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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission File Number: 1-12546
PACIFIC GULF PROPERTIES INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 33-0577520
State of Incorporation (I.R.S. Employer Identification No.)
363 SAN MIGUEL DRIVE NEWPORT BEACH,
CALIFORNIA 92660-7805 (Address of principal
executive offices, including zip code)
714-721-2700
(Registrant's telephone number, including area code)
COMMON STOCK, PAR VALUE $.01 PER SHARE, 12,129,455 SHARES
WERE OUTSTANDING AS OF May 1,1997
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
--- ---
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PACIFIC GULF PROPERTIES INC.
FORM 10-Q
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PAGE
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 1
Consolidated Statements of Operations for the Three-
Month periods ended March 31, 1997 and March 31, 1996 2
Consolidated Statements of Cash Flows for the Three-
Month periods ended March 31, 1997 and March 31, 1996 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION 9
SIGNATURES 10
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PACIFIC GULF PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Real estate assets
Land $ 118,789 $ 111,253
Buildings 302,377 270,458
--------- ---------
421,166 381,711
Accumulated depreciation (31,170) (28,844)
--------- ---------
389,996 352,867
Cash and cash equivalents 7,302 1,523
Accounts receivable 1,506 2,125
Other assets 8,026 8,125
--------- ---------
$ 406,830 $ 364,640
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 195,889 $ 197,401
Accounts payable and accrued liabilities 5,870 5,671
Dividends payable 4,972 4,001
Convertible subordinated debentures 13,109 14,227
--------- ---------
219,840 221,300
Minority interest in consolidated
partnership 3,518 3,518
Commitments and contingencies -- --
Shareholders' equity
Preferred shares, $.01 par value;
5,000,000 shares authorized; no
shares outstanding -- --
Common shares, $.01 par value;
25,000,000 shares authorized;
12,120,597 (March 31, 1997) and
9,757,917 (December 31, 1996)
shares outstanding 122 98
Excess shares, $.01 par value;
30,000,000 shares authorized; no
shares outstanding -- --
Outstanding restricted stock (836) (877)
Additional paid-in capital 203,370 157,895
Distributions in excess of net
earnings (19,184) (17,294)
--------- ---------
183,472 139,822
--------- ---------
$ 406,830 $ 364,640
========= =========
</TABLE>
See accompanying notes
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PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
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1997 1996
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REVENUES
Rental income
Multifamily properties $ 7,581 $ 7,051
Industrial properties 7,232 3,784
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14,813 10,835
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EXPENSES
Rental property expenses
Multifamily properties 2,918 2,786
Industrial properties 1,816 948
----------- -----------
4,734 3,734
Depreciation 2,356 1,835
Interest (including amortization of
debenture discount and financing costs of
$222 and $277 respectively) 3,953 4,326
General and administrative 688 647
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11,731 10,542
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NET INCOME $ 3,082 $ 293
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,533,865 4,864,044
=========== ===========
NET INCOME PER COMMON SHARE $ .27 $ .06
=========== ===========
DIVIDENDS DECLARED PER COMMON SHARE $ .41 $ .40
=========== ===========
</TABLE>
See accompanying notes
2
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PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,082 $ 293
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 2,356 1,835
Amortization of financing costs 185 135
Amortization of debenture
discount and costs 37 142
Compensation recognized related
to restricted stock 41 30
Net increase (decrease) in
certain other assets 466 (208)
Net increase in certain
liabilities 199 (378)
-------- --------
Net cash provided by operating
activities 6,366 1,849
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to real estate assets (39,455) (8,049)
-------- --------
Net cash used in investing
activities (39,455) (8,049)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage notes payable -- 8,000
Proceeds from revolving line of credit 12,483 4,000
Repayment of mortgage notes payable (309) (3,242)
Repayment of revolving lines of credit (13,686) (1,000)
Debentures converted to common stock (1,117) --
Issuance of common stock 45,499 4
Distributions paid (4,002) (1,943)
-------- --------
Net cash provided by financing
activities 38,868 5,819
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,779 (381)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 1,523 2,847
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,302 $ 2,466
======== ========
</TABLE>
See accompanying notes
3
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
Pacific Gulf Properties Inc. was incorporated in Maryland and operates
as a Real Estate Investment Trust ("REIT") under the Internal Revenue
Code of 1986, as amended. The consolidated financial statements include
the accounts of Pacific Gulf Properties Inc. (the "Company") and its
consolidated partnership, PGP Inland Communities, L.P. (the
"Partnership"). The information furnished has been prepared in
accordance with generally accepted accounting principles for interim
financial reporting and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Certain prior year amounts have been reclassified
to conform to the current year presentations. In the opinion of
management, all adjustments considered necessary for the fair
presentation of the Company's financial position, results of operations
and cash flows have been included. These financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
2. REAL ESTATE ACQUISITIONS AND DISPOSITIONS
In the first quarter of 1997, the Company used proceeds from a public
offering of its Common Stock to acquire four industrial properties
consisting of 1,091,372 leasable square feet for an aggregate purchase
price of $36,806,000. (See Note 5.) The properties consist of two
industrial locations in Southern California with 320,972 leasable
square feet, one industrial location in Woodland, California with
570,000 leasable square feet, and an industrial location in Algona,
Washington with 200,401 leasable square feet.
3. LOANS PAYABLE
The Company's loans payable at March 31, 1997 and December 31, 1996
consist of the following (in thousands):
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<CAPTION>
1997 1996
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Mortgage notes payable $183,259 $183,682
Construction loan 147 33
Revolving line of credit 12,483 13,686
-------- --------
$195,889 $197,401
======== ========
</TABLE>
4. CONVERTIBLE SUBORDINATED DEBENTURES
As of March 31, 1997, the Company's outstanding convertible
subordinated debentures totaled $13,109,000, net of unamortized
discount of $167,000. The debentures, are convertible into Common Stock
at a rate of 53.6986 shares of Common Stock per $1,000 of principal
amount of debentures and conversion of all the outstanding debentures
would require the issuance of an additional 712,903 shares of Common
Stock. (If the debentures were fully converted, the net income
attributable to each share of Common Stock would not be diluted.)
During the quarter ended March 31, 1997, $1,161,000 in
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aggregate principal amount of debentures ($1,117,000 net of discount)
were converted into 62,324 shares of Common Stock.
5. SHAREHOLDERS' EQUITY
In January 1997, the Company received gross proceeds of approximately
$47.2 million from the issuance of 2,300,000 shares of Common Stock
(including proceeds from the issuance of 300,000 shares of Common Stock
sold pursuant to the exercise of the underwriter's overallotment
option) at a price of $20.50 per share. The Company used the proceeds
to fund the acquisition of certain properties, to repay debt and for
general corporate purposes.
On April 11, 1997, the Company's shelf registration statement on Form
S-3, which was filed in March 1997, was declared effective. The shelf
registration statement covers a maximum aggregate offering price of
$250 million in Common Stock, Preferred Stock, debt securities and
warrants to purchase such securities.
During the three months ended March 31, 1997, 356 shares of Common
Stock were issued through the Company's Dividend Reinvestment Program.
6. PER COMMON SHARE DATA
Per common share amounts are calculated based upon weighted average
common shares outstanding and common share equivalents of 11,533,865
and 4,864,044 for the three months ended March 31, 1997 and 1996,
respectively. Common share equivalents include stock options which are
considered dilutive for the purposes of computing primary earnings per
share.
7. DISTRIBUTIONS
On March 12, 1997, the Company declared its quarterly distribution of
.41 per common share covering shares outstanding at March 31, 1997.
Assuming the Board continues to declare quarterly distributions the
estimated annual distribution based on this amount would be $1.64. The
distribution was paid on April 11, 1997 to holders of record on April
1, 1997.
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8. INTEREST
Interest incurred for the three months ended March 31 consists of the
following (in thousands):
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1997 1996
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Interest $3,731 $4,049
Amortization:
Debenture discount and costs 37 142
Costs related to financing assumed
from the Company's Predecessor and
line of credit costs 108 86
Long-term financing costs 77 49
------ ------
$3,953 $4,326
====== ======
</TABLE>
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PACIFIC GULF PROPERTIES INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses the consolidated financial statements of the
Company for the three months ended March 31, 1997 and 1996, together with
liquidity and capital resources as of March 31, 1997.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996
Multifamily rental income increased by $530,000, or 8%, from $7,051,000 in 1996
to $7,581,000 in 1997. This increase was primarily attributable to an increase
in rental rates and to the acquisition of a multifamily property containing 165
apartment units during the fourth quarter of 1996. Industrial rental income
increased by $3,448,000, or 91%, from $3,784,000 in 1996 to $7,232,000 in 1997.
This increase was primarily attributable to the acquisition of fifteen
industrial parks containing approximately 2,819,000 square feet of leasable area
in 1996 and 1997. As a result of these changes, total revenues increased by
$3,978,000, or 37%, from $10,835,000 in 1996 to $14,813,000 in 1997.
Multifamily rental income for the three months ended March 31, 1997 totaled
$7,581,000 and included $261,000 related to the multifamily property acquired
during the fourth quarter of 1996.
Industrial rental income for the three months ended March 31, 1997 totaled
$7,232,000 and included $3,371,000 related to the recent acquisition of fifteen
industrial parks since March of 1996.
Multifamily rental property expenses increased by $132,000, or 5%, from
$2,786,000 in 1996 to $2,918,000 in 1997. This increase was primarily
attributable to the acquisition of the multifamily property containing 165
apartment units during the fourth quarter of 1996. Industrial rental property
expenses increased $868,000, or 92%, from $948,000 in 1996 to $1,816,000 in
1997. This increase was primarily attributable to the acquisition of the above
referenced fifteen industrial parks.
Multifamily rental property expenses for the three months ended March 31, 1997
totaled $2,918,000 and included $112,000 related to the multifamily property
acquired during the fourth quarter of 1996.
Industrial rental property expenses for the three months ended March 31, 1997
totaled $1,816,000 and included $914,000 related to fifteen industrial parks
acquired since March 31, 1996.
Total depreciation increased by $521,000, or 28%, from $1,835,000 in 1996 to
$2,356,000 in 1997. This increase was primarily attributable to additional
depreciation relating to the acquisition of one multifamily property, fifteen
industrial parks, and capital improvements made to rehabilitate existing
properties.
Interest expense (including amortization of debenture discount and financing
costs) decreased by $373,000, or 9%, from $4,326,000 in 1996 to $3,953,000 in
1997. This decrease was primarily attributable to a decrease in convertible
subordinated debentures outstanding, offset by an increase in outstanding
borrowings due to new acquisitions made during 1996 and 1997.
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General and administrative expenses increased by $41,000, or 6%, from $647,000
in 1996 to $688,000 in 1997. This increase was primarily attributable to
personnel increases related to acquisitions made during the second half of 1996
and in 1997.
For the three months ended March 31, 1997, the Company generated net income of
$3,082,000 compared to net income of $293,000 in 1996. These results are
attributable to the foregoing.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $7,302,000 of cash to meet its immediate
short-term liquidity requirements. Future short-term liquidity requirements are
anticipated to be met through net cash flow from operations, existing working
capital and, if necessary, funding from the Company's revolving line of credit.
The Company has a secured revolving line of credit from Bank of America (the
"Bank") for a maximum amount of $65,000,000 which expires in July, 1998. As of
March 31, 1997, the Company had borrowed $12,483,000 under the revolving line of
credit.
The Company intends to acquire additional properties and may seek to fund these
acquisitions through proceeds received from a combination of its secured line of
credit, Class A Preferred Shares, equity offerings or debt financings, but no
assurance can be given that any acquisitions will be completed.
The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, continuing debt service obligations and
the payment of dividends in accordance with REIT requirements in the foreseeable
future.
Cash provided by operating activities increased from $1,849,000 for the period
ended March 31, 1996 to $6,366,000 for the period ended March 31, 1997. The
primary reason for these increases related to the additional rental income
contributed by properties acquired during 1996 and 1997.
Cash used in investing activities increased from $8,049,000 for the period ended
March 31, 1996 to $39,455,000 for the period ended March 31, 1997 as a result of
acquisitions.
Cash provided by financing activities increased from $5,819,000 for the period
ended March 31, 1996 to $38,868,000 for the year ended March 31, 1997 primarily
as a result of the issuance of common stock from a stock offering and the
conversion of debentures in 1997.
The Company has an agreement with an investor to issue 1,351,351 shares of Class
A Senior Cumulative Convertible Preferred Stock at a price of $18.50. During
April 1997, the Company, pursuant to this agreement, issued 270,270 shares of
Class A Senior Cumulative Convertible Preferred Stock raising gross proceeds of
$5,000,000. The proceeds were used to pay off a portion of a mortgage note
totaling $7,200,000 and general corporate purposes.
The immediately preceding paragraphs contain forward looking information
involving 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 and costs associated with the Company's acquisitions, the
actual capital expenditures associated therewith, and the strength of the local
economies of the submarkets in which the Company operates. Higher than expected
acquisition, rental and/or rehabilitation costs, delays in the rehabilitation of
properties, 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.
8
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PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Company filed three
Current Reports on Form 8-K. On February 18, 1997, the company
filed a Report on Form 8-K, reporting under Item 7. On January
21, 1997, the company filed a Report on form 8-K reporting under
Items 5 and 7. On January 14, 1997, the Company filed a Report
on Form 8-K, reporting under Items 2,5 and 7.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC GULF PROPERTIES INC.
/s/ GLENN L. CARPENTER /s/ DONALD G. HERRMAN
- ------------------------------ ------------------------------
Glenn L. Carpenter Donald G. Herrman
Chairman and Chief Executive Officer Chief Financial Officer and
Secretary
DATED: May 13, 1997
--------------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,302
<SECURITIES> 0
<RECEIVABLES> 2,506
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,808
<PP&E> 421,166
<DEPRECIATION> 31,170
<TOTAL-ASSETS> 406,830
<CURRENT-LIABILITIES> 10,842
<BONDS> 208,998
0
0
<COMMON> 122
<OTHER-SE> 183,350
<TOTAL-LIABILITY-AND-EQUITY> 406,830
<SALES> 0
<TOTAL-REVENUES> 14,813
<CGS> 0
<TOTAL-COSTS> 7,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,953
<INCOME-PRETAX> 3,082
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,082
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
