<PAGE> 1
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 23, 1998
PACIFIC GULF PROPERTIES INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
MARYLAND 1-12546 33-0577520
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
</TABLE>
4220 VON KARMAN, 2ND FLOOR, NEWPORT BEACH, CALIFORNIA, 92660-2002
(Address of principal executive offices, including zip code)
949-223-5000
(Registrant's telephone number, including area code)
<PAGE> 2
This report amends the Current Report on Form 8-K dated December 23, 1998 to
include revised pro forma financial information (as noted in ITEM 7) together
with an audited combined statement of revenues and certain expenses for the
property acquisitions described below pursuant to Rule 3-14 of Regulation S-X.
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS.
Pacific Gulf Properties Inc. (the "Company") completed the following
transactions in December 1998:
DISPOSITION OF MULTIFAMILY PROPERTIES
On December 23, 1998, the Company sold the following five multifamily
apartment communities located in Seattle, Washington (collectively referred to
as "Northwest Multifamily Properties") for a total cash consideration of
$78,500,000:
<TABLE>
<CAPTION>
APARTMENT
PROPERTY NAME UNITS OCCUPANCY %
- ------------- ------------ -----------
<S> <C> <C>
Hampton Bay Apartments ........................ 304 93%
Fultons Crossing Apartments ................... 256 95
Fultons Landing Apartments .................... 248 92
Heatherwood Apartments ........................ 368 95
Holly Ridge Apartments ........................ 146 90
-----
1,322
=====
</TABLE>
The Northwest Multifamily Properties constitute all of the Company's
multifamily properties in the Pacific Northwest and were sold to SAP II
Originating LLC, a New York limited liability company ("SAP II"). As a result of
the sale, the Company's multifamily holdings decreased to 3,265 apartment units.
The sale of the Northwest Multifamily Properties generated a net gain of
approximately $29,000,000 and net proceeds of approximately $75,000,000.
Proceeds from the sale were deposited into a deferred exchange account and were
applied to the acquisition of seven industrial properties (described below) on a
tax-deferred basis pursuant to Section 1031 of the Internal Revenue Code. The
transaction was an all-cash sale and the Company has no continuing involvement,
accordingly, the Company recognized the sale using the full accrual method of
accounting.
Prior to the sale, the Company completed the following loan
transactions:
The Company released Hollyridge Apartments and Heatherwood Apartments
from the security interest related to a tax-exempt loan with a lender by
substituting Applewood Apartments, an unrelated multifamily property, as the new
collateral in satisfaction of the lender's requirements. Prior to the
substitution, the Company repaid outstanding indebtedness on Applewood
Apartments totaling $11,574,000 utilizing proceeds borrowed under the Company's
revolving line of credit with Wells Fargo Bank.
The Company released Hampton Bay Apartments from the security interest
related to a loan from a life insurance company. The Company substituted a
letter of credit issued by a bank totaling $9,400,000 and expiring December 1999
for the trust deed on Hampton Bay Apartments. The Company remains obligated on
the life insurance company loan and anticipates pledging an unrelated property
as collateral prior to the letter of credit expiration date.
INDUSTRIAL ACQUISITIONS
On December 23, 1998, the Company reinvested the proceeds from the sale
of the Northwest Multifamily Properties by acquiring seven industrial properties
located in the states of Arizona, California and Oregon for a total cash
consideration of $76,000,000. Six of the industrial properties were acquired
from RREEF Performance Partnership I - LP, an Illinois limited partnership
("RREEF"), for a gross purchase price of $69,600,000. The remaining industrial
property was acquired from SPT Real Estate Corp., a Maryland corporation
("SPT"), for a gross purchase price of $6,400,000. RREEF and SPT are both
affiliated companies of RREEF America, a pension fund manager.
1
<PAGE> 3
The industrial acquisitions (collectively referred to as the "RREEF/SPT
Industrial Portfolio") included the following properties:
<TABLE>
<CAPTION>
LEASABLE SQUARE
PROPERTY NAME LOCATION FEET OCCUPANCY %
------------- -------- --------------- -----------
<S> <C> <C> <C>
RREEF ACQUISITIONS
Hohokam 10 East ..................... Tempe, Arizona 256,900 97%
Hohokam 10 West ..................... Phoenix, Arizona 65,900 95%
Hesperian Business Park ............. Hayward, California 153,000 100%
Sierra Trinity Industrial Park ...... Dublin, California 223,400 89%
Contra Costa Diablo Industrial Park.. Concord, California 146,300 69%
Airport Business Center ............. Portland, Oregon 228,500 93%
SPT ACQUISITION
West Sacramento Industrial Center ... Sacramento, California 214,900 80%
---------
1,288,900
=========
</TABLE>
Each property constituting the RREEF/SPT Industrial Portfolio is located
within a region where the Company maintains a regional office except for Hohokam
10 East and Hohokam 10 West. As a result of this transaction, the Company
increased its industrial holdings to 15,513,000 leasable square feet
approximately. The Company plans to spend an aggregate of $2,000,000 on capital
improvements related to this portfolio within 12 months.
The disposition and acquisition transactions referred to above were
consummated with unrelated parties. In each case, the Company's acquisition was
based upon an evaluation of a number of factors, including a review of
historical and projected rental revenues and expenses, capitalization rates for
similar properties, prevailing market conditions in the area and studies
including a review of financial operations, environmental conditions and site
inspections.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) See Index to Financial Statements attached hereto.
The accompanying audited combined statement of revenues and
certain expenses of the RREEF/SPT Industrial Portfolio is
presented pursuant to Rule 3-14 of Regulation S-X.
The unaudited condensed consolidated pro forma statements of
operations in this filing reflect certain adjustments to the pro
forma revenues of the RREEF/SPT Industrial Portfolio as
previously filed by the Company to conform them to the audited
results. On a pro forma basis, industrial property revenues were
decreased by $158,000 to $6,272,000 for the nine months ended
September 30, 1998 and increased by $141,000 to $8,614,000 for
the year ended December 31, 1997 which primarily reflects the
effect of straight-lining rental income.
(b) Exhibits
CONSENT
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: March 5, 1999
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 September 30, 1998 .................... 5
Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended
September 30, 1998 ......................................................................... 6
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended
December 31, 1997 .......................................................................... 7
Notes to Pro Forma Condensed Consolidated Financial Statements ............................. 8
RREEF/SPT INDUSTRIAL PORTFOLIO
Report of Independent Auditors ............................................................. 20
Combined Statement of Revenues and Certain Expenses for the Year Ended
December 31, 1997 and the Nine Months Ended September 31, 1998 (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
SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------
SALE OF ACQUISITION OF
NORTHWEST RREEF/SPT
COMPANY MULTIFAMILY INDUSTRIAL COMPANY
HISTORICAL PROPERTIES PORTFOLIO PRO FORMA
---------- ----------- --------------- ---------
(A) (B)
<S> <C> <C> <C> <C>
ASSETS
Real estate, net
Operating properties $ 780,168 $ (46,219) $ 76,000 $ 809,949
Properties under development 34,485 -- -- 34,485
Cash and cash equivalents 5,114 74,887 (75,466) 4,535
Accounts receivable 4,893 -- -- 4,893
Other assets 15,088 -- -- 15,088
--------- --------- --------- ---------
$ 839,748 $ 28,668 $ 534 $ 868,950
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 278,440 $ (11,574) $ -- $ 266,866
Line of credit 116,600 11,574 -- 128,174
Accounts payable and accrued liabilities 15,882 (245) 534 16,171
Dividends payable 9,609 -- -- 9,609
Convertible subordinated debentures 12,261 -- -- 12,261
--------- --------- --------- ---------
432,792 (245) 534 433,081
========= ========= ========= =========
Minority interest in consolidated partnerships 17,821 -- -- 17,821
Shareholders' equity
Preferred stock 28 -- -- 28
Common shares 200 -- -- 200
Outstanding restricted stock (1,282) -- -- (1,282)
Additional paid-in capital 412,058 -- -- 412,058
Retained earnings (distributions in excess of earnings) (21,869) 28,913 -- 7,044
--------- --------- --------- ---------
389,135 28,913 -- 418,048
--------- --------- --------- ---------
$ 839,748 $ 28,668 $ 534 $ 868,950
========= ========= ========= =========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------
SALE OF ACQUISITION OF
NORTHWEST RREEF/SPT
COMPANY MULTIFAMILY INDUSTRIAL COMPANY
HISTORICAL ADJUSTMENTS ADJUSTED PROPERTIES PORTFOLIO PRO FORMA
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $ 54,993 $ 4,782 (C) $ 59,775 $ -- $ 6,272(N) $ 66,047
Multifamily properties 27,916 (1,319)(C) 26,597 (7,671)(K) -- 18,926
------------ ------------ ------------ ------------ ------------ ------------
82,909 3,463 86,372 (7,671) 6,272 84,973
EXPENSES
Rental property expenses
Industrial properties 11,979 1,101 (C) 13,080 -- 1,649(N) 14,729
Multifamily properties 10,290 (459)(C) 9,831 (2,869)(K) -- 6,962
------------ ------------ ------------ ------------ ------------ ------------
22,269 642 22,911 (2,869) 1,649 21,691
Depreciation 14,751 559 (D) 15,310 (999)(M) 1,520(O) 15,831
Interest 18,965 2,533 (E) 20,659 (129)(L) -- 20,530
(129)(F)
(710)(P)
General and administrative 3,912 -- 3,912 -- -- 3,912
Minority interest in earnings in
consolidated partnerships 733 296 (G) 1,029 -- -- 1,029
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME 22,279 272 22,551 (3,674) 3,103 21,980
Less preferred dividend
requirements 3,621 -- 3,621 -- -- 3,621
------------ ------------ ------------ ------------ ------------ ------------
INCOME AVAILABLE TO COMMON
SHAREHOLDERS (S)(T) $ 18,658 $ 272 $ 18,930 $ (3,674) $ 3,103 $ 18,359
============ ============ ============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Q) 19,989,833 19,989,833
============ ============
NET INCOME PER COMMON SHARE $ .93 $ .92
============ ============
</TABLE>
The accompanying notes are an integral part of the pro forma financial condensed
consolidated statements.
6
<PAGE> 8
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------
SALE OF ACQUISITION OF
NORTHWEST RREEF/SPT
COMPANY MULTIFAMILY INDUSTRIAL COMPANY
HISTORICAL ADJUSTMENTS ADJUSTED PROPERTIES PORTFOLIO PRO FORMA
---------- ----------- -------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental income
Industrial properties $ 36,410 $38,805 (C) $75,215 $ -- $8,614(N) $ 83,829
Multifamily properties 33,096 (521)(C) 32,575 (9,568)(K) -- 23,007
---------- ------- ------- -------- ------ ----------
69,506 38,284 107,790 (9,568) 8,614 106,836
EXPENSES
Rental property expenses
Industrial properties 8,212 10,848 (C) 19,060 -- 2,179(N) 21,239
Multifamily properties 12,754 (278)(C) 12,476 (3,716)(K) -- 8,760
---------- ------- ------- -------- ------ ----------
20,966 10,570 31,536 (3,716) 2,179 29,999
Depreciation 12,008 6,435 (I) 18,443 (1,289)(M) 2,027(O) 19,181
Interest 17,337 (1,188)(P) 27,794 (173)(L) -- 27,621
11,927 (J)
(282)(E)
General and administrative 3,159 -- 3,159 -- -- 3,159
Minority interest in earnings in
consolidated partnerships 172 1,201 (G) 1,373 -- -- 1,373
---------- ------- ------- -------- ------ ----------
NET INCOME 15,864 9,621 25,485 (4,390) 4,408 25,503
Less preferred dividend requirements 855 3,972 (H) 4,827 -- -- 4,827
---------- ------- ------- -------- ------ ----------
INCOME AVAILABLE TO COMMON
SHAREHOLDERS (R) $ 15,009 $ 5,649 $20,658 $(4,390) $4,408 $ 20,676
========== ======= ======= ======= ====== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Q) 13,685,693 19,913,158
========== ==========
NET INCOME PER COMMON SHARE $ 1.10 $ 1.04
========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed
consolidated financial statements.
7
<PAGE> 9
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE, SQUARE FOOTAGE AND UNIT DATA)
NOTE 1 - BASIS OF PRESENTATION
Pacific Gulf Properties Inc. is incorporated in Maryland and operates
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended. Pacific Gulf Properties Inc. commenced operations on February
18, 1994 upon the completion of its initial public offerings and consummation of
certain formation transactions.
On December 23, 1998, the Company sold five multifamily properties
constituting all of its family apartments located in Seattle, Washington
(collectively referred to as the "Northwest Multifamily Properties"). On the
same date, the Company purchased seven industrial properties comprising the
RREEF/SPT Industrial Portfolio. Both transactions are more fully described in
Item 2 of this Form 8-K filing.
The pro forma condensed consolidated financial statements of the
Company are not necessarily indicative of what the Company's financial position
or results of operations would have been assuming the completion of the
transactions described below as of the beginning of the periods indicated, nor
does it purport to project the Company's financial position or results of
operations at any future date or for any future period. In addition, the
historical operating results for the nine months ended September 30,1998 are not
necessarily indicative of the results to be obtained by the Company for the year
ending December 31, 1998. The following pro forma information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and all of the financial statements and notes thereto
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30,1998, and the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
Pro Forma Consolidated Balance Sheet
The Company's pro forma condensed consolidated balance sheet,
presented as of September 30, 1998, is based on the unaudited historical
financial statements of the Company as included in the Company's Quarterly
Report on Form 10-Q, and include the following pro forma adjustments to reflect
the acquisitions, dispositions and related transactions consummated by the
Company subsequent to September 30, 1998:
(i) the repayment in December 1998 of the outstanding indebtedness on the
Applewood Apartments totaling $11,574 with proceeds from the Company's
revolving line of credit to facilitate the sale of the Northwest
Multifamily Properties, as more fully described in Item 2 of this Form
8-K filing.
(ii) the sale of the Northwest Multifamily Properties in December 1998.
(iii) the acquisition of the RREEF/SPT Industrial Portfolio in December 1998.
Pro Forma Consolidated Statement of Operations for the Nine Months Ended
September 30, 1998
The pro forma condensed consolidated statement of operations of the
Company for the nine months ended September 30, 1998 is based on the unaudited
historical financial statements included in the Company's Quarterly Report on
Form 10-Q, and includes pro forma adjustments to reflect the following
acquisitions, dispositions and related transactions consummated by the Company
subsequent to September 30, 1998 together with other adjustments to reflect the
effect of other transactions completed within the period reported herein, as if
all of the transactions had occurred as of the beginning of the period
presented:
8
<PAGE> 10
Pro Forma Adjustments (Transactions Completed Subsequent to September
30, 1998)
(i) the repayment of the outstanding indebtedness on the Applewood
Apartments with proceeds from the Company's revolving line of credit to
facilitate the sale of the Northwest Multifamily Properties.
(ii) the sale of the Northwest Multifamily Properties in December 1998.
(iii) the acquisition of the RREEF/SPT Industrial Portfolio in December 1998.
Other Adjustments (Transactions Completed During 1998)
(iv) the purchase of the following industrial properties during the quarter
ended March 31, 1998: (a) Mountain Avenue Business Park; (b) Lurline
Industrial Park; (c) Valley View Industrial Center; (d) Los Alamitos
Business Park; (e) Walnut Avenue Business; and (f) Madison West
Business Park;
(v) the purchase in March 1998 of a controlling general partner interest in
the partnership that owns NW-Garden Grove;
(vi) the repayment in March 1998 of the Company's revolving line of credit
from Bank of America using a $40,000 bridge loan facility;
(vii) the repayment in April 1998 of the $40,000 bridge loan facility with
proceeds from a $150,000 revolving credit line from Wells Fargo Bank;
(viii) the purchase in June 1998 of the Koll Industrial Portfolio and Eastman
Kodak Properties; and
(ix) the sale in August 1998 of the Lora Lakes Apartments, a multifamily
property containing 234 apartment units located in the state of Oregon.
Pro Forma Consolidated Statement of Operations for the Year Ended December 31,
1997
The Company's pro forma condensed consolidated statement of
operations for the year ended December 31, 1997 is based on the audited
historical financial statements of the Company as included in the Company's
Annual Report on Form 10-K, and includes pro forma adjustments to reflect the
following acquisitions, disposition and related transactions which were
consummated by the Company subsequent to September 30, 1998 together with other
adjustments to reflect the effect of other transactions completed within the
period reported herein, as if all of the transactions had occurred as of the
beginning of the period presented:
Pro Forma Adjustments (Transactions Completed Subsequent to September
30, 1998)
(i) the repayment in December 1998 of the outstanding indebtedness on the
Applewood Apartments with proceeds from the Company's revolving line of
credit to facilitate the sale of the Northwest Multifamily Properties.
(ii) the sale of the Northwest Multifamily Properties in December 1998.
(iii) the acquisition of the RREEF/SPT Industrial Portfolio in December 1998.
Other Adjustments (Transactions Completed During 1997)
(iv) the purchase in January and February 1997 of three
warehouse/distribution facilities containing an aggregate of 521,000
leasable square feet located in Washington and California (the "January
1997 Industrial Acquisitions") with proceeds from a public offering of
2,300,000 shares of the Company's Common Stock consummated in January
1997 (the "January 1997 Common Stock Offering");
(v) the completion of the January 1997 Common Stock Offering and the
application of the net proceeds thereof as more fully described in the
related Prospectus Supplement filed with the Securities and Exchange
Commission;
9
<PAGE> 11
(vi) the purchase of a warehouse/distribution facility in March 1997
containing approximately 570,000 leasable square feet located in
Woodland, California ("Woodland Distribution Center");
(vii) the repayment in April 1997 of certain indebtedness totaling $7,000
with proceeds from the issuance of 270,270 shares of $.01 par value
Class A Senior Cumulative Convertible Preferred Stock (the "Class A
Preferred Stock");
(viii) the purchase of the following properties utilizing proceeds from a
public offering of 2,131,700 shares of the Company's common stock
consummated in June 1997 (the "June 1997 Common Stock Offering"): (a)
Algona Distribution Center, a warehouse/distribution facility
containing approximately 250,000 leasable square feet located in
Algona, Washington purchased by the Company in January 1997 for
redevelopment purposes; (b) a 12.8-acre land parcel located in Lake
Forest, California purchased by the Company in May 1997, for the
development of a multi-tenant industrial complex containing
approximately 204,000 leasable square feet (the "Lake Forest Land
Parcel"); (c) a 17.1-acre land parcel located in Irvine, California
purchased by the Company in July 1997 for the development of a
warehouse/distribution business park containing approximately 235,000
leasable square feet (the "Pacific Gulf Spectrum Land"); (d) Vons
Distribution Center, a warehouse/distribution center containing
approximately 360,000 leasable square feet purchased by the Company in
August 1997 for redevelopment purposes (the "Vons Distribution Center"
together with the "Algona Distribution Center," the "Lake Forest Land
Parcel," and the "Pacific Gulf Spectrum Land" are collectively referred
to as the "Development Properties"); and (e) a controlling general
partner interest in two partnerships that own two "active senior"
multifamily properties containing 551 units located in Escondido,
California (the "Senior Apartments");
(ix) the completion of the June 1997 Common Stock Offering and the
application of the net proceeds thereof as more fully described in the
related Prospectus Supplement filed with the Securities and Exchange
Commission;
(x) the purchase in July 1997 of an industrial portfolio of five industrial
properties containing approximately 1,532,000 leasable square feet
located in California (the "AEW/Lincoln Properties") utilizing
borrowings under the Company's acquisition facility and proceeds from
the issuance of 470,588 shares of $.01 par value Class B Senior
Cumulative Convertible Preferred Stock (the "Class B Preferred Stock");
(xi) the purchase in September 1997 of an industrial park containing
approximately 142,000 leasable square feet located in Concord,
California (the "Concord Industrial Park");
(xii) the purchase in October 1997 of a controlling general partner interest
in the partnership that owns Eden Plaza/Eden Industrial Park, two
industrial properties containing approximately 501,000 leasable square
feet located in Hayward, California;
(xiii) the borrowings in October 1997 under the Company's revolving line of
credit which were used to repay a $4,000 maturing loan payable;
(xiv) the repayment in October 1997 of the outstanding balances under the
Company's acquisition facility with proceeds from a $34,000 term loan;
(xv) The issuance in October 1997 of an additional 235,294 shares of Class B
Preferred Stock;
(xvi) the purchase of the following properties utilizing, in part, the
proceeds from a public offering of 4,250,000 shares of the Company's
Common Stock (the "November 1997 Common Stock Offering"): (a)
California Commerce Parks Portfolio, consisting of four industrial
properties containing approximately 733,000 leasable square feet
located in California acquired by the Company in December 1997; (b)
Bradshaw Business Centre, a warehouse/distribution business center
containing approximately 114,000 leasable square feet located in
Sacramento, California acquired by the Company in December 1997; (c)
Horn Road Business Complex, a business complex consisting of 14
industrial buildings containing approximately 221,000 leasable square
feet located in Sacramento, California acquired by the Company in
December 1997; (d) Fullerton Business Center, a warehouse/distribution
business park consisting of eight multi-tenant buildings containing
111,000 leasable square feet located in Fullerton, California acquired
by the Company in December 1997; (e) Norwood Industrial Park, a
multi-tenant industrial park consisting of four building containing
approximately 168,000 leasable square feet located in Sacramento,
California acquired by the Company in December 1997;
10
<PAGE> 12
(xvii) the completion of the November 1997 Common Stock Offering and the
application of the net proceeds thereof as more fully described in
the related Prospectus Supplement filed with the Securities and
Exchange Commission;
(xviii) the acquisition of three industrial properties ("Amresco Portfolio")
containing approximately 543,000 leasable square feet located in
Orange County, California, two of which were acquired in November
1997 and the other in December 1997;
(xix) the purchase in December 1997 of an "active senior" multifamily
property consisting of 273 apartment units located in Riverside,
California ("Tyler Springs Apartments");
(xx) the purchase in December 1997 of four industrial properties
containing approximately 619,000 leasable square feet located in
California (the "Northwestern Portfolio") utilizing proceeds from the
issuance of 1,081,081 shares of Class A Preferred Stock and 705,883
shares of Class B Preferred Stock.
(xxi) the sale in December 1997 of a 279 unit multifamily community apartment
located in Oregon ("Waterhouse Apartments");
(xxii) the purchase of the following industrial properties during the quarter
ended March 31, 1998: (a) Mountain Avenue Business Park, an industrial
park containing approximately 140,000 leasable square feet located in
Upland, California acquired by the Company in January 1998 ("Mountain
Avenue Business Park"); (b) Lurline Industrial Park, a multi-tenant
industrial park containing approximately 125,000 leasable square feet
located in Chatsworth, California acquired by the Company in January
1998 ("Lurline Industrial Park"); (c) Valley View Industrial Center, an
industrial center containing approximately 300,000 leasable square feet
located in Las Vegas, Nevada acquired by the Company in February 1998
("Valley View Distribution Center"); (d) Los Alamitos Business Park, a
business park containing approximately 125,000 leasable square feet
located in Los Alamitos, California acquired by the Company in March
1998("Los Alamitos Business Park); (e) Walnut Avenue Business Park, an
industrial building containing approximately 76,000 leasable square
feet located in Signal Hill, California acquired by the Company in
March 1998 ("Walnut Avenue Business Park"); and (f) Madison West
Business Park, an industrial project containing approximately 147,000
leasable square feet located in Sacramento, California acquired by the
Company in March 1998 ("Madison West Business Park");
(xxiii) the purchase in March 1998 of a controlling general partner interest in
a partnership that owns a 168,000 square foot distribution facility
located in Garden Grove, California ("NW-Garden Grove");
(xxiv) the repayment of the outstanding balance on the Company's revolving
line of credit with Bank of America in March 1998 using a $40,000
bridge loan facility from Wells Fargo Bank;
(xxv) the repayment in April 1998 of the $40,000 bridge loan facility with
proceeds from a $150,000 revolving credit line from Wells Fargo Bank;
(xxvi) the purchase in June 1998 of the four industrial properties
("Koll Industrial Portfolio") containing approximately 696,000 leasable
square feet located in Orange County, California; and two
warehouse/industrial facilities (the "Eastman Kodak Properties")
containing 476,000 leasable feet for redevelopment purposes; and
(xxvii) the sale in August 1998 of Lora Lake Apartments, a multifamily
apartment community containing 234 apartment units located in Burien,
Washington.
11
<PAGE> 13
NOTE 2 - PRO FORMA ADJUSTMENTS
(A) Sale of the following multifamily apartment communities comprising
the Northwest Multifamily Properties in December 1998 for a sales
price of $78,500, resulting in net proceeds of $74,887 and a net gain
of $28,913:
<TABLE>
<CAPTION>
APARTMENT
PROPERTY NAME UNITS COST
------------- ------ ---------
<S> <C> <C>
Hampton Bay Apartments 304 $ 12,374
Fulton Crossing Apartments 256 8,331
Fultons Landing Apartments 248 8,120
Heather Wood Apartments 368 12,650
Holly Ridge Apartments 146 4,744
----- ---------
1,322 $ 46,219
===== =========
</TABLE>
In connection with this sale, the Company transferred the liability
for tenant security deposits relating to the properties totaling $245
to the buyer. The Company had maintained these funds in segregated
cash accounts.
Prior to this sale, the Company also repaid certain outstanding
indebtedness totaling $11,574 with proceeds from its line of credit
as more fully described in Item 2 of this Form 8-K filing.
(B) Purchase of the following industrial properties comprising the
RREEF/SPT Industrial Portfolio in December 1998 for an aggregate
purchase price of $76,000:
<TABLE>
<CAPTION>
LEASABLE SQUARE PURCHASE
PROPERTY NAME LOCATION FEET PRICE
------------- --------------------- --------------- ---------
<S> <C> <C> <C>
Hohokam 10 East(1) Tempe, Arizona 256,900 $ 19,500
Hohokam 10 West(1) Hayward, Arizona 65,900 --
Hesperian Business Park Hayward, California 153,000 8,000
Sierra Trinity Industrial Park Dublin, California 223,400 23,000
Contra Costa Diablo Industrial Park Concord, California 146,300 8,000
Airport Business Center Portland, Oregon 228,500 11,100
West Sacramento Industrial Park Sacramento, California 214,900 6,400
---------- ---------
1,288,900 $ 76,000
========== =========
</TABLE>
(1) Hohokam 10 East and Hohokam 10 West were acquired together for a
bulk purchase price of $19,500.
The Company funded the purchase price utilizing net proceeds from the sale
of the Northwest Multifamily Properties which were held in a deferred
exchange account prior to the purchase. In connection with the acquisition,
the Company received credit through escrow for the assumption of tenant
security deposits totaling approximately $534.
12
<PAGE> 14
(C) Represents the revenues and certain expenses of the properties
acquired by the Company during 1997 and 1998 for the period prior to
their acquisition (adjusted to reflect increased property taxes based
on the properties' acquisition cost and current property tax rates)
reduced by revenue and expenses of Waterhouse Apartments and Lora
Lakes Apartments prior to their sale in December 1997 and August
1998, respectively:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------------------------------------------
MOUNTAIN VALLEY LOS WALNUT MADISON
AVE. LURLINE VIEW NW- ALAMITOS AVE. WEST AVE.
BUSINESS INDUSTRIAL INDUSTRIAL GARDEN BUSINESS BUSINESS BUSINESS
TOTAL PARK PARK CENTER GROVE PARK PARK PARK
-------- --------- ---------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Income
Industrial
Properties $ 4,782 $34 $ 54 $137 $225 $219 $119 $ 236
Multifamily
Properties (1,319) -- -- -- -- -- -- --
------- --- ---- ---- ---- ---- ---- ------
3,463 34 54 137 225 219 119 236
Rental Property
Expenses
Industrial
Properties 1,101 10 11 24 62 58 38 75
Multifamily
Properties (459) -- -- -- -- -- -- --
------- --- ---- ---- ---- ---- ---- ------
642 10 11 24 62 58 38 75
------- --- ---- ---- ---- ---- ---- ------
$ 2,821 $24 $ 43 $113 $163 $161 $ 81 $ 161
======= === ==== ==== ==== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------
KOLL EASTMAN LORA LAKE
INDUSTRIAL KODAK APARTMENTS
PORTFOLIO PROPERTIES SALE
---------- ---------- ----------
<S> <C> <C> <C>
Rental Income
Industrial
Properties $3,205 $ 553 $ --
Multifamily
Properties -- -- (1,319)
------ ------- -------
3,205 553 (1,319)
Rental Property
Expenses
Industrial
Properties 661 162 --
Multifamily
Properties -- -- (459)
------ ------- -------
661 162 (459)
------ ------- -------
$2,544 $ 391 $ (860)
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------------------
JANUARY EDEN
1997 WOODLAND AEW/ CONCORD PLAZA/
INDUSTRIAL DISTRIBUTION SENIOR LINCOLN INDUSTRIAL EDEN
TOTAL ACQUISITIONS CENTER APARTMENTS PROPERTIES PARK INDUSTRIAL
-------- ------------ ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Income
Industrial
Properties $ 38,805 $183 $ 60 $ -- $3,753 $ 797 $1,745
Multifamily
Properties (521) -- -- 1,665 -- -- --
-------- ---- ------ ------ ------ ------ ------
38,284 183 60 1,665 3,753 797 1,745
Rental Property
Expenses
Industrial
Properties 10,848 59 27 -- 737 129 413
Multifamily
Properties (278) -- -- 583 -- -- --
-------- ---- ------ ------ ------ ------ ------
10,570 59 27 583 737 129 413
-------- ---- ------ ------ ------ ------ ------
$ 27,714 $124 $ 33 $1,082 $3,016 $ 668 $1,332
======== ==== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
CALIFORNIA
COMMERCE FULLERTON HORN ROAD
AMRESCO PARK BUSINESS BUSINESS
PORTFOLIO PORTFOLIO CENTER COMPLEX
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Rental Income
Industrial
Properties $1,946 $9,743 $ 613 $1,121
Multifamily
Properties -- -- -- --
------ ------ ------ ------
1,946 9,743 613 1,121
Rental Property
Expenses
Industrial
Properties 346 3,602 154 267
Multifamily
Properties -- -- -- --
------ ------ ------ ------
346 3,602 154 267
------ ------ ------ ------
$1,600 $6,141 $ 459 $ 854
====== ====== ====== ======
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
-------------------------------------------------------------------------------------------------
MOUNTAIN VALLEY
BRADSHAW NORWOOD NORTH- AVE. LURLINE VIEW
BUSINESS INDUSTRIAL TYLER WESTERN BUSINESS INDUSTRIAL INDUSTRIAL
CENTER PARK SPRINGS PORTFOLIO PARK PARK CENTER
-------- ---------- ------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Income
Industrial Properties $1,190 $ 676 $ -- $3,922 $583 $ 901 $1,532
Multifamily Properties -- -- 1,598 -- -- -- --
------ ------ ------ ------ ---- ------ ------
1,190 676 1,598 3,922 583 901 1,532
Rental Property Expenses
Industrial Properties 286 180 -- 1,563 148 178 335
Multifamily Properties -- -- 646 -- -- -- --
------ ------ ------ ------ ---- ------ ------
286 180 646 1,563 148 178 335
------ ------ ------ ------ ---- ------ ------
$ 904 $ 496 $ 952 $2,359 $435 $ 723 $1,197
====== ====== ====== ====== ==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
------------------------------------------------
LOS WALNUT
NW- ALAMITOS AVE
GARDEN BUSINESS BUSINESS
GROVE PARK PARK
------- -------- --------
<S> <C> <C> <C>
Rental Income
Industrial Properties $1,078 $972 $582
Multifamily Properties -- -- --
------ ---- ----
1,078 972 582
Rental Property Expenses
Industrial Properties 149 314 97
Multifamily Properties -- -- --
------ ---- ----
149 314 97
------ ---- ----
$ 929 $658 $485
====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
--------------------------------------------------------------------------
MADISON
WEST AVE. KOLL EASTMAN LORA LAKE WATERHOUSE
BUSINESS INDUSTRIAL KODAK APARTMENTS APARTMENTS
PARK PORTFOLIO PROPERTIES SALE SALE
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Rental Income
Industrial Properties $ 789 $5,412 $ 1,207 $ -- $ --
Multifamily Properties -- -- -- (1,774) (2,010)
------ ------ ------- ------- -------
789 5,412 1,207 (1,774) (2,010)
Rental Property Expenses
Industrial Properties 299 1,213 352 -- --
Multifamily Properties -- -- -- (609) (898)
------ ------ ------- ------- -------
299 1,213 352 (609) (898)
------ ------ ------- ------- -------
$ 490 $4,199 $ 855 $(1,165) $(1,112)
====== ====== ======= ======= =======
</TABLE>
14
<PAGE> 16
The accompanying pro forma consolidated statements of operations for
the nine months ended September 30, 1998 and the year ended December
31, 1997 do not include historical revenues and expenses for the
Development Properties (Algona Distribution Center, the Lake Forest
Land Parcel, the Pacific Gulf Spectrum Land and Vons Distribution
Center) and Eastman Kodak Properties, which previously had not been
operated as rental properties.
(D) Represents depreciation expense of $559 for the nine months ended
September 30, 1998 related to the purchase of the following
properties, net of $136 of depreciation reduction from the Lora Lake
Apartments sale (the actual depreciation related to the Lora Lake
Apartments during the nine months ended September 30, 1998). The
depreciation expense relating to these properties for the period
prior to the date of their purchase was computed utilizing estimated
remaining useful lives and depreciable basis as follows:
<TABLE>
<CAPTION>
PURCHASE DEPRECIABLE DEPRECIATION
PROPERTY NAME PRICE BASIS EXPENSE
-------------- --------- --------- ------------
<S> <C> <C> <C>
Mountain Avenue Business Park $ 5,156 $ 4,035 $ 4
Lurline Industrial Park 7,668 5,264 11
Valley View Industrial Center 14,217 9,473 20
NW-Garden Grove 9,004 6,084 32
Los Alamitos Business Park 7,251 6,163 39
Walnut Avenue Business Park 4,834 3,137 26
Madison West Business Park 5,875 3,764 31
Koll Industrial Portfolio 41,800 31,906 432
Eastman Kodak Properties 14,307 6,546 100
------
$ 695
======
</TABLE>
(E) Interest expense related to borrowings utilized to purchase certain
properties acquired in 1998 as more fully described in Note 1. The
interest expense associated with these borrowings for the period
prior to the date of these acquisitions is based on the actual
interest rate on the specific borrowings, as follows:
<TABLE>
<CAPTION>
PRO FORMA
INTEREST INTEREST
PROPERTY NAME DEBT RATE EXPENSE
------------- --------- -------- ---------
<S> <C> <C> <C>
Mountain Avenue Business Park
Revolving line of credit $ 5,100 7.31% $ 16
Lurline Industrial Park
Revolving line of credit 7,500 7.38% 35
Valley View Industrial Center
Loan payable 4,524 8.38% 63
Revolving line of credit 9,350 7.38% 115
Los Alamitos Business Park
Revolving line of credit 7,251 7.44% 135
Walnut Avenue Business Park
Revolving line of credit 4,609 7.44% 86
Madison West Business Park
Revolving line of credit 5,725 7.44% 106
Koll Industrial Portfolio
Loan payable 2,428 8.00% 105
Revolving line of credit 39,152 6.94% 1,471
Eastman Kodak Properties
Revolving line of credit 12,500 7.00% 401
--------
$ 2,533
========
</TABLE>
A 0.125% change in the interest rate on all of the Company's variable
rate indebtedness would increase the Company's pro forma interest
expense by $120 for the nine months ended September 30, 1998.
(F) Represents net interest savings associated with the repayment in
March 1998 of the outstanding balances on the Company's line of
credit with Bank of America ($39,885), which bore interest at 7.625%
(the effective rate on the line), utilizing borrowings under a
$40,000 bridge loan facility from Wells Fargo Bank bearing interest
at 6.94%.
(G) Represents the minority interests in earnings of the two partnerships
that own the Senior Apartments, the partnership that owns the Eden
Plaza/Eden Industrial Park properties and the partnership that owns
NW-Garden Grove. Profits and losses are allocated between the Company
and the limited partners based on the relative balances of their
respective capital accounts.
15
<PAGE> 17
The limited partners in these partnerships are entitled to cash
distributions on their limited partnership units to the extent of the
lesser of (i) their share of available cash flow or (ii) an amount on
each limited partnership unit equal to the dividend payable on the
Company's Common Stock.
(H) Represents preferred stock dividend requirements of $0.437 per share
per quarter related to the Company's Preferred Stock, issued in 1997
as follows: (i) 270,270 shares of Class A Preferred Stock issued by
the Company in April 1997, (ii) 470,588 shares of Class B Preferred
Stock issued in July 1997, (iii) 235,294 shares of Class B Preferred
Stock issued in October 1997, and (iv) 705,883 shares of Class B
Preferred Stock and 1,081,081 shares of Class A Preferred Stock
issued in December 1997. The Class A Preferred Stock was issued at
$18.50 per share pursuant to an agreement to issue up to 1,351,351
shares dated December 31, 1996. The Class B Preferred Stock was
issued at $21.25 per share pursuant to an agreement to issue up to
1,411,765 shares dated May 1997. Pursuant to the agreements, the
Class A Preferred Stock and the Class B Preferred Stock shares 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.
(I) Represents depreciation expense of $6,435 for the year ended December
31, 1997 relating to the purchase of the following properties, net of
$289 and $189 depreciation reduction from the Waterhouse Apartments
and Lora Lake Apartments sales, respectively, (the actual
depreciation relating to the Waterhouse Apartments and Lora Lake
Apartments during the year ended December 31, 1997). The depreciation
expense relating to these properties, for the period prior to their
purchase, was computed utilizing the estimated remaining useful lives
and depreciable basis as follows:
<TABLE>
<CAPTION>
PURCHASE DEPRECIABLE DEPRECIATION
PROPERTY NAME PRICE BASIS EXPENSE
------------- ---------- ------------ ------------
<S> <C> <C> <C>
Mountain Avenue Business Park $ 5,156 $ 4,035 $ 101
Lurline Industrial Park 7,668 5,264 132
Valley View Industrial Center 14,217 9,473 237
NW-Garden Grove 9,004 6,084 152
Los Alamitos Business Park 7,251 6,163 154
Walnut Avenue Business Park 4,834 3,137 105
Madison West Business Park 5,875 3,764 125
Koll Industrial Portfolio 41,800 31,906 798
Eastman Kodak Properties 14,307 6,546 218
January 1997 Acquisitions
Algona Warehouse 9,450 7,640 8
Harbor Business Parks/Harbor Warner Business Park 14,600 12,160 25
Woodland Distribution Center 12,875 10,923 46
Senior Apartments
Terrace Gardens Apartments 10,000 7,950 91
Morning View Terrace Apartments 15,000 10,109 116
AEW/Lincoln Properties 67,308 53,512 966
Concord Industrial Park 7,645 6,051 134
Eden Plaza/Eden Industrial 19,000 13,032 344
Amresco Portfolio
Tower Park 9,575 7,498 219
611 Cerritos 6,131 4,801 115
Acacia Business Center 9,101 7,127 208
California Commerce Parks portfolio 57,805 44,406 1,064
Fullerton Business Center 5,513 4,314 103
Horn Road Business Complex 9,525 6,731 215
Bradshaw Business Centre 8,722 6,631 212
Norwood Industrial Park 4,714 3,495 112
Tyler Springs 13,444 11,047 353
Northwestern Portfolio
PGDC - Anaheim 3,323 2,664 85
PGBP - Cerritos 8,476 6,794 217
PGDC - Montebello 4,809 3,855 123
PGBP - Irvine 7,020 5,627 135
--------
Total $ 6,913
========
</TABLE>
(J) Interest expense of $11,927 related to the borrowings utilized to
purchase certain properties as described in Note 1, which is net of
interest savings resulting from the debt repayment associated with
the Waterhouse Apartments of $196 (the actual
16
<PAGE> 18
interest mortgage debt relating to the Waterhouse Apartments during
the year ended December 31, 1997). Interest expense associated with
the borrowings used to finance the purchase of these properties for
the period prior to these acquisitions is based on the actual
interest rates on the specific borrowings, as follows:
<TABLE>
<CAPTION>
PRO FORMA
INTEREST INTEREST
PROPERTY NAME DEBT RATE EXPENSE
------------- ---- -------- ---------
<S> <C> <C> <C>
Mountain Avenue Business Park
Revolving line of credit $ 5,100 7.31% $ 373
Lurline Industrial Park
Revolving line of credit 7,500 7.38% 553
Loan payable 4,524 8.38% 379
Revolving line of credit 9,350 7.38% 690
Los Alamitos Business Park
Revolving line of credit 7,251 7.44% 539
Walnut Avenue Business Park
Revolving line of credit 4,609 7.44% 343
Madison West Business Park
Revolving line of credit 5,725 7.44% 426
Koll Industrial Portfolio
Loan payable 2,428 8.00% 194
Revolving line of credit 39,152 6.94% 2,717
Eastman Kodak Properties
Revolving line of credit 12,500 7.00% 875
Woodland Distribution Center
Revolving line of credit 12,483 8.50% 177
Senior Apartments
Terrace Gardens
Loan payable 8,100 6.60% 245
Morning View Terrace
Loan payable 11,000 6.60% 333
AEW/Lincoln properties
Revolving line of credit 12,000 7.25% 471
Acquisition facility 41,625 7.50% 1,691
Concord Industrial Park
Loan payable 4,625 8.50% 262
Revolving line of credit 2,870 9.00% 172
Eden Plaza/Eden Industrial
Loan payable 12,000 7.05% 670
Acquisition facility 3,977 7.63% 240
Horn Road
Loan payable 2,879 7.950% 219
Tyler Springs
Loan payable 9,400 5.370% 483
Amortization of financing cost 69
-------
$12,123
=======
</TABLE>
The interest expense on borrowings under the Company's revolving line
of credit and the Company's acquisition facility is calculated for
the period indicated at interest rates of LIBOR + 1.75% and LIBOR +
2.0%, respectively. The interest rates reflected above represent the
actual rates on the date of the borrowings.
A 0.125% change in the interest rate on all of the Company's variable
rate indebtedness would increase the Company's pro forma interest
expense by $160 for the year ended December 31, 1997.
(K) Represents the historical revenues and certain expenses of the
Northwest Multifamily Properties sold by the Company in December
1998:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1998
-----------------------------------------------------------------------------------
HAMPTON FULTONS FULTONS HOLLY
BAY CROSSING LANDING HEATHERWOOD RIDGE
TOTAL APARTMENTS APARTMENTS APARTMENTS APARTMENTS APARTMENTS
----- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rental Income $7,671 $1,875 $1,486 $1,376 $2,000 $934
Rental property expense 2,869 709 532 490 790 348
------ ------ ------ ------ ------ ----
$4,802 $1,166 $ 954 $ 886 $1,210 $586
====== ====== ====== ====== ====== ====
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------------------
HAMPTON FULTONS FULTONS HOLLY
BAY CROSSING LANDING HEATHERWOOD RIDGE
TOTAL APARTMENTS APARTMENTS APARTMENTS APARTMENTS APARTMENTS
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rental Income $ 9,568 $ 2,451 $ 1,795 $ 1,699 $ 2,460 $ 1,163
Rental property expense 3,716 908 669 640 1,057 442
-------- ------- ------- ------- ------- -------
$ 5,852 $ 1,543 $ 1,126 $ 1,059 $ 1,403 $ 721
======== ======= ======= ======= ======= =======
</TABLE>
(L) Represents the net decrease in interest expense resulting from the
repayment of the outstanding indebtedness related to Applewood
Apartments, as described in Note 1.
(M) Depreciation expense of the Northwest Multifamily Apartments sold by
the Company in December 1998:
<TABLE>
<CAPTION>
NINE
MONTH ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Hampton Bay Apartments $ 235 $ 313
Fultons Crossing Apartments 178 240
Fultons Landing Apartments 169 227
Heather Wood Apartments 321 382
Holly Ridge Apartments 96 127
------ -------
$ 999 $ 1,289
====== =======
</TABLE>
(N) Represents the combined revenues and certain expenses of the
RREEF/SPT Industrial Portfolio acquired by the Company in December
1998 for the period prior to its acquisition (adjusted to reflect
increased property taxes based on the properties' acquisition cost
and current property tax rates):
<TABLE>
<CAPTION>
NINE
MONTH ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Rental income $ 6,272 $ 8,614
Rental property expenses 1,649 2,179
-------- -------
$ 4,623 $ 6,435
======== =======
</TABLE>
(O) Represents depreciation expense relating to the purchase in December
1998 of the RREEF/SPT Industrial Portfolio, for the period prior to
its acquisition, computed utilizing an estimated remaining useful
life of 30 years and the depreciable basis of the properties as
follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
--------------------------------------------------
PURCHASE DEPRECIABLE DEPRECIATION
PRICE BASIS EXPENSE
---------- ------------ ------------
<S> <C> <C> <C>
RREEF/SPT Industrial Portfolio $ 76,000 $ 60,800 $ 1,520
=======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------------------------------------
PURCHASE DEPRECIABLE DEPRECIATION
PRICE BASIS EXPENSE
--------- ----------- ------------
<S> <C> <C> <C>
RREEF/SPT Industrial Portfolio $ 76,000 $ 60,800 $ 2,027
========
</TABLE>
(P) Represents the net decrease in interest expense resulting from the
debt repayments completed by the Company in 1997.
(Q) Represents the weighted average of Common Stock utilized to calculate
basic earnings per share. Pro forma weighted average common shares
include 2,300,000 shares issued as part of the January 1997 Common
Stock Offering, 2,131,700 shares issued as part of the June 1997
Common Stock Offering, 4,776,300 shares issued as part of the
November 1997 Common Stock Offering and 874,317 shares issued as part
of the December 1997 Common Stock Offering.
(R) Excludes the effect of a $5,594 nonrecurring net gain on the sale of
Waterhouse Apartments.
18
<PAGE> 20
(S) Excludes the effect of a $6,427 nonrecurring gain on the sale of the
Lora Lake Apartments.
(T) Excludes the effect of a $28,913 nonrecurring gain on the sale of the
Northwest Multifamily Properties.
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 (the "combined statement") of Hohokam 10 East, Hohokam 10 West,
Hesperian Business Park, Sierra Trinity Industrial Park, Contra Costa Diablo
Industrial Park, Airport Business Center and West Sacramento Industrial Center,
seven industrial properties comprising the RREEF/SPT Industrial Portfolio
acquired by Pacific Gulf Properties Inc. from RREEF Performance Partnership I -
LP and SPT Real Estate Corp., for the year ended December 31, 1997. The combined
statement is the responsibility of management. Our responsibility is to express
an opinion on the combined 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 combined 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 combined statement. We believe
that our audit provides a reasonable basis for our opinion.
The accompanying combined 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 herein and is not
intended to be a complete presentation of the revenues and expenses of the
RREEF/SPT Industrial Portfolio.
In our opinion, the combined statement referred to above presents fairly, in all
material respects, the combined revenues and certain expenses, as defined above,
of the RREEF/SPT Industrial Portfolio for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Newport Beach, California
January 7, 1999
20
<PAGE> 22
RREEF/SPT INDUSTRIAL PORTFOLIO
Combined Statement of Revenues and Certain Expenses
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30, 1998
December 31, 1997 (Unaudited)
----------------- ------------------
<S> <C> <C>
REVENUES
Rental and other income $8,614,000 $6,272,000
CERTAIN EXPENSES
Property operating and maintenance 1,316,000 952,000
Real estate taxes 827,000 640,000
Management fees 335,000 249,000
---------- ----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $6,136,000 $4,431,000
========== ==========
</TABLE>
See accompanying notes.
21
<PAGE> 23
RREEF/SPT INDUSTRIAL PORTFOLIO
Notes to Combined Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1997 and the
Nine Months Ended September 30, 1998 (Unaudited)
1. DESCRIPTION OF THE TRANSACTION
On December 23, 1998, Pacific Gulf Properties Inc. (the "Company") acquired
Hohokam 10 East, Hohokam 10 West, Hesperian Business Park, Sierra Trinity
Industrial Park, Contra Costa Diablo Industrial Park, Airport Business Center
and West Sacramento Industrial Center (collectively referred to as the
"RREEF/SPT Industrial Portfolio"), seven industrial properties containing
approximately 1,289,000 leasable square feet located in the states of
California, Arizona and Oregon.
2. BASIS OF PRESENTATION
The combined statement of revenues and certain expenses (the "combined
statement") presents the operations of the RREEF/SPT Industrial Portfolio for
the year ended December 31, 1997 and for the nine months ended September 30,
1998 (unaudited). The combined statement has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a Form 8-K filing).
Certain expenses that are dependent on the property owner and the cost basis of
the properties constituting the RREEF/SPT Industrial Portfolio have been
excluded from the combined 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 are not
intended to be a complete presentation of the RREEF/SPT Industrial Portfolio's
revenues and expenses nor is it intended to be comparable to the proposed future
operations of their properties.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The properties constituting the RREEF/SPT Industrial Portfolio are generally
leased to tenants with lease terms which exceed one year and are accounted for
as operating leases. Revenue from these leases is recognized on a straight-line
basis over the related lease term. Cost recoveries from tenants are recognized
as income in the period the related costs are accrued.
22
<PAGE> 24
RREEF/SPT INDUSTRIAL PORTFOLIO
Notes to Combined Statement of Revenues and Certain Expenses
(continued)
For the Year Ended December 31, 1997 and the
Nine Months Ended September 30, 1998 (Unaudited)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. 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 RREEF/SPT Industrial Portfolio is managed by the RREEF Management Company,
an affiliated company. Management fees range from 3% to 4% of total income, as
defined. For the year ended December 31, 1997 and the nine months ended
September 30, 1998, the properties incurred and paid $335,000 and $249,000,
respectively, in management fees.
RREEF Management Company's role as the property manager of the RREEF/SPT
Industrial Portfolio was terminated upon the acquisition of the properties by
the Company.
5. FUTURE MINIMUM RENTS RECEIVABLE
Lease in the RREEF/SPT Industrial Portfolio expire at various dates and contain
provisions for rent increases based on cost of living indices. Certain leases
also contain renewal options. Future minimum rents receivable at December 31,
1997 under the terms of these operating leases for each of the next five years
ending December 31, are as follows:
<TABLE>
<S> <C> <C>
1998 $ 6,192,000
1999 5,101,000
2000 3,017,000
2001 1,606,000
2002 815,000
2003 and thereafter 239,000
</TABLE>
23
<PAGE> 25
RREEF/SPT INDUSTRIAL PORTFOLIO
Notes to Combined Statement of Revenues and Certain Expenses
(continued)
For the Year Ended December 31, 1997 and the
Nine Months Ended September 30, 1998 (Unaudited)
6. COMMITMENTS AND CONTINGENCIES
Certain properties in the RREEF/SPT Industrial Portfolio may be subject to
various claims, lawsuits and complaints arising during the ordinary course of
business, none of which, in the opinion of management, is expected to have a
material adverse effect on the combined statement.
24
<PAGE> 26
EXHIBIT INDEX
CONSENT
23.1 Consent of Independent Auditors
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 333-23611 dated April 10, 1997 and No. 333-45597 dated February 4,
1998) and the related Prospectuses of Pacific Gulf Properties Inc. (the
"Company") for the registration of $250,000,000 and $300,000,000, respectively,
of the Company's common stock, preferred stock, debt securities and warrants of
our report dated January 7, 1999, with respect to the combined statement of
revenues and certain expenses of the RREEF/SPT Industrial Portfolio (Hohokam 10
East, Hohokam 10 West, Hesperia Business Park, Sierra Trinity Industrial Park,
Contra Costa Diablo Industrial Park, Airport Business Center and West Sacramento
Industrial Center) for the year ended December 31, 1997, included in the
Company's Current Report on Form 8-K/A dated March 5, 1999, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Newport Beach, California
March 5, 1999
