9
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1997 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 1-13432
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The Price REIT, Inc.
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(Exact name of Registrant as specified in its Charter)
Maryland 52-1746059
--------- -----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
7979 Ivanhoe Avenue, La Jolla, California 92037
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(619)551-2320
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(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $0.01 Par Value - 11,692,793 as of September 30, 1997.
The Price REIT, Inc.
Form 10-Q
Index
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income -
Three months ended September 30, 1997 and 1996;
Nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and
September 30, 1996 5
Notes to Condensed Consolidated Financial
Statements - September 30, 1997 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II - OTHER INFORMATION
Item 6 : Exhibits and Reports on Form 8-K 27
Signatures 30
Independent Accountants' Review Report 31
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
The Price REIT, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
1997 1996
--------- ---------
ASSETS (In Thousands)
Rental property, net $534,467 $380,482
Investment in joint ventures 21,201 19,202
Cash and cash equivalents 15,097 11,369
Deferred rent receivable 9,506 8,489
Secured note receivable 1,313 1,346
Other assets 10,773 7,183
--------- ---------
Total assets $592,357 $428,071
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities 12,674 4,474
Senior Notes payable 204,038 154,114
Unsecured line of credit 19,000 19,000
Secured notes payable 26,301 11,794
--------- ---------
Total liabilities 262,013 189,382
Minority interest 2,293 1,707
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: 11,692,793 and 9,069,249 shares
issued and outstanding 117 91
Additional paid-in capital 354,624 259,518
Accumulated deficit (26,690) (22,627)
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Total stockholders' equity 328,051 236,982
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Total liabilities and stockholders' equity $592,357 $428,071
========= =========
See notes to condensed consolidated financial statements.
The Price REIT, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
(In Thousands, except
per share data)
REVENUE
Rental income $17,696 $12,620 $48,450 $37,453
Management fees 82 270 226 809
Equity in earnings of joint ventures 391 411 1,276 1,149
Interest and other income 294 61 1,090 265
Net gain from sale of rental property 2,787 - 2,787 -
-------- -------- -------- --------
Total revenue 21,250 13,362 53,829 39,676
-------- -------- -------- --------
EXPENSES
Rental operations 1,489 1,037 4,075 3,300
Real estate taxes 1,843 1,311 5,172 3,755
General and administrative 885 824 2,815 2,485
Depreciation 4,252 3,031 11,201 8,823
Interest 4,002 3,056 10,667 9,017
-------- -------- -------- --------
Total expenses 12,471 9,259 33,930 27,380
-------- -------- -------- --------
NET INCOME 8,779 4,103 19,899 12,296
======== ======== ======== ========
Net income per share $0.78 $0.48 $1.85 $1.47
------ ------ ------ ------
Dividends paid per share of
Common Stock $0.725 $0.70 $2.18 $2.10
------ ------ ------ ------
Weighted average number of
shares outstanding 11,240 8,505 10,742 8,392
------ ------ ------ ------
See notes to condensed consolidated financial statements.
The Price REIT, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1997 1996
--------- --------
(In Thousands)
OPERATING ACTIVITIES
Net income $19,899 $12,296
Adjustments to reconcile net income to net
cash provided by operating activities:
Net gain on sale of rental property (2,787) -
Depreciation 11,201 8,823
Amortization of loan fees and discount 623 512
Equity in earnings of joint ventures (1,276) (1,149)
Deferred rent (1,017) (1,774)
Changes in operating assets and liabilities:
Other assets (4,860) (915)
Accounts payable and accrued liabilities 8,198 2,047
--------- ---------
Net cash provided by operating activities 29,981 19,840
INVESTING ACTIVITIES
Purchases of rental property (145,475) -
Additions to rental property (19,186) (15,780)
Payment received on secured note receivable 33 -
Investments in joint ventures (2,456) (6,339)
Distributions from joint ventures 2,134 1,443
Gross proceeds from sale of rental property 17,400 -
--------- ---------
Net cash used in investing activities (147,550) (20,676)
FINANCING ACTIVITIES
Proceeds from Senior Notes payable 49,779 -
Proceeds from unsecured line of credit 90,000 22,000
Repayment of unsecured line of credit (90,000) (26,000)
Repayment of secured notes payable (238) -
Minority interest contribution 585 -
Gross proceeds from issuance of common stock 97,890 23,598
Common stock issuance costs (3,452) (1,381)
Dividends paid, net of dividends reinvested (23,267) (17,338)
--------- --------
Net cash provided by financing activities 121,297 879
--------- --------
Increase in cash and cash equivalents 3,728 43
Cash and cash equivalents at beginning of period 11,369 1,241
--------- --------
Cash and cash equivalents at end of period $15,097 $1,284
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $6,160 $6,963
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Common Stock issued in accordance with
the dividend reinvestment plan $694 $673
======== ========
In conjunction with the acquisition of the Farmington, Connecticut property, a
non-recourse loan of $14.7 million was assumed.
See notes to condensed consolidated financial statements.
The Price REIT, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of The
Price REIT, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 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 (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three- and nine-month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
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 AND UNDEVELOPED LAND
On January 29, 1996, the Company purchased a 9.7 acre parcel of undeveloped land
that is adjacent and contiguous to the Webster, Texas center for $1.25 million.
The Company intends to use such land for expansion of the center and development
for new tenants. The Company financed this acquisition with operating cash.
In July 1996, the Company acquired a 210,000 square foot shopping center in
Mesquite, Texas (Dallas area) at a cost of $12.7 million. The Company financed
this acquisition with borrowings under its unsecured line of credit (the "Line
of Credit").
On November 20, 1996, the Company acquired a 234,000 square foot shopping center
in Oklahoma City, Oklahoma. The purchase price was $16.7 million, of which $11.8
million was evidenced by the assumption of two non-recourse loans (subject to
customary exceptions) secured by the property. The balance of the purchase price
was financed with $4.9 million of operating cash.
On January 16, 1997, the Company acquired Westgate Market, a 134,000 square foot
shopping center in Wichita, Kansas for $9.8 million. The Company financed this
acquisition with borrowings under its Line of Credit.
On March 19, 1997, the Company acquired Broadmoor Village Shopping Center, a
62,000 square foot shopping center in Garland, Texas for $4.75 million. The
Company financed this acquisition with operating cash.
On March 20, 1997, the Company acquired Richardson Plaza Shopping Center, a
116,000 square foot shopping center in Richardson, Texas for $8.5 million. The
Company financed this acquisition with operating cash.
On March 28, 1997, the Company acquired City Place Market, an 84,000 square foot
shopping center in Dallas, Texas for $8.75 million. The Company financed this
acquisition with operating cash.
On March 31, 1997, the Company acquired Wendover Ridge Retail Center, a 41,000
square foot shopping center in Greensboro, North Carolina for $4.975 million.
The Company financed this acquisition with operating cash.
On April 1, 1997, the Company acquired Arboretum Crossing, a 187,000 square foot
shopping center in Austin, Texas for $23.4 million. The Company financed this
acquisition with borrowings of $14 million under its Line of Credit and $9.4
million of operating cash.
On May 14, 1997, the Company acquired Smoketown Stations Center, a 483,000
square foot shopping center in Woodbridge, Virginia for $46.5 million. The
Company financed this acquisition with borrowings under its Line of Credit.
On August 28, 1997, the Company acquired West Farms Shopping Center, a 185,000
square foot shopping center in Farmington, Connecticut for $20 million. As of
September 30, 1997, the shopping center was 99% leased and is anchored by The
Sports Authority, T.J. Maxx, Linen N Things and Petco. The acquisition was
financed through the assumption of an existing $14.7 million non-recourse loan
secured by the property and $5.3 million of proceeds from the sale of the
Cerritos property.
HAYDEN PLAZA NORTH JOINT VENTURE ACQUISITION
On April 23, 1996, the Company formed a partnership (the "Partnership") with
Kimco Realty Corporation ("Kimco"), a major New York-based retail real estate
investment trust, to purchase a 191,000 square foot shopping center in Phoenix,
Arizona at a cost of $3,490,000. The acquisition was completed by the
Partnership on May 3, 1996. The Company holds a 50% interest in the Partnership
and Kimco holds the remaining 50% interest. The Company's 50% share of the
acquisition cost was funded by borrowings of $1 million under the Line of Credit
and $750,000 of operating cash. The operations of the Partnership are accounted
for under the equity method of accounting.
CENTREPOINT ASSOCIATES JOINT VENTURE ACQUISITION
On March 21, 1997, Centrepoint Associates (the "Joint Venture"), a partnership
in which the Company owns a 50% interest, acquired a parcel of property
containing 25,000 rentable square feet of buildings ("Talavi III") within an
existing shopping center in Glendale, Arizona. The Joint Venture currently owns
three additional parcels within this existing shopping center: two parcels
containing 85,000 rentable square feet of buildings and a vacant pad parcel for
future development. Talavi III was purchased for $3 million. The Joint Venture
financed this acquisition with borrowings under a $13.5 million line of credit
obtained from Wells Fargo Bank ("Wells Fargo Line"). The Wells Fargo Line is
secured by the new Talavi III acquisition and a 236,000 square foot power center
located in Tempe, Arizona which is owned by the Joint Venture.
As of September 30, 1997, the Joint Venture owned several shopping center
properties located in Glendale and Tempe, Arizona which contain an aggregate of
495,000 square feet of building area and a 40 acre vacant land parcel in
Goodyear, Arizona for future development. The operations of the Joint Venture
are accounted for under the equity method of accounting.
SMITHTOWN VENTURE
On October 2, 1996, the Company purchased an approximate 80% ownership interest
in Smithtown Venture LLC ("Smithtown Venture"). The remaining approximate 20%
ownership was held by King Kullen Grocery Co., Inc. ("King Kullen"), a major
Long Island, New York grocery chain. Smithtown Venture is currently constructing
a power center located in Commack, New York (Long Island) which is anticipated
to contain 270,000 leasable square feet of space when completed on land which is
subject to a forty-nine year ground lease with four ten year renewal options.
The shopping center is anchored by King Kullen, Borders Books & Music,
HomePlace, Babies "R" Us (Toys "R" Us) and The Sports Authority. In addition,
Target plans to open a 125,000 square foot store on a contiguous parcel of land.
As of September 30, 1997, all anchor tenants except Babies "R" Us have opened
for business. The center is in its final construction phase and the Company
expects that it will be completed by the end of the fourth quarter of 1997,
although no assurance can be given that it will be completed on schedule. The
construction cost is estimated at $23 million. The Company's share of
construction and development costs will be funded by borrowings under the
Company's Line of Credit and operating funds to the extent such funds are
available. As of September 30, 1997, the Company has cumulatively funded
$18,931,000 for its share of the Smithtown Venture construction costs.
On March 26, 1997, King Kullen was granted a put option to reduce its capital
interest in the joint venture from approximately 20% to 10%. On April 23, 1997,
King Kullen elected to exercise its put option to reduce its equity interest in
Smithtown Venture from approximately 20% to 10%. The Company paid King Kullen
$1,232,000 pursuant to the put option agreement. The Company presently holds an
ownership interest of 90% in Smithtown Venture and King Kullen holds the
remaining interest of 10%.
PRICE/FRY LLC JOINT VENTURE
In February 1997, Price/Baybrook, Ltd. (a wholly-owned subsidiary of the
Company) formed a joint venture with I-10/Fry Road 27, Ltd. and I-10/Park Row
40, Ltd. (the "Outside Partners") to develop an approximately 470,000 square
foot retail power center in Houston, Texas. The joint venture agreement provides
for the Outside Partners to contribute the land with a net fair market value of
$4.225 million and Price/Baybrook, Ltd. to contribute $4.225 million as needed
to fund development costs. After Price/Baybrook, Ltd. has funded its share of
capital, it is anticipated that the joint venture will seek construction
financing to complete the center.
The development will be located on 47 acres of land at the intersection of
Interstate 10 and Fry Road in the western part of Houston. The Company will be
the managing partner with a 50% joint venture interest, and the remaining 50%
will be owned by the Outside Partners.
The new power center will be anchored by Home Depot, which purchased
approximately ten acres from the joint venture for the construction of a 106,000
square foot store and a 30,000 square foot garden center. The sale of land to
Home Depot was completed on July 31, 1997. The joint venture intends to develop
the balance of the 470,000 square foot center, with multiple national value
retailers and an entertainment component. The Home Depot construction is near
completion, with opening anticipated by mid-January 1998, and it is anticipated
that the balance of the center will be completed in phases over the next two
years. There can be no assurance, however, that construction of Home Depot or
the balance of the center will commence or be completed on schedule. The
operations of the joint venture will be accounted for under the equity method of
accounting.
PRICE REIT RENAISSANCE PARTNERSHIP
On August 29, 1997, the Company formed a limited partnership (the "Limited
Partnership") with Altamonte Joint Venture ("Altamonte") to acquire the
Renaissance Centre, a 271,000 square foot shopping center in Altamonte Springs
(Orlando), Florida. The Company acquired a 99% interest in the Limited
Partnership for $33.5 million. The Company is the managing General Partner with
a 99% interest and Altamonte, a limited partner holding the remaining 1%
interest. As of September 30, 1997, the Center was 99% leased and is anchored by
Uptons, Michael's, Ross Stores, General Cinema, Blockbuster and Portfolio Home
Furnishing. The Company's share of the acquisition was financed with borrowings
of $13 million under its Line of Credit and $20.5 million of operating cash.
K & F DEVELOPMENT COMPANY
Effective January 1, 1997, the Company acquired the assets and assumed the
liabilities of its affiliate K & F Development Company (the "Development
Company") and elected certain of the officers of the Development Company to
serve as officers of the Company. The Company acquired the assets pursuant to a
distribution to the Company as owner of 100% of the non-voting preferred stock
of the Development Company.
NOTE 3 - PROPERTY DISPOSITIONS
On July 9, 1997, the Company sold its Cerritos, California property for $17.4
million in a transaction designed to enable the sale to qualify as a tax-
deferred exchange under Section 1031 of the Internal Revenue Code (the "Code").
The Company used the sale proceeds to acquire the Farmington, Connecticut
property on August 28, 1997 and the Minnetonka, Minnesota property on October 8,
1997. The Company realized a gain on sale of the Cerritos shopping center in the
amount of $3,643,000. This gain was partially offset by an impairment loss of
$856,000 relating to the sale of property in Copiague, New York which closed on
October 22, 1997.
NOTE 4 - NOTES PAYABLE
SENIOR NOTES PAYABLE
In November 1995, the Company issued unsecured 7.25% Senior Notes in the
aggregate principal amount of $100 million which are due November 2000. Interest
on the 7.25% Senior Notes is payable semi-annually in arrears on May 1 and
November 1. The notes were priced at an aggregate amount of $99,050,000 and have
an effective interest rate of 7.48%.
On November 5, 1996, the Company completed an underwritten public offering
("1996 Offering") of $55 million aggregate principal amount of the Company's
Senior Notes at an interest rate of 7.50%. The 7.50% Senior Notes were priced at
an aggregate of $54,870,000. The net proceeds from the 1996 Offering were used
to repay $50 million of indebtedness outstanding under the Company's Line of
Credit. The remaining net proceeds were used for general corporate purposes. The
7.50% Senior Notes provide for semi-annual payment of interest only due on May 5
and November 5 of each year until the maturity date of November 5, 2006 at which
time the principal is due.
On June 19, 1997, the Company issued unsecured 7.125% Senior Notes in the
aggregate principal amount of $50 million which are due June 15, 2004 pursuant
to its $175 million shelf registration statement. Interest on the 7.125% Senior
Notes is payable semi-annually in arrears on June 15 and December 15. The notes
were priced at an aggregate amount of $49,778,000 and have an effective interest
rate of 7.21%. The Company used the net proceeds to repay indebtedness under the
Line of Credit.
UNSECURED LINE OF CREDIT
On July 1, 1997, the Company amended its $75 million Line of Credit (i) to
modify certain restrictive covenants, including the secured and unsecured debt
incurrence restrictions, (ii) to provide the Company with an option, subject to
consent of its lenders and certain other conditions, to increase the
availability under the Line of Credit to $100 million and (iii) to extend the
maturity to June 30, 2000 with a Company option, subject to consent of its
lenders and certain other conditions, to extend it one additional year to June
30, 2001.
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 0.25% per annum of the unused
portion of the Line of Credit.
On October 23, 1996 the Company modified its Line of Credit to reduce the LIBOR
interest rate margin from 1.4% to 1.25%.
The effective rate of interest at September 30, 1997 from the borrowings under
the Line of Credit was 6.9375%. Interest on the outstanding balance of the Line
of Credit is payable periodically, but at least quarterly.
The Company typically funds short-term financing for its acquisition and
development activities through its $75 million Line of Credit. On January 22,
1997, the Company used the net proceeds from sale of Common Stock to repay $19
million of indebtedness under the Line of Credit. During the second quarter of
1997, the Company borrowed $60 million to purchase the Austin and Woodbridge
properties. The Company borrowed an additional $11 million to replenish
operating funds. On June 20, 1997, the Company used the net proceeds from the
sale of Senior Notes to repay $50 million of indebtedness outstanding under the
Company's Line of Credit. On August 11, 1997, the Company used the net proceeds
from the sale of common stock to repay $21 million of indebtedness outstanding
under the Company's Line of Credit. On August 28, 1997, the Company borrowed $13
million to purchase the Renaissance Center. On September 28, 1997, The Company
borrowed an additional $6 million to replenish operating funds. At September
30, 1997, the outstanding balance under the Line of Credit was $19 million.
NOTE 5 - COMMON STOCK
On January 22, 1997, the Company issued and sold 1,600,000 shares of Common
Stock at a price to the public of $37.625 per share pursuant to its $175 million
shelf registration statement. The Company used the net proceeds of approximately
$57 million for repayment of indebtedness under the Company's Line of Credit, to
fund its property acquisition activities and for general corporate purposes.
On August 11, 1997, the Company issued and sold 1,000,000 shares of Common Stock
at a price to the public of $37.50 per share pursuant to its $175 million shelf
registration statement. The Company used the proceeds of $37.5 million for
repayment of indebtedness under the Company's Line of Credit, to fund its
property acquisition activities and for general corporate purposes.
NOTE 6 - 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.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
The Company has not yet determined what the impact of Statement 128 will be on
the calculation of fully diluted earnings per share.
NOTE 7 - SUBSEQUENT EVENTS
On October 8, 1997, the Company completed the acquisition of the Ridgedale
Festival Shopping Center in Minnetonka (Minneapolis), Minnesota. The purchase
price was $11.9 million. Ridgedale shopping center contains 120,000 rentable
square feet, is anchored by Office Max, Toys `R' Us, Golfsmith, and Schmidt
Music and was 100% leased. The Company financed this acquisition with the
proceeds from the tax-deferred sale of the Cerritos property.
On October 17, 1997, the Company acquired the Cordata Centre located in
Bellingham, Washington. The purchase price was $20.25 million. The center
contains 174,000 rentable square feet and is anchored by Costco (not part of
purchase), Office Depot, Bon Marche Home, T.J. Maxx, Drug Emporium, Future Shop,
and other retail tenants. The Company financed the acquisition with borrowings
of $18 million under the Line of Credit and the remainder from operating cash.
On October 22, 1997, the Company completed the sale of approximately nine acres
of land in its Copiague, New York shopping center for $10.25 million. The land
was sold to Dayton Hudson Corp. which intends to develop a 133,000 square foot
Target store within the center. The Company used the sale proceeds to repay
borrowings under its Line of Credit.
On October 31, 1997, the Company acquired a 97,000 square foot shopping center
in Piscataway, New Jersey. The purchase price was $15.1 million. The center is
100% leased and anchored by Shop Rite Supermarket, Applebee's, Lauriat's and
other retail tenants. The Company financed this acquisition by the assumption of
a $11.4 million non-recourse loan secured by the property maturing in August
2000, and the remainder with borrowings under its Line of Credit.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion, which is based on the condensed consolidated financial
statements of the Company, should be read in conjunction with the consolidated
financial statements appearing elsewhere in this report. When used in the
following discussion, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected, including, but not limited to, the
actual timing of the Company's planned acquisitions and developments and the
strength of the local economies in the sub-markets in which the Company
operates. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these forward-
looking statements, which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The results of operations of the Company for the nine months ended September 30,
1997, as compared to the same period for 1996, are significantly different due
to the acquisitions discussed below.
On May 3, 1996, the Hayden Plaza North Associates Partnership, in which the
Company owns a 50% interest, acquired a shopping center in Phoenix, Arizona at a
cost of $3,490,000. The Company's 50% share of the acquisition cost was funded
by borrowings of $1 million under the Line of Credit and $750,000 of operating
cash.
In July 1996, the Company acquired a shopping center located in Mesquite, Texas
(Dallas area) for $12.7 million. The Company financed this acquisition with
borrowings under its Line of Credit.
On November 20, 1996, the Company acquired Centennial Plaza shopping center in
Oklahoma City, Oklahoma at a cost of $16.7 million, of which $11.8 million is
evidenced by the assumption of two non-recourse loans (subject to customary
exceptions) secured by the property. The balance of the purchase price was
financed with $4.9 million of operating cash.
On January 1, 1997, the Company acquired the assets and assumed the liabilities
of the Development Company and elected certain of the officers of the
Development Company to serve as officers of the Company. The Company acquired
the assets pursuant to a distribution to the Company as owner of 100% of the
non-voting preferred stock of the Development Company.
On January 16, 1997, the Company acquired Westgate Market in Wichita, Kansas for
$9.8 million. The Company financed this acquisition with borrowings under its
Line of Credit.
On March 19, 1997, the Company acquired a shopping center in Garland, Texas for
$4.75 million. The Company financed this acquisition with operating cash.
On March 20, 1997, the Company acquired a shopping center in Richardson, Texas
for $8.5 million. The Company financed this acquisition with operating cash.
On March 28, 1997, the Company acquired a shopping center in Dallas, Texas for
$8.75 million. The Company financed this acquisition with operating cash.
On March 31, 1997, the Company acquired a shopping center in Greensboro, North
Carolina for $4.975 million. The Company financed this acquisition with
operating cash.
On April 1, 1997, the Company acquired Arboretum Crossing (Phase I), a 182,000
square foot shopping center located in Austin, Texas for $23.4 million. The
Company financed this acquisition with borrowings of $14 million under its Line
of Credit and $9.4 million of operating cash.
On May 14, 1997, the Company acquired Smoketown Stations Center, a 483,000
square foot shopping center located in Woodbridge, Virginia for $46.5 million.
The Company financed this acquisition with borrowings under its Line of Credit.
On July 9, 1997, the Company sold its Cerritos, California property for $17.4
million. The Company used the sale proceeds to acquire the Farmington and
Minnetonka properties as replacement properties.
On August 28, 1997, the Company acquired a 185,000 square foot shopping center
in Farmington, Connecticut for $20 million. The acquisition was financed through
the assumption of a $14.7 million non-recourse loan secured by the property and
$5.3 million from proceeds of the tax-deferred exchange from sale of the
Cerritos property.
On August 29, 1997, the Company formed a limited partnership (the "Limited
Partnership") with Altamonte Joint Venture to acquire the Renaissance Centre, a
271,000 square foot shopping center in Altamonte Springs (Orlando), Florida for
$33.5 million. The Company is the managing General Partner with a 99% interest
and Altamonte is a limited partner holding the remaining 1% interest. The
Company's share of the acquisition was financed with borrowings of $13 million
under its Line of Credit and $20.5 million of operating cash.
Throughout 1997, expenses incurred and accounted for as general and
administrative included both the Company's corporate overhead and those incurred
by its property management division. For the three months ended September 30,
1997, corporate overhead expenses and property management expenses were $462,000
and $423,000, respectively. For the nine months ended September 30, 1997,
corporate overhead expenses and property management expenses were $1,601,000 and
$1,214,000 respectively.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996
Rental income increased from $12,620,000 for the quarter ended September 30,
1996 to $17,696,000 for the same period in 1997. Approximately $5,436,000 of
this increase was attributable to new rental revenue from properties acquired in
the last quarter of 1996 and during 1997. Another $508,000 of the increase was
attributable to rent increase from existing properties and income generated from
the newly developed and opened Smithtown Venture. These increases were offset by
a reduction of $867,000 in rental revenue resulting from the sale of the
Cerritos shopping center and the reduction of rents from certain tenant
buildings on the Copiague, New York property which were demolished to facilitate
the land sale to Dayton Hudson.
Management fee income from third party contracts decreased from $270,000 for the
quarter ended September 30, 1996 to $82,000 for the same period in 1997 due to
the cessation of management services of ten Price Enterprises, Inc. shopping
centers. Management fee income reflects fees generated from the Company's
management of several shopping centers and commercial properties owned by third
parties and certain joint venture properties.
On September 1, 1996, the Company ceased management services for four Price
Enterprises, Inc. shopping centers located in California and Arizona. On January
1, 1997, the Company ceased management services for the six remaining Price
Enterprises, Inc. shopping centers located in the northeast United States. The
impact of the foregoing resulted in a reduction in the Company's third party
management fee income. This, however, was partially offset by a reduction in
related operating expenses. The Company does not believe that this reduction in
future third party management fee income will have a material effect on its
future earnings and Funds from Operations. Management believes that the
reduction of third party management services will allow the Company to more
effectively and efficiently manage its present portfolio as well as any future
acquisitions and growth opportunities.
Equity in earnings of joint ventures for the quarter ended September 30, 1997
reflects the Company's share of earnings from the Centrepoint Associates and
Hayden Plaza joint ventures in which it holds a 50% general partnership
interest. The equity in earnings of joint ventures decreased from $411,000 for
the quarter ended September 30, 1996 to $391,000 for the same period in 1997.
The decrease was attributable to a higher vacancy rate in Hayden Plaza joint
venture in 1997 as compared to the same period in 1996 due to ongoing
redevelopment activity.
Other income increased from $61,000 for the quarter ended September 30, 1996 to
$294,000 for the same period in 1997. Most of the increase was attributable to
an increase of investment income from short term investment of the proceeds from
the sale of the Cerritos shopping center until such proceeds were utilized to
fund the Company's recent acquisition activities.
During the third quarter of 1997, the Company realized a gain on sale of the
Cerritos shopping center in the amount of $3,643,000. This gain was partially
offset by an impairment loss of $856,000 relating to the sale of property in
Copiague, New York which closed on October 22, 1997.
Rental operating expenses consisting of common area maintenance and real estate
taxes increased from $2,348,000 for the quarter ended September 30, 1996 to
$3,332,000 for the same period in 1997. Approximately $874,000 of this increase
was attributable to properties acquired in the last quarter of 1996 and during
1997. The remainder of the increase was attributable to higher property tax
assessments due to new construction and increased operating expenses of existing
properties.
Depreciation expense increased from $3,031,000 for the quarter ended September
30, 1996 to $4,252,000 for the same period in 1997. Approximately $1,049,000 of
this increase was attributable to the properties acquired in the last quarter of
1996 and during 1997. The remainder of the increase was attributable to
additional depreciation on new construction on existing properties.
Interest expense increased from $3,056,000 for the quarter ended September 30,
1996 to $4,002,000 for the same period in 1997. This increase was mainly
attributable to the Company's average outstanding indebtedness during the
quarter ended September 30, 1997 which was approximately $60 million greater
than the average amount of outstanding indebtedness during the same period in
1996. During 1996, the Company increased its outstanding indebtedness by
assuming loans totaling $11.8 million in conjunction with the Oklahoma City,
Oklahoma shopping center acquisition and in August 1997, by assuming a loan in
the amount of $14.7 million in conjunction with the Farmington, Connecticut
shopping center acquisition. The Company also increased its outstanding
indebtedness to fund new acquisitions and certain ongoing construction and
development projects. Additionally, the Company capitalized interest of $603,000
arising from construction activities mostly attributable to the Smithtown
Venture as compared to $136,000 for the same period in 1996.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Rental income increased from $37,453,000 for the nine months ended September 30,
1996 to $48,450,000 for the same period in 1997. Approximately $11,101,000 of
this increase was attributable to new rental revenue from properties acquired
in the last quarter of 1996 and during 1997. Another $929,000 of the increase
was attributable to rent increase from existing properties and income generated
from the newly developed and opened Smithtown Venture. These increases were
offset by a reduction of $1,033,000 in rental revenue resulting from the sale of
the Cerritos shopping center and the reduction of rents from certain tenant
buildings on the Copiague, New York property which were demolished to facilitate
the land sale to Dayton Hudson.
Management fee income from third party contracts decreased from $809,000 for the
nine months ended September 30, 1996 to $226,000 for the same period in 1997 due
to the cessation of management services for ten Price Enterprises, Inc. shopping
centers. Management fee income reflects fees generated from the Company's
management of several shopping centers and commercial properties owned by third
parties and certain joint venture properties.
On September 1, 1996, the Company ceased management services for four Price
Enterprises, Inc. shopping centers located in California and Arizona. On January
1, 1997, the Company ceased management services for the six remaining Price
Enterprises, Inc. shopping centers located in the northeast United States. The
impact of the foregoing resulted in a reduction in the Company's third party
management fee income. This, however, was partially offset by a reduction in
related operating expenses. The Company does not believe that this reduction in
future third party management fee income will have a material effect on its
future earnings and Funds from Operations. Management believes that the
reduction of third party management services will allow the Company to more
effectively and efficiently manage its present portfolio as well as any future
acquisitions and growth opportunities.
Equity in earnings of joint ventures for the nine months ended September 30,
1997 reflects the Company's share of earnings from the Centrepoint Associates
and Hayden Plaza joint ventures in which it holds a 50% general partnership
interest. The equity in earnings of joint ventures increased from $1,149,000 for
the nine months ended September 30, 1996 to $1,276,000 for the same period in
1997. The increase was attributable to new rental revenue from the Talavi III
acquisition. This increase was offset by a decrease in revenue attributable to a
higher vacancy rate in the Hayden Plaza center in 1997 as compared to the same
period in 1996 due to ongoing redevelopment activity.
Other income increased from $265,000 for the nine months ended September 30,
1996 to $1,090,000 for the same period in 1997. Most of the increase was
attributable to an increase of investment income from short term investment of
the proceeds from the 1997 Stock Offering and proceeds from the sale of the
Cerritos shopping center until such proceeds were utilized to fund the Company's
recent acquisition activities.
During the third quarter of 1997, the Company realized a gain on sale of the
Cerritos shopping center in the amount of $3,643,000. This gain was partially
offset by an impairment loss of $856,000 relating to the sale of property in
Copiague, New York which closed on October 22, 1997.
Rental operating expenses consisting of common area maintenance and real estate
taxes have increased from $7,055,000 for the nine months ended September 30,
1996 to $9,247,000 for the same period in 1997. Approximately $1,969,000 of this
increase was attributable to properties acquired in the last quarter of 1996 and
during 1997. The remainder of the increase was attributable to higher property
tax assessments due to new construction and increased operating expenses of
existing properties.
Depreciation expense increased from $8,823,000 for the nine months ended
September 30, 1996 to $11,201,000 for the same period in 1997. Approximately
$2,188,000 of this increase was attributable to the properties acquired in the
last quarter of 1996 and during 1997. The remainder of the increase was
attributable to additional depreciation on new construction on existing
properties.
Interest expense increased from $9,017,000 for the nine months ended September
30, 1996 to $10,667,000 for the same period in 1997. This increase was mainly
attributable to the Company's average outstanding indebtedness during the
quarter ended September 30, 1997 which was approximately $61 million greater
than the average amount of outstanding indebtedness during the same period in
1996. During 1996, the Company increased its outstanding indebtedness by
assuming loans totaling $11.8 million in conjunction with the Oklahoma City,
Oklahoma shopping center acquisition and in August 1997, by assuming a loan in
the amount of $14.7 million in conjunction with the Farmington, Connecticut
shopping center acquisition. The Company also increased its outstanding
indebtedness to fund new acquisitions and certain ongoing construction and
development projects. Additionally, the Company capitalized interest of
$1,483,000 arising from construction activities mostly attributable to the
Smithtown Venture for the nine months ended September 30, 1997 as compared to
$241,000 for the same period in 1996.
CAPITAL RESOURCES AND LIQUIDITY
The Company's principal sources of funding for the acquisition, development,
expansion and renovation of properties are its Line of Credit, secured notes,
public equity financing, public unsecured debt financing and cash flow from
operations.
The Company elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended. As a REIT, the Company is subject to
a number of organizational and operational requirements, including a requirement
that the Company must distribute at least 95 percent of its ordinary taxable
income.
The Company believes that its cash flow from operations after interest for 1997
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. The
Company declared dividends in the aggregate amount of $23,961,000 during the
nine months ended September 30, 1997, of which $694,000 was reinvested into
Common Stock by stockholders pursuant to the Company's dividend reinvestment
plan.
The Company typically funds short-term financing for its acquisition and
development activities through the Line of Credit. On January 22, 1997, the
Company used the net proceeds from the sale of Common Stock to repay $19 million
of indebtedness under the Line of Credit. During the second quarter of 1997, the
Company borrowed $60 million to purchase the Austin and Woodbridge properties as
discussed above. The Company borrowed an additional $11 million to replenish
operating funds. On June 20, 1997, the Company used the net proceeds from the
sale of Senior Notes to repay $50 million of indebtedness outstanding under the
Company's Line of Credit. On August 11, 1997, the Company used the net proceeds
from the sale of common stock to repay $21 million of indebtedness outstanding
under the Company's Line of Credit. On August 28, 1997, the Company borrowed $13
million to purchase the Renaissance Center. On September 28, 1997, the Company
borrowed an additional $6 million to replenish operating funds. At September
30, 1997, the outstanding balance under the Line of Credit was $19 million.
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
0.25% per annum of the unused portion of the Line of Credit.
On November 25, 1996, the Company filed a shelf registration statement on Form
S-3 (File No. 333-16787)(the "1996 Shelf Registration Statement") for up to
$175 million of debt securities, preferred stock, common stock and
warrants (collectively, the "Securities"). The 1996 Shelf Registration
Statement was declared effective by the Securities and Exchange Commission on
December 23, 1996.
On January 22, 1997, the Company issued and sold 1,600,000 shares of Common
Stock at a price to the public of $37.625 per share pursuant to the 1996 Shelf
Registration Statement. The Company used the net proceeds of $57 million for
repayment of indebtedness under the Company's Line of Credit and for general
corporate purposes.
On June 19, 1997, the Company issued unsecured 7.125% Senior Notes in the
aggregate principal amount of $50 million which are due June 15, 2004 pursuant
to the 1996 Shelf Registration Statement. Interest on the 7.125% Senior Notes is
payable semi-annually in arrears on June 15 and December 15. The notes were
priced at an aggregate amount of $49,778,000 and have an effective interest rate
of 7.21%. The Company used the net proceeds to repay indebtedness under the Line
of Credit.
On July 1, 1997, the Company amended its $75 million Line of Credit (i) to
modify certain restrictive covenants, including the secured and unsecured debt
incurrence restrictions, (ii) to provide the Company with an option, subject to
consent of its lenders and certain other conditions, to increase the
availability under the Line of Credit to $100 million and (iii) to extend the
maturity to June 30, 2000 with a Company option, subject to consent of its
lenders and certain other conditions, to extend it one additional year to June
30, 2001.
On August 11, 1997, the Company issued and sold 1,000,000 shares of Common Stock
at a price to the public of $37.50 per share pursuant to its $175 million shelf
registration statement. The Company used the proceeds of $37.5 million for
repayment of indebtedness under the Company's Line of Credit, to fund its
property acquisition activities and for general corporate purposes.
On September 8, 1997, the Company filed a shelf registration statement on Form
S-3 (File No. 333-35185)(the "1997 Shelf Registration Statement") for up to
$400 million of debt securities, preferred stock, common stock and
warrants (collectively, the "Securities"). The 1997 Shelf Registration
Statement was declared effective by the Securities and Exchange Commission on
September 24, 1997.
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
financing. 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.
The information in the immediately preceding paragraph is forward-looking and
involves risks and uncertainties that could significantly impact the Company's
expected liquidity requirements in the short and long term. While it is
impossible to itemize the many factors and specific events that could affect the
Company's outlook for its liquidity requirements, such factors would include the
actual timing of the Company's planned development of new centers and expansion
of existing centers; the actual costs associated with such developments; and the
strength of the local economies in the sub-markets in which the Company
operates. Higher than expected costs, delays in development of centers, a
downturn in the local economies and/or the lack of growth of such economies
could reduce the Company's revenues and increase its expenses, resulting in a
greater burden on the Company's liquidity than that which the Company has
described above.
FUNDS FROM OPERATIONS
Most industry analysts and equity REITs, including the Company, consider Funds
from Operations ("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 provided by
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 Association 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 its 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 three
months and nine months ended September 30, 1997 based on the new NAREIT
definition. The table also sets forth the calculation of FFO for the same
periods in 1996.
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
(In Thousands)
Net income $ 8,779 $ 4,103 $19,899 $12,296
Less net gain from
sale of rental property (2,787) - (2,787) -
Depreciation 4,252 3,031 11,201 8,823
Joint ventures FFO adjustment 185 174 537 492
------- ------- ------- -------
Funds from Operations $10,429 7,308 $28,850 $21,611
======= ======= ======= =======
Weighted average number of shares
outstanding 11,240 8,505 10,742 8,392
======= ======= ======= =======
Prior to the Company's January 1996 adoption of the new NAREIT definition of
FFO, the Company calculated FFO by adjusting for straight line rent. If such an
adjustment had been made to the calculation of FFO in the above table, FFO would
have been reduced by $733,000 and $620,000 for the three month periods ended
September 30, 1997 and 1996, respectively, and $1,885,000 and $1,836,000
for the nine months periods ended September 30, 1997 and 1996, respectively.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits
--------
10.41 Purchase and Sale Agreement and Escrow Instructions
dated April 17, 1996 by and among The Price REIT, Inc.
and West Trust Asset Management, Inc. (Cerritos,
California property)
(Incorporated by reference to Exhibit 10.43 of the
Company's Form 10-Q dated August 13, 1997)
10.42 Contribution Agreement, dated as of August 28, 1997,
by and between The Price REIT Renaissance Partnership,
L.P., a California limited partnership, and Altamonte
Joint Venture, a Florida general partnership.
(Incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K dated September
12, 1997.)
10.43 Agreement of Limited Partnership of The Price REIT
Renaissance Partnership, L.P., dated as of August 22,
1997, by and among The Price REIT, Inc. and the Limited
Partners named therein.
(Incorporated by reference to Exhibit 2.2 of the
Company's Current Report on Form 8-K dated September
12, 1997.)
10.44 Agreement of Purchase and Sale, dated as of June 19,
1997, by and between The Price REIT, Inc. and Westfarms, L.P., a
Connecticut limited partnership, as amended by First Amendment to
Agreement of Purchase and Sale, dated as of July 29, 1997, and
Second Amendment to Agreement of Purchase and Sale, dated as of
August 21, 1997.
(Incorporated by reference to Exhibit 2.3 of the
Company's Current Report on Form 8-K dated September 12, 1997.)
10.45 Acquisition Agreement, dated as of October 3, 1997
by and between The Price REIT, Inc. and Ridgedale Festival
Joint Venture, a Texas joint venture. (Minnetonka property)
(Incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K dated November 14, 1997.)
10.46 Deed-In-Lieu Agreement and Escrow Instructions,
dated as of October 17, 1997, By and Between Guide
Meridian Retail, Inc., a California corporation, as
Borrower and The Price REIT, Inc., as Lender.
(Bellingham property)
(Incorporated by reference to Exhibit 2.2 of the
Company's Current Report on Form 8-K dated November 14, 1997.)
10.47 Purchase and Sale Agreement and Escrow Instructions,
dated as of September 23, 1997, By and Between
K. Hovnanian Properties of Piscataway, Inc., a New
Jersey corporation, as Seller, and The Price REIT, Inc., a
Maryland corporation, as Buyer, and Eastern Title Agency, as
Escrow Holder (Piscataway property)
(Incorporated by reference to Exhibit 2.3 of the
Company's Current Report on Form 8-K dated November 14, 1997.)
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
-------------------
Current Reports on Forms 8-K and 8-K/A were filed on May 28, 1997 and July
24, 1997, respectively, reporting under Item 2 the Company's acquisition of
the Smoketown Stations Center in Woodbridge, Virginia for a purchase price
of $46,500,000. The following financial statements were filed with the Form
8-K/A: audited statement of revenue over specific operating expenses for the
Smoketown Stations Center and unaudited pro forma condensed financial
information
A Current Report on Form 8-K dated July 25, 1997 was filed reporting the
Company's issuing a press release dated July 24, 1997.
A Current Report on Form 8-K dated August 5, 1997 was filed reporting the
Company's filing of certain exhibits relating to the issuance and sale of up
to 1,000,000 shares of Common Stock.
Current Reports on Forms 8-K and 8-K/A were filed on September 12, 1997
and November 7, 1997, respectively, reporting under Item 2 the Company's
acquisition of the Renaissance Centre and West Farms (Farmington) properties
for an aggregate purchase price of $53.5 million. The following financial
statements were filed with the Form 8-K/A: audited statement of revenue over
specific operating expenses for the Renaissance Centre and unaudited
pro forma condensed financial information.
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.
The Price REIT, Inc.
Date: November 14, 1997 /Joseph K. Kornwasser/
Joseph K. Kornwasser
Chief Executive Officer,
President and Director
Date: November 14, 1997 /George M. Jezek/
George M. Jezek
Chief Financial Officer,
Treasurer, Secretary and
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 September 30, 1997, and the related condensed
consolidated statements of income for the three-month and nine-month periods
ended September 30, 1997 and 1996, and the condensed consolidated statements of
cash flows for the nine-month periods ended September 30, 1997 and 1996. 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, 1996, 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 22, 1997, 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, 1996,
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
October 27, 1997
Exhibit 12.1 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
Nine Months Ended Year ended December 31,
September 30, 1997 1996 1995
-------------------------------------------
(000's omitted, except ratio data)
Net Income $19,899 $16,919 $16,386
Interest 12,150 11,826 7,070
Less interest capitalized
during the period (1,483) (469) (415)
Amortization of deferred
loan fees and discount 623 714 284
-------------------------------------------
Earnings $31,189 $28,990 $23,325
===========================================
Interest 12,150 11,826 7,070
Amortization of deferred
loan fees and discount 623 714 284
-------------------------------------------
$12,773 $12,540 $ 7,354
===========================================
Ratio of Earnings to
Fixed Charges 2.44 2.31 3.17
===========================================
Year ended December 31,
1994 1993 1992
-----------------------------------
(000's omitted, except ratio data)
Net Income $16,904 $ 9,128 $ 4,118
Interest 4,319 4,287 3,203
Less interest capitalized
during the period (234) (30) -
Amortization of deferred
loan fees and discount 152 99 17
-----------------------------------
Earnings $21,141 $13,484 7,338
===================================
Interest 4,319 4,287 3,203
Amortization of deferred
loan fees and discount 152 99 17
-----------------------------------
$ 4,471 $ 4,386 $ 3,220
===================================
Ratio of Earnings to
Fixed Charges 4.73 3.07 2.28
===================================
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,097
<SECURITIES> 0
<RECEIVABLES> 4,152
<ALLOWANCES> 636
<INVENTORY> 0
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0
0
<COMMON> 117
<OTHER-SE> 327,934
<TOTAL-LIABILITY-AND-EQUITY> 592,357
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<TOTAL-COSTS> 33,930
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