<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) December 26, 1996
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, SUITE 100, NEWPORT BEACH, CALIFORNIA 92660-7805
(Address of principal executive offices, including zip code)
714-721-2700
(Registrant's telephone number, including area code)
<PAGE> 2
This report amends the Current Report on Form 8-K dated January 13, 1997 to
reflect the Common Stock offering completed by Pacific Gulf Properties on
January 15, 1997. The proforma consolidated financial statements have been
amended to reflect an increase in the number of shares issued to 2,000,000, an
increase in the offering price to $20.50 per share and an increase in the net
proceeds from the offering to $38,500,000:
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS.
NEW ACQUISITIONS
Pacific Gulf Properties Inc. (the "Company") completed the following
new acquisitions since September 30, 1996:
Miramar Business Park
On October 11, 1996, the Company acquired a multitenant
warehouse/industrial project containing 186,022 leasable square feet
located in the city of San Diego, California (the "Miramar Business
Park"). The Company purchased Miramar Business Park, which is subject
to a ground lease expiring in July 2035, from Burnham Pacific, a
real estate investment trust, for a total consideration of
$7,242,000. The Company funded the acquisition with $7,100,000 of
borrowings under its revolving line of credit which bears interest
at date of acquisition of 7.125% (LIBOR plus 1.75%).
Raintree Apartments
On November 7, 1996, the Company acquired an apartment community
containing 165 apartment units located in Ontario, California (the
"Raintree Apartments"). The Company purchased Raintree Apartments
from Coast Savings, a financial institution, for a total
consideration of $6,259,000. The Company funded the acquisition with
$6,200,000 of borrowings from a mortgage note payable bearing a fixed
rate of interest at date of acquisition of 6.4% and cash.
PROBABLE ACQUISITIONS
On December 5, 1996, the Company entered into an agreement to
purchase a warehouse/distribution property containing 201,364
leasable square feet located in the city of Algona, Washington (the
"Algona Warehouse"). Additionally, on November 19, 1996, the Company
entered into an agreement to purchase a multitenant industrial park
containing 323,226 leasable square feet located in the city of Santa
Ana, California ("Harbor Business Park"). The acquisitions of Algona
Warehouse and Harbor Business Park are expected to be funded from
proceeds raised from the issuance of common stock under the Company's
shelf registration statement declared effective May 23, 1996. The
Company has contracted to purchase Algona Warehouse from The
Principal Financial Group, a life insurance company, for a total
consideration of $9,550,000, and Harbor Business Park from M.S.
Vickers Limited Partnership, a division of MetLife, for a total
consideration of $15,200,000. Both acquisitions remain subject to
certain conditions to closing, accordingly, there can be no assurance
that the acquisitions will be consummated.
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<PAGE> 3
ITEM 5. OTHER EVENTS.
DEBENTURE-FOR-STOCK EXCHANGE
On December 26, 1996, the Company completed an exchange of
$42,069,000 of its 8.375% Convertible Subordinated Debentures (or
74.45% of the aggregate principal amount at September 30, 1996) for
shares of the Company's Common Stock. The exchange was consummated
pursuant to the Company's tender offer to exchange the Debentures as
filed on December 11, 1996 with the Securities and Exchange
Commission (the "Debenture-for-Stock Exchange"). In connection with
the Debenture-for-Stock Exchange, the Company converted 42,069 of its
$1,000 principal amount Debentures at the rate of 58 shares of Common
Stock for each $1,000 of Debentures. Included in the 58 shares of
Common Stock issued for each $1,000 principal amount of Debentures
were 4.3014 shares of Common Stock (the "excess common shares"),
representing the excess of 58 shares over the original conversion
rate of 53.6986 shares of Common Stock for each $1,000 principal
amount of Debentures. As part of the exchange of the tendered
Debentures, the Company issued a total of 2,440,002 shares of Common
Stock, and will recognize a one-time charge to earnings of
approximately $3,597,000 for the year ending December 31, 1996
resulting from the issuance of 180,956 excess common shares at a
price of $19.875 per share, the market price of the Common Stock on
the date of the exchange. Approximately $14,237,000 of Debentures
in principal amount remain outstanding after the consummation of the
Debenture-for-Stock Exchange.
PREFERRED STOCK
On December 31, 1996, the Company entered into an agreement to issue
1,351,351 shares of Class A Senior Cumulative Convertible Preferred
Stock (the "Class A Preferred Shares") to Five Arrows Realty
Securities L.L.C. ("Five Arrows") at a price of $18.50 per share. The
Company is obligated to issue the Class A Preferred Shares over the
course of 1997 in a maximum of three separate issuances, the timing
of which may be specified by the Company, provided that the Company
will be charged with certain availability fees if all of the Class A
Preferred Shares are not issued before July 1, 1997. Management
believes the issuance of the Class A Preferred Shares will provide
the Company with ready access to additional capital in order to
complete additional acquisitions or to provide additional working
capital.
The holders of the Class A Preferred Shares and the holders of the
Common Stock vote together as a single class. Each Class A Preferred
Share is convertible into one share of Common Stock, subject to
adjustment upon certain events. The annual dividend per share on the
Class A Preferred Shares is (i) $1.70 from the date of issuance until
December 31, 1997, and (ii) the greater of $1.70 or 104% of the
then-current dividend on the Common Stock thereafter. At its option,
the Company may redeem the Class A Preferred Shares beginning on
December 31, 2001 for cash at a premium of 6% over the initial $18.50
per share liquidation value. This premium will decrease to zero by
December 31, 2009.
The Company has granted to Five Arrows, for as long as Five Arrows
maintains its ownership of either all of the Class A Preferred Shares
or an amount of voting securities that, if converted into Common
Stock, would exceed 10% of the outstanding Common Stock, a seat on
the Company's Board of Directors. In addition, upon the occurrence
of certain events, Five Arrows could be granted one additional
seat.
Five Arrows is prohibited from transferring any Class A Preferred
Shares, or any shares of Common Stock into which such Class A
Preferred Shares have been converted, until December 31, 1997. At
that time, Five Arrows will have the right, subject to certain
conditions, to demand the Company effect the registration under the
Securities Act of the Class A Preferred Shares or the shares of
Common Stock into which such Class A Preferred Shares have been
converted.
COMMON STOCK OFFERING
On January 15, 1997, the Company completed a Common Stock offering of
2,000,000 shares at a price of $20.50 per share. Net proceeds from
the offering totaled approximately $38.5 million (after underwriting
discounts and commissions and estimated expenses) which will be used
to acquire two probable acquisitions consisting of the industrial
properties under contract as previously reported and to reduce
outstanding indebtedness on the Company's revolving line of credit.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) See Index to Financial Statements attached hereto.
The attached pro forma consolidated financial statements are provided
as an amendment to the Form 8-K dated January 13, 1997 primarily to
reflect increased net proceeds from the January 1997 Offering
(2,000,000 shares at $20.50 per share) with the increased proceeds
being used to further reduce certain outstanding indebtedness. The
pro forma consolidated financial statements previously reflected a
proposed issuance of 1,500,000 shares of Common Stock.
(b) Exhibits
23.1 Consent of Independent Auditors
*99.1 Press Release Issued by the Company on December 27,
1996 relating to the Debenture-for-Stock Exchange.
*99.2 Investment Agreement between Pacific Gulf Properties
Inc. and Five Arrow Realty Securities L.L.C.
*99.3 Articles Supplementary Classifying 1,351,351 Shares of
Preferred Stock as Class A Senior Cumulative
Convertible Preferred Stock.
*99.4 Operating Agreement.
- ----------------------
* Incorporated by reference to the Company's Current Report on Form 8-K filed
January 14, 1997.
-2-
<PAGE> 4
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: January 17, 1997
-------------------------------
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<PAGE> 5
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION, AS AMENDED (UNAUDITED)
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 ............... 5
Pro Forma Condensed Consolidated Statement of Operations for the
Nine Months Ended September 30, 1996 ............................................. 6
Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended December 31, 1995 ..................................................... 7
Notes to Pro Forma Condensed Consolidated Financial Statements ........................ 8
MIRAMAR BUSINESS PARK (NEW ACQUISITION)
Report of Independent Auditors ........................................................ 20
Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1995 and the Nine Months Ended September 30, 1996 (Unaudited) ....... 21
Notes to Statement of Revenues and Certain Expenses ................................... 22
ALGONA WAREHOUSE (PROBABLE ACQUISITION)
Report of Independent Auditors ........................................................ 25
Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1995 and the Nine Months Ended September 30, 1996 (Unaudited) ....... 26
Notes to Statement of Revenues and Certain Expenses ................................... 27
HARBOR BUSINESS PARK (PROBABLE ACQUISITION)
Report of Independent Auditors ........................................................ 29
Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1995 and the Nine Months Ended September 30, 1996 (Unaudited) ....... 30
Notes to Statement of Revenues and Certain Expenses ................................... 31
</TABLE>
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<PAGE> 6
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
NEW PROBABLE PROBABLE
ACQUISITIONS ACQUISITIONS ACQUISITIONS
AND AND AND
DEBENTURE- COMMON COMMON
COMPANY FOR-STOCK STOCK STOCK COMPANY PRO
HISTORICAL EXCHANGE OFFERING OFFERING FORMA
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, net $339,457 $ 13,501 (A) $352,958 24,750 (F) 377,708
Cash and cash equivalents 2,631 (1,190)(B) 1,441 1,441
Accounts receivable 1,114 1,114 1,114
Other assets 6,489 (1,411)(D) 5,078 5,078
--------------------------------------------------------------------------
$349,691 $ 10,900 $360,591 $ 24,750 $385,341
==========================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Loan payable $137,774 $ 6,200 (A) $143,974 $ $143,974
Line of credit 39,244 7,100 (A) 46,344 (14,024)(G) 32,320
Accounts payable and accrued
liabilities 7,340 201 (A) 7,101 234 (F) 7,335
(440)(B)
Dividends payable 2,928 2,928 2,928
Convertible subordinated
debentures 55,722 (41,485)(C) 14,237 14,237
--------------------------------------------------------------------------
243,008 (28,424) 214,584 (13,790) 200,794
Minority interest in
consolidated partnership 3,518 3,518 3,518
Shareholders' equity
Common shares 74 24 (D) 98 20 (G) 118
Outstanding restricted stock (918) (918) (918)
Additional paid in capital 114,877 42,897 (B)(D) 157,774 38,520 (G) 196,294
Distributions in excess of
earnings (10,868) (3,597)(E) (14,465) (14,465)
--------------------------------------------------------------------------
103,165 39,324 142,489 38,540 181,029
--------------------------------------------------------------------------
$349,691 $ 10,900 $360,591 $24,750 $385,341
==========================================================================
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
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<PAGE> 7
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
NEW PROBABLE PROBABLE
ACQUISITIONS ACQUISITIONS ACQUISITIONS
AND AND AND
DEBENTURE- COMMON COMMON COMPANY PRO
COMPANY FOR-STOCK STOCK STOCK FORMA
HISTORICAL EXCHANGE OFFERING OFFERING (T)(V)(W)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $14,469 $ 3,787 (H) $18,256 $ 2,028 (M) $ 20,284
Multifamily properties 21,673 738 (H) 22,411 -- 22,411
--------------------------------------------------------------------------
36,142 4,525 40,667 2,028 42,695
EXPENSES
Rental property expenses
Industrial properties 3,791 1,243 (H) 5,034 647 (M) 5,681
Multifamily properties 8,527 436 (H) 8,963 -- 8,963
-------------------------------------------------------------------------
12,318 1,679 13,997 647 14,644
Depreciation 5,921 535 (I) 6,456 371 (J) 6,827
Interest (including amortization
of debenture discount and
financing costs) 13,613 1,427 (K) 12,078 (789)(Q) 11,289
(2,962)(P)
General and administrative 2,056 2,056 2,056
---------------------------------------------------------------------------
INCOME BEFORE GAIN ON
SALE OF PROPERTIES $ 2,234 $ 3,846 $ 6,080 $ 1,799 $ 7,879
===========================================================================
WEIGHTED AVERAGE
COMMON SHARES (R)(S) 5,955,680 11,742,359
=========== ==========
INCOME BEFORE GAIN ON
SALE PER COMMON
SHARE $ 0.38 $ 0.67
=========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
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<PAGE> 8
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
NEW PROBABLE PROBABLE
ACQUISITIONS ACQUISITIONS ACQUISITIONS
AND AND AND
DEBENTURE- COMMON COMMON COMPANY PRO
COMPANY FOR-STOCK STOCK STOCK FORMA
HISTORICAL EXCHANGE OFFERING OFFERING (T)(V)(W)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $ 12,193 $ 11,334 (L) $23,527 $ 2,233 (M) $ 25,760
Multifamily properties 24,898 3,956 (L) 28,854 -- 28,854
----------------------------------------------------------------------------------
37,091 15,290 52,381 2,233 54,614
EXPENSES
Rental property expenses
Industrial properties 2,567 4,246 (L) 6,813 788 (M) 7,601
Multifamily properties 10,215 2,062 (L) 12,277 -- 12,277
----------------------------------------------------------------------------------
12,782 6,308 19,090 788 19,878
Depreciation and amortization 6,081 1,913 (N) 7,994 495 (J) 8,489
Interest (including amortization of
debenture discount and financing
costs) 14,066 5,596 (O) 15,718 (1,052)(Q) 14,666
(3,944)(P)
General and administrative 2,423 2,423 2,423
----------------------------------------------------------------------------------
INCOME BEFORE GAIN ON SALE
OF PROPERTIES $ 1,739 $ 5,417 $ 7,156 $ 2,002 $ 9,158
==================================================================================
WEIGHTED AVERAGE
COMMON SHARES (R)(S) 4,830,723 11,706,306
========== ===========
INCOME BEFORE GAIN ON
SALE PER COMMON SHARE $ 0.36 $ 0.78
========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
-7-
<PAGE> 9
(Dollars in thousands, except per share data)
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars 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. It is anticipated that the Company
will acquire two additional properties containing approximately 524,000 leasable
square feet located in California (the "Probable Acquisitions") from proceeds
raised from the issuance of 2,000,000 shares of Common Stock, plus up to
300,000 shares subject to an overallotment option granted to the underwriter
(the "January 1997 Common Stock Offering") under the Company's Shelf
Registration Statement declared effective May 23, 1996.
The pro forma condensed consolidated balance sheet as of September 30, 1996 is
based on the unaudited historical financial statements of the Company and has
been prepared as if the following transactions had occurred as of September 30,
1996: (i) the exchange 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 Common Stock which was completed on December 26, 1996
pursuant to the Company's offer to exchange such Debentures as filed with the
Securities and Exchange Commission in a registration statement on Form S-4 dated
December 11, 1996, as amended (the "Debenture-for-Stock Exchange"); (ii) the
acquisition of Miramar Business Park, a multitenant industrial/warehouse project
containing approximately 186,000 leasable square feet located in the city of
San Diego, California, and the acquisition of Raintree Apartments, a 165-unit
apartment community located in Ontario, California both of which were purchased
by the Company subsequent to September 30, 1996 (the "New Acquisitions"); (iii)
the purchase of the Probable Acquisitions: (a) Algona Warehouse, a
warehouse/distribution facility containing approximately 201,000 leasable square
feet located in Algona, Washington, and (b) Harbor Business Park, a multitenant
industrial park containing approximately 323,000 leasable square feet located in
the city of Santa Ana, California, both of which are currently subject to
definitive agreements; (iv) and the completion of the January 1997 Common Stock
Offering and the application of net proceeds thereof to complete the purchase of
the Probable Acquisitions and to repay certain outstanding indebtedness.
The pro forma condensed consolidated statement of operations for the year ended
December 31, 1995 is based on the historical financial statements of the Company
and has been prepared as if the following transactions had occurred as of the
beginning of the period presented: (i) the purchases completed by the Company
during 1995 consisting of 12 multifamily properties containing 1,736 apartment
units and one industrial property containing approximately 475,000 leasable
square feet (the "1995 Acquisitions"); (ii) the sale of the Company's four
multifamily properties located in Texas, which occurred in November 1995 (the
"Texas Dispositions"); (iii) the purchase completed by the Company in March 1996
of an industrial property containing approximately 189,000 leasable square feet
located in Garden Grove, California (the "Pacific Gulf Business Park"); (iv) the
purchase of nine industrial properties containing approximately 1,342,000
leasable square feet located in California completed by the Company during June
and July 1996 (the "Acquisition Properties") using proceeds from a public
offering of 2,435,481 shares of Common Stock consummated in May 1996 (the "May
1996 Offering"); (v) the completion of the May 1996 Offering and the
establishment of an acquisition line of credit for the purchase of the nine
Acquisition Properties; (vi) the sale of a ten-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"); (vii) the completion
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<PAGE> 10
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)(continued)
(Dollars in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION (continued)
of the Debenture-for-Stock Exchange; (viii) the purchase of the New Acquisitions
and Probable Acquisitions; and (ix) the completion of the January 1997 Common
Stock Offering and the application of the net proceeds thereof to complete the
purchase of the Probable Acquisitions and to repay certain outstanding
indebtedness.
The pro forma condensed consolidated statement of operations for the nine months
ended September 30, 1996 is based on the historical financial statements of the
Company and has been prepared as if the following transactions had occurred as
of the beginning of the period presented: (i) the purchase of Pacific Gulf
Business Park; (ii) the purchase of the nine Acquisition Properties; (iii) the
completion of the May 1996 Offering and the establishment of an acquisition line
of credit for the purchase of the Acquisition Properties; (iv) the completion of
the Tenant Sale; (v) the completion of the Debenture-for-Stock Exchange; (vi)
the purchase of the New Acquisitions and Probable Acquisitions; and (vii) the
completion of the January 1997 Common Stock Offering and the application of the
net proceeds thereof to complete the purchase of the Probable Acquisitions and
to repay certain outstanding indebtedness.
The following pro forma information is 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 are not
necessarily indicative of the results to be obtained by the Company for the year
ending December 31, 1996. The following 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, 1996 and in the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1995.
NOTE 2 - PRO FORMA ADJUSTMENTS
(A) Purchase of Miramar Business Park for $7,242 and Raintree Apartments
for $6,259, (the New Acquisitions completed by the Company subsequent
to September 30, 1996). Funding for the purchases consisted of $7,100
provided by the Company's revolving line of credit and $6,200 provided
by borrowings on a mortgage note payable. In connection with the
purchases the Company received credits through escrow for the
assumption of tenant security deposits related to the properties
totaling approximately $201.
(B) Payment of (i) accrued and unpaid interest of $440 to holders of the
Debentures pursuant to the Debenture-for-Stock Exchange and (ii)
transaction costs of $750 including underwriting, proxy solicitation,
transfer taxes and legal expenses.
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<PAGE> 11
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)(continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(C) Exchange of approximately 74.45% of the Company's outstanding
Debentures ($42,069 aggregate principal amount net of unamortized
debenture discount of $584) into shares of Common Stock pursuant to the
Debenture-for-Stock Exchange.
(D) Issuance of 2,440,002 shares of Common Stock pursuant to the
Debenture-for-Stock Exchange of $42,069 of Debentures completed on
December 27, 1996 as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Common stock, $.01 par value $ 24
Additional paid-in capital $ 42,897
----------
$ 42,921
==========
Par Value is calculated as follows:
Shares per $1
Principal
Amount of
Debentures Total
--------------------------
Shares issued pursuant to
Original conversion terms 53.6986 2,259,046
Excess common shares 4.3014 180,956
--------------------------
58.0000 2,440,002
Par value per share $ .01
----------
Par value of Common Stock $ 24
==========
Additional Paid-In Capital is calculated as follows:
Principal amount of debentures tendered $ 42,069
Issuance of excess common shares (E) 3,597
Less unamortized debenture discount (584)
Less unamortized debenture issuance costs (1,411)
Less transaction costs (750)
----------
$ 42,921
Less par value of Common Stock (24)
----------
Additional Paid-In Capital $ 42,897
==========
</TABLE>
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<PAGE> 12
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(E) Loss on the 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 $1,000 principal amount of
Debentures, representing 4.3014 additional shares over the original
conversion rate of 53.6986 shares.
(F) Purchase of Algona Warehouse for $9,550 and Harbor Business Park for
$15,200 (the Probable Acquisitions which the Company expects to
complete in early 1997). Funding for the purchases will be provided
from proceeds raised from the proposed issuance of Common Stock under
the Company's shelf registration statement declared effective May 23,
1996. In connection with the purchases, the Company received credits
through escrow for the assumption of tenant security deposits related
to the properties totaling approximately $234.
(G) Issuance of 2,000,000 shares of Common Stock at $20.50 per share, net
of underwriting discounts and commissions and expenses of $2,460.
Proceeds from the issuance will be used to purchase the Probable
Acquisitions ($24,750) and to reduce the balance of the Company's
revolving line of credit ($14,024).
(H) Revenues and certain expenses of the following industrial and
multifamily properties 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) and
revenues and expenses of the property comprising the Tenant Sale for
the period prior to its disposal by the Company:
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996
------------------------------------------------------------------------
Pacific Gulf Acquisition New Tenant
Business Park Properties Acquisitions Sale Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental income
Industrial properties $ 195 $ 3,217 $ 1,066 $ (691) 3,787
Multifamily properties 738 738
------------------------------------------------------------------------
195 3,217 1,804 (691) 4,525
------------------------------------------------------------------------
Rental property expenses
Industrial properties 72 809 394 (32) 1,243
Multifamily properties 436 436
------------------------------------------------------------------------
72 809 830 (32) 1,679
------------------------------------------------------------------------
$ 123 $ 2,408 $ 974 $ 659 2,846
========================================================================
</TABLE>
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<PAGE> 13
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(I) Depreciation expense of $605 relating to the purchase of Pacific Gulf
Business Park, the Acquisition Properties, and the New Acquisitions,
net of a reduction in depreciation expense of $70 due to the Tenant
Sale (the actual depreciation relating to the Tenant Sale during the
nine months ended September 30, 1996). The depreciation expense
relative to the purchase of Pacific Gulf Business Park, the Acquisition
Properties, and the New Acquisitions, for the period prior to their
acquisition, was computed utilizing estimated remaining useful lives of
40 years and the depreciable basis of the properties as follows:
<TABLE>
<CAPTION>
PURCHASE DEPRECIABLE DEPRECIATION
PRICE BASIS EXPENSE
--------------------------------------------------
<S> <C> <C> <C>
Pacific Gulf Business Park $ 6,800 $ 3,009 $ 16
56
Acquisition Properties
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
New Acquisitions
Miramar Business Park 7,242 7,242 136
Raintree Apartments 6,259 4,511 85
------
$ 605
======
</TABLE>
-12-
<PAGE> 14
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(J) Depreciation expense relating to the purchase of the Probable
Acquisitions (Algona Warehouse and Harbor Business Park), for the
period prior to their acquisition, was computed utilizing estimated
remaining useful lives of 40 years and the depreciable basis of the
properties as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 1996
-----------------------------------------------------
Purchase Depreciable Depreciation
Price Basis Expense
-----------------------------------------------------
<S> <C> <C> <C>
Probable Acquisitions
Algona Warehouse $ 9,550 $ 7,640 $ 143
Harbor Business Park 15,200 12,160 228
-------
$ 371
=======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-----------------------------------------------------
Purchase Depreciable Depreciation
Price Basis Expense
-----------------------------------------------------
<S> <C> <C> <C>
Probable Acquisitions
Algona Warehouse $ 9,550 $ 7,640 $ 191
Harbor Business Park 15,200 12,160 304
-------
$ 495
=======
</TABLE>
-13-
<PAGE> 15
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(K) Interest expense for the nine months ended September 30, 1996 on the
borrowings utilized to finance the purchase of Pacific Gulf Business
Park in March 1996, the purchase of the Acquisition Properties in June
and July 1996 and the purchase of New Acquisitions subsequent to
September 30, 1996 for the period prior to their purchase, calculated
based on the actual interest rates of specific new borrowings, less a
reduction of interest expense resulting from the Tenant Sale of $373
(the actual interest relating to the Tenant Sale):
<TABLE>
<CAPTION>
Interest
Debt Interest Rate Expense
----------------------------------------------------
<S> <C> <C> <C>
Pacific Gulf Business Park $ 8,000 7.300% $ 124
Acquisition Properties 19,475 7.500% 997
New Acquisitions
Miramar Business Park 7,100 7.125% 379
Raintree Apartments 6,200 6.400% 298
Amortization of related loan fees and costs 2
-------
$ 1,800
=======
</TABLE>
The Company borrowed $8,000 to finance the acquisition of Pacific Gulf
Business Park which was secured by another property. A total of
$6,800 of the borrowing was used to purchase the property. The
remaining proceeds were used to rehabilitate the property.
The Acquisition Properties were financed in June and July 1996
utilizing borrowings under the Company's acquisition line of credit.
The interest expense on these borrowings is calculated for the period
indicated at an interest rate of 7.5% (LIBOR plus 2%), the actual rate
on the date of the borrowings.
The New Acquisitions were financed utilizing borrowings under the
Company's revolving line of credit and a mortgage note payable.
Interest expense on the line of credit borrowings which totaled $7,100
and the mortgage note payable which totaled $6,200 is calculated for
the period indicated at an interest rate of 7.125% (LIBOR plus 1.75%)
and 6.4%, respectively, the actual rates on the date of the borrowings.
A .125% change in the interest rate on all of the Company's variable
rate debt would increase the Company's pro forma interest expense by
$57 for the nine months ended September 30, 1996.
-14-
<PAGE> 16
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(L) Revenues and certain expenses of the following industrial and
multifamily properties 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), and
revenues and certain expenses of the property comprising the Texas
Dispositions and the Tenant Sale for the period prior to disposal by
the Company:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
------------------------------------------------------------------------------------------------------
1995 Pacific Gulf Acquisition New Texas
Acquisition Business Park Properties Acquisition Dispositions Tenant Sale Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income
Industrial properties $ 3,272 $ 724 $ 7,109 $ 1,294 $ -- $ (1,065) 11,334
Multifamily properties 8,426 -- -- 1,008 (5,478) -- 3,956
------------------------------------------------------------------------------------------------------
11,698 724 7,109 2,302 (5,478) (1,065) 15,290
------------------------------------------------------------------------------------------------------
Rental property expenses
Industrial properties 1,317 378 2,106 514 -- (69) 4,246
Multifamily properties 3,878 -- -- 586 (2,402) -- 2,062
------------------------------------------------------------------------------------------------------
5,195 378 2,106 1,100 (2,402) (69) 6,308
------------------------------------------------------------------------------------------------------
$ 6,503 $ 346 $ 5,003 $ 1,202 $(3,076) $ (996) $ 8,982
======================================================================================================
</TABLE>
-15-
<PAGE> 17
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(M) Revenues and certain expenses of the Probable Acquisitions (Algona
Warehouse and Harbor Business Park), 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, 1996
--------------------------------------------
Algona Harbor
Warehouse Business Park Total
--------------------------------------------
<S> <C> <C> <C>
Rental income
Industrial properties $ 636 $ 1,392 $ 2,028
Multifamily properties - - -
--------------------------------------------
636 1,392 2,028
--------------------------------------------
Rental property expenses
Industrial properties 166 481 647
Multifamily properties - - -
--------------------------------------------
166 481 647
--------------------------------------------
$ 470 $ 911 $ 1,381
============================================
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1995
--------------------------------------------
Algona Harbor
Warehouse Business Park Total
--------------------------------------------
<S> <C> <C> <C>
Rental income
Industrial properties $ 305 $ 1,928 $ 2,233
Multifamily properties - - -
--------------------------------------------
305 1,928 2,233
--------------------------------------------
Rental property expenses
Industrial properties 199 589 788
Multifamily properties - - -
--------------------------------------------
199 589 788
--------------------------------------------
$ 106 $ 1,339 $ 1,445
============================================
</TABLE>
-16-
<PAGE> 18
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(N) Depreciation expense of $2,551 relating to the 1995 Acquisitions,
Pacific Gulf Business Park, the Acquisition Properties and the New
Acquisitions, net of the reduction in depreciation of $533 due to the
Texas Dispositions and $105 due to the Tenant Sale (the actual
depreciation relating to the Texas Dispositions and the Tenant Sale
during the year ended December 31, 1995). The depreciation expense
relating to the 1995 Acquisitions, Pacific Gulf Business Park, the
Acquisition Properties and the New Acquisitions, 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
Price Basis Expense
-----------------------------------------------------
<S> <C> <C> <C>
40-YEAR LIFE PROPERTY
1995 Acquisitions
Konwiser Acquisition Properties 71,469 $ 52,281 $ 817
Heatherwood Apartments 12,500 10,000 222
Tukwila Business park 17,250 11,019 264
Pacific Gulf Business Park 6,800 3,009 75
Acquisition Properties
Eden Landing Commerce Park 7,300 5,460 137
Riverview Industrial Park 6,442 5,281 132
Bay San Marcos Industrial Center 4,678 2,942 73
Escondido Business Center 10,372 6,527 164
Bell Ranch Industrial Park 3,750 3,000 75
North County Business Park 6,350 3,169 79
San Marcos Commerce Center 2,710 1,871 47
Pacific Park 6,900 3,001 75
La Mirada Business Center 3,600 2,453 61
New Acquisitions
Miramar Business Park 7,242 7,242 181
Raintree Apartments 6,259 4,511 113
5-YEAR LIFE PROPERTY
Personal Property 289 289 36
---------
$ 2,551
=========
</TABLE>
-17-
<PAGE> 19
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE $ - PRO FORMA ADJUSTMENTS (continued)
(O) Interest expense of $6,909 relating to the 1995 Acquisitions, Pacific
Gulf Business Park, the Acquisition Properties and the New
Acquisitions, less reduction of interest expense resulting from the
Texas Dispositions of $746 and from the Tenant Sale of $567 (the actual
interest relating to the Texas Dispositions and the Tenant Sale during
the year ended December 31, 1995). The interest expense associated with
the borrowings used to finance the purchase of the 1995 Acquisitions,
Pacific Gulf Business Park and the purchase of the Acquisition
Properties and the New Acquisitions, was calculated for the period
prior to acquisition, based on the actual interest rates on the debt
which was assumed and the specific interest rates on new borrowings, as
follows:
<TABLE>
<CAPTION>
Pro Forma
Interest Interest
Debt Rate Expense
---------------------------------------
<S> <C> <C> <C>
1995 Acquisitions $ 30,263 8.000% $ 1,513
13,000 8.000% 650
24,850 5.700% 885
11,765 7.400% 838
Pacific Gulf Business Park 8,000 7.300% 584
Acquisition Properties 19,475 7.500% 1,360
New Acquisitions
Miramar Business Park 7,100 7.125% 506
Raintree Apartments 6,200 6.400% 397
Amortization of related loan fees and costs 176
-------
$ 6,909
=======
</TABLE>
(P) Reduction in interest expense, resulting from the exchange of the
Debentures as of the beginning of each period presented (including the
related amortization of debenture discount and costs of $319 for the
nine months ended September 30, 1996 and $418 for the year ended
December 31, 1995).
(Q) Reduction in interest expense associated with the repayment of $14,024
of indebtedness with proceeds from the January 1997 Common Stock
Offering.
(R) 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.
(S) 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 to be issued as part of the
Debenture-for-Stock Exchange and 2,000,000 shares to be issued as part
of the January 1997 Common Stock Offering.
-18-
<PAGE> 20
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED) (continued)
(Dollars in thousands, except per share data)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(T) Excludes the effect of a $3,597 nonrecurring loss which will be
recognized by the Company in the fourth quarter of 1996 relating to the
Debenture-for-Stock Exchange and the issuance of 180,956 excess common
shares.
(U) Excludes the effect of a $6,664 nonrecurring gain from the sale of the
four multifamily properties comprising the Texas Dispositions in
November 1995.
(V) Excludes the effect of a $74 nonrecurring gain from the sale of land
and buildings comprising the Tenant Sale in August 1996.
(W) Excludes 1,351,351 shares of Class A Senior Cumulative Convertible
Preferred Stock to be issued pursuant to an agreement executed by the
Company on December 31, 1996. The preferred stock shares, which
will be issued in up to three installments at a price of $18.50 per
share, bear an initial quarterly dividend of $0.425 per share
(increasing thereafter as specified in the related Prospectus
Supplement), 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, subject to adjustment under certain
circumstances.
-19-
<PAGE> 21
Report of Independent Auditors
To the Shareholders and Board of Directors
Pacific Gulf Properties, Inc.
We have audited the accompanying statement of revenues and certain expenses of
Miramar Business Park for the year ended December 31, 1995. The statement is the
responsibility of 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 Miramar
Business Park.
In our opinion, the statement referred to above presents fairly, in all material
respects, the revenues and certain expenses, as defined above, of Miramar
Business Park for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Newport Beach, California
December 9, 1996
-20-
<PAGE> 22
MIRAMAR BUSINESS PARK
Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995
and the Nine Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 1996
1995 (Unaudited)
---------- ----------
<S> <C> <C>
REVENUES
Rental and other income (Notes 2, 3 and 5) $1,299,000 $1,066,000
CERTAIN EXPENSES
Property operating and maintenance (Notes 2 and 6) 383,000 294,000
Real estate taxes 148,000 97,000
Management fees (Note 4) 52,000 42,000
---------- ----------
583,000 433,000
---------- ----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $ 716,000 $ 633,000
========== ==========
</TABLE>
See accompanying notes.
-21-
<PAGE> 23
MIRAMAR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995 and the
Nine Months Ended September 30, 1996 (Unaudited)
1. ORGANIZATION
Miramar Business Park (the "Property") contains 186,022 leasable square feet of
industrial space located in San Diego, California. Pacific Gulf Properties
Inc. (the "Company") acquired the Property from Burnham Pacific Properties
Inc. ("Burnham"), a real estate investment trust, in October 1996.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of the
Property for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 (unaudited) and 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 particular owner and the carrying
value of the Property have been excluded from the statement. The excluded
expenses consist primarily of depreciation, interest, and amortization of loan
fees. Consequently, the revenues in excess of certain expenses as presented is
not intended to be a complete presentation of the Property's revenues and
expenses nor is it intended to be comparable to the proposed future operations
of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is 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. Cost
recoveries from tenants are recognized as income in the period the related costs
are accrued.
-22-
<PAGE> 24
MIRAMAR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
4. MANAGEMENT FEES
The Property is subject to an agreement with John Burnham & Co., a property
management company affiliated with Burnham, to maintain and manage the
operations of the Property. Management fees are based on 3.5% of total collected
income, as defined, from the Property. The agreements with John Burnham & Co.
terminated upon the Company's acquisition of the Property.
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is 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>
1996 $1,223,000
1997 1,093,000
1998 891,000
1999 702,000
2000 568,000
</TABLE>
-23-
<PAGE> 25
MIRAMAR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses (continued)
6. GROUND LEASE COMMITMENT
The Property is subject to a 57-year ground lease which expires in July 2035 and
is accounted for as an operating lease. Monthly ground lease payments total
$19,800 and are subject to increases based on the Consumer Price Index each
September, with the next adjustment in September 1997. Ground lease payments
totaled $237,000 and $178,000, respectively, for the year ended December 31,
1995 and the period ended September 30, 1996.
-24-
<PAGE> 26
Report of Independent Auditors
To the Shareholders and Board of Directors
Pacific Gulf Properties, Inc.
We have audited the accompanying statement of revenues and certain expenses of
Algona Warehouse for the year ended December 31, 1995. The statement is the
responsibility of 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 Algona
Warehouse.
In our opinion, the statement referred to above presents fairly, in all material
respects, the revenues and certain expenses, as defined above, of Algona
Warehouse for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Newport Beach, California
December 6, 1996
-25-
<PAGE> 27
ALGONA WAREHOUSE
Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995
and the Nine Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 1996
1995 (Unaudited)
-------- --------
<S> <C> <C>
REVENUES
Rental and other income (Notes 2, 3 and 5) $305,000 $636,000
CERTAIN EXPENSES
Property operating and maintenance (Notes 2 and 3) 61,000 63,000
Real estate taxes 89,000 67,000
Management fees (Note 4) 10,000 11,000
-------- --------
160,000 141,000
-------- --------
REVENUES IN EXCESS OF CERTAIN ASSETS $145,000 $495,000
======== ========
</TABLE>
See accompanying notes.
-26-
<PAGE> 28
ALGONA WAREHOUSE
Notes to Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995 and the
Nine Months Ended September 30, 1996 (Unaudited)
1. ORGANIZATION
Algona Warehouse (the "Property") contains 201,364 leasable square feet of
industrial space located in Algona, Washington. In December 1996, Pacific Gulf
Properties Inc. (the "Company") entered into an agreement to purchase the
Property from The Principal Financial Group for a total consideration of $9.55
million.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of the
Property for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 (unaudited) and 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 particular owner and the carrying
value of the Property have been excluded from the statement. The excluded
expenses consist primarily of depreciation, interest, and amortization of loan
fees. Consequently, the revenues in excess of certain expenses as presented is
not intended to be a complete presentation of the Property's revenues and
expenses nor is it intended to be comparable to the proposed future operations
of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants with lease terms which exceed one
year and are accounted for as operating leases. Revenue from leases is
recognized on a straight-line basis over the term of the related leases. Cost
recoveries from tenants are recognized as income in the period the related cost
is accrued.
For the year ended December 31, 1995, the Property was leased to two tenants in
July and December 1995 which occupy 76% of the total leasable square feet in the
Property. At September 30, 1996, the Property was 100% leased and occupied.
-27-
<PAGE> 29
ALGONA WAREHOUSE
Notes to Statement of Revenues and Certain Expenses (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
4. MANAGEMENT FEES
The Property is subject to an agreement with Martin Smith Real Estate Services
("Martin"), a property management company, to maintain and manage the operations
of the Property. Management fees are based on 1.75% of total collected income or
$850 monthly, whichever is greater. The agreement with Martin will terminate
upon the Company's acquisition of the Property.
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is 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>
1996 $675,000
1997 713,000
1998 713,000
1999 731,000
2000 734,000
</TABLE>
-28-
<PAGE> 30
Report of Independent Auditors
To the Shareholders and Board of Directors
Pacific Gulf Properties, Inc.
We have audited the accompanying statement of revenues and certain expenses of
Harbor Business Park for the year ended December 31, 1995. The statement is the
responsibility of 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 Harbor
Business Park.
In our opinion, the statement referred to above presents fairly, in all material
respects, the revenues and certain expenses, as defined above, of Harbor
Business Park for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Newport Beach, California
January 3, 1997
-29-
<PAGE> 31
HARBOR BUSINESS PARK
Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995
and the Nine Months Ended September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, 1996
1995 (Unaudited)
---------- ----------
<S> <C> <C>
REVENUES
Rental and other income (Notes 2, 3 and 5) $1,927,000 $1,391,000
CERTAIN EXPENSES
Property operating and maintenance (Notes 2 and 3) 434,000 458,000
Real estate taxes 191,000 144,000
Management fees (Note 4) 76,000 46,000
---------- ----------
701,000 648,000
---------- ----------
REVENUES IN EXCESS OF CERTAIN ASSETS $1,226,000 $ 743,000
========== ==========
</TABLE>
See accompanying notes.
-30-
<PAGE> 32
HARBOR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1995 and the
Nine Months Ended September 30, 1996 (Unaudited)
1. ORGANIZATION
Harbor Business Park (the "Property") contains 323,226 leasable square feet of
industrial space located in Santa Ana, California. In November 1996, Pacific
Gulf Properties Inc. (the "Company") entered into an agreement to purchase
the Property from M.S. Vickers Limited Partnership, a division of MetLife, a
life insurance company, for a total consideration of $15.2 million.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of the
Property for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 (unaudited) and 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 particular owner and the carrying
value of the Property have been excluded from the statement. The excluded
expenses consist primarily of depreciation, interest, and amortization of loan
fees. Consequently, the revenues in excess of certain expenses as presented are
not intended to be a complete presentation of the Property's revenues and
expenses nor are they intended to be comparable to the proposed future
operations of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants with lease terms which exceed one
year and are accounted for as operating leases. Revenue from leases is
recognized on a straight-line basis over the term of the related leases. Cost
recoveries from tenants are recognized as income in the period the related cost
is accrued.
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<PAGE> 33
HARBOR BUSINESS PARK
Notes to Statement of Revenues and Certain Expenses (continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
4. MANAGEMENT FEES
The Property is subject to an agreement with Koll Management Services ("Koll"),
a property management company, to maintain and manage the operations of the
Property. Management fees under the agreement which commenced in May 1996 are
based on 3% of total collected income. The agreement with Koll will terminate
upon the Company's acquisition of the Property.
For the period January 1, 1996 to May 1996, prior to Koll's involvement, the
Property was managed by Huntington Sea Cliff Corp., a property management firm.
Fees under the Huntington Sea Cliff Corp. management agreement were based on 4%
of total collected income.
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is 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>
1996 $2,164,000
1997 2,192,000
1998 2,234,000
1999 2,293,000
2000 2,420,000
</TABLE>
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<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. 333-02798) dated May 23, 1996 and related
Prospectus of Pacific Gulf Properties Inc. (the "Company") for the registration
of $112,155,139 of common and preferred stock, as amended on January 14, 1997,
and to its incorporation into a registration statement on Form S-3 filed
pursuant to Rule 462(b) for the registration of an additional $14,454,500 of
common and preferred stock (the "462(b) Registration Statement"). We also
consent to the incorporation by reference of the following into the Prospectus
related to the Registration Statement (Form S-3 No. 333-02798) dated May 23,
1996, the related Prospectus Supplement dated May 20, 1996 for the registration
of 2,800,000 shares of common stock, the Prospectus Supplement dated January 3,
1997 for the registration of 1,351,351 shares of preferred stock, the
Prospectus Supplement dated January 15, 1997 for the registration of 2,000,000
shares of Common Stock thereunder, and the 462(b) Registration Statement of our
reports; (a) dated February 9, 1996, with respect to the consolidated and
combined financial statements and related financial statement schedule of the
Company included in the Company's Annual Report (Form 10-K/A) for the year
ended December 31, 1995; (b) dated April 30, 1996, with respect to the
statement of revenues and certain expenses of Tukwila Business Park included in
the Company's Current Report on Form 8-K dated May 7, 1996; (c) dated April 12,
1996, with respect to the combined statement of revenues and certain expenses
of the Konwiser Acquisition Properties included in the Company's Current
Report on Form 8-K dated May 7, 1996; and (d) dated July 28, 1995, with respect
to the combined statement of revenues and certain expenses of the Konwiser
Acquisition Properties included in the Company's Current Report on Form 8-K/A
dated May 7, 1996, all of which have been filed with the Securities and
Exchange Commission.
We also consent to the use of our reports: (a) dated April 25, 1996, with
respect to the statement of revenues and certain expenses of Bay San Marcos
Industrial Park; (b) dated April 25, 1996, with respect to the statement of
revenue and certain expenses of Escondido Business Center; (c) dated May 20,
1996, with respect to the statement of revenue and certain expenses of Eden
Landing Commerce Park; (d) dated May 20, 1996, with respect to the statement of
revenue and certain expenses of Riverview Industrial Park; (e) dated May 20,
1996, with respect to the statement of revenue and certain expenses of Pacific
Park; (f) dated December 6, 1996, with respect to the statement of revenue and
certain expenses of Miramar Business Park; (g) dated December 9, 1996, with
respect to the statement of revenue and certain expenses of Algona Warehouse and
(h) dated January 3, 1997, with respect to the statement of revenue and certain
expenses of Harbor Business Park, included in the Registration Statement (Form
S-3 No. 333-02798 dated May 23, 1996, the related Prospectus Supplements
referred to above, the Company's Current Report on Form 8-K dated January 13,
1997 and the 462(b) Registration Statement.
ERNST & YOUNG LLP
Newport Beach, California
January 15, 1997
