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
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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-
9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-
13
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
14
Item 6: Exhibits and Reports on Form 8-K
14
Signatures
15
Independent Accountants' Review Report
16
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 10, 1996 /Joseph K.
Kornwasser/
Joseph K.
Kornwasser
Chief Executive
Officer,
President and
Director
Date: May 10, 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
For the
from July 31,
Three
1991 (Inception)
Months
through Year Ended December 31,
Ended
December 31
March 31
1991 1992 1993 1994 1995
1996
------- ------- ------- ------- -------
- - --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
<C>
Pretax income from
continuing operations $438 $4,118 $9,128 $16,904 $16,386
$4,058
Interest - 3,203 4,287 4,319 7,070
2,870
Less interest capitalized
during the period - - (30) (234) (415) (56)
Amortization of deferred
loan fees and discount - 17 99 152 284
166
------- ------ ------- ------- -------
- - ------
Earnings $438 $7,338 $13,484 $21,141 $23,325
$7,038
======= ====== ======= ======= =======
======
Interest - 3,203 4,287 4,319 7,070
2,870
Amortization of deferred
loan fees and discount - 17 99 152 284
166
------- ------ ------- ------ ------
- - ------
Fixed Charges - $3,220 $4,386 $4,471 $7,354
$3,036
======= ====== ======= ======= =======
======
Ratio of Earnings to
Fixed Charges - 2.28 x 3.07 x 4.73 x 3.17 x
2.32 x
======= ====== ======= ======= =======
======
</TABLE>
EXHIBIT 15.1 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
May 10, 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> 2318
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 433
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 383458
<DEPRECIATION> 33068
<TOTAL-ASSETS> 383265
<CURRENT-LIABILITIES> 0
<BONDS> 157867
0
0
<COMMON> 84
<OTHER-SE> 220872
<TOTAL-LIABILITY-AND-EQUITY> 383265
<SALES> 0
<TOTAL-REVENUES> 13430
<CGS> 0
<TOTAL-COSTS> 9372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 270
<INTEREST-EXPENSE> 2980
<INCOME-PRETAX> 4058
<INCOME-TAX> 0
<INCOME-CONTINUING> 4058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4058
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
