<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission File Number: 1-12546
PACIFIC GULF PROPERTIES INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 33-0577520
State of Incorporation (I.R.S. Employer Identification No.)
4220 VON KARMAN, SECOND FLOOR
NEWPORT BEACH, CALIFORNIA 92660-2002
(Address of principal executive offices, including zip code)
949-223-5000
(Registrant's telephone number, including area code)
COMMON STOCK, PAR VALUE $.01 PER SHARE, 20,037,201 SHARES
WERE OUTSTANDING AS OF MAY 3, 1999
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
<PAGE> 2
PACIFIC GULF PROPERTIES INC.
FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 1
Consolidated Statements of Operations for the Three
Months ended March 31, 1999 and March 31, 1998 2
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1999 and March 31, 1998 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II: OTHER INFORMATION 11
SIGNATURES 12
</TABLE>
<PAGE> 3
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Mar. 31, 1999 Dec. 31, 1998
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Real estate assets
Land $ 228,431 $ 229,920
Buildings 631,163 633,268
--------- ---------
859,594 863,188
Accumulated depreciation (54,699) (49,776)
--------- ---------
804,895 813,412
Properties under development, including land 47,733 39,926
--------- ---------
852,628 853,338
Cash and cash equivalents 3,102 2,276
Accounts receivable 5,204 4,984
Other assets 15,404 14,529
--------- ---------
$ 876,338 $ 875,127
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 402,535 $ 403,845
Accounts payable and accrued liabilities 16,754 15,828
Dividends payable 9,851 9,844
Convertible subordinated debentures 12,107 12,244
--------- ---------
441,247 441,761
Minority interest in consolidated partnerships 18,136 17,812
Commitments and contingencies
Shareholders' equity
Preferred shares, $.01 par value; 10,000,000 shares authorized; 2,763,116
shares Senior Cumulative Convertible Class A outstanding at March 31, 1999
and December 31, 1998, respectively 28 28
Preferred shares, $.01 par value; 300,000 shares authorized; Class C Junior
Participating Cumulative Preferred Stock; no shares outstanding -- --
Common shares, $.01 par value; 100,000,000 shares authorized; 20,036,272 and
20,017,814 shares outstanding at March 31, 1999 and December 31, 1998,
respectively 201 201
Outstanding restricted stock (1,502) (1,203)
Additional paid-in capital 412,638 412,093
Retained earnings 5,590 4,435
--------- ---------
416,955 415,554
--------- ---------
$ 876,338 $ 875,127
========= =========
</TABLE>
1
<PAGE> 4
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
------- -------
<S> <C> <C>
REVENUES
Rental income
Industrial properties $23,330 $16,307
Multifamily properties 6,360 9,011
------- -------
29,690 25,318
EXPENSES
Rental property expenses
Industrial properties 5,283 3,783
Multifamily properties 2,277 3,238
------- -------
7,560 7,021
Depreciation 6,060 4,390
Interest (including amortization of debenture discount and
financing costs of $213 and $221 respectively) 6,737 5,275
General and administrative expenses 1,380 1,111
Minority partners' interest in earnings of consolidated partnerships 297 106
------- -------
22,034 17,903
------- -------
7,656 7,415
INCOME BEFORE GAIN ON SALE OF REAL ESTATE
Gain on sale of real estate 3,351 --
------- -------
NET INCOME 11,007 7,415
Less preferred dividend requirements 1,236 1,207
------- -------
INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 9,771 $ 6,208
======= =======
EARNINGS PER SHARE
Basic $ 0.49 $ 0.31
======= =======
Diluted $ 0.48 $ 0.31
======= =======
</TABLE>
See accompanying notes
2
<PAGE> 5
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,007 $ 7,415
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 6,060 4,327
Amortization of debenture discount and financing costs 213 221
Minority interests in earnings of consolidated partnerships 297 106
Gain on Sale of Real Estate (3,351) --
Compensation recognized related to restricted stock issued to employees
(299) 46
Net increase in other assets (1,857) (792)
Net increase in liabilities 923 2,684
-------- --------
Net cash provided by operating activities 12,993 14,007
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition and improvements to properties (2,060) (57,865)
Development expenditures (10,388) (4,845)
Proceeds from sale of real estate 11,000 --
-------- --------
Net cash used in investing activities (1,448) (62,710)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit 11,400 75,668
Repayment of line of credit (25,250) (15,000)
Proceeds from mortgage notes payable 9,000 4,524
Repayment of mortgage notes payable (590) (15,110)
Proceeds from construction loans 4,130
909
Debentures converted to common shares (137) (216)
Issuance of common shares 545 65
Minority interest contributions 27 8,775
Dividends on common shares (8,608) (8,387)
Dividends on preferred shares (1,236) (465)
-------- --------
Net cash provided by financing activities (10,719) 50,763
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS 826 2,060
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
2,276 1,466
======== ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,102 $ 3,526
======== ========
</TABLE>
3
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
Pacific Gulf Properties Inc. was incorporated in Maryland and operates as a
Real Estate Investment Trust ("REIT") under the Internal Revenue Code of
1986, as amended. The consolidated financial statements include the accounts
of Pacific Gulf Properties Inc. (the "Company") and its consolidated
subsidiaries and partnerships, PGP Inland Communities, L.P., PGP Von Karman
Properties, PGP-Terrace Gardens Holdings Inc., PGP-Morning View Terrace
Holdings Inc., PGP Northern Industrial, L.P. and PGP Southern Industrial II,
L.P. (the "Partnerships"). The information furnished has been prepared in
accordance with generally accepted accounting principles for interim
financial reporting and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Certain prior year amounts have been reclassified to conform to the current
year presentation. In the opinion of management, all adjustments considered
necessary for the fair presentation of the Company's financial position,
results of operations and cash flows have been included. These financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
2. REAL ESTATE ACQUISITIONS AND DISPOSITIONS
In March 1999, the Company acquired a land parcel, containing 8.65 acres,
located in Anaheim Hills, California for $5,400,000. The Company plans to
develop a 259-unit active senior apartment community on this site.
During the first quarter of 1999, the Company sold a multifamily apartment
property located in Santa Ana, California consisting of 196 apartment units
for $11,000,000 and recognized a gain on sale of $3,351,000.
3. LOANS PAYABLE
The Company's loans payable at March 31, 1999 and December 31, 1998 consist
of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Mortgage notes
Conventional mortgage debt
Industrial $142,449 $133,745
Multifamily
Active Senior 4,604 4,620
Family 34,145 34,239
-------- --------
181,198 172,604
Tax exempt mortgage debt
Industrial
Multifamily
Active Senior 44,581 44,697
Family 20,746 20,815
-------- --------
65,327 65,512
Construction loans 36,110 31,979
Unsecured line of credit 119,900 133,750
======== ========
$402,535 $403,845
======== ========
</TABLE>
4. CONVERTIBLE SUBORDINATED DEBENTURES
As of March 31, 1999, the Company's outstanding convertible subordinated
debentures totaled $12,107,000, which is net of unamortized discount of
$45,000. Conversion of all the outstanding debentures, which are
convertible into common shares at a rate of 53.6986 common shares of
Common Stock per $1,000 of principal amount of debentures, would require
4
<PAGE> 7
the issuance of an additional 652,545 common shares. During the three
months ended March 31, 1999, $145,000 in aggregate principal amount of
debentures ($137,000 net of discount) were converted into 7,785 common
shares.
Per the terms of the debentures, the Company may, after February 1999,
call all or a portion of the remaining outstanding debentures at par.
5. SHAREHOLDERS' EQUITY
During 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the aggregate amount of
$300,000,000, covering the proposed issuance of debt, preferred or common
stock securities and warrants to purchase such securities of the Company
(the "1998 Shelf Registration Statement"). The 1998 Shelf Registration
Statement was declared effective April 23, 1998 by the Securities and
Exchange Commission. Availability under the 1998 Shelf Registration
Statement at March 1999 was $300,000,000.
The Company has a stock rights plan under which the holders of common
stock of the Company ("Common Shares") received a dividend of one
preferred stock purchase right (a "Right") for each Common Share held on
the record date. The Rights shall be distributed and shall be exercisable
upon the earliest of: (a) the tenth business day following the date of
announcement that any person has become the beneficial owner of 10% or
more of the then outstanding voting stock of the Company (such person is a
"10% Stockholder" and the date of announcement is the "10% Ownership
Date"), (b) the tenth business day following the date of commencement of,
or the first public announcement of an intention to commence, a tender
offer or exchange offer, the consummation of which would cause any person
to become a 10% Stockholder, (c) the first date, on or after the 10%
Ownership Date, upon which the Company is acquired in a merger or other
business combination in which the Company is not the surviving corporation
or in which the outstanding Common Shares are changed into or exchanged
for stock or assets of another person, or upon which 50% or more of the
Company's consolidated assets or earning power are sold. Upon
distribution, the Rights shall be exercisable to purchase at the exercise
price, initially $100.00 (the "Exercise Price") (i) one one-hundredth of a
share of the Company's Class C Junior Participating Cumulative Preferred
Stock, or (ii) after the tenth business day following the 10% Ownership
Date, Common Shares with a market value equal to two times the Exercise
Price, or (iii) in the event of a merger, business combination or sale of
50% or more of the Company's consolidated assets or earning power, shares
of common stock of the surviving company or purchaser, respectively, with
an aggregate market value equal to two times the Exercise Price. The
Rights shall expire on December 11, 2007, unless earlier redeemed or
exchanged.
During the three months ended March 31, 1999, 673 shares of common stock
were issued through the Company's Dividend Reinvestment Program.
5
<PAGE> 8
6. PER COMMON SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per share which have been restated to comply with Statement No.
128:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- -------------------------------------------
Weighted Weighted
Average Earnings Average Earnings
Earnings Shares Per Earnings Shares Per
(Numerator) (Denominator) Share (Numerator) (Denominator) Share
----------- ------------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common
shareholders $ 9,771,000 19,952,000 .49 $ 6,208,000 19,930,000 .31
=========== ========== === =========== ========== ===
Effect of Dilutive Securities
Stock Options 11,000 23,000
Restricted Stock 95,000 82,000
Limited Partnership Units 297,000 869,000 106,000 586,000
Convertible Subordinated 287,000 653,000 -- --
Debentures
Convertible Preferred Stock 1,236,000 2,763,000 -- --
Diluted EPS $11,591,000 24,343,000 .48 $ 6,314,000 20,621,000 .31
=========== ========== === =========== ========== ===
</TABLE>
Shares of Senior Cumulative Convertible Preferred Stock, convertible into
2,763,116 shares of Common Stock were outstanding during 1998 but were not
included in computing diluted earnings per share. Including these shares in
the computation increases earnings per share $.01, and are therefore
considered antidilutive. Convertible subordinated debentures convertible
into 669,000 shares of Common Stock were outstanding during 1998, but were
not included in the computation of diluted earnings per share because the
effect would be antidilutive.
7. COMMON SHARE DISTRIBUTIONS AND PREFERRED STOCK DIVIDENDS
On March 11, 1999, the Company declared its quarterly distribution of $.43
per common share covering shares outstanding at March 31, 1999. Assuming the
Board continues to declare quarterly distributions, the estimated annual
distribution based on this amount would be $1.72. The distribution was paid
on April 9, 1999 to holders of record on April 1, 1999.
Preferred stock dividends of $1,236,000, related to the shares of Class A
Preferred Stock outstanding in the fourth quarter of 1998, were paid by the
Company on February 15, 1999. Preferred stock dividends of $1,236,000
related to 2,763,116 shares of Class A Preferred Stock have been accrued
through March 31, 1999 at the rate of $0.44720 per share per quarter.
6
<PAGE> 9
8. INTEREST
Interest incurred for the three months ended March 31 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Interest incurred $ 7,254 $ 6,043
Amortization:
Debenture discount and costs 30 34
Costs related to financing assumed from the Company's Predecessor and line of
credit costs 109 130
Long-term financing costs 74 57
Interest capitalized (614) (893)
Interest income (116) (96)
------- -------
Interest expense $ 6,737 $ 5,275
======= =======
</TABLE>
9. REPORTABLE SEGMENTS
During the fourth quarter of 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement No. 131"). Statement No. 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement No. 131
establishes standards for the way that public business enterprises report
information regarding reportable operating segments. The adoption of
Statement No. 131 did not affect the results of operations or financial
position of the Company.
The Company operates and develops industrial properties and multifamily
properties (consisting of active senior and family apartments). The
properties generate rental and other income through the leasing of
industrial space and apartment units to a diverse base of tenants.
The Company separately evaluates the performance of its industrial and
multifamily operating segments and allocates resources primarily based on
Net Operating Income ("NOI"). NOI is defined by the Company as rental income
less rental property expenses. Accordingly, NOI excludes certain expenses
such as interest, depreciation and minority interests in consolidated
partnerships which are included in the determination of Net Income under
generally accepted accounting principles.
NOI from industrial properties totaled $18,047,000 and $12,524,000 for the
quarters ended March 31, 1999 and 1998 respectively. NOI from multifamily
properties totaled $4,083,000, and $5,773,000 for the quarters ended March
31, 1999 and 1998 respectively.
All revenues are from external customers and no revenues are generated from
transactions between segments. There are no tenants which contributed 10% or
more of the Company's total revenues during 1998 or 1997. Interest expense
on debt is not allocated to the segments or individual properties even if
such debt is secured by the properties. Certain items in the consolidated
statements of operations such as minority interest in consolidated
partnerships are not allocated to the properties. Additionally, there is no
provision for income taxes as the Company is organized as a REIT under the
Internal Revenue Code.
7
<PAGE> 10
PACIFIC GULF PROPERTIES INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion addresses the consolidated financial statements of the
Company for the three months ended March 31, 1999 and 1998, together with
liquidity and capital resources as of March 31, 1999.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 TO THE THREE MONTHS ENDED
MARCH 31, 1998
Industrial rental income increased by $7,023,000, or 43%, from $16,307,000 in
1998 to $23,330,000 in 1999. This increase was primarily attributable to the
acquisition of eleven industrial parks containing approximately 2,197,000 square
feet of leasable area since March 1998. Multifamily rental income decreased by
$2,651,000, or 29%, from $9,011,000 in 1998 to $6,360,000 in 1999. This decrease
was primarily attributable to the sale of six apartment properties located in
Washington during the third and fourth quarters of 1998 and one apartment
property located in California in the first quarter of 1999, offset by an
increase in rental rates and the completion of an active senior property
previously under development. As a result of these changes, total revenues
increased by $4,372,000, or 17%, from $25,318,000 in 1998 to $29,690,000 in
1999.
Industrial rental income for the three months ended March 31, 1999 totaled
$23,330,000 and included $3,991,000 related to the industrial parks acquired
since March 31, 1998.
Multifamily rental income for the three months ended March 31, 1999 totaled
$6,360,000 and included $377,000 related to the completion of an active senior
property previously under development.
Industrial rental property expenses increased $1,500,000, or 40%, from
$3,783,000 in 1998 to $5,283,000 in 1999. This increase was primarily
attributable to the acquisition of the above referenced industrial parks.
Multifamily rental property expenses decreased by $961,000, or 30%, from
$3,238,000 in 1998 to $2,277,000 in 1999. This decrease was primarily
attributable to the disposition of the above referenced multifamily properties.
Industrial rental property expenses for the three months ended March 31, 1999
totaled $5,283,000 and included $861,000 related to industrial parks acquired
since March 31, 1998.
Multifamily rental property expenses for the three months ended March 31, 1999
totaled $2,277,000 and included $166,000 related to the completion of an active
senior property previously under development.
Total depreciation increased by $1,670,000, or 38%, from $4,390,000 in 1998 to
$6,060,000 in 1999. This increase was primarily attributable to additional
depreciation relating to the acquisition of eleven industrial parks, the
completion of an active senior property previously under development, and
capital improvements made to rehabilitate existing properties, offset by the
disposition of seven multifamily properties.
Interest expense (including amortization of debenture discount and financing
costs) increased by $1,462,000, or 28%, from $5,275,000 in 1998 to $6,737,000 in
1999. This increase was primarily attributable to an increase in outstanding
borrowings due to new acquisitions made during 1998.
General and administrative expenses increased by $269,000, or 24%, from
$1,111,000 in 1998 to $1,380,000 in 1999. This increase was primarily
attributable to personnel increases related to acquisitions made since March 31,
1998.
Minority partners' interest in earnings of consolidated partnerships increased
$191,000 from $106,000 in 1998 to $297,000 in 1999. This increase was
attributable to the March 1998 acquisition of a controlling general partner
interest in the partnership that owns an industrial property.
8
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had $3,102,000 of cash to meet its immediate
short-term liquidity requirements. Future short-term liquidity requirements are
anticipated to be met through net cash flow from operations, existing working
capital, and, if necessary, funding from the Company's Line of Credit (as
defined below).
As of March 31, 1999, the Company had borrowed $119,900,000 under its unsecured
line of credit, which is a $150 million revolving credit agreement entered into
in April 1998, to replace the Company's prior secured line of credit and
unsecured bridge loan facility (the "Line of Credit"). The interest rate payable
under the new facility is LIBOR plus 1.30%. The facility matures in April of
2001. The Company will use the facility to finance acquisitions and for general
corporate purposes.
During 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate amount of $300,000,000,
covering the proposed issuance of debt, preferred or common stock securities and
warrants to purchase securities of the Company (the "Shelf Registration
Statement"). The Shelf Registration Statement was declared effective in April of
1998. At March 31, 1999, the Company has $300,000,000 available under the 1998
Shelf Registration Statement.
The Company intends to acquire additional properties and may seek to fund these
acquisitions through proceeds received from a combination of its Line of Credit,
equity offerings or debt financings, but no assurance can be given that any
acquisitions will be completed.
The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, continuing debt service obligations and
the payment of dividends in accordance with REIT requirements in the foreseeable
future.
Cash provided by operating activities decreased from $14,007,000 for the period
ended March 31, 1998 to $12,993,000 for the period ended March 31, 1999. The
primary reason for these decreases is related to the change in other assets and
liabilities offset by the additional rental income contributed by properties
acquired during 1998 and 1999.
Cash used in investing activities decreased from $62,710,000 for the period
ended March 31, 1998 to $1,448,000 for the period ended March 31, 1999 as a
result of fewer acquisitions.
Cash provided by financing activities decreased from $50,763,000 for the period
ended March 31, 1998 to ($10,719,000) for the year ended March 31, 1999
primarily as a result of a net decrease in borrowings on the Company's Line of
Credit and mortgage loans.
The immediately preceding paragraphs contain forward looking information
involving risks and uncertainties that could significantly impact the Company's
expected liquidity requirements in the short and long term. While it is
impossible to itemize the many factors and specific events that could affect the
Company"s outlook for its liquidity requirements, such factors would include the
actual timing of and costs associated with the Company's acquisitions, the
actual capital expenditures associated therewith, and the strength of the local
economies of the submarkets in which the Company operates. Higher than expected
acquisition, rental and/or rehabilitation costs, delays in the rehabilitation of
properties, a downturn in the local economies, competition and/or the lack of
growth of such economies could reduce the Company's revenues and increase its
expenses, resulting in a greater burden on the Company's liquidity than that
which the Company has described above.
YEAR 2000 READINESS
General
Any of the Company's computer programs that have time-sensitive software may not
be able to distinguish the year 2000 from the year 1900, if the programs use two
digits rather than four digits to define the year. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, prepare tenant
invoices, or engage in similar normal business activities.
Company's State of Readiness
The Company's Year 2000 project is divided into four general exposures: Computer
hardware, applications software, operating equipment with embedded chips or
software ("OE") and third party suppliers and customers. The phases common to
all sections are: 1) Compiling potential Year 2000 sensitive items; 2) assigning
priorities to identified items; 3) assessing the Year 2000 compliance of items
determined to be material to the Company; 4) repairing or replacing material
items that are determined not to be Year 2000 compliant; and 5) testing material
items.
9
<PAGE> 12
Computer hardware consists of personal computers ("PCs") currently being
utilized by the Company. This includes PCs utilized by employees along with PCs
designated as file servers located at the corporate office. As of March 31,
1999, all computer hardware is believed to be Year 2000 compliant and 100% of
the PCs have been tested.
Applications software consists of software currently being utilized by the
Company including but not limited to accounting, operating system, spreadsheet
and word processing software. As of March 31, 1999, over 93% of the Company's
application software is believed to be Year 2000 compliant. The Company expects
to complete the remaining assessment and repair or replacement, including
testing, during the second quarter of 1999.
Operating equipment with embedded chips or software includes equipment or
machinery such as elevators, security systems, lighting systems, HVAC systems
and sprinkler systems used in the operation of the Company's properties. The
Company expects to complete the assessment and repair or replacement of its
critical OE systems by the second quarter of 1999, with all testing scheduled to
be completed by the end of the third quarter of 1999. The Company anticipates
that a contingency plan will be established to address non-compliant
non-critical OE systems.
The third party analysis consists of identifying and prioritizing critical
suppliers and communicating with them about their plans and progress in
addressing the Year 2000 issue. The state of readiness of the Company's third
parties is based primarily on representations from such parties. The Company has
queried 100% of its significant suppliers and subcontractors that do not share
information systems with the Company. The Company will review the results of
this survey, assess the impact of the results on its operations and take
whatever action is deemed necessary. To date, the Company is not aware of any
third parties with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, the Company has
no means of ensuring that third parties will be Year 2000 ready.
Cost to Address the Company's Year 2000 Issues
The Company has incurred less than $10,000 in connection with its Year 2000
remediation efforts. The Company cannot presently estimate the total cost of the
remaining phases of its Year 2000 program, however, the Company does not expect
its Year 2000 expenditures to be material to the Company's business, results of
operations or financial condition.
Risks of the Company's Year 2000 Issues
Management of the Company believes it has a program in place to adequately
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 project. The Company's
ability to complete the Year 2000 modifications prior to any anticipated impact
on its operating systems is based on numerous assumptions of future events and
is dependent upon numerous factors, including the ability of third party
software vendors to make necessary modifications to current versions of their
products, the availability of resources to install and test the modified systems
and other factors. A Year 2000 failure by one or more of the financial
institutions or utility companies with which the Company does business could
cause the Company to lose access to its funds or could restrict the Company's
ability to borrow or operate its property. A Year 2000 failure by a trustee or
transfer agent could restrict the Company's ability to pay interest on its bonds
or to pay dividends on its equity securities.
Company's Contingency Plans
The Company currently has no contingency plans in place in the event it does not
complete all phases of the Year 2000 project, but anticipates that a contingency
plan will be established to address non-compliant systems. The Company plans to
periodically evaluate the status of other systems and determine whether such a
plan is necessary.
10
<PAGE> 13
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
None
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC GULF PROPERTIES INC.
/s/ Glenn L. Carpenter /s/ Donald G. Herrman
- ------------------------------ ------------------------------
Glenn L. Carpenter Donald G. Herrman
Chairman and Chief Executive Officer Chief Financial Officer and
Secretary
DATED: May 12, 1999
-----------------------
12
<PAGE> 15
EXHIBIT INDEX
EXHIBIT
NO DESCRIPTION
- -------- -----------
(a) Exhibits
Exhibit 27 - Financial Data Schedule.
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,102
<SECURITIES> 0
<RECEIVABLES> 6,204
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,306
<PP&E> 907,327
<DEPRECIATION> 54,699
<TOTAL-ASSETS> 876,338
<CURRENT-LIABILITIES> 26,605
<BONDS> 414,642
0
28
<COMMON> 201
<OTHER-SE> 416,726
<TOTAL-LIABILITY-AND-EQUITY> 876,338
<SALES> 0
<TOTAL-REVENUES> 29,690
<CGS> 0
<TOTAL-COSTS> 15,000
<OTHER-EXPENSES> 297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,737
<INCOME-PRETAX> 7,656
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,656
<DISCONTINUED> 0
<EXTRAORDINARY> 3,351
<CHANGES> 0
<NET-INCOME> 9,771
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.48
</TABLE>
