UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 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 0-19628
-------
The Price REIT, Inc.
--------------------
(Exact name of Registrant as specified in its Charter)
Maryland 52-1746059
--------- -----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
7979 Ivanhoe Avenue, La Jolla, California 92037
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(619)551-2320
-------------
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Number of shares of the Registrant's common stock outstanding at March 31, 1996:
Common Stock 8,313,438
Series A Common Stock 38,266
---------
Total 8,351,704
=========
THE PRICE REIT, INC.
Form 10-Q
Index
PART I - FINANCIAL INFORMATION PAGE
Item 1: Financial Statements
Condensed Consolidated Balance Sheets of The Price REIT,
Inc. as of March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Income of The Price
REIT, Inc. for the three months ended March 31, 1996 and
March 31, 1995 4
Condensed Consolidated Statements of Cash Flows of
The Price REIT, Inc. for the three months ended March 31,
1996 and March 31, 1995 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 16
Item 6: Exhibits and Reports on Form 8-K 16
Signatures 17
Independent Accountants' Review Report 18
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
<TABLE>
The Price REIT, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1996 1995
----------- -----------
(In Thousands)
<S> <C> <C>
ASSETS
Rental property, net $349,889 $351,585
Investment in joint venture 17,653 17,568
Cash and cash equivalents 2,318 1,241
Deferred rent receivable 6,782 6,219
Rent receivable and other assets 6,189 5,431
Investment in Development Company 434 434
----------- -----------
Total assets $383,265 $382,478
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities 692 1,459
Security deposits 537 548
Accrued interest payable 3,213 1,401
Senior Notes payable 99,117 99,082
Unsecured line of credit 56,000 56,000
Secured note payable 2,750 2,750
----------- -----------
Total liabilities 162,309 161,240
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 2,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value; 25,000,000 shares
authorized:
Series A Common Stock,
44,986 shares designated,
38,266 and 44,546 shares issued and outstanding,
convertible 1 for 1 to Common Stock 1 1
Common Stock,
10,000,000 shares designated,
8,313,438 and 8,256,302 shares issued and
outstanding 83 82
Additional paid-in capital 237,864 236,365
Accumulated deficit (16,992) (15,210)
----------- -----------
Total stockholders' equity 220,956 221,238
----------- -----------
Total liabilities and stockholders' equity $383,265 $382,478
=========== ===========
</TABLE>
See accompanying notes.
<TABLE>
The Price REIT, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended
March 31,
1996 1995
----------- -----------
(In Thousands, except
per share amounts)
<S> <C> <C>
REVENUE
Rental income $12,650 $9,733
Management fees 276 250
Equity in earnings of joint venture 396 324
Interest and other income 108 59
----------- -----------
Total revenue 13,430 10,366
----------- -----------
EXPENSES
Rental operations, maintenance and
management 1,427 752
Real estate taxes 1,232 961
General and administrative 838 784
Depreciation 2,895 2,330
Interest 2,980 1,531
----------- -----------
Total expenses 9,372 6,358
----------- -----------
NET INCOME $4,058 $4,008
=========== ===========
PER SHARE DATA
Net income per share $0.49 $0.49
----- -----
Dividends paid per share
Series A Common Stock $0.67 $0.63
----- -----
Common Stock $0.70 $0.66
----- -----
Weighted average number of shares
outstanding 8,316 8,217
----- -----
</TABLE>
See accompanying notes.
<TABLE>
The Price REIT, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $4,058 $4,008
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 2,895 2,287
Amortization of deferred loan fees 131 43
Amortization of debt discount 35 -
Equity in earnings of joint venture (396) (324)
Deferred rent (563) (459)
Changes in operating assets and liabilities:
Increase in rent receivable and other assets (922) (612)
Decrease in accounts payable and accrued liabilities (767) (110)
Decrease in security deposits (11) (4)
Increase (decrease) in interest payable 1,812 (22)
-------- --------
Net cash provided by operating activities 6,272 4,807
INVESTING ACTIVITIES
Additions to rental property (1,144) (2,606)
Investment in joint venture (176) (331)
Distributions from joint venture 465 385
-------- --------
Net cash used in investing activities (855) (2,552)
FINANCING ACTIVITIES
Proceeds from unsecured line of credit - 4,000
Repayment of unsecured line of credit - (3,000)
Proceeds from issuance of Common Stock 1,280 48
Dividends paid, net of dividends reinvested (5,620) (4,734)
-------- --------
Net cash used in financing activities (4,340) (3,686)
-------- --------
Increase (decrease) in cash and cash equivalents 1,077 (1,431)
Cash and cash equivalents at beginning of the year 1,241 2,093
-------- --------
Cash and cash equivalents at end of year $2,318 $662
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $1,059 $1,668
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Additional Common Stock issued in accordance
with the dividend reinvestment plan $219 $686
======== ========
</TABLE>
See accompanying notes.
The Price REIT, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of The
Price REIT, Inc. (the "Company") for the three months ended March 31, 1996 and
the unaudited condensed consolidated financial statements for the three months
ended March 31, 1995 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and all such adjustments are of a normal recurring nature. For
further information, refer to the consolidated financial statements and
accompanying footnotes included in the Company's annual report on Form 10-K for
the year ended December 31, 1995.
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the financial
statement date and the reported amounts of revenue and expenses during the
reporting period. Due to uncertainties inherent in the estimation process, it is
reasonably possible that actual results could differ from these estimates.
NOTE 2 - PROPERTY ACQUISITIONS
PURCHASE OF SHOPPING CENTERS
On November 17, 1995 the Company acquired a 426,097 square foot shopping center
located in Webster, Texas (Houston area) for $25.7 million. As of March 31,
1996, the 40 acre shopping center ("the Center") was 100% leased. The Center's
anchor tenants, which occupy approximately 345,000 square feet of space, include
Bed, Bath & Beyond, Best Buy, Builder's Square, Oshman's, Sears Homelife, Stein
Mart and Sony Theatres. The Company financed this acquisition with borrowings of
$18 million under its unsecured credit line and $7.7 million of operating cash.
The Company also entered into an agreement to purchase from another party, at a
cost of $1.25 million, a 9.7 acre parcel of undeveloped land that is adjacent to
the center. The Company intends to use such land for center expansion and
development for new tenants. The acquisition of this undeveloped land parcel was
completed on January 29, 1996. The Company financed this acquisition with
operating cash.
On December 27, 1995, the Company acquired a 278,825 square foot shopping center
located in La Mirada, California for $25.8 million. As of March 31, 1996, the 31
acre shopping center was 93.4% leased and was anchored the by the U.S. Post
Office, Toys "R" Us, L.A. Fitness, Krikorian Theatres, Sav-on Drugs, Petco and
Chuck E. Cheese which, in aggregate, occupy approximately 164,400 square feet of
space. The shopping center also includes a Lucky Supermarket and a La Mirada
Theatre Center (a local performing arts theater) which are separately owned. The
Company financed this acquisition entirely with borrowings under its unsecured
credit line.
On December 29, 1995, the Company acquired a 171,850 square foot shopping
center located in Oxnard, California for $10.3 million. As of March 31, 1996,
the 14-acre shopping center was 100% leased and was anchored by Target, Ralph's
(Food-4-Less) and Family Fitness which occupy 100% of the leasable area. The
Company financed this acquisition with borrowings of $7 million under its
unsecured credit line and $3.3 million of operating cash.
JOINT VENTURE ACQUISITIONS
On December 28, 1995 Centrepoint Associates (the "Joint Venture"), a partnership
in which the Company owns a 50% interest, acquired from Suncor Development
("Suncor") an 85,000 square foot existing shopping center in Glendale (Talavi),
Arizona and a parcel of vacant land for future development in Goodyear, Arizona.
Suncor, which also owns a 50% interest in the Joint Venture, was previously the
sole owner of both the properties sold to the Joint Venture. The existing 12
acre shopping center containing 85,000 square feet in Glendale, Arizona ("the
Center") was purchased for $6.7 million. As of December 31, 1995 the Center was
100% leased. The Center's anchor tenants, which occupy approximately 58,000
square feet of space, include Sears Homelife and Michael's. The Center is also
anchored by Walmart and Sports and Recreation which own their own respective
parcels. The Center has two future development pads, of which one was recently
leased to Tutor Time Child Care Systems, Inc. A built-to-suit 9,000 square foot
building will be constructed and operational by early 1997. The remaining vacant
pad which can be facilitated up to 10,000 square feet of space is currently
being marketed to prospective tenants. The vacant land parcel, consisting of
approximately 40 acres, is located in Goodyear, Arizona, and was acquired for
approximately $4.2 million. The Joint Venture plans to develop the parcel into a
370,000 square foot retail power center within the next two years.
The Joint Venture's combined cost of these two acquisitions totaling
approximately $11 million was financed by the proceeds of a $10.5 million
secured credit line obtained from Wells Fargo Bank ("Wells Fargo Line") and
capital contributions of approximately $210,000 from the Company and $210,000
from Suncor. The Wells Fargo Line is secured by the first phase of the Tempe,
Arizona power center which contains 236,000 square feet and is owned by the
Joint Venture. The interest on the Wells Fargo Line is payable monthly and is
based on the London Interbank Offered Rate ("LIBOR") plus 150 basis points ("the
Margin"). The Joint Venture may elect to fix the interest rate for periods of
one month or multiples of one month up to a maximum of one year at the
corresponding LIBOR rate plus the Margin. The Wells Fargo Line matures on
December 27, 1997. The Joint Venture anticipates that construction and
development costs to complete the Goodyear and Glendale properties will be
financed by a secured line of credit similar to the Wells Fargo Line or an
expansion of the existing loan which will be secured by the second phase of the
Tempe, Arizona power center. The operations of the Joint Venture are accounted
for under the equity method of accounting.
KING KULLEN JOINT VENTURE
K & F Development Company (the "Development Company"), an affiliate company of
which the Company owns 100% of the outstanding preferred stock, has formed a
joint venture with King Kullen Grocery Co., Inc. ("King Kullen"), a major Long
Island, New York grocery chain, to develop a power center in the Commack area of
Long Island, New York. It is anticipated that the power center will contain an
aggregate of 260,000 leasable square feet of space and will include a 60,000
square foot King Kullen supermarket and several other retail anchor tenants. The
Development Company will hold an ownership interest of approximately 80% in the
joint venture and King Kullen will hold the remaining interest of approximately
20%. The property is subject to an 89 year ground lease. The development was
rezoned in February 1996 and is subject to site plan approval contingencies.
When such development contingencies are satisfied, the Company will purchase the
Development Company's approximate 80% interest in the joint venture. If such
contingencies are satisfied, the Company anticipates that construction on this
property will commence in the summer of 1996 and that its approximate 80% share
of construction and development costs will be funded by borrowings under the
Company's unsecured line of credit, operating funds to the extent such funds are
available, and joint venture financing.
PURCHASE OF PRICE CLUB LEASE
The Company entered into an agreement with Price/Costco, Inc. ("Price/Costco")
and Home Depot to buy out the remaining term of the Price Club warehouse lease
in Copiague, New York, and then re-lease the facility to Home Depot at a higher
monthly rate. Price/Costco vacated the premises in December 1994 and Home Depot
completed construction of the tenant improvements in April 1995. The Company has
paid Price/Costco the sum of $1,220,231 pursuant to the agreement.
NOTE 3 - NOTE PAYABLE
SECURED NOTE PAYABLE
The secured note payable bears interest at 6.25% per annum and is secured by the
shopping center in North Phoenix, Arizona. The note provides for monthly
payments of interest only with all principal due in December 1996.
SENIOR NOTES PAYABLE
On August 15, 1995, the Company filed a shelf registration statement with the
Securities and Exchange Commission for up to $175 million of debt securities,
preferred stock, common stock and warrants.
On November 1, 1995, the Company completed an underwritten public offering (the
"Offering") of $100 million aggregate principal amount of the Company's Senior
Notes due November 1, 2000 at an interest rate of 7.25%. The 7.25% Senior Notes
were priced at an aggregate of $99,050,000. The Company used $91,000,000 of the
net proceeds from the Offering to repay indebtedness then outstanding under the
Company's unsecured line of credit (the "Line of Credit") and the remaining net
proceeds were used for general corporate purposes. The Senior Notes provide for
semi-annual payment of interest only due on May 1 and November 1 of each year
until the maturity date of November 1, 2000 at which time the aggregate
principal is due.
UNSECURED LINE OF CREDIT
On November 1, 1995, the Company modified its $100 million Line of Credit,
substituting one of the three banks in the original lending group with Morgan
Guaranty Trust Company of New York as lead agent. Concurrent with completion of
the Offering and the repayment of the Line of Credit, certain other
modifications were made to the Line of Credit including, among other things, (i)
incorporation of certain additional financial covenants and conditions into the
loan agreement and documentation, (ii) a reduction of the initial borrowing
capacity to $75 million, (iii) a modification of the interest rate payable on
borrowings outstanding to LIBOR plus 1.4% and (iv) an extension of the initial
maturity to October 1997, with an option to extend for an additional year upon
satisfaction of certain conditions.
The effective rates of interest at March 31, 1996 of the various borrowings
under the Line of Credit ranged from 6.8375% to 7.15%. Interest on the
outstanding balance of the Line of Credit is payable quarterly.
The agreement requires the Company to maintain certain minimum net operating
income and net worth levels, as defined, and provides that the Company will not
pay dividends in excess of 95% of its annual net income plus depreciation. The
Company is required to pay a commitment fee of .25% per annum of the unused
portion of the Line of Credit.
The Company typically funds short-term financing for its acquisition and
development activities through its $75 million Line of Credit. During the first
quarter of 1996, there were no additional borrowings under the Line of Credit.
At March 31, 1996, the outstanding balance of the borrowing under the Line of
Credit amounted to $56 million.
NOTE 4 - NET INCOME PER SHARE
Net income per share was calculated by dividing net income by the weighted
average number of shares outstanding. The assumed exercise of outstanding stock
options, using the treasury stock method, is not materially dilutive to the
earnings per share computation.
NOTE 5 - SUBSEQUENT EVENTS
On April 23, 1996, the Company entered into an agreement to form a partnership
("the Partnership") with Kimco Realty Corporation ("Kimco"), a major New York-
based retail real estate investment trust, to purchase a shopping center in
Phoenix, Arizona at a cost of approximately $3,490,000. The acquisition was
completed by the Partnership on May 3, 1996. The 13 acre shopping center has
approximately 190,625 square feet of leasable area. As of March 31, 1996, the
shopping center was 91.6% leased and is anchored by Home Depot. The Company
holds a 50% interest in the Partnership and Kimco holds the remaining 50%
interest. The Partnership intends to renovate the shopping center and continue
leasing the vacant space. The Company's 50% share of the acquisition cost was
funded by borrowings of $1 million under the unsecured line of credit and
$750,000 of existing cash.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
On November 17, 1995, the Company acquired a 426,097 square foot shopping center
located in Webster, Texas (Houston area) for $25.7 million. The Company financed
this acquisition with borrowings of $18 million under its unsecured credit line
and $7.7 million of operating cash.
On December 27, 1995, the Company acquired a 278,825 square foot shopping center
located in La Mirada, California for $25.8 million. The Company financed this
acquisition entirely with borrowings under its unsecured credit line.
On December 28, 1995, Centrepoint Associates (the "Joint Venture"), a
partnership in which the Company owns a 50% interest, acquired from Suncor
Development ("Suncor") an 85,000 square foot existing shopping center in
Glendale (Talavi), Arizona and a parcel of vacant land for future development in
Goodyear, Arizona.
The Joint Venture's combined cost of these two acquisitions totaling
approximately $11 million was financed by the proceeds of a $10.5 million
secured credit line obtained from Wells Fargo Bank and capital contributions of
approximately $210,000 from the Company and $210,000 from Suncor. The operations
of the Joint Venture are accounted for under the equity method of accounting.
On December 29, 1995, the Company acquired a 171,850 square foot shopping
center located in Oxnard, California for $10.3 million. The Company financed
this acquisition with borrowings of $7 million under its unsecured credit line
and $3.3 million of operating cash.
COMPARISON OF THE QUARTER ENDED MARCH 31, 1996 TO THE QUARTER ENDED MARCH 31,
1995
The results of operations of the Company for the three months ended March 31,
1996, as compared to the same period for 1995 are significantly different due to
the acquisitions discussed above.
Rental income increased from $9,733,000 for the quarter ended March 31, 1995 to
$12,650,000 for the same period in 1996. An increase of $2,263,000 was
attributable to new rental revenue from properties acquired in the last quarter
of 1995. The remaining $654,000 increase was due to additional rents generated
from retenanting and expansion of existing properties and higher occupancy
rates and base rent increases and common area maintenance reimbursements for
the thirteen properties which were owned by the Company during all of 1995 and
the first quarter of 1996.
Management fee income from third party contracts increased from $250,000 for the
quarter ended March 31, 1995 to $276,000 for the same period in 1996. Management
fee income reflects fees generated from the Company's management of Price
Enterprises, Inc.'s existing shopping centers and certain other properties owned
by third parties. The increase in management fee income for the quarter ended
March 31, 1996 was primarily the result of the addition of tenants to properties
managed by the Company, which generated additional management fee income for the
Company.
Equity in earnings of joint venture for the quarter ended March 31, 1996
reflects the Company's share of earnings from the Centrepoint Associates joint
venture in which it holds a 50% general partnership interest. The equity in
earnings of joint venture amount increased from $324,000 for the quarter ended
March 31, 1995 to $396,000 for the same period in 1996 due to additional
earnings generated by the Glendale (Talavi), Arizona center acquired in the
fourth quarter of 1995 to the extent that earnings of the Glendale center
exceeded the related debt servicing costs and due to increased occupancy at the
first phase of the Tempe, Arizona power center.
Rental operating expenses consisting of common area maintenance and real estate
taxes have increased from $1,713,000 for the quarter ended March 31, 1995 to
$2,659,000 for the same period in 1996. Approximately $485,000 of this increase
was attributable to properties acquired in the fourth quarter of 1995. The
expenses for the quarter ended March 31, 1996 also included a charge of $270,000
for an increase in the reserve for doubtful accounts receivable. The remainder
of the increase was attributable to higher snow removal costs arising from the
weather conditions for the east coast properties.
Depreciation expense increased from $2,330,000 for the quarter ended March 31,
1995 to $2,895,000 for the same period in 1996. Approximately $397,000 of the
increase was attributable to the properties acquired in the fourth quarter of
1995. The remainder of the increase was the result of additional depreciation
on new construction on existing properties that was completed in 1995.
Interest expense increased from $1,531,000 for the quarter ended March 31, 1995
to $2,980,000 for the same period in 1996. This increase was mainly attributable
to the Company's outstanding indebtedness during the quarter ended March 31,
1996 which was approximately $70 million greater than the amount of outstanding
indebtedness during the same period in 1995. During 1995, the Company increased
its outstanding indebtedness in order to finance the majority of the Company's
1995 acquisitions and certain ongoing construction and development projects.
The remainder of the increased interest expense was attributable to the
amortization of the note discount and other costs of the issuance in November
1995 of the Company's Senior Notes which are reflected as interest expense.
CAPITAL RESOURCES AND LIQUIDITY
The Company's principal source of funding for the acquisition, development,
expansion and renovation of properties are an unsecured line of credit, a
secured note, public equity financing, public unsecured debt financing and cash
flow from operations.
The Company believes that its cash flow from operations after interest for 1996
will be sufficient to pay regular quarterly dividends to the shareholders of the
Company based on the total number of outstanding shares of its Common Stock and
Series A Common Stock. The Company declared dividends in the aggregate amount of
$5,839,000 during the three months ended March 31, 1996, of which $219,000 was
reinvested into Common Stock by stockholders.
In December 1994, as part of the North Phoenix acquisition, the Company obtained
a note payable secured by the shopping center in the amount of $2,750,000. The
note bears interest at 6.25% per annum with monthly payments of interest only
and all principal due in December 1996.
On August 15, 1995, the Company filed a shelf registration statement with the
Securities and Exchange Commission for up to $175 million of debt securities,
preferred stock, common stock and warrants.
On November 1, 1995, the Company completed an underwritten public offering (the
"Offering") of $100 million aggregate principal amount of the Company's Senior
Notes due November 1, 2000 at an interest rate of 7.25%. The 7.25% Senior Notes
were priced at an aggregate of $99,050,000. The Company used $91,000,000 of the
net proceeds from the Offering to repay indebtedness then outstanding under the
Company's unsecured line of credit (the "Line of Credit") and the remaining net
proceeds were used for general corporate purposes.
On November 1, 1995, the Company modified it's $100 million Line of Credit,
substituting one of the three banks in the original lending group with Morgan
Guaranty Trust Company of New York as lead agent. Concurrent with completion of
the Offering and the repayment of the Line of Credit, certain other
modifications were made to the Line of Credit including, among other things, (i)
incorporation of certain additional financial covenants and conditions into the
loan agreement and documentation, (ii) a reduction of the initial borrowing
capacity to $75 million, (iii) a modification of the interest rate payable on
borrowings outstanding to LIBOR plus 1.4% and (iv) an extension of the initial
maturity to October 1997, with an option to extend for an additional year upon
satisfaction of certain conditions.
The Line of Credit agreement requires the Company to maintain certain minimum
net operating income and net worth levels, as defined in the agreement, and
provides that the Company will not pay dividends in excess of 95% of its annual
net income plus depreciation. The Company is required to pay a commitment fee
of .25% per annum of the unused portion of the Line of Credit.
The Company typically funds short-term financing for its acquisition and
development activities through the Line of Credit. During the first quarter of
1996, there were no additional borrowings under the Line of Credit. At March 31,
1996, the outstanding balance of the borrowing under the Line of Credit amounted
to $56 million.
Interest on borrowings under the Line of Credit is at a rate of LIBOR plus 1.4%.
Interest on the outstanding balance is payable quarterly. The interest rates of
the various borrowings under the Line of Credit have decreased from a range of
7.4250% to 7.8125% at March 31, 1995 to a range of 6.8375% to 7.15% at March 31,
1996 as a result of decreases to the base rate indicator (LIBOR). Capitalized
interest costs for the quarter ended March 31, 1996 was $56,000.
In order to continue to expand and develop its portfolio of properties, the
Company may seek to obtain funds through additional equity offerings or debt
financings. The Company anticipates that its liquidity and capital resources
will be adequate to fund its operating and administrative expenses, continuing
debt service obligations and the payment of distributions in accordance with
Company requirements.
FUNDS FROM OPERATION
Most industry analysts and equity REITs, including the Company, consider funds
from operation ("FFO") an appropriate supplemental measure of operating
performance of an equity REIT. In general, FFO adjusts the net income for non-
cash charges such as depreciation, certain amortization expenses and most non-
recurring gains or losses. However, FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting principles
and should not be considered an alternative to net income as an indication of
the results of the Company's performance or to cash flows as a measure of
liquidity.
In 1995, the National Associates of Real Estate Investment Trusts ("NAREIT")
established new guidelines clarifying its definition of Funds from Operations
and requested that REITs adopt this new definition beginning in 1996.
The Company is including it's FFO computation in this report as defined by and
in accordance with the recommendation of the NAREIT.
The following table sets forth the Company's calculation of FFO for the first
quarter of 1996 based on the new NAREIT definition. The table also sets forth a
calculation of FFO for the first quarter of 1995, which has been modified to
conform to the new NAREIT definition.
<TABLE>
Three months ended
March 31
(Unaudited)
1996 1995
------- -------
(In Thousands)
<S> <C> <C>
Net income $ 4,058 $ 4,008
Depreciation 2,895 2,330
Joint Venture FFO adjustment 112 100
------- -------
Funds from operations $ 7,065 $ 6,438
======= =======
Weighted average numbers of shares of
common stock outstanding 8,316 8,217
</TABLE>
Prior to the Company's adoption of the new NAREIT definition of FFO, the Company
calculated FFO by adjusting for deferred rent. If such an adjustment had been
made to the calculation of FFO in the above table, FFO would have been reduced
by $579,000 and $490,000, which includes the deferred rent adjustments to the
Joint Venture, for the three months periods ended March 31, 1996 and 1995,
respectively.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
The Price REIT, Inc. was not a party to any material legal proceedings
during the period covered by this report or subsequently.
Item 5 - Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits
--------
4.3 Amended and Restated Credit Agreement, dated as of March 22, 1996 by
and among The Price REIT, Inc. and Morgan Guaranty and Trust Company, as Agent,
and other financial institutions party thereto and Revolving Notes executed
therewith.
12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges
15.1 Letter Re: Unaudited Interim Financial Information
27.1 Article 5 Financial Data Schedule
Reports on Form 8-K
-------------------
Forms 8-K and 8-K/A were filed January 10, 1996 and March 8, 1996,
respectively, reporting the acquisitions of the Baybrook Center, La Mirada
Theatre Center, and Oxnard Center. The following financial statements were filed
with the Form 8-K/A: combined statements of revenue over specific operating
expenses, pro forma condensed balance sheet, and pro forma condensed statements
of income.
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.
Date: May 13, 1996 /Joseph K. Kornwasser/
Joseph K. Kornwasser
Chief Executive Officer,
President and Director
Date: May 13, 1996 /George M. Jezek/
George M. Jezek
Chief Financial Officer,
Secretary, Director (Principal
Financial and Chief Accounting
Officer)
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
The Board of Directors
The Price REIT, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of The
Price REIT, Inc. as of March 31, 1996, and the related condensed consolidated
statements of income and cash flows for the three-month periods ended March 31,
1996 and 1995. These financial statements are the responsibility of the
Company's management.
We conducted our reviews 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, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated 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 consolidated balance sheet of The Price REIT, Inc. as of December
31, 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for the year then ended (not presented herein) and in our
report dated January 31, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1995,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Ernst & Young LLP
San Diego, California
April 19, 1996
March 22, 1996
The Price Reit, Inc.
7979 Ivanhoe Avenue
Suite 524
La Jolla, California 92036
Attention: George M. Jezek
Executive Vice President
Re: Amended and Restated Credit Agreement, dated as of November 1, 1995,
among The Price Reit, Inc. ("Borrower"), Morgan Guaranty Trust Company of New
York, as Agent ("Agent") and the Banks named therein (as modified by the letter,
dated December 20, 1995 (the "Letter"), the "Credit Agreement")
- --------------------------------------------------------------------------
Dear George:
Reference is hereby made to the Credit Agreement. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings assigned
to them in the Credit Agreement.
1. Section 7.21(d) of the Credit Agreement is hereby deleted and the
following inserted in its place:
"(d) Indebtedness of the Company and its Subsidiaries shall at no time
exceed 45% of Gross Asset Value of the Company and its Subsidiaries."
2. Section 7.14 of the Credit Agreement provides for certain minimum Net
Operating Income amounts. Subject to the provisions hereof, the Banks hereby
waive the requirements set forth in Section 7.14 of the Credit Agreement with
respect to the four quarter period ending March 31, 1996, only, provided,
however, that the Company shall not permit its Net Operating Income with respect
to such four quarter period to be less than $31,000,000.
3. Section 7.5 of the Credit Agreement is hereby amended by deleting the
last paragraph thereof and inserting in its place the following:
"Notwithstanding the foregoing, the total Unsecured Indebtedness of the
Company and its Subsidiaries shall at no time during the term of this Agreement
exceed $175,000,000. For purposes of this Section only, Unsecured Indebtedness
shall not be deemed to include any current liabilities other than those
specifically set forth in clauses (a) through (i) in the definition of
"Indebtedness"."
4. Schedule 7.1 is hereby amended by adding the following:
"4. Secured non-recourse construction debt on the Smithtown Ventures
LLC, in an original principal amount of approximately $22,500,000."
5. Section 7.4(g) is hereby deleted and the following inserted in its
place:
"investments in Joint Ventures, which investments, inclusive of
Smithtown Ventures LLC, Centrepoint Associates, and the Joint Venture with
Kimco Realty Corporation or an Affiliate thereof, shall be no greater than the
lesser of (i) $45,000,000, and (ii) 12.5% of Gross Asset Value.".
The waiver set forth above in Paragraph 2 shall be effective solely
with respect to the matters described therein and shall not be deemed a waiver
of any other covenant, term or condition of the Credit Agreement or to
prejudice any other right or rights that the Banks may now have or may have in
the future under, or in connection with, the Credit Agreement. Except as
expressly waived or amended hereby, all of the terms, covenants and conditions
of the Credit Agreement are, and shall continue to be, in full force and
effect.
This letter shall be governed by and construed in accordance with the
laws of the State of New York.
Please indicate your agreemeent with the foregoing by signing the
enclosed copy of this letter in the space provided below and returning it to
the Agent.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /TIMOTHY V. O'DONOVAN/
--------------------------
Name: TIMOTHY V. O'DONOVAN
Title: VICE PRESIDENT
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as a Bank
By: /TIMOTHY V. O'DONOVAN/
--------------------------
Name: TIMOTHY V. O'DONOVAN
Title: Vice President
FIRST INTERSTATE BANK
By: /D.T. BRUEN/
--------------------------
Name: D.T. Bruen
Title: Vice President
CORESTATES BANK, N.A.
By: /GARY S. KINN/
--------------------------
Name: Gary S. Kinn
Title: Vice President
Accepted and Agreed to:
THE PRICE REIT, INC.
By: /GEORGE M. JEZEK/
------------------------
Name: George M. Jezek
Title: Executive Vice
President
Dated: March 26, 1996
EXHIBIT 12.1 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
<TABLE>
For the period
from July 31,
1991 (Inception)
through Year Ended December 31,
December 31,
1991 1992 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Pretax income from
continuing operations $438 $4,118 $9,128
Interest - 3,203 4,287
Less interest capitalized
during the period - - (30)
Amortization of deferred
loan fees and discount - 17 99
-------- -------- --------
Earnings $438 $7,338 $13,484
======== ======== ========
Interest - 3,203 4,287
Amortization of deferred
loan fees and discount - 17 99
-------- -------- --------
Fixed Charges - $3,220 $4,386
======== ======== ========
Ratio of Earnings to
Fixed Charges - 2.28 x 3.07 x
======== ======== ========
For the
Three
Months
Year Ended December 31, Ended
March 31,
1994 1995 1996
-------- -------- --------
(In Thousands)
<C> <C> <C>
Pretax income from
continuing operations $16,904 $16,386 $4,058
Interest 4,319 7,070 2,870
Less interest capitalized
during the period (234) (415) (46)
Amortization of deferred
loan fees and discount 152 284 166
-------- -------- --------
Earnings $21,141 $23,325 $7,038
======== ======== ========
Interest 4,319 7,070 2,870
Amortization of deferred
loan fees and discount 152 284 166
-------- -------- --------
Fixed Charges $4,471 $7,354 $3,036
======== ======== ========
Ratio of Earnings to
Fixed Charges 4.73 x 3.17 x 2.32 x
======== ======== ========
</TABLE>
EXHIBIT 15.1 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
May 13, 1996
The Board of Directors
The Price REIT, Inc.
We are aware of the incorporation by reference in the Registration Statements
(Form S-3 No. 33-75548; Form S-8 No. 33-87812; and Amendment No. 1 to Form S-3
No. 33-95832 and related Prospectus) of The Price REIT, Inc. for the
registration of 500,000 shares of its common stock; 600,000 shares of its common
stock; and an aggregate maximum total of $175,000,000 of debt securities,
preferred stock, common stock and warrants for the purchase of its preferred
stock or common stock, respectively, of our report dated April 19, 1996 relating
to the unaudited condensed consolidated interim financial statements of The
Price REIT, Inc. that is included in its Form 10-Q for the quarter ended March
31, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
San Diego, California
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,318
<SECURITIES> 0
<RECEIVABLES> 2,107
<ALLOWANCES> 433
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 383,458
<DEPRECIATION> 33,068
<TOTAL-ASSETS> 383,265
<CURRENT-LIABILITIES> 0
<BONDS> 157,867
0
0
<COMMON> 84
<OTHER-SE> 220,872
<TOTAL-LIABILITY-AND-EQUITY> 383,265
<SALES> 0
<TOTAL-REVENUES> 13,430
<CGS> 0
<TOTAL-COSTS> 9,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 270
<INTEREST-EXPENSE> 2,980
<INCOME-PRETAX> 4,058
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,058
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
