<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 0-20449
PRICE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 33-0628740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17140 BERNARDO CENTER DRIVE SUITE 300, SAN DIEGO, CALIFORNIA 92128
(Address of principal executive offices) (Zip Code)
(858) 675-9400
(Registrant's telephone number, including area code)
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 [ ]
The registrant had 13,309,006 shares of common stock, par value $.0001 per
share, outstanding at May 9, 2000.
<PAGE> 2
PRICE ENTERPRISES, INC.
INDEX TO FORM 10-Q
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION....................................................3
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED).........................................3
CONSOLIDATED BALANCE SHEETS....................................................3
CONSOLIDATED STATEMENTS OF OPERATIONS..........................................4
CONSOLIDATED STATEMENTS OF CASH FLOWS..........................................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.....................................6
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......................................................16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K........................................16
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
PRICE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
2000 1999
----------- -----------
(unaudited) (Note)
<S> <C> <C>
Real estate assets
Land and land improvements $ 255,407 $ 248,177
Building and improvements 311,292 293,686
Fixtures and equipment 396 394
Construction in progress 13,115 9,942
--------- ---------
580,210 552,199
Less accumulated depreciation (3,619) (1,330)
--------- ---------
576,591 550,869
Investment in real estate joint venture 4,444 4,338
Cash and cash equivalents 1,381 2,145
Accounts receivable 3,521 697
Income tax receivable 3,421 3,171
Notes receivable 7,805 --
Deferred rents 1,403 571
Other assets 1,060 767
--------- ---------
Total assets $ 599,626 $ 562,558
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Revolving lines of credit $ 108,200 $ 88,347
Mortgages and note payable 23,502 8,894
Accounts payable and other liabilities 5,587 4,057
--------- ---------
Total liabilities 137,289 101,298
Commitments
Stockholders' equity
Series A preferred stock 353,404 353,404
Common stock 1 1
Additional paid-in capital 111,900 111,670
Accumulated deficit (2,968) (3,815)
--------- ---------
Total stockholders' equity 462,337 461,260
--------- ---------
Total liabilities and stockholders' equity $ 599,626 $ 562,558
========= =========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE> 4
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST QUARTER
THREE MONTHS ENDED
MARCH 31
--------------------------
PREDECESSOR
2000 1999
-------- -----------
<S> <C> <C>
Rental revenues $ 17,471 $ 17,427
Expenses
Operating and maintenance 1,788 2,339
Property taxes 2,118 2,151
Depreciation and amortization 2,289 3,274
General and administrative 775 769
-------- --------
Total expenses 6,970 8,533
-------- --------
Operating income 10,501 8,894
Interest and other
Interest expense (1,749) (1,675)
Interest income 361 151
Equity in earnings of joint venture 58 --
-------- --------
Total interest and other (1,330) (1,524)
-------- --------
Net income 9,171 7,370
Dividends paid to preferred stockholders (8,324) (8,316)
-------- --------
Net income (loss) applicable to common stockholders $ 847 $ (946)
======== ========
Net income (loss) per common share - basic and diluted $ .06 $ (.07)
Weighted average common shares outstanding
Basic and diluted 13,309 13,294
Dividends per preferred share $ .35 $ .35
</TABLE>
See accompanying notes.
4
<PAGE> 5
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER
THREE MONTHS ENDED
MARCH 31
--------------------------
PREDECESSOR
2000 1999
-------- -----------
<S> <C> <C>
Operating activities
Net income $ 9,171 $ 7,370
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,289 3,274
Deferred rents (832) (659)
Equity in earnings of joint venture (58) --
Changes in operating assets and liabilities:
Accounts receivable and other assets (3,369) 1,114
Accounts payable and other liabilities 1,532 278
-------- --------
Net cash flows provided by operating activities 8,733 11,377
Investing activities
Additions to real estate assets (13,325) (7,154)
Contributions to real estate joint venture (48) (160)
Notes receivable (7,805) --
-------- --------
Net cash flows used in investing activities (21,178) (7,314)
Financing activities
Advances from revolving lines of credit 22,800 33,300
Repayments from revolving lines of credit and note payable (3,025) (32,428)
Dividends paid (8,324) (8,316)
Proceeds from exercise of stock options 230 28
-------- --------
Net cash flows provided by (used in) financing activities 11,681 (7,416)
-------- --------
Net decrease in cash (764) (3,353)
Cash and cash equivalents at beginning of period 2,145 3,691
-------- --------
Cash and cash equivalents at end of period $ 1,381 $ 338
======== ========
Supplemental cash flow information:
Cash paid for interest $ 1,667 $ 1,538
Supplemental schedule of noncash financing activities:
Assumption of loans to acquire real estate 14,686 --
</TABLE>
See accompanying notes.
5
<PAGE> 6
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2000
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Price Enterprises, Inc. (PEI) operates as a real estate investment trust (REIT)
incorporated in the state of Maryland. Our principle business is to own,
acquire, operate, manage and lease real property, primarily shopping centers. We
became a REIT in September 1997 after we spun-off our merchandising segment and
certain other assets to PriceSmart, Inc. In November 1999 Excel Legacy
Corporation (Legacy) completed its exchange offer for our common stock. In the
exchange offer, Legacy acquired approximately 91.3% of our common stock, which
represents approximately 77.5% of PEI's voting power.
In accounting for this transaction, we followed Accounting Principles Board
Opinion No. 16, "Business Combinations" (APB No.16), which requires we treat
this transaction as a purchase. In following purchase accounting, we allocated
the cost basis of Legacy's investment in our common stock among our assets and
liabilities to adjust them to fair value at the time of the completion of the
exchange offer. We prepared the consolidated financial statements through
November 11, 1999 using PEI's historical basis of accounting and we designated
them as the predecessor in our consolidated financial statements. Your
comparison of PEI's results of operations prior to completion of the exchange
offer with Legacy and after completion of the exchange offer is affected by our
purchase accounting adjustments and by adopting Legacy's depreciation policy,
discussed elsewhere in this footnote.
ACCOUNTING PRINCIPLES
We prepared the financial statements following the requirements of the
Securities and Exchange Commission (SEC) for interim reporting. As permitted
under those rules, certain footnotes or other financial information that are
normally required by generally accepted accounting principles (GAAP) can be
omitted. Certain prior year data have been reclassified to conform to the 2000
presentation.
We are responsible for the unaudited financial statements included in this
document. The financial statements include all normal and recurring adjustments
that are considered necessary for the fair presentation of our financial
position and operating results. You should also read the financial statements
and notes in our latest Form 10-K.
Revenues, expenses, assets and liabilities can vary during each quarter of the
year. Therefore, the results and trends in these interim financial statements
may not be the same as those for the full year.
6
<PAGE> 7
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, 2000
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE ASSETS AND DEPRECIATION
Prior to Legacy's exchange offer for our common stock, we recorded real estate
assets at historical costs, and adjusted them for recognition of impairment
losses. In following purchase accounting, we adjusted the historical costs of
our real estate assets to fair value. Our balance sheets at March 31, 2000 and
December 31, 1999 reflect the new basis of our real estate assets.
We expense ordinary repairs and maintenance as incurred; we capitalize major
replacements and betterments and depreciate them over their estimated useful
lives.
Following completion of Legacy's exchange offer for our common stock, we adopted
Legacy's accounting policy of depreciating real estate assets. We compute real
estate asset depreciation on a straight-line basis over their estimated useful
lives, as follows:
<TABLE>
<CAPTION>
AFTER NOVEMBER 1999 PRIOR TO NOVEMBER 1999
------------------------- -------------------------
<S> <C> <C>
Land improvements 40 years 25 years
Building and improvements 40 years 10-25 years
Tenant improvements Term of lease or 10 Term of lease or 10
years years
Fixtures and equipment 3-7 years 3-5 years
</TABLE>
We capitalize interest incurred during the construction period of certain assets
and this interest is depreciated over the lives of those assets. The following
table shows interest expense and the amount capitalized (amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------
PREDECESSOR
2000 1999
------ -----------
<S> <C> <C>
Interest incurred $2,192 $1,886
Interest capitalized 443 211
</TABLE>
USE OF ESTIMATES
Preparing financial statements in conformity with generally accepted accounting
principles requires we make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. We continually
review our estimates and make adjustments as necessary, but actual results could
differ from what we envisioned when we made these estimates.
7
<PAGE> 8
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, 2000
NOTE 2 - NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share." SFAS No. 128 requires presentation of two calculations of earnings
per common share. Basic earnings per common share equals net income applicable
to common stockholders divided by weighted average common shares outstanding
during the period. Diluted earnings per common share equals net income
applicable to common stockholders divided by the sum of weighted average common
shares outstanding during the period plus common stock equivalents. Common stock
equivalents are shares assumed to be issued if outstanding stock options that
are dilutive were exercised. All earnings per share amounts for all periods have
been presented, and where appropriate, restated to reflect these calculations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------------------
PREDECESSOR
2000 1999
---------- -----------
<S> <C> <C>
Weighted average shares outstanding 13,309,006 13,293,511
Effect of dilutive securities:
Employee stock options -- --
---------- ----------
Weighted average shares outstanding - assuming dilution 13,309,006 13,293,511
========== ==========
</TABLE>
NOTE 3 - REAL ESTATE PROPERTIES
During the first quarter of 2000, we acquired the following properties:
<TABLE>
<CAPTION>
PURCHASE MORTGAGE
DATE PRICE ASSUMED
LOCATION DESCRIPTION ACQUIRED (000'S) (000'S)
- ---------------------------------- ------------------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Middletown, OH Retail building 2/9/00 $ 6,709 $ 3,726
Terre Haute, IN Retail building 2/9/00 5,762 3,598
San Diego/Rancho Bernardo, CA Office building(1) 2/25/00 16,025 11,025(2)
</TABLE>
(1) Property leased back to Legacy
(2) Indicates maximum construction loan balance. $7.3 million was
outstanding at March 31, 2000
We purchased all three of these properties from Legacy and we funded these
acquisitions through advances on our unsecured revolving credit facility.
During the first quarter of 1999, we acquired a 15 acre parcel of land in
Tucson, AZ for $2.6 million which we plan to use for future development. We
funded this acquisition through an advance under our unsecured revolving credit
facility.
8
<PAGE> 9
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, 2000
NOTE 4 - NOTES RECEIVABLE
In February 2000 we loaned $2.8 million to Barclay Group No. 9, Ltd., which
bears interest at 25% and matures in December 2001. The loan, secured by a
property in Pueblo, CO and by a personal guarantee from the developer, is junior
to a construction loan on the property.
On March 31, 2000 we loaned Legacy $5.0 million on a note receivable due July
2000. Legacy may borrow up to $10.0 million on the unsecured note which bears an
interest rate of LIBOR plus 375 basis points, 9.9% at March 31, 2000. Legacy
borrowed an additional $4.0 million on this note in April and May 2000.
NOTE 5 - DEBT
In February 2000 we amended our unsecured credit facility with Wells Fargo Bank,
AmSouth Bank and Bank One by increasing the facility from $100 million to $125
million and adding BankBoston into the group of banks. The amended facility has
a remaining term of two years with an initial interest rate of LIBOR plus 135
basis points. The rate may vary based on our leverage and other financial
ratios. As of March 31, 2000, we owed $108.2 million on this credit facility at
a weighted average interest rate of 7.54%.
In conjunction with the Middletown, OH retail building purchase from Legacy, we
assumed an existing $3.7 million mortgage secured by the property. The mortgage
matures in March 2014 and bears an interest rate of 7.63%.
In conjunction with the Terre Haute, IN retail building purchase from Legacy, we
assumed an existing $3.6 million mortgage secured by the property. The mortgage
matures in June 2003 and bears an interest rate of 8.34%.
In conjunction with the San Diego/Rancho Bernardo, CA office building purchase
from Legacy, we assumed an existing $11.0 million construction loan secured by
the property. The loan matures in December 2000 and bears an interest rate of
Eurodollar plus 360 basis points. As of March 31, 2000, we owed $7.4 million on
this loan at a weighted average interest rate of 9.0%.
NOTE 6 - RELATED PARTY TRANSACTIONS
Following Legacy's completion of its exchange offer, Legacy took over daily
management of PEI, including property management, finance and administration and
our self storage business. We reimburse Legacy for these services. We expensed
$698,000 for these services during the first quarter of 2000, which was based on
our historical costs for similar expenses.
9
<PAGE> 10
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
March 31, 2000
NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
In conjunction with the San Diego/Rancho Bernardo, CA office building purchase
from Legacy discussed in Note 3, we leased the building back to Legacy. This
lease has a term of 10 years and pays $450,000 per year in rent.
10
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Our disclosure and analysis in this report contain "forward-looking statements."
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historic or current facts. They use words such as "anticipate,"
"estimate," "expect," "project," "intend," "plan," "believe," and other words
and terms of similar meaning in connection with any discussion of future
operating or financial performance. In particular, these include statements
relating to future actions or the outcome of financial results. From time to
time, we also may provide oral or written forward-looking statements in other
materials we release to the public. Any or all of our forward-looking statements
in this report and in any other public statements we make may turn out to be
incorrect. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our reports on Forms 10-K, 10-Q and 8-K filed with the SEC. Our Form 10-K
filing for the 1999 fiscal year listed various important factors that could
cause actual results to differ materially from expected and historic results.
We note these factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. Readers can find them in Part I of our 1999 Form
10-K under the heading "Factors That May Affect Future Performance." We
incorporate our Form 10-K in this filing and investors should refer to it. You
should understand that it is not possible to predict or identify all such
factors. Consequently, you should not consider any such list to be a complete
set of all potential risks or uncertainties.
In Management's Discussion and Analysis we explain our general financial
condition and results of operations including:
- why revenues, costs and earnings changed from the prior period
- funds from operations (FFO)
- how we used cash for capital projects and dividends and how we
expect to use cash in 2000
- where we plan on obtaining cash for future dividend payments and
future capital expenditures
As you read Management's Discussion and Analysis, it may be helpful to refer to
our financial statements and accompanying notes beginning on page 3. In
Management's Discussion and Analysis we explain the changes in specific line
items in the statements of operations. Where changes are due to more than one
reason, we list the reasons in order of importance.
11
<PAGE> 12
RENTAL REVENUES
<TABLE>
<CAPTION>
RENTAL PERCENT
REVENUES CHANGE CHANGE
-------- -------- --------
<S> <C> <C> <C>
1st Quarter 2000 $ 17,471 $ 44 0%
1st Quarter 1999 17,427 -- --
</TABLE>
Revenues did not change significantly in the first quarter of 2000 compared to
1999 because:
- revenues from properties we owned in both 1999 and 2000 increased
$1.1 million
- properties we acquired during the first quarter of 2000 generated
$0.2 million of additional revenues
- partially offsetting these increases were revenues from two
properties we sold in the second quarter of 1999, which contributed
$1.3 million of revenues in the first quarter of 1999
EXPENSES
<TABLE>
<CAPTION>
PERCENT
AMOUNT CHANGE CHANGE
-------- -------- --------
<S> <C> <C> <C>
1st Quarter 2000 $ 6,970 $ (1,563) -18%
1st Quarter 1999 8,533 -- --
</TABLE>
Expenses decreased $1.6 million to $7.0 million in the first quarter of 2000
compared to 1999 primarily because:
- depreciation expense decreased $1.0 million due to our change to
Legacy's accounting policy of depreciating real estate assets
- the recovery of bad debt expense of $0.5 million previously written
off related to the Homplace bankruptcy, a former tenant
OPERATING INCOME
<TABLE>
<CAPTION>
PERCENT
AMOUNT CHANGE CHANGE
-------- -------- --------
<S> <C> <C> <C>
1st Quarter 2000 $ 10,501 $ 1,607 18%
1st Quarter 1999 8,894 -- --
</TABLE>
Operating income increased for the first quarter of 2000 compared to the same
period in the prior year primarily because of the changes in Rental Revenues and
Expenses discussed above.
INTEREST EXPENSE
<TABLE>
<CAPTION>
PERCENT
AMOUNT CHANGE CHANGE
-------- -------- --------
<S> <C> <C> <C>
1st Quarter 2000 $ 1,749 $ 74 4%
1st Quarter 1999 1,675 -- --
</TABLE>
Interest expense did not change significantly in the first quarter of 2000
compared to 1999 because during the first quarter of 2000 we had an average of
$111.2 million debt outstanding
12
<PAGE> 13
compared to $109.2 million in the first quarter of 1999. We discuss our
outstanding debt further in "Liquidity and Capital Resources" located elsewhere
in this Form 10-Q.
INTEREST INCOME
<TABLE>
<CAPTION>
PERCENT
AMOUNT CHANGE CHANGE
------ ------ -------
<S> <C> <C> <C>
1st Quarter 2000 $ 361 $ 210 139%
1st Quarter 1999 151 -- --
</TABLE>
Interest income increased $0.2 million in the first quarter of 2000 compared to
1999 primarily because of our interest-bearing receivables.
FUNDS FROM OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-------------------------
2000 1999
-------- --------
<S> <C> <C>
Net income $ 9,171 $ 7,370
Depreciation and amortization 2,289 3,274
-------- --------
Funds from operations 11,460 10,644
Straight-line rents (832) (659)
-------- --------
Adjusted funds from operations $ 10,628 $ 9,985
======== ========
</TABLE>
Real estate industry analysts typically use funds from operations (FFO) as
another measurement of performance for real estate-oriented companies. In
general, FFO adjusts net income for noncash charges such as depreciation,
amortization and most non-recurring gains and losses. The National Association
for Real Estate Investment Trusts (NAREIT), defines FFO as net income, excluding
depreciation and amortization expense, and gains (losses) from certain sales of
property. We also adjust the NAREIT definition to eliminate straight-line rents
to arrive at adjusted FFO because of their significance in our operations.
Straight-line rent accruals are noncash revenues associated with fixed future
minimum rent increases.
FFO during the first quarter of 2000 increased 7.7% to $11.5 million compared to
1999 primarily because of the changes in revenues and expenses discussed
previously.
FFO and adjusted FFO do not represent the generally accepted accounting
principles definition of cash flows from operations and should not be considered
as an alternative to net income as an indicator of our operating performance or
to cash flows as a measure of liquidity.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to our ability to generate sufficient cash flows to meet the
short and long-term cash requirements of our business operations. Capital
resources represent those funds used or available to be used to support our
business operations and consist of stockholders' equity and debt.
Cash flow from operations has been the principal source of capital to fund our
ongoing operations and dividend payments, while use of our credit facilities and
mortgage financing have
13
<PAGE> 14
been the principal sources of capital required to fund our growth. While we are
positioned to finance our business activities through a variety of sources, we
expect to satisfy short-term liquidity requirements through net cash provided by
operations and through borrowings.
We continue to evaluate various properties for acquisition or development. We
purchased two retail properties and one office property from Legacy in February
2000 for $28.5 million. In conjunction with these purchases, we assumed two
long-term mortgages secured by the two retail properties totaling $7.3 million
and one construction loan for $11.0 million related to the office property. We
funded these purchases through advances on our revolving line of credit. To the
extent that investment opportunities exceed available cash flow from the sources
mentioned above, we may raise additional capital through bank credit facilities
and/or secured mortgage financing.
From time to time we will consider selling properties to better align our
portfolio with our geographic and tenant composition strategies. We sold two
properties from our portfolio for $32.5 million during the second quarter of
1999. We are also contemplating selling certain other properties. We may also
participate in like-kind property exchanges, which allow us to dispose of
properties and reinvest the proceeds in a tax efficient manner. These potential
sales may not be completed due to uncertainties associated with contract
negotiations and buyer due diligence contingencies.
In February 2000 we amended our unsecured credit facility with Wells Fargo Bank,
AmSouth Bank and Bank One by increasing the facility from $100 million to $125
million by adding BankBoston into the group of banks. The amended facility has a
remaining term of two years with an initial interest rate of LIBOR plus 135
basis points. The rate may vary based on our leverage and other financial
ratios. As of March 31, 2000, we owed $108.2 million on this credit facility at
a weighted average interest rate of 7.54%.
INFLATION
Because a substantial number of our leases contain provisions for rent increases
based on changes in various consumer price indices, based on fixed rate
increases, or based on percentage rent if tenant sales exceed certain base
amounts, we do not expect inflation to have a material impact on future net
income or cash flow from developed and operating properties. In addition,
substantially all leases are triple net, which means specific operating expenses
and property taxes are passed through to the tenant.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in
short-term LIBOR interest rates. We do not have any foreign exchange or other
significant market risk, nor did we have any derivative financial instruments at
March 31, 2000.
14
<PAGE> 15
Our exposure to market risk for changes in interest rates relates primarily to
our unsecured lines of credit. We enter into fixed rate mortgages and variable
rate debt obligations to support general corporate purposes, including
acquisitions, capital expenditures and working capital needs. We continuously
evaluate our level of variable rate debt with respect to total debt and other
factors, including our assessment of the current and future economic
environment.
We had $115.5 million in variable rate debt outstanding at March 31, 2000. Based
upon this debt level, a hypothetical 10% adverse change in interest rates would
increase interest expense by approximately $0.9 million on an annual basis, and
likewise decrease our earnings and cash flows. We cannot predict market
fluctuations in interest rates and their impact on our variable rate debt, nor
can there be any assurance that fixed rate long-term debt will be available to
us at favorable rates, if at all. Consequently, future results may differ
materially from the estimated adverse changes discussed above.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein or incorporated by reference:
<TABLE>
<S> <C>
(10.1) First Amended and Restated Revolving Credit Agreement dated
as of February 14, 2000 among PEI and Wells Fargo Bank,
National Association, as Agent (incorporated by reference to
Exhibit 10.32 to Annual Report on Form 10-K of PEI. filed
with the SEC on March 29, 2000 (File No. 0-20449))
(10.2) Pro rata share of lenders participating in First Amended and
Restated Revolving Credit Agreement dated as of February 14,
2000 among PEI and Wells Fargo Bank, National Association,
Bank One, Arizona, NA, AmSouth Bank, Bank Boston and Wells
Fargo Bank, NA, as Agent (incorporated by reference to
Exhibit 10.33 to Annual Report on Form 10-K of PEI. filed
with the SEC on March 29, 2000 (File No. 0-20449))
(27.1) Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2000.
16
<PAGE> 17
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.
PRICE ENTERPRISES, INC.
Registrant
Date: May 12, 2000 /s/ Gary B. Sabin
-----------------------------------
Gary B. Sabin
President & Chief Executive Officer
Date: May 12, 2000 /s/ James Y. Nakagawa
-----------------------------------
James Y. Nakagawa
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,381
<SECURITIES> 0
<RECEIVABLES> 14,974
<ALLOWANCES> (227)
<INVENTORY> 0
<CURRENT-ASSETS> 0
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0
353,404
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</TABLE>
