<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 29, 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.)
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
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS.
Pacific Gulf Properties Inc. (the "Company") anticipates completing
the following acquisitions (the "Probable Acquisitions"):
PROBABLE ACQUISITIONS
On November 6, 1996, the Company entered into an agreement to
purchase a warehouse/distribution facility containing 360,320
leasable square feet located in San Diego, California (the "San Diego
Distribution Center"). The Company will purchase the San Diego
Distribution Center from The Vons Companies, Inc., a food/grocery
store chain, for a total consideration of $17,100,000. The Company
plans to spend approximately $2,350,000 million in capital
expenditures to rehabilitate the property which has had no rental
operations prior to the Company's proposed purchase.
On February 17, 1997, the Company entered into a purchase agreement
to acquire 12.9 acres of land located in Lake Forest, California (the
"Lake Forest Land Parcel"). The Company will purchase the parcel from
PacTel Properties, a telecommunications company, for a total
consideration of $3,500,000 and plans to build a multitenant
industrial complex with several buildings expected to contain, based
on present plans, approximately 142,700 leasable square feet at a
total cost of approximately $12,300,000.
On April 4, 1997, the Company entered into an agreement to acquire a
controlling general partner interest in two partnerships that own two
active senior apartment communities containing 550 apartment units
located in Escondido, California ("Terrace Gardens Apartments and
Morning View Terrace Apartments"). The Company's general partner
interest will be acquired in exchange for a $1,250,000 cash
contribution which will be used by the partnerships to fund
capitalizable financing costs, fees and transaction costs. In
connection with the transaction, the Company will become the sole
general partner of the two partnerships. In addition, the existing
partners will become limited partners and will receive approximately
265,000 limited partnership units in such partnerships in exchange
for their $5,900,000 minority equity interest. The limited partners'
units 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 based on the fair market value of the Company's Common
Stock. The properties have an agreed-upon value of $25,000,000 and
will be encumbered by approximately $19,100,000 in tax-exempt
mortgage indebtedness.
On April 16, 1997, the Company entered into an agreement to purchase
a warehouse/distribution facility containing 263,155 leasable square
feet located in Algona, Washington (the "Algona Distribution
Center"). The Algona Distribution Center will be purchased from John
Hancock Mutual Life Insurance for a total consideration of
$8,750,000. The Company plans to spend approximately $1,280,000
million in capital expenditures to rehabilitate the property which
has no rental operations prior to the Company's proposed purchase.
-1-
<PAGE> 3
The Company plans to fund the purchase of the Probable Acquisitions
with proceeds from an unsecured $35.0 million acquisition facility
established by the Company subsequent to March 31, 1997 and from a
proposed offering of the Company's Common Stock under the Company's
$250.0 million shelf registration statement declared effective April
11, 1997. All acquisitions remain subject to certain conditions to
closing. Accordingly, there can be no assurance that the acquisitions
will be consummated.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) See Index to Financial Statements attached hereto.
(b) Exhibits
23.1 Consent of Independent Auditors
-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: May 29, 1997
- -------------------------------------
-3-
<PAGE> 5
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1997................5
Pro Forma Condensed Consolidated Statement of Operations for the
Three Months Ended March 31, 1997.............................................6
Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended December 31, 1996..................................................7
Notes to Pro Forma Condensed Consolidated Financial Statements.....................8
TERRACE GARDENS APARTMENTS AND MORNING VIEW TERRACE APARTMENTS
Report of Independent Auditors....................................................20
Combined Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1996 and the Three Months Ended March 31, 1997 (Unaudited)......21
Notes to Combined Statement of Revenues and Certain Expenses......................22
</TABLE>
-4-
<PAGE> 6
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
COMMON COMMON
COMPANY PRO FORMA STOCK STOCK COMPANY
HISTORICAL ADJUSTMENTS OFFERING OFFERING PRO FORMA
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, net
Operating properties $ 389,996 $ -- $ 389,996 $ 25,000 (D) $ 414,996
Properties under development -- 12,250 (A) 12,250 17,100 (D) 29,350
Cash and cash equivalents 7,302 (2,000)(B) 5,052 (578) 4,474
(250)(A)
Accounts receivable 1,506 -- 1,506 -- 1,506
Other assets 8,026 -- 8,026 1,250 (D) 9,276
-----------------------------------------------------------------------------
$ 406,830 $ 10,000 $ 416,830 $ 42,772 $ 459,602
=============================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Loans payable $ 183,406 $ (7,000)(B) $ 176,406 $ 19,100 (D) $ 195,506
Revolving line of credit 12,483 -- 12,483 -- 12,483
Acquisition facility -- 12,000 (A) -- (12,000)(E) --
Accounts payable and accrued
liabilities 5,870 -- 5,870 -- 5,870
Dividends payable 4,972 -- 4,972 -- 4,972
Convertible subordinated
debentures 13,109 -- 13,109 -- 13,109
-----------------------------------------------------------------------------
219,840 5,000 224,840 7,100 231,940
Minority interest in
consolidated partnerships 3,518 -- 3,518 5,900 (D) 9,418
Shareholders' equity
Preferred stock -- 3 (C) 3 -- 3
Common shares 122 -- 122 15 (F) 137
Outstanding restricted stock (836) -- (836) -- (836)
Additional paid-in capital 203,370 4,997 (C) 208,367 29,757 (F) 238,124
Distributions in excess of
earnings (19,184) -- (19,184) -- (19,184)
-----------------------------------------------------------------------------
183,472 5,000 188,472 29,772 (F) 218,244
-----------------------------------------------------------------------------
$ 406,830 $ 10,000 $416,830 $ 42,772 $ 459,602
=============================================================================
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
-5-
<PAGE> 7
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
COMMON COMMON
COMPANY PRO FORMA STOCK STOCK COMPANY
HISTORICAL ADJUSTMENTS OFFERING OFFERING PRO FORMA
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $ 7,232 $ 243 (G) $ 7,475 $ -- $ 7,475
Multifamily properties 7,581 -- 7,581 908 (K) 8,489
----------------------------------------------------------------------
14,813 243 15,056 908 15,964
EXPENSES
Rental property expenses
Industrial properties 1,817 86 (G) 1,903 -- 1,903
Multifamily properties 2,918 -- 2,918 318 (K) 3,236
----------------------------------------------------------------------
4,735 86 4,821 318 5,139
Depreciation 2,356 79 (H) 2,435 113 (L) 2,548
Interest 3,952 (144)(I) 3,808 334 (M) 4,142
General and administrative 688 -- 688 -- 688
Minority interest in earnings -- -- -- 77 (N) 77
----------------------------------------------------------------------
NET INCOME 3,082 222 3,304 66 3,370
Preferred dividends -- (115)(J) (115) -- (115)
----------------------------------------------------------------------
INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 3,082 $ 107 $ 3,189 $ 66 $ 3,255
======================================================================
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING (S)(T) 11,533,865 13,579,497
=========== ==========
NET INCOME PER
COMMON SHARE $ 0.27 $ 0.24
=========== =========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
-6-
<PAGE> 8
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
COMMON COMMON COMPANY
COMPANY PRO FORMA STOCK STOCK PRO FORMA
HISTORICAL ADJUSTMENTS OFFERING OFFERING (U)(V)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $ 20,783 $ 8,084 (O) $ 28,867 $ $ 28,867
Multifamily properties 29,104 918 (O) 30,022 3,552 (K) 33,574
-------------------------------------------------------------------
49,887 9,002 58,889 3,552 62,441
EXPENSES
Rental property expenses
Industrial properties 5,308 2,328 (O) 7,636 7,636
Multifamily properties 11,554 542 (O) 12,096 1,343 (K) 13,439
-------------------------------------------------------------------
16,862 2,870 19,732 1,343 21,075
Depreciation 8,236 1,062 (P) 9,298 451 (L) 9,749
Interest 18,411 1,361 (Q) 15,302 1,337 (M) 16,639
(3,892)(R)
(578)(I)
General and administrative 2,974 2,974 -- 2974
Minority interest in earnings -- -- -- 227 (N) 227
-------------------------------------------------------------------
NET INCOME 3,404 8,179 11,583 194 11,777
Preferred dividends -- (459)(J) (459) -- (459)
-------------------------------------------------------------------
INCOME AVAILABLE TO
COMMON SHAREHOLDERS (U)(V) $ 3,404 $ 7,720 $ 11,124 $ 194 $ 11,318
===================================================================
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING (S)(T) 6,340,748 13,546,225
========= ==========
NET INCOME PER
COMMON SHARE (U)(V) $ .54 $ .84
========= ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
-7-
<PAGE> 9
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(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. The Company anticipates that it
will acquire two industrial properties for redevelopment purposes containing
approximately 263,000 and 360,000 square feet located in Algona, Washington and
San Diego, California, respectively; a land parcel for the development of a
multitenant industrial complex located in Lake Forest, California; and a
controlling general partner interest in two partnerships that own two active
senior apartment communities containing 550 apartment units located in
Escondido, California (collectively, these properties are referred to as the
"Probable Acquisitions"). The Company expects to purchase the industrial
property in Algona, Washington and the land in Lake Forest with proceeds from
an unsecured credit facility from a bank which provides up to $35.0 million for
the acquisition of qualifying properties (the "Acquisition Facility")
established by the Company subsequent to March 31, 1997. The Company anticipates
purchasing the remaining Probable Acquisitions and to repay the borrowings on
the acquisition facility from proceeds raised from a proposed June 1997 offering
of the Company's Common Stock under the Company's $250 million shelf
registration statement declared effective April 11, 1997.
The Company's pro forma condensed consolidated balance sheet as of March 31,
1997 is based on the unaudited historical financial statements of the Company
and has been prepared as if the following transactions had occurred as of March
31, 1997: (i) the purchase of the following Probable Acquisitions with proceeds
from the Acquisition Facility established by the Company subsequent to March 31,
1997: (a) Algona Distribution Center, a warehouse/distribution facility
containing approximately 263,000 square feet of leasable space located in
Algona, Washington, and (b) a 12.9 acre land parcel located in Lake Forest,
California for the development of an industrial complex that will contain
approximately, based on present plans, 142,700 leasable square feet; (ii) the
issuance of 270,270 shares of Class A Preferred Stock in April 1997; (iii) the
repayment of certain indebtedness totaling $7,000 which matured subsequent to
March 31, 1997; (iv) the purchase of the remaining Probable Acquisitions: (a)
San Diego Distribution Center, a warehouse/distribution facility containing
approximately 360,000 square feet of leasable space located in San Diego,
California, and (b) a controlling general partner interest in two partnerships
that own two active senior apartment communities located in Escondido,
California (Terrace Gardens Apartments containing 225 apartment units, and
Morning View Terrace Apartments containing 325 apartment units), all of the
Probable Acquisitions are subject to definitive purchase agreements; (v) the
repayment of borrowings under the Acquisition Facility to purchase the Algona
Distribution Center and the land parcel located in Lake Forest; (vi) and the
completion of a June 1997 offering of the Company's Common Stock and the
application of the net proceeds thereof to complete the purchase of the Probable
Acquisitions and to repay borrowings under the Acquisition Facility.
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 prepared as if the following transactions had occurred
as of the beginning of the period presented: (i) 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"); (ii) the purchase of nine industrial properties containing
approximately 1,400,000 leasable square feet located in California completed by
the Company during June and July 1996 (the "1996 Industrial Acquisitions") using
proceeds from a public offering of 2,435,481 shares of the Company's Common
Stock consummated in May 1996 (the "1996 Common Stock Offering"); (iii) the
completion of the 1996 Common Stock Offering and the establishment of an
acquisition line of credit for the purchase of the nine 1996 Industrial
Acquisitions; (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");
-8-
<PAGE> 10
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION (continued)
(v) 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 the Company's Common Stock 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 dated 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, and (b) a
165-unit multifamily community located in Ontario, California in November 1996
(collectively, the "Other 1996 Acquisitions"); (vii) the purchase of three
warehouse/distribution facilities in Washington and California, respectively
during January 1997 containing an aggregate of 521,000 leasable square feet
("1997 Industrial Acquisitions") funded by the proceeds of a public offering of
2,300,000 shares of the Company's Common Stock consummated in January 1997 (the
"1997 Common Stock Offering"); (viii) the completion of the January 1997
Offering; (ix) the purchase of a warehouse/distribution facility containing
approximately 570,000 leasable square feet located in Woodland, California
("Woodland Distribution Center") completed in March 1997; (x) the repayment of
certain indebtedness totaling $7,000 which matured subsequent to March 31, 1997;
(xi) the purchase of the Probable Acquisitions; and (xii) the completion of a
June 1997 offering of the Company's Common Stock and the application of the net
proceeds thereof to complete the purchase of the Probable acquisitions and to
repay borrowings under the Acquisition Facility.
The Company's pro forma condensed consolidated statement of operations for the
three months ended March 31, 1997 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
the 1997 Industrial Acquisitions; (ii) the completion of the 1997 Common Stock
Offering; (iii) the purchase of the Woodland Distribution Center completed in
March 1997; (v) the repayment of certain indebtedness totaling $7,000 which
matured subsequent to March 31, 1997; (vi) the purchase of the Probable
Acquisitions; and (vii) the completion of a June 1997 offering of the Company's
Common Stock and the application of the net proceeds thereof to complete the
purchase of the Probable Acquisitions and to repay borrowings under the
Acquisition Facility.
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 three months ended March 31, 1997 are
not necessarily indicative of the results to be obtained by the Company for the
year ending December 31, 1997. 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
March 31, 1997 and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
-9-
<PAGE> 11
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS
(A) Purchase of certain of the Probable Acquisitions which the Company
expects to complete utilizing $12,000 in borrowings under a credit
facility established for acquisition purposes and $250 in available
cash: Algona Distribution Center for $8,750, and the 12.9-acre
land parcel located in Lake Forest for $3,500.
(B) Repayment of a $7,000 loan payable bearing interest at 8.25% which
matured subsequent to March 31, 1997 using $5,000 of proceeds from the
issuance of 270,270 shares of Class A Senior Cumulative Convertible
Preferred Stock (the "Class A Preferred Stock") and $2,000 of
available cash.
(C) Issuance of 270,270 shares of Class A Preferred Stock with a par value
of $.01 per share pursuant to an agreement to issue up to 1,351,351
shares 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, (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 to one, subject to adjustment
under certain circumstances.
(D) Purchase of the following Probable Acquisitions with proceeds from a
proposed June 1997 offering of the Company's Common Stock under the
Company's $250 million shelf registration statement declared effective
April 11, 1997: San Diego Distribution Center for $17,100, and a
controlling general partner interest in two partnerships that own the
Terrace Gardens Apartments and Morning View Terrace Apartments at an
agreed-upon value of $25,000. In connection with the Terrace Gardens
Apartments and Morning View Terrace Apartments transaction, the Company
will become the sole general partner in the two partnerships that own
the properties subject to approximately $19,100 of tax-exempt mortgage
indebtedness. It is anticipated that the other partners will receive
approximately 265,000 limited partnership units in such partnerships in
exchange for their $5,900 minority equity interest. In connection with
the $19,100 of tax-exempt mortgage indebtedness and the acquisition of
a controlling interest in Terrace Gardens Apartments and Morning View
Terrace Apartments, the Company will contribute approximately $1,250 to
the partnerships which will be used to fund capitalizable financing
costs, fees and transaction costs.
Of the Probable Acquisitions only the Terrace Gardens Apartments and
Morning View Terrace Apartments were previously operated as rental
properties. Accordingly, the accompanying pro forma condensed
consolidated statement of operations for the year ended December 31,
1996 and the quarter ended March 31, 1997 do not reflect any historical
revenues and expenses for the Algona Distribution Center, the San Diego
Distribution Center or the Lake Forest land parcel.
-10-
<PAGE> 12
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(E) Repayment of borrowings under the acquisition facility with proceeds
from a proposed June 1997 offering of the Company's Common Stock.
(F) Proposed offering of 1,500,000 shares of $.01 par value Common Stock at
$21.125 per share (the assumed price per share based on the last
reported price on the New York Stock Exchange on May 27, 1997), net of
underwriting discounts and commissions and estimated offering expenses
resulting in net proceeds totaling $29,772. Proceeds from this common
stock issuance will be used to complete the purchase of the Probable
Acquisitions and to repay borrowings under the acquisition facility.
(G) Revenues and certain expenses of the following industrial 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):
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1997
---------------------------------------
1997 Woodland
Industrial Distribution
Acquisitions Center Total
---------------------------------------
<S> <C> <C> <C>
Rental income $ 183 $ 60 $ 243
Rental property expenses 59 27 86
---------------------------------------
$ 124 $ 33 $ 157
=======================================
</TABLE>
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<PAGE> 13
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(H) Depreciation expense of $79 relating to the purchase of the 1997
Industrial Acquisitions and the Woodland Distribution Center. The
depreciation expense relative to the purchase of the 1997 Industrial
Acquisitions and the Woodland Distribution Center 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>
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
-----
$ 79
=====
</TABLE>
(I) Reduction in interest expense associated with the repayment of a
$7,000 loan payable bearing interest at 8.25%, the actual borrowing
rate on the loan, completed in April 1997 with proceeds from the
issuance of Class A Preferred Stock. See Note 2 (B) above.
-12-
<PAGE> 14
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(J) Represents the preferred stock dividend requirement of $0.425
per share per quarter related to 270,270 shares of Class A
Preferred Stock issued by the Company in April 1997. See Note
2(B) above.
(K) Revenues and certain expenses of the Probable Acquisitions with
prior rental operations (Terrace Gardens Apartments and Morning
View Terrace Apartments) 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 Three Months Ended
March 31, 1997
------------------------------------------
Terrace Morning
Gardens View Terrace
Apartments Apartments Total
------------------------------------------
<S> <C> <C> <C>
Rental income $ 370 $ 538 $ 908
Rental property expenses 125 193 318
------------------------------------------
$ 245 $ 345 $ 590
==========================================
</TABLE>
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<PAGE> 15
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1996
------------------------------------------
Terrace Morning
Gardens View Terrace
Apartments Apartments Total
------------------------------------------
<S> <C> <C> <C>
Rental income $ 1,426 $ 2,126 $ 3,552
Rental property expenses 545 798 1,343
------------------------------------------
$ 881 $ 1,328 $ 2,209
==========================================
</TABLE>
(L) Depreciation expense relating to the purchase of certain of the
Probable Acquisitions (excluding the properties which were purchased
for rehabilitation or development including the Algona Distribution
Center, the San Diego Distribution Center and the Lake Forest land
parcel) 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 Three Months Ended
March 31, 1997
----------------------------------------
Purchase Depreciable Depreciation
Price Basis Expense
----------------------------------------
<S> <C> <C> <C>
Probable Acquisitions
Terrace Garden Apartments $10,000 $ 7,950 $ 50
Morning View Terrace Apartments 15,000 10,109 63
-----
$ 113
=====
</TABLE>
-14-
<PAGE> 16
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
---------------------------------------
Purchase Depreciable Depreciation
Price Basis Expense
----------------------------------------
<S> <C> <C> <C>
Probable Acquisitions
Terrace Gardens Apartments $10,000 $ 7,950 $199
Morning View Terrace Apartments 15,000 10,109 252
----
$451
====
</TABLE>
(M) Interest expense relating to the Probable Acquisitions encumbered by
tax-exempt mortgage indebtedness (Terrace Gardens Apartments and
Morning View Terrace Apartments) based on the actual interest rate of
the specific new borrowings:
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1997
-----------------------------------------
Interest Interest
Debt Rate Expense
-----------------------------------------
<S> <C> <C> <C>
Probable Acquisitions
Terrace Gardens Apartments $ 8,100 6.60% $133
Morning View Terrace Apartments 11,000 6.60% 182
Amortization of loan fees and costs 19
----
$334
====
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
-------------------------------------
Interest Interest
Debt Rate Expense
-------------------------------------
<S> <C> <C> <C>
Probable Acquisitions
Terrace Gardens Apartments $ 8,100 6.60% $ 535
Morning View Terrace Apartments 11,000 6.60% 726
Amortization of loan fees and costs 76
------
$1,337
======
</TABLE>
-15-
<PAGE> 17
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(N) Represents minority equity interest in earnings of Terrace Gardens
Apartments and Morning View Terrace Gardens Apartments, a Probable
Acquisition owned by two partnerships which will be controlled by the
Company. 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, 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.
(O) 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 Tenant
Sale for the period prior to disposal by the Company:
<TABLE>
<CAPTION>
1996 1997 Woodland
Pacific Gulf Industrial Other 1996 Industrial Distribution
Business Park Acquisitions Acquisitions Acquisitions Center Tenant Sale Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income
Industrial properties $ 195 $ 3,217 $ 1,228 $ 2,703 $ 1,432 $ (691) $ 8,084
Multifamily properties - - 918 - - - 918
----------------------------------------------------------------------------------------------
195 3,217 2,146 2,703 1,432 (691) 9,002
----------------------------------------------------------------------------------------------
Rental property expenses
Industrial properties 72 809 455 864 160 (32) 2,328
Multifamily properties - - 542 - - - 542
----------------------------------------------------------------------------------------------
72 809 997 864 160 (32) 2,870
----------------------------------------------------------------------------------------------
$ 123 $ 2,408 $ 1,149 $ 1,839 $ 1,272 $ (659) $ 6,132
==============================================================================================
</TABLE>
-16-
<PAGE> 18
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(P) Depreciation expense of $1,390 relating to Pacific Gulf Business Park,
the 1996 Industrial Acquisitions, the Other 1996 Acquisitions, the 1997
Industrial Acquisitions and the Woodland Distribution Center, 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 Pacific Gulf Business
Park, the 1996 Industrial Acquisitions, the Other 1996 Acquisitions,
the 1997 Industrial Acquisitions and the Woodland Distribution Center,
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
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 Business Park 14,600 12,160 304
Woodland Distribution Center 12,875 10,923 273
-------
$ 1,390
=======
</TABLE>
-17-
<PAGE> 19
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(Q) Interest expense of $1,928 relating to Pacific Gulf Business Park, the
1996 Industrial Acquisitions and the Other 1996 Acquisitions, 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 Pacific Gulf Business Park and the
purchase of the 1996 Industrial Acquisitions and the Other 1996
Acquisitions 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
Debt Rate Expense
---------------------------------
<S> <C> <C> <C>
Pacific Gulf Business Park $ 8,000 7.300% $ 124
1996 Industrial Acquisitions 19,475 7.500% 997
Other 1996 Acquisitions
Miramar Business Park 7,100 7.125% 370
Raintree Apartments 6,200 8.400% 437
-------
$ 1,928
=======
</TABLE>
(R) Reduction in interest expense, resulting from the exchange of the
Debentures 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.
(T) 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
December 1996 Debenture-for-Stock Exchange, 2,300,000 shares issued as
part of the January 1997 Common Stock Offering and 1,500,000 shares to
be issued as part of the proposed June 1997 offering of the Company's
Common Stock.
-18-
<PAGE> 20
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 - PRO FORMA ADJUSTMENTS (continued)
(U) Excludes the effect of a $74 nonrecurring gain from the sale of land
and buildings comprising the Tenant Sale in August 1996.
(V) 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 $1,000 principal amount of Debentures,
representing 4.3014 additional shares over the original conversion rate
of 53.6986 shares.
-19-
<PAGE> 21
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 Terrace Gardens Apartments and Morning View Terrace Apartments for
the year ended December 31, 1996. 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 Terrace
Gardens Apartments and Morning View Terrace Apartments.
In our opinion, the statement referred to above presents fairly, in all material
respects, the combined revenues and certain expenses, as defined above, of
Terrace Gardens Apartments and Morning View Terrace Apartments for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Newport Beach, California
April 24, 1997
-20-
<PAGE> 22
TERRACE GARDENS APARTMENTS
AND MORNING VIEW TERRACE APARTMENTS
Combined Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1996
and the Three Months Ended March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31, 1997
1996 (Unaudited)
------------------------------
<S> <C> <C>
REVENUES
Rental and other income (Notes 2 and 3) $3,552,000 $ 908,000
CERTAIN EXPENSES
Property operating and maintenance (Note 2) 1,075,000 279,000
Real estate taxes 234,000 67,000
Management fees (Note 4) 155,000 40,000
--------------------------
1,464,000 386,000
--------------------------
REVENUES IN EXCESS OF CERTAIN EXPENSES $2,088,000 $ 522,000
==========================
</TABLE>
See accompanying notes.
-21-
<PAGE> 23
TERRACE GARDENS APARTMENTS
AND MORNING VIEW TERRACE APARTMENTS
Notes to Combined Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1996 and the
Three Months Ended March 31, 1997 (Unaudited)
1. ORGANIZATION
Terrace Gardens Apartments and Morning View Terrace Apartments (the
"Properties") contain 225 and 325 active senior apartments, respectively,
located in the city of Escondido, California. Pacific Gulf Properties Inc. has
entered into an agreement to acquire a controlling general partner interest in
the two partnerships that own the Properties.
2. BASIS OF PRESENTATION
The combined statement of revenues and certain expenses presents the operations
of the Properties for the year ended December 31, 1996 and for the three months
ended March 31, 1997 (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 property owner and the
cost basis of the Properties have been excluded from the statement. The excluded
expenses consist primarily of depreciation, interest and loan fee amortization.
Consequently, the revenues in excess of certain expenses as presented in the
combined statement is not intended to be a complete presentation of the
Properties' revenues and expenses of the Properties nor is it intended to be
comparable to the proposed future operations of the Properties.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from residential apartment leases is recognized when due from
tenants. Apartments are subject to lease agreements with terms of one year or
less.
-22-
<PAGE> 24
TERRACE GARDENS APARTMENTS
AND MORNING VIEW TERRACE APARTMENTS
Notes to Combined 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 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.
4. MANAGEMENT FEES
The Properties are subject to an agreement with Land Trek, a property management
company, to maintain and manage the operations of the Properties. Management
fees are based on 3.25% of total income, as defined, from the Properties. The
agreements with Land Trek will terminate upon the Company's acquisition of the
Properties.
5. RELATED PARTIES
In connection with the management of the Properties, Mr. Don R. Short, the
current managing general partner of the partnerships that own the Properties,
received management fees totaling approximately $37,000 (1.75% of total income)
from Morning View Terrace Apartments for the year ended December 31, 1996 and
$9,000 for the three months ended March 31, 1997.
-23-
<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. for the registration of 1,500,000 shares of common
stock, preferred stock, debt securities and warrants and in the related
Prospectus Supplement dated May 27, 1997 for the registration of 1,500,000
shares of 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 report dated April 24,
1997, with respect to the combined statement of revenues and certain expenses of
Terrace Gardens Apartments and Morning View Terrace Apartments included in the
Company's Current Report on Form 8-K dated May 29, 1997, filed with the
Securities and Exchange Commission.
Newport Beach, California
May 29, 1997
