<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1998 Commission file number 1-9524
BURNHAM PACIFIC PROPERTIES, INC.
--------------------------------
(Exact name of Registrant as specified in its Charter)
Maryland 33-0204162
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
610 West Ash Street, San Diego, California 92101
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(619) 652-4700
--------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
- ------------------- --------------------
Common Stock, $.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
- -------------------------------------------------------------------------------
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 / /
- -------------------------------------------------------------------------------
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
- -------------------------------------------------------------------------------
At March 16, 1999 the aggregate market value of the Registrant's shares of
common stock, $.01 par value, held by non-affiliates of the Registrant was
$321,609,463.
- -------------------------------------------------------------------------------
There were 31,954,008 shares of common stock outstanding at March 16, 1999.
- -------------------------------------------------------------------------------
Part III and Item 5 incorporate certain provisions of the Registrant's Proxy
Statement for its 1999 Annual Meeting to be filed subsequently.
<PAGE>
FORWARD LOOKING STATEMENTS AND CERTAIN RISK FACTORS
Certain statements made in this Report are "forward-looking statements." Such
forward-looking statements include, without limitation, statements relating
to acquisitions (including related pro forma financial information) and other
business development activities, future capital expenditures, financing
sources and availability, the effects of environmental and other regulations,
as well as the costs, timing and effectiveness of year 2000 readiness. The
words "anticipate," "assume," "believe," "estimate," "expect," "intend" and
other similar expressions are generally used in the context of
forward-looking statements. Readers should exercise caution in interpreting
and relying on forward-looking statements since they involve known and
unknown risks, uncertainties and other factors which are, in some cases,
beyond the Company's control and could materially affect the Company's actual
results, performance or achievements. Factors that could cause actual
results, performance or achievements to differ materially from those
expressed or implied by such forward-looking statements include, but are not
limited to, the following:
- we are subject to general risks affecting the real estate industry
such as the need to enter into new leases or renew leases on favorable
terms to generate rental revenues and dependence on our tenants'
financial condition;
- we are subject to competition for tenants from other owners of retail
properties and our tenants are subject to competition from other
retailers and methods of distribution of consumer goods; we are
dependent upon the successful operations and financial condition of
our tenants and subject to possible bankruptcy of tenants;
- we may fail to anticipate the effects that changes in consumer buying
practices and the retailing practices and space needs of our tenants
will have on our properties; we may fail to identify, acquire,
construct or develop additional properties; we may develop properties
that do not produce a desired yield on invested capital; or we may
fail to effectively integrate acquisitions of properties or portfolios
of properties;
- debt and equity financing for our business may not be available, or
may not be available on favorable terms; we need to make distributions
to our stockholders for us to qualify as a REIT, and if we need to
borrow the funds to make distributions the borrowings may not be
available on favorable terms;
- we depend on the primary markets where our properties are located, and
these markets may be adversely affected by local, as well as national,
economic and market conditions which are beyond our control;
- we are subject to potential environmental liabilities;
- we are subject to complex regulations relating to our status as a REIT
and would be adversely affected if we failed to qualify as a REIT;
- we and our tenants and suppliers may experience unanticipated delays
or expenses in achieving year 2000 readiness; and
- market interest rates could adversely affect the market prices for our
Common Stock and our performance and cash flow.
2
<PAGE>
ITEM 1. BUSINESS
GENERAL
Burnham Pacific Properties, Inc. (the "Company") is a real estate operating
company which acquires, rehabilitates, develops and manages retail properties
in the western United States. The Company began operations through a
predecessor in 1963 and became a real estate investment trust ("REIT") in
1987. The Company's properties (the "Properties") are primarily neighborhood
and community shopping centers located in major metropolitan areas. The
Company focuses its investments on shopping centers in mature trade areas
with a limited supply of vacant land and with established consumer shopping
patterns. As of December 31, 1998, the Company owned interests in 71
operating retail properties comprising approximately 8.6 million square feet
of Company-owned gross leasable area ("GLA") and in one retail project
currently under development. The Company also owns four office and industrial
properties which it considers non-strategic and which it may sell as suitable
opportunities arise.
The Company owns its properties and conducts substantially all of its
business through Burnham Pacific Operating Partnership, L.P. (the "Operating
Partnership"), of which the Company is the sole general partner and, as the
holder of preferred and common limited partnership units, the owner of a
substantial majority of the economic interests. Other limited partners of the
Operating Partnership are persons who have contributed interests in
properties to the Operating Partnership in exchange for limited partnership
units of the Operating Partnership. On January 1, 1998, the Operating
Partnership became the paymaster and employer of all Company employees. At
December 31, 1998, the Operating Partnership had 151 employees.
In August 1998, the Operating Partnership and the State of California Public
Employees' Retirement system ("CalPERS") entered into a joint venture
agreement for the acquisition of neighborhood, community, promotional and
specialty shopping centers in the western United States. The joint venture
agreement contemplates an aggregate $400 million investment by CalPERS and
$100 million investment by the Operating Partnership, and provides for up to
$165 million of leverage through mortgage or line of credit borrowings by the
joint venture. On October 1, 1998, CalPERS made an initial contribution to
the joint venture of five retail properties valued at approximately
$80,000,000. During the fourth quarter, the joint venture purchased 5 retail
properties for approximately $38.3 million. On December 22, 1998, the
Operating Partnership made an initial contribution of two retail properties
valued at approximately $22,195,000. On the same date, the Operating
Partnership withdrew approximately $22,195,000 in cash from the joint venture
pending finalization of the remainder of its required contributions, which is
expected to be completed in the first quarter of 1999. The Company expects to
conduct a significant portion of its acquisition activity through the CalPERS
joint venture in 1999.
On March 9, 1999, the joint venture agreed to acquire 28 shopping centers
owned by AMB Property Corporation aggregating 5.1 million square feet for
approximately $663.4 million. The properties are to be acquired in three
separate transactions, currently expected to close on or about April 30, July
31, and December 1, 1999. The Company has agreed to acquire six additional
shopping centers from AMB aggregating 1.5 million square feet for
approximately $284.4 million; if completed, this purchase, which is subject
to the Company's obtaining financing and other conditions, is currently
expected to close by year-end 1999. In connection with the AMB transaction,
CalPERS and the Company agreed to increase the aggregate amount of
indebtedness that the joint venture might incur through December 31, 2000 to
approximately
3
<PAGE>
$450,000,000 and the Company granted 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.
Historically, the Company has emphasized investments in properties located
primarily in California. In late 1997, the Company expanded into the Pacific
Northwest. The Company expects to expand its geographic presence through the
activities of the CalPERS joint venture and, if completed through its
acquisition of the AMB Properties.
The Company competes with real estate companies, pension funds and other real
estate investors, many of which have greater financial resources than the
Company, in seeking properties for acquisition, land for development, and
tenants for leasing of properties.
There are numerous shopping centers that compete with the Properties in
attracting retailers to lease space. In addition, retailers at the Properties
face increasing competition from outlet malls, discount shopping clubs,
direct mail, telemarketing and internet shopping.
The Company is incorporated under the laws of the State of Maryland. The
Company's headquarters are located at 610 West Ash Street, Suite 1600, San
Diego, California 92101, and its phone number is (619) 652-4700.
RETAIL PROPERTIES
As of December 31, 1998, the Company owned, either directly or through its
interests in joint ventures, 71 operating retail properties comprising
approximately 8.6 million square feet of Company-owned GLA. These Properties
were located primarily in California, including 10 in the San Diego Region,
22 in the Los Angeles Region, and 22 in the San Francisco/Sacramento Region.
In addition to the California Properties, the Company has 5 retail Properties
in Oregon, 9 in Washington, 2 in New Mexico, and 1 in Utah.
These Properties consisted of 54 market/drug centers, 12 promotional centers,
3 entertainment centers, 1 convenience center, and one factory outlet center,
and ranged in size from approximately 9,000 to approximately 517,000 square
feet of Company-owned GLA. The Properties are designed to attract local and
regional area customers and are typically anchored by one or more nationally
or regionally known retailers. Depending on the market focus of a specific
Property, major retailers at a Property may include supermarkets, drug
stores, value-oriented discount stores, membership warehouses, multi-screen
theatre complexes, shops or well-known specialty retailers.
The Company (primarily through the Operating Partnership and subsidiaries)
owns 64 of these retail properties in fee and holds 7 under long-term ground
leases with expiration dates ranging from 2013 to 2089. The Company leased
these properties to approximately 1,240 different tenants and overall
occupancy at year-end 1998 was approximately 91.3%. No individual Property or
single tenant accounted for as much as 10% of the Company's revenues in 1998.
No Property accounted for 10 percent or more of the total assets of the
Company at December 31, 1998.
4
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OFFICE/INDUSTRIAL PROPERTIES
As of December 31, 1998, the Company also owned 4 office/industrial
Properties located in Southern California. These Properties range in size
from approximately 29,000 square feet to approximately 338,000 square feet
and aggregated approximately 591,000 square feet of Company-owned GLA. At
year-end 1998, these Properties were 100% leased.
ACQUISITIONS
During 1998, the Company acquired interests in 14 shopping centers
aggregating 1.0 million square feet of Company-owned GLA at an aggregate
purchase price of approximately $98.3 million. The acquisitions consisted of
the following:
ACQUISITIONS AND DISPOSITIONS
<TABLE>
<CAPTION>
12/31/98 Purchase
Acquisition Company- Owned Percent Price (1)
Property Date GLA Occupied (in thousands)
- ------- ---- --- -------- --------------
<S> <C> <C> <C> <C>
Village East 2/3/98 135,926 98.0% $14,825
Lake Arrowhead Village 5/27/98 229,069 94.3 31,500
Keizer Creekside 6/2/98 61,943 91.1 5,362
Cruces Norte 6/2/98 24,730 80.2 2,398
Park Manor 6/3/98 28,454 72.7 2,808
Mission Plaza 6/12/98 72,955 89.5 4,414
Plaza de Monterey 6/12/98 37,482 98.1 5,826
Palms to Pines 6/12/98 39,011 100.0 2,902
Greentree Plaza 7/23/98 78,676 93.6 9,600
Farmington Village 7/31/98 32,740 75.4 4,000
Young's Bay Plaza 7/31/98 93,776 98.3 4,849
Greenway Town Center 7/31/98 93,100 97.7 6,639
Ernst - Brickyard 9/1/98 36,324 100.0 1,088
Ernst - Lynnwood 10/23/98 52,850 100.0 2,132
----------- ----- ---- -----
TOTAL/WEIGHTED AVERAGE 1,017,036 94.2% $98,343
========== ======= =======
</TABLE>
(1) Excludes all closing costs.
The acquisitions were financed through a variety of sources including draws
from revolving credit facilities, new mortgages, assumption of existing
mortgages, issuance of Operating Partnership units, and issuances of Common
Stock of the Company.
DEVELOPMENT
During 1998, the Company substantially completed the redevelopment of the
historic 1000 Van Ness Property in downtown San Francisco. The Company is
retaining the 123,840 square-foot entertainment and retail portion of this
property, which is anchored by a 74,000 square-foot multiscreen theater
opened by AMC Theaters in July 1998. During 1998, the Company sold the
parking lot structure to an investor and commenced the transfer of the
residential units to a residential developer, applying the proceeds to pay
down a portion of a construction loan secured by the Property and to reduce
borrowings on the Company's credit facility. No gain or loss was recognized
on either of these transactions.
5
<PAGE>
In late 1998, the Company began construction of a market, promotional and
entertainment anchored shopping center located in the city of Pleasant Hill,
California, containing approximately 355,000 square feet of Company-owned GLA.
DISPOSITIONS
In December 1998, the Company sold its Plaza Rancho Carmel convenience
shopping center, which was considered non-strategic, for $2.8 million. The
proceeds from the sales were used to reduce borrowings on the Company's
credit facility.
6
<PAGE>
ITEM 2. PROPERTIES
The following table sets forth the completed operating properties owned by
the Company at December 31, 1998:
<TABLE>
<CAPTION>
YEAR PERCENT COMPANY-OWNED TOTAL PRINCIPAL TENANTS
PROPERTY ACQUIRED OWNED GLA OCCUPANCY (LEASE EXPIRATION DATE)
- ------- -------- ----- --- --------- -----------------------
<S> <C> <C> <C> <C> <C>
SAN DIEGO REGION
SD Factory Outlet Center 1992 100% 158,087 98.7% Nike (5/31/04)
SAN YSIDRO, CA Levi's/Dockers (1/31/01)
Guess (11/30/01)
Mikasa (12/31/03)
Mesa Shopping Center 1984 100% 142,663 100.0% Lucky's (11/30/09)
SAN DIEGO (MIRA MESA), CA Rite-Aid (5/31/09)
Wiegand Plaza II 1986 100% 110,865 97.8% AMC Theaters (12/31/02)
ENCINITAS, CA 1988 TJ Maxx (5/31/05)
1990 Beverages & More (10/31/06)
Navajo Shopping Center 1983 100% 110,420 89.0% Albertson's (8/12/22)
SAN DIEGO (LAKE MURRAY), CA 1993 Rite-Aid (12/31/16)
1995
SD Factory Outlet - K-Mart 1993 100% 98,194 100.0% K-Mart (8/31/06)
SAN YSIDRO, CA
Independence Square 1983 100% 92,684 95.9% Ethan-Allen Interiors (11/30/14)
SAN DIEGO (KEARNEY MESA), CA Saddleback (11/30/05)
Santee Village Square 1985 100% 81,785 92.1% Santee Village 8 Theaters (12/31/98)
SANTEE, CA
Poway Plaza 1988 100% 74,060 91.2% Rite-Aid (5/31/07)
POWAY, CA
Ruffin Village 1985 100% 44,594 93.7% Mr. G's Restaurant (12/31/99)
SAN DIEGO (KEARNEY MESA), CA Carl's Jr. (10/31/02)
San Marcos Lucky Plaza 1997 100% 36,153 93.8% Blockbuster Video (5/31/02)
SAN MARCOS, CA Kinko's (8/31/02)
--------- --------
SAN DIEGO REGION TOTALS 949,505 95.9%
--------- --------
LOS ANGELES REGION
Plaza at Puente Hills 1993 100% 516,538 87.2% IKEA (10/31/07)
CITY OF INDUSTRY, CA Circuit City (1/31/08)
Smart & Final (11/30/11)
Office Depot (8/31/12)
Miller's Outpost (1/31/08)
Valley Central 1997 99% 480,092 95.2% Wal-Mart (7/27/10)
LANCASTER, CA Staples (3/31/03)
HomeBase (8/31/08)
Michael's (2/28/00)
Circuit City (1/31/11)
Marshall's (1/31/01)
Cinemark Theaters (10/31/17)
99 Cents Only Stores (2/28/03)
7
<PAGE>
<CAPTION>
YEAR PERCENT COMPANY-OWNED TOTAL PRINCIPAL TENANTS
PROPERTY ACQUIRED OWNED GLA OCCUPANCY (LEASE EXPIRATION DATE)
- ------- -------- ----- --- --------- -----------------------
<S> <C> <C> <C> <C> <C>
Westminster Center 1997 100% 378,717 92.0% Lucky's (5/31/17)
WESTMINSTER, CA Rite-Aid (5/31/16)
Home Depot (1/31/12)
Edwards Theatres (2/28/12)
Hollytron (1/31/12)
Office Max (7/12/07)
Mountaingate Plaza 1997 100% 282,163 90.5% Michael's (8/31/99)
SIMI VALLEY, CA Rite-Aid (5/31/04)
Edwards Theaters (5/31/11)
TJ Maxx (11/30/02)
Bally's Fitness (6/28/08)
Heilig Meyers Furniture (12/31/00)
Lake Arrowhead Village 1998 100% 229,069 94.3% Stater Brothers (10/1/00)
LAKE ARROWHEAD, CA
Simi Valley Plaza 1997 100% 219,658 88.4% Edwards Theatres (6/30/19)
SIMI VALLEY, CA HomeBase (1/31/11)
Santa Fe Springs 1997 100% 167,630 87.3% Ralph's (9/30/07)
SANTA FE SPRINGS, CA
Crenshaw Imperial 1997 100% 151,151 88.3% Ralph's (4/30/06)
INGLEWOOD, CA Rite-Aid (5/31/09)
La Mancha Shopping Center 1988 100% 103,920 94.6% Ralph's (4/30/99)
FULLERTON, CA Rite-Aid (5/31/99)
Ballard Wimer Brockett (4/30/04)
Buena Vista Marketplace 1997 100% 91,819 97.2% Ralph's (7/31/05)
DUARTE, CA
Menifee Town Center 1997 100% 79,134 100.0% Ralph's (3/31/07)
MENIFEE, CA
Mission Plaza 1998 100% 72,955 89.5% Lucky's (11/30/10)
CATHEDRAL CITY, CA
Ralph's Center 1997 100% 66,700 100.0% Ralph's (12/31/07)
REDONDO BEACH, CA
Centerwood Plaza 1997 100% 65,592 88.6% 32nd Street Market (5/31/08)
BELLFLOWER, CA Basically-A-Buck (5/31/08)
Central Shopping Center 1997 100% 62,314 85.7% Ralph's (8/31/02)
VENTURA, CA
Olympiad Plaza 1997 100% 45,600 100.0% Sav-On Drugs (9/30/00)
MISSION VIEJO, CA First Nationwide Bank (9/30/00)
Ontario Village 1997 99% 39,954 86.3% Men's Fashion (5/31/02)
ONTARIO, CA Payless Shoes (3/31/04)
Palms to Pines 1998 100% 39,011 100.0% Metropolitan Theatres (6/30/01)
PALM DESERT, CA Blue Coyote Grill (12/31/06)
Plaza de Monterey 1998 100% 37,482 98.1% Hargate T.V. (4/14/01)
PALM DESERT, CA Kenny Rogers Roasters (12/31/98)
8
<PAGE>
<CAPTION>
YEAR PERCENT COMPANY-OWNED TOTAL PRINCIPAL TENANTS
PROPERTY ACQUIRED OWNED GLA OCCUPANCY (LEASE EXPIRATION DATE)
- ------- -------- ----- --- --------- -----------------------
<S> <C> <C> <C> <C> <C>
West Lancaster Plaza 1997 99% 29,318 43.4% Blockbuster Video (6/30/03)
LANCASTER, CA T & C Grill (4/30/03)
--------- --------
LOS ANGELES REGION TOTALS 3,158,817 91.2%
--------- --------
SAN FRANCISCO REGION
Fremont Hub 1997 100% 493,575 73.8% Safeway (10/31/04)
Ross Dress for Less (1/31/00)
Michael's (2/28/04)
Office Max (12/14/01)
Longs Drugs (2/28/03)
Old Navy (1/31/00)
Prospector's Plaza 1997 100% 221,612 93.1% Lucky's (11/30/06)
PLACERVILLE, CA Longs Drugs (2/28/07)
K-Mart (10/31/06)
Santa Rosa Value Center 1997 100% 198,528 95.1% Food-4-Less (8/31/05)
SANTA ROSA, CA Rite-Aid (5/31/09)
HomeBase (2/29/08)
Fremont Gateway Plaza 1997 100% 195,092 99.6% Raley's (12/31/20)
FREMONT, CA 24 Hour Fitness (7/31/13)
Silver Cinemas (8/30/12)
Hilltop Plaza 1996 100% 191,451 92.8% Circuit City (1/31/17)
RICHMOND, CA Barnes & Noble (5/20/07)
PetsMart (3/15/12)
Ross Dress for Less (1/31/08)
Office Max (11/30/11)
Gateway Center 1997 100% 182,054 95.7% Best Buy (1/31/19)
MARIN CITY, CA Ross Dress for Less (1/31/07)
Longs Drugs (2/28/22)
Southampton Center 1997 100% 162,390 87.7% Raley's (11/30/13)
BENECIA, CA
Silver Creek Plaza 1997 100% 134,038 92.5% Safeway (12/21/98)
SAN JOSE, CA Walgreens (12/31/11)
Auburn Village 1997 100% 133,956 96.3% Bel Air Market (1/2/15)
AUBURN, CA
Summerhills Shopping Center 1997 100% 133,614 87.6% Raley's (11/30/05)
SACRAMENTO, CA
1000 Van Ness 1998 100% 123,840 100.0% AMC Theaters (6/30/18)
SAN FRANCISCO, CA Crunch Fitness (12/31/50)
Eatzi's Restaurant (12/31/50)
Shasta Crossroads 1997 100% 121,334 93.5% Food-4-Less (2/28/10)
REDDING, CA
Creekside Shopping Center 1997 100% 116,229 82.7% Raley's (11/30/13)
VACAVILLE, CA
580 Marketplace 1997 100% 100,165 100.0% PW Foods (6/30/05)
CASTRO VALLEY, CA 24 Hour Fitness (12/31/02)
9
<PAGE>
<CAPTION>
YEAR PERCENT COMPANY-OWNED TOTAL PRINCIPAL TENANTS
PROPERTY ACQUIRED OWNED GLA OCCUPANCY (LEASE EXPIRATION DATE)
- ------- -------- ----- --- --------- -----------------------
<S> <C> <C> <C> <C> <C>
Cameron Park 1997 99% 97,434 69.3% Safeway (11/30/00)
CAMERON PARK, CA
Discovery Plaza 1997 100% 93,398 94.1% Bel Air Market (3/31/14)
SACRAMENTO, CA
Stanford Ranch 1997 100% 89,874 95.1% Bel Air Market (7/31/16)
ROCKLIN, CA
Sunset Center 1997 100% 85,272 89.9% Lucky's (5/31/06)
SUISUN CITY, CA Rite-Aid (5/31/05)
Hallmark Town Center 1997 100% 85,066 93.7% Food-4-Less (8/6/06)
MADERA, CA
Arcade Square 1997 100% 76,497 70.4% Hollywood Video (3/31/05)
SACRAMENTO, CA Nation Craft (12/14/03)
Richmond Shopping Center 1995 98% 76,692 100.0% Food-4-Less (9/30/13)
RICHMOND, CA Walgreens (11/30/33)
Foothill Plaza 1997 100% 52,315 92.0% Rite-Aid (8/31/18)
LOS ALTOS, CA
------------ ----------
SAN FRANCISCO REGION TOTALS 3,164,426 89.4%
------------ ----------
PACIFIC NORTHWEST REGION
Meridian Village 1997 100% 208,422 94.9% Home Depot (3/31/13)
BELLINGHAM, WA Circuit City (1/31/15)
Rite-Aid (7/31/04)
Village East 1998 100% 135,926 98.0% Ross Dress for Less (1/31/02)
SALEM, OR Borders Books (4/30/12)
Greenway Town Center 1998 100% 93,100 97.7% United Grocers (12/31/04)
TIGARD, OR Rite-Aid (1/31/14)
Young's Bay 1998 100% 93,776 98.3% Rite-Aid (10/31/01)
WARRENTON, OR Lamont's Apparel (10/9/05)
Design Market 1997 100% 88,487 100.0% Schoenfeld Interiors (9/30/99)
BELLEVUE, WA Applegreen Furniture (6/1/99)
Greentree Plaza 1998 100% 78,676 93.6% GART Sports (1/31/14)
EVERETT, WA
Keizer Creekside 1998 100% 61,943 91.1% Rite-Aid (8/1/12)
SALEM, OR
Chambers Creek 1997 100% 58,179 100.0% Albertson's (6/15/18)
TACOMA, WA
James Village (Ernst) 1998 100% 52,850 100.0% G.I. Joe's (4/10/11)
LYNNWOOD, WA
Puget Park 1997 100% 40,988 88.7% Craft Outlet (2/28/00)
SOUTH EVERETT, WA Day-Star Centers (1/1/99)
Bear Creek Village (Ernst) 1997 100% 36,324 100.0% Linens 'n' Things (3/26/13)
REDMOND, WA
10
<PAGE>
<CAPTION>
YEAR PERCENT COMPANY-OWNED TOTAL PRINCIPAL TENANTS
PROPERTY ACQUIRED OWNED GLA OCCUPANCY (LEASE EXPIRATION DATE)
- ------- -------- ----- --- --------- -----------------------
<S> <C> <C> <C> <C> <C>
Fairwood Square 1997 100% 32,910 93.9% Coldwell Banker (11/30/08)
RENTON, WA Al's Auto (12/31/03)
Farmington Village 1998 100% 32,740 75.4% Shari's Restaurant (1/31/11)
ALOHA, OR Farmington Village Laundromat
(6/30/03)
Park Manor 1998 100% 28,454 72.7% Videoland (6/30/01)
BELLINGHAM, WA Budget Rent to Own (3/31/02)
------------ ----------
PACIFIC NORTHWEST REGION TOTALS 1,042,775 95.2%
------------ ----------
MOUNTAIN REGION
Brickyard Plaza (Ernst) 1998 100% 37,383 100.0% Media Play (7/28/05)
SALT LAKE CITY, UT
------------ ----------
MOUNTAIN REGION TOTALS 37,383 100.0%
------------ ----------
SOUTHWEST REGION
Cruces Norte 1998 100% 24,730 80.2% Checker Auto Parts (7/31/04)
LAS CRUCES, NM Radio Shack (5/31/00)
Silver Plaza 1997 100% 8,545 86.0% The Video Stop (6/30/01)
SILVER CITY, NM Radio Shack (8/31/03)
------------ ----------
SOUTHWEST REGION TOTALS 33,275 81.7%
------------ ----------
TOTAL OPERATING RETAIL PROPERTIES 8,386,181 91.5%
------------ ----------
OFFICE PROPERTIES
Anacomp Building 1992 100% 338,485 100.0% Anacomp (12/31/07)
POWAY, CA
Bergen Brunswig Building 1992 100% 175,000 100.0% Bergen Brunswig Corp. (3/31/00)
ORANGE, CA
Scripps Ranch Buildings 1987 100% 49,284 100.0% Edge Semiconductor (3/31/04)
SAN DIEGO (SCRIPPS RANCH), CA 1988 World X Change Comm. (7/30/02)
Marcoa Building 1989 100% 28,600 100.0% Marcoa Publishing Co. (9/30/99)
SAN DIEGO (SORRENTO MESA), CA
------------ ----------
TOTAL OFFICE PROPERTIES 591,369 100.0%
------------ ----------
TOTAL 8,977,550 92.1%
============ ==========
</TABLE>
11
<PAGE>
PORTFOLIO COMPOSITION
The information in the following table indicates the composition of the
Operating Properties owned by the Company as of December 31, 1998:
<TABLE>
<CAPTION>
Percentage of
Properties Based
Number of on Company-
Properties Owned GLA
---------- ---------
<S> <C> <C>
Retail 69 93.4%
Office/Industrial 4 6.6
---- ---------
Total 73 100.0%
==== =======
</TABLE>
The information in the following table indicates the composition of the retail
properties by retail property type owned by the Company as of December 31, 1998:
<TABLE>
<CAPTION>
Percentage of
Properties Based
Number of on Company-
Properties Owned GLA
---------- ---------
<S> <C> <C>
Market/Drug (1) 52 58.2%
Promotional (2) 12 30.2
Other 5 5.0
---- ---------
Total Retail 69 93.4
Total Office 4 6.6
---- ---------
Total Portfolio 73 100.0%
==== =========
</TABLE>
(1) The Company defines Market/Drug centers as those centers that
serve a fairly localized trade area and that offer an assortment
of goods and services designed to meet the daily needs of
consumers.
(2) The Company defines Promotional Centers as those centers with
multiple promotional retailers as anchor tenants. The Company
defines promotional retailers as retailers which typically offer
convenience, a broad selection and low pricing on a fairly
discrete category of retail merchandise.
GEOGRAPHIC DISTRIBUTION
The Company's retail Properties are located in 20 metropolitan statistical
areas ("MSA") in 5 states. The table below demonstrates the geographic
distribution of Properties owned by the Company as of December 31, 1998:
12
<PAGE>
GEOGRAPHIC DISTRIBUTION BY MSA
<TABLE>
<CAPTION>
Percentage of
Retail Properties
Number of Owned Based on Company-Owned
Properties GLA GLA
---------- --- ---
<S> <C> <C> <C>
Bellevue, WA 2 236,876 2.8%
Fresno, CA 1 85,066 1.0
Los Angeles, CA 7 1,088,748 13.0
Las Cruces, NM 1 24,730 0.3
Napa, CA 3 363,891 4.3
Oakland, CA 5 1,056,975 12.6
Orange County, CA 3 528,237 6.3
Portland, OR 2 125,840 1.5
Redding, CA 1 121,334 1.5
Riverside/San Bernardino, CA 7 977,697 11.7
Sacramento, CA 7 846,385 10.1
Salem, OR 2 197,869 2.4
San Diego, CA 10 949,505 11.3
Seattle, WA 6 330,235 3.9
San Francisco, CA 2 305,894 3.6
San Jose, CA 2 186,353 2.2
Salt Lake City, UT 1 37,383 0.5
Santa Rosa, CA 1 198,528 2.4
Tacoma, WA 1 58,179 0.7
Ventura, CA 3 564,135 6.7
No Defined MSA 2 102,321 1.2
--------------------------------------------------------
TOTAL 69 8,386,181 100.0%
========================================================
</TABLE>
TENANT CONCENTRATION--Top Ten Retail Anchor Tenants (as of December 31, 1998)
RANKED BY ANNUALIZED BASE RENT -
<TABLE>
<CAPTION>
Percentage of
Number of Annualized Annualized Percentage of
Tenant Base Base Leased Leased
Tenant Locations Rent Rent GLA GLA
------ --------- ---- ---- --- ---
<S> <C> <C> <C> <C> <C>
AMC Theaters 2 $3,553,952 3.9% 98,637 1.3%
Ralph's 8 3,044,731 3.3 339,896 4.4
Raley's/Bel Air Marts 7 2,956,166 3.2 368,397 4.8
Home Depot 2 2,528,278 2.8 209,014 2.7
Homebase 3 2,314,127 2.5 311,521 4.1
Edwards Theatres 3 1,548,090 1.7 101,695 1.3
Rite-Aid 14 1,508,982 1.7 297,637 3.9
Lucky's 5 1,418,990 1.6 183,982 2.4
Circuit City 4 1,336,993 1.5 138,851 1.8
IKEA 1 1,181,004 1.3 150,000 2.0
--------------------------------------------------------------------------------------
TOTAL 49 $21,391,313 23.5 % 2,199,630 28.7 %
== =========== ========= ========= =========
TOTAL RETAIL PORTFOLIO $91,157,689 100.00% 7,685,723 100.00%
=========== ======= ========= =======
</TABLE>
13
<PAGE>
LEASE EXPIRATIONS OF THE COMPANY'S PORTFOLIO
The following table sets forth scheduled lease expirations for leases in
effect as of December 31, 1998, for each of the next ten years for all of the
Company's Properties. The table assumes that none of the tenants exercise
renewal options or termination rights.
<TABLE>
<CAPTION>
Total Annualized Base Rent (1)
Number of Gross Leasable Area ---------------------------------
Leases Expiring in: Leases Expiring (sq. ft.) Amount Percent of Total
------------------- --------------- --------- ------ ----------------
<S> <C> <C> <C> <C>
1999 318 804,123 $10,583,537 11.6%
2000 226 621,639 8,299,995 9.1
2001 249 653,452 9,073,207 10.0
2002 206 581,067 8,690,001 9.5
2003 164 491,946 6,820,569 7.5
2004 67 362,127 3,550,109 3.9
2005 40 423,955 4,030,528 4.4
2006 27 403,330 2,873,853 3.2
2007 46 649,734 7,167,705 7.9
2008 30 451,126 4,397,606 4.8
Thereafter 97 2,233,224 25,540,419 28.1
</TABLE>
(1) Annualized base rent is calculated by multiplying base rent for
December 1998 by twelve.
BANKRUPTCY REMOTE PROPERTIES
Twenty-eight of the Company's Properties, having a net book value of
approximately $515,865,000 at December 31, 1998, (collectively, the
"Bankruptcy Remote Properties" and, each a "Bankruptcy Remote Property") are
wholly-owned by various "Bankruptcy Remote Entities" which are indirect
subsidiaries of the Company. The assets of each Bankruptcy Remote Entity,
including the respective Bankruptcy Remote Property or Properties owned by
each, are owned by that Bankruptcy Remote Entity alone and are not available
to satisfy claims that any creditor may have against the Company, its
affiliates, or any other person or entity. No Bankruptcy Remote Entity has
agreed to pay or make its assets available to pay creditors of the Company,
any of its affiliates or any other person or entity. Neither the Company nor
any of its affiliates has agreed to pay or make its assets available to pay
creditors of any Bankruptcy Remote Entity (other than any agreement by a
Bankruptcy Remote Entity to pay its own creditors). No affiliate of any
Bankruptcy Remote Entity has agreed to pay or make its assets available to
pay creditors of any Bankruptcy Remote Entity. The following table lists
these Bankruptcy Remote Entities ("Owners") and their respective Bankruptcy
Remote Properties.
14
<PAGE>
<TABLE>
<CAPTION>
Owner Property
- ----- --------
<S> <C>
BPP/Valley Central, L.P. Valley Central Shopping Center, Lancaster, CA
BPP/Puente Hills, L.L.C. The Plaza at Puente Hills, Industry, CA
BPP/Crenshaw-Imperial, L.P. Crenshaw-Imperial Shopping Center, Inglewood, CA
BPP/Mountaingate, L.P. Mountaingate Plaza, Simi Valley, CA
BPP/Simi Valley, L.P. Simi Valley Plaza, Simi Valley, CA
BPP/Northwest Acquisitions, L.L.C. Design Market, Bellevue, WA
Fairwood Square, Renton, WA
Village East Shopping Center, Salem, OR
BPP/Golden State Acquisitions, L.L.C. Creekside Shopping Center, Vacaville, CA
Sunset Center, Suisun City, CA
Discovery Plaza, Sacramento, CA
Summer Hills Shopping Center, Sacramento, CA
Arcade Square, Sacramento, CA
Prospector's Plaza, Placerville, CA
Santa Rosa Value Center, Santa Rosa, CA
580 Marketplace, Castro Valley, CA
Gateway Plaza, Fremont, CA
Southhampton Shopping Center, Benicia, CA
Silver Creek Plaza, San Jose, CA
Shasta Crossroads, Redding, CA
Centerwood Plaza, Bellflower, CA
Ralphs Center, Redondo Beach, CA
Westminster Center, Westminster, CA
Buena Vista Shopping Center, Duarte, CA
San Marcos Plaza, San Marcos, CA
Hallmark Town Center, Madera, CA
Menifee Town Center, Menifee, CA
BPP/Arrowhead, L.P. Lake Arrowhead Plaza, Lake Arrowhead, CA
</TABLE>
15
<PAGE>
INDEBTEDNESS
The Company's total outstanding consolidated mortgage debt secured by
interests in its properties (other than those properties secured under the
credit facility) was $373,483,779 at December 31, 1998. The following table
sets forth certain information regarding this debt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Principal
Balance
Outstanding Interest Annual
Property 12/31/98 Maturity Date Rate Payment
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Golden State Prop. (19 properties) (1) $148,109,955 January 2008(3) 6.76% $12,265,377
Plaza at Puente Hills (1) 32,394,106 March 2004(3) 7.98 3,060,656
Valley Central Shopping Center (1) 24,858,317 March 2004(3) 7.98 2,348,661
Mountaingate Plaza (1) 23,143,248 March 2006(3) 8.05 2,241,680
Lake Arrowhead Plaza (1) 19,551,006 September 2011(3) 9.20 1,946,074
Gateway Center 16,716,239 October 2004(3) 7.39 1,492,976
Simi Valley Plaza (1) 16,143,450 June 2026 8.98 1,579,268
Northwest Acquisitions (3 properties) (1) 16,005,128 December 2007(3) 7.45 1,348,345
Point Loma Plaza 14,797,386 December 1999(3) 8.13 1,772,892
Bergen Brunswig Building 9,400,491 October 1999(3) 8.38 912,096
Mesa Shopping Center 7,875,295 January 2002(3) 10.00 911,980
Richmond Shopping Center 6,854,781 January 2005(3) 9.50 755,280
Wiegand Plaza 6,814,992 January 2002(3) 10.00 977,334
Stanford Ranch 6,265,630 September 2005(3) 7.88 676,212
Olympiad 6,104,449 October 2007(3) 7.49 549,326
Crenshaw-Imperial Shopping Ctr. (1) 5,156,121 July 2020 8.80 534,952
Plaza de Monterey 3,956,664 September 2000(3) 10.13 447,360
San Diego Factory Outlet Center 2,550,747 September 2006 8.67 453,138
Puget Park 2,510,915 July 2007(3) 8.38 267,384
Chambers Creek 1,573,943 February 2017(2)(3) 7.00 153,684
Pleasant Hill 1,550,916 June 1999(3) 9.00 -
Mountaingate Plaza 450,000 October 1999(3) 0.00 -
Powell Note 400,000 November 2000(3) 0.00 200,000
Silver City 300,000 September 2001(3) 4.28 -
------------ -----------
Total $373,483,779 $34,894,675
============ ===========
</TABLE>
- ------------------
(1) "Bankruptcy Remote Property."
(2) Adjusted annually at February 1.
(3) Balloon payment at maturity.
Additionally, at December 31, 1998, the Company had $111,017,713 and
$69,981,538 outstanding under the secured and unsecured portions of its
credit facility, respectively. The following Properties secured the secured
portion of the credit facility: San Diego Factory Outlet Center, Navajo
Shopping Center, Santee Village Square, Poway Plaza, Meridian Village, Auburn
Village, La Mancha Shopping Center, Independence Square, Santa Fe Springs,
Central Shopping Center, Foothill Plaza and Fremont Hub. For a discussion
concerning the Company's credit facility, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources."
In addition, the Company has a construction loan which matures in December
1999, which is secured by 1000 Van Ness. At December 31, 1998, $5,427,000 was
outstanding under this loan at a rate of approximately 7.61%. The Company is
also obligated under three leases, in
16
<PAGE>
connection with the historic portion of 1000 Van Ness. At December 31, 1998,
the present value of the related minimum lease payments is approximately
$15,118,000. The net annual payment under these leases in 1999 is
approximately $1,237,500.
For additional information concerning debt secured by the Company's
Properties, reference is made to Notes 2, 3, 4 and 5 to the Consolidated
Financial Statements.
OFFICE PREMISES LEASED BY THE COMPANY
The Company has entered into leases with third party landlords for the office
space that it occupies for its regional offices (see Notes 12 and 14 to the
Consolidated Financial Statements). Such leases are generally on commercially
standard terms and do not involve any commitments which management believes
are material to its operations or financial condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any material litigation nor, to its
knowledge, is any material litigation threatened against the Company or its
properties, other than routine litigation arising in the ordinary course of
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET DATA
Common Stock of the Company is listed on the New York Stock Exchange under
the symbol "BPP". The following table sets forth the high and low sale prices
of the Common Stock, as reported by the New York Stock Exchange Composite
Tape, and the per share common dividends paid by the Company for each
calendar quarter during 1998 and 1997.
<TABLE>
<CAPTION>
Common
Dividends
Quarter Ended High Low Paid
- ------------- ---- --- ----
<S> <C> <C> <C>
March 31, 1998 $15.63 $14.13 $.2625
June 30, 1998 14.75 13.69 .2625
September 30, 1998 14.81 12.69 .2625
December 31, 1998 13.75 11.63 .2625
March 31, 1997 15.50 12.75 .2500
June 30, 1997 13.88 11.75 .2500
September 30, 1997 14.81 13.50 .2500
December 31, 1997 15.56 12.75 .2500
</TABLE>
At December 31, 1998, there were 2,423 holders of record of the Company's
Common Stock.
RECENT ISSUES OF UNREGISTERED SECURITIES
There were no unregistered securities issued by the Company (or by the
Operating Partnership) during the fourth quarter of the fiscal year ended
December 31, 1998.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read with Management's
Discussion and Analysis of Financial Conditions and Results of Operations,
which is included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
(in thousands except per share amounts)
Years Ended December 31,
OPERATING STATEMENT DATA 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $ 131,723 $ 68,174 $ 47,314 $ 48,669 $ 51,387
========== ======== ======== ======== ========
Income (Loss) From Operations $ 25,434 $ 12,899 $ 9,892 $(14,951) $ 13,164
Gain (Loss) on Sales of Real Estate (1,814) 5,896 2,298 2,233 -
Minority Interest (4,864) (45) (35) - -
---------- -------- -------- ---------- --------
Net Income (Loss) Before Extraordinary
Item $ 18,756 $ 18,750 $ 12,155 $(12,718) $ 13,164
Loss from Early Extinguishment of Debt - (52) (884) - -
---------- -------- -------- ---------- --------
Net Income (Loss) $ 18,756 $ 18,698 $ 11,271 $(12,718) $ 13,164
Dividends Paid to Preferred Stockholders (5,600) - - - -
---------- -------- -------- ---------- --------
Income (Loss) Available to Common
Stockholders $ 13,156 $ 18,698 $ 11,271 $(12,718) $ 13,164
========== ======== ======== ======== ========
Earnings Per Share (Basic):
Income (Loss) Before Extraordinary Item $ 0.44 $ 0.88 $ 0.71 $ (0.75) $ 0.84
Extraordinary Item - - (0.05) - -
---------- -------- -------- ---------- --------
Income (Loss) Available to Common
Stockholders $ 0.44 $ 0.88 $ 0.66 $ (0.75) $ 0.84
========== ======== ======== ======== ========
Earnings Per Share (Diluted):
Income (Loss) Before Extraordinary Item $ 0.44 $ 0.87 $ 0.71 $ (0.75) $ 0.84
Extraordinary Item - - (0.05) - -
---------- -------- -------- ---------- --------
Income (Loss) Available to Common
Stockholders $ 0.44 $ 0.87 $ 0.66 $ (0.75) $ 0.84
========== ======== ======== ======== ========
DIVIDENDS PAID-COMMON $ 31,310 $ 21,856 $ 17,113 $ 22,564 $ 22,723
========== ======== ======== ======== ========
DIVIDENDS PAID PER SHARE-
COMMON $ 1.05 $ 1.00 $ 1.00 $ 1.33 $ 1.42
========== ======== ======== ======== ========
TAXABLE INCOME PER SHARE-
ORDINARY $ 0.65 $ 0.93 $ - $ 0.59 $ 0.95
========== ======== ======== ======== ========
TAXABLE INCOME PER SHARE-
CAPITAL GAIN $ - $ - $ - $ 0.17 $ -
========== ======== ======== ======== ========
BALANCE SHEET DATA
Total Assets $1,114,176 $943,795 $356,195 $327,770 $358,022
Total Notes Payable $ 394,029 $369,511 $105,552 $ 92,173 $ 89,799
Line of Credit Advances $ 180,999 $180,869 $ 72,900 $ 24,933 $ 26,000
Convertible Subordinated Debentures $ - $ - $ - $ 25,700 $ 25,700
Number of Common Shares
Outstanding at Year End 31,954 23,449 17,096 17,082 16,905
Weighted Average Number of Shares-
Basic 29,864 21,335 17,085 17,016 15,732
Weighted Average Number of Shares-
Diluted 30,001 21,521 17,129 17,020 15,732
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
OVERVIEW
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Annual
Report. Historical results and percentage relationships set forth in the
consolidated statements of income contained in the consolidated financial
statements, including trends which might appear, should not be taken as
indicative of future operations. References herein to the Company include
Burnham Pacific Operating Partnership L.P. (the "Operating Partnership") and
the other directly and indirectly owned subsidiaries of the Company unless
the context otherwise requires. Effective in the fourth quarter of 1997, the
Company formed the Operating Partnership and transferred the fee or
beneficial interest in substantially all of its assets to the Operating
Partnership or subsidiaries of the Operating Partnership, thereby becoming
what is commonly referred to as an "UPREIT".
The Company's strategic focus is the development, acquisition,
rehabilitation, and operation of retail shopping centers in the western
United States. At December 31, 1998, the Company owned interests in 72 retail
shopping centers, 71 of which were fully operational, and one of which is
being developed. Fifty-five of the properties are located in California, nine
in Washington, five in Oregon, two in New Mexico, and one in Utah. As of
December 31, 1998, the Company also owned four office/industrial properties
located in Southern California, which are considered non-strategic.
During 1998, the Company entered into a joint venture agreement with the
State of California Public Employees' Retirement System ("CalPERS") to
acquire neighborhood, community, promotional and specialty shopping centers
in the western United States. The Company expects to conduct a significant
portion of its acquisition activity during 1999 in this joint venture.
As part of its ongoing business, the Company regularly engages in discussions
with public and private real estate entities regarding possible portfolio or
asset acquisitions or business combinations.
ACQUISITIONS AND DEVELOPMENTS
During 1998, the Company acquired interests in 14 shopping centers
aggregating 1,017,000 square feet of Company-owned GLA (gross leasable area)
for an aggregate purchase price of approximately $98,343,000.
During 1997, the Company acquired interests in 42 shopping centers
aggregating approximately 5,600,000 square feet of Company-owned GLA at an
aggregate initial purchase price of approximately $598,100,000. Twenty of
these properties aggregating approximately 2,600,000 square feet were
acquired on December 31, 1997, as a portfolio from Golden State Properties.
The initial purchase price was $302,400,000 which was funded through
$150,000,000 of secured indebtedness, $50,000,000 of Preferred Limited
Partnership Units of the Operating Partnership, $70,000,000 of Preferred
Stock of the Company, and $32,400,000 of cash drawn principally from the
Company's credit facility. The Company is obligated to pay up to $41,600,000
of additional consideration for additional value resulting from the lease-up
of certain specified portions of the Golden State Properties and construction
and lease-up of certain additional space
20
<PAGE>
through June 30, 1999. $19,168,000 of such additional consideration was paid
during or for events occurring during 1998.
During 1998, the Company substantially completed the redevelopment of a
mixed-use project in San Francisco, California, totaling 123,840 square-feet,
at an aggregate net cost of approximately $46,200,000. In late 1998,
construction commenced on a 355,000 square-foot shopping center development
in Pleasant Hill, California with a projected net cost of approximately
$72,000,000.
RESULTS OF OPERATIONS
COMPARISON OF 1998 TO 1997. NET INCOME available to common stockholders for
1998 totaled $13,156,000 compared with $18,698,000 in 1997. Net income for
1998 included a loss of $1,814,000 on the sale of two non-core properties
while net income for 1997 included a net gain of $5,896,000 on the sale of
three non-core properties. Income before gain (loss) on the sales of real
estate, extraordinary item and before income allocated to minority interest
increased from $12,899,000 to $25,434,000. Distributions on the Series 1997-A
Convertible Preferred Stock issued in connection with the acquisition of the
Golden State Properties Portfolio on December 31, 1997 amounted to
$5,600,000, while income allocated to minority interest increased to
$4,864,000 from $45,000 in 1997.
TOTAL REVENUES increased $63,549,000 to $131,723,000 in 1998 from $68,174,000
in 1997. This increase is primarily attributable to the acquisition of 28
shopping centers in the fourth quarter of 1997 and an additional 14 centers
during 1998. The increase also included a one-time lease termination fee of
$3,875,000 received in 1998.
RENTAL OPERATING EXPENSES increased $17,827,000 to $36,543,000 in 1998 from
$18,716,000 in 1997. This increase is primarily attributable to the
aforementioned acquisition activity.
INTEREST EXPENSE increased $17,158,000 to $35,630,000 in 1998 from
$18,472,000 in 1997. The increase in interest expense is primarily
attributable to an increase in both notes payable and average borrowings
under the Company's lines of credit related to the aforementioned acquisition
activity. Total debt outstanding (exclusive of $14,828,000 of fixed rate
mortgage debt in unconsolidated subsidiaries) on December 31, 1998 and
related weighted average interest rate were $575,028,000 and 7.49%,
respectively, compared with $550,380,000 and 7.56%, respectively on December
31, 1997. Interest capitalized in conjunction with development and expansion
projects was $6,518,000 for 1998, compared with $3,242,000 for 1997.
DEPRECIATION AND AMORTIZATION EXPENSES increased $13,332,000 to $28,607,000
in 1998 from $15,275,000 in 1997. This increase is primarily related to the
aforementioned acquisition activity.
GENERAL AND ADMINISTRATIVE EXPENSES increased $2,688,000 to $5,723,000 in
1998 from $3,035,000 in 1997. This increase represents the costs associated
with the increased level of operations in the Company, including preparation
for administering the new CalPERS joint venture arrangement.
LOSS ON SALE OF REAL ESTATE. Consistent with its policy of disposing of
non-core properties when reasonable sales proceeds are available, the Company
sold its remaining portion of Plaza Rancho Carmel Shopping Center in 1998 at
a loss of $1,814,000, compared with the sale of the original portion of that
center and two other non-core properties in 1997 at a net gain of $5,896,000.
21
<PAGE>
Also in 1998, the Company sold the parking garage at its 1000 Van Ness
property for $13,125,000. No gain or loss resulted from this sale.
Income allocated to MINORITY INTEREST increased $4,819,000 to $4,864,000 in
1998 from $45,000 in 1997. This increase reflects the issuance of preferred
and common operating partnership units as a portion of the consideration for
various acquisitions in late 1997 and 1998.
COMPARISON OF 1997 TO 1996. NET INCOME increased $7,427,000 to $18,698,000 in
1997 from $11,271,000 in 1996. The increase in net income was primarily
attributable to increased net operating income aggregating $15,157,000,
resulting from new leasing and higher levels of expense reimbursement of core
portfolio properties and from additional shopping centers acquired or
developed in 1997, an increase in income from unconsolidated subsidiaries of
$223,000, and an increase in gain on sales of real estate of $3,598,000. The
aforementioned increases to net income were partially offset by increases in
depreciation and amortization, general and administrative expenses and
interest expense of $4,025,000, $620,000, and $7,728,000, respectively.
TOTAL REVENUES increased $20,860,000 to $68,174,000 in 1997 from $47,314,000
in 1996. This increase was primarily attributable to the acquisition activity
in 1997.
RENTAL OPERATING EXPENSES increased $5,703,000 to $18,716,000 in 1997 from
$13,013,000 in 1996. This increase was primarily attributable to the addition
of new properties in 1997.
INTEREST EXPENSE increased $7,728,000 to $18,472,000 in 1997 from $10,744,000
in 1996. The overall increase in interest expense was primarily related to
the 1997 acquisitions. The debt outstanding (exclusive of $15,035,000 of
fixed rate mortgage debt in unconsolidated subsidiaries) on December 31, 1997
and related weighted average interest rate were $550,380,000 and 7.56%,
respectively, compared with $178,452,000 and 8.0%, respectively on December
31, 1996. Interest capitalized in conjunction with development and expansion
projects was $3,242,000 for 1997, compared with $1,658,000 for 1996.
DEPRECIATION AND AMORTIZATION EXPENSES increased $4,025,000 to $15,275,000 in
1997 from $11,250,000 in 1996. The increase was primarily attributable to the
growth related to the shopping centers acquired in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES increased $620,000 to $3,035,000 in 1997
from $2,415,000 in 1996. The increase was attributable to the growth of the
Company primarily related to the 1997 acquisitions and developments.
GAIN ON SALES OF REAL ESTATE. In February 1997, the Company disposed of a
portion of its Plaza Rancho Carmel Shopping Center for $735,000. On June 11,
1997, title to the Company's Village Station Shopping Center was conveyed to
the holder of the $3,900,000 non-recourse mortgage secured by the property.
No gain or loss resulted from either of these events. In December 1997, the
Company sold its Pacific West Outlet Center for approximately $38,500,000,
resulting in a gain of $5,896,000.
22
<PAGE>
FUNDS FROM OPERATIONS
The Company considers FUNDS FROM OPERATIONS ("FFO") to be a relevant
supplemental measure of the performance of an equity REIT since such measure
does not recognize depreciation and certain amortization expenses as
operating expenses. Management believes that reductions for these charges are
not meaningful in evaluating income producing real estate, which historically
has not depreciated. 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 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.
In 1998, diluted FFO increased $24,968,000 to $52,022,000, compared with
$27,054,000 in 1997. This increase was net of several effects, but was
primarily attributable to the acquisition activity during the last quarter of
1997 and 1998. In 1997, diluted FFO increased $6,553,000 to $27,054,000,
compared with $20,501,000 in 1996. The increase was net of several effects,
but was primarily attributable to the increase in revenues from core
portfolio properties, acquisitions, and developments. The Company's
calculation of basic and diluted FFO is as follows (in thousands):
<TABLE>
<CAPTION>
For the Years Ended
-------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income Available to Common Stockholders $13,156 $18,698 $11,271
Adjustments:
Loss (Gain) on Sales of Real Estate 1,814 (5,896) (2,298)
Depreciation and Amortization of Real Estate and Tenant
Improvements 26,588 14,155 10,609
Early Extinguishment of Debt - 52 884
------ ------- -------
Funds from Operations - Basic 41,558 27,009 20,466
------ ------- -------
Adjustments:
Dividends Paid to Preferred Stockholders 5,600 - -
Minority Interest 4,864 45 35
------ ------- -------
Funds from Operations - Diluted $52,022 $27,054 $20,501
======= ======= =======
</TABLE>
23
<PAGE>
CASH FLOWS
COMPARISON OF 1998 TO 1997. Cash and cash equivalents were $20,873,000 and
$6,841,000 at December 31, 1998 and 1997, respectively. Cash and cash
equivalents increased $14,032,000 during 1998 compared with an increase of
$2,746,000 in 1997. The increase is due to a $20,725,000 increase in net cash
provided by operating activities from $26,880,000 to $47,605,000 and a
$285,889,000 decrease in net cash used by investing activities from
$386,348,000 to $100,459,000, offset by a $295,328,000 decrease in net cash
provided by financing activities from $362,214,000 to $66,886,000. The
principal reasons for the increase in cash provided by operating activities
of $20,725,000 are discussed in Results of Operations above. The decrease in
net cash used in investing activities of $285,889,000 is primarily
attributable to a decrease in acquisitions of real estate and capital
improvements of $299,183,000, reimbursements of development costs of
$11,362,000, and an advance from joint venture partner of $22,195,000, offset
by a decrease in proceeds from sales of real estate of $49,923,000. The
decrease in net cash provided by financing activities of $295,328,000 is
primarily attributable to a decrease of $316,681,000 in net borrowings
resulting from the decrease in acquisition activity, an increase in dividends
paid of $15,054,000, and an increase in distributions to minority interests
of $5,373,000, offset by an increase in proceeds from the issuance of common
stock of $39,807,000.
COMPARISON OF 1997 TO 1996. Cash and cash equivalents were $6,841,000 and
$4,095,000 at December 31, 1997 and 1996, respectively. Cash and cash
equivalents increased $2,746,000 during 1997 compared with an increase of
$2,552,000 in 1996. The increase is due to a $9,324,000 increase in cash
provided by operating activities from $17,556,000 to $26,880,000 and a
$343,819,000 increase in net cash provided by financing activities from
$18,395,000 to $362,214,000, offset by an increase in net cash used by
investing activities of $352,949,000 from $33,399,000 to $386,348,000. The
principal reasons for the increase in net cash provided by operating
activities of $9,324,000 are discussed in Results of Operations above. The
increase in net cash used by investing activities of $352,949,000 is
primarily attributable to an increase in acquisitions of real estate and
capital improvements of $376,776,000, offset by an increase in proceeds from
sales of real estate of $24,621,000. The increase in net cash provided by
financing activities of $343,819,000 is primarily attributable to an increase
in net borrowings of $280,836,000 and an increase in net proceeds from the
issuance of common stock of $73,175,000, both relating to the increased
acquisition activity.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash flow from operating activities will
continue to provide adequate capital for all payments on notes payable,
tenant improvements, distributions to minority interest holders, preferred
stock dividends, and common stock dividend payments in accordance with REIT
requirements through the end of 1999. However, the Company will require
additional sources of capital to finance the acquisition and development of
additional properties. Sources of this additional capital may include cash on
hand, borrowings under credit facilities and mortgage indebtedness, proceeds
from sales of non-strategic assets, the sale of interests in certain
properties to third parties, the issuance of Operating Partnership units to
contributors of properties and, to the extent market conditions permit, the
issuance of debt or equity securities. However, there can be no assurances
that capital necessary to finance future acquisitions and developments will
be available on acceptable terms or at all.
24
<PAGE>
The Company satisfied its REIT requirement under the Internal Revenue Code by
distributing at least 95% of ordinary taxable income with distributions to
stockholders of $36,910,000 in 1998, of which $5,600,000 was to holders of
preferred stock and $31,310,000 to holders of common stock. Accordingly,
Federal income taxes were not incurred at the corporate level.
FINANCING ACTIVITIES
The acquisitions and developments described above were financed through cash
provided from operating activities, revolving credit facilities, new
mortgages, mortgages assumed, construction loans, issuance of Operating
Partnership units, and issuance of preferred and common stock of the Company.
Total debt outstanding at December 31, 1998 was $575,028,000, compared with
$550,380,000 at December 31, 1997.
The Company currently maintains a credit facility with Capital Company of
America in the amount of $205,000,000 of which $135,000,000 is to be secured
by various mortgages and $70,000,000 is unsecured. At December 31, 1998,
borrowings of approximately $180,999,000 were outstanding of which
$111,018,000 and $69,981,000 were outstanding under the secured and unsecured
portions, respectively. Borrowings under the secured and unsecured portions
of the credit facility bear interest at rates of LIBOR plus 1.40% and LIBOR
plus 1.50%, respectively. In connection with the Company's transfer of
substantially all of its assets to the Operating Partnership in December
1997, the Operating Partnership became the principal obligor under the credit
facility, which is now guaranteed by the Company. The credit facility is
scheduled to mature in November 1999. Capital Company of America 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, will not entertain a
request to renew the facility at maturity. The Company intends to refinance
the facility with another lender prior to the maturity date.
At December 31, 1998, the Company had $5,427,000 outstanding under a
construction loan agreement with a bank, secured by one of the Company's
development properties. Borrowings under this loan bear interest at LIBOR
plus 1.90%. The loan is scheduled to mature in December 1999.
In March 1998, the Company issued 8,440,500 common shares and received net
proceeds of approximately $112,471,000, which was used to retire debt. In May
1997, the Company issued 6,325,000 common shares and received net proceeds of
approximately $73,125,000, which was used to retire debt.
On December 31, 1997, the Company issued 2,800,000 shares of Series 1997-A
Convertible Preferred Stock to affiliates of Westbrook Real Estate
Partnership II, L.P., and Westbrook Real Estate Co-Investment Partnership II,
L.P. and received $70,000,000 of proceeds. The Company used the proceeds to
finance, in part, the acquisition of the Golden State Properties Portfolio.
The Series A Preferred Stock has a dividend yield of 8% and is convertible
into common stock at a conversion price per share initially equal to $15.375.
At the same time, the Company issued 2,000,000 Series 1997-A Preferred
Limited Partnership Units (the "Preferred Units") of the Operating
Partnership to Blackacre Capital Group, L.P. and Highridge Partners
representing $50,000,000 of the initial consideration for the acquisition of
the Golden State Properties Portfolio. The Preferred Units were issued on
terms comparable to the Company's Series A Preferred Stock and, subject to
the satisfaction of certain conditions, are exchangeable on a 1-for-1 basis
for shares of Series A Preferred Stock.
25
<PAGE>
Portions of the consideration for seven shopping centers acquired during 1998
and six shopping centers acquired during 1997 consisted of an aggregate of
1,195,007 and 576,129 Common Units of the Operating Partnership, respectively
(or of other limited partnership subsidiaries of the Operating Partnership).
Subject to the satisfaction of certain conditions, each such Common Unit is
exchangeable on a 1-for-1 basis for a share of Common Stock of the Company.
At December 31, 1998, the Company's capitalization consisted of $575,028,000
of debt (excluding the Company's proportionate share of joint venture
mortgage debt of $14,828,000), $120,000,000 stated value of Preferred Stock
and Preferred Limited Partnership Units of the Operating Partnership, and
$408,430,000 of market equity (market equity is defined as (a) the sum of (i)
outstanding shares of Common Stock of the Company and (ii) outstanding Common
Units of the Operating Partnership, held by partners of the Operating
Partnership other than the Company, multiplied by (b) the closing price of
the shares of Common Stock on the New York Stock Exchange at December 31,
1998 of $12.0625) resulting in total debt plus equity capitalization of
$1,103,458,000 and a ratio of debt to total capitalization of .52 to 1.0.
Comparable ratios at December 31, 1997 and 1996 were .53 to 1.0 and .41 to
1.0, respectively. At December 31, 1998, the Company's total debt consisted
of $371,910,000 of fixed rate debt, and $203,118,000 of variable rate debt.
It is management's intention that the Company has access to the capital
resources necessary to expand and develop its business. Accordingly, the
Company may seek to obtain funds through additional borrowings and public
offerings and private placements of debt and equity securities. At December
31, 1998, the Company had effective shelf registration statements on file
with the Securities and Exchange Commission relating to an aggregate of
$202,144,000 registered and unissued equity securities.
INVESTMENT IN JOINT VENTURES
In August 1998, the Operating Partnership and CalPERS entered into a joint
venture agreement for the acquisition of neighborhood, community, promotional
and specialty shopping centers in the western United States. The joint
venture agreement contemplates an aggregate $400,000,000 investment by
CalPERS and $100,000,000 investment by the Operating Partnership, and
provides for up to $165,000,000 of leverage through mortgage or line of
credit borrowings by the joint venture. On October 1, 1998, CalPERS made an
initial contribution to the joint venture of five retail properties valued at
approximately $80,000,000. During the fourth quarter, the joint venture
purchased five retail properties for approximately $38,261,000. On December
22, 1998, the Operating Partnership made an initial contribution of two
retail properties valued at approximately $22,195,000. On the same date, the
Operating Partnership withdrew approximately $22,195,000 in cash from the
joint venture pending finalization of the remainder of its required
contributions, which is expected to be completed in the first quarter of
1999. The Company expects to conduct a significant portion of its acquisition
activity during 1999 in the CalPERS joint venture.
On March 9, 1999, the joint venture agreed to acquire 28 shopping centers
owned by AMB Property Corporation aggregating 5.1 million square feet for
approximately $663.4 million. The properties are to be acquired in three
separate transactions, currently expected to close on or about April 30, July
31, and December 1, 1999. The Company has agreed to acquire six additional
shopping centers from AMB aggregating 1.5 million square feet for
approximately $284.4 million; if completed, this purchase, which is subject
to the Company's obtaining financing and other conditions, is currently
expected to close by year-end 1999. In connection
26
<PAGE>
with the AMB transaction, CalPERS and the Company agreed to increase the
aggregate amount of indebtedness that the joint venture might incur through
December 31, 2000 to approximately $450,000,000 and the Company granted
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.
YEAR 2000 ISSUES
The statements under this caption include "Year 2000 Readiness Disclosures"
within the meaning of the Year 2000 Readiness Disclosure Act of 1998, which
Act does not, however, relieve the Company from any responsibilities or
liabilities it may have under the Federal securities laws.
The Company continues to identify its Year 2000 issues, with the evaluation
process approximately half completed at December 31, 1998. The Company's
approach to becoming Year 2000 ready includes a standard set of methods and
tools, including taking inventory, renovating if necessary, and testing.
Management 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 materially Year 2000
ready and a version of the software which is fully Year 2000 ready will be
available during the first quarter of 1999. Depending on the timing of the
availability of this updated software, the Company plans to install it in the
first or the second quarter of 1999. The Company believes that the hardware
used to run its software is Year 2000 ready.
The Company is completing an inventory of the Year 2000 readiness status of
the computer hardware and software used to run the property operating systems
such as security, energy, elevator and safety systems at its properties. Once
this inventory is complete, the Company will test the time-sensitive systems
that it believes to be Year 2000 ready. Any systems found not to be Year 2000
ready will be reprogrammed or replaced.
The Company's ability to complete the Year 2000 modifications outlined above
prior to any anticipated impact on its operating systems is based on numerous
assumptions of future events and is dependent upon numerous factors,
including the ability of third party software and hardware 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 its own systems are Year 2000 ready, the Company's business
could still be disrupted if its tenants, business partners, suppliers and
other parties are not ready. Management is currently surveying material
vendors and tenants regarding the Year 2000 readiness status of their
computer hardware and software, and will review the results of this survey,
assess the impact of the results on the Company's operations and take
appropriate corrective actions. Testing may be required for several, but not
all, third parties. Test strategies and schedules will be tailored to each
situation once management understands the respective requirements and
readiness levels.
The Company's business could be harmed if other entities, including the
governmental units and utility companies that provide services to its
properties and their respective tenants and customers fail to be Year 2000
ready. In addition to significant tenants, the Company is seeking to
ascertain the Year 2000 readiness of each utility company servicing each
property and of each
27
<PAGE>
city, town, county or other governmental unit providing police, fire, traffic
control and other governmental services relevant to the efficient operation
of the property.
After the survey of the Year 2000 readiness of other parties, management
intends to determine if the Company will need any contingency plans to deal
with the non-readiness of others. At the present time, management does not
believe that Year 2000 non-readiness of tenants is likely to have any
significant effect on the Company and its operations. However, if a major
tenant is not Year 2000 ready, its business could suffer. This could result
in that tenant's inability to pay rent, and a decrease in customer traffic
and business of other tenants at that property.
Management does not anticipate that contingency plans will be needed to deal
with tenant non-readiness. However, contingency plans may be needed 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. Management
believes that the most reasonable worst-case Year 2000 scenario that may
affect the Company would be a prolonged failure of a supplier of these
services, particularly utility services, that may harm operations of one or
several tenants at one or several locations.
EFFECTS OF INFLATION
Substantially all of the Company's leases contain provisions designed to
mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. Such
escalation clauses are often related to increases in the consumer price index
or similar inflation indices. Most of the Company's leases require the tenant
to pay its share of operating expenses, including common area maintenance,
real estate taxes and insurance, thereby reducing the Company's exposure to
increases in these operating expenses resulting from inflation to the extent
that its properties are occupied. The Company periodically evaluates its
exposure to short-term interest rates and may, from time to time, enter into
interest rate protection agreements which mitigate, but do not eliminate, the
effect of changes in interest rates on its floating-rate loans.
CERTAIN CAUTIONARY STATEMENTS
Certain of the statements in this Management's Discussion and Analysis
section are forward-looking statements. See "Forward Looking Statements and
Certain Risk Factors" at the beginning of this report for certain risks,
uncertainties and other factors which may cause the actual results of the
Company to be materially different from historical results or from any
results expressed or implied by such forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The Company's quantitative and qualitative disclosures of market risk can be
found in the "Forward Looking Statements and Certain Risk Factors" at the
beginning of this report; "Indebtedness" (Item 2 herein); "Financing
Activities" (Item 7 herein); and Notes 2, 4 and 5 to the consolidated
financial statements (Item 8 herein).
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Burnham
Pacific Properties, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedule listed in Item 14(a). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Burnham Pacific Properties, Inc.
as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
//Deloitte & Touche LLP//
San Diego, California
February 23, 1999
(March 9, 1999 as to paragraph 4 of Note 18)
29
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(in thousands, except share amounts)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Real Estate $1,137,779 $964,755
Less Accumulated Depreciation (79,837) (55,823)
---------- --------
Real Estate-Net 1,057,942 908,932
Cash and Cash Equivalents 20,873 6,841
Restricted Cash 7,737 5,242
Receivables-Net 7,697 7,456
Investment in Unconsolidated Subsidiaries 3,438 3,683
Other Assets 16,489 11,641
---------- --------
Total $1,114,176 $943,795
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable and Other Liabilities $ 50,572 $ 19,296
Tenant Security Deposits 2,982 2,396
Notes Payable 394,029 369,511
Line of Credit Advances 180,999 180,869
---------- --------
Total Liabilities 628,582 572,072
---------- --------
Commitments and Contingencies
Minority Interest 70,217 58,759
---------- --------
Preferred Stock - 28,160
---------- --------
Stockholders' Equity:
Preferred Stock, Par Value $.01/share, 5,000,000 Shares Authorized, Series
1997-A Convertible Preferred, 2,800,000 Shares Outstanding at
December 31, 1998 and 1997 28 17
Common Stock, Par Value $.01/share, 95,000,000 Shares Authorized, 31,954,008 and
23,448,852 Shares Outstanding at December 31, 1998 and
1997, respectively 319 234
Paid in Capital in Excess of Par 524,957 376,326
Dividends Paid in Excess of Net Income (109,927) (91,773)
---------- --------
Total Stockholders' Equity 415,377 284,804
---------- --------
Total $1,114,176 $943,795
========== ========
See the Accompanying Notes
</TABLE>
30
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Rents $ 130,905 $ 67,413 $ 46,864
Interest 818 761 450
--------- -------- --------
Total Revenues 131,723 68,174 47,314
--------- -------- --------
COSTS AND EXPENSES
Interest 35,630 18,472 10,744
Rental Operating 36,543 18,716 13,013
General and Administrative 5,723 3,035 2,415
Depreciation and Amortization 28,607 15,275 11,250
--------- -------- --------
Total Costs and Expenses 106,503 55,498 37,422
--------- -------- --------
Income from Operations Before Income from
Unconsolidated Subsidiaries, Minority Interest,
Gain (Loss) on Sales of Real Estate, and
Extraordinary Item 25,220 12,676 9,892
Income from Unconsolidated Subsidiaries 214 223 -
Minority Interest (4,864) (45) (35)
Gain (Loss) on Sales of Real Estate (1,814) 5,896 2,298
--------- -------- --------
Income Before Extraordinary Item 18,756 18,750 12,155
Extraordinary Loss From Early
Extinguishment of Debt - (52) (884)
--------- -------- --------
Net Income $18,756 $ 18,698 $ 11,271
Dividends Paid to Preferred Stockholders (5,600) - -
--------- -------- --------
Income Available to Common Stockholders $13,156 $18,698 $11,271
========= ======== ========
Basic Earnings Per Common Share:
Income Before Extraordinary Item $ 0.44 $ 0.88 $ 0.71
Extraordinary Item - - (0.05)
--------- -------- --------
Income Available to Common Stockholders $ 0.44 $ 0.88 $ 0.66
========= ======== ========
Diluted Earnings Per Common Share:
Income Before Extraordinary Item $ 0.44 $ 0.87 $ 0.71
Extraordinary Item - - (0.05)
--------- -------- --------
Income Available to Common Stockholders $ 0.44 $ 0.87 $ 0.66
========= ======== ========
See the Accompanying Notes
</TABLE>
31
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997
and 1996 (in thousands, except share amounts)
<TABLE>
<CAPTION>
Series
1997-A Paid in Notes Dividends
Convertible Common Capital Receivable Paid in
Preferred Stock Stock in Directors' Excess
--------------- ---------------- Excess Stock of Net
Shares Amount Shares Amount of Par Purchase Income Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 17,081,670 $ 262,130 $ (197) $ (82,773) $179,160
Directors' Fees 15,000 210 210
Dividend Reinvestment -
Fractional Shares Retired (218)
Payment of Notes Receivable -
Stock Purchase Plan 197 197
Net Income 11,271 11,271
Dividends Paid-Common (17,113) (17,113)
--------- ------- ---------- --------- ------- --------- ---------
Balance, December 31, 1996 17,096,452 262,340 - (88,615) 173,725
Issuance of Common Stock:
Public Offering-Net 6,325,000 73,125 73,125
Directors' Fees 23,400 76 $ 252 328
Exercised Options 4,000 50 50
Change in Common Stock
Par Value (335,307) 335,307 -
Issuance of 2,800,000 Shares, Series
1997-A Convertible Preferred Stock 2,800,000 $ 17 40,717 40,734
Net Income 18,698 18,698
Dividends Paid-Common (21,856) (21,856)
--------- ------- ---------- --------- ------- ------- --------- --------
Balance, December 31, 1997 2,800,000 17 23,448,852 234 376,326 - (91,773) 284,804
Issuance of Common Stock:
Public Offering- Net 8,440,518 85 112,386 112,471
Directors' Fees 24,000 329 329
Exercised Options 40,638 511 511
Stock Options-Compensation Expense 275 275
Preferred Stock Reclass 11 28,149 28,160
Adjustment to reflect minority
interest on a pro rata basis
according to year-end ownership
percentage of Operating Partnership 6,981 6,981
Net Income 18,756 18,756
Dividends Paid - Common (31,310) (31,310)
Dividends Paid - Preferred (5,600) (5,600)
--------- ------- ---------- --------- ------- ------- --------- --------
Balance, December 31, 1998 2,800,000 $ 28 31,954,008 $ 319 $524,957 $ - $(109,927) $415,377
========= ======= ========== ========= ======== ======= ========= ========
See the Accompanying Notes
</TABLE>
32
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 18,756 $18,698 $11,271
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 28,607 15,275 11,250
Loss (Gain) on Sales of Real Estate 1,814 (5,896) (2,298)
Extraordinary Loss from Early Extinguishment of Debt - 52 884
Provision for Bad Debt 694 496 410
Compensation Expense-Directors' Fees 329 328 210
Compensation Expense-Stock Options 275 - -
Minority Interest 4,864 45 35
Changes in Other Assets and Liabilities:
Receivables and Other Assets (11,407) (9,430) (2,300)
Accounts Payable and Other Liabilities 3,087 5,845 (1,667)
Tenant Security Deposits 586 1,467 (239)
-------- -------- -------
Net Cash Provided by Operating Activities 47,605 26,880 17,556
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Acquisitions of Real Estate and
Capital Improvements (152,704) (451,887) (75,111)
Proceeds from Sales of Real Estate 15,573 65,496 40,875
Reimbursements of Development Costs from Related Party 11,362 - -
Advance from Joint Venture 22,195 - -
Principal Payments on Notes Receivable 3,115 43 837
-------- -------- -------
Net Cash Used by Investing Activities (100,459) (386,348) (33,399)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings Under Line of Credit Agreements 83,130 254,320 128,918
Repayments Under Line of Credit Agreements (83,000) (146,351) (80,951)
Principal Payments of Notes Payable (46,946) (37,540) (1,896)
Proceeds from Issuance of Notes Payable 46,317 245,753 15,275
Restricted Cash (2,495) (5,242) -
Dividends Paid (36,910) (21,856) (17,113)
Issuance of Stock, Net 112,982 73,175 -
Distributions Made to Minority Interest Holders (5,418) (45) (35)
Payment for Minority Interest (774) - -
Redemption of Convertible Debentures - - (26,000)
Repayments on Notes Receivable-
Directors' Stock Purchase - - 197
-------- -------- -------
Net Cash Provided by Financing Activities 66,886 362,214 18,395
-------- -------- -------
Net Increase in Cash and Cash Equivalents 14,032 2,746 2,552
Cash and Cash Equivalents at Beginning of Year 6,841 4,095 1,543
-------- -------- -------
Cash and Cash Equivalents at End of Year $ 20,873 $ 6,841 $ 4,095
======== ======= =======
Continued...
33
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in thousands)
(continued)
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Year for Interest,
Net of Capitalized Amounts $ 34,240 $ 17,803 $ 11,390
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Notes Payable and Obligations Assumed $25,147 $61,008 $ -
Operating Partnership Units Issued
in Connection with Real Estate Acquisitions 18,313 58,325 -
Proceeds from Notes Payable - 176,900 -
Liability Due to Seller 9,912 - -
Cash Paid for Real Estate 22,887 104,533 -
Issuance of Convertible Preferred Stock - 70,000 -
Other - 3,107 -
-------- -------- --------
Fair Value of Real Estate Acquired $76,259 $473,873 $ -
======= ======== ========
See the Accompanying Notes
</TABLE>
34
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Burnham Pacific Properties, Inc. (the "Company") is a real estate operating
company which acquires, rehabilitates, develops and manages retail properties
in the western United States. On November 14, 1997, the Company formed
Burnham Pacific Operating Partnership, L.P. (the "Operating Partnership")
under the Delaware Revised Uniform Limited Partnership Act, and subsequently
transferred to the Operating Partnership legal or beneficial ownership of
substantially all of the real property and related personal property owned by
the Company and its subsidiaries and of the beneficial interest owned by the
Company and its subsidiaries in any partnership or limited liability company
that owns a direct or indirect interest in real property and related personal
property. The Operating Partnership is the vehicle through which the Company
owns its current properties, will make its future acquisitions, and generally
conducts its business.
As of December 31, 1998, the Company owns an approximately 86.1% economic
interest in the Operating Partnership and is its sole general partner.
The Company, primarily through the Operating Partnership and subsidiaries of
the Operating Partnership, owns interests in 72 retail shopping centers, 71
of which were fully operational, and one of which is being developed.
Fifty-five of the properties are located in California, nine in Washington,
five in Oregon, two in New Mexico, and one in Utah. As of December 31, 1998,
the Company also owned four office/industrial properties located in Southern
California. The Company has elected to qualify as a real estate investment
trust ("REIT") for Federal income tax purposes.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and the Operating Partnership and subsidiaries of the Operating
Partnership. All significant intercompany balances and transactions have been
eliminated in consolidation.
The 13.9% limited partner interest in the Operating Partnership not owned by
the Company is reflected in these financial statements as minority interest.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
35
<PAGE>
REAL ESTATE
Real estate is stated at cost or, in the case of real estate which management
believes is impaired, at the lower fair value of such properties. Additions,
renovations and improvements are capitalized. The Company reviews real estate
for impairment whenever events or changes in circumstances indicate that an
asset's book value exceeds the undiscounted expected future cash flows to be
derived from that asset. Whenever undiscounted expected future cash flows are
less than the book value, the asset will be reduced to a value equal to the
net present value of the expected future cash flows and an impairment loss
will be recognized. Maintenance and repairs which do not extend asset lives
are expensed as incurred. Depreciation is computed using the straight-line
method over estimated useful lives ranging from 14 to 30 years for buildings,
2 to 17 years for improvements, and 3 to 10 years for furniture, fixtures and
equipment.
AMORTIZATION
Deferred loan fees, direct lease costs and certain other costs are amortized
using the straight-line method over the related estimated life.
STRAIGHT-LINE RENT
As of December 31, 1998 and 1997, approximately $4,973,000 and $2,463,000,
respectively, of straight-line rent is included in Other Assets.
INCOME TAXES
Income taxes have not been provided as the Company believes that it has met
all requirements in 1998, 1997 and 1996 to qualify as a REIT under Internal
Revenue Code Sections 856-860 including the distribution of at least 95% of
ordinary taxable income to stockholders. Taxable income differs from net
income for financial reporting purposes principally because of differences in
the timing of recognition of interest, depreciation, rental revenue, and
sales of assets. The reported amounts of the Company's net assets at December
31, 1998 was greater than their tax basis for Federal purposes by
approximately $52,299,000.
NET INCOME PER SHARE
Net income per share is calculated using the weighted average number of
shares outstanding during each year. At December 31, 1997, the Company
adopted the Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share (EPS). This
statement requires the presentation of earnings per share to reflect both
"Basic EPS" and "Diluted EPS" on the face of the income statement.
Basic earnings per share is calculated on the weighted average shares of
common stock outstanding during the period. Diluted earnings per share
includes the effect of all potential common shares.
36
<PAGE>
The following table is the reconciliation from the basic to the diluted EPS
computations for "net income" for 1998, 1997 and 1996 (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net Income $18,756 $18,698 $11,271
Less:
Dividends Paid to Preferred Stockholders (5,600) - -
------- ------- -------
Income Available to Common Stockholders for
Basic Earnings Per Share 13,156 18,698 11,271
Effect of Dilutive Securities:
Operating Partnership Units - 45 35
Convertible Preferred Stock - 15 -
------- ------- -------
Income Available to Common Stockholders for
Diluted Earnings Per Share $13,156 $18,758 $11,306
======= ======= =======
Denominator:
Shares for Basic Earnings Per Share -
weighted average shares outstanding 29,864 21,335 17,085
Effect of Dilutive Securities:
Operating Partnership Units - 55 42
Convertible Preferred Stock - 12 -
Stock Options 137 119 2
------- ------- -------
Shares for Diluted Earnings Per Share 30,001 21,521 17,129
======= ======= =======
Basic Earnings Per Share $ 0.44 $ 0.88 $ 0.66
======= ======= =======
Diluted Earnings Per Share $ 0.44 $ 0.87 $ 0.66
======= ======= =======
</TABLE>
In 1998, dividends and shares from conversion of Preferred Stock and minority
interest and shares from the conversion of operating partnership units were
excluded from the diluted earnings per share calculations because they were
anti-dilutive. (There was no Preferred Stock for the 1996 period presented).
Options to purchase 329,373 shares at price ranges of $14.50 to $18.88 per
share were outstanding as of December 31, 1998, but were not included in the
computation of diluted EPS because the options' exercise price was greater
than the market price of the Common Stock of the Company.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and certificates of deposit with original maturities of less than 90 days.
RESTRICTED CASH
Restricted cash is required to be held in escrow accounts as specified by the
terms of certain of the Company's notes payable at December 31, 1998 and
1997. The restricted cash is to be used to pay for insurance, taxes and
capital expenditures pertaining to the related real estate that
collateralizes the notes payable.
ACCOUNTS RECEIVABLE
Accounts receivable is net of an allowance for doubtful accounts of
approximately $1,778,000 and $1,311,000 at December 31, 1998 and 1997,
respectively.
37
<PAGE>
FINANCIAL INSTRUMENTS
The carrying values reflected in the consolidated balance sheets at December
31, 1998 and 1997 reasonably approximate the fair values for cash and cash
equivalents, receivables, accounts payable, and line of credit advances. In
making such assessment, the Company has utilized discounted cash flow
analyses, estimates, and quoted market prices as appropriate. At December 31,
1998, the Company estimated that the fair value of notes payable was greater
than their carrying value by approximately $2,620,000. At December 31, 1997,
the Company estimated that the fair value of notes payable was lower than
their carrying value by approximately $9,736,000.
REDEEMABLE SECURITIES
At December 31, 1997, the Company had a contingent obligation to redeem
1,126,386 shares of its 2,800,000 shares of Series 1997-A Convertible
Preferred Stock outstanding; therefore, the value of such potentially
redeemable shares of approximately $28,160,000 was not included in
Stockholders' Equity at December 31, 1997. During 1998, this contingent
obligation was relieved and as a result, $28,160,000 was reclassified into
Stockholders' Equity.
STATEMENT OF POSITION 98-5
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("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 as incurred. The Company will be required
to adopt the SOP in the first quarter of 1999 as a cumulative effect of a
change in accounting principle. The implementation of this SOP will require
the Company to write-off unamortized organization costs of approximately
$2,500,000.
RECLASSIFICATIONS
Certain of the 1997 and 1996 amounts have been reclassified to conform to the
1998 presentation.
2. REAL ESTATE
SUMMARY: Real Estate is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<C> <C>
Retail Centers $1,038,978 $845,536
Office/Industrial Buildings 57,876 57,846
Retail Centers Under Development 34,814 56,443
Other 6,111 4,930
---------- --------
Total Real Estate 1,137,779 964,755
Accumulated Depreciation (79,837) (55,823)
---------- --------
Real Estate - net $1,057,942 $908,932
========== ========
</TABLE>
38
<PAGE>
The real estate is leased to tenants under leases expiring at various dates
through 2047. Certain of these leases contain provisions for rent increases
based on cost-of-living indices and certain leases contain renewal options of
up to 55 years. Future minimum rental income to be received by the Company
under the terms of these operating leases is as follows as of December 31,
1998 (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1999 $108,079
2000 95,648
2001 85,156
2002 74,899
2003 64,711
Later Years 421,558
--------
Total $850,051
========
</TABLE>
Fifty-eight properties, including the twenty-eight Bankruptcy Remote
Properties described in the following paragraph, having a net book value of
approximately $878,871,000 at December 31, 1998, are pledged as collateral
for notes payable described in Notes 4 and 5. In addition, the notes are
secured by assignments of rents on such real estate. Certain real estate is
located on land which is subject to noncancelable ground leases expiring at
various dates through 2089 with minimum annual lease payments of
approximately $2,370,000.
BANKRUPTCY REMOTE PROPERTIES: Twenty-eight properties having a net book value
of approximately $515,865,000 at December 31, 1998, (collectively the
"Bankruptcy Remote Properties," and each a "Bankruptcy Remote Property") are
wholly-owned by various "Bankruptcy Remote Entities". Each Bankruptcy Remote
Entity is an indirect subsidiary of the Company. The assets of each
Bankruptcy Remote Entity, including the respective Bankruptcy Remote Property
or Properties owned by each, are owned by that Bankruptcy Remote Entity alone
and are not available to satisfy claims that any creditor may have against
the Company, its affiliates, or any other person or entity. No Bankruptcy
Remote Entity has agreed to pay or make its assets available to pay creditors
of the Company, any of its affiliates, or any other person or entity. Neither
the Company nor any of its affiliates has agreed to pay or make its assets
available to pay creditors of any Bankruptcy Remote Entity (other than any
agreement by a Bankruptcy Remote Entity to pay its own creditors). No
affiliate of any Bankruptcy Remote Entity has agreed to pay or make its
assets available to pay creditors of any Bankruptcy Remote Entity.
DEVELOPMENT PROPERTIES: During 1995, the Company and various persons
affiliated with The Martin Group of Companies, Inc., a San Francisco-based
real estate development firm owned by J. David Martin, president and chief
executive officer of the Company, executed definitive documents relating to
the Company's acquisition of interests in certain retail properties in the
San Francisco Bay area (the "Martin Properties"). Each of the Martin
Properties is currently owned by a separate limited partnership of which the
Company is general partner and Mr. Martin and various other persons
affiliated with The Martin Group (collectively, including Mr. Martin, the
"Martin Group Affiliates") are the limited partners. Each of the partnership
agreements contemplates that the Company will acquire or develop a specified
Martin Property through the relevant partnership and that upon completion and
stabilization of rental revenues from the property, the limited partners will
receive a number of limited partnership units determined as follows: (i) the
annualized net operating income of the Martin Property will be multiplied by
10 in order to arrive at a hypothetical value of the completed property, (ii)
the cost of construction and other project costs will be deducted from such
hypothetical value in order to "value" the equity interests of the limited
partners in the Martin Property, and (iii) such equity interest will be
stated as a number of limited partnership units determined by dividing such
39
<PAGE>
limited partners' equity by $16. Each holder of limited partnership units
will have the right to "put" such units to the partnership at a price equal
to the then market value of an equivalent number of shares of the Company's
Common Stock. As a result, the actual value which a holder of limited
partnership units would be entitled to receive upon exercise of such "put"
option will depend upon the market value of the Common Stock at the time,
which may be more or less than $16 per limited partnership unit. If such
"put" is exercised, the Company has the option of either purchasing the
limited partnership units for cash or delivering one share of Common Stock
for each limited partnership unit.
Each partnership agreement specifies the maximum number of limited
partnership units that may be issued to the limited partners of that
partnership. If the hypothetical equity value of any such partnership is
determined to be less than originally estimated (either because project costs
are higher than estimated or because stabilized net operating income is less
than estimated or both), then the number of limited partnership units and the
corresponding number of shares of Common Stock of the Company which may be
exchanged for such units will be reduced. Other than to reflect a stock split
or other capital adjustment of the shares of Common Stock, under no
circumstances can the number of units be increased above the number specified
in the applicable partnership agreement. Limited partnership units
exchangeable for 118,403 shares of Common Stock have been issued to the
Martin Group Affiliates as of December 31, 1998. At December 31, 1998 and
1997, these partnership units had a cost basis of $1,742,000 and $477,000,
respectively and are reflected as minority interest in the accompanying
consolidated financial statements. A maximum of 1,000,000 shares of Common
Stock have been reserved for issuance upon exchange of the maximum number of
1,000,000 limited partnership units that may be issued with respect to the
remaining Martin Properties. In connection with each of the Martin
Properties, the Company entered into a registration rights agreement with the
limited partners of each limited partnership pursuant to which such limited
partners will have the right to require the Company to register under the
Securities Act the shares of Common Stock which are issued upon the exchange
of limited partnership units for offer and sale to the public and to join in
certain registrations of securities of the Company. The total remaining
project costs (exclusive of partnership units representing the equity
interest of the limited partners) for the Martin Properties are estimated at
approximately $44,000,000 at December 31, 1998.
On November 30, 1998, the Company, through a subsidiary, entered into a
purchase and sale agreement (the "Agreement") whereby the Company sold, at
its cost, a portion of the improvements made by the Company to the historic
commercial portion of its development project known as 1000 Van Ness (the
"Project") to Historic Van Ness, LLC ("Historic Van Ness"). The purchase
price of $15,118,000 was paid by Historic Van Ness by it assuming the same
amount of the Company's construction loan on the Project and may be adjusted
within sixty days after the completion of all improvements to the historic
commercial portion of the Project. This transaction was accounted for by the
Company as a financing transaction. The improvements purchased by Historic
Van Ness are considered to be Qualified Rehabilitation Expenditures ("QRE")
for Federal income tax purposes (as defined in the Internal Revenue Code of
1986), which generates a rehabilitation tax credit (the "Historic Tax
Credit"). The construction loan assumed by Historic Van Ness matures in
December 1999 subject to a right to extend for approximately nine months. In
this regard, the Company has committed to make a loan to Historic Van Ness to
refinance the construction loan of up to $15,150,000 less the amount of any
permanent loan (not to exceed $7,000,000) allocable to the historic
commercial portion of the Project. The term of the loan by the Company would
be for ten years, plus three
40
<PAGE>
ten year options. The rate of interest on the Company's commitment will be
determined when the loan is finalized. This commitment expires on December
31, 2000.
The Company has an option (the "Option") during the period from January 1,
2005 to December 31, 2006 to purchase the interest of the investor member of
Historic Van Ness for an amount equal to the then fair market value (as
defined in the Option Agreement) of such interest.
Simultaneously with the Agreement, the Company through two subsidiaries
entered into a Master Lease Agreement and Master Sublease Agreement (the
"Master Leases") with Historic Van Ness, whereby one of the subsidiaries
leased the remaining historic commercial portion of the Project to Historic
Van Ness and the other subsidiary subleased from Historic Van Ness certain
retail space contained within the remaining historic commercial portion of
the Project. The Master Leases commenced on December 1, 1998 and have a term
of forty-five years and forty years for the Master Lease and Master
Sub-Lease, respectively. Both leases will terminate should the Company
exercise the Option to buy out the investor member of Historic Van Ness. The
Agreement also stipulates that the Company's subsidiary pay Historic Van Ness
$320,000 for each calendar year that the Master Lease is in effect for the
use of the common area of the historic commercial portion of the Project (the
"Common Area Lease").
Future net minimum lease payments to be made by the Company's subsidiaries
under the terms of the Master Leases and Common Area Lease are as follows as
of December 31, 1998:
<TABLE>
<S> <C>
Year Ending December 31,
1999 $1,237,500
2000 1,237,500
2001 1,237,500
2002 1,237,500
2003 1,237,668
Later Years 44,411,826
-----------
Total Future Minimum Lease Payments 50,599,494
Less Amount Representing Interest 35,481,494
-----------
Present Value of the Minimum Lease Payments $15,118,000
===========
</TABLE>
The present value of the minimum lease payments is reflected in notes payable
in the accompanying consolidated balance sheet (see Note 4).
In connection with the above agreements, the Company has guaranteed
completion of the historic commercial portion of the Project which is
estimated to be approximately $1,100,000. In addition, the Company has
guaranteed, within certain circumstances and limits, the Historic Tax Credits
of the investor member in Historic Van Ness, which maximum amount, depending
on those certain circumstances and limits, is estimated to be between
$640,000 and $3,200,000.
3. INVESTMENTS
During 1998, the Operating Partnership entered into a joint venture whereby
the Operating Partnership and the state of California Public Employees'
Retirement System ("CalPERS") are the sole members of a limited liability
company, BPP Retail, LLC, whose operating agreement constitutes the joint
venture agreement (the "Agreement") between the Operating Partnership and
CalPERS ("JV"). The Agreement, dated August 31, 1998, contemplates that
generally CalPERS will have an 80% interest and the Operating Partnership a
20% interest in the JV, whose purpose
41
<PAGE>
is to serve as the vehicle through which the parties invest in neighborhood,
community, promotional and specialty retail centers in the western United
States. The Operating Partnership is the manager of the JV.
As of October 1, 1998, CalPERS made an initial contribution to the JV of five
retail properties in Colorado, Texas and Oregon, valued at approximately
$80,000,000, of which it had previously been the sole owner under
arrangements with previous advisors. During the fourth quarter of 1998 the JV
completed the acquisition of interests in five additional retail shopping
centers for an aggregate purchase price of approximately $38,261,000 (see
Note 12). In December 1998, the Operating Partnership and CalPERS entered
into an Agreement Regarding Contribution of Certain Properties and Put
Options, related to two of the Operating Partnership's retail properties (the
"Contributed Projects"). The purpose of this option agreement was to permit
the Operating Partnership to contribute the Contributed Projects into the JV
even though CalPERS had not received all the required information (such as
appraisals) to approve or disapprove the contribution. As a condition of
permitting this contribution, CalPERS was granted an option (the "Put
Option") to require that the JV rescind all or a portion of the contribution
as CalPERS may elect in its sole discretion, after receiving and reviewing
all the information as required in the Agreement of the JV. Upon the signing
of this option agreement, the JV provided the Operating Partnership
approximately $22,195,000 (the "Net Asset Value") in exchange for the
economic interests in the Contributed Projects and the Put Option. Should
CalPERS direct the JV to rescind all or a portion of the contribution, the
related portion of the Net Asset Value must be returned by the Operating
Partnership to the JV. Due to the Put Option, the consolidated balance sheet
of the Company as of December 31, 1998 continues to include the net book
value of the Contributed Assets, and the monies received for the Net Asset
Value is included in accounts payable and other liabilities. The Put Option
expires during the first quarter of 1999. During the first quarter of 1999,
the Operating Partnership intends to contribute properties owned directly by
the Operating Partnership for purposes of its initial contribution. The
Agreement contemplates an aggregate $400 million investment by CalPERS and
$100 million investment by the Operating Partnership through the period
ending December 31, 1999, and provides for up to $165 million of leverage
through mortgage or line of credit borrowings by the JV. Subject to certain
qualifications, in making future acquisitions, the Operating Partnership is
committed to offer qualifying retail property investment opportunities to the
JV until the parties' respective investment obligations are satisfied, before
making such acquisitions solely for its own direct account. There can be no
assurance that the investment goals of the JV will be satisfied or that the
parties may not agree to expand such goals or to vary their respective 80/20%
participation in the JV.
CalPERS is entitled to a priority return on its investment in the JV before
any return is paid to the Operating Partnership. The priority return is equal
to a 5.00% "real" (i.e., inflation adjusted) annual rate of return plus (i) a
premium, depending upon the type of property, from 50 basis points on
existing shopping center projects to 200 basis points on speculative
development projects and 300 basis points on undeveloped land, and (ii) a
further premium of up to 60 basis points depending upon the currently
anticipated leverage on the properties owned by the JV.
The Operating Partnership will receive specified annual asset management
fees, property management fees, leasing, acquisition, disposition and
development fees. In addition, after the priority return to CalPERS, the
Operating Partnership will be entitled to receive an incentive distribution
equal to 25% of the excess of the real internal rate of return over the real
return benchmark.
42
<PAGE>
The Agreement specifies a term of 30 years, contemplates a real estate cycle
of nine years, and provides for the cumulative measurement of performance and
total return. Accordingly, it is possible that in some years the Operating
Partnership may not receive any distribution (other than the specified fees)
with respect to its investment in the JV, because of its return being
subordinated to CalPERS' priority return, although shortfalls in any year may
be made up by performance in subsequent years. Also under certain
circumstances, the return of the Operating Partnership's capital may be
subordinated to the return of CalPERS' capital. While the payment of
distributions to the Operating Partnership are subordinated to the payment of
distributions to CalPERS, the Operating Partnership is not responsible to
repay distributions that have been paid with respect to any prior period.
Notwithstanding the specific duration and expected real estate cycle of the
JV, either CalPERS or the Operating Partnership may terminate early the JV
upon giving specified advance notice. Subject to certain limitations, either
party may also cause the JV to sell any particular property. Also subject to
certain limitations, CalPERS may elect to convert its JV interest in one or
more designated properties into up to an aggregate of 9.8% of the number of
shares of Common Stock of the Company then outstanding, with the number of
shares to be issued to be determined pursuant to a formula based upon a
number of factors including the net operating income of the properties
involved, debt to market capitalization, weighted cost of debt and the
Company's recent stock price at the time of the conversion.
Under the Agreement, the Operating Partnership is obligated to observe a
number of policies established by CalPERS with respect to its investments
generally, to consult regularly with CalPERS relative to its policies for
real estate investments particularly, to establish an annual business plan
for the JV that is subject to CalPERS' approval, to advise CalPERS concerning
major developments, and to obtain CalPERS' approval before taking specified
major activities with respect to the properties. The fair market value of
each property will be determined annually by an independent appraiser
selected by CalPERS. CalPERS has the right to terminate the Operating
Partnership as the manager of the JV and as property manager of the JV
properties at any time, in which event both parties have the unilateral right
to terminate the JV. See Note 18 for a description of subsequent events
involving the JV.
In addition, during the year ended December 31, 1998, the Company and certain
of its subsidiaries completed the acquisition of 14 retail shopping centers
totaling approximately 1,017,000 square feet of Company owned GLA for an
aggregate purchase price of approximately $98,343,000 (see Note 12).
During the year ended December 31, 1997, the Company and certain of its
subsidiaries completed the acquisition of 42 retail shopping centers totaling
approximately 5.6 million square feet of Company-owned GLA for an aggregate
purchase price of approximately $598,100,000 (see Note 12). Included in this
acquisition activity was the acquisition on December 31, 1997, of a portfolio
of twenty shopping centers (the "Golden State Properties") containing
approximately 2.6 million square feet of gross leasable area, all of which
are located in California, and the related financing thereof. Pursuant to the
terms of the agreement to contribute dated as of December 5, 1997 (the
"Contribution Agreement") by and among the Company and certain investment
funds (the "Contributors"), on December 31, 1997, the Contributors
contributed the Golden State Properties to the Company's Operating
Partnership in exchange for initial consideration of approximately
$302,400,000. Of this consideration $50,000,000 was in the form of 2,000,000
preferred limited partner units of the Operating Partnership ("Preferred
Units") (see Note 9). The Company financed the cash portion of the
acquisition price of the Golden State
43
<PAGE>
Properties through the privately negotiated sale of $70,000,000 of the
Company's newly-designated and issued Series 1997-A Convertible Preferred
Stock (see Note 9), the borrowing of first mortgage debt collateralized by
nineteen of the Golden State Properties (see Note 4) and additional
borrowings under its existing credit facility (see Note 5).
The Contributors were given the right to receive additional consideration of
up to $41,600,000 for additional value resulting from the lease-up of certain
specified portions of the Golden State Properties and construction and
lease-up of certain additional space through June 30, 1999. During 1998,
additional consideration of approximately $9,356,000 was paid out in cash to
the Contributors. At December 31, 1998, $9,812,000 is recorded under the
caption accounts payable and other liabilities for additional consideration
earned but not paid.
4. NOTES PAYABLE
Notes payable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Collateralized Mortgage-Backed Securities - principal and interest
paid monthly at rates ranging from 6.76% to 9.20%; maturing at
dates from 2004 to 2026. $285,362 $262,160
Bank Construction Loan - interest only paid monthly; variable rate
at LIBOR plus 1.90 or at prime plus .50% (approximately 7.61% at
December 31, 1998); maturing 1999. 5,427 -
Insurance Companies - principal and interest paid monthly at rates
ranging from 7.00% to 10.13%; maturing at dates from 1999
to 2017. 47,160 48,099
Pension Funds - principal and interest paid monthly at rates
ranging from 9.50% to 10.00%; maturing in 2002 and 2005. 21,545 22,052
Other - principal and interest paid monthly at rates up to 9.0%;
maturing at dates from 1999 to 2043. 34,535 18,447
Bank Construction Loan - interest only paid monthly; variable rate
at LIBOR plus 2.00% or at prime; repaid in 1998. - 18,753
-------- --------
Total Notes Payable $394,029 $369,511
======== ========
</TABLE>
Interest expense for the years ended December 31, 1998, 1997 and 1996 is
reported net of capitalized interest totaling approximately $6,518,000,
$3,242,000 and $1,658,000, respectively.
Principal maturities on the notes payable are summarized as follows (in
thousands):
<TABLE>
<S> <C>
Year Ending December 31,
1999 $ 37,402
2000 5,951
2001 6,578
2002 19,421
2003 6,684
Later Years 317,993
---------
Total $ 394,029
=========
</TABLE>
During February 1997, the Company paid off mortgage loans secured by one of its
shopping
44
<PAGE>
centers with borrowings under the Company's credit facilities. In addition,
the Company refinanced a variable rate mortgage loan secured by another
property with a fixed rate mortgage loan. In connection with these
extinguishments of debt, the Company recorded an extraordinary loss of
$52,000.
On December 31, 1997, the Company, through a Bankruptcy Remote Entity (see
Note 2), sold to Nomura Asset Capital Corporation an 8.33%, $135,040,000
mortgage promissory note due December 31, 2007 for $150,000,000, being the
equivalent of a 6.76%, $150,000,000 mortgage promissory note with the same
maturity. The Company has accounted for the sale of the mortgage note and the
payment of principal and interest thereon as if the note were a 6.76%,
$150,000,000 mortgage promissory note. The first mortgage debt is
collateralized by nineteen of the twenty Golden State Properties. The
proceeds of this mortgage financing were used to finance, in part, the
acquisitions of the Golden State Properties pursuant to the Contribution
Agreement (see Note 3).
5. LINE OF CREDIT ADVANCES
In November 1996, the Company obtained a $90,000,000 revolving credit
facility secured by certain real estate on which outstanding borrowings
accrued interest at LIBOR (London Interbank Offer Rate) plus 1.65% and a
$45,000,000 unsecured credit facility under which outstanding borrowings
accrued interest at LIBOR plus 1.75%. During the third quarter of 1997, the
Company obtained an increase in the borrowing capacity under its revolving
credit facility from $135,000,000 to $205,000,000 of which $135,000,000 is to
be secured by various mortgages and $70,000,000 is unsecured. The Company
also negotiated a reduction of .25% in the interest rate to LIBOR plus 1.40%
and LIBOR plus 1.50% on the secured and unsecured portions, respectively. At
December 31, 1998 and 1997, the average rate of interest on line of credit
advances was approximately 7.07% and 7.41%, respectively. At December 31,
1998, borrowings of approximately $180,999,000 were outstanding of which
$111,018,000 and $69,981,000 were outstanding under the secured and unsecured
portions, respectively. The credit facility is scheduled to mature in
November 1999, and is subject to various loan covenants. 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, will 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.
6. CONVERTIBLE DEBENTURES
On March 6, 1992, the Company issued $75,000,000 of 8-1/2% Convertible
Debentures due 2002 at $1,000 per Debenture. During November 1996, the
Company redeemed the remaining balance of these Convertible Debentures at par
($25,700,000). Proceeds for the redemption were obtained from borrowings
under the Company's credit facilities. In connection with this extinguishment
of debt, the Company recorded an extraordinary loss of $884,000.
7. SALES OF REAL ESTATE
On August 4, 1998, the Company sold the parking garage of its 1000 Van Ness
project for approximately $13,125,000. Proceeds of $7,875,000 were used to
reduce borrowings under a construction loan secured by this project, with the
remaining proceeds used to reduce borrowings under the Company's credit
facility. No gain or loss resulted from such sale. At December 31, 1998, the
Company sold its remaining portion of Plaza Rancho Carmel. Net
45
<PAGE>
proceeds from the disposition totaled approximately $2,420,000, resulting in
a loss of approximately $1,814,000.
At December 30, 1997, the Company sold the Pacific West Outlet Center.
Proceeds from the disposition totaled approximately $38,500,000, resulting in
a gain of approximately $5,896,000. Two other properties were disposed of
without realization of gain or loss during 1997. During 1996, the Company
disposed of the McDonnell Douglas Building, Highlands Plaza, the Fireman's
Fund Building, the Miramar Business Plaza and its interest in the building
which contains its corporate headquarters. Proceeds from the dispositions
totaled approximately $40,874,000, resulting in a gain of approximately
$2,298,000.
8. DIVIDEND DISTRIBUTIONS
The status of the Common Stock dividends distributed for 1998, 1997 and 1996
for Federal income tax purposes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Taxable Portion 64.8% 93.3% 0.0%
Return of Capital 35.2% 6.7% 100.0%
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
9. ISSUANCE OF SECURITIES
SERIES 1997-A CONVERTIBLE PREFERRED STOCK: On December 31, 1997, the Company
issued 2,800,000 shares of Series 1997-A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock") in a
privately-negotiated sale at a price of $25.00 per share. The Series A
Preferred Stock has a cumulative dividend yield of 8%. On and after December
31, 1998, March 31, 1999, June 30, 1999, and September 30, 1999 (or earlier
in the event of certain defined events), each holder of shares of Series A
Preferred Stock has the right to convert 25% of the shares of Series A
Preferred Stock held of record by the holder into a number of shares of
Common Stock equal to (i) the stated value plus the amount, if any, of the
per share amount of outstanding dividends as of the effective time of the
conversion, divided by (ii) the conversion price, initially equal to $15.375.
After the fifth anniversary of the date of the first issuance of shares of
Series A Preferred Stock, the Company may give notice of mandatory conversion
of all of the outstanding Series A Preferred Stock if the value of the Common
Stock (both on the day prior to the notice of conversion and on a value
weighted basis over a period of time prior to such date) is greater than the
initial conversion price; and after such notice all such outstanding shares
shall be mandatorily converted into Common Stock, except that each holder of
Series A Preferred Stock shall have the right, prior to the date established
for such mandatory conversion, instead to cause the Company to redeem such
holder's Series A Preferred Stock at its stated value plus accrued dividends
to the redemption date multiplied by a percentage equal to 105% if the
redemption date is prior to December 31, 2003, decreasing by 1% each year
thereafter (but not less than 100% after December 31, 2007). The Company used
the proceeds of the sale to finance, in part, the acquisition of the Golden
State Properties (see Note 3).
COMMON STOCK: On March 30, 1998, the Company issued 7,475,000 shares of
Common Stock at a public offering price of $14.125 per share. In addition, on
March 30, 1998, the Company issued 965,518 shares of Common Stock to a Unit
Investment Trust at a price based upon the March 25, 1998 market value of
$14.50 per share. The combined shares were sold pursuant to the Company's
shelf registration statements. The net proceeds from the combined
46
<PAGE>
offerings of approximately $112,471,000 were used to reduce borrowings under
the Company's credit facility, pay off the balance outstanding under a
construction loan agreement secured by one of the Company's development
properties and for general working capital purposes. On May 2, 1997, the
Company issued 6,325,000 shares of Common Stock at a public offering price of
$12.375 per share. The shares were sold pursuant to a previously filed $200
million shelf registration statement. The net proceeds of the offering of
approximately $73,125,000 were used to reduce borrowings under the Company's
credit facilities.
PREFERRED OPERATING PARTNERSHIP UNITS: On December 31, 1997, 2,000,000 Series
1997-A Preferred Limited Partner Units of the Operating Partnership (the
"Preferred Units") were issued at a price of $25.00 per unit. After
approximately a year and subject to certain conditions, Preferred Units are
exchangeable at the option of the holder for Series A Preferred Stock on a
1-for-1 basis. Each Preferred Unit has substantially identical distribution
and liquidation rights as each share of Series A Preferred Stock. Such
Preferred Units are classified as minority interest at December 31, 1998 and
1997. The Company used the proceeds of the sale to finance, in part, the
acquisition of the Golden State Properties (see Note 3). At December 31, 1998
and 1997, 2,000,000 shares of preferred stock were reserved for issuance upon
the potential redemption of 2,000,000 preferred units.
ISSUANCE OF PARTNERSHIP UNITS "PUT" RIGHTS OF COMMON UNITS: Under the
partnership agreement of the Operating Partnership, whenever the Company
issues any shares of Common Stock or Preferred Stock, the Company must
contribute the proceeds of such issuance to the Operating Partnership and the
Operating Partnership will issue the same number of Common Units or Preferred
Units to the Company, so that the Company will at all times own the same
number of Common Units (including units held by the Company as general
partner as well as limited partner units owned by the Company) and Preferred
Units as there are outstanding shares of Common Stock and Preferred Stock,
respectively, of the Company. Distributions by the Operating Partnership with
respect to Preferred Units and Common Units provide the funds to enable the
Company to make distributions to the holders of its Series A Preferred Stock
and Common Stock. The partnership agreement also provides that, after the
June 30 or December 31 next succeeding the first anniversary of the issuance
of Common Units (or earlier in the event of certain extraordinary
transactions), the holder of each Common Unit other than the Company will
have the right to require the Operating Partnership to redeem each Common
Unit at a redemption price equal to the then market value of a share of
Common Stock. Such redemption will be in cash, except that the Company may
assume the redemption obligation and pay the redemption in form of shares of
its Common Stock. At December 31, 1998 and 1997, approximately 1,906,000 and
621,000 shares of common stock were reserved for issuance upon the potential
redemption of approximately 1,906,000 and 621,000 partnership units.
UNISSUED REGISTERED SECURITIES: As of December 31, 1998, the Company has
registered an aggregate of $202,144,000 of unissued securities under various
shelf registration statements.
47
<PAGE>
10. PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
Market Quotations
Common
Quarter Ended High Low Dividends
Paid
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1996 $11.13 $9.75 $.2500
June 30, 1996 11.88 10.25 .2500
September 30, 1996 13.00 11.00 .2500
December 31, 1996 15.00 11.88 .2500
March 31, 1997 15.50 12.75 .2500
June 30, 1997 13.88 11.75 .2500
September 30, 1997 14.81 13.50 .2500
December 31, 1997 15.56 12.75 .2500
March 31, 1998 15.63 14.13 .2625
June 30, 1998 14.75 13.69 .2625
September 30, 1998 14.81 12.69 .2625
December 31, 1998 13.75 11.63 .2625
</TABLE>
Market quotations are from the New York Stock Exchange Index. As of December
31, 1998, there were 2,423 holders of record of the Company's shares.
11. STOCK OPTIONS
The Company has a stock option and incentive plan which expires in 2006 and
is administered by the Compensation Committee of the Board of Directors. A
maximum of 2,950,000 shares of Common Stock are reserved for issuance upon
the exercise of options or other stock-based awards that may be granted under
the plan. Options granted expire 10 years from the date of grant. The plan as
revised in 1996 also provides for grants from such reserved shares to each
non-employee director of the Company of restricted shares of the Company's
Common Stock in lieu of cash compensation. Restricted stock vests evenly over
a three year period or earlier upon such person's termination of service as
director. At December 31, 1998, 219,159 shares had been purchased pursuant to
the exercise of options under the plan, unexercised options for 1,920,373
shares are outstanding (of which 798,167 are subject to future vesting
requirements), and options or other awards for 786,468 shares are available
for future awards under the plan (see Note 18).
48
<PAGE>
Activity under the stock option plan is summarized below:
<TABLE>
<CAPTION>
Exercise Price
Number of Shares Per Share
---------------- ---------
<S> <C> <C>
Outstanding, January 1, 1996 1,034,537 $12.09-$18.88
Granted 501,500 $12.50
Canceled (13,850) $15.20-$18.63
--------- -------------
Outstanding, December 31, 1996 1,522,187 $12.09-$18.88
Expired (19,250) $16.19
Repurchased (135,560) $16.19-$18.88
Exercised (4,000) $12.50
Canceled (2,000) $12.50
--------- -------------
Outstanding, December 31, 1997 1,361,377 $12.09-$18.88
Granted 679,500 $12.50-$14.50
Expired (53,004) $18.25-$18.59
Exercised (44,500) $12.50-$12.88
Canceled (23,000) $12.50-$14.50
--------- -------------
Outstanding, December 31, 1998 1,920,373 $12.09-$18.88
========= =============
</TABLE>
During 1997, the Company repurchased 135,560 options for an average price of
approximately $0.49 per option.
The following table summarizes information concerning options outstanding and
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------- ----------------------------------
Remaining
Contractual Exercise Exercise
Life- Price - Price-
Range of Outstanding at Weighted Weighted Number at Weighted
Exercise Prices December 31, 1998 Average Average December 31, 1998 Average
- ------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
$12.09-$12.88 1,591,000 7.76 years $12.60 944,333 $12.67
$14.50-$16.97 201,750 7.45 years 14.88 50,250 16.04
$17.59-$18.88 127,623 3.34 years 18.49 127,623 18.49
--------- ---------
1,920,373 1,122,206
========= =========
</TABLE>
Financial Accounting Standards Number 123, "Accounting for Stock-Based
Compensation" ("FAS No. 123") was effective in 1996. FAS No. 123 requires
either the recording or disclosure of compensation cost for stock-based
employee compensation plans at fair value. The Company has adopted the
disclosure-only provisions of FAS No. 123. Accordingly, no compensation costs
have been recognized in 1998, 1997 or 1996. Had compensation cost for the
Company's Stock Option Plan been recognized based on the fair value at the
grant date for awards consistent with the provisions of FAS No. 123, the
Company's income available to common stockholders and basic earnings per
share would have been reflected as the pro forma amounts below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income Available to Common Stockholders -
pro forma $12,926 $18,463 $11,251
Basic Earnings Per Share - pro forma .43 .87 .66
</TABLE>
49
<PAGE>
The pro forma effect on net income for 1998, 1997 and 1996 is not
representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to 1995. No options were granted during 1997. The estimated
fair value of options granted under the Company's stock option plan during
1998 and 1996 were $1,425,168 and $705,000, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 8.0% dividend yield, volatility of 25%, risk
free rate of return of 6.00% and expected lives of 5 years. The estimated
fair value of options granted are subject to the assumptions made and if the
assumptions changed, the estimated fair value amounts could be significantly
different. The above weighted-average assumptions are an approximation of
historical information and are not intended to represent future events or
trends.
12. TRANSACTIONS WITH RELATED PARTIES
The Company through a subsidiary entered into a Purchase and Sale Agreement
with Holliday Development, L.P. ("Holliday"), whereby the Company would be
reimbursed by Holliday for all of the Company's costs and expenses (the
"Reimburseable Costs") incurred at the direction of Holliday, in connection
with the acquisition and construction of the residential portion of 1000 Van
Ness (one of the Martin Properties, see Note 2). This agreement also
stipulates that the Reimbursable Costs will be paid to the Company in several
successive transactions which coincide with the sale of the residential units
to third parties. Once all the Reimbursable Costs are repaid to the Company
(approximately $18,000,000), the Company shall convey all the unsold
residential units to Holliday. The Company's president and chief executive
officer has approximately a 35% interest in Holliday. In addition, the
Company's director of development has approximately a 14% interest in
Holliday. As of December 31, 1998, the Company had received approximately
$10,750,000 of the Reimbursable Costs (see Note 18).
In December 1998, the Company entered into an operating lease for a corporate
office in Emeryville, California. The landlord is a partnership in which the
Company's president and chief executive officer has an economic interest. The
lease commenced on January 1, 1999 with a five-year term. Monthly lease
payments are approximately $11,460, with a three percent annual increase.
During 1998 and 1997, the Company acquired three leasehold interests in
126,557 square-feet of former Ernst Home Improvement Stores ("Ernst Stores")
for approximately $6,520,000 in cash. In addition, during 1998 the JV (see
Note 3) acquired a leasehold interest in a 44,875 square-foot former Ernst
Store for approximately $2,000,000. The Company and the JV acquired the Ernst
Stores from the purchaser of the leasehold interest in bankruptcy proceedings
involving the Ernst Home Improvement chain. One of the principals of such
purchaser is a brother of the chief investment officer of the Company. The
chief investment officer of the Company disclaims any personal interest in
his brother's interest in the purchaser and has no personal interest in any
proceeds that the purchaser received in connection with the leasehold
interests.
The Company acquired two retail centers in July and December 1996, having a
net book value of $30,221,000 at December 31, 1996, with the expectation that
an institutional investor would ultimately acquire 75% interests in such
centers by paying the Company 75% of its acquisition costs for these
properties. On February 20, 1997 and August 1, 1997, the institutional
investor funded $7,173,000 and $15,254,000, respectively, to acquire a 75%
interest in each of the two retail centers. The Company is advised that an
entity controlled by a former director of the Company holds an approximately
1.5% interest in, and is an advisor to, the institutional investor.
50
<PAGE>
For a description of transactions in which the Company's president and chief
executive officer was an interested party prior to his election to such
positions and as a director, see "Development Properties" in Note 2.
13. RETIREMENT SAVINGS PLAN
The Company has a contributory Retirement Savings Plan. The maximum
contribution is 15% of annual salaries of which up to 3% is matched by the
Company up to 75% of employee contributions, subject to limitations imposed
by the Internal Revenue Service. The Company's contributions to this plan for
1998, 1997 and 1996 were approximately $77,000, $48,000 and $33,000,
respectively.
14. OPERATING LEASES
The Company leases office space under various operating leases that expire at
various times through 2005. Rental expense under these operating leases for
the years ended December 31, 1998, 1997 and 1996 was approximately $326,000,
$202,000 and $168,000, respectively.
Approximate minimum future lease payments under these operating leases at
December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
For Year Ending December 31,
<S> <C>
1999 $ 947,850
2000 960,153
2001 911,485
2002 706,214
2003 506,713
Later Years 229,860
----------
Total $4,262,275
==========
</TABLE>
15. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data for 1998 and 1997 is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Income Available
to Common
Stockholders
Income Available Per Share
to Common ------------------------
Total Revenues Stockholders Basic Diluted
<S> <C> <C> <C> <C>
1998:
First $ 29,867 $ 2,136 $0.09 $0.09
Second 32,125 5,112 0.16 0.16
Third 34,539 4,294 0.14 0.14
Fourth 35,192 1,614 0.05 0.05
-------- -------- ----- -----
Total $131,723 $ 13,156 $0.44 $0.44
======== ======== ===== =====
1997:
First $ 12,977 $ 1,584 $0.09 $0.09
Second 16,987 3,444 0.16 0.16
Third 18,117 4,111 0.18 0.17
Fourth 20,093 9,559 0.45 0.45
-------- -------- ----- -----
Total $ 68,174 $ 18,698 $0.88 $0.87
======== ======== ===== =====
</TABLE>
51
<PAGE>
16. 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 discussed in Note 1,
the Company owns interests in 71 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. For the years ended December 31,
1998, 1997 and 1996 there was no tenant of the Company that accounted for ten
percent of the total revenues of the Company.
The Company's accounting policies for these segments are the same as those
described in the summary of significant accounting policies in Note 1. 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>
1998
- -----------------------------------------------------------------------------------------
Retail Office Total
<S> <C> <C> <C>
Rental Revenues $ 123,381 $ 7,524 $ 130,905
========== ======= ==========
Net Operating Income $ 87,672 $ 6,690 $ 94,362
========== ======= ==========
Real Estate at December 31 $1,073,792 $57,876 $1,131,668
========== ======= ==========
<CAPTION>
1997
- -----------------------------------------------------------------------------------------
Retail Office Total
<S> <C> <C> <C>
Rental Revenues $ 59,535 $ 7,878 $ 67,413
========== ======= ==========
Net Operating Income $ 42,105 $ 6,592 $ 48,697
========== ======= ==========
Real Estate at December 31 $ 901,979 $57,846 $ 959,825
========== ======= ==========
<CAPTION>
1996
- -----------------------------------------------------------------------------------------
Retail Office Total
<S> <C> <C> <C>
Rental Revenues $ 35,523 $11,341 $ 46,864
========== ======= ==========
Net Operating Income $ 24,228 $ 9,623 $ 33,851
========== ======= ==========
Real Estate at December 31 $ 328,972 $57,740 $ 386,712
========== ======= ==========
</TABLE>
52
<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 years ended December 31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Total Rental Revenues for Reportable Segments $130,905 $ 67,413 $ 46,864
Interest Revenue 818 761 450
-------- -------- --------
TOTAL CONSOLIDATED REVENUES $131,723 $ 68,174 $ 47,314
======== ======== ========
NET OPERATING INCOME:
-------- -------- --------
Total Net Operating Income for Reportable Segments $ 94,362 $ 48,697 $ 33,851
-------- -------- --------
Additions:
Interest Revenue 818 761 450
Income from Unconsolidated Subsidiaries 214 223 -
Gain on Sales of Real Estate - 5,896 2,298
-------- -------- --------
Total Additions 1,032 6,880 2,748
-------- -------- --------
Less:
Interest Expense 35,630 18,472 10,744
General and Administrative Expenses 5,723 3,035 2,415
Depreciation and Amortization 28,607 15,275 11,250
Minority Interest 4,864 45 35
Loss on Sales of Real Estate 1,814 - -
-------- -------- --------
Total Deductions 76,638 36,827 24,444
-------- -------- --------
Net Income Before Extraordinary Item 18,756 18,750 12,155
Extraordinary Item - (52) (884)
-------- -------- --------
Net Income $ 18,756 $ 18,698 $ 11,271
======== ======== ========
</TABLE>
The following table reconciles the total real estate for the reportable
segments to consolidated assets for the Company at December 31, 1998, 1997
and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total Real Estate for Reportable Segments $1,131,668 $959,825 $386,712
Other Real Estate 6,111 4,930 2,922
---------- -------- --------
Total Real Estate 1,137,779 964,755 389,634
Accumulated Depreciation (79,837) (55,823) (48,978)
---------- -------- --------
Real Estate, Net 1,057,942 908,932 340,656
Other Assets 56,234 34,863 15,539
---------- -------- --------
Consolidated Assets $1,114,176 $943,795 $356,195
========== ======== ========
</TABLE>
Other real estate includes assets related to the corporate offices of the
Company, which are not included in segment information.
17. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
As discussed in Notes 3 and 7, the Company and certain of its subsidiaries
acquired and disposed of interests in certain properties during 1998 and
1997. The acquisitions have been accounted for as a purchase. The operating
results of the acquisitions and disposals have been included in the
consolidated statements of income from the date of acquisition and disposal.
The following unaudited supplemental pro forma operating data is presented
for the years ended December 31, 1998 and 1997 as if each of the following
transactions had occurred as of the beginning of the respective periods:
(i) the acquisitions and dispositions by the Company of
53
<PAGE>
properties in 1998 and 1997 and (ii) the completion of the sale by the
Company of 8,440,518 and 6,325,000 shares of Common Stock in March 1998 and
May 1997, respectively (see Note 9).
The unaudited pro forma financial information is presented for informational
purposes only and may not be indicative of what actual results of operations
would have been had the transaction occurred as of January 1, 1998 or 1997,
nor does it purport to represent the results of future operations. (in
thousands, except per share amounts.)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Revenues from Rental Property $136,636 $125,616
Net Income Before Extraordinary Item 20,955 27,472
Net Income 20,955 27,420
Income Available to Common Stockholders 15,355 21,820
Net Income Before Extraordinary
Item Per Common Share-Basic 0.48 0.69
Income Available to Common
Stockholders Per Common Share-Basic 0.48 0.69
Net Income Before Extraordinary
Item Per Common Share-Diluted 0.48 0.68
Income Available to Common
Stockholders Per Common Share-Diluted 0.48 0.68
</TABLE>
18. SUBSEQUENT EVENTS
During January 1999, the Company entered into a $5,000,000 unsecured
Revolving Credit Agreement with a bank. Outstanding borrowings will accrue
interest at LIBOR plus 2.00% or prime. This credit facility is scheduled to
mature in November 1999, and is subject to various borrowing base and debt
service coverage limitations.
Through February 23, 1999, the Company received approximately $6,740,000 of
additional Reimbursable Costs of the residential portion of the development
project described in Note 12.
On February 9, 1999, the Compensation Committee of the Company's Board of
Directors granted options for an aggregate of 560,000 shares of Common Stock
to certain key executives and employees of the Company at an exercise price
of $11.31 per share, the closing price of the Company's Common Stock on that
day.
On March 9, 1999, BPP Retail, LLC (the joint venture between the Company and
CalPERS, see Note 3) agreed to acquire 28 shopping centers owned by AMB
Property Corporation aggregating 5.1 million square feet for approximately
$663.4 million. The properties are to be acquired in three separate
transactions, currently expected to close on or about April 30, July 31 and
December 1, 1999. The Company has agreed to acquire six additional shopping
centers from AMB aggregating 1.5 million square feet for approximately $284.4
million; if completed, this purchase, which is subject to the Company's
obtaining financing and other conditions, is currently expected to close by
year-end 1999. In connection with the AMB transaction, CalPERS and the
Company agreed to increase the aggregate amount of indebtedness that the
joint venture might incur through December 31, 2000 to approximately
$450,000,000 and the Company granted 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.
54
<PAGE>
PART III
ITEMS 10 THROUGH 13.
Incorporated by reference to the following sections of the Company's Proxy
Statement for its 1999 Annual Meeting: "Nominees for Directors," "Executive
Officers," "Beneficial Ownership of Management," "Beneficial Ownership of
Non-Management," and "Executive Compensation" under "PROPOSAL I-ELECTION OF
DIRECTORS" and "CERTAIN TRANSACTIONS WITH MANAGEMENT."
55
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements and Independent Auditors' Report
are included under Item 8.
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Income for each of the three years in the
period ended December 31, 1998.
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1998.
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1998.
Notes to Consolidated Financial Statements, December 31, 1998, 1997,
and 1996.
The following Supplemental Financial Schedules are included herein:
III - Real Estate and Accumulated Depreciation.
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
included in the consolidated financial statements and notes.
(b) REPORTS ON FORM 8-K
Form 8-K Report filed December 23, 1998 (earliest event reported
February 3, 1998): Item 5, regarding certain Shopping Center
Acquisitions, Leasehold Interest Acquisitions, Sales of Real
Estate and Joint Venture; and Item 7 regarding Financial
Statements, Pro-Forma financial information and exhibits.
(c) EXHIBITS
<TABLE>
<S> <C>
3.1.1 Charter of the Company, as Amended and Restated May 6,
1997, incorporated by reference to pages B-1 through B-13
of the Company's Proxy Statement for its 1997 Annual
Meeting, filed March 31, 1997.
3.1.2 Articles Supplementary relating to Series 1997-A
Convertible Preferred Stock, incorporated by reference to
Exhibit 3.1.2 of the Company's Form 8-K Report (earliest
event reported December 31, 1997), filed January 14, 1998
(the "January 14, 1998 Form 8-K").
56
<PAGE>
3.2 Bylaws of the Company as amended November 19, 1997,
incorporated by reference to Exhibit 3.2 of the Company's
report on Form 8-K (earliest event reported November 7,
1997), filed December 16, 1997 (the "December 16, 1997
Form 8-K Report").
4.1.1 Form of stock certificate for Common Stock of the Company,
incorporated by reference to Exhibit 4.0 to Registration
Statement No. 33-20489 and subsequently overprinted to
state "THE CORPORATION IS NOW INCORPORATED IN THE STATE OF
MARYLAND WITH $0.01 PAR VALUE PER SHARE."
4.1.2 Form of stock certificate for Series 1997-A Convertible
Preferred Stock, incorporated by reference to Exhibit
4.4.2 filed with the Company's registration statement (No.
333-69957) on December 30, 1998.
4.2 Stock Purchase Agreement dated as of December 5, 1997 by
and among Burnham Pacific Properties, Inc., Burnham
Pacific Operating Partnership, L.P., Westbrook Burnham
Holdings, L.L.C. and Westbrook Burnham Co-Holdings,
L.L.C., incorporated by reference to Exhibit 4.1 of the
January 14, 1998 Form 8-K.
4.3 Registration Rights Agreement dated as of December 31,
1997 by and among Burnham Pacific Properties, Inc.,
Westbrook Burnham Holdings, L.L.C. and Westbrook Burnham
Co-Holdings, L.L.C., incorporated by reference to Exhibit
4.2.1 of the January 14, 1998 Form 8-K.
4.4 Registration Rights Agreement dated as of December 31,
1997 by and among Burnham Pacific Properties, Inc. and the
Existing Partners (of Golden State Properties) listed on
Exhibit A-1 thereto, incorporated by reference to Exhibit
4.2.2 of the January 14, 1998 Form 8-K.
10.1.1 Agreement of Limited Partnership of Burnham Pacific
Operating Partnership, L.P. dated as of November 14, 1997,
incorporated by reference to Exhibit 10.1.1 of the
December 16, 1997 Form 8-K.
10.1.2 First Amendment to Agreement of Limited Partnership of
Burnham Pacific Operating Partnership, L.P., dated as of
December 31, 1997 (the "First Amendment"), incorporated by
reference to Exhibit 10.1 of the January 14, 1998 Form
8-K.
10.1.3 Third Amendment to Agreement of Limited Partnership of
Burnham Pacific Operating Partnership, L.P., dated as of
December 31, 1997 (the "First Amendment"), incorporated by
reference to Exhibit 10.1 of the Company's report on Form
8-K dated June 1, 1998.
10.1.4 Exhibit C to the First Amendment (defining the rights of
Preferred Units and Common Units of Burnham Pacific
Operating Partnership, L.P.), incorporated by reference to
Exhibit 10.1.3 to the Company's Form 10-K Report for 1997.
57
<PAGE>
10.2 Agreement to Contribute among Burnham Pacific Properties,
Inc., and Burnham Pacific Operating Partnership, L.P. and
the Contributors and Existing Partners of the Golden State
Properties party thereto, dated as of December 5, 1997,
incorporated by reference to Exhibit 10.2 to the December
16, 1997 Form 8-K.
10.3 Loan Agreement dated as of December 31, 1997 between
BPP/Golden State Acquisitions, Inc., L.L.C. and Nomura
Asset Capital Corporation, incorporated by reference to
Exhibit 10.2 of the January 14, 1998 Form 8-K.
10.4 Amended and Restated Revolving Loan Agreement dated as of
December 31, 1997 by and between Burnham Pacific Operating
Partnership, L.P. and Nomura Asset Capital Corporation,
incorporated by reference to Exhibit 10.3 of the January
14, 1998 Form 8-K.
10.5 Stock Option and Incentive Plan of the Company as amended
and restated as of May 6, 1997, incorporated by reference
to Appendix D to the Company's Proxy Statement for its
1997 Annual Meeting.
10.6 Employment Agreement between the Company and J. David
Martin dated as of October 1, 1995, incorporated by
reference to Exhibit 10.1 to the Company's report on Form
10-Q for the quarter ended September 30, 1995.
10.7 Form of Indemnification Agreement among Burnham Pacific
Properties, Inc. and Burnham Pacific Operating Partnership,
L.P. as indemnitors and their Officers and Directors as
indemnitees, incorporated by reference to Exhibit 10.4 filed
with the Company's registration statement (No. 333-69957)
on December 30, 1998.
10.8 Operating Agreement of BPP Retail, LLC dated August 31,
1998. This document constitutes the joint venture
agreement between the state of California Public
Employees' Retirement System and Burnham Pacific Operating
Partnership, L.P., reference to Exhibit 10.1 to the
Company's report on Form 10-Q for the quarter ended
September 30, 1998.
*21.1 List of subsidiaries of the Company.
*23.1 Consent of Deloitte & Touche LLP.
*27.1 Financial Data Schedule
*Filed herewith.
</TABLE>
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Burnham Pacific Properties, Inc.
By: /s/ J. David Martin
------------------------------------
J. David Martin, President
Dated: March 29, 1999
---------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Malin Burnham Chairman of the Board March 29, 1999
- -------------------------
Malin Burnham
/s/ J. David Martin President, Director March 29, 1999
- -------------------------
J. David Martin
/s/ Daniel B. Platt Chief Financial Officer March 29, 1999
- -------------------------
Daniel B. Platt
/s/ Marc T. Artino Chief Accounting Officer March 29, 1999
- -------------------------
Marc T. Artino
/s/ James D. Harper, Jr. Director March 29, 1999
- -------------------------
James D. Harper, Jr.
/s/ James D. Klingbeil Director March 29, 1999
- -------------------------
James D. Klingbeil
/s/ Nina Matis Director March 29, 1999
- -------------------------
Nina Matis
/s/ Donne P. Moen Director March 29, 1999
- -------------------------
Donne P. Moen
/s/ Thomas A. Page Director March 29, 1999
- -------------------------
Thomas A. Page
/s/ Phillip S. Schlein Director March 29, 1999
- -------------------------
Phillip S. Schlein
/s/ Robin Wolaner Director March 29, 1999
- -------------------------
Robin Wolaner
59
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COSTS CAPITALIZED SUBSEQUENT
INITIAL COST TO COMPANY: TO ACQUISITION:
------------------------ ----------------------------
BUILDINGS & BUILDINGS &
PROPERTY ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
<S> <C> <C> <C> <C> <C>
SAN DIEGO REGION
WIEGAND PLAZA $ 6,814,992 $ 4,986,224 $ 9,279,037 $ 414,463 $ 3,972,462
Encinitas, California
POWAY PLAZA - 2,747,538 6,413,725 - 365,563
Poway, California
SANTEE VILLAGE SQUARE - 3,019,122 4,528,684 - 1,418,477
San Diego, California
POINT LOMA PLAZA 14,797,386 11,942,554 23,885,108 23,408 1,700,150
San Diego, California
INDEPENDENCE SQUARE - - 4,213,782 - 3,950,531
San Diego, California
NAVAJO SHOPPING CENTER - 571,588 961,731 1,197,679 8,364,264
San Diego, California
RUFFIN VILLAGE - - 3,779,139 - 307,674
San Diego, California
MESA SHOPPING CENTER 7,875,295 2,962,405 5,924,810 18,169 2,732,150
San Diego, California
SAN DIEGO FACTORY OUTLET - 4,533,576 9,067,910 2,285,747 7,094,140
San Diego, California
SDFOC-KMART 2,550,747 1,933,333 3,866,667 - -
San Diego, California
SAN MARCOS LUCKY PLAZA - 2,457,807 4,915,613 266,185 531,319
San Diego, California
BERGEN BRUNSWIG BUILDING 9,400,491 7,878,067 15,756,135 10,754 144,151
Orange, California
ANACOMP BUILDING - 7,467,253 14,934,506 6,747 42,728
Poway, California
MARCOA BUILDING - 1,432,434 3,342,347 247 576
San Diego, California
SCRIPPS RANCH BUILDING - 2,085,891 2,081,981 - 2,691,789
San Diego, California
----------- ----------- ----------- ---------- -----------
SUBTOTAL 41,438,911 54,017,792 112,951,175 4,223,399 33,315,974
----------- ----------- ----------- ---------- -----------
<CAPTION>
AMOUNTS CARRIED AT END OF PERIOD:
---------------------------------
BUILDINGS & CARRYING ACCUMULATED DATE
PROPERTY LAND IMPROVEMENTS COSTS DEPRECIATION ACQUIRED LIFE
<S> <C> <C> <C> <C> <C> <C>
SAN DIEGO REGION
WIEGAND PLAZA $ 5,400,687 $ 13,251,499 $18,652,186 $ 4,882,286 Sep-86 30
Encinitas, California
POWAY PLAZA 2,747,538 6,779,288 9,526,826 2,421,070 Oct-88 30
Poway, California
SANTEE VILLAGE SQUARE 3,019,122 5,947,161 8,966,283 2,617,608 Jan-85 30
San Diego, California
POINT LOMA PLAZA 11,965,962 25,585,258 37,551,220 8,198,110 Dec-89 30
San Diego, California
INDEPENDENCE SQUARE - 8,164,313 8,164,313 3,664,847 Sep-83 3-25
San Diego, California
NAVAJO SHOPPING CENTER 1,769,267 9,325,995 11,095,262 2,327,570 Sep-83 3-15
San Diego, California
RUFFIN VILLAGE - 4,086,813 4,086,813 2,154,788 Dec-85 25
San Diego, California
MESA SHOPPING CENTER 2,980,574 8,656,960 11,637,534 4,613,770 Jun-84 25
San Diego, California
SAN DIEGO FACTORY OUTLET 6,819,323 16,162,050 22,981,373 3,717,941 Jan-92 30
San Diego, California
SDFOC-KMART 1,933,333 3,866,667 5,800,000 699,218 Oct-93 30
San Diego, California
SAN MARCOS LUCKY PLAZA 2,723,992 5,446,932 8,170,924 172,506 Dec-97 30
San Diego, California
BERGEN BRUNSWIG BUILDING 7,888,821 15,900,286 23,789,107 3,323,086 Oct-92 30
Orange, California
ANACOMP BUILDING 7,474,000 14,977,234 22,451,234 2,991,696 Dec-92 30
Poway, California
MARCOA BUILDING 1,432,681 3,342,923 4,775,604 1,028,121 Sep-89 30
San Diego, California
SCRIPPS RANCH BUILDING 2,085,891 4,773,770 6,859,661 1,755,892 May-87 30
San Diego, California
---------- ----------- ----------- ----------
SUBTOTAL 58,241,191 146,267,149 204,508,340 44,568,509
---------- ----------- ----------- ----------
60
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1998
<CAPTION>
COSTS CAPITALIZED SUBSEQUENT
INITIAL COST TO COMPANY: TO ACQUISITION:
------------------------ ----------------------------
BUILDINGS & BUILDINGS &
PROPERTY ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
<S> <C> <C> <C> <C> <C>
LOS ANGELES REGION
LA MANCHA SHOPPING CENTER - 2,202,830 5,981,355 168,770 955,265
Fullerton, California
PLAZA AT PUENTE HILLS 32,394,106 19,333,333 38,666,667 48,674 1,598,120
City of Industry, California
WEST LANCASTER - 635,257 1,274,663 - 49,942
Lancaster, California
ONTARIO VILLAGE - 1,582,802 3,195,733 - 167,607
Ontario, California
VALLEY CENTRAL 24,858,317 13,291,904 26,680,586 - 235,016
Lancaster, California
CRENSHAW-IMPERIAL 5,156,121 3,019,923 6,159,881 8,685 (20,879)
Inglewood, California
SANTA FE SPRINGS PLAZA - 5,682,205 11,403,070 - 159,656
Whitier, California
CENTRAL SHOPPING CENTER - 1,886,518 3,795,868 1,500 6,449
Ventura, California
MOUNTAINGATE PLAZA 23,593,248 9,587,636 19,419,490 (19,547) 81,341
Simi Valley, California
SIMI VALLEY PLAZA 16,143,450 8,219,957 16,439,914 78,894 170,880
Simi Valley, California
WESTMINSTER CENTER - 18,604,973 37,209,946 1,767,404 1,953,780
Westminster, California
BELL GARDEN MARKETPLACE - - 11,854,933 - 1,465,403
Bell Garden, California
BUENA VISTA MARKETPLACE - 4,216,270 8,432,541 399,168 790,831
Duarte, California
RALPH'S CENTER - 3,686,051 7,372,102 9,798 11,089
Redondo Beach, California
CENTERWOOD PLAZA - 2,108,031 4,216,062 170,709 336,617
Bellflower, California
LAKE ARROWHEAD 19,551,006 10,606,587 21,695,708 - -
Lake Arrowhead, California
OLYMPIAD PLAZA 6,104,449 3,413,703 6,871,283 9,974 101,735
Mission Viejo, California
MENIFEE TOWN CENTER - 3,952,698 7,905,397 10,329 17,437
Menifee, California
PLAZA DE MONTEREY 3,956,664 1,999,305 4,071,522 - -
Palm Desert, California
PALMS TO PINES WEST - 1,013,724 2,119,429 - -
Palm Desert, California
MISSION PLAZA - 1,517,422 3,106,356 - -
Cathedral City, California
----------- ----------- ----------- --------- ---------
SUBTOTAL 131,757,361 116,561,129 247,872,506 2,654,358 8,080,289
----------- ----------- ----------- --------- ---------
<CAPTION>
AMOUNTS CARRIED AT END OF PERIOD:
---------------------------------
BUILDINGS & CARRYING ACCUMULATED DATE
PROPERTY LAND IMPROVEMENTS COSTS DEPRECIATION ACQUIRED LIFE
<S> <C> <C> <C> <C> <C> <C>
LOS ANGELES REGION
LA MANCHA SHOPPING CENTER 2,371,600 6,936,620 9,308,220 4,442,998 Dec-88 30
Fullerton, California
PLAZA AT PUENTE HILLS 19,382,007 40,264,787 59,646,794 7,295,057 Oct-93 30
City of Industry, California
WEST LANCASTER 635,257 1,324,605 1,959,862 85,777 Jan-97 30
Lancaster, California
ONTARIO VILLAGE 1,582,802 3,363,340 4,946,142 213,243 Jan-97 30
Ontario, California
VALLEY CENTRAL 13,291,904 26,915,602 40,207,506 1,727,112 Jan-97 30
Lancaster, California
CRENSHAW-IMPERIAL 3,028,608 6,139,002 9,167,610 363,788 Apr-97 30
Inglewood, California
SANTA FE SPRINGS PLAZA 5,682,205 11,562,726 17,244,931 674,767 Apr-97 30
Whitier, California
CENTRAL SHOPPING CENTER 1,888,018 3,802,317 5,690,335 222,812 Apr-97 30
Ventura, California
MOUNTAINGATE PLAZA 9,568,089 19,500,831 29,068,920 815,466 Oct-97 30
Simi Valley, California
SIMI VALLEY PLAZA 8,298,851 16,610,794 24,909,645 554,100 Dec-97 30
Simi Valley, California
WESTMINSTER CENTER 20,372,377 39,163,726 59,536,103 1,270,688 Dec-97 30
Westminster, California
BELL GARDEN MARKETPLACE - 13,320,336 13,320,336 392,675 Dec-97 30
Bell Gardens, California
BUENA VISTA MARKETPLACE 4,615,438 9,223,372 13,838,810 291,475 Dec-97 30
Duarte, California
RALPH'S CENTER 3,695,849 7,383,191 11,079,040 258,829 Dec-97 30
Redondo Beach, California
CENTERWOOD PLAZA 2,278,740 4,552,679 6,831,419 142,753 Dec-97 30
Bellflower, California
LAKE ARROWHEAD 10,606,587 21,695,708 32,302,295 440,305 May-98 30
Lake Arrowhead, California
OLYMPIAD PLAZA 3,423,677 6,973,018 10,396,695 350,200 Jun-97 30
Mission Viejo, California
MENIFEE TOWN CENTER 3,963,027 7,922,834 11,885,861 264,578 Dec-97 30
Menifee, California
PLAZA DE MONTEREY 1,999,305 4,071,522 6,070,827 67,165 Jun-98 30
Palm Desert, California
PALMS TO PINES WEST 1,013,724 2,119,429 3,133,153 34,924 Jun-98 30
Palm Desert, California
MISSION PLAZA 1,517,422 3,106,356 4,623,778 51,056 Jun-98 30
Cathedral City, California
----------- ----------- ----------- ----------
SUBTOTAL 119,215,487 255,952,795 375,168,282 19,959,768
----------- ----------- ----------- ----------
61
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1998
<CAPTION>
COSTS CAPITALIZED SUBSEQUENT
INITIAL COST TO COMPANY: TO ACQUISITION:
------------------------ ----------------------------
BUILDINGS & BUILDINGS &
PROPERTY ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
<S> <C> <C> <C> <C> <C>
SAN FRANCISCO REGION
RICHMOND SHOPPING CENTER 6,854,781 3,139,965 6,264,175 71,473 433,456
Richmond, California
HILLTOP PLAZA - 1,923,807 3,847,815 3,798,993 21,050,533
Richmond, California
GATEWAY CENTER 16,716,239 - 23,041,102 - 2,297,321
Marin City, California
FOOTHILL PLAZA - 2,082,995 4,373,836 - 110,069
Los Altos, California
CAMERON PARK - 1,898,032 3,810,110 - 436,107
Cameron Park, California
FREMONT HUB SHOPPING CENTER - 15,750,424 33,274,814 - 2,180,296
Fremont, California
STANFORD RANCH 6,265,630 3,669,386 7,449,220 - 205,308
Rocklin, California
AUBURN VILLAGE - 4,828,725 9,773,678 - 421,694
Auburn, California
PROSPECTOR'S PLAZA - 6,762,001 13,524,001 548,265 1,080,646
Placerville, California
SANTA ROSA VALUE CENTER - 5,964,704 11,929,409 15,858 47,194
Santa Rosa, California
FREMONT GATEWAY PLAZA - 9,898,097 19,796,193 398,376 783,521
Fremont, California
SOUTHAMPTON CENTER - 6,964,868 13,929,736 600,421 1,184,481
Benicia, California
SILVER CREEK PLAZA - 5,793,858 11,587,715 401,575 795,636
San Jose, California
SUMMERHILLS SHOPPING CENTER - 3,463,199 6,926,397 94,852 192,398
Sacramento, California
SHASTA CROSSROADS - 4,554,787 9,109,575 468,732 928,513
Redding, California
CREEKSIDE SHOPPING CENTER - 2,883,083 5,766,165 492,088 977,405
Vacaville, California
580 MARKETPLACE - 5,575,805 11,151,611 374,641 736,183
Castro Valley, California
DISCOVERY PLAZA - - 9,216,732 415,576 914,928
Sacramento, California
SUNSET CENTER - 2,396,340 4,792,681 130,594 257,508
Suisin City, California
HALLMARK TOWN CENTER - 2,797,702 5,595,405 284,839 563,367
Madera, California
ARCADE SQUARE - 2,779,626 5,559,253 267,143 527,755
Sacramento, California
VAN NESS 20,544,880 2,271,199 50,231,739 - -
San Francisco, California
---------- ---------- ----------- --------- ----------
SUBTOTAL 50,381,530 95,398,603 270,951,362 8,363,426 36,124,319
---------- ---------- ----------- --------- ----------
<CAPTION>
AMOUNTS CARRIED AT END OF PERIOD:
---------------------------------
BUILDINGS & CARRYING ACCUMULATED DATE
PROPERTY LAND IMPROVEMENTS COSTS DEPRECIATION ACQUIRED LIFE
<S> <C> <C> <C> <C> <C> <C>
SAN FRANCISCO REGION
RICHMOND SHOPPING CENTER 3,211,438 6,697,631 9,909,069 750,371 Dec-95 30
Richmond, California
HILLTOP PLAZA 5,722,800 24,898,348 30,621,148 714,604 Dec-96 30
Richmond, California
GATEWAY CENTER - 25,338,423 25,338,423 1,116,286 Aug-97 30
Marin City, California
FOOTHILL PLAZA 2,082,995 4,483,905 6,566,900 285,020 Feb-97 30
Los Altos, California
CAMERON PARK 1,898,032 4,246,217 6,144,249 243,637 Jan-97 30
Cameron Park, California
FREMONT HUB SHOPPING CENTER 15,750,424 35,455,110 51,205,534 1,925,085 Apr-97 30
Fremont, California
STANFORD RANCH 3,669,386 7,654,528 11,323,914 396,450 May-97 30
Rocklin, California
AUBURN VILLAGE 4,828,725 10,195,372 15,024,097 533,223 May-97 30
Auburn, California
PROSPECTOR'S PLAZA 7,310,266 14,604,647 21,914,913 464,054 Dec-97 30
Placerville, California
SANTA ROSA VALUE CENTER 5,980,562 11,976,603 17,957,165 399,220 Dec-97 30
Santa Rosa, California
FREMONT GATEWAY PLAZA 10,296,473 20,579,714 30,876,187 678,355 Dec-97 30
Fremont, California
SOUTHAMPTON CENTER 7,565,289 15,114,217 22,679,506 489,375 Dec-97 30
Benicia, California
SILVER CREEK PLAZA 6,195,433 12,383,351 18,578,784 387,134 Dec-97 30
San Jose, California
SUMMERHILLS SHOPPING CENTER 3,558,051 7,118,795 10,676,846 233,194 Dec-97 30
Sacramento, California
SHASTA CROSSROADS 5,023,519 10,038,088 15,061,607 328,038 Dec-97 30
Redding, California
CREEKSIDE SHOPPING CENTER 3,375,171 6,743,570 10,118,741 202,349 Dec-97 30
Vacaville, California
580 MARKETPLACE 5,950,446 11,887,794 17,838,240 385,410 Dec-97 30
Castro Valley, California
DISCOVERY PLAZA 415,576 10,131,660 10,547,236 330,122 Dec-97 30
Sacramento, California
SUNSET CENTER 2,526,934 5,050,189 7,577,123 167,061 Dec-97 30
Suisin City, California
HALLMARK TOWN CENTER 3,082,541 6,158,772 9,241,313 204,030 Dec-97 30
Madera, California
ARCADE SQUARE 3,046,769 6,087,008 9,133,777 185,583 Dec-97 30
Sacramento, California
VAN NESS 2,271,199 50,231,739 52,502,938 457,205 July-98 30
San Francisco, California
----------- ----------- ----------- ----------
SUBTOTAL 103,762,029 307,075,681 410,837,710 10,875,806
----------- ----------- ----------- ----------
62
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1998
<CAPTION>
COSTS CAPITALIZED SUBSEQUENT
INITIAL COST TO COMPANY: TO ACQUISITION:
------------------------ ----------------------------
BUILDINGS & BUILDINGS &
PROPERTY ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
<S> <C> <C> <C> <C> <C>
PACIFIC NORTHWEST REGION
CHAMBERS CREEK 1,573,943 887,118 1,856,899 - 13,631
Tacoma, Washington
DESIGN MARKET - 3,765,179 7,892,149 - 41,339
Bellevue, Washington
FAIRWOOD SQUARE - 1,684,060 3,568,011 - 135,594
Renton, Washington
PUGET PARK 2,510,915 1,477,327 3,103,651 - 78,360
Everett, Washington
MERIDIAN VILLAGE SHOPPING - 7,001,009 14,002,019 29,513 102,751
CENTER
Bellingham, Washington
BEAR CREEK VILLAGE (ERNST) - - 3,474,379 - 69,677
Redmond, Washington
VILLAGE EAST SHOPPING CENTER - 4,995,041 10,016,631 - -
Salem, Oregon
KEIZER CREEKSIDE - 1,831,640 3,746,464 - -
Salem, Oregon
PARK MANOR - 973,248 2,010,606 - -
Bellingham, Washington
FARMINGTON VILLAGE - 1,400,223 2,811,045 - -
Aloha, Oregon
GREENWAY TOWN CENTER - 2,546,298 5,090,877 - -
Tigard, Oregon
GREENTREE PLAZA - 3,266,219 6,598,434 - -
Everett, Washington
YOUNG'S BAY - 1,717,485 3,438,212 - -
Warrenton, Oregon
JAMES' VILLAGE (LYNNWOOD ERNST) - - 2,141,260 - -
Lynnwood, Washington
--------- ---------- ---------- ------ -------
SUBTOTAL 4,084,858 31,544,847 69,750,637 29,513 441,352
--------- ---------- ---------- ------ -------
<CAPTION>
AMOUNTS CARRIED AT END OF PERIOD:
---------------------------------
BUILDINGS & CARRYING ACCUMULATED DATE
PROPERTY LAND IMPROVEMENTS COSTS DEPRECIATION ACQUIRED LIFE
<S> <C> <C> <C> <C> <C> <C>
PACIFIC NORTHWEST REGION
CHAMBERS CREEK 887,118 1,870,530 2,757,648 76,684 Oct-97 30
Tacoma, Washington
DESIGN MARKET 3,765,179 7,933,488 11,698,667 326,574 Oct-97 30
Bellevue, Washington
FAIRWOOD SQUARE 1,684,060 3,703,605 5,387,665 147,512 Oct-97 30
Renton, Washington
PUGET PARK 1,477,327 3,182,011 4,659,338 132,698 Oct-97 30
Everett, Washington
MERIDIAN VILLAGE SHOPPING 7,030,522 14,104,770 21,135,292 471,696 Dec-97 30
CENTER
Bellingham, Washington
BEAR CREEK VILLAGE (ERNST) - 3,544,056 3,544,056 350,804 Dec-97 30
Redmond, Washington
VILLAGE EAST SHOPPING CENTER 4,995,041 10,016,631 15,011,672 306,255 Feb-98 30
Salem, Oregon
KEIZER CREEKSIDE 1,831,640 3,746,464 5,578,104 72,409 Jun-98 30
Salem, Oregon
PARK MANOR 973,248 2,010,606 2,983,854 38,902 Jun-98 30
Bellingham, Washington
FARMINGTON VILLAGE 1,400,223 2,811,045 4,211,268 39,295 Jul-98 30
Aloha, Oregon
GREENWAY TOWN CENTER 2,546,298 5,090,877 7,637,175 70,707 Jul-98 30
Tigard, Oregon
GREENTREE PLAZA 3,266,219 6,598,434 9,864,653 91,221 Jul-98 30
Everett, Washington
YOUNG'S BAY 1,717,485 3,438,212 5,155,697 47,753 Jul-98 30
Warrenton, Oregon
JAMES' VILLAGE (LYNNWOOD ERNST) - 2,141,260 2,141,260 28,678 Oct-98 30
Lynnwood, Washington
---------- ---------- ----------- ---------
SUBTOTAL 31,574,360 70,191,989 101,766,349 2,201,188
---------- ---------- ----------- ---------
63
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III
DECEMBER 31, 1998
<CAPTION>
COSTS CAPITALIZED SUBSEQUENT
INITIAL COST TO COMPANY: TO ACQUISITION:
------------------------ ----------------------------
BUILDINGS & BUILDINGS &
PROPERTY ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
<S> <C> <C> <C> <C> <C>
MOUNTAIN REGION
------------ ----------- ----------- ---------- -----------
BRICKYARD PLAZA (ERNST)
Salt Lake City, Utah - - 1,047,007 - -
------------ ----------- ----------- ---------- -----------
SOUTHWEST REGION
SILVER PLAZA 300,000 318,364 675,644 - 3,669
Silver City, New Mexico
CRUCES NORTE - 827,222 1,701,026 - -
Las Cruces, New Mexico
----------- ----------- ----------- ---------- ----------
SUBTOTAL 300,000 1,145,586 2,376,670 - 3,669
------------ ----------- ----------- ---------- -----------
BURNHAM PACIFIC GRAND TOTAL $227,962,660 $298,667,957 $704,949,357 $15,270,696 $77,965,603
============ ============ ============ =========== ===========
<CAPTION>
AMOUNTS CARRIED AT END OF PERIOD:
---------------------------------
BUILDINGS & CARRYING ACCUMULATED DATE
PROPERTY LAND IMPROVEMENTS COSTS DEPRECIATION ACQUIRED LIFE
<S> <C> <C> <C> <C> <C> <C>
MOUNTAIN REGION
------------ ----------- ------------ -----------
BRICKYARD PLAZA (ERNST)
Salt Lake City, Utah - 1,047,007 1,047,007 50,458 Sep-98 30
------------ ----------- ------------ -----------
SOUTHWEST REGION
SILVER PLAZA 318,364 679,313 997,677 27,897 Oct-97 30
Silver City, New Mexico
CRUCES NORTE 827,222 1,701,026 2,528,248 33,283 Jun-98 30
Las Cruces, New Mexico
------------ ----------- ------------ -----------
SUBTOTAL 1,145,586 2,380,339 3,525,925 61,180
------------ ----------- ------------ -----------
BURNHAM PACIFIC GRAND TOTAL $313,938,653 $782,914,960 $1,096,853,613 $77,716,909
============ ============ ============== ===========
</TABLE>
64
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
FORM 10-K SCHEDULE III NOTES
DECEMBER 31, 1998
NOTE 1
Poway Shopping Center, Santee Village Square, Independence Square, Navajo
Shopping Center, San Diego Factory Outlet, La Mancha Shopping Center, Santa
Fe Springs Plaza, Central Shopping Center, Foothill Plaza, Fremont Hub
Shopping Center, Auburn Village, Keizer Creekside, Park Manor, Meridian
Village Shopping Center, and Greentree Plaza are jointly encumbered under the
Company's secured line of credit, under which $111,017,713 was outstanding at
December 31, 1998, which was not included in Schedule III.
NOTE 2
Menifee Town Center, San Marcos Lucky Plaza, Westminster Center, Buena Vista
Marketplace, Ralph's Center, Centerwood Plaza, Prospector's Plaza, Santa Rosa
Value Center, Fremont Gateway Plaza, Southampton Center, Silver Creek Plaza,
Summerhills Shopping Center, Shasta Crossroads, Creekside Shopping Center,
580 Marketplace, Discovery Plaza, Sunset Center, Hallmark Town Center, and
Arcade Square are jointly encumbered under a $148,109,955 Mortgage Loan at
December 31, 1998, which was not included in Schedule III.
NOTE 3
Design Market, Fairwood Square, and Village East are jointly encumbered under
a $16,005,128 Mortgage loan at December 31, 1998, which was not included in
Schedule III.
NOTE 4
Schedule III does not include approximately $6,111,000 of furniture fixtures
and equipment and acquisitions in progress and $2,120,000 of related
accumulated depreciation, and $34,764,000 of costs incurred to date on
development of a retail center which is also classified with property in the
consolidated financial statements of the Company.
NOTE 5
The aggregate cost for federal income tax purposes for buildings and
improvements at December 31, 1998 was approximately $724,683,000.
<TABLE>
<CAPTION>
Land, Buildings & Accumulated
Improvements Depreciation
<S> <C> <C>
Balance at January 1, 1997 $ 350,764,889 $ 48,322,678
Additions During Period 636,986,047 13,107,995
Cost of Real Estate Sold (72,672,630) (6,631,279)
--------------------- -------------------
Balance at December 31, 1997 915,078,306 54,799,394
Additions During Period 187,460,623 24,302,044
Cost of Real Estate Sold (5,685,316) (1,384,529)
--------------------- -------------------
Balance at December 31, 1998 $1,096,853,613 $ 77,716,909
===================== ===================
A) Additions during the period are broken down as follows:
1998 1997
--------------------- -------------------
<S> <C> <C>
Cash Expenditures $ 144,000,716 $ 447,653,868
Assumption of Debt 25,147,110 61,008,444
Operating Partnership Units Issued 18,312,797 58,323,735
Issuance of Convertible Preferred Stock - 70,000,000
--------------------- -------------------
$ 187,460,623 $ 636,986,047
===================== ===================
</TABLE>
65
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
WHOLLY-OWNED CORPORATE SUBSIDIARIES OF THE COMPANY:
BPP/Crenshaw-Imperial, Inc. (Delaware) (Consolidated)
BPP/Golden State Acquisitions, Inc. (Delaware) (Consolidated)
BPP/Mountaingate, Inc. (Delaware) (Consolidated)
BPP/Northwest Acquisitions, Inc. (Delaware) (Consolidated)
BPP/Puente Hills, Inc. (Delaware) (Consolidated)
BPP/Riley, Inc. (California) (Consolidated)
BPP/Simi Valley, Inc. (Delaware) (Consolidated)
BPP/Valley Central, Inc. (Delaware) (Consolidated)
Burnham Pacific L.P., Inc. (Delaware) (Consolidated)
BPP/Arrowhead, Inc. (Delaware) (Consolidated)
BPP/Sunset, Inc. (Delaware) (Consolidated)
BPP/Zimel, Inc. (Delaware) (Consolidated)
BPAC Texas, Inc. (Delaware) (Consolidated)
PARTNERSHIPS IN WHICH THE COMPANY HOLDS INTERESTS:
BPP/Cameron Park L.P. (California) (Consolidated)
BPP/Crenshaw-Imperial, L.P. (Delaware) (Consolidated)
BPP/East Palo Alto L.P. (California) (Consolidated)
BPP/Hilltop L.P. (California) (Consolidated)
BPP/Marin L.P. (California) (Consolidated)
BPP/Mission Viejo, L.P. (California) (Consolidated)
BPP/Mountaingate, L.P. (Delaware) (Consolidated)
BPP/Pleasant Hill L.P. (California) (Consolidated)
BPP/Richmond L.P. (California) (Consolidated)
BPP/Riley L.P. (California) (Consolidated)
BPP/Simi Valley, L.P. (Delaware) (Consolidated)
BPP/Valley Central L.P. (California) (Consolidated)
BPP/Van Ness L.P. (California) (Consolidated)
Burnham Pacific Operating Partnership, L.P. (Delaware) (Consolidated)
BPP/Powell, L.P. (Delaware) (Consolidated)
BPP/Arrowhead, L.P. (Delaware) (Consolidated)
BPP/Sunset, L.P. (Delaware) (Consolidated)
BPP/Zimel, L.P. (Delaware) (Consolidated)
BPAC Texas, L.P. (Delaware) (Consolidated)
BPP/Van Ness Operating Company, L.P. (Delaware) (Consolidated)
LIMITED LIABILITY COMPANIES IN WHICH THE COMPANY HOLDS AN INTEREST:
BPP/Golden State Acquisitions, L.L.C. (Delaware) (Consolidated)
BPP/Northwest Acquisitions, L.L.C. (Delaware) (Consolidated)
BPP/Puente Hills, L.L.C. (Delaware) (Consolidated)
Ladera Center Associates, LLC (Delaware) (Unconsolidated)
Margarita Plaza Associates, LLC (Delaware) (Unconsolidated)
Historic Van Ness, LLC (Delaware) (Unconsolidated)
BPP Retail, LLC (Delaware) (Unconsolidated)
BPAC Texas GP, LLC. (Delaware) (Unconsolidated)
BPP/Van Ness Operating Company, LLC (California) (Consolidated)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
Burnham Pacific Properties, Inc.
We consent to the incorporation by reference in Registration Statement Nos.
333-10559 and 333-58347 on Form S-8 and 33-56555 and 333-31591 on Form S-3 of
Burnham Pacific Properties, Inc. of our report dated February 23, 1999 (March
9, 1999 as to paragraph 4 of Note 18) appearing in this Annual Report on Form
10-K of Burnham Pacific Properties, Inc. for the year ended December 31, 1998.
//Deloitte & Touche, LLP//
March 29, 1999
San Diego, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 28,610<F1>
<SECURITIES> 0
<RECEIVABLES> 9,475
<ALLOWANCES> 1,778
<INVENTORY> 0
<CURRENT-ASSETS> 56,234<F2><F3>
<PP&E> 1,137,779
<DEPRECIATION> 79,837
<TOTAL-ASSETS> 1,114,176
<CURRENT-LIABILITIES> 53,554
<BONDS> 575,028
0
68,894
<COMMON> 456,410
<OTHER-SE> (109,927)
<TOTAL-LIABILITY-AND-EQUITY> 1,114,176<F4><F5>
<SALES> 130,905
<TOTAL-REVENUES> 131,723
<CGS> 35,849
<TOTAL-COSTS> 35,849
<OTHER-EXPENSES> 34,330
<LOSS-PROVISION> 694
<INTEREST-EXPENSE> 35,630
<INCOME-PRETAX> 18,756
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,756<F6><F7><F8>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,756<F9>
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<FN>
<F1>INCLUDES 7,737 OF RESTRICTED CASH
<F2>INCLUDES 3,438 OF INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
<F3>ALSO INCLUDES, 16,489 OF OTHER ASSETS AND 7,697 OF RECEIVABLES-NET
<F4>INCLUDES 524,957 OF PAID IN CAPITAL IN EXCESS OF PAR
<F5>ALSO INCLUDES 70,217 OF MINORITY INTEREST
<F6>INCLUDES 4,864 MINORITY INTEREST
<F7>ALSO INCLUDES 214 OF INCOME FROM UNCONSOLIDATED SUBSIDIARIES
<F8>ALSO INCLUDES 1,814 OF LOSS FROM SALES OF REAL ESTATE
<F9>DOES NOT INCLUDE 5,600 DIVIDENDS PAID TO PREFERRED STOCKHOLDERS
</FN>
</TABLE>
