<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 20, 1997
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.)
4220 VON KARMAN, 2ND FLOOR, NEWPORT BEACH, CALIFORNIA, 92660-2002
(Address of principal executive offices, including zip code)
714-223-5000
(Registrant's telephone number, including area code)
<PAGE> 2
This report amends the Current Report on Form 8-K dated October 31,
1997 to reflect the Common Stock offering completed by Pacific Gulf
Properties on November 17, 1997 (the "November 1997 Common Stock
Offering"). The pro forma consolidated financial statements have been
amended to reflect the revised net proceeds from the offering of
$83,004,000.
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS.
Pacific Gulf Properties Inc. (the "Company") completed or anticipates
completing the following property acquisitions:
NEW ACQUISITION
EDEN PLAZA/EDEN INDUSTRIAL
On October 20, 1997, the Company acquired a controlling general partner
interest in PGP Northern Industrial, L.P., a newly-formed California
limited partnership (the "Partnership") to which the previous owners
contributed two industrial properties known as Eden Plaza/Eden
Industrial Park. The Eden Plaza/Eden Industrial Properties contain
approximately 500,739 leasable square feet located in Hayward,
California in Northern California and was previously owned by Eden
Plaza Associates LLC, a California limited liability corporation
controlled by Almaden Equities. The asset values upon contribution to
the Partnership by the previous owners of the Eden Plaza/Eden
Industrial properties were as follows:
<TABLE>
<CAPTION>
Asset
Leasable Value Upon
Property Name Location Square Feet Contribution
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Eden Plaza Hayward, CA 101,184 $ 3,838,000
Eden Industrial Hayward, CA 399,555 15,162,000
----------------------------
500,739 $ 19,000,000
============================
</TABLE>
The Company became the sole general partner of the Partnership with a
62% ownership interest in exchange for a cash contribution of
approximately $3,977,000. The previous owners of the Eden Plaza/Eden
Industrial properties became limited partners in the Partnership upon
their contribution of the properties and received 144,016 limited
partnership units in exchange for their minority interest of
approximately $2,869,000. The limited partner units which represent a
combined ownership interest in the Partnership of 38% may be tendered
for redemption beginning, in most cases, two years after the closing of
the transaction. Upon tender, the Company at its election, can either
issue shares of its common stock for the units on a one-for-one basis
(subject to certain adjustments) or pay cash. In connection with the
properties' contribution at a gross asset value of $19,000,000, the
Partnership assumed existing indebtedness with an outstanding balance
of approximately $15,641,000 secured by the properties and $154,000 in
tenant security deposits. The Company's cash contribution was used to
refinance and reduce the indebtedness assumed by the Partnership from
$15,641,000 to $12,000,000. Capitalizable financing costs totaling $120
were incurred in connection with such refinancing.
-1-
<PAGE> 3
PROBABLE ACQUISITIONS
Industrial Portfolio Acquisition Properties
On October 23, 1997 and September 19, 1997, the Company entered
into agreements to purchase the following industrial portfolio
consisting of four properties (collectively referred to as the
"Industrial Portfolio Acquisition Properties") for an estimated
purchase price of $39,000,000:
<TABLE>
<CAPTION>
Leasable
Property Name Location Square Feet
---------------------------------------------------------------------
<S> <C> <C>
Tower Park Anaheim, CA 211,238
611 Cerritos Anaheim, CA 129,426
Acacia Business Center Fullerton, CA 202,551
Valley View Distribution Center Las Vegas, NV 300,000
-------
843,215
=======
</TABLE>
The Company contracted to acquire these four industrial properties from
AMRESCO Southern California, LLC, and MSC Valley View, Inc.,
affiliates of AMRESCO Advisors, a pension fund advisor. In connection
with this acquisition, the Company is assuming an existing loan
totaling $4,448,000 which is secured by Valley View Distribution
Center. This loan bears interest at a fixed rate of interest of 8.375%
and matures January 2004. The Company plans to spend $495,000 in
capital expenditures to rehabilitate these properties.
Woodland Distribution Center
On August 1, 1997, the Company entered into an agreement to purchase a
warehouse/distribution center containing approximately 319,800 leasable
square feet located in Woodland, California ("Woodland Distribution
Center"). The Company contracted to purchase Woodland Distribution
Center from Woodland 54 Venture, a California General Partnership,
for a total cash consideration of $8,600,000.
The Company anticipates purchasing the Probable Acquisitions with
proceeds from a proposed public offering of 4,250,000 shares of the
Company's Common Stock to be completed in November 1997 under the
Company's $250,000,000 shelf registration statement declared effective
in April 1997.
All Probable Acquisitions remain subject to certain conditions to
closing. Accordingly, there can be no assurance that the Probable
Acquisitions will be consummated.
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<PAGE> 4
ITEM 5. OTHER INFORMATION.
POSSIBLE ACQUISITIONS
The Company has entered into agreements to acquire the properties
listed below for an estimated purchase price of $57,500,000. The Company has
not yet completed sufficient due diligence to determine the probability of
these acquisitions and as a result has not included the effect of such
acquisitions in the accompanying pro forma financial information.
LEASABLE
SQUARE
PROPERTY NAME LOCATION FEET
- - ------------- -------- --------
BUSINESS PARK PORTFOLIO
Business Park ................... Anaheim, CA 145,745
Business Park ................... Sacramento, CA 269,146
Business Park ................... Santa Clara, CA 188,777
Business Park ................... Sunnyvale, CA 129,513
-------
733,181
=======
COMMON STOCK OFFERING
On November 17, 1997, the Company entered into an underwriting agreement with
Prudential Securities for the issuance of 4,250,000 shares of Common Stock at a
price of $20.75 per share. Net proceeds from the offering totaled $83,004,000
(after underwriting discounts and commissions and estimated expenses) which will
be used to complete the purchase of the Probable Acquisitions to repay
borrowings on the Acquisition Facility and to reduce outstanding indebtedness on
the Company's revolving line of credit.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The attached pro forma consolidated financial statements are provided as an
amendment to the Form 8-K dated October 31, 1997 primarily to reflect the
revised net proceeds from the November 1997 Common Stock Offering of $83,004,000
(4,250,000 shares at $20.75 per share) and the application of those net proceeds
as stated in a Prospectus Supplement filed with the Securities and Exchange
Commission.
(a) See Index to Financial Statements attached hereto.
(b) Exhibits
23.1 Consent of Independent Auditors
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<PAGE> 5
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 hereunto duly authorized.
PACIFIC GULF PROPERTIES INC.
/s/ Donald G. Herrman
- - ------------------------------------------
Donald G. Herrman
Executive Vice President,
Chief Financial Officer and Secretary
DATED: November 18, 1997
- - ------------------------------------------
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<PAGE> 6
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)........................................................... 5
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1997............................... 6
Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended
September 30, 1997............................................................................... 7
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31,
1996............................................................................................. 8
Notes to Pro Forma Condensed Consolidated Financial Statements........................................ 9
EDEN PLAZA/EDEN INDUSTRIAL
Report of Independent Auditors........................................................................ 24
Combined Statement of Revenues and Certain Expenses for the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997 (Unaudited)......................................... 25
Notes to Combined Statement of Revenues and Certain Expenses.......................................... 26
INDUSTRIAL PORTFOLIO ACQUISITION PROPERTIES
Report of Independent Auditors........................................................................ 28
Combined Statement of Revenues and Certain Expenses for the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997 (Unaudited)......................................... 29
Notes to Combined Statement of Revenues and Certain Expenses.......................................... 30
</TABLE>
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<PAGE> 7
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS ADJUSTED
BEFORE
PRO FORMA
PROBABLE PRO FORMA
ACQUISITIONS PROBABLE
AND ACQUISITIONS
COMMON AND COMMON
COMPANY STOCK STOCK COMPANY
HISTORICAL ADJUSTMENTS OFFERING OFFERING PRO FORMA
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, net
Operating properties $ 486,922 $ 19,000 (A) $ 505,922 $ 47,600 (E) $ 553,522
Properties under development 43,328 - 43,328 - 43,328
Cash and cash equivalents 1,258 255 (A)(B) 2,228 (1,937)(F) 291
715 (C)
Accounts receivable 2,501 - 2,501 - 2,501
Other assets 14,567 120 (A) 16,687 (1,450)(E) 15,237
2,000 (D)
---------------------------------------------------------------------------------
$ 548,576 $ 22,090 $ 570,666 $ 44,213 $ 614,879
=================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Loans payable $ 211,638 $ 41,392 (A)(B)(C) $ 253,030 $ 4,448 (E) $ 257,478
Line of credit 32,120 9,300 (A)(C) 41,420 (41,420)(F) -
Acquisition facility 33,625 (31,625)(B)(D) 2,000 (2,000)(F) -
Accounts payable and accrued
liabilities 8,711 154 (A) 8,865 181 (E) 9,046
Dividends payable 6,139 - 6,139 - 6,139
Convertible subordinated
debentures 12,652 - 12,652 - 12,652
---------------------------------------------------------------------------------
Total liabilities 304,885 19,221 324,106 (38,791) 285,315
Minority interest in consolidated
partnerships 8,465 2,869 (A) 11,334 - 11,334
Shareholders' equity
Preferred stock 7 - 7 - 7
Common shares 143 - 143 43 (F) 186
Outstanding restricted stock (865) - (865) - (865)
Additional paid-in capital 259,558 - 259,558 82,961 (F) 342,519
Distributions in excess of
earnings (23,617) - (23,617) - (23,617)
---------------------------------------------------------------------------------
235,226 - 235,226 83,004 318,230
---------------------------------------------------------------------------------
$ 548,576 $ 22,090 $ 570,666 $ 44,213 $ 614,879
=================================================================================
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
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<PAGE> 8
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS ADJUSTED PRO FORMA
BEFORE PROBABLE
PRO FORMA ACQUISITIONS
PROBABLE AND
ACQUISITIONS COMMON
COMPANY AND COMMON STOCK COMPANY
HISTORICAL ADJUSTMENTS STOCK OFFERING OFFERING PRO FORMA
------------------------------- ----------------------------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $ 24,850 $ 6,538 (G) $ 31,388 $ 3,600 (M) $ 34,988
Multifamily properties 24,339 1,665 (G) 26,004 - 26,004
------------------------------- ---------------------------------- --------------
49,189 8,203 57,392 3,600 60,992
EXPENSES
Rental property expenses
Industrial properties 5,864 1,365 (G) 7,229 709 (M) 7,938
Multifamily properties 9,421 583 (G) 10,004 - 10,004
------------------------------- ---------------------------------- ---------------
15,285 1,948 17,233 709 17,942
Depreciation 8,073 1,767 (H) 9,840 809 (N) 10,649
Interest 12,621 4,277 (I) 16,839 (2,221) (O) 14,618
(59) (J) -
General and administrative 2,238 - 2,238 - 2,238
Minority interest in earnings
of consolidated partnerships 114 507 (K) 621 - 621
------------------------------- ---------------------------------- ---------------
NET INCOME (V) 10,858 (237) 10,621 4,303 14,924
Preferred dividend
requirements (390) (554) (L) (944) - (944)
------------------------------- ---------------------------------- ---------------
INCOME AVAILABLE
TO COMMON SHAREHOLDERS (V) $ 10,468 $ (791) $ 9,677 $ 4,303 $ 13,980
=========================================================================================
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING (S) 12,843,805 18,498,983
============= ===============
INCOME AVAILABLE PER
COMMON SHARE (V) $ 0.82 $ 0.76
============= ===============
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
-7-
<PAGE> 9
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS ADJUSTED
BEFORE
PRO FORMA PRO FORMA
PROBABLE PROBABLE
ACQUISITIONS ACQUISITIONS
AND COMMON AND COMMON
COMPANY STOCK STOCK COMPANY
HISTORICAL ADJUSTMENTS OFFERING OFFERING PRO FORMA
------------------------------- ---------------------------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $ 20,783 $ 18,312 (G) $ 39,095 $ 4,371 (M) $ 43,466
Multifamily properties 29,104 4,470 (G) 33,574 - 33,574
------------------------------- ---------------------------------- --------------
49,887 22,782 72,669 4,371 77,040
EXPENSES
Rental property expenses
Industrial properties 5,308 4,380 (G) 9,688 744 (M) 10,432
Multifamily properties 11,554 1,885 (G) 13,439 - 13,439
------------------------------- ---------------------------------- --------------
16,862 6,265 23,127 744 23,871
Depreciation 8,236 4,335 (P) 12,571 1,077 (N) 13,648
Interest 18,411 (468)(J) 24,227 (2,960)(O) 21,267
10,176 (Q)
(3,892)(R)
General and administrative 2,974 - 2,974 - 2,974
Minority interest in earnings
in consolidated partnerships - 676 (K) 676 - 676
------------------------------- ---------------------------------- --------------
NET INCOME (T)(U) 3,404 5,690 9,094 5,510 14,604
Preferred dividend
requirements - 1,259 (L) 1,259 - 1,259
------------------------------- ---------------------------------- --------------
INCOME AVAILABLE TO
COMMON
SHAREHOLDERS (T)(U) $ 3,404 $ 4,431 $ 7,835 $ 5,510 $ 13,345
=====================================================================================
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING (S) 6,340,748 18,427,925
============== ==============
INCOME AVAILABLE PER
COMMON SHARE (T)(U) $ 0.54 $ 0.72
============== ==============
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
-8-
<PAGE> 10
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION
Pacific Gulf Properties Inc. (the "Company") was formed in 1993 and completed
its initial public offering in February 1994.
On October 16, 1997, the Company acquired a controlling general partner interest
in a newly-formed California limited partnership to which the previous owners
contributed two industrial properties containing approximately 500,739 leasable
square feet located in Hayward, California ("Eden Plaza/Eden Industrial"). The
Company anticipates that it will acquire (i) an industrial portfolio of four
warehouse/distribution properties (the "Industrial Portfolio Acquisition
Properties"), three of which contain approximately 543,215 leasable square feet
located in Southern California (Tower Park, 611 Cerritos, and Acacia Business
Center) and a fourth property which contains approximately 300,000 leasable
square feet located in Las Vegas (Valley View Business Center) and (ii) a
warehouse/distribution center containing approximately 319,800 leasable square
feet located in Woodland, California ((Woodland Distribution Center" which
together with the "Industrial Portfolio Acquisition Properties" are collectively
referred to as the "Probable Acquisitions"). It is anticipated that the Company
will complete the purchase of the Probable Acquisitions and repay certain
indebtedness utilizing proceeds from the issuance of 4,250,000 shares of the
Company's Common Stock in November 1997 (the "November 1997 Common Stock
Offering") under the Company's $250,000,000 shelf registration statement
declared effective April 1997.
The condensed pro forma consolidated financial statements of the Company have
been adjusted to reflect the effect of completing the November 1997 Common Stock
Offering, purchasing the Probable Acquisitions and repaying certain indebtedness
as more fully described below. The Company's pro forma consolidated financial
statements have been further adjusted to reflect the effect of certain
transactions which the Company completed subsequent to September 30, 1997 or
during the periods reported herein as if those transactions occurred as of the
dates indicated.
The Company's pro forma condensed consolidated balance sheet as of September 30,
1997 is based on the unaudited historical financial statements of the Company
and has been adjusted to reflect the following transactions completed by the
Company subsequent to September 30, 1997 as if these transactions occurred on
September 30, 1997: (i) the Company's acquisition of a controlling general
partner interest in the partnership that owns Eden Plaza/Eden Industrial;
(ii) the repayment of $33,625 on the Company's Acquisition Facility with
proceeds from a new $34,000 term loan obtained in October 1997; (iii) increased
borrowings in October 1997 under the Company's Line of Credit obtained by the
Company to repay a maturing loan payable and (iv) increased borrowings in
October 1997 under the Company's Acquisition Facility to pay certain
pre-acquisition costs related to the Probable Acquisitions. The Company's
pro forma condensed consolidated balance sheet as of September 30, 1997 has
been further adjusted to reflect the pro forma effect of the following
transactions as if the transactions had occurred on September 30, 1997: (i) the
purchase of the Probable Acquisitions and (ii) the completion of the November
1997
-9-
<PAGE> 11
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 1 - BASIS OF PRESENTATION (continued)
Common Stock Offering and the application of net proceeds thereof as described
in a Prospectus Supplement filed with the Securities and Exchange Commission.
The Company's pro forma condensed consolidated statement of operations for the
year ended December 31, 1996 is based on the historical financial statements of
the Company and has been adjusted to reflect the effect of the following
transactions completed by the Company during the periods reported herein or
subsequent to September 30, 1997, as if these transactions had occurred as of
the beginning of the period presented: (i) the purchase in March 1996 of an
industrial property containing approximately 189,000 leasable square feet
located in Garden Grove, California (the "Pacific Gulf Business Park"); (ii) the
purchase in June and July 1996 of nine industrial properties containing
approximately 1,400,000 leasable square feet located in California (the "1996
Industrial Acquisitions") utilizing proceeds from a public offering of 2,435,481
shares of the Company's Common Stock consummated in May 1996 (the "May 1996
Common Stock Offering"); (iii) the completion of the May 1996 Common Stock
Offering and the application of net proceeds thereof; (iv) the sale of a
14.3-acre parcel and a 56,000 square foot building in August 1996 to an existing
tenant at Baldwin Industrial Park pursuant to purchase options contained in the
existing tenant's lease (the "Tenant Sale"); (v) the exchange in December 1996
of $42,069 aggregate principal amount of the Company's 8.375% convertible
Subordinated Debentures due 2001 (the "Debentures") for 2,440,002 shares of the
Company's Common Stock pursuant to the Company's offer to exchange such
Debentures filed with the Securities and Exchange Commission on December 11,
1996 (the "Debenture-for-Stock Exchange"); (vi) the acquisition of two
additional properties in late 1996: (a) an industrial property containing
approximately 186,000 square feet located in San Diego, California in October
1996 (Miramar Business Park), and (b) a 165-unit multifamily community located
in Ontario, California (Raintree Apartments) in November 1996 (collectively, the
"Other 1996 Acquisitions"); (vii) the purchase in January and February 1997 of
three warehouse/distribution facilities containing an aggregate of 521,000
leasable square feet located in Washington and California ("1997 Industrial
Acquisitions") with proceeds from a public offering of 2,300,000 shares of the
Company's Common Stock consummated in January 1997 (the "January 1997 Common
Stock Offering"); (viii) the completion of the January 1997 Common Stock
Offering and the application of net proceeds thereof; (ix) the purchase of a
warehouse/distribution facility in March 1997 containing approximately 570,000
leasable square feet located in Woodland, California ("Woodland Distribution
Center"); (x) the repayment in April 1997 of certain indebtedness totaling
$7,000 with proceeds from the issuance of 270,270 shares of Class A Senior
Cumulative Convertible Preferred Stock (the "Class A Preferred Stock") the
proceeds of which were used to repay such indebtedness; (xi) the purchase of the
following properties utilizing proceeds from a public offering of 2,131,700
shares of the Company's Common Stock completed in June 1997 (the "June 1997
-10-
<PAGE> 12
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 1 - BASIS OF PRESENTATION (continued)
Common Stock Offering"): (a) the Algona Distribution Center, a
warehouse/distribution facility containing approximately 250,000 leasable square
feet located in Algona, Washington purchased for redevelopment purposes in
January, 1997, (b) the 12.8-acre land parcel located in Lake Forest, California
purchased in May, 1997 for the development of a multitenant industrial complex
that will contain approximately 203,500 leasable square feet, ("Lake Forest Land
Parcel") (c) the 17.1 acre land parcel located within the Spectrum
master-planned business community located in Irvine, California for the
development of a warehouse/distribution business park that will contain
approximately 235,000 leasable square feet (Pacific Gulf Spectrum Land"); (d) a
warehouse/ distribution center purchased in August 1997 for the redevelopment of
approximately 360,000 leasable square feet of industrial space ("Vons
Distribution Center" which together with the "Algona Distribution Center," the
"Lake Forest Land Parcel," and the "Pacific Gulf Spectrum Land" are collectively
referred to as the "Properties Under Development") and (d) a controlling general
partner interest in two partnerships that own active senior apartment
communities containing 551 apartment units located in Escondido, California (the
"Senior Apartments"; (xii) the completion of the June 1997 Common Stock Offering
and the application of the net proceeds thereof to complete the purchase of the
Development Properties and the Senior Apartments; (xiii) the purchase in July
1997 of an industrial portfolio of five industrial properties containing
approximately 1,532,000 leasable square feet located in California (the
"AEW/Lincoln Properties") utilizing borrowings under the Company's Acquisition
Facility and proceeds from the issuance of 470,588 shares of Class B Senior
Cumulative Convertible preferred stock (the "Class B Preferred Stock"); and
(xiv) the purchase in September 1997 of an industrial park containing
approximately 142,000 leasable square feet located in Concord, California
("Concord Business Center"); (xv) the purchase in October 1997 of a controlling
general partner interest in the partnership that owns Eden Plaza/Eden Industrial
and (xvi) the borrowings obtained by the Company in October 1997 under the
revolving line of credit to repay a maturing loan payable and under the
Acquisition Facility to pay certain pre-acquisition costs (primarily refundable
deposits) of the Probable Acquisitions.
The Company's pro forma condensed consolidated financial statements for the year
ended December 31, 1996 has been further adjusted to reflect the pro forma
effect of the following transactions which the Company anticipates completing
utilizing proceeds from the November 1997 Common Stock Offering as if the
transactions occurred as of the beginning of the period presented: (i) the
purchase of the Probable Acquisitions and (ii) the completion of the November
1997 Common Stock Offering of 4,250,000 shares of the Company's Common Stock and
the application of net proceeds as described in a Prospectus Supplement filed
with the Securities and Exchange Commission.
-11-
<PAGE> 13
'
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 1 - BASIS OF PRESENTATION (continued)
The Company's pro forma condensed consolidated statement of operations for the
nine months ended September 30, 1997 is based on the historical financial
statements of the Company and has been adjusted to reflect the effect of the
following transactions completed by the Company during the periods reported
herein or subsequent to September 30, 1997 as if the transactions had occurred
as of the beginning of the period presented: (i) the purchase in January and
February 1997 of the 1997 Industrial Acquisitions; (ii) the completion of the
January 1997 Common Stock Offering and the application of net proceeds thereof;
(iii) the purchase in March 1997 of the Woodland Distribution Center; (iv) the
repayment of certain indebtedness totaling $7,000 in April 1997 with proceeds
from the issuance of 270,270 Class A Preferred Stock shares; (v) the purchase of
the Properties Under Development and the Senior Apartments completed by the
Company in the second quarter of 1997 and June 1997, respectively; (vi) the
completion of the June 1997 Common Stock Offering and the application of net
proceeds thereof to complete the purchase of the Properties Under Development
and the Senior Apartments; (vii) the purchase in July 1997 of the AEW/Lincoln
Properties with proceeds from both borrowings under the Acquisition Facility and
the issuance of 470,288 Class B Preferred Stock shares; (viii) the purchase in
September 1997 of Concord Business Center; (ix) the purchase of a controlling
general partner interest in the partnership that owns Eden Rock Industrial
Park in October 1997 and (x) the borrowings obtained by the Company in October
1997 under the revolving line of credit to repay a maturing loan payable and
under the Acquisition Facility to pay certain pre-aquisition costs (primarily
refundable deposits) of the Probable Acquisitions.
The Company's pro forma condensed consolidated financial statements for the nine
months ended September 30, 1997 have been further adjusted to reflect the pro
forma effect of the following transactions which the Company anticipates
completing as part of the Proposed Common Stock Offering as if these
transactions occurred as of the beginning of the periods presented; (ix) the
purchase of the Probable Acquisitions and (x) the completion of the November
1997 Common Stock Offering of 4,250,000 shares of the Company's Common Stock and
the application of net proceeds as described in a Prospectus Supplement filed
with the Securities and Exchange Commission.
The pro forma condensed consolidated financial statements are not necessarily
indicative of what the Company's financial position or results of operations
would have been assuming the completion of the described transactions as of the
beginning of the periods indicated, nor does it purport to project the Company's
financial position or results of operations at any future date or for any future
period. In addition, the historical operating results for the nine months ended
September 30,1997 are not necessarily indicative of the results to be obtained
by the Company for the year ending December 31, 1997. The following pro forma
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and all of the
financial statements and notes thereto contained in the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,1997, the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
-12-
<PAGE> 14
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS
(A) Purchase of a controlling general partner interest in a newly-formed
California limited partnership that owns two industrial properties
(referred to as "Eden Plaza/Eden Industrial"). The properties were
contributed to the Partnership by the previous owners at an agreed-upon
value of $19,000 subject to approximately $15,641 of existing
indebtedness and $154 of security deposits. In connection with the Eden
Plaza/Eden Industrial transaction, the Company became the sole general
partner in the new partnership with an ownership interest of 62% in
exchange for its cash contribution of $3,977 which was funded by the
Company's revolving line of credit. The previous owners became limited
partners in this partnership and received approximately 144,016 limited
partnership units in exchange for their $2,869 minority equity
interest. Proceeds for the Company's acquisition were borrowed under
the Acquisition Facility and contributed to the partnership which then
used the funds to reduce the properties' existing indebtedness balance
from $15,641 to $12,000. Capitalizable financing costs totaling $120
were incurred in connection with such refinancing.
(B) Repayment of the $33,625 outstanding balance on the Company's
Acquisition Facility which bears interest at LIBOR + 2.00% in October
1997 with proceeds from a new $34,000 loan payable which bears interest
at a fixed rate of 7.11% and matures in ten years.
(C) Borrowings under the Company's revolving line of credit obtained in
October 1997 ($5,323); the proceeds of which were utilized to repay a
maturing loan payable ($4,608) and for general corporate purposes
($715).
(D) Borrowings under the Company's Acquisition Facility obtained in
October 1997 ($2,000) utilized to pay certain pre-acquisition costs
(primarily refundable deposits) including $1,450 related to the
Probable Acquisitions.
(E) Purchase of the following Probable Acquisitions currently under
contract:
<TABLE>
<CAPTION>
Leasable Purchase
Property Name Location Square Feet Price
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial Portfolio Acquisition Properties
Tower Park Anaheim, CA 205,238 $ 8,900
611 Cerritos Fullerton, CA 202,551 6,100
Acacia Business Center Anaheim, CA 129,426 9,900
Valley View Business Center Las Vegas, NV 300,000 14,100
Woodland Distribution Center Woodland, CA 319,800 8,600
----------------------
1,157,015 $47,600
======================
</TABLE>
-13-
<PAGE> 15
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
The Company anticipates completing the purchases with proceeds from the
November 1997 Common Stock Offering (See Note F below) and $1,450 of
pre-acquisition costs (see Note D above). In connection with the
proposed purchases, the Company will assume a $4,448 existing loan
encumbering the Valley View Distribution Center property. In addition,
the Company will receive credit through escrow for the assumption of
tenant security deposits related to these properties totaling
approximately $181. The Probable Acquisitions remain subject to certain
conditions to closing, thus, there can be no assurance that these
acquisitions will be consummated.
(F) Issuance of 4,250,000 shares of $.01 par value Common Stock at $20.75
per share under the November 1997 Common Stock Offering resulting in
net proceeds totaling $83,004 (net of underwriting discounts and
commissions and offering costs). Proceeds from this offering will be
used to fund the purchase of the Probable Acquisitions net of
indebtedness and security deposits assumed and pre-acquisition costs
($41,521), repay balances outstanding on the Company's revolving line
of credit ($41,420) and the Company's Acquisition Facility ($2,000).
(G) Revenues and certain expenses of the following properties acquired by
the Company in 1996 and 1997 for the period prior to their acquisition
by the Company (adjusted to reflect increased property taxes based on
the properties' acquisition cost and current property tax rates):
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1997
----------------------------------------------------------------------------------------
1997 Woodland AEW/ Concord Eden Plaza/
Industrial Distribution Senior Lincoln Business Eden
Acquisitions Center Apartments Properties Center Industrial Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Income
Industrial Properties $ 183 $ 60 $ - $ 3,753 $ 797 $ 1,745 $ 6,538
Multifamily Properties - - 1,665 - - - 1,665
----------------------------------------------------------------------------------------
183 60 1,665 3,753 797 1,745 8,203
Rental Property Expenses
Industrial Properties 59 27 - 737 129 413 1,365
Multifamily Properties - - 583 - - - 583
----------------------------------------------------------------------------------------
59 27 583 737 129 413 1,948
$ 124 $ 33 $ 1,082 $ 3,016 $ 668 $ 1,332 $ 6,255
========================================================================================
</TABLE>
-14-
<PAGE> 16
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
--------------------------------------------------------------------
Pacific
Gulf 1996 Other 1997 Woodland
Business Industrial 1996 Industrial Distribution
Park Acquisitions Acquisitions Acquisitions Center
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Income
Industrial Properties $ 195 $3,217 $1,228 $2,703 $1,432
Multifamily Properties -- -- 918 -- --
--------------------------------------------------------------------
195 3,217 2,146 2,703 1,432
Rental Property Expenses
Industrial Properties 72 809 455 864 160
Multifamily Properties -- -- 542 -- --
--------------------------------------------------------------------
72 809 997 864 160
$ 123 $2,408 $1,149 $1,839 $1,272
====================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996 (continued)
-------------------------------------------------------------------------------------------
AEW/ Concord Eden Plaza/
Senior Lincoln Business Eden Tenant
Apartments Properties Center Industrial Sale Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rental Income
Industrial Properties $ -- $ 6,811 $ 1,020 $ 2,397 $ (691) $ 18,312
Multifamily Properties 3,552 -- -- -- -- 4,470
--------------------------------------------------------------------------------------------
3,552 6,811 1,020 2,397 (691) 22,782
Rental Property Expenses
Industrial Properties -- 1,332 174 546 (32) 4,380
Multifamily Properties 1,343 -- -- -- -- 1,885
--------------------------------------------------------------------------------------------
1,343 1,332 174 546 (32) 6,265
$ 2,209 $ 5,479 $ 846 $ 1,851 $ (659) $ 16,517
============================================================================================
</TABLE>
Algona Distribution Center, the Lake Forest Land Parcel, the Pacific
Gulf Spectrum Land, and Vons Distribution Center acquisitions completed
in 1997 were purchased by the Company for development purposes and had
not been previously operated as rental properties. Accordingly, the
accompanying pro forma consolidated statements of operations for the
year ended December 31, 1996 and nine months ended September 30, 1997
do not reflect historical revenues and expenses for these development
properties.
(H) Depreciation expense of $1,767 during the nine months ended September
30, 1997 relating to the purchase of the 1997 Industrial Acquisitions,
Woodland Distribution Center, the Senior Apartments, the AEW/Lincoln
Properties, Concord Business Center and Eden Plaza/Eden Industrial. The
depreciation expense relative to the purchase of these properties for
the period prior to their acquisition was calculated utilizing
estimated remaining useful lives of 40 years and the depreciable basis
of the properties as follows:
<TABLE>
<CAPTION>
Purchase Depreciable Depreciation
Property Name Price Basis Expense
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 Industrial Acquisitions
Algona Warehouse $ 9,450 $ 7,640 $ 11
Harbor Business Park/Harbor Warner Business Park
14,600 12,160 22
Woodland Distribution Center 12,875 10,923 46
Senior Apartments
Terrace Gardens Apartments 10,000 7,950 91
Morning View Terrace Apartments 15,000 10,109 116
AEW/Lincoln Properties 67,308 53,512 966
Concord Business Center 7,645 6,051 135
Eden Plaza/Eden Industrial 19,000 15,200 380
---------------
$ 1,767
===============
</TABLE>
-15-
<PAGE> 17
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(I) Interest expense of $4,277 relating to the purchase of Woodland
Distribution Center, the Senior Apartments, the AEW/Lincoln Properties,
Concord Business Center and Eden Plaza/Eden Industrial. The interest
expense associated with the borrowings used to finance the purchase of
these properties for the period prior to these acquisitions is based on
the actual interest rate on the related debt, as follows:
<TABLE>
<CAPTION>
Pro Forma
Interest Interest
Property Name Debt Rate Expense
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Woodland Distribution Center
Revolving line of credit $ 12,483 8.50% $ 177
Senior Apartments
Terrace Garden Apartments
Loan payable 8,100 6.60% 245
Morning View Terrace Apartments
Loan payable 11,000 6.60% 333
AEW/Lincoln Properties
Revolving line of credit 12,000 7.25% 471
Acquisition facility 41,625 7.50% 1,691
Concord Industrial Park
Loan payable 4,625 8.50% 262
Revolving line of credit 2,870 9.00% 172
Eden Rock Industrial Park
Loan payable 12,000 7.05% 635
Revolving line of credit 3,977 7.63% 227
Amortization of financing costs 64
---------------
$ 4,277
===============
</TABLE>
-16-
<PAGE> 18
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(J) Represents the net decrease in interest expense resulting from the
debt repayments, refinancings and borrowings described herein.
(K) Represents minority equity interest in earnings of the two partnerships
that own the Senior Apartments and the partnership that owns Eden
Plaza/Eden Industrial. Profits and losses are allocated between the
Company and the limited partners based on the relative balances of
their respective capital accounts. In connection with these
partnerships which are controlled by the Company, the limited partners
are entitled to cash distributions on their limited partnership units
to the extent of available cash flow up to an amount on each unit equal
to the dividend on the Company's Common Stock.
(L) Represents the preferred stock dividend requirements of $0.425 per
share per quarter related to 270,270 shares of Class A Preferred Stock
issued by the Company in April 1997 and 470,588 shares of Class B
Preferred Stock issued in July 1997. The 270,270 shares of Class A
Preferred Stock with a par value of $.01 per share were issued pursuant
to an agreement to issue up to 1,351,351 shares executed by the Company
on December 31, 1996. The Class B Preferred Stock with a par value of
$.01 per share were issued pursuant to an agreement to issue up to
1,411,765 shares executed by the Company in May 1997. The Class A
Preferred Stock Shares, which will be issued in up to three
installments at a price of $18.50 per share and the Class B Preferred
Stock shares which will be issued in up to three separate issuances at
$21.25 per share, are redeemable by the Company in whole or part, five
years from the date of issuance and are convertible into shares of
Common Stock, at any time, at the option of the holders based on an
initial conversion ratio of one-to-one, subject to adjustment under
certain circumstances.
-17-
<PAGE> 19
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(M) Revenues and certain expenses of the industrial properties comprising
the Probable Acquisitions, for the period prior to their acquisition by
the Company (adjusted to reflect increased property taxes based on the
properties' acquisition cost and current property tax rates):
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
----------------------------------------------
Industrial
Portfolio Woodland
Acquisition Distribution Total
Properties Center
----------------------------------------------
<S> <C> <C> <C>
Rental income $ 3,095 $ 505 $ 3,600
Rental property expenses 578 131 709
----------------------------------------------
$ 2,517 $ 374 $ 2,891
==============================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------------------------
Industrial
Portfolio Woodland
Acquisition Distribution Total
Properties Center
----------------------------------------------
<S> <C> <C> <C>
Rental income $ 4,371 $ - $ 4,371
Rental property expenses 744 - 744
----------------------------------------------
$ 3,627 $ - $ 3,627
==============================================
</TABLE>
The accompanying pro forma consolidated statement of operations for the
year ended December 31, 1996 does not include revenues and expenses for
Woodland Distribution Center since the property was not previously
used for rental operations prior to 1997.
-18-
<PAGE> 20
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(N) Depreciation expense relating to the purchase of the Probable
Acquisitions for the period prior to their acquisition, was calculated
utilizing estimated remaining useful lives and the depreciable basis
of the properties as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,1997
-------------------------------------------
Purchase Depreciable Depreciation
Property Name Price Basis Expense
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial Portfolio Acquisition Properties
Tower Park $ 8,900 $ 7,120 $ 178
611 Cerritos 6,100 4,880 92
Acacia Business Center 9,900 7,920 198
Valley View Business Center 14,100 11,280 212
Woodland Distribution Center 8,600 6,880 129
------
$ 809
======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------
Purchase Depreciable Depreciation
Property Name Price Basis Expense
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial Portfolio Acquisition Properties
Tower Park $ 8,900 $ 7,120 $ 237
611 Cerritos 6,100 4,880 122
Acacia Business Center 9,900 7,920 264
Valley View Business Center 14,100 11,280 282
Woodland Distribution 8,600 6,880 172
------
$1,077
======
</TABLE>
(O) Represents net decrease in interest expense associated with
indebtedness repaid with net proceeds from the Proposed Common Stock
Offering offset by new borrowings assumed with the Probable
Acquisitions as follows: (i) repayment of $41,420 outstanding balances
on the Company's revolving line of credit, including October 1997
borrowings bearing interest at 7.625% (the effective rate on the line),
(ii) repayment of $2,000 outstanding balance on the Company's
Acquisition Facility, including October 1997 borrowings bearing
interest at 9.00% (the actual rate on the borrowing) and (iii) new
indebtedness totaling $4,448 bearing interest at 8.375% assumed in
connection with the purchase of one of the Probable Acquisitions.
-19-
<PAGE> 21
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(P) Depreciation expense of $4,355 relating to the following properties
acquired by the Company: Pacific Gulf Business Park, the 1996
Industrial Acquisitions, the Other 1996 Acquisitions, the 1997
Industrial Acquisitions, Woodland Distribution Center, the Senior
Apartments, the AEW/Lincoln Properties, Concord Business Center and
Eden Plaza/Eden Industrial, net of $328 depreciation reduction from the
Tenant Sale (the actual depreciation relating to the Tenant Sale during
the year ended December 31, 1996). The depreciation expense relating to
these properties, for the period prior to their purchase, was computed
utilizing the estimated remaining useful lives and depreciable basis of
the properties follows:
<TABLE>
<CAPTION>
Purchase Depreciable Depreciation
Property Name Price Basis Expense
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Gulf Business Park $ 6,800 $ 3,009 $ 16
1996 Industrial Acquisitions
Eden Landing Commerce Park 7,300 5,460 -
Riverview Industrial Park 6,442 5,281 66
Bay San Marcos Industrial Center 4,678 2,942 32
Escondido Business Center 10,372 6,523 70
Bell Ranch Industrial Park 3,750 3,000 35
North County Business Park 6,350 3,169 35
San Marcos Commerce Center 2,710 1,871 20
Pacific Park 6,900 3,001 28
La Mirada Business Center 3,600 2,453 26
Other 1996 Acquisitions
Miramar Business Park 7,242 7,242 181
Raintree Apartments 6,259 4,511 113
1997 Industrial Acquisitions
Algona Warehouse 9,450 7,640 191
Harbor Business Park/Harbor Warner 14,600 12,160 304
Business Park
Woodland Distribution Center 12,875 10,923 273
Senior Apartments
Terrace Garden Apartments 10,000 7,950 199
Morning View Apartments 15,000 10,109 253
AEW/Lincoln Properties 67,308 53,512 1,784
Concord Business Center 7,645 6,051 202
Eden Plaza/Eden Industrial 19,000 15,200 507
-----------------
$ 4,335
=================
</TABLE>
-20-
<PAGE> 22
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(Q) Interest expense of $10,176 relating to the purchase of Pacific Gulf
Business Park, the 1996 Industrial Acquisitions, the Other 1996
Acquisitions, the 1997 Industrial Acquisitions, Woodland Distribution
Center, the Development Properties, the Senior Apartments, the
AEW/Lincoln Properties, Concord Business Center and Eden Plaza/Eden
Industrial, less reduction of interest expense resulting from the
Tenant Sale of $567 (the actual interest relating to the Tenant Sale
during the year ended December 31, 1996). Interest expense associated
with the borrowings used to finance the purchase of these properties
for the period prior to these acquisitions is based on the actual
interest rates on the related debt, as follows:
<TABLE>
<CAPTION>
Pro Forma
Interest Interest
Property Name Debt Rate Expense
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Gulf Business Park
Loan payable $ 8,000 7.30% $ 124
1996 Industrial Acquisitions
Acquisition facility 19,475 7.50% 997
Other 1996 Acquisitions
Miramar Business Park
Revolving line of credit 7,100 7.13% 370
Raintree Apartments
Revolving line of credit 6,200 8.40% 437
Woodland Distribution Center
Revolving line of credit 12,483 8.50% 1,061
Senior Apartments
Terrace Garden Apartments
Loan payable 8,100 6.60% 535
Morning View Apartments
Loan payable 11,000 6.60% 726
AEW/Lincoln Properties
Revolving line of credit 12,000 7.25% 870
Acquisition facility 41,625 7.50% 3,121
Concord Business Center
Loan payable 4,625 8.50% 393
Revolving line of credit 2,870 9.00% 258
Eden Plaza/Eden Industrial
Loan payable 12,000 7.05% 846
Acquisition facility 3,977 7.63% 302
Amortization of Financing Costs 136
-------
$10,176
=======
</TABLE>
-21-
<PAGE> 23
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(Q) continued
The interest expense on the Company's revolving line of credit
borrowings and on borrowings under the Company's Acquisition Facility
is calculated for the period indicated at an interest rate of LIBOR +
1.75% and LIBOR + 2.0%, respectively. The interest rates reflected
above represent the actual rates on the date of the borrowings. A
0.125% change in the interest rate on all of the Company's variable
rate indebtedness would increase the Company's pro forma interest
expense by $99 for the nine months ended September 30, 1997 and $132
for the year ended December 31, 1996.
(R) Reduction in interest expense resulting from the exchange of the
Debentures into 2,440,002 shares of the Company's Common Stock as of
the beginning of the period (including the related amortization of
debenture discount and costs of $417 for the year ended December 31,
1996).
(S) Represents the weighted average of common shares and common stock
equivalents outstanding during the period indicated. Common Stock
equivalents include stock options which are considered dilutive for
purposes of computing primary earnings per common share. Pro forma
weighted average common shares include 2,435,581 shares of Common Stock
issued by the Company in conjunction with its May 1996 Offering,
2,440,002 shares of Common Stock issued as part of the
Debenture-for-Stock Exchange, 2,300,000 shares issued as part of the
January 1997 Common Stock Offering, 2,131,700 shares issued as part of
the June 1997 Common Stock Offering and 4,250,000 shares issued as part
of the Proposed Common Stock Offering the Company anticipates
completing in November 1997.
-22-
<PAGE> 24
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) (continued)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(T) Excludes the effect of a $74 nonrecurring gain from the sale of land
and buildings to an existing tenant in August 1996.
(U) Excludes the effect of the loss of $3,596 on the December 31, 1996
Debenture-for-Stock Exchange resulting from the issuance of 180,956
excess common shares at $19.875 per share (the closing price per share
on December 26, 1996, the date of the exchange). These shares represent
the additional shares issued at the exchange rate of 58 shares of
Common Stock per each $1 principal amount of Debentures, representing
4.3014 additional shares over the original conversion rate of 53.6986
shares.
(V) Excludes the effect of a $111 nonrecurring loss on the sale of the
Company's corporate headquarters during the second quarter of 1997.
-23-
<PAGE> 25
Report of Independent Auditors
To the Shareholders and Board of Directors
Pacific Gulf Properties Inc.
We have audited the accompanying combined statement of revenues and certain
expenses of Eden Plaza and Eden Industrial ("Eden Plaza/Eden Industrial"), two
industrial properties owned by a partnership in which Pacific Gulf Properties
Inc. (the "Company") acquired a controlling general partner interest. The
statement is the responsibility of Eden Plaza/Eden Industrial management. Our
responsibility is to express an opinion on the statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Form 8-K filing) as described in Note 2 to the statement and is not
intended to be a complete presentation of the revenues and expenses of Eden
Plaza/Eden Industrial.
In our opinion, the statement referred to above presents fairly, in all material
respects, the combined revenues and certain expenses, as defined above, of Eden
Plaza/Eden Industrial for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Newport Beach, California
October 15, 1997
-24-
<PAGE> 26
EDEN PLAZA/EDEN INDUSTRIAL
Combined Statement of Revenues and Certain Expenses
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 1997
1996 (Unaudited)
---------------------------------------
<S> <C> <C>
REVENUES
Rental and other income (Notes 3 and 5) $ 2,397,000 $ 1,745,000
CERTAIN EXPENSES
Property operating and maintenance (Notes 2 and 3) 291,000 235,000
Real estate taxes 205,000 150,000
Management fees (Note 4) 101,000 76,000
---------------------------------------
REVENUES IN EXCESS OF CERTAIN EXPENSES $ 1,800,000 $ 1,284,000
=======================================
</TABLE>
See accompanying notes.
-25-
<PAGE> 27
EDEN PLAZA/EDEN INDUSTRIAL
Notes to Combined Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1996 and the
Nine Months Ended September 30, 1997 (Unaudited)
1. DESCRIPTION OF THE TRANSACTION
On October 20, 1997, Pacific Gulf Properties Inc. (the "Company") acquired a
controlling general partner interest in a newly-formed California limited
partnership that owns the following two industrial properties: Eden Plaza/Eden
Industrial (collectively, the "Properties"). The Properties which contain
approximately 501,000 leasable square feet and are located in Hayward,
California was contributed to the new partnership by Eden Plaza Associates LP,
the previous owners. The Company became the sole general partner in the new
partnership in exchange for its cash contribution of approximately $3,977,000.
The previous owners of Eden Plaza/Eden Industrial became limited partners in
the new partnership and received 144,016 limited partnership units valued at
$2,869,000 in exchange for their contribution of the Properties.
2. BASIS OF PRESENTATION
The combined statement of revenues and certain expenses presents the operations
of Eden Plaza/Eden Industrial, as defined above, for the year ended December 31,
1996 and for the nine months ended September 30, 1997 (unaudited). The combined
statement has been prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission (for inclusion in a Form
8-K filing).
Certain expenses that are dependent on the property owner and the cost basis of
the Properties have been excluded from the combined statement. The excluded
expenses consist primarily of depreciation and interest. Consequently, the
revenues in excess of certain expenses as presented in the combined statement
are not intended to be a complete presentation of the Properties' revenues and
expenses nor is it intended to be comparable to their proposed future
operations.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Properties are generally leased to tenants with lease terms which exceed
one year and are accounted for as operating leases. Revenues from leases are
recognized on a straight-line basis over the term of the related leases.
Expense recoveries from tenants are recognized as income in the period the
related expenses are accrued.
-26-
<PAGE> 28
EDEN PLAZA/EDEN INDUSTRIAL
Notes to Combined Statement of Revenues and Certain Expenses (continued)
For the Year Ended December 31, 1996 and the
Nine Months Ended September 30, 1997 (Unaudited)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their useful
lives.
Use of Estimates
The preparation of the combined statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined statement. Actual results could
differ from these estimates in the near term.
Tenant Concentration
At December 31, 1996, two tenants leased 56% of Eden Plaza/Eden Industrial's
leasable square footage. The rental income earned from each of these tenants
during the year ended December 31, 1996 totaled $569,000 and $298,000,
respectively.
4. MANAGEMENT FEES
The Properties are managed by Intereal. Associates L.P. Management fees are 4%
of total income from the properties, as defined. For the year ended December 31,
1996 and the nine months ended September 30, 1997, Eden Plaza/Eden Industrial
incurred $101,000 and $76,000, respectively, in management fees. Intereal's role
as the property manager of Eden Plaza/Eden Industrial was terminated upon the
consummation of the Company's acquisition.
5. FUTURE MINIMUM LEASE RECEIVABLES
The Properties are leased to tenants under leases which expire at various dates
and contain provisions for rent increases based on cost of living indices.
Certain leases also contain renewal options. Minimum future lease payments to be
received from Eden Plaza/Eden Industrial under the terms of these operating
leases for each of the next five years ending December 31, are as follows:
<TABLE>
<S> <C>
1997 $1,481,000
1998 1,048,000
1999 442,000
2000 269,000
2001 224,000
2002 and thereafter 231,000
</TABLE>
-27-
<PAGE> 29
Report of Independent Auditors
To the Shareholders and Board of Directors
Pacific Gulf Properties Inc.
We have audited the accompanying combined statement of revenues and certain
expenses of Tower Park, 611 Cerritos, Acacia Business Center and Valley View
Business Center, which are to be acquired by Pacific Gulf
Properties Inc. from AMRESCO Southern California, LLC (collectively referred to
as the "Industrial Portfolio Acquisition Properties"), for the year ended
December 31, 1996. The statement is the responsibility of the Industrial
Portfolio Acquisition Properties' management. Our responsibility is to express
an opinion on the statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a Form 8-K filing) as described in Note 2 to the statement and is not
intended to be a complete presentation of the revenues and expenses of the
Industrial Portfolio Acquisition Properties.
In our opinion, the statement referred to above presents fairly, in all material
respects, the combined revenues and certain expenses, as defined above, of the
Industrial Portfolio Acquisition Properties for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
\s\ ERNST & YOUNG LLP
Newport Beach, California
October 17, 1997
-28-
<PAGE> 30
INDUSTRIAL PORTFOLIO ACQUISITION PROPERTIES
Combined Statement of Revenues and Certain Expenses
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 1997
1996 (Unaudited)
---------------------------------------
<S> <C> <C>
REVENUES
Rental and other income (Notes 3 and 5) $ 4,371,000 $ 3,095,000
CERTAIN EXPENSES
Property operating and maintenance (Notes 2 and 3) 501,000 374,000
Real estate taxes 316,000 236,000
Management fees (Note 4) 76,000 91,000
---------------------------------------
REVENUES IN EXCESS OF CERTAIN EXPENSES $ 3,478,000 $ 2,394,000
=======================================
</TABLE>
See accompanying notes.
-29-
<PAGE> 31
INDUSTRIAL PORTFOLIO ACQUISITION PROPERTIES
Notes to Combined Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1996 and the
Nine Months Ended September 30, 1997 (Unaudited)
1. DESCRIPTION OF THE TRANSACTION
Pacific Gulf Properties Inc. (the "Company") has contracted to acquire Tower
Park, 611 Cerritos, Acacia Business Center and Valley View Business Center, four
industrial properties containing approximately 837,215 leasable square feet,
located in Orange County, California and Las Vegas, Nevada (the "Industrial
Portfolio Acquisition Properties"). The Company has entered into an agreement to
acquire the Industrial Portfolio Acquisition Properties from AMRESCO Southern
California, LLC, and MSC Valley View, Inc., affiliates of AMRESCO Advisors.
2. BASIS OF PRESENTATION
The combined statement of revenues and certain expenses presents the operations
of the Industrial Portfolio Acquisition Properties, as defined above, for the
year ended December 31, 1996 and for the nine months ended September 30, 1997
(unaudited). The combined statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a Form 8-K filing).
Certain expenses that are dependent on the property owner and the cost basis of
the Industrial Portfolio Acquisition Properties have been excluded from the
combined statement. The excluded expenses consist primarily of depreciation,
interest. Consequently, the revenues in excess of certain expenses as presented
in the combined statement are not intended to be a complete presentation of the
Industrial Portfolio Acquisition Properties' revenues and expenses nor is it
intended to be comparable to future operations.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Industrial Portfolio Acquisition Properties are generally leased to tenants
with lease terms which exceed one year which are accounted for as operating
leases. Revenues from leases are recognized on a straight-line basis over the
term of the related leases. Expense recoveries from tenants are recognized as
income in the period the related Expenses are accrued.
-30-
<PAGE> 32
INDUSTRIAL PORTFOLIO ACQUISITION PROPERTIES
Notes to Combined Statement of Revenues and Certain Expenses (continued)
For the Year Ended December 31, 1996 and the
Nine Months Ended September 30, 1997 (Unaudited)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their useful
lives.
Use of Estimates
The preparation of the combined statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the combined statement. Actual results could
differ from these estimates in the near term.
Tenant Concentration
At December 31, 1996 four tenants leased 71% of the properties' leasable square
footage. The rental revenue earned from each of these tenants during the year
ended December 31, 1996 totaled $830,000, $677,000, $248,000 and $240,000,
respectively.
4. MANAGEMENT FEES
During the period January 1, 1996 through February 28, 1997, the following
properties (Tower Park, 611 Cerritos and Acacia Business Center) were managed by
C.B. Commercial Group. Management fees were 2.5% of total income, as defined,
from these properties. Subsequent to February 28, 1997, these three
properties were managed by Sares-Regis Group. Management fees increased to 3% of
total income as defined, plus payroll and onsite costs. For the year ended
December 31, 1996 and the nine months ended September 30, 1997, Tower Park, 611
Cerritos and Acacia Business Center incurred $40,000 and $58,000, respectively,
in management fees.
Valley View Business Center is managed by C.B. Commercial Group. Management fees
are 2.5% of total income, as defined, through August 31, 1997 and 3% of total
income thereafter. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, Valley View Business Center incurred $36,000 and
$33,000, respectively, in management fees.
Sares-Regis Group's role as the property manager of Tower Park, 611 Cerritos
and Acacia Business Center and C.B. Commercial Group's role as the property
manager of Valley View Business Center will terminate upon the Company's
acquisition of the properties.
-31-
<PAGE> 33
INDUSTRIAL PORTFOLIO ACQUISITION PROPERTIES
Notes to Combined Statement of Revenues and Certain Expenses (continued)
For the Year Ended December 31, 1996 and the
Nine Months Ended September 30, 1997 (Unaudited)
5. FUTURE MINIMUM LEASE PAYMENTS
The Industrial Portfolio Acquisition Properties are leased to tenants under
leases which expire at various dates and contain provisions for rent increases
based on cost of living indices. Certain leases also contain renewal options.
The minimum future lease payments to be received under the terms of these
operating leases for each of the next five years ending December 31, are as
follows:
<TABLE>
<S> <C>
1997 $ 3,300,000
1998 2,754,000
1999 1,980,000
2000 1,294,000
2001 653,000
2002 and thereafter 1,393,000
</TABLE>
-32-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-23611) and related Prospectus, of
Pacific Gulf Properties Inc. dated November 17, 1997 for the registration of
$250,000,000 of common stock, preferred stock, debt securities and warrants and
in the related Prospectus Supplement dated November 17, 1997 for the
registration of 4,250,000 shares of the Company's common stock. We also consent
to the incorporation by reference therein of our report dated February 13, 1997,
with respect to the consolidated and combined financial statements and schedule
of Pacific Gulf Properties Inc. included in its Annual Report (Form 10-K) for
the year ended December 31, 1996 filed with the Securities and Exchange
Commission and our reports: (a) dated October 17, 1997, with respect to the
combined statement of revenues and certain expenses of the Industrial Portfolio
Acquisition Properties for the year ended December 31, 1996 and (b) dated
October 15, 1997, with respect to the combined statement of revenues and certain
expenses of Eden Plaza/Eden Industrial for the year ended December 31, 1996,
included in the Company's Current Reports on Form 8-K dated October 31, 1997
and Form 8-K/A dated November 18, 1997, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Newport Beach, California
November 18, 1997
