<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-10272
SECURITY CAPITAL PACIFIC TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 74-6056896
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7777 MARKET CENTER AVENUE, EL PASO, 79912
TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(915) 877-3900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing for the past 90 days.
Yes X No
The number of shares outstanding of the Registrant's common stock as of
October 29, 1996 was: 75,466,587
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
PART I. Condensed Financial Information
Item 1. Financial Statements
Condensed Balance Sheets--September 30, 1996 (unaudited) and
December 31, 1995............................................ 3
Condensed Statements of Earnings--Three and nine months ended
September 30, 1996 and 1995 (unaudited)...................... 4
Condensed Statements of Cash Flows--Nine months ended
September 30, 1996 and 1995 (unaudited)...................... 5
Notes to Condensed Financial Statements...................... 6
Independent Auditors' Review Report.......................... 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 13
PART II. Other Information
Item 4. Submission of Matters to Vote of Securities Holders.......... 20
Item 5. Other Information............................................ 20
Item 6. Exhibits and Reports on Form 8-K............................. 20
</TABLE>
2
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
------ ------------- ------------
(UNAUDITED)
<S> <C> <C>
Real estate......................................... $2,257,560 $1,855,866
Less accumulated depreciation....................... 102,496 81,979
---------- ----------
2,155,064 1,773,887
Mortgage notes receivable........................... 14,394 15,844
---------- ----------
Total investments................................. 2,169,458 1,789,731
Cash and cash equivalents--unrestricted............. 7,172 26,919
Restricted tax deferred exchange proceeds........... 13,503 --
Accounts receivable................................. 4,083 3,318
Other assets........................................ 28,783 21,031
---------- ----------
Total assets.................................... $2,222,999 $1,840,999
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Line of credit.................................... $ 171,350 $ 129,000
Long term debt.................................... 450,000 200,000
Mortgages payable................................. 219,460 158,054
Distributions payable............................. -- 22,437
Accounts payable.................................. 30,212 21,040
Accrued expenses and other liabilities............ 35,585 34,800
---------- ----------
Total liabilities............................... 906,607 565,331
---------- ----------
Shareholders' Equity:
Series A Preferred shares (8,703,000 convertible
shares in 1996 and 9,200,000 in 1995; stated
liquidation preference of $25 per share)......... 217,575 230,000
Series B Preferred shares (4,200,000 shares
issued; stated liquidation
preference of $25 per share)...................... 105,000 105,000
Common shares (shares issued--72,980,268 in 1996
and 72,375,819
in 1995).......................................... 72,980 72,376
Additional paid-in capital........................ 964,500 952,679
Distributions in excess of net earnings........... (41,725) (82,450)
Treasury shares (164,956 in 1996 and 164,901 in
1995)............................................ (1,938) (1,937)
---------- ----------
Total shareholders' equity...................... 1,316,392 1,275,668
---------- ----------
Total liabilities and shareholders' equity...... $2,222,999 $1,840,999
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
CONDENSED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER NINE MONTHS ENDED
30, SEPTEMBER 30,
--------------- -----------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income.............................. $84,802 $70,176 $240,102 $189,412
Interest................................... 590 610 1,589 1,884
------- ------- -------- --------
85,392 70,786 241,691 191,296
------- ------- -------- --------
Expenses:
Rental expenses............................ 25,239 20,555 67,804 54,105
Real estate taxes.......................... 6,594 5,525 19,953 15,889
Property management fees paid to
affiliates................................ 2,960 2,379 8,788 6,081
Depreciation............................... 10,987 9,611 32,230 26,162
Interest................................... 8,624 3,271 22,401 14,400
REIT management fee paid to affiliates..... 5,866 5,543 17,145 14,676
General and administrative................. 264 166 770 580
Provision for possible loss on investments. -- 100 -- 220
Other...................................... 140 433 501 635
------- ------- -------- --------
60,674 47,583 169,592 132,748
------- ------- -------- --------
Earnings from operations..................... 24,718 23,203 72,099 58,548
Gain on sale of investments.................. 25,257 -- 33,340 --
------- ------- -------- --------
Net earnings before extraordinary item....... 49,975 23,203 105,439 58,548
Less extraordinary item--loss on early
extinguishment of debt...................... -- -- 870
------- ------- -------- --------
Net earnings................................. 49,975 23,203 104,569 58,548
Less preferred share dividends............... 6,182 6,387 18,956 15,435
------- ------- -------- --------
Net earnings attributable to common shares. $43,793 $16,816 $ 85,613 $ 43,113
======= ======= ======== ========
Weighted average common shares outstanding... 72,628 72,211 72,355 65,315
======= ======= ======== ========
Per common share amounts:
Primary.................................... $ 0.60 $ 0.23 $ 1.18 $ 0.66
======= ======= ======== ========
Fully diluted.............................. $ 0.57 $ -- $ 1.18 $ --
======= ======= ======== ========
Distributions paid......................... $ 0.31 $0.2875 $ 0.93 $ 0.8625
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UUAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net earnings............................................ $ 104,569 $ 58,548
Adjustments to reconcile net earnings to cash flow
provided by operating activities:
Depreciation and amortization......................... 33,658 27,092
Provision for possible loss on investments............ -- 220
Gain on sale of investment properties................. (33,340) --
Decrease in accounts payable.......................... (2,261) (1,533)
Increase in accrued real estate taxes................. 1,911 3,876
Decrease in accrued interest on long term debt........ (1,027) (3,594)
Increase (decrease) in accrued expenses and other
liabilities.......................................... (100) 2,573
Net change in other operating assets.................. (6,822) (4,388)
--------- ---------
Net cash flow provided by operating activities........ 96,588 82,794
--------- ---------
Investing activities:
Real estate investments................................. (462,412) (198,055)
Mortgage notes receivable............................... -- (1,038)
Principal repayments on mortgage notes receivable....... 1,450 4,929
Proceeds from sale of investments....................... 182,490 --
Tax deferred exchange proceeds held in escrow........... (13,503) --
--------- ---------
Net cash flow used in investing activities............ (291,975) (194,164)
--------- ---------
Financing activities:
Proceeds from line of credit............................ 353,235 171,000
Principal payments on line of credit.................... (310,885) (248,000)
Proceeds from long term debt............................ 250,000 --
Payoff of PACIFIC's line of credit...................... -- (51,900)
Regularly scheduled principal payments on mortgages
payable................................................ (1,461) (1,203)
Prepayment of mortgages payable......................... (25,845) (303)
Debt issuance costs paid................................ (3,123) (1,351)
Proceeds from sale of shares, net of expenses........... -- 317,591
Proceeds from dividend reinvestment and share purchase
plan, net.............................................. -- 1,002
Cash distributions paid on common shares................ (67,345) (56,035)
Cash dividends paid on preferred shares................. (18,956) (15,435)
Other................................................... (20) 14
--------- ---------
Net cash flow provided by financing activities........ 175,640 115,380
--------- ---------
Net increase (decrease) in cash and cash equivalents..... (19,747) 4,010
Cash and cash equivalents at beginning of period......... 26,919 8,092
--------- ---------
Cash and cash equivalents at end of period............... $ 7,172 $ 12,102
========= =========
Non-cash investing and financing activities:
Mortgage notes assumed upon purchase of multifamily
properties............................................. $ 88,711 $ 4,784
========= =========
Series A Preferred Shares exchanged for common shares... $ 12,425 $ --
========= =========
Multifamily properties and other net assets acquired in
connection with the merger with Security Capital
Pacific Incorporated ("PACIFIC") which were funded by:
PTR common shares exchanged for all of the outstanding
shares of PACIFIC's common stock..................... $ -- $ 138,671
Mortgage notes assumed................................ -- 54,403
Repayment of the outstanding balance on PACIFIC's line
of credit............................................ -- 51,900
--------- ---------
Net increase in net assets related to the merger...... $ -- $ 244,974
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(1) GENERAL
The condensed financial statements of SECURITY CAPITAL PACIFIC TRUST ("PTR")
are unaudited and certain information and footnote disclosures normally
included in financial statements have been omitted. While management of PTR
believes that the disclosures presented are adequate, these interim financial
statements should be read in conjunction with the financial statements and
notes included in PTR's 1995 Annual Report on Form 10-K, as amended by Form
10-K/A No. 1.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments consisting of normal recurring adjustments
for a fair presentation of PTR's financial statements for the interim periods
presented. The results of operations for the three and nine month periods
ended September 30, 1996, are not necessarily indicative of the results to be
expected for the entire year.
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 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.
(2) SPIN-OFF OF PTR'S HOMESTEAD VILLAGE EXTENDED-STAY LODGING ASSETS TO
HOMESTEAD VILLAGE INCORPORATED
On September 12, 1996, the holders of PTR common shares approved the spin-
off (the "Spin-off") of PTR's Homestead Village(R) extended-stay lodging
assets to a newly formed company, Homestead Village Incorporated (formerly
Homestead Village Properties Incorporated) ("Homestead"). The spin-off was
completed on October 17, 1996. As part of the Spin-off, PTR contributed 54
Homestead Village properties (or the rights to acquire such properties) to
Homestead in exchange for 9,485,727 shares of Homestead common stock.
Simultaneously with the Spin-off, PTR received 6,363,789 warrants to acquire
additional shares of Homestead common stock at a price of $10.00 per share in
exchange for entering into a funding commitment agreement for which PTR agreed
to provide up to $129.0 million in secured financing for developments to
Homestead and receive $144.0 million in convertible mortgage notes. In
addition, PTR received approximately $77.0 million of convertible mortgage
notes on certain Homestead Village properties. Each mortgage note issued by
Homestead will be convertible into shares of Homestead common stock on the
basis of one share of Homestead common stock for every $11.50 of principal
outstanding on the convertible mortgage note. Upon full funding of PTR's
convertible mortgage notes, its conversion rights would represent 34.7%
ownership interest in Homestead assuming conversion of outstanding convertible
mortgage notes and exercise of outstanding warrants by PTR and all other
holders. The Homestead common stock and warrants to acquire additional common
stock will be distributed to PTR shareholders on November 12, 1996 to
shareholders of record on October 29, 1996. Each PTR shareholder will receive
.125694 Homestead common stock and .084326 warrants per PTR common share plus
cash for fractional shares and warrants. As of September 30, 1996, PTR's
Homestead Village properties consisted of 28 operating properties, 24
properties under construction or in planning, and two properties under
contract, representing a total expected investment of $284.9 million. For the
nine months ended September 30, 1996, PTR's Homestead Village operations
accounted for approximately 10.6% of PTR's total earnings from operations
attributable to common shares. The reduction in operating results attributable
to the Homestead Village properties will be partially offset by interest
earned on the convertible mortgage notes on an as funded basis.
6
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(3) REAL ESTATE
Investments
Investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(1) DECEMBER 31, 1995
-------------------- --------------------
INVESTMENT UNITS (2) INVESTMENT UNITS (2)
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Multifamily:
Operating properties............ $1,929,019 46,891 $1,584,994 41,503
Developments under construction. 215,453 7,059 187,507 6,676
Developments in planning:
Developments owned............ 44,357 3,889 22,933 2,328
Developments under control
(3).......................... -- 5,031 -- 3,822
---------- ------ ---------- ------
Total developments in
planning................... 44,357 8,920 22,933 6,150
---------- ------ ---------- ------
Land held for future
development.................... 42,123 -- 29,688 --
---------- ------ ---------- ------
Total multifamily........... 2,230,952 62,870 1,825,122 54,329
====== ======
Non-multifamily................... 26,608 30,744
---------- ----------
Total real estate........... $2,257,560 $1,855,866
========== ==========
</TABLE>
- --------
(1) Included in the amounts for September 30, 1996 are 3,884 operating units
with an investment of $118.9 million, 1,488 units under construction with
an investment of $30.9 million and 1,776 units of developments in planning
with an investment of $12.6 million of Homestead Village properties which
have been spun-off to Homestead since the end of the third quarter of 1996
(see note 2).
(2) Unit information is based on management's estimates and is unaudited and
not reviewed by the independent auditors.
(3) PTR's investment as of September 30, 1996 and December 31, 1995, for
developments under control was $5.1 million and $2.2 million,
respectively, and is reflected in the "Other assets" caption of PTR's
balance sheets.
The change in investment in real estate, at cost, consisted of the following
(in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1995................................. $1,855,866
Acquisitions................................................. 286,562
Development expenditures, including land acquisitions........ 237,742
Nonrecurring capital improvements and renovation
expenditures................................................ 11,538
Recurring capital improvements............................... 9,392
Acquisition and improvement of land held for future
development................................................. 17,315
Real estate sold............................................. (160,865)
Other........................................................ 10
----------
Balance at September 30, 1996................................ $2,257,560
==========
</TABLE>
At October 29, 1996, PTR had contingent contracts or letters of intent,
including developments under control, subject to PTR's final due diligence and
approval of all entitlements, to acquire land for new development communities
of an estimated 6,099 garden-style multifamily units with an aggregate
estimated development cost of $449.4 million. At the same date, PTR also had
contingent contracts or letters of intent, subject to final due diligence, for
the acquisition of 1,208 additional garden-style multifamily units with an
aggregate investment cost of $96.3 million, including planned capital
expenditures.
At October 29, 1996, PTR had unfunded development commitments for garden-
style developments under construction of $142.6 million.
7
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Gain on Sale and Valuation of Long-Lived Investments
PTR's strategy is to focus on the ownership of multifamily properties. PTR
develops and acquires multifamily properties with a view to effective long-
term operation and ownership. Based upon PTR's market research and in an
effort to optimize its portfolio composition, PTR may from time to time seek
to dispose of assets that in management's view do not meet PTR's long-term
investment objective and redeploy the proceeds therefrom, preferably through
tax deferred exchanges, into assets that in PTR's view offer better long-term
cash flow growth prospects. As a result of this asset optimization strategy,
PTR disposed of 12 multifamily properties and one industrial building during
the nine months ended September 30, 1996, representing aggregate net proceeds
of $182.5 million. Under the terms of the dispositions, net cash proceeds
representing the value of the properties disposed were placed into a trust. At
the direction of PTR, 15 multifamily properties primarily located in
California and land for new development communities have been or will be
acquired utilizing the net proceeds received from dispositions. For federal
income tax purposes, the dispositions were structured as tax deferred
exchanges. For financial reporting purposes, the dispositions qualified for
profit recognition and an aggregate gain of $33.3 million was recorded for the
nine months ended September 30, 1996.
Statement of Financial Accounting Standard No. 121 entitled "Accounting For
The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed
Of" was adopted by PTR effective January 1, 1996, as required by the
Statement. As part of PTR's asset optimization strategy, 21 multifamily
properties and two non-multifamily properties were held for disposition as of
September 30, 1996. The aggregate carrying value of properties held for
disposition was $231.4 million at September 30, 1996. Each of these property's
carrying value is less than its fair market value, net of cost to sell. Such
properties are not depreciated during the period for which they are determined
to be held for disposition. Subject to normal closing risks, PTR expects to
complete the disposition of all properties by the end of the first quarter of
1997, and redeploy the net proceeds from such dispositions through exchanges
into the acquisition of other properties. The earnings from operations for
properties held for disposition which are included in PTR's earnings from
operations for the nine months ended September 30, 1996 and 1995, were $12.7
million and $12.1 million, respectively.
Long-lived investments held and used or held for disposition by PTR are
periodically evaluated for impairment and provisions for possible losses are
made if required. As a result of such evaluation, PTR recorded a provision for
possible loss during the nine months ended September 30, 1995 of $220,000
relating to the impairment of a non-multifamily investment which was sold in
October 1995. As of September 30, 1996, PTR's real estate investments are
carried at cost less accumulated depreciation, which is not in excess of fair
market value.
Third Party Owner--Developments
To enhance its flexibility in developing and acquiring multifamily
properties, PTR has and will enter into presale agreements with third party
owner-developers to acquire properties developed by such owner-developers
where the developments meet PTR's investment criteria. PTR has and will fund
such developments through development loans to such owner-developers. In
addition, to provide greater flexibility for the use of land acquired for
development and to dispose of excess parcels, PTR will make mortgage loans to
PTR Development Services Incorporated ("PTR Development Services") to purchase
land for future development. PTR owns all of the preferred stock of PTR
Development Services, which entitles PTR to substantially all of the net
operating cash flow (95%) of PTR Development Services. All of the common stock
of PTR Development Services is owned by an unaffiliated trust. The common
stock is entitled to receive the remaining 5% of net operating cash flow. As
of September 30, 1996, the outstanding balance of development and mortgage
loans made by PTR to third party owner-developers and PTR Development Services
aggregated $119.3 million and $19.8 million, respectively. The activities of
PTR Development Services and the third party owner-developer loans are
consolidated with PTR's activities and all intercompany transactions have been
eliminated in consolidation.
8
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(4) DISTRIBUTIONS
PTR's current policy is to pay distributions to common shareholders based
upon funds from operations and aggregating annually at least 95% of its
taxable income. On October 22, 1996, the Trustees declared a cash distribution
of $0.31 per common share to be paid on December 4, 1996, to shareholders of
record on
November 20, 1996.
(5) BORROWINGS
Line of Credit
PTR has an unsecured revolving line of credit facility with Texas Commerce
Bank, National Association, as agent bank for a group of lenders ("TCB") of
$350 million, which matures August 1998 and may annually be extended for an
additional year with the approval of TCB and the other participating lenders.
All debt incurrences are subject to covenants, as more fully described in the
loan agreement. The TCB line bears interest at an interest rate of the greater
of prime (8.25% at September 30, 1996) or the federal funds rate plus .50%, or
at PTR's option, LIBOR (5.4375% at September 30, 1996) plus 1.125% (6.5625 %
at September 30, 1996) which can vary from LIBOR plus 0.75% to LIBOR plus
1.50% based upon the rating of PTR's senior unsecured debt. Additionally,
there is a commitment fee on the average unfunded line of credit balance. The
commitment fee was $294,000 and $368,000 for the nine months ended September
30, 1996 and 1995, respectively. At September 30, 1996, there were $157.5
million of outstanding borrowings under this line of credit.
On September 9, 1996, PTR entered into an uncommitted short-term borrowing
facility agreement of $15 million with TCB, that matures September 9, 1997 and
bears interest at an overnight rate, which has ranged from 5.85% to 6.30%. At
September 30, 1996 there were $13.9 million of borrowings outstanding under
this facility.
Long Term Debt
On August 6, 1996, PTR issued $20 million of Notes which bear interest at
7.550% per annum and mature August 1, 2008 (the "7.550% Notes"), $20 million
of Notes which bear interest at 7.625% per annum and mature August 1, 2009
(the "7.625% Notes"), $20 million of Notes which bear interest at 7.650% per
annum and mature August 1, 2010 (the "7.650% Notes"), $20 million of Notes
which bear interest at 8.100% per annum and mature August 1, 2015 (the "8.100%
Notes") and $20 million of Notes which bear interest at 8.150% per annum and
mature August 1, 2016 (the "8.150% Notes" and, together with the 7.550% Notes,
the 7.625% Notes, the 7.650% Notes and the 8.100% Notes, the "August 1996
Notes"). Collectively, the August 1996 Notes are unsecured and had an original
average life to maturity of 15.6 years and an average effective interest cost,
including offering discounts and issuance costs, of 7.95% per annum, payable
semi-annually. Principal on the August 1996 Notes is due at each of their
respective maturity dates.
On February 23, 1996, PTR issued $50 million of 7.15% Notes due 2010 (the
"7.15% Notes due 2010") and $100 million of 7.90% Notes due 2016 (the "7.90%
Notes" and together with the 7.15% Notes due 2010, the "February 1996 Notes"
and together with the August 1996 Notes and the October 1996 Notes (as defined
in Note 9), the "Notes"). The 7.15% Notes due 2010 require annual principal
payments of $6.25 million, commencing February 15, 2003, which will fully
amortize the principal balance as of February 15, 2010. The 7.90% Notes
require aggregate annual principal payments of $10 million in 2011, $12.5
million in 2012, $15 million in 2013, $17.5 million in 2014, $20 million in
2015 and $25 million in 2016, which will fully amortize the principal balance
as of February 15, 2016. Collectively, the February 1996 Notes are unsecured
and had an original average life to maturity of 15.5 years and average
effective interest cost, including offering discounts and issuance costs, of
7.84% per annum, payable semi-annually.
9
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The Notes, other than the 6.500% Notes (discussed in Note 9), are redeemable
any time at the option of PTR, in whole or in part, at a redemption price
equal to the sum of the principal amount of the Notes being redeemed plus
accrued interest thereon to the redemption date plus an adjustment, if any,
based on the yield to maturity relating to market yields available at
redemption. The Notes are governed by the terms and provisions of a
supplemental indenture agreement dated February 2, 1994 ("the Indenture")
between PTR and State Street Bank and Trust Company.
Under the terms of the Indenture, PTR can incur additional debt only if,
after giving effect to the debt being incurred and application of proceeds
therefrom, (i) the ratio of debt to total assets, as defined in the Indenture,
does not exceed 60%; (ii) the ratio of secured debt to total assets, as
defined in the Indenture, does not exceed 40%; and (iii) PTR's pro forma
interest coverage ratio, as defined in the Indenture, is not less than 1.5:1.
Mortgage Notes Payable
During the second quarter of 1996, PTR prepaid $25.8 million in mortgage
notes payable. Such early extinguishment of debt resulted in prepayment
penalties and a write-off of unamortized loan costs in an aggregate of
$870,000 which was recorded by PTR as an extraordinary item for the nine
months ended September 30, 1996.
General Items
At September 30, 1996, PTR was in compliance with all debt covenants.
Interest paid on all borrowings for the nine months ended September 30, 1996
was $33,592,000, including $12,824,000 of interest capitalized during
construction. Interest paid on all borrowings for the nine months ended
September 30, 1995 was $25,686,000, including $8,597,000 of interest
capitalized during construction.
Amortization of loan costs included in interest expense for the nine months
ended September 30, 1996 and 1995 was $1,428,000 and $930,000, respectively.
(6) SHAREHOLDERS' EQUITY
During the nine months ended September 30, 1996, 497,000 of PTR's Cumulative
Convertible Series A Preferred Shares of Beneficial Interest ("Series A
Preferred Shares") were converted, at the option of shareholders, into 604,448
of PTR's common shares (a conversion ratio of 1.2162 common shares for each
Series A Preferred Share).
As a result of the Spin-off, PTR adjusted the conversion price, effective as
of the opening of business on October 30, 1996, of its Series A Preferred
Shares from $20.556 to $18.561 (a conversion ratio of 1.3469 common shares for
each Series A Preferred Share) to reflect the impact of the distribution of
the Homestead securities on November 12, 1996.
(7) EARNINGS PER SHARE
Primary earnings per share is computed based on the weighted average number
of common shares outstanding for the three and nine months ended September 30,
1996 and 1995, respectively. Fully diluted earnings per common share is
calculated from weighted average common shares outstanding for the three and
nine months ended September 30, 1996, plus the common shares that would be
outstanding assuming conversion of Series A Preferred Shares and outstanding
options for the three and nine months ended September 30, 1996. Net earnings
attributable to common shares for purposes of the fully diluted per share
calculation has been adjusted for the dividends on the Series A Preferred
Shares. Inclusion of PTR's Series A Preferred Shares as a common stock
equivalent in the earnings per share computation is antidilutive for both the
three and nine months ended September 30, 1995.
10
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONCLUDED)
(8) REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
In May 1996, PTR renewed and amended its REIT management agreement with
Security Capital Pacific Incorporated (the "REIT Manager"), to provide REIT
Management services to PTR. The REIT Manager is a wholly-owned subsidiary of
Security Capital Group Incorporated ("SCG"), which owned 37.6% of PTR's
outstanding common shares at September 30, 1996 and 36.3% of PTR's outstanding
common shares giving effect to the conversion of Series A Preferred Shares
through October 29, 1996.
SCG Realty Services Incorporated ("SCG Realty Services") has managed and
currently manages a substantial majority of PTR's operating multifamily
properties (88.0% and 79.0% as of September 30, 1996 and 1995, respectively).
For the nine months ended September 30, 1996 and 1995, PTR paid SCG Realty
Services aggregate fees of $7,188,000 and $5,722,000, respectively. Homestead
Realty Services Incorporated ("Homestead Realty Services"), formed in June
1995, managed all of PTR's operating Homestead Village properties. For the
nine months ended September 30, 1996 and 1995, PTR paid Homestead Realty
Services aggregate fees of $1,600,000 and $359,000, respectively. SCG owns SCG
Realty Services and owned Homestead Realty Services, which merged with
Homestead in the Spin-off. Rates for services performed by SCG Realty Services
and Homestead Realty Services are subject to annual approval by PTR's
independent Trustees (who receive an annual review from an independent third
party) and management believes are at rates prevailing in the markets in which
PTR operates.
(9) SUBSEQUENT EVENTS
Long Term Debt
On October 21, 1996, PTR issued $15 million of Notes which bear interest at
6.600% per annum and mature October 15, 1999 (the "6.600% Notes"), $20 million
of Notes which bear interest at 6.950% per annum and mature October 15, 2002
(the "6.950% Notes"), $20 million of Notes which bear interest at 7.150% per
annum and mature October 15, 2003 (the "7.150% Notes due 2003"), $20 million
of Notes which bear interest at 7.250% per annum and mature October 15, 2004
(the "7.250% Notes"), $20 million of Notes which bear interest at 7.300% per
annum and mature October 15, 2005 (the "7.300% Notes"), $20 million of Notes
which bear interest at 7.375% per annum and mature October 15, 2006 (the
"7.375% Notes"), and $15 million of Notes which bear interest at 6.500% per
annum and mature October 15, 2026 (the "6.500% Notes", and together with the
6.600% Notes, 6.950% Notes, 7.150% Notes due 2003, 7.250% Notes, 7.300% Notes,
and 7.375% Notes, the "October 1996 Notes"). Collectively, the October 1996
Notes are unsecured and had an original average life to maturity of 6.85 years
and an average effective interest cost, including discounts and issuance costs
of 7.50% per annum, payable semi-annually. Principal on the October 1996 Notes
is due at each of their respective maturity dates. Including the October 1996
Notes, PTR has $580 million of unsecured long-term debt with a current
weighted average life to maturity of 12.03 years and an average effective
interest cost, including discounts and issuance costs, of 7.62% per annum.
The October 1996 Notes, other than the 6.500% Notes, are redeemable any time
at the option of PTR, in whole or in part, at a redemption price equal to the
sum of the principal amount of the Notes being redeemed plus accrued interest
thereon to the redemption date plus an adjustment, if any, based on the yield
to maturity relating to market yields available at redemption. The 6.500%
Notes may be repaid on October 15, 1999 at the option of the holder at their
full principal amount together with accrued interest. The 6.500% Notes may be
redeemed at any time after October 15, 1999 at the option of PTR, in whole or
in part, at a redemption price equal to the sum of the principal amount of the
Notes being redeemed plus accrued interest thereon to the redemption date plus
an adjustment, if any, based on the yield to maturity relating to market
yields available at redemption.
11
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Trustees and Shareholders
SECURITY CAPITAL PACIFIC TRUST:
We have reviewed the accompanying condensed balance sheet of SECURITY
CAPITAL PACIFIC TRUST as of September 30, 1996, and the related condensed
statements of earnings for the three- and nine-month periods ended September
30, 1996 and 1995, and the related condensed statements of cash flows for the
nine-month periods ended September 30, 1996 and 1995. These condensed
financial statements are the responsibility of the Trust's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of SECURITY CAPITAL PACIFIC TRUST as of December
31, 1995, and the related statements of earnings, shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated January 31, 1996, except as to Note 12, which is as of February 23,
1996, we expressed an unqualified opinion on those financial statements. In
our opinion, the information set forth in the accompanying condensed balance
sheet as of December 31, 1995, is fairly stated, in all material respects, in
relation to the balance sheet from which it has been derived.
KPMG Peat Marwick LLP
Chicago, Illinois
October 30, 1996
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Security Capital
Pacific Trust's ("PTR") condensed financial statements and notes thereto
included elsewhere herein.
The statements contained in this discussion that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Among the important factors that could cause PTR's actual results to differ
materially from those expressed in the forward-looking statements are (i)
changes in general economic conditions in its target markets that could
adversely affect demand for PTR's properties and (ii) changes in financial
markets and interest rates that could adversely affect PTR's cost of capital
and its ability to meet its financing needs and obligations.
OVERVIEW
PTR's operating results depend primarily upon income from multifamily
properties, which is substantially influenced by (i) the demand for and supply
of multifamily units in PTR's target market and submarkets, (ii) operating
expense levels, (iii) the effectiveness of property level operations, and (iv)
the pace and price at which PTR can develop and acquire additional multifamily
properties. Capital and credit market conditions which affect PTR's cost of
capital also influence operating results.
PTR's target market and submarkets have benefitted substantially in recent
periods from demographic trends (including job and population growth) that
increase the demand for multifamily units. Consequently, rents for multifamily
units have increased more than the inflation rate for the last two years and
are expected to continue experiencing such increases during 1996. Expense
levels also influence operating results, and operating expenses (other than
real estate taxes) as a percentage of revenues for multifamily properties have
decreased slightly during 1995 and are expected to increase somewhat less than
the rate of inflation during 1996.
SPIN-OFF OF HOMESTEAD VILLAGE PROPERTIES
On October 17, 1996, PTR completed the spin-off ("Spin-off") of its
Homestead Village extended-stay lodging assets to a newly formed company,
Homestead Village Incorporated ("Homestead"). As part of the Spin-off, PTR
contributed 54 Homestead Village properties to Homestead in exchange for
9,485,727 shares of Homestead common stock. Simultaneously with the Spin-off,
PTR received 6,363,789 warrants to acquire additional shares of Homestead
common stock at a price of $10.00 per share in exchange for entering into a
funding commitment agreement for which PTR agreed to provide up to $129.0
million in secured financing for developments to Homestead and receive $144.0
million in convertible mortgage notes. In addition, PTR received approximately
$77.0 million of convertible mortgage notes on certain Homestead Village
properties. Each convertible mortgage note issued by Homestead will be
convertible into shares of Homestead common stock on the basis of one share of
Homestead common stock for every $11.50 of principal outstanding on the
convertible mortgage note. Upon full funding of PTR's convertible mortgage
notes, its conversion rights would represent 34.7% ownership interest in
Homestead assuming conversion of outstanding convertible mortgage notes and
exercise of outstanding warrants by PTR and all other holders. The Homestead
common stock and warrants to acquire additional common stock were distributed
to PTR shareholders payable on November 12, 1996, to shareholders of record on
October 29, 1996. The distribution ratio was .125694 Homestead common stock
and .084326 warrants per PTR common share.
For the nine months ended September 30, 1996, PTR's Homestead Village
operations accounted for approximately 10.6% of PTR's total earnings from
operations attributable to common shares. The reduction in operating results
attributable to Homestead Village will be partially offset by interest earned
on the convertible mortgage notes on an as funded basis.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to September 30, 1995
During the nine months ended September 30, 1996, PTR acquired 13 multifamily
properties aggregating 4,992 units for a total purchase price, including
planned capital expenditures, of approximately $309.7 million.
13
<PAGE>
In addition, PTR completed development of 18 properties aggregating 3,964
units with a completion cost of approximately $193.6 million. Of the completed
developments, eight properties aggregating 1,116 units with a completion cost
of approximately $39.9 million were Homestead Village properties. At October
29, 1996, after giving effect to the Spin-off, PTR had 4,827 garden-style
multifamily units under construction with a budgeted completion cost of $291.1
million and had an estimated 7,732 garden-style multifamily units in planning
with an aggregate budgeted completion cost of approximately $450.5 million.
During the nine months ended September 30, 1995, PTR acquired 22 multifamily
properties aggregating 6,833 units for a total purchase price, including
planned renovations, of approximately $305.9 million, including properties
acquired in the merger with Security Capital Pacific Incorporated (the
"Merger"), and completed development of 11 multifamily properties aggregating
1,842 units with a completion cost of $74.4 million. At September 30, 1995,
PTR had 6,045 multifamily units under construction with a budgeted completion
cost of approximately $295.9 million and had in planning an estimated 6,889
multifamily units with an aggregate budgeted completion cost of $368.8
million.
The percentage of PTR's total rental income generated by multifamily
properties was 99.0% and 98.5% for the nine months ended September 30, 1996
and 1995, respectively.
Property Operations
Property operations contributed to increased net earnings primarily due to
property rental revenue increases of $50.7 million (26.8%), partially offset
by higher rental expense, property management fees and real estate taxes,
which increased by $20.5 million (26.9%) for the period. Depreciation expense
increased $6.1 million (23.2%) for the nine months ended September 30, 1996 as
compared to the same period in 1995. These increases are due to operating
multifamily properties placed in service, through development and acquisition
of additional properties and to rental rate increases. At September 30, 1996,
76.3% of PTR's operating multifamily properties, based on expected cost, were
classified by PTR as stabilized properties. At September 30, 1996, PTR's
operating multifamily properties were 95.5% leased and PTR's stabilized
multifamily properties were 95.6% leased.
Interest Expense
Interest expense increased $8.0 million (55.6%) for the nine months ended
September 30, 1996, as compared to the same period in 1995, resulting from the
issuance of $150 million of unsecured long term notes in February 1996 and the
issuance of $100 million of unsecured long term notes in August 1996, as more
fully discussed under "--Liquidity and Capital Resources."
Mortgage interest expense increased $933,000 (11.8%) for the nine months
ended September 30, 1996, as compared to the same period in 1995, resulting
from mortgages aggregating $66.5 million assumed in the Merger in 1995 and
mortgages aggregating $88.7 million assumed as a result of acquisitions of
properties during the third quarter of 1996.
Line of credit interest expense increased $3.2 million (75.6%) for the nine
months ended September 30, 1996, as compared to the same period in 1995,
resulting from higher outstanding balances and an increase in amortization of
additional loan costs (administrative fees, renewal fees, and legal fees)
relating to PTR's revolving credit facility which were offset in part by lower
interest rates. Average borrowings on the line of credit were approximately
$114.0 million (with an average interest rate of 7.00%) during the nine months
ended September 30, 1996, as compared to average borrowings of approximately
$51.0 million (with an average interest rate of 7.96%) for the same period in
1995. The commitment fee on the unfunded line of credit balance was $294,000
and $368,000 for the nine months ended September 30, 1996 and 1995,
respectively.
The increases in interest expense were also offset in part by an increase of
$4.2 million (49.2%) in capitalized interest. The increase in capitalized
interest is attributable to higher levels of multifamily development activity
for the nine months ended September 30, 1996, as compared to the same period
in 1995.
14
<PAGE>
REIT Management Fee
The REIT management fee paid by PTR fluctuates with the level of PTR's pre-
REIT management fee cash flow, as defined in the REIT management agreement,
and therefore increased by $2.5 million (16.8%) during the nine months ended
September 30, 1996, as compared to the same period in 1995 because cash flow
increased substantially. With the issuance in February 1994 of $200 million
and February 1996 of $150 million of amortizing, unsecured long term debt and
the issuance in August 1996 of $100 million and October 1996 of $130 million
of unsecured long term debt as more fully described under "Liquidity and
Capital Resources," the REIT management fee effectively declines in proportion
to PTR's cash flow as defined in the REIT management agreement with Security
Capital Pacific Incorporated (the "REIT Manager"), because actual or assumed
regularly scheduled principal and interest payments, associated with the long
term debt will be deducted from the cash flow amount on which the REIT
management fee is based. In addition, the REIT management agreement was
modified in 1995 to provide that distributions paid in respect of non-
convertible preferred shares, such as the Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest issued in May 1995, are deducted from
the cash flow amount on which the REIT management fee is based. Further, from
and after the Spin-off, interest income from the convertible mortgage notes
issued by Homestead will be deducted from the cash flow amount on which the
REIT management fee is based.
Gain on Sale and Valuation of Long-Lived Investments
PTR's strategy is to focus on the ownership of multifamily properties. PTR
develops and acquires multifamily properties with a view to effective long-
term operation and ownership. Based upon PTR's market research and in an
effort to optimize its portfolio composition, PTR may from time to time seek
to dispose of assets that in management's view do not meet PTR's long-term
investment objective and redeploy the proceeds therefrom, preferably through
tax deferred exchanges, into assets that in PTR's view offer better long-term
cash flow growth prospects. As a result of this asset optimization strategy,
PTR disposed of 12 multifamily properties and one industrial building during
the nine months ended September 30, 1996, representing aggregate net proceeds
of $182.5 million. Under the terms of the dispositions, net cash proceeds
representing the value of the properties disposed were placed into a trust. At
the direction of PTR, 15 multifamily properties primarily located in
California and land for new development communities have been or will be
acquired utilizing the net proceeds received from the dispositions. For
federal income tax purposes, the dispositions were structured as tax deferred
exchanges. For financial reporting purposes, the transactions qualified for
profit recognition and an aggregate gain of $33.3 million was recorded for the
nine months ended September 30, 1996.
Long-lived investments held and used or held for disposition by PTR are
periodically evaluated for impairment and provisions for possible losses are
made if required. As a result of such evaluation, PTR recorded a provision for
possible loss during the nine months ended September 30, 1995 of $220,000
relating to the impairment of a non-multifamily investment which was sold in
October 1995. As of September 30, 1996, PTR's real estate investments are
carried at cost less accumulated depreciation, which is not in excess of fair
market value.
Extraordinary Item--Loss on Early Extinguishment of Debt
During the second quarter of 1996, PTR prepaid $25.8 million in mortgage
notes payable. Such early extinguishment of debt resulted in prepayment
penalties and a write-off of unamortized loan costs in the aggregate of
$870,000 which was recorded as an extraordinary item for the nine months ended
September 30, 1996.
Three-Month Period Ended September 30, 1996 and 1995
Property revenues, operating expenses, income from property operations
before depreciation, income from property operations and net earnings for the
three months ended September 30, 1996 compared to the three months ended
September 30, 1995 reflect changes similar to those discussed in the preceding
paragraphs for the comparison of the nine months ended on the same dates. The
changes are substantially attributable to the same reasons discussed in the
preceding paragraphs for the nine month periods ended September 30, 1996 and
1995.
15
<PAGE>
Preferred Share Dividends
In November 1993, PTR issued $230 million of Series A Preferred Shares that
are entitled to receive an annual dividend of $1.75 per share (7.0% annual
dividend rate), which amounted to $11.9 million and $12.1 million for the nine
months ended September 30, 1996 and 1995, respectively. In May 1995, PTR
issued $105 million of Series B Preferred Shares that are entitled to receive
an annual dividend of $2.25 per share (9.0% annual dividend rate), which
amounted to $7.1 million and $3.4 million for the nine months ended September
30, 1996 and 1995, respectively.
ENVIRONMENTAL MATTERS
PTR does not expect any environmental condition on its properties to have a
material adverse effect upon its results of operations or financial position.
LIQUIDITY AND CAPITAL RESOURCES
PTR considers its liquidity and ability to generate cash from operations and
financings to be adequate and expects it to continue to be adequate to meet
PTR's development, acquisition, operating, debt service and shareholder
distribution requirements.
Operating Activities
Net cash flow provided by operating activities increased by $13.8 million
(16.7%) for the nine months ended September 30, 1996 compared to the same
period in 1995. The increase is due primarily to increased net earnings in
1996 as compared to 1995.
Investing Activities
During the nine months ended September 30, 1996, PTR invested $462.4 million
in cash in the development, acquisition and renovation of multifamily
properties and assumed $88.7 million in mortgages. For the same period, PTR
received $182.5 million in proceeds in connection with property dispositions.
During the first nine months of 1995, PTR invested $198.1 million in cash in
the development, acquisition and renovation of multifamily properties and
assumed $59.2 million in mortgages. Except for the properties acquired in the
Merger, which were financed with the issuance of common shares, these
developments, acquisitions, and renovations were financed with cash on hand,
borrowings and the assumption of mortgages.
At October 29, 1996 PTR had contingent contracts or letters of intent,
including developments under control, subject to PTR's final due diligence and
approval of all entitlements, to acquire land for new development communities
of an estimated 6,099 garden-style multifamily units with an aggregate
estimated development cost of $449.4 million. At the same date, PTR also had
contingent contracts or letters of intent, subject to final due diligence, for
the acquisition of 1,208 additional garden-style multifamily units with an
aggregate investment cost of $96.3 million, including planned capital
expenditures. At October 29, 1996, PTR had unfunded development commitments
for garden-style developments under construction of $142.6 million.
Financing Activities
PTR's net financing activities for the nine months ended September 30, 1996
provided $175.6 million as compared to $115.4 million for the same period in
1995. The increase in cash flow provided by financing activities is due to an
increase in line of credit proceeds ($353.2 million for the nine months ended
September 30, 1996 as compared to $171.0 million for the same period in 1995)
offset by an increase in distributions to shareholders ($86.3 million for the
nine months ended September 30, 1996 as compared to $71.5 million for the same
period in 1995) and a decrease in debt and equity offering proceeds received
($250.0 million for the nine
16
<PAGE>
months ended September 30, 1996 as compared to $317.6 million for the same
period in 1995), more repayments of the revolving credit balances ($310.9
million for the nine months ended September 30, 1996 as compared to $299.9
million for the same period in 1995) and the prepayment of mortgages during
the second quarter of 1996.
PTR has an unsecured revolving line of credit facility with Texas Commerce
Bank, National Association ("TCB"), as agent bank for a group of lenders of
$350 million, which matures August 1998 and may annually be extended for an
additional year with the approval of TCB and the other participating lenders.
All debt incurrences are subject to covenants, as more fully described in the
loan agreement. The TCB line bears interest at an interest rate of the greater
of prime (8.25% at September 30, 1996) or the federal funds rate plus .50% or
at PTR's option, LIBOR (5.4375% at September 30, 1996) plus 1.125% (6.5625% at
September 30, 1996) which can vary from LIBOR plus 0.75% to LIBOR plus 1.50%
based upon the rating of PTR's senior unsecured debt. Additionally, there is a
commitment fee on the average unfunded line of credit balance. At November 11,
1996, there were $78.0 million of borrowings outstanding under the line of
credit.
On September 9, 1996, PTR entered into an uncommitted short-term borrowing
facility agreement of $15 million with TCB, that matures September 9, 1997 and
bears interest at an overnight rate, which has ranged from 5.85% to 6.30%. At
November 11, 1996 there were $4.0 million of borrowings outstanding under this
facility.
On October 21, 1996, PTR issued $15 million of Notes which bear interest at
6.600% per annum and mature October 15, 1999 (the "6.600% Notes"), $20 million
of Notes which bear interest at 6.950% per annum and mature October 15, 2002
(the "6.950% Notes"), $20 million of Notes which bear interest at 7.150% per
annum and mature October 15, 2003 (the "7.150% Notes due 2003"), $20 million
of Notes which bear interest at 7.250% per annum and mature October 15, 2004
(the "7.250% Notes"), $20 million of Notes which bear interest at 7.300% per
annum and mature October 15, 2005 (the "7.300% Notes"), $20 million of Notes
which bear interest at 7.375% per annum and mature October 15, 2006 (the
"7.375% Notes"), and $15 million of Notes which bear interest at 6.500% per
annum and mature October 15, 2026 (the "6.500% Notes", and together with
6.600% Notes, 6.950% Notes, 7.150% Notes due 2003, 7.250% Notes, 7.300% Notes,
and 7.375% Notes, the "October 1996 Notes"). Collectively, the October 1996
Notes are unsecured and had an original average life to maturity of 6.85 years
and an average effective interest cost, including discounts and issuance
costs, of 7.50% per annum, payable semi-annually. Principal on the October
1996 Notes is due at their respective maturity dates.
On August 6, 1996, PTR issued $20 million of Notes which bear interest at
7.550% per annum and mature August 1, 2008 (the "7.550% Notes"), $20 million
of Notes which bear interest at 7.625% per annum and mature August 1, 2009
(the "7.625% Notes"), $20 million of Notes which bear interest at 7.650% per
annum and mature August 1, 2010 (the "7.650% Notes), $20 million of Notes
which bear interest at 8.100% per annum and mature August 1, 2015 (the "8.100%
Notes") and $20 million of Notes which bear interest at 8.150% per annum and
mature August 1, 2016 (the "8.150% Notes" and, together with the 7.550% Notes,
the 7.625% Notes, the 7.650% Notes and the 8.100% Notes, the "August 1996
Notes"). Collectively, the August 1996 Notes are unsecured and had an original
average life to maturity of 15.60 years and an average effective interest
cost, including offering discounts and issuance costs, of 7.95% per annum
payable semiannually. Principal on the August 1996 Notes is due at their
respective maturity dates.
On February 23, 1996, PTR issued $50 million of 7.15% Notes due 2010 (the
"7.15% Notes due 2010") and $100 million of 7.90% Notes due 2016 (the "7.90%
Notes" and together with the 7.15% Notes due 2010, the "February 1996 Notes"
and together with the August 1996 Notes and the October 1996 Notes (the
"Notes"). The 7.15% Notes due 2010 require annual principal payments of $6.25
million, commencing February 15, 2003, which will fully amortize the principal
balance as of February 15, 2010. The 7.90% Notes require aggregate annual
principal payments of $10 million in 2011, $12.5 million in 2012, $15 million
if 2013, $17.5 million if 2014, $20 million in 2015 and $25 million in 2016,
which will fully amortize the principal balance as of February 15, 2016.
Collectively, the February 1996 Notes are unsecured and had an original
average life to maturity of 15.5 years and average effective interest cost,
including offering discounts and issuance costs, of 7.84% per annum.
17
<PAGE>
The Notes, other than the 6.500% Notes, are redeemable any time at the
option of PTR, in whole or in part, at a redemption price equal to the sum of
the principal amount of the Notes being redeemed plus accrued interest thereon
to the redemption date plus an adjustment, if any, based on the yield to
maturity relating to market yields available at redemption. The 6.500% Notes
may be repaid on October 15, 1999 at the option of the holder at their full
principal amount together with accrued interest. The 6.500% Notes may be
redeemed at any time after October 15, 1999 at the option of PTR, in whole or
in part, at a redemption price equal to the sum of the principal amount of the
Notes being redeemed plus accrued interest thereon to the redemption date plus
an adjustment, if any, based on the yield to maturity relating to market
yields available at redemption. The Notes are governed by the terms and
provisions of a supplemental indenture agreement dated February 2, 1994 ("the
Indenture") between PTR and State Street Bank and Trust Company. Under the
terms of the Indenture, PTR can incur additional debt only if, after giving
effect to the debt incurred and application of proceeds therefrom, (i) the
ratio of debt to total assets, as defined in the Indenture, does not exceed
60%; (ii) the ratio of secured debt to total assets, as defined in the
Indenture, does not exceed 40%; and (iii) PTR's pro forma interest coverage
ratio, as defined in the Indenture, is not less than 1.5:1. The Notes have a
current weighted average life to maturity of 12.03 years and an average
effective interest cost, including discounts and issuance costs, of 7.62% per
annum.
Concurrently with the consummation of the Merger (see discussion in
"Investing Activities" above), PTR completed a subscription offering pursuant
to which PTR received net proceeds of $216.3 million (13.2 million common
shares). The subscription offering was designed to allow shareholders of PTR
to purchase common shares at the same price PACIFIC shareholders were
acquiring common shares in the Merger ($16.375 per common share). Security
Capital Group Incorporated purchased $50 million (3.1 million common shares)
in the subscription offering pursuant to the oversubscription privilege.
PTR expects to finance developments, acquisitions and renovations with cash
on hand and borrowings under its line of credit prior to arranging long term
capital. This will allow PTR to respond efficiently to market opportunities
while minimizing the amount of cash invested in short term investments at
lower yields. PTR believes that its current conservative ratio of long-term
debt to total long-term undepreciated book capitalization, the sum of long
term debt and shareholders' equity after adding back accumulated depreciation
(32.06% at September 30, 1996 on a historical basis and 36.0% on a pro forma
basis giving effect to the sale of the October 1996 Notes and the application
of net proceeds therefrom), provides considerable flexibility to prudently
increase its capital base by utilizing long-term debt as a financing tool in
the future. PTR has the ability to finance a significant level of investment
activity with this additional debt issuance capacity, together with its asset
optimization strategy and internally generated funds made available as the
dividend payout ratio is reduced closer to the minimum level to qualify as a
REIT. Hence, PTR has no current plans to raise additional capital through the
common equity markets. No assurance can be given that changes in market
conditions or other factors will not affect these plans.
Multifamily Properties Fully Operating throughout Both Periods
The 103 multifamily properties that were fully operating throughout the nine
months ended September 30, 1996 and 1995, represent 52.7% of PTR's invested
capital of $2.2 billion at September 30, 1996, including developments under
construction at their fully funded amounts and giving effect to the Spin-off.
Rental expenses for such properties were 40.97% and 41.65% of rental revenue
for such properties during the nine months ended September 30, 1996 and 1995,
respectively. Projected property level earnings before interest, income taxes,
depreciation and amortization ("EBITDA") as a percentage of PTR's expected
aggregate investment (including all planned capital expenditures and
renovation costs) in these properties increased to 11.1% in 1996 from 10.6% in
1995. EBITDA is not to be construed as a substitute for "net earnings" in
evaluating operating results, nor as a substitute for "cash flow" in
evaluating liquidity and may not be comparable to other similarly titled
measures of other companies. This increase in return on investment, which is a
function of rental rate growth, occupancy levels, expense rate growth and
capital expenditure levels, is attributable primarily to growth in rental
rates and the control of operating expense growth. This increase in return on
investment was achieved at the same time that PTR increased its investment in
these properties by approximately $18.4 million (1.6% of total expected
investment in these properties) as a result of renovation and other capital
expenditures. Net operating income increased 4.16% as a result of a 2.95%
rental revenue increase and a 1.27% increase in rental expenses for such
properties for the nine months ended September 30, 1996 as compared to the
same period in 1995.
18
<PAGE>
Distributions
PTR's current distribution policy is to pay quarterly distributions to
holders of common shares based upon what it believes to be a prudent
percentage of cash flow. Such distributions will annually aggregate at least
95% of PTR's taxable income. PTR paid quarterly distributions to holders of
common shares of $0.31 on February 15, 1996, May 16, 1996 and August 15, 1996.
On October 22, 1996, the Board of Trustees declared a cash distribution of
$0.31 per common share payable on December 4, 1996 to shareholders of record
on November 20, 1996, which will result in an annual dividend of $1.24 per
common share.
Pursuant to the terms of the preferred shares, PTR is restricted from
declaring or paying any distribution with respect to its common shares unless
all cumulative distributions with respect to the preferred shares have been
paid and sufficient funds have been set aside for distributions that have been
declared for the then current distribution period with respect to the
preferred shares.
Funds from Operations
Funds from operations represents PTR's net earnings computed in accordance
with generally accepted accounting principles excluding gains (or losses) plus
depreciation and provision for possible loss on investments. PTR believes that
funds from operations is helpful in understanding a property portfolio's
ability to support interest payments and general operating expenses. Funds
from operations attributable to common shares increased $15.8 million (22.7%)
to $85.3 million for the nine months ended September 30, 1996 from $69.5
million for the same period in 1995. The increase resulted primarily from
increased properties in operation. Funds from operations is not to be
construed as a substitute for "net earnings" in evaluating operating results
nor as a substitute for "cash flow" in evaluating liquidity and may not be
comparable to other similarly titled measures of other companies. Funds from
operations for the three months and nine months ended September 30, 1996 and
1995 was as follows (dollars and shares in thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net earnings attributable to common shares. $ 43,793 $16,816 $ 85,613 $43,113
Add (Deduct):
Depreciation............................. 10,987 9,611 32,230 26,162
Provision for possible loss on
investments............................. -- 100 -- 220
Gain on sale of investment properties.... (25,257) -- (33,340) --
Extraordinary item--loss on early
extinguishment of debt.................. -- -- 870 --
Amortization of early extinguishment of
debt cost............................... (49) -- (82) --
-------- ------- -------- -------
Funds from operations attributable to
common shares............................. 29,474 26,527 85,291 69,495
Distributions paid to common shareholders.. 22,560 20,761 67,345 56,035
-------- ------- -------- -------
Excess of funds from operations after
distributions............................. $ 6,914 $ 5,766 $ 17,946 $13,460
======== ======= ======== =======
Weighted average common shares outstanding. 72,628 72,211 72,355 65,315
======== ======= ======== =======
</TABLE>
19
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
At a special meeting held September 12, 1996, the holders of PTR common
shares approved the following items relating to the spin-off of PTR's
Homestead Village extended-stay lodging assets to a newly formed company,
Homestead Village Incorporated: (i) the Merger and Distribution Agreement and
transactions contemplated thereby which was approved by 60,763,306 common
shares (83.5% of PTR's common shares) with 345,328 common shares voting
against (.48% of PTR's common shares) and 356,114 common shares abstaining
(.49% of PTR's common shares); and (ii) the amendment to PTR's Declaration of
Trust which was approved by 60,873,445 common shares (83.6% of PTR's common
shares), with 357,663 common shares voting against (.49% of PTR's common
shares) and 381,805 common shares abstaining (.52% of PTR's common shares).
ITEM 5. OTHER INFORMATION
On October 21, 1996, PTR issued $15 million of 6.600% Notes due 1999, $20
million of 6.950% Notes due 2002, $20 million of 7.150% Notes due 2003, $20
million of 7.250% Notes due 2004 and $20 million of 7.300% Notes due 2005, $20
million of 7.375% Notes due 2006 and $15 million of 6.500% Notes due 2026, as
more fully described under "Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<C> <S>
12-- Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
15-- Letter from KPMG Peat Marwick dated November 11, 1996 regarding
unaudited financial information.
27-- Financial Data Schedule
99-- Security Capital Pacific Trust Supplemental Information--Third
Quarter 1996
</TABLE>
(b) Reports on Form 8-K:
<TABLE>
<CAPTION>
FINANCIAL
DATE ITEM REPORTED STATEMENTS
---- ------------- ----------
<S> <C> <C>
August 1, 1996 Item 5, Item 7 Yes
September 23, 1996 Item 5 No
October 14, 1996 Item 5, Item 7 Yes
October 21, 1996 Item 5, Item 7 No
</TABLE>
20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Security Capital Pacific Trust
/s/
-------------------------------------
Bryan Flanagan, Senior Vice
President and Principal Financial
Officer
/s/
-------------------------------------
Thomas L. Poe, Vice President,
Controller
and Duly Authorized Officer
Date: November 13, 1996
21
<PAGE>
EXHIBIT 12
SECURITY CAPITAL PACIFIC TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30, YEAR ENDED DECEMBER 31,
--------------- ---------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings from
Operations............. $72,099 $58,548 $ 81,696 $46,719 $23,191 $ 9,037 $2,078
Add:
Interest Expense...... 22,401 14,400 19,584 19,442 3,923 3,214 3,952
------- ------- -------- ------- ------- ------- ------
Net Earnings as
adjusted............... $94,500 $72,948 $101,280 $66,161 $27,114 $12,251 $6,030
======= ======= ======== ======= ======= ======= ======
Fixed Charges:
Interest Expense...... $22,401 $14,400 $ 19,584 $19,442 $ 3,923 $ 3,214 $3,952
Capitalized Interest.. 12,824 8,597 11,741 6,029 2,818 989 157
------- ------- -------- ------- ------- ------- ------
Total Fixed Charges. $35,225 $22,997 $ 31,325 $25,471 $ 6,741 $ 4,203 $4,109
======= ======= ======== ======= ======= ======= ======
Ratio of Net Earnings to
Fixed Charges.......... 2.7 3.2 3.2 2.6 4.0 2.9 1.5
======= ======= ======== ======= ======= ======= ======
</TABLE>
<PAGE>
EXHIBIT 15
BOARD OF TRUSTEES AND SHAREHOLDERS
SECURITY CAPITAL PACIFIC TRUST
Gentlemen:
Re: Registration Statements Nos. 33-25317, 333-4455, and 333-12885
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 30, 1996 related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant, or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Chicago, Illinois
November 11, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,675
<SECURITIES> 0
<RECEIVABLES> 18,477
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,257,560
<DEPRECIATION> 102,496
<TOTAL-ASSETS> 2,222,999
<CURRENT-LIABILITIES> 0
<BONDS> 669,460
<COMMON> 72,980
0
322,575
<OTHER-SE> 920,837
<TOTAL-LIABILITY-AND-EQUITY> 2,222,999
<SALES> 240,102
<TOTAL-REVENUES> 241,691
<CGS> 0
<TOTAL-COSTS> 96,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,401
<INCOME-PRETAX> 85,613
<INCOME-TAX> 0
<INCOME-CONTINUING> 86,483
<DISCONTINUED> 0
<EXTRAORDINARY> (870)
<CHANGES> 0
<NET-INCOME> 85,613
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
<PAGE>
Exhibit 99
[LOGO APPEARS HERE]
-----------------------------------------
SECURITY CAPITAL PACIFIC TRUST
-----------------------------------------
SUPPLEMENTAL INFORMATION
Third Quarter 1996
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Highlights ......................................................... 1
Statements of Funds From Operations .......................................... 2
Statements of Earnings ....................................................... 3
Balance Sheets ............................................................... 4
Components of Growth in PTR Funds From Operations Per Share .................. 5
PTR Garden Style Multifamily Portfolio Composition ........................... 6
Same Store Analysis .......................................................... 7a
1/1/95 Same Store Universe and Total PTR Investment By Market ................ 7b
Garden Style Multifamily Investment Summary .................................. 8a
Homestead Village Investment Summary ......................................... 8b
Pro Forma Funds From Operations Relating to Homestead Village Spin-Off ....... 9a
Other Information Relating to the Homestead Village Spin-Off.................. 9b
</TABLE>
Information included in this supplemental information is unaudited.
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Financial Highlights
(in thousands, except per share amounts and ratios)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 % Change 1996 1995 % Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Performance
Rental Revenues $84,802 $70,176 20.84% $240,102 $189,412 26.76%
Net Operating Income /1/ 50,009 41,717 19.88% 143,557 113,337 26.66%
Funds From Operations Attributable to Common Shares 29,474 26,527 11.11% 85,291 69,495 22.73%
Funds From Operations per Common Share /2/ $0.41 $0.37 10.81% $1.18 $1.06 11.32%
Distributions per Share $0.31 $0.2875 7.83% $0.93 $0.8625 7.83%
As of September 30,
1996 1995 % Change
----------- -------------------
Assets
Real Estate Investments Before Depreciation $2,257,560 $1,744,343 29.42%
Total Assets $2,222,999 $1,723,962 28.95%
Capitalization
Total Long Term Debt $669,460 $351,305 90.56%
Total Debt $840,810 $376,305 123.44%
Total Long Term Undepreciated Book Capitalization $2,088,348 $1,722,927 21.21%
Total Undepreciated Book Capitalization $2,259,698 $1,747,927 29.28%
Total Long Term Debt/Total Long Term Undepreciated Book Capitalization 32.06% 20.39% 57.22%
Total Debt/Total Undepreciated Book Capitalization 37.21% 21.53% 72.83%
Total Common Shares Outstanding at Quarter End 72,815 72,211 0.84%
Price at Quarter End $21.125 $19.00 11.18%
Common Equity Market Capitalization at Quarter End /3/ $1,538,217 $1,372,009 12.11%
</TABLE>
DEFINITIONS (amounts and shares are not in thousands)
- -----------------------------------------------------
1 Net Operating Income is total rental revenues less property operating
expenses (excluding depreciation and interest expense).
2 Per share amounts are calculated based on weighted average common shares
outstanding.
3 Conversion of all 8,703,000 shares of Series A convertible preferred stock
would result in 83,399,900 total common shares outstanding and a common
equity market capitalization of $1,761,822,888 as of the September 30, 1996
closing price of $21.25 per common share.
Supplemental Information Page 1
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Statements of Funds From Operations
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
=============================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Rental Income $84,802 $70,176 $240,102 $189,412
Other Interest Income 590 610 1,589 1,884
- -------------------------------------------------------------------------------------------------------------
85,392 70,786 241,691 191,296
- -------------------------------------------------------------------------------------------------------------
Expenses:
Rental Expenses, excluding real estate taxes 28,199 22,934 76,592 60,186
Real Estate Taxes 6,594 5,525 19,953 15,889
Interest 8,624 3,271 22,401 14,400
General and Administrative, including REIT management fee 6,130 5,709 17,915 15,256
Other 189 433 583 635
- -------------------------------------------------------------------------------------------------------------
49,736 37,872 137,444 106,366
- -------------------------------------------------------------------------------------------------------------
Funds From Operations 35,656 32,914 104,247 84,930
Less Preferred Share Dividends 6,182 6,387 18,956 15,435
- -------------------------------------------------------------------------------------------------------------
Funds From Operations Attributable to Common Shares $29,474 $26,527 $85,291 $69,495
=============================================================================================================
Weighted Average Common Shares Outstanding 72,628 72,211 72,355 65,315
=============================================================================================================
Funds From Operations Per Common Shares: $0.41 $0.37 $1.18 $1.06
</TABLE>
Pro Forma Adjustments to Funds From Operations Assuming the Spin-Off of
Homestead Village Assets as of January 1, 1995/1/
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
- -------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
=============================================================================================================
<S> <C> <C> <C> <C>
Pro Forma Per Share Adjustment ($0.05) ($0.05) ($0.12) ($0.10)
Pro Forma Funds From Operations Per Common Share $0.36 $0.32 $1.06 $0.96
- -------------------------------------------------------------------------------------------------------------
</TABLE>
DEFINITIONS
- -----------
/1/ See pages 9a and 9b for detail.
Supplemental Information Page 2
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Statements of Earnings
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
============================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Rental Income $84,802 $70,176 $240,102 $189,412
Other Interest Income 590 610 1,589 1,884
- ------------------------------------------------------------------------------------------------------------
$85,392 $70,786 $241,691 $191,296
- ------------------------------------------------------------------------------------------------------------
Expenses:
Rental Expenses, excluding real estate taxes $28,199 $22,934 $76,592 $60,186
Real Estate Taxes 6,594 5,525 19,953 15,889
Depreciation 10,987 9,611 32,230 26,162
Interest 8,624 3,271 22,401 14,400
General and Administrative, including REIT
management fee 6,130 5,709 17,915 15,256
Other 140 533 501 855
- ------------------------------------------------------------------------------------------------------------
$60,674 $47,583 $169,592 $132,748
- ------------------------------------------------------------------------------------------------------------
Earnings From Operations $24,718 $23,203 $72,099 $58,548
Gain on Sale of Investments 25,257 -- 33,340 --
- ------------------------------------------------------------------------------------------------------------
Earnings Before Extraordinary Item $49,975 $23,203 $105,439 $58,548
Less Extraordinary Item - loss on early extinguishment
of debt -- -- 870 --
- ------------------------------------------------------------------------------------------------------------
Net Earnings $49,975 $23,203 $104,569 $58,548
Less Preferred Share Dividends 6,182 6,387 18,956 15,435
- ------------------------------------------------------------------------------------------------------------
Net Earnings Attributable to Common Shares $43,793 $16,816 $85,613 $43,113
============================================================================================================
Weighted Average Common Shares Outstanding 72,628 72,211 72,355 65,315
============================================================================================================
Earnings Per Common Share:
Primary/1/ $0.60 $0.23 $1.18 $0.66
Fully Diluted $0.57 -- $1.18 --
- ------------------------------------------------------------------------------------------------------------
Distributions Paid Per Common Share $0.31 $0.2875 $0.93 $0.8625
- ------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Primary earnings per common share is calculated from weighted average common
shares outstanding for the three and nine months ended 9/30/96 and 9/30/95.
Supplemental Information Page 3
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Balance Sheets
(in thousands except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
- -----------------------------------------------------------------------------------------------
Assets 1996 1995 1995
===============================================================================================
<S> <C> <C> <C>
Real Estate $2,257,560 $1,744,343 $1,855,866
Less: Accumulated Depreciation 102,496 72,119 81,979
- -----------------------------------------------------------------------------------------------
2,155,064 1,672,224 1,773,887
Mortgage Notes Receivable 14,394 18,706 15,844
- -----------------------------------------------------------------------------------------------
Total Investments 2,169,458 1,690,930 1,789,731
Cash and Cash Equivalents 20,675 12,102 26,919
Accounts Receivable 4,083 2,788 3,318
Other Assets 28,783 18,142 21,031
- -----------------------------------------------------------------------------------------------
Total Assets $2,222,999 $1,723,962 $1,840,999
===============================================================================================
- -----------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
===============================================================================================
Liabilities:
Line of Credit $171,350 $25,000 $129,000
Long Term Debt 450,000 200,000 200,000
Mortgages Payable 219,460 151,305 158,054
Payables, Accrued Expenses and Other Liabilities 65,797 48,153 78,277
- -----------------------------------------------------------------------------------------------
Total Liabilities $906,607 $424,458 $565,331
- -----------------------------------------------------------------------------------------------
Shareholders' Equity:
Series A Cumulative Convertible Preferred Shares $217,575 $230,000 $230,000
Series B Cumulative Redeemable Perpetual Preferred
Shares 105,000 105,000 105,000
Common Shares, $1 Par Value 72,980 72,376 72,376
Additional Paid-In-Capital 964,500 952,691 952,679
Dividends In Excess of Net Earnings (41,725) (58,627) (82,450)
Treasury Shares At Cost (1,938) (1,936) (1,937)
- -----------------------------------------------------------------------------------------------
Total Shareholders' Equity $1,316,392 $1,299,504 $1,275,668
===============================================================================================
Total Liabilities and Shareholders' Equity $2,222,999 $1,723,962 $1,840,999
===============================================================================================
Share Data:
Weighted Average Common Shares Outstanding 72,355 65,315 67,052
============= =========== ===========
Total Common Shares Outstanding/1/ 72,815 72,211 72,211
============= =========== ===========
</TABLE>
DEFINITIONS
- -----------
/1/ During the third quarter, 348,000 Series A convertible preferred shares
were converted into 423,235 common shares.
Supplemental Information Page 4
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Components of Growth in PTR Funds From Operations Per Share
- -------------------
Q3 1996 vs. Q3 1995
- -------------------
52% Developments/3/ [PIE CHART APPEARS HERE] 15% Same Store Universe/1/
33% Acquisitions
- ---------------------
YTD 1996 vs. YTD 1995
- ---------------------
50% Developments/2/ [PIE CHART APPEARS HERE] 17% Same Store Universe/1/
33% Acquisitions
DEFINITIONS
- -----------
1 Same Store Universe: FFO per share growth from NOI increases on properties
which were fully operational as of 1/1/95.
2 Developments: FFO per share growth from the stabilization of new
developments.
3 Acquisitions: FFO per share growth from properties acquired after 1/1/95.
Supplemental Information Page 5
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
PTR Garden Style Multifamily Portfolio Composition
The following graphs illustrate the changing composition of PTR's portfolio
during 1996.
- -------------------------------------------------
Garden Style Multifamily Portfolio as of 12/31/95
- -------------------------------------------------
20% Other Acquisitions & Developments/2/
[PIE CHART APPEARS HERE]
9% West Coast Acquisitions & Developments/1/
71% Same Store Properties/1/
- ------------------------------------------------
Garden Style Multifamily Portfolio as of 9/30/96
- ------------------------------------------------
20% Other Acquisitions & Developments/1/
[PIE CHART APPEARS HERE]
53% Same Store Properties/2/
27% West Coast Acquisitions & Developments/2/
DEFINITIONS
- -----------
1 Same Store Properties: Fully operating properties as of 1/1/95 adjusted for
sales (includes two California properties).
2 West Coast Acquisitions and Developments: Total expected investment in
properties in California, Portland, Seattle and Salt Lake City (excluding
those in the same store universe).
3 Other Acquisitions and Developments: Properties acquired or completed after
1/1/95 and properties under construction on the dates indicated in each
graph, based on total expected investment.
Supplemental Information Page 6
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Same Store Analysis
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Same Store Universe Fully Operating Fully Operating
Properties on Properties on
7/1/95 1/1/95
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Portfolio
Properties 113 103
Units 33,189 30,376
Total Investment in Same Store Properties $1,270,726,244 $1,143,282,590
% of Total PTR Portfolio 54.01% 52.73%
Q3 1996 vs. YTD 1996 vs.
Operating Performance Q3 1995 YTD 1995
----------------- -----------------
Collections Growth 3.07% 2.95%
Property Operating Expense Growth 2.46% 1.27%
Net Operating Income Growth 3.51% 4.16%
- --------------------------------------------------------------------------------------------------
Summary Information on 7/1/95
Same Store Universe Q3 1996 Q3 1995
- --------------------------------------------------------------------------------------------------
Average Physical Occupancy 94.86% 94.43%
Property Operating Expense Ratio 41.51% 41.75%
Average Rental Rate Per Unit $611 $597
Recurring Capital Expenditures Per Unit $69 $42
</TABLE>
DEFINITIONS
- -----------
Same Store Universe:
(a) Fully Operating Properties on 7/1/95: All operating garden apartment
properties (including stabilized and pre-stabilized properties) that
were fully operational during the entire third quarter of 1996 and the
entire third quarter of 1995.
(b) Fully Operating Properties on of 1/1/95: All operating garden apartment
properties (including stabilized and pre-stabilized properties) that
were fully operational during the entire first nine months of 1996 and
the entire first nine months of 1995.
Total Investment in Same Store Properties: Represents cost, including planned
capital expenditures.
% of Total PTR Portfolio: Same store investment as a percentage of PTR's total
investment, including properties under construction, based on total expected
investment as of September 30, 1996.
Collections: Actual rent and other income collected, net of vacancies, bad debts
and concessions.
Property Operating Expense: Includes core property operating expenses, make-
ready expenses and real estate taxes.
Net Operating Income: Total rental revenues less property operating expenses
(excluding depreciation and interest expense).
Property Operating Expense Ratio: Property operating expenses as a percentage of
collected revenues.
Average Rental Rate Per Unit: Weighted average asking rents during the quarter.
Supplemental Information Page 7a
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
1/1/95 Same Store Universe and Total PTR Investment By Market
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Collections
Average Average Growth
Physical Physical 1996 YTD 1/1/95 Same Store Total PTR
Occupancy % Occupancy % vs. 1995 Universe % by Portfolio % by
Market Distribution 1996 YTD 1995 YTD YTD/1/ Market/2/ Market/3/
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Central:
Austin 95.41% 95.31% 3.60% 5.27% 4.82%
Dallas 96.17% 95.71% 5.38% 8.36% 5.20%
Houston 96.00% 91.99% 5.93% 10.49% 7.28%
San Antonio 92.81% 93.52% -1.16% 10.28% 6.60%
----- ----- ----- ------ ------
Central Region Subtotal 94.90% 93.86% 3.21% 34.40% 23.90%
----- ----- ----- ------ ------
Northwest:
Portland 93.61% 96.51% -1.39% 6.40% 6.90%
Salt Lake City 94.36% 94.49% 6.05% 1.03% 3.91%
Seattle 94.07% 94.56% 2.14% 2.38% 5.58%
----- ----- ----- ------ ------
Northwest Region Subtotal 93.83% 95.79% 0.32% 9.81% 16.39%
----- ----- ----- ------ ------
Southwest:
Albuquerque 95.20% 95.37% 0.69% 5.14% 5.58%
Denver 96.60% 96.22% 3.52% 7.93% 4.75%
El Paso 93.91% 91.15% 1.11% 6.03% 4.79%
----- ----- ----- ------ ------
Southwest Region Subtotal 95.18% 94.01% 1.94% 19.10% 15.12%
----- ----- ----- ------ ------
West:
Las Vegas 95.31% 92.02% 5.82% 10.42% 5.49%
Phoenix 95.03% 95.25% 6.60% 13.73% 13.43%
Northern California - - - - 8.12%
Southern California 95.63% 93.84% 6.50% 2.54% 9.15%
Tucson 92.80% 93.75% -3.77% 5.32% 4.64%
----- ----- ----- ------ ------
West Region Subtotal 94.71% 93.91% 4.49% 32.01% 40.83%
----- ----- ----- ------ ------
Other Markets: 94.95% 93.90% 0.23% 4.68% 3.77%
----- ----- ----- ------ ------
Total Properties 94.82% 94.06% 2.95% 100.00% 100.00%
===== ===== ===== ====== ======
Same Store as a % of Total PTR Portfolio 52.73%
======
</TABLE>
DEFINITIONS
- -----------
1 Collections Growth YTD 1996 vs. YTD 1995: Percentage growth in actual rent
and other income collected, net of vacancies, bad debts and concessions in
aggregate for the 1/1/95 same store universe.
2 1/1/95 Same Store Universe % by Market: 1/1/95 same store universe by market
as a percentage of total 1/1/95 same store universe, based upon total
expected investment as of September 30, 1996.
3 Total PTR Portfolio % by Market: Total PTR garden style multifamily portfolio
by market as a percentage of the total PTR garden style multifamily
portfolio, including properties under construction and based upon total
expected investment as of September 30, 1996.
Supplemental Information Page 7b
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Garden Style Multifamily Investment Summary
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1996
-----------------------------------------------------------
Q1 Q2 Q3 YTD
======================================================================================================
<S> <C> <C> <C> <C>
Operating Properties
- ------------------------------------------------------------------------------------------------------
Properties 130 137 142 142
Units 38,970 40,981 43,007 43,007
Total Investment $1,546,998,359 $1,655,797,109 $1,835,567,381 1,835,567,381
Cost Per Unit $39,697 $40,404 $42,681 42,681
Development Properties
- ------------------------------------------------------------------------------------------------------
Starts During Period
Properties 1 4 4 9
Units 324 1,552 1,119 2,995
Total Investment $20,478,906 $102,317,033 $63,006,985 $185,802,924
Cost Per Unit $63,207 $65,926 $56,307 $62,038
Completions During Period
Properties 1 4 5 10
Units 424 1,036 1,388 2,848
Total Investment $24,762,391 $53,298,495 $75,638,745 $153,699,631
Cost Per Unit $58,402 $51,446 $54,495 $53,968
Stabilizations During Period
Properties -- 3 5 8
Units -- 864 1,460 2,324
Total Investment -- $52,515,298 $70,737,309 $123,252,607
Cost Per Unit -- $60,782 $48,450 $53,035
Under Construction at Quarter End
Properties 17 17 16 16
Units 5,324 5,840 5,571 5,571
Total Investment $296,260,860 $345,279,398 $332,647,638 $332,647,638
Cost Per Unit $55,646 $59,123 $59,711 $59,711
Investment To Date At Quarter End $187,676,247 $207,054,462 $184,539,070 $184,539,070
Development Expenditures During Period $37,600,353 $50,708,494 $48,258,719 $136,567,566
Acquisitions
- ------------------------------------------------------------------------------------------------------
Properties 2 5 6 13
Units 815 1,822 2,355 4,992
Total Investment $31,327,500 $96,172,485 $182,170,795 $309,670,780
Cost Per Unit $38,439 $52,784 $77,355 $62,033
Dispositions
- ------------------------------------------------------------------------------------------------------
Properties 4 2 6 12
Units 1,004 848 1,718 3,570
Sales Proceeds $39,740,000 $47,909,825 $98,217,800 $185,867,625
Gains $2,896,938 $5,186,385 $25,206,493 $33,289,816
</TABLE>
DEFINITIONS
- -----------
Total Investment: For operating properties, this equals the total investment to
date plus planned capital expenditures. For development properties, this
equals the total expected investment at completion.
Stabilizations During Period: Completed development properties achieving 93%
occupancy at stabilized rental rates.
Under Construction at Quarter End: Development properties on which construction
has commenced, but all units have not been completed or accepted.
Development Expenditures During Period: Costs expended on projects under
construction during the period.
Dispositions: Second quarter sales proceeds include disposition of an industrial
building for $4.1 million.
Supplemental Information Page 8a
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Homestead Village Investment Summary
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1996
---------------------------------------------------
Q1 Q2 Q3 YTD
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Properties
- ----------------------------------------------------------------------------------------------
Properties 23 26 28 28
Units 3,159 3,594 3,884 3,884
Total Investment $92,239,706 $108,728,523 $119,675,985 $119,675,985
Cost Per Unit $ 29,199 $30,253 $30,813 $30,813
Development Properties
----------------------------------------------------------------------------------------
Starts During Period
Properties 1 4 5 10
Units 141 538 675 1,354
Total Investment $ 4,962,698 $ 24,747,820 $ 29,881,582 $ 59,592,100
Cost Per Unit $35,196 $ 46,000 $ 44,269 $44,012
Completions During Period
Properties 3 3 2 8
Units 391 435 290 1,116
Total Investment $12,592,076 $ 16,364,703 $ 10,922,098 $ 39,878,877
Cost Per Unit $32,205 $ 37,620 $ 37,662 $35,734
Stabilizations During Period
Properties 1 3 4 8
Units 137 459 524 1,120
Total Investment $ 4,057,442 $ 14,862,385 $ 18,233,716 $ 37,153,543
Cost Per Unit $29,616 $ 32,380 $ 34,797 $ 33,173
Under Construction at Quarter End
Properties 7 8 11 11
Units 1,000 1,103 1,488 1,488
Total Investment $37,508,983 $ 45,892,100 $ 64,851,584 $ 64,851,584
Cost Per Unit $37,509 $ 41,607 $43,583 $ 43,583
Investment To Date At Quarter End $25,081,596 $ 23,663,860 $ 30,914,112 $ 30,914,112
Development Expenditures During Period $ 7,979,574 $ 9,765,091 $ 8,483,484 $ 26,228,149
</TABLE>
DEFINITIONS
- -----------
Total Investment: For operating properties, this equals the total investment to
date plus planned capital expenditures. For development properties, this
equals the total expected investment at completion.
Stabilizations During Period: Completed development properties achieving 93%
occupancy at stabilized rental rates.
Under Construction at Quarter End: Development properties on which construction
has commenced, but all units have not been completed and accepted.
Development Expenditures During Period: Incremental costs expended on projects
under construction during the period.
Supplemental Information Page 8b
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Pro Forma Funds From Operations Relating To Homestead Village Spin-Off
(in thousands except per share amounts)
The following pro forma statements of funds from operations assume the spin-off
of PTR's Homestead Village extended-stay lodging assets to a newly formed
company, Homestead Village Incorporated, based on the methodology discussed on
page 9b under "Explanation of Homestead Village Spin-Off Pro Forma Methodology".
<TABLE>
<CAPTION>
For the Three Months Ended March 31, For the Three Months Ended June 30,
--------------------------------------- -----------------------------------------
Pro Forma Statements of 1996 1995 1996 1995
Funds From Operations: -------------------- ------------------ -------------------- ------------------
Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma
=================== ================== ==================== ==================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income $75,809 $68,944 $53,517 $51,350 $79,491 $71,459 $65,719 $62,702
Homestead convertible mortgages
interest income -- 826 -- -- -- 1,203 -- --
Other Interest Income 547 544 555 552 452 448 719 715
------------------ ----------------- ------------------- -----------------
$76,356 $70,314 $54,072 $51,902 $79,943 $73,110 $66,438 $63,417
------------------ ----------------- ------------------- -----------------
Expenses:
Rental Expenses
including real estate taxes $30,297 $26,693 $21,682 $21,108 $31,455 $27,715 $25,933 $25,082
Interest 6,520 7,261 6,006 6,743 7,257 8,016 5,123 5,895
General and Administrative,
including REIT management fee 5,831 5,194 4,171 3,799 5,954 5,148 5,377 4,887
Other 170 144 129 119 224 206 73 71
------------------ ----------------- ------------------- -----------------
$42,818 $39,292 $31,988 $31,769 $44,890 $41,085 $36,506 $35,935
------------------ ----------------- ------------------- -----------------
Less: Preferred share dividends $6,388 $6,388 $4,025 $4,025 $6,386 $6,388 $5,023 $5,023
Funds From Operations
Attributable to Common Shares $27,150 $24,634 $18,059 $16,108 $28,667 $25,637 $24,909 $22,459
================== ================= =================== =================
Per Common Share Amounts $0.38 $0.34 $0.35 $0.31 $0.40 $0.35 $0.35 $0.31
================== ================= =================== =================
For the Three Months Ended September 30, For the Nine Months Ended September 30,
--------------------------------------- -----------------------------------------
1996 1995 1996 1995
-------------------- ------------------ -------------------- -------------------
Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma
=================== ================== ==================== ===================
Revenues:
Rental income $84,802 $76,352 $70,176 $65,920 $240,102 $216,755 $189,412 $179,972
Homestead convertible mortgages -- --
interest income 1,668 96 -- 3,697 -- 96
Other Interest Income 590 592 610 511 1,589 1,584 1,884 1,778
------------------ ----------------- -------------------- ------------------
$85,392 $78,612 $70,786 $66,527 $241,691 $222,036 $191,296 $181,846
------------------ ----------------- -------------------- ------------------
Expenses:
Rental Expenses
including real estate taxes $34,793 $30,977 $28,459 $27,322 $96,545 $85,385 $76,074 $73,512
Interest 8,624 9,687 3,271 3,956 22,401 24,964 14,400 16,594
General and Administrative,
including REIT management fee 6,130 5,177 5,709 5,141 17,915 15,519 15,257 13,827
Other 189 175 433 334 583 525 635 524
------------------ ----------------- -------------------- ------------------
$49,736 $46,016 $37,872 $36,753 $137,444 $126,393 $106,366 $104,457
------------------ ----------------- -------------------- ------------------
Less: Preferred share dividends $6,182 $6,182 $6,387 $6,387 $18,956 $18,958 $15,435 $15,435
Funds From Operations
Attributable to Common Shares $29,474 $26,414 $26,527 $23,387 $85,291 $76,685 $69,495 $61,954
================== ================= ==================== ==================
Per Common Share Amounts $0.41 $0.36 $0.37 $0.32 $1.18 $1.06 $1.06 $0.96
================== ================= ==================== ==================
</TABLE>
Supplemental Information Page 9a
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
Third Quarter 1996
Other Information Relating To Homestead Village Spin-Off
(Information in thousands of dollars)
The following pro forma financial position information assumes the spin-off of
PTR's Homestead Village extended-stay lodging assets to a newly formed company,
Homestead Village Incorporated ("Homestead"), based on the methodology discussed
below under "Explanation Of Homestead Village Spin-Off Pro Forma Methodology."
<TABLE>
<CAPTION>
September 30,
--------------------------------------------
1996 1995 December 31, 1995
--------------------- --------------------- ---------------------
Pro Forma Financial Position: Actual Pro Forma Actual Pro Forma Actual Pro Forma
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Real estate $2,257,560 $2,093,894 $1,744,343 $1,650,484 $1,855,866 $1,747,407
Homestead convertible mortgage notes - $ 75,410 - $ 8,858 - $ 23,458
Total Assets $2,222,999 $2,137,071 $1,723,962 $1,637,409 $1,840,999 $1,755,492
Liabilities and Shareholders' Equity:
Total liabilities 906,607 908,368 424,458 429,782 565,331 569,201
Total shareholders' equity 1,316,392 1,228,702 1,299,504 1,207,626 1,275,668 1,186,291
Total Liabilities and
Shareholders' Equity $2,222,999 $2,137,071 $1,723,962 $1,637,409 $1,840,999 $1,755,492
</TABLE>
Explanation Of Homestead Village Spin-Off Pro Forma Methodology:
The PTR pro forma funds from operations statements presented on page 9a and the
PTR pro forma financial position information presented above assumes the
following:
* The exchange of PTR's Homestead Village extended-stay lodging assets
("Homestead Assets") to a newly formed company, Homestead, for Homestead
common shares and warrants, occurred as of January 1, 1995;
* The receipt of convertible mortgage notes ("Notes") thereafter as
additional Homestead Assets were developed and;
* The distribution of Homestead common shares and warrants received by PTR to
PTR's shareholders.
* The historical operating revenues and expenses associated with Homestead
Assets have been excluded (assumed to be owned by Homestead) effective
January 1, 1995.
* Historical interest costs capitalized on the Homestead Assets during the
respective periods were reflected as PTR interest expense for pro forma
purposes.
* PTR received Homestead common shares in exchange for its funding of the
Homestead Assets first, and then Notes in exchange for the balance of its
funding over the respective time periods.
The unaudited pro forma information is not necessarily indicative of what PTR's
actual funds from operations or financial position would have been for the
respective periods presented had the subject transaction been completed as of
the dates indicated above.
Funds from operations is not to be construed as a substitute for "net earnings"
in evaluating operating results nor as a substitute for "cash flow" in
evaluating liquidity and may not be comparable to other similarly titled
measures of other companies.
Homestead Village Convertible Mortgage Notes Information:
PTR will receive interest income from Homestead Notes (defined above) bearing a
stated interest rate of 9% per annum on the face amount of the Notes. As the
Notes will be issued at a discount from the face amount, the effective interest
rate on the amounts funded is 10.7%. Interest income included in the calculation
of funds from operations is based on this effective interest rate.
PTR's earnings attributable to common shares (per GAAP) will include interest
income from the Notes at an effective interest rate of 12.42%. The effective
interest rate incorporates the amortization of financing costs paid by Homestead
to PTR in the form of warrants issued by Homestead and the conversion feature of
the Notes. The warrant component of these financing costs was paid by Homestead
in exchange for PTR's commitment to fund up to $129 million in mortgage loans to
develop the properties contributed by PTR to Homestead. The 12.42% effective
interest rate is not included in the calculation of PTR's FFO. FFO is calculated
using the 10.7% effective interest rate described above.
Supplemental Information Page 9b
