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, 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 1-13422
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The Price REIT, Inc.
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(Exact name of Registrant as specified in its Charter)
Maryland 52-1746059
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(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
--- ---
Number of shares of the Registrant's common stock outstanding at
March 31, 1997: 10,678,936.
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The Price REIT, Inc.
Form 10-Q
Index
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996
Condensed Consolidated Statements of Income - Three months
ended March 31, 1997 and March 31, 1996
Condensed Consolidated Statements of Cash Flows - Three
months ended March 31, 1997 and March 31, 1996
Notes to Condensed Consolidated Financial Statements -
March 31, 1997
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
Signatures
Independent Accountants' Review Report
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
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The Price REIT, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1997 1996
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ASSETS (In Thousands)
Rental property, net $419,842 $380,482
Investment in joint ventures 19,227 19,202
Cash and cash equivalents 9,065 11,369
Deferred rent receivable 8,987 8,489
Secured note receivable 1,335 1,346
Other assets 9,518 7,183
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Total assets $467,974 $428,071
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities 7,593 4,474
Senior Notes payable 154,159 154,114
Unsecured line of credit - 19,000
Secured notes payable 11,722 11,794
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Total liabilities 173,474 189,382
Minority interest 2,464 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: 10,678,936 and 9,069,249 shares
issued and outstanding 107 91
Additional paid-in capital 316,855 259,518
Accumulated deficit (24,926) (22,627)
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Total stockholders' equity 292,036 236,982
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Total liabilities and stockholders' equity $467,974 $428,071
========= =========
See accompanying notes.
The Price REIT, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended
March 31,
1997 1996
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(In Thousands, except
per share amounts)
REVENUE
Rental income $14,108 $12,650
Management fees 70 276
Equity in earnings of joint ventures 449 396
Interest and other income 681 108
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Total revenue 15,308 13,430
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EXPENSES
Rental operations 1,304 1,427
Real estate taxes 1,440 1,232
General and administrative 954 838
Depreciation 3,139 2,895
Interest 3,025 2,980
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Total expenses 9,862 9,372
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Income before minority interest in income of
consolidated Joint Venture 5,446 4,058
Minority interest in income of consolidated
Joint Venture - -
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NET INCOME $ 5,446 $ 4,058
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PER SHARE DATA
Net income per share $0.53 $0.49
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Dividends paid per share Common Stock $0.725 $0.70
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Weighted average number of shares outstanding 10,297 8,316
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See accompanying notes.
The Price REIT, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
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(In Thousands)
OPERATING ACTIVITIES
Net income $ 5,446 $ 4,058
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,139 2,895
Amortization of deferred loan fees 147 131
Amortization of debt discount 45 35
Equity in earnings of joint ventures (449) (396)
Deferred rent (498) (563)
Changes in operating assets and liabilities:
Rent receivable and other assets (1,140) (922)
Accounts payable and accrued liabilities 3,120 1,034
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Net cash provided by operating activities 9,810 6,272
INVESTING ACTIVITIES
Purchases of rental property (36,575) -
Additions to rental property (5,853) (1,144)
Note receivable (1,400) -
Payment received on note receivable 11 -
Investment in joint ventures (220) (176)
Distributions from joint ventures 632 465
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Net cash used in investing activities (43,405) (855)
FINANCING ACTIVITIES
Minority interest contribution 757 -
Repayment of unsecured line of credit (19,000) -
Repayment of secured notes payable (72) -
Gross proceeds from issuance of Common Stock 60,289 1,280
Common Stock issuance costs (3,200) -
Dividends paid, net of dividends reinvested (7,483) (5,620)
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Net cash provided by (used in) financing activities 31,291 (4,340)
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(Decrease) increase in cash and cash equivalents (2,304) 1,077
Cash and cash equivalents at beginning of period 11,369 1,241
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Cash and cash equivalents at end of period $9,065 $2,318
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $408 $1,059
========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Common Stock issued in accordance with
the dividend reinvestment plan $264 $219
======== ========
See accompanying notes.
The Price REIT, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 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-month period ended March 31, 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 accompanying
footnotes 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 209,579 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 233,797 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 133,800 square foot
shopping center in Wichita, Kansas for $9.8 million. As of March 31, 1997, the
shopping center was 96% leased and is anchored by Best Buy, T.J. Maxx and
Michael's. 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. As of
March 31, 1997, the shopping center was 100% leased and is anchored by Office
Depot, Drug Emporium and Blockbuster Music. The Company financed this
acquisition with operating cash.
On March 20, 1997, the Company acquired Richardson Plaza Shopping Center, a
115,579 square foot shopping center in Richardson, Texas for $8.5 million. As of
March 31, 1997, the shopping center was 100% leased and is anchored by Office
Max, Bally Total Fitness, Northern Stores and Berean Book Stores. The Company
financed this acquisition with operating cash.
On March 28, 1997, the Company acquired City Place Market, an 83,867 square foot
shopping center in Dallas, Texas for $8.75 million. As of March 31, 1997, the
shopping center was 100% leased and is anchored by Office Max, Ross Dress For
Less, and Macfrugal's. The center is also anchored by Target which owns its own
parcel. The Company financed this acquisition with operating cash.
On March 31, 1997, the Company acquired Wendover Ridge Retail Center, a 41,387
square foot shopping center in Greensboro, North Carolina for $4.975 million. As
of March 31, 1997, the shopping center was 100% leased and is anchored by
Staples and David's Bridal. The Company financed this acquisition with operating
cash.
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 190,575 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 24,886 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. The existing center is anchored by Wal-Mart (which owns its
own parcel), Sears Homelife and Michael's. Talavi III was purchased for $3
million. As of March 31, 1997, Talavi III was 96.5% leased.
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 a 236,000 square foot power center located in
Tempe, Arizona which is owned by the Joint Venture and the new Talavi III
acquisition.
As of March 31, 1997, the Joint Venture owned several shopping center properties
located in Glendale, Tempe and Goodyear, Arizona which contain an aggregate of
495,000 square feet of building area and a 40 acre vacant land parcel for future
development. The operations of the partnership 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 will be 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.
The shopping center is scheduled to open in summer 1997 and is estimated to cost
approximately $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 March 31, 1997,
the Company has cumulatively funded $9,924,000 for its share of the Smithtown
Venture construction costs.
On March 26, 1997, King Kullen was granted a put option to reduce their capital
interest in the joint venture from approximately 20% to 10%. Upon written
exercise of such option, the Company will purchase from King Kullen such
approximate 10% capital interest at King Kullen's cost.
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 - 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
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.
UNSECURED 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 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. 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. At March 31, 1997, the Company
had no outstanding balance under the Line of Credit.
NOTE 4 - COMMON STOCK
On January 22, 1997, the Company issued and sold 1,600,000 shares of Common
Stock (the "1997 Stock Offering") 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. The Company currently has the ability to issue
up to approximately $115 million of the remaining securities pursuant to the
shelf registration statement.
NOTE 5 - 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 6 - SUBSEQUENT EVENTS
On April 1, 1997 the Company completed the acquisition of Arboretum Crossing
(Phase I) in Austin, Texas. The purchase price was $23.4 million. Arboretum
Crossing (Phase I) contains 183,000 rentable square feet, is anchored by Circuit
City, Baby Superstore (Toys 'R' Us), Cost Plus, Designer Shoe Warehouse, Just
for Feet and Mikasa and was approximately 98% leased as of April 1, 1997. The
Company financed this acquisition with borrowings of $14 million under its Line
of Credit and $9.4 million of operating cash.
Smithtown Venture. 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 now holds an ownership interest of 90% in the joint
venture and King Kullen holds the remaining interest of 10%.
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 three months ended March 31,
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.
COMPARISON OF THE QUARTER ENDED MARCH 31, 1997 TO THE QUARTER ENDED MARCH 31,
1996
Rental income increased from $12,650,000 for the quarter ended March 31, 1996 to
$14,108,000 for the same period in 1997. This increase was attributable to new
rental revenue from properties acquired in the last six months of 1996 and first
quarter of 1997.
Management fee income from third party contracts decreased from $276,000 for the
quarter ended March 31, 1996 to $70,000 for the same period in 1997 due to the
cessation of management services of ten shopping centers for Price Enterprises,
Inc. Management fee income reflects fees generated from the Company's management
of several shopping centers and commercial properties owned by third parties.
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 will be a significant reduction in the Company's future
third party management fee income. This, however, should be 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 own portfolio as well as any
additional future acquisitions.
Equity in earnings of joint ventures for the quarter ended March 31, 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 venture amount increased from $396,000
for the quarter ended March 31, 1996 to $449,000 for the same period in 1997. An
increase of $53,000 was attributable to the newly formed Hayden Plaza joint
venture in 1996.
Other income increased from $108,000 for the quarter ended March 31, 1996 to
$681,000 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 until such proceeds were utilized to fund the Company's
recent acquisition activities.
Rental operating expenses consisting of common area maintenance and real estate
taxes have increased from $2,659,000 for the quarter ended March 31, 1996 to
$2,744,000 for the same period in 1997. Approximately $308,000 of this increase
was attributable to properties acquired in the last six months of 1996 and the
first quarter 1997. This increase was offset by lower snow removal costs
resulting from mild weather conditions for the east coast properties.
Depreciation expense increased from $2,895,000 for the quarter ended March 31,
1996 to $3,139,000 for the same period in 1997. The increase was attributable to
the properties acquired in the last six months of 1996 and the first quarter of
1997, and additional depreciation on new construction on existing properties.
Interest expense increased from $2,980,000 for the quarter ended March 31, 1996
to $3,025,000 for the same period in 1997. This increase was mainly attributable
to the Company's average outstanding indebtedness during the quarter ended March
31, 1997 which was approximately $18 million greater than the average amount of
outstanding indebtedness during the same period in 1996. During the fourth
quarter of 1996 the Company increased its outstanding indebtedness by assuming
two secured loans totaling $11.8 million in conjunction with the Oklahoma City,
Oklahoma shopping center acquisition and to fund certain ongoing construction
and development projects. The remainder of the increased interest expense was
attributable to the amortization of the note discount and other issuance costs
of the Company's Senior Notes which are reflected as interest expense. The
increase in interest expense was offset by increased capitalized interest of
$374,000 arising from additional construction activities.
CAPITAL RESOURCES AND LIQUIDITY
The Company's principal sources of funding for the acquisition, development,
expansion and renovation of properties are an unsecured 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. REITs are subject to a number of
organizational and operational requirements, including a requirement that the
Company must distribute at least 95 percent of their 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 $7,747,000 during the
quarter ended March 31, 1997, of which $264,000 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. At March 31, 1997, the Company had no
outstanding balance under the Line of Credit.
Interest on borrowings under the Line of Credit is at a rate of LIBOR plus
1.25%. Interest on the outstanding balance is payable periodically, but at least
quarterly. Capitalized interest costs for the three months ended March 31, 1997
was $374,000.
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.
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 Commission on December 23, 1996.
On January 22, 1997, the Company issued and sold 1,600,000 shares of Common
Stock (the "1997 Stock Offering") 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. The Company currently has the
ability to issue up to $115 million of the remaining securities pursuant to the
1996 Shelf Registration Statement.
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, 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 ended March 31, 1997 based on the new NAREIT definition. The table also
sets forth the calculation of FFO for the same periods in 1996.
Three months ended
March 31,
(Unaudited)
1997 1996
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(In Thousands)
Net income $ 5,446 $ 4,058
Depreciation 3,139 2,895
Joint ventures FFO adjustment 171 112
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Funds from Operations $ 8,756 $ 7,065
======= =======
Weighted average number of shares
outstanding 10,297 8,316
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 $525,000 and $579,000 for the three month periods ended
March 31, 1997 and 1996, respectively.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits
--------
4.3 Amended and Restated Credit Agreement, dated as of
January 10, 1997 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 herewith.
10.41 Purchase and Sale Agreement and Escrow Instructions
dated November 12, 1996 by and between Ewing Industries-
Wichita Westgate Limited Partnership and The Price REIT,
Inc. (Wichita, Kansas property)
(Incorporated by reference to Exhibit 2.1 from The
Company's Current Report on Form 8-K dated April 16,
1997)
10.42 Purchase and Sale Agreement and Escrow Instructions
dated February 5, 1997 by and between MaxVest
Associates, Limited Partnership and The Price REIT, Inc.
(Greensboro, N. Carolina property)
(Incorporated by reference to Exhibit 2.5 from The
Company's Current Report on Form 8-K dated April 16,
1997)
10.43 Purchase and Sale Agreement and Escrow Instructions
dated February 13, 1997 by and between Jagee Properties,
Inc. and The Price REIT, Inc., as amended by First
Amendment to Purchase and Sale Agreement and Escrow
Instructions dated March 18, 1997 (Richardson, Texas
property)
(Incorporated by reference to Exhibit 2.3 from The
Company's Current Report on Form 8-K dated April 16,
1997)
10.44 Agreement of Purchase and Sale dated February 20, 1997
by and between Madison Property I, L.P. and
Price/Baybrook, Ltd. (Garland, Texas property)
(Incorporated by reference to Exhibit 2.2 from The
Company's Current Report on Form 8-K dated April 16,
1997)
10.45 Agreement of Purchase and Sales dated February 24, 1997
by and between Oak Creek Partners, Ltd. and
Price/Baybrook, Ltd. (Dallas, Texas property)
(Incorporated by reference to Exhibit 2.4 from The
Company's Current Report on Form 8-K dated April 16,
1997)
10.46 Purchase and Sale Agreement and Joint Escrow dated
October 10, 1996 by and between The Price REIT, Inc. and
Loop One/183, Ltd. (Arboretum Crossing)
(Incorporated by reference to Exhibit 2.6 from The
Company's Current Report on Form 8-K dated April 16,
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
-------------------
A Current Report on Form 8-K dated January 15, 1997 was filed
reporting the Company's filing a Prospectus Supplement
relating to the issuance and sale of up to 1,840,000 shares of
Common Stock.
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: May 14, 1997 /Joseph K. Kornwasser/
Joseph K. Kornwasser
Chief Executive Officer,
President and Director
Date: May 14, 1997 /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, 1997, and the related condensed consolidated
statements of income and cash flows for the three-month periods ended March 31,
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
April 30, 1997
January 10, 1997
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, by the letter, dated March 22, 1996 and by the letter, dated
October 21, 1996 (as so amended, 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) Effective as of January 1, 1997, the following portion of the first
sentence of Section 2.10(a) of the Credit Agreement is hereby deleted: ";
provided, however, if in any quarter the average daily unused portion of each
Bank's Revolving Commitment is less than 50% of such Bank's Revolving
Commitment, then the commitment fee shall be three-eighths (.375%) percent per
annum for such quarter."
(2) Except as set forth above, the Credit Agreement shall continue
unmodified and remain in full force and effect.
(3) This letter may be executed in any number of counterparts, all of which
taken together shall constitute but one and the same instrument.
(4) This letter shall be governed by, and construed in accordance with, the
laws of the State of New York.
Please indicate your agreement with the foregoing by signing the enclosed
copy of this letter in the space provided below and returning it to the Agent.
Very truly yours,
MORGAN GUARANTY TRUST COMPANY,
as Agent
By: /TIMOTHY O'DONOVAN/
-------------------
Name: Timothy O'Donovan
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as a Bank
By: /TIMOTHY O'DONOVAN/
-------------------
Name: Timothy O'Donovan
Title: Vice President
WELLS FARGO BANK, N.A. as a
Bank
By: /KAY SKIDMORE/
--------------
Name: Kay Skidmore
Title: Vice President
CORESTATES BANK, N.A. as a
Bank
By: /WILLIAM J. LLOYD, JR./
-----------------------
Name: William J. Lloyd, Jr.
Title:Vice President
Accepted and Agreed to:
THE PRICE REIT, INC.
By: /GEORGE M. JEZEK/
-----------------
Name: George M. Jezek
Title: Executive Vice
President
Dated: January 16, 1997
Exhibit 12.1 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
For the Three
Months Ended Year ended December 31,
March 31, 1997 1996 1995
-----------------------------------------
Net Income $ 5,446 $16,919 $16,386
Interest 3,204 11,826 7,070
Less interest capitalized
during the period (374) (469) (415)
Amortization of deferred
loan fees and discount 195 714 284
-----------------------------------------
Earnings $ 8,471 $28,990 $23,325
=========================================
Interest 3,204 11,826 7,070
Amortization of deferred
loan fees and discount 195 714 284
-----------------------------------------
$ 3,399 $12,540 $ 7,354
=========================================
Ratio of Earnings to
Fixed Charges 2.49 2.31 3.17
=========================================
Year ended December 31,
1994 1993 1992
-----------------------------------
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
===================================
Exhibit 15.1 Letter Regarding Unaudited Interim Financial Information
May 14, 1997
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. 333-16787 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 30, 1997 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, 1997.
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
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