UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1996
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-19628
The Price REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland 52-1746059
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
7979 Ivanhoe Avenue, Suite 524, La Jolla, California 92037
(Address of principal executive offices) (Zip Code)
619-551-2320
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value New York Stock Exchange
(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At February 27, 1997, the aggregate market value of the Common Stock of The
Price REIT, Inc. held by non-affiliates was $357,105,851 based upon the
closing price of the stock on the NYSE.
Class Outstanding at February 27, 1997
Common Stock 10,670,265
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in Part III of the Annual
Report on Form 10-K: Proxy statement for the annual meeting of stockholders of
The Price REIT, Inc. to be held on May 28, 1997
The Price REIT, Inc.
1996 Annual Report on Form 10-K
Table of Contents
Part I
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Part II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Part III
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and
Management
Item 13 Certain Relationships and Related Transactions
Part IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on
Form 8-K
The Price REIT, Inc.
Part I
Item 1. Business
General
The Price REIT, Inc. (the "Company") is a self-administered and self-managed
equity real estate investment trust ("REIT") which primarily owns, develops,
and/or manages major destination retail shopping center properties (also known
as "power centers"). The Company was incorporated in 1991 as a Maryland
corporation. The formation of the Company was sponsored by The Price Company
("Price"). At the time of the Company's formation in 1991, Price operated cash
and carry membership-only merchandising warehouses in the United States and
Canada under the name "Price Club." In 1993, Price merged with Costco Wholesale
Corporation forming a new holding company, Price/Costco, Inc. ("Price/Costco").
As a result of subsequent transactions relating to Price/Costco, the Company's
current relationship with Price and Price/Costco is that of landlord/tenant
only.
The Company's initial public offering was for 73,000 shares of Series A Common
Stock ("A Shares") at $1,000 per share in December 1991. On May 29, 1992, the
stock was split 40 for 1. After the stock split, the Company had 2,928,000 A
Shares outstanding.
In August 1993, the Company consummated a public offering of 5,200,000 shares of
Series B Common Stock ("B Shares") at $32.50 per share (the "1993 Offering").
The net proceeds of the 1993 Offering were $160,042,000. Concurrent with the
1993 Offering, the Company issued an additional 15,000 B Shares at $32.50 per
share to purchase the assets utilized in the operations of its property
management company.
The A Shares and B Shares had identical voting, dissolution and liquidation
rights. The Company's charter provided that the holders of the B Shares were
entitled to receive an annualized quarterly per share distribution equal to 105%
of the annualized quarterly per share distribution on the A shares. At the
Company's annual stockholders meeting held on May 25, 1995, the stockholders
approved amending the Company's charter to change the name of "Series B Common
Stock" to "Common Stock" ("Common Stock"). Thereafter, the holders of the A
Shares had the right to convert their shares into Common Stock on a one-for-one
basis until such right was terminated by the Board of Directors.
At the Company's annual stockholders' meeting held on May 23, 1996, the
stockholders approved an amendment to the Company's charter to (i) provide that
all outstanding shares of Series A Common Stock be changed into shares of Common
Stock; (ii) eliminate the provision which entitled holders of Common Stock to
receive an annualized quarterly per share dividend equal to 105% of the
annualized quarterly per share dividend on the Series A Common Stock; (iii)
change the name of its "Series A Common Stock" to "Common Stock" and (iv) change
the name of what were formerly referred to as "Common Shares" to "Common Stock."
At such time, there were approximately 38,266 outstanding shares of Series A
Common Stock, which were converted on a one-for-one basis into shares of Common
Stock.
In September 1996, the Company issued and sold 690,000 shares of Common Stock at
a price to the public of $32.125 per share. The Company used the net proceeds of
approximately $21 million for repayment of indebtedness under the Company's $75
million unsecured line of credit ("Line of Credit") and for general corporate
purposes.
In 1994, the Company established a dividend reinvestment plan and voluntary
stock purchase plan which resulted in the issuance of approximately 37,000
shares of Common Stock during 1996 and cumulatively 167,000 shares of Common
Stock since inception. Additionally, the exercise of stock options resulted in
the issuance of 41,000 shares of Common Stock in 1996 and 69,000 shares of
Common Stock since the Company's inception.
In 1996, the Company issued an additional 768,000 shares of Common Stock as
discussed above, raising the number of total shares of Common Stock outstanding
at year end to approximately 9,069,000.
In November 1996, the Company issued $55 million aggregate principal amount of
the Company's 7.50% Senior Notes due November 5, 2006. The Company used the net
proceeds of approximately $54.3 million for repayment of indebtedness under the
Company's Line of Credit and for general corporate purposes.
On November 25, 1996, the Company filed with the Securities and Exchange
Commission ("the Commission") 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. The 1996 Shelf
Registration Statement was declared effective by the Commission on December 23,
1996.
As of December 31, 1996, the Company's total aggregate indebtedness was $184.9
million, consisting of $19.0 million of outstanding indebtedness under its Line
of Credit, $154.1 million of outstanding indebtedness with respect to its
outstanding Senior Notes and $11.8 million of outstanding mortgage notes that
are secured by one of its Properties.
As of December 31, 1996, the Company owned or had interests in twenty-four
properties consisting of twenty power centers, one stand alone retail warehouse,
one joint venture shopping center under construction and two vacant land parcels
(the "Properties") located in eight states containing a total of approximately
5.2 million square feet of gross leasable space with 314 tenants. The overall
occupancy rate of the Properties was 97.8% at December 31, 1996.
Power centers are typically open-air centers ranging in size from 200,000 to
700,000 square feet of gross leasable area, and are usually comprised of one or
more national retail anchors, often in a warehouse format. Anchor retail
tenants typically occupy between 60% and 90% of the total square footage in a
power center. The tenant mix in a power center is designed to draw consumers
from up to a 15-mile radius, creating a shopping "destination." The majority of
the Company's anchor tenants are retail warehouses, which are consumer-oriented
facilities with at least 25,000 to 100,000 square feet of gross leasable area
offering a variety of products for business use, personal use or resale. The
retail warehouse format of merchandise display, direct manufacturer purchasing,
low mark-ups and rapid inventory turnover is designed to provide substantial
consumer savings compared to other sources of similar merchandise.
Each of the Company's power centers is anchored by one or more national retail
tenants such as Home Depot, Price Club, HomeBase, The Sports Authority,
Burlington Coat Factory, Target, Builder's Square, Toys `R' Us, or Sears
Homelife. The Company typically seeks to structure tenant leases as "triple
net" leases, under the terms of which the tenant is responsible for its pro rata
share of costs and expenses associated with the ongoing operation of the
property, including but not limited to real property taxes and assessments,
repairs and maintenance and insurance. The anchor tenants generally have
primary lease terms of ten to twenty years and smaller tenants typically have
primary lease terms of five to ten years. The Company's leases generally
provide for contractual rent increases over the life of the lease based on a
fixed amount or consumer price indices, and/or percentage rent, calculated as a
percentage of a tenant's gross sales above a predetermined threshold.
The Company's strategy is to continue to acquire, develop, own and manage power
centers and large community centers anchored by national retail tenants who
enter into long term triple net leases. The Company's business objective is to
increase its funds from operations through the acquisition and development of
additional properties, contractual rent increases and percentage rent, reletting
of existing space at higher rents and expansion or remodeling of existing
properties.
The Company intends to pursue opportunities for acquisitions with expansion
potential and to develop additional power centers, community centers and stand-
alone retail warehouses. The Company had conducted its development activities,
including site planning, construction management and leasing, through its
affiliate, K & F Development Company (the "Development Company"), a property
development company which, through its predecessors, had over 20 years of
experience in developing shopping centers and other properties. Effective
January 1, 1997, the Company acquired the assets and assumed the liabilities of
the Development Company.
Properties
As of December 31, 1996, the Company owned or had interests in twenty-four
Properties, consisting of twenty power centers, one stand-alone retail
warehouse, one joint venture shopping center under construction and two vacant
land parcels for future development. The Properties have approximately 5,188,000
square feet of gross leasable area with 314 tenants with an overall occupancy
rate of 97.8% at December 31, 1996. Fourteen of the Properties have a Home
Depot or Price/Costco warehouse or both located on them which are leased from
the Company. Home Depot and Price/Costco account for 19.7% and 11.1%,
respectively, of annualized contract base rental income as of December 31, 1996.
The power centers are typically leased to tenants under noncancelable leases
with remaining terms of one to twenty-five years and are triple net leases with
few exceptions. Most of the leases also provide for future rent increases by
automatic fixed rate increases or increases based on consumer price indices.
Additionally, certain of the leases contain provisions for percentage
participation in retail sales of the tenant in excess of a minimum amount. Home
Depot accounts for greater than 10% of the total rents in nine properties, and
Price/Costco accounts for greater than 10% of the total rents in seven
properties.
The power centers were approximately 97.8% leased at December 31, 1996.
Although adverse market conditions impacted the retail industry from 1992
through 1996, the Company's shopping centers generally contain major national
and regional tenants which feature quality consumer items with value pricing
that generally perform well in most economic environments.
The following schedule lists the real estate investment portfolio of the Company
as of December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<C>
Gross Annualized
Land Leasable Base Selected
Year Area Area(Sq.Ft.) No. of Percent Rent (2) Major
Location Completed(1) (Acres) (Thousands) Tenants Leased (Thousands) Tenants
- -------------------- ------------ ------- ------------ ------- ------- ----------- -----------------------
POWER CENTERS
Alhambra, CA 1988 18.4 201 10 100.0% $2,103 Price Club
Levitz
Carmichael, CA 1994 18.5 215 13 98.0% 2,226 Home Depot
The Sports Authority
Longs Drugs
Cerritos, CA 1987 16.3 172 12 98.3% 1,803 Home Depot
AMC Theatres
L.A. Fitness
Chula Vista, CA 1988 31.3 363 20 99.6% 2,635 Price Club
HomeBase
Levitz
Copiague, NY 1990 24.6 246 8 83.2% 2,325 Home Depot
Office Max
Jack LaLanne (Bally's)
Corona, CA 1989 54.4 487 49 99.0% 5,186 Price Club
Home Depot
Levitz
Office Max
Ross
Bally's Holiday Spa
Dallas, TX 1992 15.0 210 8 100.0% 1,480 Sears Homelife
Best Buy
General Cinema
PETsMART
Fairfax, VA 1993 37.0 323 6 100.0% 3,713 Price Club
Home Depot
The Sports Authority
Computer City
Glendale, AZ 1989 40.5 340 22 100.0% 3,134 Costco
HomeBase
Levitz
Glendale, AZ (3) 1995 6.0 42 5 100.0% 330 Sears Homelife
(Talavi) Michaels
Houston, TX 1993 40.0 426 17 100.0% 2,704 Sears Homelife
Oshmans Super Sport
Best Buy
Bed, Bath & Beyond
Stein Mart
Builder's Square
Sony Theatres
La Mirada, CA 1993 31.2 279 46 94.6% 3,295 Toys `R' Us
Sav-On Drugs
L.A. Fitness
Krikorian Theatres
U.S. Post Office
North Haven, CT 1988 31.7 332 19 100.0% 2,786 Price Club
Home Depot
Xpect Drug
T.J. Maxx
North Phoenix, AZ 1996 17.0 180 7 100.0% 1,170 Burlington Coat Factory
Computer City
Staples
Petco
Oklahoma City, OK 1994 19.8 234 10 93.0% 1,742 Home Depot
Best Buy
HomePlace
Oxnard, CA 1990 14.4 172 4 100.0% 1,073 Target
Ralphs (Food 4 Less)
24 Hour Fitness
Phoenix, AZ 1989 26.6 335 11 96.9% 2,117 Costco
HomeBase
PETsMART
Phoenix, AZ (3) 1973 6.7 95 13 91.6% 382 Home Depot
(Hayden Plaza North) Stool & Dinette
Autozone
Tempe, AZ (3) 1994 21.1 192 26 96.8% 2,092 HomeBase
The Sports Authority
L.A. Fitness
PETsMART
Staples
White Marsh, MD 1991 25.3 210 7 99.0% 1,334 Price Club
The Sports Authority
Pep Boys
PETsMART
STAND ALONE RETAIL
WAREHOUSE
Santa Ana, CA 1995 12.0 134 1 100.0% 1,765 Home Depot
POWER CENTER UNDER
CONSTRUCTION
Long Island, NY (5) n/a 17.9 n/a n/a n/a n/a The Sports Authority
Borders
King Kullen
Babies `R' Us
HomePlace
VACANT LAND FOR
DEVELOPMENT
Goodyear, AZ (3) n/a 20.0 n/a n/a n/a n/a n/a
Houston, TX (4) n/a 9.7 n/a n/a n/a n/a n/a
------- ------------ ------- ------- -----------
Total/Average 555.4 5,188 314 97.8% $45,395
======= ============ ======= ======= ===========
</TABLE>
(1) Represents the year in which the property was completed or the year in
which the most significant expansion or renovation was completed, which in
certain instances precedes the date the property was acquired by the Company.
(2) Total annualized contract base rents excluding (i)percentage rents, (ii)
additional rent payable by tenants such as common area maintenance, real estate
taxes and other expense reimbursements, and (iii) future contractual rent
escalations or cost of living increases.
(3) Reflects the Company's 50% proportionate ownership interest in the above
properties, except for the number of tenants (if applicable) which is shown at
100%.
(4) This vacant land is adjacent and contiguous to the Company's center located
in Houston, Texas.
(5) Reflects the Company's approximate 80% proportionate interest in this
property. Selected major tenants include certain signed leases.
Each of the properties listed above, except Glendale-Talavi (Arizona), Houston
(Texas), La Mirada (California), Dallas (Texas), North Phoenix (Arizona),
Oklahoma City (Oklahoma), Oxnard (California), Phoenix-Hayden Plaza North
(Arizona), Long Island (New York) and Goodyear (Arizona), was acquired from The
Price Company, the predecessor to Price/Costco, Inc.
The Price Company indemnified the Company, with the exception of the Company's
50% interest in the Tempe, Arizona property, with respect to the presence of any
hazardous material (as defined under various environmental laws) on properties
sold by The Price Company to the Company if such hazardous materials were
present on the date of sale. The indemnity covers any loss, liability, claim or
expense, including, without limitation, removal, cleanup, engineering and
attorneys' fees and expenses incurred due to the presence of hazardous materials
or by reason of any investigation or claim of any governmental agency in
connection with such hazardous material. Management obtained preliminary
environmental reports for each of the properties acquired from The Price
Company. Based on these reports and The Price Company's indemnity, management
does not anticipate any significant environmental liability at any of these
properties. The Company is not aware of any environmental issues with respect
to these properties which would require a material expenditure by the Company
regardless of whether the Company might ultimately be indemnified by The Price
Company. Nevertheless, it is possible that there are environmental liabilities
as to which the Company is unaware.
From late 1994 through 1996, the Company acquired the North Phoenix, Arizona;
Houston, Texas; La Mirada, California; Oxnard, California; Glendale (Talavi),
Arizona; Goodyear, Arizona; Phoenix (Hayden Plaza North), Arizona; Dallas, Texas
and Oklahoma City, Oklahoma properties from various unrelated owners. All of
these acquired properties had phase one environmental reports performed on them
as well as various testing and due diligence to detect any environmental issues.
The Oxnard, California property had some groundwater contamination issues with
respect to an adjacent parcel owned by the sellers which was not included in the
acquisition. The sellers of the property have indemnified the Company for a
period of seven years from the closing date for any environmental claim to the
extent such event or condition occurred or existed on or before the closing
date. The Goodyear, Arizona property was formerly an agricultural site. The
seller has indemnified the Company against any environmental claim or the
presence of any hazardous material to the extent such event or condition
occurred or existed on or before the closing date. The Company is not aware of
any environmental issues with respect to these properties which would require a
material expenditure by the Company regardless of whether the Company might
ultimately be indemnified by the applicable seller. Nevertheless, it is possible
that there are environmental liabilities as to which the Company is unaware.
The Corona, California shopping center is the only property that accounted for
10% or more of the Company's total revenue and/or total assets at December 31,
1996.
Corona Hills Price Club Plaza; Corona, California
The Corona, California property represented 10.37% of the Company's total assets
and 11.55% of the total revenue for the year ended December 31, 1996. The
Corona, California property is located approximately 45 miles southeast of
downtown Los Angeles and contains approximately 487,000 square feet of leasable
area on a 54.4 acre site. The property is owned 100% in fee and is not
encumbered by any debt as of December 31, 1996. The site was developed by
previous owners between 1988 and 1992. The Company acquired the property in
April 1992. The center consists of 14 single-story buildings. As of December
31, 1996, this center had 50 tenant spaces, 49 of which were leased, resulting
in 99.0% occupancy based on square footage. As of December 31, 1996, annual
contract base rents ranged from $3.36 to $56.88 per square foot with the higher
rentals attributable to smaller tenants. The average square foot rental rate
was $10.61 per year. Since its acquisition, the property had the following
operating results.
For The Average Rental
Year Ended Per Square Foot Occupancy
----------- ----------------- ----------
1992 $ 8.95 94.0%
1993 9.94 97.1
1994 9.45 93.7
1995 9.98 98.8
1996 10.61 99.0
As of December 31, 1996, the property had two tenants which occupied more than
10% of the total space.
Tenant
------
PRICE CLUB HOME DEPOT
Nature of Business Discount warehouse Home improvement
center
Square Footage 114,112 100,000
Lease Term 15 years 20 years
Start Date 5/01/1992 11/20/1989
Expiration Date 4/30/2007 01/31/2010
Square Feet (% of total) 23% 21%
Annual Rent $384,800 $825,000
Future Rent Increases Fixed increase Fixed increase
every year every 5 years
Renewal Options Seven 5 years Four 5 years
The following table shows the expiration schedule of leases in effect at
December 31, 1996.
No. of Net Rentable
Leases Sq. Ft. Annualized % of
Year Expiring (In Thousands) Base Rent Total Rent
----- -------- -------------- ---------- ------------
1997 3 6,504 $ 101,706 1.97%
1998 5 10,125 173,838 3.36
1999 3 9,080 138,048 2.67
2000 11 43,005 590,523 11.42
2001 10 30,049 507,928 9.82
2002 1 4,500 67,500 1.30
2003 1 11,734 138,138 2.67
2004 1 5,000 103,500 2.00
2005 1 4,275 68,400 1.32
2006+ 13 358,562 3,296,363 63.47
In the opinion of management, the Corona Hills Property is adequately covered by
insurance.
Real estate taxes for 1996 were at a rate of approximately 1.92% of assessed
value, or approximately $844,000, most of which is reimbursed under tenant
leases.
The Property is located at the northwest corner of the Riverside (91) Freeway at
McKinley Boulevard. Corona Hills Price Club Plaza is the largest retail center
in a sub-market which has demonstrated strong population growth in recent years.
Recent and pending acquisitions
On January 16, 1997 the Company completed the acquisition of Westgate Market in
Wichita, Kansas. Westgate Market contains approximately 134,000 rentable square
feet and is anchored by Best Buy, T.J. Maxx and Michael's and was approximately
96% leased as of December 31, 1996. The purchase price was approximately $9.8
million. The Company financed this acquisition entirely with borrowings under
its Line of Credit.
The Company has entered into a contract to purchase Arboretum Crossing (Phase I)
in Austin, Texas. Arboretum Crossing (Phase I) contains approximately 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 December 31, 1996. The purchase price is
approximately $23.3 million. Because the Company's obligation to consummate the
purchase is contingent upon the completion of due diligence, no assurance can be
given that the acquisition will occur.
In May 1995, the Development Company entered into a joint venture ("Smithtown
Venture") with King Kullen Grocery Co., Inc. ("King Kullen"), a major Long
Island, New York grocery chain, to develop a power center in the Commack area of
Long Island, New York. The Development Company held an ownership interest of
approximately 80% in the joint venture and King Kullen holds the remaining
interest of approximately 20%. The property is subject to a 49 year ground lease
with four ten year renewal options.
On October 2, 1996, the Company purchased the Development Company's approximate
80% ownership interest in the Smithtown Venture. The Company paid the
Development Company the sum of $250,000 pursuant to the purchase agreement. The
construction, estimated to cost approximately $23 million, commenced in the
summer of 1996. It is anticipated that the power center will contain an
aggregate of 270,000 leasable square feet of space. The shopping center is
scheduled to open by summer 1997. Based on executed leases, the 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 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 December 31, 1996, the Company has cumulatively funded
$6,829,000 for its share of the Smithtown Venture construction costs to date.
Property Management
The Company entered into an agreement concurrently with the 1993 Offering to
acquire the property management business of its property manager, K&F Commercial
Properties ("K&F"). In August 1993, the two principals of K&F, Mr. Joseph
Kornwasser and Mr. Jerald Friedman, became executive officers of the Company.
Sol Price, the Company's former Chairman of the Board of Directors, resigned as
President and Chief Executive Officer in August 1993. Mr. Kornwasser became
President, Chief Executive Officer and a Director of the Company, and Mr.
Friedman became Senior Executive Vice President and Chief Operating Officer of
the Company. In March 1994, Mr. Friedman resigned his positions at the Company
and became Chairman of the Board of Directors and Chief Executive Officer of the
Development Company. Effective January 1997, the Company acquired the assets
and assumed the liabilities of the Development Company. In connection with this
transaction, Mr. Friedman was reinstated as the Company's Senior Executive Vice
President and Chief Operating Officer, and certain other Development Company
officers were elected to serve as executive officers of the Company.
The Company's property management division conducts all in-house property
management services, including leasing, for the Company's Properties and certain
other properties. The Company managed various properties held by Price
Enterprises, Inc. for a fee of 3.5% of the fixed rents received with certain
exceptions. As of January 1, 1997, the Company ceased management services for
the Price Enterprises, Inc. properties. The Company also manages certain
properties held by Messrs. Kornwasser and Friedman and unrelated entities under
a comparable fee arrangement.
Development Company
Effective 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.
Operating Strategy
The Company operates in a manner intended to qualify as a REIT under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code").
The Company's strategy is to acquire, develop, own and manage power centers
anchored by national retail warehouse tenants such as Home Depot, Price Club,
HomeBase, The Sports Authority or Target. These tenants typically enter into
long-term (ten to twenty years) triple net leases which provide for contractual
rent increases and/or percentage rents. In addition, the Company seeks, through
intensive management of its properties, to continually improve the mix and
quality of smaller tenants which generally enter into shorter-term (five to ten
years) triple net leases which also provide for contractual rent increases
and/or percentage rents. The Company's business objective is to continue to
increase its funds from operations and the value of its properties through the
acquisition of additional properties, contractual rent increases and/or
percentage rents, reletting of existing space at higher rents and expansion or
remodeling of existing properties. The Company generally intends to hold its
properties for long-term investment. However, the Company may dispose of a
property if it deems such disposition to be advantageous.
The Company intends to aggressively pursue opportunities for acquisitions with
expansion potential or develop additional power centers, large community centers
and stand-alone retail warehouses. The Company believes that under current
economic and financial conditions excellent opportunities continue to exist for
buyers and developers of shopping centers who have access to capital. This
belief is based upon several factors including the shortage of financing for
shopping center development from traditional sources and the fact that many
developers and lending institutions are being forced to liquidate their real
estate holdings. There can be no assurance, however, that acquisition or
development opportunities consistent with the Company's strategy will be
available to the Company, or, if available, will be available on terms favorable
to the Company.
While the Company will continue to focus primarily on acquisitions of developed
properties it may, from time to time, renovate and expand its properties and
pursue selected development opportunities.
The Company's geographic focus has been on metropolitan areas in the
southwestern and eastern United States. Through its Chicago office, the Company
is currently pursuing acquisition and development opportunities in the midwest
United States. As the Company seeks acquisition opportunities, it will focus on
metropolitan areas throughout the country.
Price Enterprises Relationship
In December 1993, The Price Company and Costco Wholesale Corporation ("Costco")
were combined into a new corporation called Price/Costco, Inc. ("Price/Costco").
Following the merger, certain basic philosophical differences developed between
former executives of The Price Company and Costco. Subsequently, in December
1994, Price/Costco completed a spin-off, through a stock exchange offer, of
certain real estate and other assets into a new company called Price
Enterprises, Inc. ("Enterprises"). Mr. Price, founder of The Price Company and
former Chairman of the Board of the Company, is a significant shareholder of
Enterprises. Mr. Price also beneficially owns approximately 6.4% of the shares
outstanding of the Common Stock of the Company. Mr. Price, the former Chairman
of the Board, did not stand for reelection to the board in 1995.
The Company performed property management services for certain properties owned
by Enterprises for a fee of 3.5% of the fixed rent received, with certain
exceptions. The Company also provided certain real estate consulting services to
Enterprises for a fee. In addition, the Development Company performed certain
development and leasing services for Enterprises.
On September 1, 1996, the Company ceased performing management services for four
Enterprises' shopping centers located in California and Arizona. On January 1,
1997, the Company ceased performing management services for the six remaining
Enterprises' shopping centers located in the northeast United States.
In the past a number of properties have been acquired by the Company from The
Price Company or its successor, Price/Costco. Currently there are no
understandings or agreements to purchase or sell properties between the Company
and Enterprises, which has succeeded in ownership to many of the properties
previously owned by Price/Costco.
Management and Employees
The Company is self-administered and self-managed real estate investment trust.
The Company's Board of Directors and executive officers are responsible for
providing a continuing investment program. The Company had 42 employees as of
December 31, 1996. In conjunction with the acquisition of the Development
Company at January 1, 1997, the Company added 10 former employees of the
Development Company.
Item 2. Properties
Information concerning property owned by the Company may be found under Item 1.
Business.
Item 3. Legal Proceedings
Neither the Company nor its Properties was a party to any material legal
proceedings during the period covered by this report.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, no matters were submitted for a vote of
stockholders.
Part II
Item 5. Market for the Registrant's Common Stock & Related Stockholder Matters
The Company's shares of Common Stock are currently traded on the New York Stock
Exchange ("NYSE") under the symbol "RET." Information concerning Series A
Common Stock may be found under the "General" section of Item 1. Business. At
March 15, 1997, the Company had approximately 7,000 stockholders of its Common
Stock.
The high and low composite closing sales prices on the NYSE for the Company's
Common Stock for each full quarterly period from January 1, 1995 through
December 31, 1996, and the amount of dividends paid for the Common Stock and
Series A Common Stock are as follows:
Market Quotations Cash
Common Stock Series A Dividends Paid
------------ ------------ --------------
Common Series
Quarter Ended High Low High Low Stock A
----- ----- ----- ----- ----- -----
March 31, 1995 30.75 28.25 * * .6600 .6286
June 30, 1995 30.25 27.63 * * .6600 .6286
September 30, 1995 32.25 29.38 * * .6700 .6381
December 31, 1995 31.00 27.75 * * .6800 .6476
March 31, 1996 31.13 28.50 * * .7000 .6667
June 30, 1996 32.38 28.75 n/a n/a .7000 n/a
September 30, 1996 32.63 31.00 n/a n/a .7000 n/a
December 31, 1996 38.50 31.63 n/a n/a .7000 n/a
* During these periods, the A shares were not traded on any exchange and had
limited trading volume. Consequently, stock price data is difficult to determine
and may not be meaningful.
The Company has paid quarterly dividends since its initial offering in December
1991 and intends to pay regular quarterly dividends in the future. There are
currently no restrictions on the Company's present or future ability to pay such
dividends. Dividends will be paid based on the Company's cash flow which, due
primarily to depreciation, exceeds net income.
Under provisions of the Code, the portion of cash dividends that exceeds
earnings and profits is a return of capital. The return of capital is generated
due to the deduction of noncash expenses, primarily depreciation, in the
determination of earnings and profits. The status of the cash dividends
distributed for the years ended December 31, 1996, 1995 and 1994 for tax
purposes is as follows:
1996 1995 1994
---- ---- ----
Taxable portion 78.36% 82.00% 86.92%
Return of capital 21.64% 18.00% 13.08%
------- ------- -------
100.00% 100.00% 100.00%
======= ======= =======
Item 6. Selected Financial Data
The following income and expense items are for the years ended December 31,
1996, 1995, 1994, 1993 and 1992.
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Rental income 51,292 40,152 37,599 27,332 18,659
Income from rental
operations 29,507 23,289 21,850 15,886 10,862
Net income 16,919 16,386 16,904 9,128 4,118
Total assets 428,071 382,478 312,419 292,195 190,010
Unsecured debt 173,114 155,082 84,000 65,000 40,000
Mortgage debt 11,794 2,750 2,750 -- 36,980
Cash dividends paid 24,336 22,038 20,859 12,128 6,610
Cash dividends paid
per share
Common Stock 2.80 2.67 2.56 0.97 --
Series A Common Stock 0.67 2.54 2.44 2.38 2.26
For more detailed financial information, see part IV Item 14.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company's objectives are to own a portfolio of income-producing real estate
properties that will provide cash for quarterly dividends to stockholders while
protecting investor capital and providing potential for long-term appreciation.
To meet these objectives, the Company primarily invests in stabilized retail
properties having strong credit tenants and historical cash flow trends
sufficient to meet the Company's dividend objectives.
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.
General
During 1995 and 1996, the Company acquired a number of properties.
On November 17, 1995, the Company acquired a 426,097 square foot shopping center
located in Webster, Texas (Houston area) for $25.7 million. The Company financed
this acquisition with borrowings of $18 million under its $75 million unsecured
line of credit ("Line of Credit") and $7.7 million of operating cash.
On December 27, 1995, the Company acquired a 278,825 square foot shopping center
located in La Mirada, California for $25.8 million. The Company financed this
acquisition entirely with borrowings under its Line of Credit.
On December 28, 1995, Centrepoint Associates (the "Joint Venture"), a
partnership in which the Company owns a 50% interest, acquired from Suncor
Development ("Suncor") an 85,000 square foot existing shopping center in
Glendale (Talavi), Arizona and a parcel of vacant land for future development in
Goodyear, Arizona.
The Joint Venture's combined cost of these two acquisitions totaling
approximately $11 million was financed by the proceeds of a $10.5 million
secured credit line obtained from Wells Fargo Bank ("Wells Fargo Line") and
capital contributions of approximately $210,000 from the Company and $210,000
from Suncor. The operations of the Joint Venture are accounted for under the
equity method of accounting.
On December 2, 1996, the Joint Venture entered into an agreement to purchase
additional shopping space, in the Talavi Towne Center, Arizona. The additional
shopping space is approximately 25,000 square feet and is approximately 97%
leased. The purchase price is approximately $3 million. The Joint Venture is
expected to complete the acquisition in March 1997.
On December 29, 1995, the Company acquired a 171,850 square foot shopping center
located in Oxnard, California for $10.3 million. The Company financed this
acquisition with borrowings of $7 million under its Line of Credit and $3.3
million of operating cash.
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.
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 15-acre shopping center in Mesquite, Texas
(Dallas area) at a combined cost of approximately $12.7 million. The Company
financed this acquisition entirely with borrowings under its Line of Credit.
On November 20, 1996, the Company completed the acquisition of Centennial Plaza
shopping center in Oklahoma City, Oklahoma. Centennial Plaza contains
approximately 234,000 rentable square feet and is anchored by Home Depot, Best
Buy and HomePlace and was approximately 93% leased. The purchase price was
approximately $16.7 million, of which approximately $11.8 million is evidenced
by two non-recourse loans (subject to customary exceptions) secured by the
property. The Company assumed the loans, rather than paying the purchase price
in cash, because the terms of the loans prohibit prepayment. The loans bear
interest at 9.0% and 9.25% per annum, respectively, and will mature on June 1,
2013 and December 1, 2014, respectively. The balance of the purchase price was
financed with $4.9 million of operating cash.
During 1996, the Company completed the retenanting and expansion of a number of
its properties. The major activities included redevelopment of the Corona,
California center by the addition of an Office Max store and the redevelopment
and expansion of the North Phoenix, Arizona center by the addition of a Petco
store. Capital expenditures relating to these two properties during 1996 were
approximately $1.6 million.
Results of Operations
Comparison of the year ended December 31, 1996 to the year ended December 31,
1995
Rental revenue increased from $40,152,000 in 1995 to $51,292,000 in 1996. An
increase of $650,000 was attributable to a lease buyout settlement from the
Copiague property in December 1996. An additional increase of $10,268,000 was
attributable to new rental revenue from properties acquired during 1996 and in
the last quarter of 1995. The remaining $222,000 increase was due to additional
rents generated from the expansion of existing properties, higher occupancy
rates in certain properties, contractual base rent increases tied to Consumer
Price Indices ("CPI") and common area maintenance reimbursements for properties
which were owned by the Company during all of 1995 and 1996. During the next
ten years, scheduled lease expirations average less than 4% per year (on the
basis of revenues) and do not exceed 8.5% in any one year. There can be no
assurance, however, that local economic conditions will not adversely affect the
Company's revenues or that the Company's tenants will make timely payments under
the leases.
Management fee income from third party contracts increased from $1,042,000 in
1995 to $1,085,000 in 1996. The increase was due to higher fees generated from
the Company's management of other properties owned by third parties. The
management fee income that the Company realizes is affected by the rental
revenues received from the properties it manages. As such rental revenues
increase, management fees are also expected to increase.
On September 1, 1996, the Company ceased management services for four Price
Enterprises, Inc. ("Enterprises") shopping centers located in California and
Arizona. On January 1, 1997, the Company ceased management services for the six
remaining Enterprises' shopping centers located in the northeast United States.
This will result in a significant reduction in the Company's future third party
management fee income. The Company expects that this reduction should be
partially offset by a reduction in related operating expenses. Total third party
management fee income accounted for approximately 2% of the Company's total
revenues for the year ended December 31, 1996. 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 year ended December 31, 1996
reflects the Company's share of earnings from the Centrepoint Associates and
Hayden Plaza joint ventures in each of which it holds a 50% general partnership
interest. The equity in earnings of joint venture amount increased from
$1,456,000 for the year ended December 31, 1995 to $1,556,000 for the same
period in 1996. An increase of $354,000 was attributable to the newly formed
Hayden Plaza joint venture in 1996 and the Talavi property that Centrepoint
Associates acquired in December 1995. This increase was partially offset by a
decrease in earnings from Centrepoint partnership due to the applicable interest
expense incurred on borrowings used to finance the acquisition, and depreciation
and amortization expense included in the current year as the result of the new
acquisition discussed above.
Rental operating expenses consisting of common area maintenance and real estate
taxes have increased from $7,177,000 for the year ended December 31, 1995 to
$9,909,000 for the same period in 1996. Approximately $2,635,000 of this
increase was attributable to properties acquired in the fourth quarter of 1995
and during 1996. The remainder of the increase was attributable to slightly
higher operating costs.
Depreciation expense increased from $9,686,000 for the year ended December 31,
1995 to $11,876,000 for the same period in 1996. Approximately $1,735,000 of the
increase was attributable to the properties acquired in the fourth quarter of
1995 and during 1996. The remainder of the increase was the result of additional
depreciation on new construction on existing properties.
Interest expense increased from $6,939,000 for the year ended December 31, 1995
to $12,071,000 for the same period in 1996. This increase was mainly
attributable to the Company's average outstanding indebtedness during the year
ended December 31, 1996 which was approximately $59 million greater than the
average amount of outstanding indebtedness during the same period in 1995.
During 1996 and the fourth quarter 1995, the Company increased its outstanding
indebtedness in order to finance the majority of the Company's acquisitions and
certain ongoing construction and development projects. Additionally, the
issuance of the $100 million and $55 million Senior Notes due in November 2000
and 2006, respectively, were at a slightly higher fixed rate of interest than
the short term variable rate debt under the Company's Line of Credit. This
significantly reduced the Company's future exposure to rising interest rates.
The remainder of the increased interest expense was attributable to the
amortization of the note discount and other costs of the issuance in November
1995 and November 1996 of the Company's Senior Notes which are reflected as
interest expense.
Comparison of the year ended December 31, 1995 to the year ended December 31,
1994
Rental revenue increased from $37,599,000 in 1994 to $40,152,000 in 1995. An
increase of $966,000 was attributable to the result of one full year of rental
revenue from the North Phoenix property acquired in December 1994. An additional
increase of $429,000 was attributable to new rental revenue from properties
acquired in the last quarter of 1995. The remaining $1,158,000 increase was due
to additional rents generated from retenanting and expansion of existing
properties and higher occupancy rates and base rent increases and common area
maintenance reimbursements for the twelve properties which were owned by the
Company during all of 1994 and 1995.
Management fee income from third party contracts increased from $789,000 in 1994
to $1,042,000 in 1995. Approximately $146,000 of this increase was due to one
full year of management fees collected during 1995 from a new shopping center in
Arlington, Virginia that the Company managed for Enterprises. The remainder of
the increase was due to fees generated from the Company's management of
Enterprises' existing shopping centers and certain other properties owned by
third parties. During 1994 and 1995, several additional tenants were added to
Enterprises' properties which in turn generated additional management fee income
for the Company.
Equity in earnings of joint venture for the year ended December 31, 1995
reflects the Company's share of earnings from the Tempe, Arizona joint venture
in which it holds a 50% general partnership interest. The Company acquired this
interest on April 15, 1994. The equity in earnings of joint venture amount
increased from $584,000 in 1994 to $1,456,000 in 1995 due to additional rental
income the joint venture generated from the completion of construction of Phase
II of the project in December 1994 as well as the inclusion in 1995 of a full
year of income as compared to inclusion in 1994 of a partial year of income.
Rental operating expenses consisting of common area maintenance and real estate
taxes have increased from $6,584,000 in 1994 to $7,177,000 in 1995.
Approximately $82,000 of this increase was attributable to properties acquired
in the fourth quarter of 1995. Approximately $97,000 of this increase was due to
property taxes on the North Phoenix property acquired in December 1994. The
remainder of the increase is attributable to higher property tax assessments due
to new construction and increased amounts set by taxing authorities and to the
slightly increased operating expenses of existing properties.
Depreciation expense increased from $9,165,000 in 1994 to $9,686,000 in 1995.
Approximately $275,000 of the increase was attributable to the North Phoenix
property acquired in December 1994. Also, approximately $84,000 of the increase
was attributable to the Houston property which was acquired in November 1995.
The remainder of the increase was the result of additional depreciation on new
construction on existing properties that was completed in 1995.
Interest expense increased from $4,085,000 in 1994 to $6,939,000 in 1995.
Approximately $1,282,000 of this increase was attributable to the $100 million
of Senior Notes that the Company issued in a public offering that was completed
in November 1995. The remaining increase was due to additional indebtedness
that was incurred to purchase the North Phoenix property in December 1994 and
the Houston, La Mirada and Oxnard properties in the fourth quarter of 1995 and
to fund ongoing construction for various properties during 1995.
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, commencing with its taxable year
ended December 31, 1991. REITs are subject to a number of organizational and
operational requirements, including a requirement that the Company must
distribute at least 95 percent of its taxable income.
The Company paid dividends in the aggregate amount of $24,336,000 during the
year ended December 31, 1996, of which $908,000 was reinvested into Common Stock
by stockholders pursuant to the Company's dividend reinvestment plan.
On August 15, 1995, the Company filed a shelf registration statement (the "1995
Shelf Registration Statement") with the Securities and Exchange Commission for
up to $175 million of debt securities, preferred stock, common stock and
warrants.
On November 1, 1995, the Company completed an underwritten public offering (the
"1995 Offering") of $100 million aggregate principal amount of the Company's
Senior Notes due November 1, 2000 at an interest rate of 7.25% pursuant to the
1995 Shelf Registration Statement. The 7.25% Senior Notes were priced at an
aggregate of $99,050,000. The Company used $91,000,000 of the net proceeds from
the 1995 Offering to repay indebtedness then outstanding under the Company's
Line of Credit and the remaining net proceeds were used for general corporate
purposes.
On November 1, 1995, the Company modified its Line of Credit, substituting one
of the three banks in the original lending group with Morgan Guaranty Trust
Company of New York as lead agent. Concurrently with completion of the 1995
Offering and the repayment of the Line of Credit, certain other modifications
were made to the Line of Credit including, among others, (i) incorporation of
certain additional financial covenants and conditions into the loan agreement
and documentation, (ii) a reduction of the initial borrowing capacity from $100
million to $75 million, (iii) a modification of the interest rate payable on
borrowings outstanding to LIBOR plus 1.4% and (iv) an extension of the initial
maturity to October 1997, with an option to extend for an additional year upon
satisfaction of certain conditions.
The Line of Credit agreement requires the Company to maintain certain minimum
net operating income and net worth levels, as defined in the agreement, and
provides that the Company will not pay dividends in excess of 95% of its annual
net income plus depreciation. The Company is required to pay a commitment fee
ranging from .25% to .375% per annum of the unused portion of the Line of
Credit. Effective January 1, 1997, the commitment fee was reduced to .25% per
annum of the unused portion of the Line of Credit.
The Company typically funds short-term financing for its acquisition and
development activities through the Line of Credit. On July 2, 1996, the Company
borrowed $13 million to fund the acquisition of the Mesquite, Texas property. On
September 13, 1996, the Company used most of the net proceeds from the sale of
Common Stock (described below) to repay $18 million of indebtedness under the
Line of Credit. On October 31, 1996, the Company borrowed $1 million to fund its
50% share of the construction costs of the Long Island, New York property. On
November 7, 1996, the Company used most of the net proceeds from the sale of
Senior Notes due November 2006 to repay $50 million of indebtedness under the
Line of Credit. On December 30, 1996, the Company borrowed an additional $16
million to purchase the Wichita, Kansas property which was completed on January
16, 1997 and to replenish operating funds. At December 31, 1996, the outstanding
balance of the borrowing under the Line of Credit was $19 million.
Interest on the outstanding balance is payable periodically, but at least
quarterly. On October 23, 1996 the interest rate margin on the Line of Credit
was reduced from 1.4% to 1.25%. Capitalized interest costs for the year ended
December 31, 1996 were approximately $469,000.
On September 9, 1996, the Company issued and sold 690,000 shares of Common Stock
(the "Equity Offering") at a price to the public of $32.125 per share. The
Company used the net proceeds of approximately $21 million for repayment of
indebtedness under the Company's Line of Credit and for general corporate
purposes.
On October 18, 1996, Moody's Investors Service, Inc. upgraded its rating of the
Company's senior debt to "Baa3" from "Ba1." According to Moody's, the rating
action primarily reflects the improvements that the Company has made to
its property base and geographic and tenant concentration.
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 aggregate principal is due.
After the repayment of indebtedness under the Company's Line of Credit with the
net proceeds of the 1996 Offering, the Company expects to borrow under the Line
of Credit to fund its future acquisition and development activities.
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 15, 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 approximately $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 approximately $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.
In an effort to strengthen its balance sheet to support future growth, the
Company sold an aggregate of 2,290,000 shares of Common Stock in September 1996
and January 1997 and $55 million principal amount of its 7.50% Senior Notes in
November 1996. As a result of these issuances, the Company believes that it is
well-positioned for future growth, and that it has minimized its potential
exposure to high levels of variable rate debt and provided a favorable capital
structure for the Company. The combined effect of such issuances with the
discontinuation of fee based management services for Price Enterprises, however,
is expected to negatively impact its short term earnings and funds from
operations on a per share basis. Because future earnings are subject to many
variables beyond the Company's control, such as the Company's timing of
completion of its acquisitions and development projects, the Company is not able
to quantify the effect of such events on its future results.
The information in the immediately two preceding paragraphs are 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 recommended 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 NAREIT.
The following table sets forth the Company's calculation of FFO for the three
months and twelve months ended December 31, 1996 based on the new NAREIT
definition. The table also sets forth the calculation of FFO for the same
periods of 1995, which has been modified to conform to the new NAREIT
definition.
Three months ended Twelve months ended
December 31, December 31,
1996 1995 1996 1995
------- ------- ------- -------
(In Thousands)
Net income $ 4,623 $ 4,204 $16,919 $16,386
Depreciation 3,053 2,536 11,876 9,686
Joint ventures FFO
adjustment 169 206 661 510
------- ------- ------- -------
Funds from Operations $ 7,845 $ 6,946 $29,456 $26,582
======= ======= ======= =======
Weighted average numbers
of shares outstanding 9,062 8,292 8,560 8,259
Prior to the Company's adoption of the new NAREIT definition of FFO, the Company
calculated FFO by adjusting for deferred rent. If such an adjustment had been
made to the calculation of FFO in the above table, FFO would have been reduced
by $534,000 and $345,000 including the deferred rent adjustments to the Joint
Ventures for the three month periods ended December 31, 1996 and 1995,
respectively, and $2,370,000 and $1,815,000, for the twelve month periods ended
December 31, 1996 and 1995, respectively.
Economic Conditions
Many regions of the United States, including regions where the Company owns
property, have experienced an economic recession in the past several years.
Some areas currently appear to be experiencing a turnaround. However, if there
is a continuation of the economic recession, or further adverse changes in
general or local economic conditions, it could result in the inability of some
existing tenants of the Company to meet their lease obligations and could also
adversely affect the Company's ability to attract or retain tenants.
Management believes that inflation generally will beneficially affect the long-
term potential appreciation of the Company's properties. The majority of the
Company's leases contain provisions designed to mitigate the short-term adverse
impact of inflation. Such provisions include clauses enabling the Company to
receive percentage rents, which generally increase as prices rise, and/or
escalation clauses which are typically related to increases in the consumer
price index or similar inflation indices. Most of the Company's leases require
the tenant to pay its pro rata share of costs and expenses associated with the
ongoing operation of the property, including but not limited to, real property
taxes and assessments, repairs and maintenance and insurance, thereby reducing
the Company's exposure to increases in operating costs and expenses resulting
from inflation.
Inflation, however, may adversely affect certain of the Company's other
operating items. Interest and general and administrative expenses may be
adversely affected by inflation as these costs could increase at a rate greater
than the rate of rent increases. Also, with respect to tenant leases with
stated rent increases, such as the leases for the Price Club warehouses,
inflation may have a negative effect as the stated rent increases in those
leases could be lower than the increase in inflation.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in Item 14 of
this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
Information called for by this Item 10 is hereby incorporated by
reference from the Company's definitive Proxy Statement to be
mailed to stockholders in April 1997.
Item 11. Executive Compensation
Information called for by this Item 11 is hereby incorporated by
reference from the Company's definitive Proxy Statement to be mailed
to stockholders in April 1997.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Information called for by this Item 12 is hereby incorporated by
reference from the Company's definitive Proxy Statement to be mailed to
stockholders in April 1997.
Item 13. Certain Relationships and Related Transactions
Information called for by this Item 13 is hereby incorporated by
reference from the Company's definitive Proxy Statement to be mailed to
stockholders in April 1997.
Part IV
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K.
(a) (1) The following consolidated financial statements of The
Price REIT, Inc. are included as a part of this report:
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years ended December
31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity - Years
ended December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements - December
31, 1996
(2) The following consolidated financial statement schedule
of The Price REIT, Inc. is included as a part of this
report.
Schedule III Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and
therefore have been omitted.
(3) Listing of Exhibits - The response to this portion of
Item 14 is submitted in Item 14(c).
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
A Current Report on Form 8-K was filed on November 5, 1996
in order to file an exhibit related to the Company's sale
of Senior Notes (described below).
A Current Report on Form 8-K was filed on November 6, 1996
1996 reporting the issuance and sale of $55,000,000
principal amount of 7 1/2% Senior Notes due 2006.
(c) Exhibits Pursuant to Item 601 of Regulation S-K
3.1 Articles of Incorporation, as amended to date (4)
3.2 Amended and Restated Bylaws of the Company. (4)
3.3 Articles of Amendment (Incorporated by reference to
Exhibit 3.1 from Form 10-Q, dated August 14, 1996)
4.1 Indenture, dated October 27, 1995, between The Price
REIT, Inc. and First Trust of California, National
Association, as Trustee. (10)
4.2 7.25% Senior Notes due November 1, 2000. (10)
4.3 7.50% Senior Notes due November 1, 2006.
10.3 Master Lease with The Price Company, Amendment No.
1 dated September 25, 1991. (1)
10.6 Form of Indemnification Agreement. (3)
10.7 Home Depot Lease (North Haven). (1)
10.8 Home Depot Lease (Carmichael). (1)
10.9 Home Club Lease (Chula Vista). (1)
10.10 Home Club Lease (Phoenix). (1)
10.13 Lease Between The Price REIT, Inc. and The Price
Company (Corona Price Club). (2)(Previously
referenced as Exhibit 10.7 to the Company's Report
on Form 8-K, dated May 13, 1992).
10.15 Stock Option Agreement dated November 2, 1992 (Mr.
George M. Jezek). (3)
10.19 Employment Contract by and between the Company and
Joseph Kornwasser, an individual. (6)
10.19A Amendment to Employment Contract by and between the
Company and Joseph Kornwasser, an individual, dated
January 30, 1995. (7)
10.20 Second Amendment to Employment Contract by and between
the Company and Joseph Kornwasser, an individual, dated
December 11, 1995.
10.21 Stock Option Agreement (relating to 1995 grant of
options to Joseph Kornwasser).
10.23 Stock Option Agreement (Mr. Joseph Kornwasser). (6)
10.24 Stock Option Agreement (Mr. Jerald Friedman). (6)
10.25 1993 Stock Option Plan. (6)
10.27 Loan Agreement ($1.25 million) with K&F
Development Company, a California corporation. (6)
10.34 Service Agreement by and between the Company and
K&F Development Company, a California corporation.
(6)
10.37 $75 million Revolving Credit Facility dated
September 22, 1993. (5) (Incorporated by reference to
Exhibit 10.2 from the Company's Current Report on Form
8-K, dated October 1, 1993).
10.37A Amendment to Revolving Credit Facility Agreement
dated May 9, 1994. (7)
10.37B Second Amendment To Credit Agreement (8)
(Incorporated by reference to Exhibit 10.1 from the
Company's Quarterly Report on Form 10-Q, dated May 10,
1995)
10.38 Purchase and Sales Agreement, dated March 23, 1994,
between the Company and an affiliate of
Price/Costco Centrepoint Associates Partnership
Interest. (Incorporated by reference to Exhibit
10.35 from the Company's Quarterly Report on Form
10-Q, dated August 11, 1994.)
10.39 Purchase Agreement North Phoenix, Arizona, dated
July 12, 1994. (7)
10.40 Amended and Restated Credit Agreement, dated as of
November 1, 1995 by and among The Price REIT, Inc.
and Morgan Guaranty and Trust Company, as Agent,
and other financial institutions party thereto and
Revolving Notes executed therewith. (10)
(Incorporated by reference to Exhibit 4-3 to the
Company's Quarterly Report on Form 10-Q dated November
9, 1995.)
10.41 Amendment, dated December 20, 1995, to Amended and
Restated Credit Agreement dated as of November 1,
1995.
10.42 Operating Agreement of the Smithtown Venture
Limited Liability Company, dated as of May 12,
1995, by and among K & F Development Company
and King Kullen Grocery Co., Inc.
10.43 Loan Agreement between Centrepoint Associates LLP
and Wells Fargo Realty Advisors Funding
Incorporated, dated as of December 27, 1995.
10.44 Promissory Note Secured by Deed of Trust, dated
December 27, 1995.
10.45 Purchase and Sale Agreement and Joint Escrow
Instruction dated December 13, 1995 by and between
Centrepoint Associates LLP, and Suncor Development
Company (relating to Glendale (Talavi), Arizona
property.)
10.46 Purchase and Sale Agreement and Joint Escrow
Instruction dated December 13, 1995 by and between
Centrepoint Associates LLP, and Suncor Development
Company (relating to Goodyear, Arizona property).
10.47 Purchase and Sale Agreement dated September 21,
1995 by and between The Price REIT, Inc. and The
Centre at Baybrook, Ltd. (Houston, Texas property)
(Incorporated by reference to Exhibit 10.1 from the
Company's Current Report on Form 8-K, dated January 10,
1996)
10.48 Purchase and Sale Agreement between La Mirada
Retail Realty, Inc. and The Price REIT, Inc. dated
as of December 27, 1995 (La Mirada, California
property) (Incorporated by reference to Exhibit
10.1 from the Company's Current Report on Form 8-K,
dated January 10, 1996)
10.49 Purchase and Sale Agreement dated December 7, 1995
by and between The Price REIT, Inc., and Real
Estate Investment Trust of California (Oxnard,
California property) (Incorporated by reference to
Exhibit 10.1 from the Company's Current Report on Form
8-K, dated January 10, 1996)
10.50 Amended and Restated Credit Agreement, dated as of
March 22, 1996 by and among The Price REIT, Inc.
and Morgan Guaranty and Trust Company, as Agent,
and other financial institutions party thereto and
Revolving Notes executed herewith.(11)
(Incorporated by reference to Exhibit 4.3 from the
Company's Quarterly Report on Form 10-Q, dated May 10,
1996.)
10.51 Purchase and Sale Agreement dated March 22, 1996 by
and between The Price REIT, Inc., and Town East
Center Joint Venture (Mesquite, Texas property)
(12) Incorporated by reference to Exhibit 10.41 from
the Company's Quarterly Report on Form 10-Q, dated
August 14, 1996.)
10.52 Purchase and Sale Agreement dated April 16, 1996 by
and between The Price REIT, Inc., and MGC Joint
Venture (Mesquite, Texas property) (12)
(Incorporated by reference to Exhibit 10.42 from the
Company's Report on Form 10-Q, dated August 14,
1996.)
10.53 Purchase and Sale Agreement dated August 23, 1996
by and between The Price REIT, Inc. and Centennial
Plaza Limited Partnership (Centennial Plaza,
Oklahoma property)(13) (Incorporated by reference
to Exhibit 10.41 from the Company's Quarterly Report on
Form 10-Q, dated November 14, 1996.)
10.54 Amended and Restated Credit Agreement, dated as of
October 22, 1996 by and among The Price REIT, Inc.
and Morgan Guaranty and Trust Company, as Agent,
and other financial institutions party thereto and
Revolving Notes executed herewith. (13)
(Incorporated by reference to Exhibit 4.3 from the
Company's Quarterly Report on Form 10-Q, dated November
14, 1996.)
12.1 Statement Re: Computation of Ratio Earnings to
Fixed Charges.
23.1 Consent of Ernst & Young LLP Independent Auditors
27 Financial Data Schedule
Footnotes:
(1) Incorporated herein by reference from the Company's Registration Statement
(No. 33-42064) Amendment No. 1 dated September 25, 1991 in which this exhibit
bore the same number, unless otherwise indicated.
(2) Incorporated herein by reference from the Company's Current Report on Form
8-K dated May 13, 1992, in which this exhibit bore the same number, unless
otherwise indicated.
(3) Incorporated herein by reference from the Company's Annual Report on Form
10-K dated March 15, 1993 in which this exhibit bore the same number, unless
otherwise indicated.
(4) Incorporated herein by reference from the Company's Registration Statement
(No. 33-64344) Amendment No. 2 dated August 3, 1993 in which this exhibit bore
the same number, unless otherwise indicated.
(5) Incorporated herein by reference from the Company's Current Report on Form
8-K dated October 1, 1993, in which this exhibit bore the same number, unless
otherwise indicated.
(6) Incorporated herein by reference from the Company's Annual Report on Form
10-K dated March 15, 1994, in which this exhibit bore the same number, unless
otherwise indicated.
(7) Incorporated herein by reference from the Company's Annual Report on
Form 10-K dated March 15, 1995, in which the exhibit bore the same number,
unless otherwise indicated.
(8) Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q dated May 10, 1995, in which the exhibit bore the same number, unless
otherwise indicated.
(9) Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q dated August 11, 1995, in which the exhibit bore the same number,
unless otherwise indicated.
(10) Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q dated November 9, 1995, in which the exhibit bore the same number,
unless otherwise indicated.
(11) Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q dated May 10, 1996, in which the exhibit bore the same number, unless
otherwise indicated.
(12) Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q dated August 14, 1996, in which the exhibit bore the same number,
unless otherwise indicated.
(13) Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q dated November 14, 1996, in which the exhibit bore the same number,
unless otherwise indicated.
(d) Financial Statement Schedule - The response to this portion
of Item 14 is submitted in Item 14(a)(2).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 : March 4, 1997 By : /Joseph K. Kornwasser/
---------------------------
Joseph K. Kornwasser
President and Chief Executive
Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/JOSEPH K. KORNWASSER/ Chief Executive Officer, March 4, 1997
- ---------------------- President and Director
Joseph K. Kornwasser (Principal Executive Officer)
/RAYMOND E. PEET/ Chairman of the Board March 4, 1997
- ----------------------
Raymond E. Peet
/GEORGE M. JEZEK/ Executive Vice President March 4, 1997
- ---------------------- Chief Financial Officer,
George M. Jezek Treasurer, Secretary and Director
(Principal Accounting Officer)
/ROY P. DRACHMAN/ Director March 4, 1997
- ------------------
Roy P. Drachman
/WILLIAM D. JONES/ Director March 4, 1997
- -------------------
William D. Jones
/WALTER WEISMAN/ Director March 4, 1997
- -------------------
Walter Weisman
/KEENE WOLCOTT/ Director March 4, 1997
- -------------------
Keene Wolcott
Consolidated Financial Statements
The Price REIT, Inc.
December 31, 1996, 1995 and 1994
with Report of Independent Auditors
Report of Independent Auditors
The Board of Directors and Stockholders
The Price REIT, Inc.
We have audited the accompanying consolidated balance sheets of The Price REIT,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Price REIT, Inc. at December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/Ernst & Young LLP/
San Diego, California
January 22, 1997
The Price REIT, Inc.
Consolidated Balance Sheets
December 31
1996 1995
---------- ----------
(In Thousands)
Assets
Rental property, net (Note 2) $380,482 $351,585
Investments in Joint Ventures (Note 3) 19,202 17,568
Cash and cash equivalents 11,369 1,241
Deferred rent receivable 8,489 6,219
Other assets 6,749 5,431
Secured note receivable (Note 4) 1,346 -
Investment in Development Company (Note 12) 434 434
---------- ----------
Total assets $428,071 $382,478
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities $ 4,474 $ 3,408
Senior Notes payable (Note 5) 154,114 99,082
Unsecured line of credit (Note 5) 19,000 56,000
Secured notes payable (Note 5) 11,794 2,750
---------- ----------
Total liabilities 189,382 161,240
Minority interest 1,707 -
Commitments and contingencies (Note 10) - -
Stockholders' Equity (Notes 6, 7 and 8):
Preferred stock, $.01 par value;
2,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.01 par value;
25,000,000 shares authorized
Series A Common Stock, 0 and 44,546 shares issued
and outstanding, convertible 1 for 1 to Common Stock - 1
Common Stock, 9,069,249 and 8,256,302 shares
issued and outstanding 91 82
Additional paid-in capital 259,518 236,365
Accumulated deficit (22,627) (15,210)
---------- ----------
Total stockholders' equity 236,982 221,238
---------- ----------
Total liabilities and stockholders' equity $428,071 $382,478
========== ==========
See accompanying notes.
The Price REIT, Inc.
Consolidated Statements of Income
Year ended December 31
1996 1995 1994
-------- -------- --------
(In Thousands, except
per share data)
Revenue
Rental Income $ 51,292 $ 40,152 $ 37,599
Management fees (Note 9) 1,085 1,042 789
Equity in earnings of Joint Ventures 1,556 1,456 584
Dividend from Development Company - 432 536
Interest and other income 392 441 417
-------- -------- --------
54,325 43,523 39,925
======== ======== ========
Expenses
Rental operations 4,344 3,266 2,978
Real estate taxes 5,565 3,911 3,606
General and administrative (Note 9) 3,550 3,335 3,187
Depreciation 11,876 9,686 9,165
Interest 12,071 6,939 4,085
-------- -------- --------
37,406 27,137 23,021
-------- -------- --------
Net income $ 16,919 $ 16,386 $ 16,904
======== ======== ========
Net income per share $ 1.98 $ 1.98 $ 2.07
======== ======== ========
Weighted average number of shares
outstanding 8,560 8,259 8,165
======== ======== ========
See accompanying notes.
The Price REIT, Inc.
Consolidated Statements of Stockholders' Equity
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ --------- --------- ---------
(In Thousands)
Balance at January 1, 1994 8,143 $ 81 $231,783 $ (5,603) $226,261
Issuance of Common Stock
under dividend reinvestment
and share purchase plan 74 1 2,293 - 2,294
Dividends paid - - - (20,859) (20,859)
Net income - - - 16,904 16,904
------ ------ --------- --------- ---------
Balance at December 31, 1994 8,217 82 234,076 (9,558) 224,600
Issuance of Common Stock
under dividend reinvestment
and share purchase plan 56 1 1,589 - 1,590
Exercise of stock options 28 - 700 - 700
Dividends paid - - - (22,038) (22,038)
Net income - - - 16,386 16,386
------- ------ --------- --------- ---------
Balance at December 31, 1995 8,301 83 236,365 (15,210) 221,238
Issuance of Common Stock
Public offering 690 7 22,159 - 22,166
Offering costs - - (1,389) - (1,389)
Issuance of Common Stock
under dividend reinvestment
and share purchase plan 37 - 1,164 - 1,164
Exercise of stock options 41 1 1,219 - 1,220
Dividends paid - - - (24,336) (24,336)
Net income - - - 16,919 16,919
------- ------ --------- --------- ---------
Balance at December 31, 1996 9,069 $ 91 $259,518 $(22,627) $236,982
======= ====== ========= ========= =========
See accompanying notes.
The Price REIT, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1996 1995 1994
--------- --------- ---------
(In Thousands)
Operating activities
Net Income $ 16,919 $ 16,386 $ 16,904
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 11,876 9,686 9,165
Amortization of deferred loan fees 543 284 152
Amortization of debt discount 162 32 -
Equity in earnings of Joint Ventures (1,556) (1,456) (584)
Deferred rent (2,269) (1,806) (2,129)
Changes in operating assets and liabilities:
Decrease in deferred rent receivable - 68 -
Increase in rent receivable and other
assets (1,495) (1,313) (1,459)
Increase in accounts payable and accrued
liabilities 577 920 105
Increase (decrease) in security deposits 28 109 (42)
Increase in accrued interest payable 462 1,310 72
--------- --------- ---------
Net cash provided by operating activities 25,247 24,220 22,184
--------- --------- ---------
Investing activities
Purchases of rental property (30,600) (61,831) (8,240)
Additions to rental property (9,845) (12,401) (2,947)
Investments in Joint Ventures (2,000) (1,977) (15,837)
Distributions from Joint Ventures 1,867 1,660 555
Secured note receivable (1,347) - -
Distribution from Development Company - 113 203
--------- --------- ---------
Net cash used in investing activities (41,925) (74,436) (26,266)
--------- --------- ---------
Financing activities
Proceeds from Senior Notes payable due 2000 - 99,050 -
Proceeds from Senior Notes payable due 2006 54,870 - -
Payment of debt issuance costs (640) (1,938) -
Proceeds from unsecured line of credit 39,000 68,000 19,000
Repayment of unsecured line of credit (76,000) (96,000) -
Proceeds from secured notes payable 11,841 - 2,750
Repayment of secured notes payable (2,797) - -
Minority interest contributions 1,707 - -
Gross proceeds from issuance of Common Stock 23,642 919 329
Issuance costs (1,389) - -
Dividends paid, net of dividends reinvested (23,428) (20,667) (18,893)
-------------------- ---------
Net cash provided by financing activities 26,806 49,364 3,186
-------------------- ---------
Increase (decrease) in cash and cash
equivalents 10,128 (852) (896)
Cash and cash equivalents at beginning of
the year 1,241 2,093 2,989
-------------------- ---------
Cash and cash equivalents at end of year $ 11,369 $ 1,241 $ 2,093
==================== =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $ 11,364 $ 5,759 $ 4,247
===============================
See accompanying notes.
The Price REIT, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1.Organization and Summary of Significant Accounting Policies
Organization
The Price REIT, Inc., a Maryland corporation formed in 1991, is a self-
administered and self-managed real estate investment trust which is focused on
the acquisition, development, redevelopment and management of retail shopping
center properties.
Consolidation
The consolidated financial statements include the accounts of The Price REIT,
Inc.; Price/Texas, Inc., a wholly-owned subsidiary; Price/Baybrook, Ltd., a
limited partnership between The Price REIT, Inc. and Price/Texas, Inc.; and
Smithtown Venture Limited Liability Company ("Smithtown Venture"), an
approximate 80% owned joint venture (collectively referred to as the "Company").
All significant intercompany accounts and transactions have been eliminated.
The Company acquired its ownership in Smithtown Venture in October 1996.
Use of Estimates
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.
Rental Property and Depreciation
Rental property is recorded at cost. At such times where events or
circumstances indicate that the carrying amount of property may be impaired, the
Company makes an assessment of its recoverability by estimating the future
undiscounted cash flows, excluding interest charges, of the property. If the
carrying amount exceeds the aggregate future cash flows, the Company would
recognize an impairment loss to the extent the carrying amount exceeds the fair
value of the property.
Depreciation is provided using the straight-line method over estimated useful
lives as follows:
Furniture and fixtures 7 years
Land improvements 15 years
Buildings 25 years
Investments
The equity method of accounting is used for investments in joint ventures in
which the Company has a financial interest and exercises significant influence.
Under this method, the Company recognizes its share of the net earnings or
losses of the joint ventures as earned or incurred and reduces or increases the
carrying value of the investments by the amount of distributions received or
contributions paid.
The cost method of accounting is used for the Company's investment in K&F
Development Company ("Development Company"). Under this method, the Company
recognizes as income, dividends received that are distributed from net
accumulated earnings of the Development Company.
Cash Equivalents
The Company considers highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
The Company has no requirements for compensating balances. The Company
maintains its operating cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company also maintains a money market
mutual fund which invests primarily in U.S. Treasury obligations. The Company
has not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents.
Deferred Loan Fees
Deferred loan fees are amortized, using the straight-line method, over the term
of the related loan and are reflected as a component of interest expense.
Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires that the Company disclose estimated
fair values for its financial instruments, as well as the methods and
significant assumptions used to estimate fair values. The Company believes that
the carrying values reflected in the balance sheets at December 31, 1996 and
1995 reasonably approximate the fair values for cash and cash equivalents,
receivables and all liabilities. In making such assessments, the Company used
estimates and market rates for similar instruments.
Minority Interest
Minority interest represents the approximate 20% ownership of Smithtown Venture
not owned by the Company.
Revenue Recognition
Rental income is recorded on a straight-line basis over the term of the leases.
Deferred rent receivable represents the excess of rental revenue recognized on a
straight-line basis over cash received under the applicable lease provisions.
Income Taxes
The Company has met all conditions necessary to qualify as a real estate
investment trust under the Internal Revenue Code. To qualify as a real estate
investment trust, the Company is required to pay dividends of at least 95% of
its ordinary taxable income each year and meet certain other criteria. As a
qualifying real estate investment trust, the Company will not be taxed on income
distributed to its shareholders. Since the Company distributed all of its
taxable income to stockholders for the years ended December 31, 1996, 1995 and
1994, the accompanying financial statements contain no provision for income
taxes.
Taxable income differs from net income for financial reporting purposes
principally due to differences in the timing of recognition of depreciation
expense and rental revenue.
The reported amounts of the Company's net assets as of December 31, 1996 and
1995 were less than its tax basis for Federal tax purposes by approximately
$272,000 and $451,000, respectively.
Net Income Per Share
Net income per share is calculated using the weighted average number of shares
outstanding. The assumed exercise of outstanding stock options, using the
treasury stock method, is not materially dilutive for the earnings per share
computation.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2.Rental Property
Rental property as of December 31, 1996, geographically by state, is as follows:
Total California Arizona Connecticut
---------------------------------------------
(In Thousands)
Land $ 136,148 $ 63,754 $ 21,662 $ 7,713
Land improvements 40,907 15,578 6,264 4,201
Buildings 245,038 111,737 31,543 15,952
---------------------------------------------
422,093 191,069 59,469 27,866
Accumulated depreciation (41,611) (21,612) (5,951) (4,705)
---------------------------------------------
$ 380,482 $ 169,457 $ 53,518 $ 23,161
=============================================
Net rentable square feet 4,858 2,022 855 332
=============================================
Maryland New York Virginia Texas Oklahoma
-------------------------------------------------
Land $ 2,582 $ 10,321 $ 12,575 $ 13,174 $ 4,367
Land improvements 3,409 2,270 9,185 - -
Buildings 6,858 22,637 17,063 26,814 12,434
-------------------------------------------------
12,849 35,228 38,823 39,988 16,801
Accumulated depreciation (1,607) (2,394) (4,366) (914) (62)
-------------------------------------------------
$ 11,242 $ 32,834 $ 34,457 $ 39,074 $ 16,739
=================================================
Net rentable square feet 210 246 323 636 234
=================================================
Rental property as of December 31, 1995, geographically by state, is as follows:
Total California Arizona Connecticut
----------------------------------------------
(In Thousands)
Land $ 127,625 $ 63,736 $ 21,662 $ 7,713
Land improvements 40,833 15,568 6,199 4,201
Buildings 213,190 110,400 30,825 15,952
----------------------------------------------
381,648 189,704 58,686 27,866
Accumulated depreciation (30,063) (16,128) (4,288) (3,787)
----------------------------------------------
$ 351,585 $ 173,576 $ 54,398 $ 24,079
==============================================
Net rentable square feet 4,393 2,016 840 332
==============================================
Maryland New York Virginia Texas
----------------------------------------------
Land $ 2,582 $ 10,321 $ 12,575 $ 9,036
Land improvements 3,411 2,270 9,184 -
Buildings 6,858 15,246 17,063 16,846
----------------------------------------------
12,851 27,837 38,822 25,882
Accumulated depreciation (1,106) (1,599) (3,071) (84)
----------------------------------------------
$ 11,745 $ 26,238 $ 35,751 $ 25,798
==============================================
Net rentable square feet 210 246 323 426
==============================================
Rental property owned through the Company's investments in joint ventures is
described in Note 3.
The Company's shopping centers are generally leased under noncancellable
operating leases with remaining terms ranging from 1 to 25 years. Certain of
the leases contain up to seven five-year renewal options. The leases generally
contain provisions for increases in rents based on the Consumer Price Index, or
a predetermined fixed amount, and require the tenant to reimburse the Company
for substantially all operating expenses of the properties.
Certain of the leases provide for additional rental payments based on gross
tenant revenues in excess of specified amounts. During the year ended December
31, 1996, 1995 and 1994, the Company earned additional rents of approximately
$418,000, $372,000 and $225,000, respectively, relating to these leases.
Future minimum rental income due under the terms of noncancellable operating
leases is as follows (in thousands):
1997 $42,279
1998 41,812
1999 40,789
2000 39,722
2001 38,431
Thereafter 287,290
The following tenants account for greater than 10% of total revenues:
Year ended December 31
1996 1995 1994
------ ------ ------
The Home Depot $8,955 $7,401 $6,119
Price/Costco 5,029 5,268 5,985
Acquisitions of Shopping Centers
In November 1996, the Company acquired a 234,000 square foot shopping center in
Oklahoma City, Oklahoma for $16,700,000 (Note 5).
In July 1996, the Company acquired a 210,000 square foot shopping center near
Dallas, Texas for $12,650,000.
In January 1996, the Company acquired a 9.7 acre land parcel adjacent to the
Company's shopping center near Houston, Texas for $1,250,000.
In December 1995, the Company acquired a 172,000 square foot shopping center in
Oxnard (Ventura County), California for $10,332,000 and a 279,000 square foot
shopping center in La Mirada (Los Angeles County), California for $25,824,000.
In November 1995, the Company acquired a 426,000 square foot shopping center
near Houston, Texas for $25,675,000.
In December 1994, the Company acquired a 143,000 square foot shopping center in
Phoenix, Arizona for $8,240,000. During 1995, the Company began redevelopment
and expansion activities to increase the center by approximately 85,000 square
feet of new space.
Smithtown Venture
The Company acquired its interest in Smithtown Venture from Development Company
for $250,000. Prior to its ownership acquisition, the Company had advanced
$4,550,000 to Smithtown Venture for development of a shopping center in Long
Island, New York. Condensed financial information of Smithtown Venture, upon
acquisition by the Company on October 2, 1996, is as follows (in thousands):
Rental property under development $6,059
======
Company advances $4,550
Members' capital 1,509
------
$6,059
======
In connection with the development of the shopping center, Smithtown Venture
entered into a 49-year ground lease, with four ten-year renewal options, which
provides for monthly payments. While the shopping center is under development,
the lease payments are being capitalized to rental property. Future minimum
lease payments, excluding renewal options, are as follows (in thousands):
1997 $ 1,067
1998 1,400
1999 1,400
2000 1,400
2001 1,400
Thereafter 82,653
3.Investment in Joint Ventures
Centrepoint Associates
In April 1994, the Company acquired a 50% general partnership interest in
Centrepoint Associates for $11,388,000. The general partnership interest was
acquired from a partnership in which Price/Costco and Messrs. Kornwasser and
Friedman were the general partners. The joint venture owns and operates a
236,000 square foot power center in Tempe, Arizona, with an additional 149,000
square feet of adjacent retail space, constructed and completed in 1995. During
the years ended December 31, 1996 and 1995 and for the period from April 15,
1994 through December 31, 1994, the Company contributed cash of approximately
$271,000, $1,186,000 and $4,449,000, respectively, to the joint venture, to fund
construction costs and acquisitions.
In accordance with the original purchase agreement, certain development
contingencies required Price/Costco to advance the Company approximately
$130,000 during 1994 and the Company was required to make net payments to
Price/Costco totaling $791,000 during 1995 resulting in a net additional cost to
the Company of $661,000. As a result of these payments, the recorded amount of
the Company's investment in the joint venture was $661,000 greater than the
amount of its capital account as reflected in the joint venture's accounting
records. The Company is amortizing the excess cost over 15 years.
In December 1995, the joint venture purchased two properties located in the
Phoenix metropolitan area. One of the properties is located in Glendale,
Arizona, which was purchased for $6,724,000, and consists of an existing 85,000
square foot shopping center with potential to expand by approximately 20,000
additional square feet. The other property is located in Goodyear, Arizona,
which was purchased for $4,232,000, and contains approximately 40 acres of
vacant land for future development. In connection with these purchases, the
joint venture obtained a $10,500,000 loan which is due in December 1997.
Hayden Plaza North Associates
In April 1996, the Company formed a partnership with Kimco Realty Corporation
("Kimco"), a 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 Company
holds a 50% general partnership interest. The acquisition was completed in May
1996.
Condensed combined financial information of the joint ventures is as follows:
December 31
1996 1995
---------------------
(In Thousands)
Rental property, net $45,648 $41,590
Other assets 3,125 2,038
---------------------
$48,773 $43,628
=====================
Liabilities $11,701 $10,989
The Company's capital 18,596 16,907
Other partner's capital 18,476 15,732
---------------------
$48,773 $43,628
=====================
Year ended
December 31
1996 1995
---------------------
(In Thousands)
Revenue $ 6,723 $ 5,201
Expenses (3,538) (2,248)
---------------------
Net income $ 3,185 $ 2,953
=====================
The accounting policies of the joint ventures are substantially the same as the
Company's.
4.Secured Note Receivable
In connection with the development of a shopping center in Long Island, New
York, Smithtown Venture made a loan to the ground lessor for the payoff of an
existing mortgage on the property. The secured note receivable bears interest at
a fixed rate of 7.41% and is due in monthly principal and interest payments
through October 2026.
5.Notes Payable
Notes payable consists of the following:
December 31
1996 1995
---------------------
(In Thousands)
Senior Notes payable due 2000 $ 99,242 $ 99,082
Senior Notes payable due 2006 54,872 -
---------------------
154,114 99,082
Unsecured line of credit 19,000 56,000
Secured notes payable 11,794 2,750
---------------------
$184,908 $157,832
=====================
Senior Notes Payable
In November 1996, the Company issued unsecured 7.50% Senior Notes in the
aggregate principal amount of $55,000,000 which are due November 2006. Interest
on the 7.50% Senior Notes is payable semi-annually in arrears on May 5 and
November 5. The notes were priced at an aggregate amount of $54,870,000 and
have an effective interest rate of 7.53%.
In November 1995, the Company issued unsecured 7.25% Senior Notes in the
aggregate principal amount of $100,000,000 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%.
As of December 31, 1996 and 1995, the unamortized discount of senior notes
payable was $886,000 and $918,000, respectively. Amortization of the discount
during the year ended December 31, 1996 and 1995, in the amount of $162,000 and
$32,000 is reported as a component of interest expense and an increase to Senior
Notes payable.
The Senior Notes payable contain certain restrictive financial covenants
relating to debt-to-asset ratios, cash flow coverage ratio and distribution
limitations.
Unsecured Line of Credit
In September 1993, the Company obtained a revolving credit facility from a group
of banks for up to $75 million in unsecured advances through September 1996. In
May 1994, the credit facility was modified to increase the commitment amount to
$100 million. In November 1995, the credit facility was modified in various
respects including a reduction in the borrowing capacity to $75 million,
amendment of the interest rate, extension of the maturity to October 1997, and
the incorporation of certain additional financial covenants. In October 1996,
the credit facility was further modified to provide for an interest rate
reduction.
Advances under the credit facility, at the Company's option, bear interest at
either LIBOR plus 1.25% or a Base Rate, as defined, plus .50%. The effective
rate of interest as of December 31, 1996 and 1995 was 6.63% and 7.05%,
respectively. Interest on the out-standing balance is payable no less than
quarterly.
The agreement requires the Company to meet various financial covenant ratios,
including minimum net operating income and net worth levels, as defined, and the
Company is precluded from paying 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 on the unused portion of the unsecured line of credit under its
current borrowings.
Secured Notes Payable
At December 31, 1996, the secured notes payable bear interest at fixed rates of
9.0% and 9.25% and are secured by a shopping center in Oklahoma City, Oklahoma.
The notes provide for monthly payments of principal and interest with all
principal due in June 2013 and December 2014.
Principal maturities of all notes payable as of December 31, 1996 are summarized
as follows (in thousands):
1997 $ 19,299
1998 328
1999 359
2000 100,393
2001 430
Thereafter 64,985
-----------
$ 185,794
===========
The Company incurred $12,540,000, $7,354,000 and $4,471,000 of interest costs
which included amortization of loan discount and fees, of which $469,000,
$415,000 and $234,000 were capitalized to rental property for the years ended
December 31, 1996, 1995 and 1994, respectively.
6.1996 Stock Offering
On September 9, 1996, the Company completed a public offering of 690,000 shares
of Common Stock at an offering price of $32.125 per share (the "Stock
Offering"). The Company used the net proceeds of approximately $21 million for
repayment of indebtedness under the Company's unsecured line of credit and for
general corporate purposes. Expenses of the Stock Offering were approximately
$1,389,000 and were charged against the gross proceeds of the Stock Offering.
7.Dividends
The Company paid quarterly dividends to stockholders as follows:
Year ended December 31
1996 1995 1994
-----------------------------------
Series A Common Stock
First $ 0.6667 $ 0.6286 $ 0.6000
Second N/A 0.6286 0.6000
Third N/A 0.6381 0.6190
Fourth N/A 0.6476 0.6190
-----------------------------------
Total $ 0.6667 $ 2.5429 $ 2.4380
===================================
Common Stock
First $ 0.7000 $ 0.6600 $ 0.6300
Second 0.7000 0.6600 0.6300
Third 0.7000 0.6700 0.6500
Fourth 0.7000 0.6800 0.6500
-----------------------------------
Total $ 2.8000 $ 2.6700 $ 2.5600
===================================
Taxable portion - ordinary dividend 78.36% 82.00% 86.92%
Return of capital portion 21.64% 18.00% 13.08%
-----------------------------------
100.00% 100.00% 100.00%
===================================
Common Stock
The Company had previously issued two series of common stock equity, Common
Stock and Series A Common Stock. On May 23, 1996, the Company's stockholders
approved an amendment to the Company's charter to provide that all outstanding
shares of Series A Common Stock be converted into shares of Common Stock;
eliminate the provision which entitled holders of Common Stock to receive an
annualized quarterly per share dividend equal to 105% of the annualized
quarterly per share dividend on the Series A Common Stock and changed the name
of the Company's Series A Common Stock to Common Stock. There were 38,266
shares of Series A Common Stock that were converted into Common Stock.
8.Stock Options/Dividend Reinvestment Plan
In 1991, the Company adopted a stock option plan for certain of its employees.
The options generally vest 20% upon grant and 20% per year over the subsequent
four years. Vested options expire ten years from the date of vesting. Unvested
options expire at termination of employment.
In 1993, the Company adopted an incentive stock option plan for certain of its
officers and other key employees. The options generally vest 20% upon grant and
20% per year over the subsequent four years. The options are exercisable upon
vesting and expire ten years from the date of grant. Unvested options expire at
termination of employment.
In 1996, the Company adopted a stock option plan for non-employee directors of
its Board of Directors. The options are fully vested and exercisable on the
date of grant.
Stock options outstanding are as follows (in thousands, except per share data):
Stock Options
Non- Total Price
Incentive Incentive Exercise Range
Shares Shares Value Per Share
----------------------------------------------
Outstanding at January 1, 1994 128 399 $ 16,643 $25.00-$32.50
Granted on February 14, 1994 - 27 905 33.50
--------------------------------
Outstanding at December 31, 1994 128 426 17,548 25.00-33.50
Exercised on June 30, 1995 (28) - (700) 25.00
Expired on July 1, 1995 (17) - (506) 29.75
Granted on December 11, 1995 - 148 4,237 28.63
--------------------------------
Outstanding at December 31, 1995 83 574 20,579 28.63-33.50
Granted on January 29, 1996 31 49 2,360 29.50
Exercised on February 29, 1996 (41) - (1,220) 29.75
Expired on March 31, 1996 (2) - (60) 29.75
Granted on August 1, 1996 12 - 354 29.50
Granted on December 18, 1996 - 34 1,224 36.00
Granted on December 31, 1996 12 - 462 38.50
--------------------------------
Outstanding at December 31, 1996 95 657 $ 23,699 $28.63-$38.50
================================
At December 31, 1996, 1995 and 1994, 423,100, 325,200 and 253,000 stock options,
respectively, were exercisable.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The new accounting standards prescribed by SFAS
No. 123 are optional, and the Company has elected to account for its stock
option plans under the previous accounting standards as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
The effect of applying the SFAS No. 123 fair value method to the Company's stock
based awards would result in net income and net income per share that are not
materially different from amounts reported.
In February 1994, the Company adopted a dividend reinvestment and share purchase
plan (the "Plan"). This Plan gives the holders of shares of common stock the
opportunity to purchase additional common stock shares through reinvestment of
distributions or voluntary cash investments. At the Company's option, the
common stock shares purchased under the Plan can be newly issued or purchased on
the open market. Concurrent with the adoption of this Plan, the Company filed a
Form S-3 Registration Statement with the Securities and Exchange Commission to
register 500,000 common stock shares that are eligible to be issued under this
Plan. During the years ended December 31, 1996 and 1995, 37,000 and 56,000
shares, respectively, were issued under the Plan. Through December 31, 1996, a
total of 167,000 shares have been issued under the Plan.
9.Related Party Transactions
Mr. Sol Price previously provided office space to the Company's corporate
headquarters at no cost. Effective December 1995, the Company has agreed to pay
Mr. Price $7,200 per year for office space provided.
1996
Management fees revenue includes $817,000 earned from Price Enterprises, Inc.
owned rental properties and $92,000 earned from K&F affiliated companies.
Development fees totaling $142,000 were paid to Development Company and
capitalized to rental property.
Leasing commissions totaling $250,000 were paid to Development Company and
capitalized to other assets.
Other income includes $30,000 of consulting fee income received from Price
Enterprises, Inc.
1995
Management fees revenue includes $785,000 earned from Price Enterprises, Inc.
owned rental properties and $128,000 earned from K&F affiliated companies.
General and administrative expense includes $114,000 of rent expense paid to a
partnership in which Messrs. Joseph Kornwasser and Jerald Friedman are partners.
Development fees totaling $379,000 were paid to Development Company and
capitalized to rental property.
Leasing commissions totaling $489,000 were paid to Development Company and
capitalized to other assets.
Other income includes $164,000 of consulting fee income received from Price
Enterprises, Inc. for various consulting services.
1994
Management fees revenue includes $617,000 earned from Price Enterprises, Inc.
owned rental properties and $134,000 earned from K&F affiliated companies.
General and administrative expense includes $139,000 of rent expense paid to a
partnership in which Messrs. Kornwasser and Friedman are partners.
Development fees totaling $207,000 were paid to Development Company and
capitalized to rental property.
Leasing commissions totaling $364,000 were paid to Development Company and
capitalized to other assets.
10.Commitments and Contingencies
The Company sponsors a 401(k) deferred compensation plan. Employees may
contribute up to 15% of their wages subject to Internal Revenue Code limits.
The plan provides for discretionary matching and profit sharing contributions by
the Company. The Company may match contributions up to 2.5% of an employee's
annual compensation for annual compensation below $50,000 or up to 2.0% for
annual compensation equal to or above $50,000. During the years ended December
31, 1996, 1995 and 1994, the Company contributed $23,000, $23,000 and $17,000,
respectively, to the plan. The plan is fully funded.
Certain of the Company's properties were acquired from The Price Company or its
successor, Price/Costco. The Price Company has indemnified the Company, with the
exception of the Company's 50% interest in the Tempe, Arizona property, with
respect to the presence of any hazardous material (as defined under various
environmental laws) on properties purchased from The Price Company in the event
such hazardous materials were determined to be present on the date of the
purchase. The Company is not aware of any environmental issues with respect to
its properties which would require a material expenditure by the Company,
regardless of whether the Company might ultimately be indemnified by The Price
Company.
11.Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended December 31, 1996, 1995
and 1994 is as follows:
Earnings
Revenues Net Income Per Share
---------------------------------
(In Thousands, except
per share data)
1996
First $13,430 $ 4,058 $ 0.49
Second 12,883 4,135 0.50
Third 13,362 4,103 0.48
Fourth 14,650 4,623 0.51
1995
First $10,366 $ 4,008 $ 0.49
Second 10,405 4,091 0.50
Third 10,579 4,082 0.49
Fourth 12,173 4,205 0.50
1994
First $ 9,216 $ 3,938 $ 0.48
Second 9,653 4,148 0.51
Third 9,828 4,477 0.55
Fourth 11,228 4,341 0.53
12.Subsequent Events
On January 22, 1997, the Company completed a public offering of 1,600,000 shares
of Common Stock at an offering price of $37.625 per share. The Company plans to
use the net proceeds of approximately $57 million for repayment of indebtedness
under the Company's unsecured line of credit and to fund its future acquisition
and development activities.
On January 16, 1997, the Company acquired a 134,000 square foot shopping center
in Wichita, Kansas for $9.8 million.
Effective January 1, 1997, the Company acquired the assets and assumed the
liabilities of the Development Company.
The Price REIT, Inc.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
(In Thousands)
Costs Capitalized
Initial Cost to the REIT Subsequent to Acquisition
------------------------ -------------------------
Encum- Buildings & Buildings & Carrying
Description brances Land Improvements Improvements Cost
- ----------------- ------- ------------------------ -------------------------
Retail Rental Properties
Alhambra, CA $ - $ 9,949 $ 11,251 $ 284 $ 10
Carmichael, CA - 6,447 13,353 2,592 50
Chula Vista, CA - 11,523 15,377 476 10
North Haven, CT - 7,713 19,887 262 4
Phoenix, AZ - 5,581 13,169 407 7
Corona, CA - 6,950 41,234 2,603 119
Cerritos, CA - 5,854 8,672 149 15
Santa Ana, CA - 8,035 6,315 3,497 55
Copiague, NY - 10,321 14,781 2,707 59
Fairfax, VA - 12,575 26,092 151 5
Whitemarsh, MD - 2,582 8,700 1,497 70
Glendale, AZ - 13,012 14,385 788 23
N. Phoenix, AZ - 3,069 5,196 3,575 256
Houston, TX - 9,036 16,639 1,480 99
La Mirada, CA - 11,672 14,152 70 4
Oxnard, CA - 3,306 7,026 20 -
Mesquite, TX - 4,088 8,562 84 -
Commack, NY - - - 7,075 285
Oklahoma City, OK 11,794 4,340 12,360 101 -
------- ------------------------ -------------------------
Total $11,794 $136,053 $257,151 $ 27,818 $ 1,071
======= ======================== =========================
Gross Amount at which Carried at
December 31, 1996
--------------------------
Bldgs & Accum. Date of Date Depr
Description Land Improv. Total Deprec. Construction Acquired Life
- --------------- -------------------------- ------- -------------- -------- ----
Retail Rental Properties
Alhambra, CA $ 9,949 $ 11,545 $ 21,494 $ 2,587 1987,1989 12/03/91 (A)
Carmichael, CA 6,447 15,995 22,442 3,083 1971,1988-94 12/03/91 (A)
Chula Vista, CA 11,523 15,863 27,386 3,538 1981,1986-90 12/03/91 (A)
North Haven, CT 7,713 20,153 27,866 4,705 1987-1988 12/03/91 (A)
Phoenix, AZ 5,581 13,583 19,164 2,939 1970,1989 12/03/91 (A)
Corona, CA 6,950 43,956 50,906 8,600 1988-1989 04/29/92 (A)
Cerritos, CA 5,854 8,836 14,690 1,640 1974,1987 04/29/92 (A)
Santa Ana, CA 8,035 9,867 17,902 1,246 1983,1995 12/17/92 (A)
Copiague, NY 10,321 17,547 27,868 2,394 1990 08/12/93 (A)
Fairfax, VA 12,575 26,248 38,823 4,367 1993 08/12/93 (A)
Whitemarsh, MD 2,582 10,267 12,849 1,607 1991 08/12/93 (A)
Glendale, AZ 13,012 15,196 28,208 2,346 1988-89 10/01/93 (A)
N. Phoenix, AZ 3,069 9,027 12,096 666 1970,1995 12/21/94 (A)
Houston, TX 9,059 18,195 27,254 756 1985,1993 11/17/95 (A)
La Mirada, CA 11,683 14,215 25,898 636 1955,1990-93 12/27/95 (A)
Oxnard, CA 3,313 7,039 10,352 281 1982,1990 12/29/95 (A)
Mesquite, TX 4,115 8,619 12,734 158 1992 07/03/96 (A)
Commack, NY - 7,360 7,360 - In Progress(B) 10/02/96 (A)
Oklahoma City,OK 4,367 12,434 16,801 62 1994 11/19/96 (A)
-------- -------- -------- -------
Total $136,148 $285,945 $422,093 $41,611
======== ======== ======== =======
Reconciliation
Balance at beginning
Balance at beginning of period $ 381,648
Additions during period:
Acquisitions 30,600
Improvements, etc. 9,845
---------
40,445
Deductions during period:
Costs of real estate sold -
Other -
---------
-
-----------
Balance at close of period: $ 422,093
===========
(A) Buildings 25 years, land improvements 15 years.
(B) Construction is anticipated to be completed by second quarter 1997.
EXHIBIT 12.1 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
Year ended December 31
1996 1995 1994 1993 1992
-----------------------------------------------
Net income $16,919 $16,386 $16,904 $ 9,128 $ 4,118
Interest 11,826 7,070 4,319 4,287 3,203
Less interest capitalized
during the period (469) (415) (234) (30) -
Amortization of deferred
loan fees and discount 714 284 152 99 17
-----------------------------------------------
Earnings $28,990 $23,325 $21,141 $13,484 $ 7,338
===============================================
Interest 11,826 7,070 4,319 4,287 3,203
Amortization of deferred
loan fees and discount 714 284 152 99 17
-----------------------------------------------
Fixed Charges $12,540 $ 7,354 $ 4,471 $ 4,386 $ 3,220
===============================================
Ratio of Earnings to
Fixed Charges 2.31 x 3.17 x 4.73 x 3.07 x 2.28 x
===============================================
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors and Stockholders The Price REIT, Inc.
We consent to the incorporation by reference in the
Registration Statements (Form S-3 No. 3375548; Form S-8 No.
33-87812; 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 January
22, 1997, with respect to the consolidated financial
statements and schedule of The Price REIT, Inc. included in
this Annual Report (Form 10-K) for the year ended December
31, 1996.
San Diego, California
March 4, 1997
/Ernst & Young LLP/
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