 Phantom Shares Agreement, dated as of August 1, 1999, between
Burnham Pacific Properties, Inc. and J. David Martin.
(Incorporated by reference to Exhibit 10.14 to the Company's
Form 8-K filed with the SEC on August 9, 1999.)
10.15 Phantom Shares Agreement, dated as of August 1, 1999, between
Burnham Pacific Properties, Inc. and Joseph William Byrne.
(Incorporated by reference to Exhibit 10.15 to the Company's
Form 8-K filed with the SEC on August 9, 1999.)
10.16 Phantom Shares Agreement, dated as of August 1, 1999, between
Burnham Pacific Properties, Inc. and James W. Gaube.
(Incorporated by reference to Exhibit 10.16 to the Company's
Form 8-K filed with the SEC on August 9, 1999.)
30
<PAGE>
10.17 Phantom Shares Agreement, dated as of August 1, 1999, between
Burnham Pacific Properties, Inc. and Daniel B. Platt.
(Incorporated by reference to Exhibit 10.17 to the Company's
Form 8-K filed with the SEC on August 9, 1999.)
10.18 Phantom Shares Agreement, dated as of August 1, 1999, between
Burnham Pacific Properties, Inc. and Scott C. Verges.
(Incorporated by reference to Exhibit 10.18 to the Company's
Form 8-K filed with the SEC on August 9, 1999.)
*10.19 First Amendment to Phantom Shares Agreement, dated as of
November 11, 1999, between Burnham Pacific Properties, Inc.
and J. David Martin.
*10.20 First Amendment to Phantom Shares Agreement, dated as of
November 11, 1999, between Burnham Pacific Properties, Inc.
and J. David Martin.
*10.21 Phantom Shares Rescission Agreement, dated as of November 11,
1999, between Burnham Pacific Properties, Inc. and J. David
Martin.
*10.22 First Amendment to Phantom Shares Agreement, dated as of
November 11, 1999, between Burnham Pacific Properties, Inc.
and Daniel B. Platt.
*10.23 First Amendment to Phantom Shares Agreement, dated as of
November 11, 1999, between Burnham Pacific Properties, Inc.
and Joseph William Byrne.
*10.24 First Amendment to Phantom Shares Agreement, dated as of
November 11, 1999, between Burnham Pacific Properties, Inc.
and James W. Gaube.
*10.25 First Amendment to Phantom Shares Agreement, dated as of
November 11, 1999, between Burnham Pacific Properties, Inc.
and Scott C. Verges.
*27.1 Financial Data Schedule.
*Filed Herewith
(b) The following reports on Form 8-K were filed during or with respect to
matters occurring within the period covered by this report:
Form 8-K Report filed July 30, 1999 (earliest event reported July 13,
1999): Item 5, regarding the letter sent to Schottenstein Stores
Corporation, dated July 23, 1999, stating that the Board had decided
that it is not interested in pursuing discussions with Schottenstein.
Form 8-K Report filed August 9, 1999 (earliest event reported June 19,
1999): Item 5, regarding employee retention program.
Form 8-K Report filed September 14, 1999 (earliest event reported
September 13, 1999): Item 5, regarding a letter from the Company
addressed to its shareholders.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURNHAM PACIFIC PROPERTIES, INC.
Date: //November 15, 1999// By: /s/ J. DAVID MARTIN
----------------------------- --------------------------------
J. David Martin, Chief Executive
Officer
Date: //November 15, 1999// By: /s/DANIEL B. PLATT
----------------------------- --------------------------------
Daniel B. Platt, Chief Financial
Officer
32
<PAGE>
Exhibit 10.19
FIRST AMENDMENT
TO
PHANTOM SHARES AGREEMENT
WHEREAS Burnham Pacific Properties, Inc., a corporation organized under
the laws of Maryland (the "Company), awarded to J. David Martin (the
"Executive") a Phantom Shares Award as of August 1, 1999, covering the right
to receive 237,037 Phantom Shares (the "Incentive Award");
WHEREAS the Incentive Award was subject to such terms and conditions as
set forth in the Phantom Shares Agreement dated as of August 1, 1999, by and
between the Company and the Executive (the "Agreement");
WHEREAS the Incentive Award was made principally to provide a long-term
incentive to the Executive to continue to provide services to the Company and
to further align his interests with the interests of the Company's
stockholders;
WHEREAS the Executive believes that the financial performance of the
Company has not been up to the level expected at the time the Incentive Award
was granted and that had such performance been foreseen, the Incentive Award
may not have been made on the terms set forth in the Agreement;
WHEREAS the Company believes that, while the Compensation Committee of
the Board of Directors may wish to revisit the establishment of a long term
incentive program at some later date, modification of the terms of the
Agreement at this time is appropriate; and
WHEREAS the Executive and the Company believe that in light of the
foregoing it is in the best interests of the Company and the Company's
stockholders to amend the terms of the Incentive Award as described herein to
limit the circumstances when the Phantom Shares can vest;
NOW, THEREFORE, the Executive and the Company agree to amend the
Agreement, effective as of the date hereof, as follows:
1. Section 2 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"2. VESTING OF AWARD. This Award shall become vested and nonforfeitable
as described in Section 3."
2. Section 3a of the Agreement is hereby deleted in its entirety and
replaced with the following:
"a. TERMINATION OF EMPLOYMENT. If the Participant's employment by the
Company or any of its subsidiaries or affiliates (an "Affiliate")
is terminated for any reason prior to the occurrence of one of the
events described in b, c or d below, the Participant shall forfeit
all Phantom Shares."
3. Section 3b of the Agreement is deleted in its entirety and replaced
with the following:
<PAGE>
"b. TERMINATION DUE TO DEATH. If the Participant's employment
terminates by reason of death, the Participant's estate shall
become fully vested in all the Phantom Shares."
4. Section 3c of the Agreement is deleted in its entirety and replaced
with the following:
"c. TERMINATION DUE TO DISABILITY. If the Participant's employment
terminates by reason of disability (as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code")), the
Participant shall become fully vested in all the Phantom Shares."
5. Section 3d of the Agreement is hereby amended by deleting the first
sentence thereof and replacing it with the following:
"The Participant shall become fully vested in all the Phantom Shares
upon the occurrence of a Change in Control."
6. Section 5.1 is hereby amended by deleting the last sentence thereof.
7. The first sentence of Section 5.2 of the Agreement is hereby
amended by deleting the word "Committee" therein and replacing it with "the
Compensation Committee of the Board of Directors (the "Committee")."
8. Except as so amended, the Agreement is hereby confirmed in all
other respects.
IN WITNESS WHEREOF, this First Amendment has been executed as a sealed
instrument by a duly authorized officer of the Company and by the Executive
this 11th day of November, 1999.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ J. David Martin
------------------------------
Name: J. David Martin
Title: Chief Executive Officer
2
<PAGE>
Exhibit 10.20
FIRST AMENDMENT
TO
PHANTOM SHARES AGREEMENT
WHEREAS Burnham Pacific Properties, Inc., a corporation organized under
the laws of Maryland (the "Company), awarded to J. David Martin (the
"Executive") a Phantom Shares Award as of August 1, 1999, covering the right
to receive 122,222 Phantom Shares (the "Incentive Award");
WHEREAS the Incentive Award was subject to such terms and conditions as
set forth in the Phantom Shares Agreement dated as of August 1, 1999, by and
between the Company and the Executive (the "Agreement");
WHEREAS the Incentive Award was made principally to provide a long-term
incentive to the Executive to continue to provide services to the Company and
to further align his interests with the interests of the Company's
stockholders;
WHEREAS the Executive believes that the financial performance of the
Company has not been up to the level expected at the time the Incentive Award
was granted and that had such performance been foreseen, the Incentive Award
may not have been made on the terms set forth in the Agreement;
WHEREAS the Company believes that, while the Compensation Committee of
the Board of Directors may wish to revisit the establishment of a long term
incentive program at some later date, modification of the terms of the
Agreement at this time is appropriate; and
WHEREAS the Executive and the Company believe that in light of the
foregoing it is in the best interests of the Company and the Company's
stockholders to amend the terms of the Incentive Award as described herein to
limit the circumstances when the Phantom Shares can vest;
NOW, THEREFORE, the Executive and the Company agree to amend the
Agreement, effective as of the date hereof, as follows:
1. Section 2 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"2. VESTING OF AWARD. This Award shall become vested and nonforfeitable
as described in Section 3."
2. Section 3a of the Agreement is hereby deleted in its entirety and
replaced with the following:
"a. TERMINATION OF EMPLOYMENT. If the Participant's employment by the
Company or any of its subsidiaries or affiliates (an "Affiliate")
is terminated for any reason prior to the occurrence of one of the
events described in b, c or d below, the Participant shall forfeit
all Phantom Shares."
3. Section 3b of the Agreement is deleted in its entirety and replaced
with the following:
<PAGE>
"b. TERMINATION DUE TO DEATH. If the Participant's employment terminates
by reason of death, the Participant's estate shall become fully vested
in all the Phantom Shares."
4. Section 3c of the Agreement is deleted in its entirety and replaced
with the following:
"c. TERMINATION DUE TO DISABILITY. If the Participant's employment
terminates by reason of disability (as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code")), the
Participant shall become fully vested in all the Phantom Shares."
5. Section 3d of the Agreement is hereby amended by deleting the first
sentence thereof and replacing it with the following:
"The Participant shall become fully vested in all the Phantom Shares
upon the occurrence of a Change in Control."
6. Section 5.1 is hereby amended by deleting the last sentence thereof.
7. The first sentence of Section 5.2 of the Agreement is hereby
amended by deleting the word "Committee" therein and replacing it with "the
Compensation Committee of the Board of Directors (the "Committee")."
8. Except as so amended, the Agreement is hereby confirmed in all
other respects.
IN WITNESS WHEREOF, this First Amendment has been executed as a sealed
instrument by a duly authorized officer of the Company and by the Executive
this 11th day of November, 1999.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ J. David Martin
------------------------------
Name: J. David Martin
Title: Chief Executive Officer
2
<PAGE>
Exhibit 10.21
Burnham Pacific Properties, Inc.
Phantom Shares Rescission Agreement
WHEREAS Burnham Pacific Properties, Inc., a corporation organized under
the laws of Maryland (the "Company), awarded to J. David Martin (the
"Executive") a Phantom Shares Award as of August 1, 1999, covering the right
to receive 66,667 Phantom Shares (the "1999 Award");
WHEREAS the 1999 Award was subject to such terms and conditions as set
forth in the Phantom Shares Agreement dated as of August 1, 1999, by and
between the Company and the Executive;
WHEREAS the 1999 Award was made to reward the Executive for his
performance during 1999 as measured by the Company's financial results;
WHEREAS the Executive believes that the Company's financial results for
1999 have not been, and are not expected to be, up to the level expected at
the time the 1999 Award was granted and that had such financial performance
been foreseen, the 1999 Award may not have been made;
WHEREAS the Executive believes that in light of the foregoing it is in
the best interests of the Company and the Company's stockholders to rescind
the 1999 Award as described herein; and
WHEREAS the Company is willing to agree to such rescission;
NOW, THEREFORE, the Executive and the Company agree as follows:
1. The 1999 Award is hereby rescinded in its entirety effective as of the
date hereof.
2. The Executive acknowledges that he has no further rights to the 1999
Award, and that he has not relied on any representations by the
Company or any individual concerning the meaning of this Agreement
or any matters relating to this Agreement.
1
<PAGE>
3. All underlying agreements representing the 1999 Award will be returned
to the Company.
Agreed to this 11th day of November, 1999 by and between the Company and
the Executive.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ J. David Martin
----------------------------------
J. David Martin
Title: Chief Executive Officer
-------------------------------
2
<PAGE>
Exhibit 10.22
FIRST AMENDMENT
TO
PHANTOM SHARES AGREEMENT
WHEREAS Burnham Pacific Properties, Inc., a corporation organized under
the laws of Maryland (the "Company), awarded to Daniel B. Platt (the
"Executive") a Phantom Shares Award as of August 1, 1999, covering the right
to receive 30,000 Phantom Shares (the "Incentive Award");
WHEREAS the Incentive Award was subject to such terms and conditions as
set forth in the Phantom Shares Agreement dated as of August 1, 1999, by and
between the Company and the Executive (the "Agreement");
WHEREAS the Incentive Award was made principally to provide a long-term
incentive to the Executive to continue to provide services to the Company and
to further align his interests with the interests of the Company's
stockholders;
WHEREAS the Executive believes that the financial performance of the
Company has not been up to the level expected at the time the Incentive Award
was granted and that had such performance been foreseen, the Incentive Award
may not have been made on the terms set forth in the Agreement;
WHEREAS the Company believes that, while the Compensation Committee of
the Board of Directors may wish to revisit the establishment of a long term
incentive program at some later date, modification of the terms of the
Agreement at this time is appropriate; and
WHEREAS the Executive and the Company believe that in light of the
foregoing it is in the best interests of the Company and the Company's
stockholders to amend the terms of the Incentive Award as described herein to
limit the circumstances when the Phantom Shares can vest;
NOW, THEREFORE, the Executive and the Company agree to amend the
Agreement, effective as of the date hereof, as follows:
1. Section 2 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"2. VESTING OF AWARD. This Award shall become vested and nonforfeitable
as described in Section 3."
2. Section 3a of the Agreement is hereby deleted in its entirety and
replaced with the following:
"a. TERMINATION OF EMPLOYMENT. If the Participant's employment by the
Company or any of its subsidiaries or affiliates (an "Affiliate") is
terminated for any reason prior to the occurrence of one of the
events described in b, c or d below, the Participant shall forfeit
all Phantom Shares."
3. Section 3b of the Agreement is deleted in its entirety and replaced
with the following:
<PAGE>
"b. TERMINATION DUE TO DEATH. If the Participant's employment terminates
by reason of death, the Participant's estate shall become fully vested
in all the Phantom Shares."
4. Section 3c of the Agreement is deleted in its entirety and replaced
with the following:
"c. TERMINATION DUE TO DISABILITY. If the Participant's employment
terminates by reason of disability (as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code")), the
Participant shall become fully vested in all the Phantom Shares."
5. Section 3d of the Agreement is hereby amended by deleting the first
sentence thereof and replacing it with the following:
"The Participant shall become fully vested in all the Phantom Shares
upon the occurrence of a Change in Control."
6. Section 5.1 is hereby amended by deleting the last sentence thereof.
7. The first sentence of Section 5.2 of the Agreement is hereby
amended by deleting the word "Committee" therein and replacing it with "the
Compensation Committee of the Board of Directors (the "Committee")."
8. Except as so amended, the Agreement is hereby confirmed in all
other respects.
IN WITNESS WHEREOF, this First Amendment has been executed as a sealed
instrument by a duly authorized officer of the Company and by the Executive
this 11th day of November, 1999.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ Daniel B. Platt
------------------------------
Name: Daniel B. Platt
Title: Chief Financial Officer
2
<PAGE>
Exhibit 10.23
FIRST AMENDMENT
TO
PHANTOM SHARES AGREEMENT
WHEREAS Burnham Pacific Properties, Inc., a corporation organized under
the laws of Maryland (the "Company), awarded to Joseph William Byrne (the
"Executive") a Phantom Shares Award as of August 1, 1999, covering the right
to receive 30,000 Phantom Shares (the "Incentive Award");
WHEREAS the Incentive Award was subject to such terms and conditions as
set forth in the Phantom Shares Agreement dated as of August 1, 1999, by and
between the Company and the Executive (the "Agreement");
WHEREAS the Incentive Award was made principally to provide a long-term
incentive to the Executive to continue to provide services to the Company and
to further align his interests with the interests of the Company's
stockholders;
WHEREAS the Executive believes that the financial performance of the
Company has not been up to the level expected at the time the Incentive Award
was granted and that had such performance been foreseen, the Incentive Award
may not have been made on the terms set forth in the Agreement;
WHEREAS the Company believes that, while the Compensation Committee of
the Board of Directors may wish to revisit the establishment of a long term
incentive program at some later date, modification of the terms of the
Agreement at this time is appropriate; and
WHEREAS the Executive and the Company believe that in light of the
foregoing it is in the best interests of the Company and the Company's
stockholders to amend the terms of the Incentive Award as described herein to
limit the circumstances when the Phantom Shares can vest;
NOW, THEREFORE, the Executive and the Company agree to amend the
Agreement, effective as of the date hereof, as follows:
1. Section 2 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"2. VESTING OF AWARD. This Award shall become vested and nonforfeitable
as described in Section 3."
2. Section 3a of the Agreement is hereby deleted in its entirety and
replaced with the following:
"a. TERMINATION OF EMPLOYMENT. If the Participant's employment by the
Company or any of its subsidiaries or affiliates (an "Affiliate")
is terminated for any reason prior to the occurrence of one of the
events described in b, c or d below, the Participant shall forfeit
all Phantom Shares."
3. Section 3b of the Agreement is deleted in its entirety and replaced
with the following:
<PAGE>
"b. TERMINATION DUE TO DEATH. If the Participant's employment
terminates by reason of death, the Participant's estate shall
become fully vested in all the Phantom Shares."
4. Section 3c of the Agreement is deleted in its entirety and replaced
with the following:
"c. TERMINATION DUE TO DISABILITY. If the Participant's employment
terminates by reason of disability (as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code")), the
Participant shall become fully vested in all the Phantom Shares."
5. Section 3d of the Agreement is hereby amended by deleting the first
sentence thereof and replacing it with the following:
"The Participant shall become fully vested in all the Phantom Shares
upon the occurrence of a Change in Control."
6. Section 5.1 is hereby amended by deleting the last sentence thereof.
7. The first sentence of Section 5.2 of the Agreement is hereby
amended by deleting the word "Committee" therein and replacing it with "the
Compensation Committee of the Board of Directors (the "Committee")."
8. Except as so amended, the Agreement is hereby confirmed in all
other respects.
IN WITNESS WHEREOF, this First Amendment has been executed as a sealed
instrument by a duly authorized officer of the Company and by the Executive
this 11th day of November, 1999.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ Joseph William Byrne
------------------------------
Name: Joseph William Byrne
Title: Chief Operating Officer
2
<PAGE>
Exhibit 10.24
FIRST AMENDMENT
TO
PHANTOM SHARES AGREEMENT
WHEREAS Burnham Pacific Properties, Inc., a corporation organized under
the laws of Maryland (the "Company), awarded to James W. Gaube (the
"Executive") a Phantom Shares Award as of August 1, 1999, covering the right
to receive 30,000 Phantom Shares (the "Incentive Award");
WHEREAS the Incentive Award was subject to such terms and conditions as
set forth in the Phantom Shares Agreement dated as of August 1, 1999, by and
between the Company and the Executive (the "Agreement");
WHEREAS the Incentive Award was made principally to provide a long-term
incentive to the Executive to continue to provide services to the Company and
to further align his interests with the interests of the Company's
stockholders;
WHEREAS the Executive believes that the financial performance of the
Company has not been up to the level expected at the time the Incentive Award
was granted and that had such performance been foreseen, the Incentive Award
may not have been made on the terms set forth in the Agreement;
WHEREAS the Company believes that, while the Compensation Committee of
the Board of Directors may wish to revisit the establishment of a long term
incentive program at some later date, modification of the terms of the
Agreement at this time is appropriate; and
WHEREAS the Executive and the Company believe that in light of the
foregoing it is in the best interests of the Company and the Company's
stockholders to amend the terms of the Incentive Award as described herein to
limit the circumstances when the Phantom Shares can vest;
NOW, THEREFORE, the Executive and the Company agree to amend the
Agreement, effective as of the date hereof, as follows:
1. Section 2 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"2. VESTING OF AWARD. This Award shall become vested and nonforfeitable as
described in Section 3."
2. Section 3a of the Agreement is hereby deleted in its entirety and
replaced with the following:
"a. TERMINATION OF EMPLOYMENT. If the Participant's employment by the
Company or any of its subsidiaries or affiliates (an "Affiliate") is
terminated for any reason prior to the occurrence of one of the events
described in b, c or d below, the Participant shall forfeit all
Phantom Shares."
3. Section 3b of the Agreement is deleted in its entirety and replaced
with the following:
<PAGE>
"b. TERMINATION DUE TO DEATH. If the Participant's employment terminates
by reason of death, the Participant's estate shall become fully vested
in all the Phantom Shares."
4. Section 3c of the Agreement is deleted in its entirety and replaced
with the following:
"c. TERMINATION DUE TO DISABILITY. If the Participant's employment
terminates by reason of disability (as defined in Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended (the "Code")), the
Participant shall become fully vested in all the Phantom Shares."
5. Section 3d of the Agreement is hereby amended by deleting the first
sentence thereof and replacing it with the following:
"The Participant shall become fully vested in all the Phantom Shares
upon the occurrence of a Change in Control."
6. Section 5.1 is hereby amended by deleting the last sentence thereof.
7. The first sentence of Section 5.2 of the Agreement is hereby
amended by deleting the word "Committee" therein and replacing it with "the
Compensation Committee of the Board of Directors (the "Committee")."
8. Except as so amended, the Agreement is hereby confirmed in all
other respects.
IN WITNESS WHEREOF, this First Amendment has been executed as a sealed
instrument by a duly authorized officer of the Company and by the Executive
this 11th day of November, 1999.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ James W. Gaube
-------------------------------
Name: James W. Gaube
Title: Chief Investment Officer
2
<PAGE>
Exhibit 10.25
FIRST AMENDMENT
TO
PHANTOM SHARES AGREEMENT
WHEREAS Burnham Pacific Properties, Inc., a corporation organized under
the laws of Maryland (the "Company), awarded to Scott C. Verges (the
"Executive") a Phantom Shares Award as of August 1, 1999, covering the right
to receive 30,000 Phantom Shares (the "Incentive Award");
WHEREAS the Incentive Award was subject to such terms and conditions as
set forth in the Phantom Shares Agreement dated as of August 1, 1999, by and
between the Company and the Executive (the "Agreement");
WHEREAS the Incentive Award was made principally to provide a long-term
incentive to the Executive to continue to provide services to the Company and
to further align his interests with the interests of the Company's
stockholders;
WHEREAS the Executive believes that the financial performance of the
Company has not been up to the level expected at the time the Incentive Award
was granted and that had such performance been foreseen, the Incentive Award
may not have been made on the terms set forth in the Agreement;
WHEREAS the Company believes that, while the Compensation Committee of
the Board of Directors may wish to revisit the establishment of a long term
incentive program at some later date, modification of the terms of the
Agreement at this time is appropriate; and
WHEREAS the Executive and the Company believe that in light of the
foregoing it is in the best interests of the Company and the Company's
stockholders to amend the terms of the Incentive Award as described herein to
limit the circumstances when the Phantom Shares can vest;
NOW, THEREFORE, the Executive and the Company agree to amend the
Agreement, effective as of the date hereof, as follows:
1. Section 2 of the Agreement is hereby deleted in its entirety and
replaced with the following:
"2. VESTING OF AWARD. This Award shall become vested and nonforfeitable as
described in Section 3."
2. Section 3a of the Agreement is hereby deleted in its entirety and
replaced with the following:
"a. TERMINATION OF EMPLOYMENT. If the Participant's employment by the
Company or any of its subsidiaries or affiliates (an "Affiliate")
is terminated for any reason prior to the occurrence of one of the
events described in b, c or d below, the Participant shall forfeit
all Phantom Shares."
3. Section 3b of the Agreement is deleted in its entirety and replaced
with the following:
<PAGE>
"b. TERMINATION DUE TO DEATH. If the Participant's employment
terminates by reason of death, the Participant's estate shall
become fully vested in all the Phantom Shares."
4. Section 3c of the Agreement is deleted in its entirety and replaced
with the following:
"c. TERMINATION DUE TO DISABILITY. If the Participant's employment
terminates by reason of disability (as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code")), the
Participant shall become fully vested in all the Phantom Shares."
5. Section 3d of the Agreement is hereby amended by deleting the first
sentence thereof and replacing it with the following:
"The Participant shall become fully vested in all the Phantom Shares
upon the occurrence of a Change in Control."
6. Section 5.1 is hereby amended by deleting the last sentence thereof.
7. The first sentence of Section 5.2 of the Agreement is hereby
amended by deleting the word "Committee" therein and replacing it with "the
Compensation Committee of the Board of Directors (the "Committee")."
8. Except as so amended, the Agreement is hereby confirmed in all
other respects.
IN WITNESS WHEREOF, this First Amendment has been executed as a sealed
instrument by a duly authorized officer of the Company and by the Executive
this 11th day of November, 1999.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ Scott C. Verges
-----------------------------------
Name: Scott C. Verges
Title: Chief Administrative Officer
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,271<F1>
<SECURITIES> 0
<RECEIVABLES> 11,207
<ALLOWANCES> (2,262)
<INVENTORY> 0
<CURRENT-ASSETS> 100,209<F2><F3>
<PP&E> 1,027,840
<DEPRECIATION> (63,586)
<TOTAL-ASSETS> 1,086,134<F4>
<CURRENT-LIABILITIES> 37,867
<BONDS> 575,852
0
68,894
<COMMON> 460,291
<OTHER-SE> (123,341)
<TOTAL-LIABILITY-AND-EQUITY> 1,086,134<F5><F6>
<SALES> 95,995
<TOTAL-REVENUES> 101,055
<CGS> 27,185
<TOTAL-COSTS> 27,185
<OTHER-EXPENSES> 33,669
<LOSS-PROVISION> 627
<INTEREST-EXPENSE> 27,869
<INCOME-PRETAX> 13,700
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,700<F7><F8><F9>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,866
<NET-INCOME> 11,834<F10>
<EPS-BASIC> .37
<EPS-DILUTED> .37
<FN>
<F1>INCLUDES 10,182 OF RESTRICTED CASH.
<F2>INCLUDES 62,028 OF INVESTMENT AND ADVANCES IN UNCONSOLIDATED SUBSIDIARIES.
<F3>ALSO INCLUDES, 17,965 OF OTHER ASSETS AND 8,945 OF RECEIVABLES-NET.
<F4>INCLUDES 21,671 OF REAL ESTATE HELD FOR SALE.
<F5>INCLUDES 528,834 OF PAID IN CAPITAL IN EXCESS OF PAR.
<F6>ALSO INCLUDES 66,571 OF MINORITY INTEREST.
<F7>INCLUDES 4,200 DISTRIBUTION TO PREFERRED STOCKHOLDERS.
<F8>INCLUDES 3,950 MINORITY INTEREST.
<F9>ALSO INCLUDES 646 OF INCOME FROM UNCONSOLIDATED SUBSIDIARIES.
<F10>INCLUDES 4,200 DIVIDENDS PAID TO PREFERRED STOCKHOLDERS.
</FN>
</TABLE>
