<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 September 30, 2000
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, 21,346,858 SHARES
WERE OUTSTANDING AS OF NOVEMBER 10, 2000
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
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 1
Consolidated Statements of Operations for the Nine
Months Ended September 30, 2000 and September 30, 1999 2
Consolidated Statements of Operations for the Three
Months Ended September 30, 2000 and September 30, 1999 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and September 30, 1999 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II: OTHER INFORMATION 15
SIGNATURES 16
<PAGE> 3
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Real estate assets
Operating properties
Land $ 229,134 $ 232,665
Buildings 658,311 657,347
--------- ---------
887,445 890,012
Accumulated depreciation (84,097) (72,715)
--------- ---------
803,348 817,297
Properties held for sale 34,778 --
Properties under development, including land 50,237 52,815
--------- ---------
888,363 870,112
Cash and cash equivalents 4,284 2,177
Accounts receivable 6,215 4,005
Other assets 18,315 15,627
--------- ---------
$ 917,177 $ 891,921
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Loans payable $ 437,273 $ 418,343
Accounts payable and accrued liabilities 21,893 17,244
Dividends payable 10,654 10,366
--------- ---------
469,820 445,953
Minority partners' interest in consolidated partnerships 16,426 18,077
Commitments and contingencies -- --
Shareholders' equity
Preferred shares, $.01 par value; 10,000,000 shares
authorized; 2,763,116 Senior Cumulative Convertible
Class A shares outstanding at September 30, 2000 and
December 31,
1999, 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;
21,340,608 and 20,685,402 shares outstanding at September 30,
2000 and December 31, 1999, respectively 214 207
Less: Restricted stock and notes receivable issued for
common shares (11,105) (1,011)
Additional paid-in capital 439,171 424,450
Retained earnings 2,623 4,217
--------- ---------
430,931 427,891
--------- ---------
$ 917,177 $ 891,921
========= =========
</TABLE>
1
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PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
2000 1999
-------- -------
<S> <C> <C>
REVENUES
Rental income
Industrial properties $ 81,352 $72,812
Multifamily properties 20,577 19,299
-------- -------
101,929 92,111
EXPENSES
Rental property expenses
Industrial properties 17,439 16,187
Multifamily properties 6,754 6,941
-------- -------
24,193 23,128
Depreciation 22,104 19,067
Interest (including amortization of financing costs
of $532 and $633, respectively) 21,925 20,518
General and administrative expenses 5,661 5,026
Minority interest in earnings of consolidated partnerships 896 967
-------- -------
74,779 68,706
-------- -------
INCOME BEFORE GAIN ON SALES OF REAL ESTATE 27,150 23,405
Gain on sales of real estate 3,431 5,852
-------- -------
NET INCOME 30,581 29,257
Less preferred dividend requirements 3,793 3,707
-------- -------
INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 26,788 $25,550
======== =======
Earnings per share
Basic $ 1.28 $ 1.28
======== =======
Diluted $ 1.27 $ 1.26
======== =======
DIVIDENDS DECLARED PER COMMON SHARE $ 1.32 $ 1.29
======== =======
</TABLE>
See accompanying notes
2
<PAGE> 5
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
2000 1999
------- -------
<S> <C> <C>
REVENUES
Rental income
Industrial properties $27,872 $24,986
Multifamily properties 7,060 6,571
------- -------
34,932 31,557
EXPENSES
Rental property expenses
Industrial properties 5,873 5,496
Multifamily properties 2,252 2,442
------- -------
8,125 7,938
Depreciation 7,537 6,688
Interest (including amortization of financing costs
of $175 and $210, respectively) 7,401 6,965
General and administrative expenses 2,011 1,907
Minority interest in earnings of consolidated partnerships 292 374
------- -------
25,366 23,872
------- -------
INCOME BEFORE GAIN ON SALES OF REAL ESTATE 9,566 7,685
Gain on sales of real estate 16 1,228
------- -------
NET INCOME 9,582 8,913
Less preferred dividend requirements 1,264 1,236
------- -------
INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 8,318 $ 7,677
======= =======
Earnings per share
Basic $ 0.39 $ 0.38
======= =======
Diluted $ 0.39 $ 0.38
======= =======
DIVIDENDS DECLARED PER SHARE $ 0.44 $ 0.43
======= =======
</TABLE>
See accompanying notes
3
<PAGE> 6
PACIFIC GULF PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited))
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
2000 1999
-------------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 30,581 $ 29,257
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 22,104 19,067
Amortization of financing costs 532 633
Gain on sales of real estate (3,431) (5,852)
Minority interests in earnings of consolidated
partnerships 896 967
Compensation recognized related to restricted
stock and options issued to employees 417 (93)
Net increase in other assets (2,095) (6,322)
Net increase in liabilities 3,385 1,357
-------- --------
Net cash provided by operating activities 52,389 39,014
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition and improvements to properties (10,991) (11,518)
Development expenditures (41,640) (22,666)
Proceeds from sale of real estate 16,582 19,280
-------- --------
Net cash used in investing activities (36,049) (14,904)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit 27,100 27,300
Repayment of line of credit (16,200) (36,950)
Proceeds from mortgage notes payable -- 9,000
Repayment of mortgage notes payable (6,556) (1,805)
Proceeds from construction loans 14,586 6,015
Issuance of common shares 7 271
Purchase of treasury stock (586) --
Minority interest distributions (2,547) (655)
Dividends paid on common shares (27,508) (25,848)
Dividends paid on preferred shares (2,529) (2,472)
-------- --------
Net cash used in financing activities (14,233) (25,144)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,107 (1,034)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,177 2,276
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,284 $ 1,242
======== ========
</TABLE>
See accompanying notes
4
<PAGE> 7
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. 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, 1999.
2. REAL ESTATE
Operating Properties
Industrial Properties
During the first quarter of 2000, the Company acquired a land parcel containing
7.80 acres in Rancho Santa Margarita, California for $3,396,000. The Company
plans to develop 113,500 square feet of rentable industrial space at this site.
In March 2000, the Company sold an 11,600 square foot industrial building and a
25,486 square foot industrial building, for $1,462,000 and $2,300,000
respectively. The Company recognized a total gain of $891,000 on the sale of the
buildings, both of which are located in South Orange County. In May 2000, the
Company sold a 107,320 square foot industrial building at its business park
located in San Bernardino, California for $2,910,000. The net gain recognized
was $274,000. In June 2000, the Company sold a 128,640 square foot industrial
park, located in Santa Fe Springs, California for $6,460,000. The net gain
recognized was $2,222,000. In July 2000, the Company sold an 89,760 square foot
industrial building at its business park located in Downey, California for
$3,450,000. The net gain recognized was $16,000.
During the second quarter of 2000, pursuant to a definitive purchase agreement
as amended, the Company contracted to sell its portfolio of 72 industrial
properties containing approximately 14.9 million square feet of industrial space
to CalWest Industrial Properties LLC (CalWest). The transaction was unanimously
approved by the Company's board of directors on June 19, 2000. On November 9,
2000, at a special meeting of shareholders, the shareholders of the Company
approved the sale of the industrial portfolio to CalWest, as well as the sale of
Company's remaining assets and subsequent liquidation and dissolution (see Note
10). The Company anticipates that 67 of the industrial properties with an
aggregate cost basis of $634.8 million at September 30, 2000 will be sold at an
initial closing. The aggregate sales price for these 67 properties will be
$856.9 million. Of the remaining five industrial properties under contract with
CalWest, one has been excluded from the sale and four properties may require
additional remediation before sale or may be deleted from the sale.
Multifamily Properties
During the third quarter of 2000, the Company acquired three land parcels. In
July 2000, the Company acquired a land parcel containing 5.24 acres in Laguna
Niguel, California for $3,964,000. In August 2000, the Company acquired a land
parcel containing .81 acre located in Pasadena, California for $2,230,000. In
September 2000, the Company acquired a land parcel containing 8.3 acres located
in Huntington Beach, California for $7,200,000. The Company plans to develop 533
apartment units designed for active seniors 55 years or better on these sites.
At September 30, 2000, the Company owned 10 family style apartment properties
containing 1631 units including 4 properties that were held for sale as
discussed below. The Company also owns 8 apartment rental properties designed
for active seniors
5
<PAGE> 8
containing 1,438 units and 6 properties on which 1,202 units are under
development. The Company has pending sales on seven of these rental properties
which include 5 family style and 2 active senior apartment properties for an
aggregate sale price of $62.0 million. Such transactions remain subject to
several conditions and there can be no assurance that they will close. The
Company has not entered into definitive agreements for the sale of its remaining
properties.
Real Estate Held For Sale
At September 30, 2000, real estate held for sale consists of four family style
apartment properties containing 694 units with an aggregate cost basis of $34.8
million. Subsequent to September 30, 2000, the Company closed the sale of these
properties receiving an aggregate sales price of $60.5 million in cash.
3. LOANS PAYABLE
The Company's loans payable at September 30, 2000 and December 31, 1999 consist
of the following (in thousands):
2000 1999
-------- --------
Mortgage notes
Conventional mortgage debt
Industrial properties $137,474 $141,519
Multifamily properties
Active Senior 4,504 4,556
Family style 33,575 33,853
-------- --------
175,553 179,928
Tax-exempt mortgage debt
Multifamily properties
Active Senior 43,341 43,799
Family style 20,311 20,534
-------- --------
63,652 64,333
Construction loans 63,518 50,432
Unsecured line of credit 134,550 123,650
-------- --------
$437,273 $418,343
======== ========
6
<PAGE> 9
4. SHAREHOLDERS' EQUITY
The Company has an effective shelf registration statement on file with the
Securities and Exchange Commission for the public issuance of securities in
the aggregate amount of $300,000,000, covering the possible future issuance
of debt, preferred or common stock securities and warrants to purchase such
securities of the Company, none of which have been issued. Based on the
shareholders' approval on November 9, 2000 of the sale of the Company's
assets and subsequent liquidation and dissolution, no future issuances of
securities under the Company's shelf registration will be made.
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 separately tradeable 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.
In December 1999, the Company's board of directors approved a share
repurchase program of 500,000 shares. During January 2000, the Company
repurchased and retired 30,000 shares at an average price of $19.46 per
share. Retained earnings was reduced for the excess over par value.
During the nine months ended September 30, 2000, the Company issued 2,245
shares of common stock through its Dividend Reinvestment Program.
Outstanding restricted stock represents unearned compensation expense related
to restricted shares of common stock issued to officers of the Company.
Compensation expense of $417,000 related to restricted stock was recognized
during the nine months ended September 30, 2000.
Notes receivable issued for common stock result from the exercise of stock
options by officers of the Company. The notes are recourse instruments that
bear interest ranging from 5.87% to 6.46% payable quarterly. The principal
balance of the notes is payable in annual payments equal to 10% of the note
amount with the remainder due in 5 years. At September 30, 2000, notes
receivable issued for common stock totaled $10,174,000. During the nine
months ended September 30, 2000, $10,120,086 of notes were received from
officers upon the issuance of 498,924 shares of common stock for options
exercised.
7
<PAGE> 10
5. PER COMMON SHARE DATA
The following table sets forth the computation of basic and diluted earnings
per share for the nine months ended September 30, in accordance with the
Financial Accounting Standards Board Statement No. 128:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------- ------------------------------------------
Weighted Weighted
Average Earnings Average
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 $26,788,000 20,854,000 $1.28 $25,550,000 20,037,000 $1.28
===== =====
EFFECT OF DILUTIVE SECURITIES
Stock options 60,000 35,000
Restricted stock 81,000 98,000
Limited partnership units 896,000 843,000 967,000 870,000
DILUTED EPS $27,684,000 21,838,000 $1.27 $26,517,000 21,040,000 $1.26
=========== ========== ===== =========== ========== =====
</TABLE>
Shares of Senior Cumulative Convertible Class A Preferred Stock, convertible
into 2,763,116 shares of common stock, were outstanding during 2000 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.
6. COMMON SHARE DISTRIBUTIONS AND PREFERRED STOCK DIVIDENDS
On September 14, 2000, the Company declared a quarterly distribution of $.44
per common share and has accrued $9,390,000 in dividends payable to common
shareholders at September 30, 2000. The distribution was paid on October 16,
2000 to shareholders of record on October 1, 2000.
Preferred stock dividends of $1,264,000, related to the shares of Senior
Cumulative Convertible Class A Preferred Stock outstanding in the second
quarter of 2000, were paid by the Company on August 15, 2000. Preferred stock
dividends of $1,264,000 related to 2,763,116 shares of Class A Preferred
Stock have been accrued through September 30, 2000 at the rate of $0.4576 per
share per quarter.
8
<PAGE> 11
7. INTEREST
Interest incurred for the nine months ended September 30, 2000 and 1999
consists of the following (in thousands):
2000 1999
-------- --------
Interest incurred $ 23,567 $ 21,738
Amortization:
Debenture discount and costs -- 83
Line of credit financing costs 311 327
Long-term financing costs 221 222
Interest capitalized (2,174) (1,852)
-------- --------
Interest expense $ 21,925 $ 20,518
======== ========
8. REPORTABLE SEGMENTS
The Company complies with 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 requires public business enterprises
to report information regarding reportable operating segments.
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 $63,913,000 and $56,625,000 for the
nine months ended September 30, 2000 and 1999 respectively.
NOI from multifamily properties totaled $13,823,000 and $12,358,000 for the
nine months ended September 30, 2000 and 1999 respectively.
NOI from industrial properties totaled $21,999,000 and $19,490,000 for the
quarters ended September 30, 2000 and 1999 respectively.
NOI from multifamily properties totaled $4,808,000 and $4,129,000 for the
quarters ended September 30, 2000 and 1999 respectively.
All revenues are from external customers and no revenues are generated from
transactions between segments. There are no tenants who contributed 10% or
more of the Company's total revenues during 2000 or 1999. 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.
9
<PAGE> 12
9. NEW PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Statement 133 is effective for fiscal years beginning after
September 15, 2000, although earlier implementation is allowed. The Company
has not yet determined the timing and method of adopting Statement 133 on its
financial statements. However, its impact is not expected to be material.
10. SUBSEQUENT EVENT
On November 9, 2000 at a special meeting of shareholders, the Company's
shareholders approved the sale of its industrial property portfolio to
CalWest Industrial Properties, LLC (see Note 2) as well as the sale of the
Company's remaining assets and subsequent liquidation and dissolution. Both
proposals received the required vote of a majority of all outstanding voting
shares of the Company's common and preferred stock.
10
<PAGE> 13
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 nine months ended September 30, 2000 and 1999, together with
liquidity and capital resources as of September 30, 2000.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Industrial rental income increased by $8,540,000, or 12%, from $72,812,000 in
1999 to $81,352,000 in 2000. This increase was primarily attributable to rental
rate increases, the acquisition of three industrial properties in 1999 and the
completion of four industrial properties previously under development in 2000.
Multifamily rental income increased by $1,278,000, or 7%, from $19,299,000 in
1999 to $20,577,000 in 2000. This increase was attributable to rental rate
increases offset by decreases related to the disposition of a multifamily
property in the first quarter of 1999.
Industrial rental property expenses increased $1,252,000, or 8%, from
$16,187,000 in 1999 to $17,439,000 in 2000. This increase was attributable to
inflation and the acquisition and construction of the above referenced
industrial parks. Multifamily rental property expenses decreased by $187,000, or
3% from $6,941,000 in 1999 to $6,754,000 in 2000. This decrease was primarily
attributable to the disposition of a multifamily property in the first quarter
of 1999.
Total depreciation increased by $3,037,000, or 16%, from $19,067,000 in 1999 to
$22,104,000 in 2000. This increase was attributable to additional depreciation
relating to the industrial properties described above and capital improvements
related to leasing.
Interest expense (including amortization of financing costs) increased by
$1,407,000, or 7%, from $20,518,000 in 1999 to $21,925,000 in 2000. This
increase was attributable to an increase in outstanding borrowings due to the
acquisitions and construction completed in 1999, a higher interest rate on the
Company's line of credit, offset by a decrease in the outstanding debentures in
1999.
General and administrative expenses increased by $635,000, or 13%, from
$5,026,000 in 1999 to $5,661,000 in 2000. This increase was primarily
attributable to staff additions, staff retention costs and inflation.
Minority partners' interest in earnings of consolidated partnerships decreased
$71,000 from $967,000 in 1999 to $896,000 in 2000. Minority interest represents
earnings allocated to the minority partners in partnerships in which the Company
has controlling general partner interests.
Gain on the sales of real estate in the amount of $3,431,000 was recorded for
the nine months ended September 30, 2000 from the sale of four industrial
buildings at its business parks containing 234,166 square feet and one
industrial property containing 128,640 square feet. The gain on the sales of
real estate for the 1999 period was $5,852,000 and related to the disposition of
a multifamily property, two industrial properties containing 133,440 square feet
and a 1.05 acre parcel of land.
11
<PAGE> 14
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
Industrial rental income increased by $2,886,000, or 12%, from $24,986,000 in
1999 to $27,872,000 in 2000. This increase was attributable to the completion of
three industrial properties previously under development and rental rate
increases in 2000, offset by the sale of two industrial properties in 1999.
Multifamily rental income increased by $489,000, or 7%, from $6,571,000 in 1999
to $7,060,000 in 2000. This increase was attributable to the rental rate
increases.
Industrial rental property expenses increased $377,000 or 7%, from $5,496,000 in
1999 to $5,873,000 in 2000. This increase was attributable primarily to
inflation and the acquisition and construction of the above referenced
industrial parks. Multifamily rental property expenses decreased by $190,000, or
8% from $2,442,000 in 1999 to $2,252,000 in 2000. This decrease was primarily
attributable to reductions in on site personnel and tighter cost control.
Total depreciation increased by $849,000, or 13%, from $6,688,000 in 1999 to
$7,537,000 in 2000. This increase was attributable to additional depreciation
relating to the industrial properties described above and capital improvements
related to leasing.
Interest expense (including amortization of financing costs) increased by
$436,000, or 6%, from $6,965,000 in 1999 to $7,401,000 in 2000. This increase
was attributable to an increase in outstanding borrowings due to the
acquisitions and construction completed in 1999, a higher interest rate on the
Company's line of credit, offset by a decrease in the outstanding debentures in
1999.
General and administrative expenses increased by $104,000, or 5%, from
$1,907,000 in 1999 to $2,011,000 in 2000. This increase was primarily
attributable to staff additions, staff retention costs and inflation.
Minority partners' interest in earnings of consolidated partnerships decreased
$82,000 from $374,000 in 1999 to $292,000 in 2000. Minority interest represents
earnings allocated to the minority partners in partnerships in which the Company
has controlling general partner interests.
A gain on the sale of real estate in the amount of $16,000 was recorded in the
third quarter 2000 for the sale of an industrial building totaling 89,760 square
feet. The gain on the sale of real estate was $1,228,000 for the 1999 period and
related to the disposition of a multifamily property and an industrial property
totaling 42,240 square feet.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had $4,284,000 of cash to meet its immediate
short-term liquidity requirements. Future short-term liquidity requirements are
anticipated to be met through the net cash flow from operations, existing
working capital and, if necessary, funding from the Company's line of credit.
The Company has a $150,000,000 unsecured revolving credit agreement (the "Line
of Credit") which matures in April 2001. The interest rate payable under the
Line of Credit is based on the leverage level of the Company and at September
30, 2000 was LIBOR plus 1.25%. As of September 30, 2000, the Company had
borrowed $134,550,000 under this line.
The Company also has a shelf registration statement on file with the Securities
and Exchange Commission for the public issuance of securities in the aggregate
amount of $300,000,000 covering the possible future issuance of debt, preferred
or common stock securities and warrants to purchase such securities of the
Company, none of which have been issued. Based on the shareholders' approval on
November 9, 2000, of the sale of the Company's assets and subsequent liquidation
and dissolution, no future issuances of securities under the Company's shelf
registration will be made.
The Company may acquire additional properties and may seek to fund these
acquisitions through proceeds received from a combination of its line of credit,
dispositions of existing properties, equity offerings or debt financings, but no
assurance can be given that any of these transactions will be completed.
The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, meeting debt service obligations and the
payment of dividends in accordance with REIT requirements in the foreseeable
future.
In December 1999, the Company's Board of Directors approved a share repurchase
program of 500,000 shares. During January 2000, the Company repurchased and
retired 30,000 shares at an average price of $19.46 per share. The Company may
seek to fund future stock repurchases through proceeds received from a
combination of its Line of Credit, dispositions of existing properties or debt
financings, but no assurance can be given that any of these transactions will be
completed.
Cash provided by operating activities increased from $39,014,000 for the period
ended September 30, 1999 to $52,389,000 for the period ended September 30, 2000.
The increase is primarily due to additional rental income related to increases
in rental rates
Cash used in investing activities increased from $14,904,000 for the period
ended September 30, 1999 to $36,049,000 for the period ended September 30, 2000
as a result of increased development expenditures and reduced proceeds from
sales of real estate in 2000.
Cash used in financing activities decreased from $25,144,000 for the period
ended September 30, 1999 to $14,233,000 for the period ended September 30, 2000
primarily as a result of a net increase in borrowings primarily on construction
loans and mortgage loans.
During the second quarter of 2000, pursuant to a definitive purchase agreement
as amended, the Company contracted to sell its portfolio of 72 industrial
properties containing approximately 14.9 million square feet of industrial space
to CalWest Industrial Properties LLC (CalWest). In connection with the
agreement, CalWest made a $25 million deposit into an escrow account not held by
the Company which may be refundable under circumstances enumerated in the
purchase agreement. On June 19, 2000, the transaction was unanimously approved
by the Company's board of directors. In addition, on November 9, 2000, at a
special meeting of shareholders, the shareholders of the Company approved the
sale of the industrial portfolio to CalWest, as well as the sale of the
Company's remaining assets and subsequent liquidation and dissolution of the
Company.
The Company presently anticipates that 67 of the industrial properties with an
aggregate cost basis of $634.8 million at September 30, 2000 will be sold at an
initial closing. The aggregate sales price for these 67 properties will be
$856.9 million. Of the remaining five industrial properties under contract with
CalWest, one has been excluded from the sale and four properties may require
additional remediation before sale or may be deleted from the sale. In
connection with the initial closing, CalWest will assume $103.9 million of
indebtedness associated with the properties and $212.3 million of additional
debt will be repaid, including the outstanding balance on the Company's line of
credit. Following the sale and the payment of the outstanding balance of the
Company's line of credit, the line of credit will be terminated. Also, after the
sale, the Company does not expect to pay any future regular quarterly dividends,
but will make special distributions of proceeds from sales of its assets. The
timing and amount of such special distributions cannot be determined at this
time.
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At September 30, 2000, the Company continues to own 10 family style apartment
properties containing 1631 units. The Company also owns 8 apartment rental
properties designed for active seniors containing 1438 units and 6 properties on
which 1202 units are under development. Since September 30, 2000, the Company
has closed on the sale of four family style apartment properties containing 794
units receiving an aggregate sales price of $60.5 million in cash. In addition,
the Company has pending sales contracts on seven of the remaining multifamily
properties for an aggregate sale price of $62.0 million. The sales of these
seven properties remain subject to several conditions and accordingly, there can
be no assurance that they will close.
If the initial closing of the industrial property sale and the closing of the
multifamily apartment sales referred to above occur as currently scheduled, the
Company anticipates making an initial special distribution of proceeds to its
shareholders in mid-December.
Presently, the Company has not entered into definitive agreements for the sale
of the remaining 13 multifamily properties. The Company will seek to sell its
remaining assets to interested real estate buyers or it is possible it may
receive an offer to purchase, through merger or otherwise, all of the
outstanding stock of the Company.
Historical results and trends should not be taken as indicative of future
operations. Management's statements contained in this report that are not
historical facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results may differ materially from
those included in the forward-looking statements. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of complying with
those safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," "prospects" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company on
a consolidated basis include, but are not limited to: changes in economic
conditions generally and the real estate market specifically, legislative/
regulatory changes (including changes to laws governing the taxation of REITs),
availability of capital, interest rates, competition, supply and demand for
industrial and multifamily properties in the Company's current and proposed
market areas and general accounting principles, policies and guidelines
applicable to REITs, and the performance by third parties of their contractual
obligations to the Company. These risks and uncertainties should be considered
in evaluating forward-looking statements and undue reliance should not be placed
on such statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included herein and in the Company's other filings with
the Securities and Exchange Commission.
IMPACT OF INFLATION
Substantially all of the Company's leases on its Industrial Properties, which
have terms generally ranging from one to five years, contain provisions for
rental increases based either on fixed increases or on increases in the Consumer
Price Index. All of the Company's leases on its Multifamily Properties are for a
period of one year or less. Substantially all of the Company's leases allow at
the time of renewal, for adjustments in the rent payable thereunder.
Accordingly, management believes the provisions contained in its industrial
leases and the nature of its multifamily leases tend to mitigate the adverse
impact of inflation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company's Annual Report on Form 10-K for the year ended December
31, 1999 for detailed disclosure about quantitative and qualitative disclosures
about market risk. Quantitative and qualitative disclosures about market risk
have not materially changed since December 31, 1999.
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PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 -- Financial Data Schedule.
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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: November 14, 2000
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EXHIBIT INDEX
EXHIBIT
INDEX DESCRIPTION
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27 Financial Data Schedule
