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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _________________.
COMMISSION FILE NUMBER 0-20449
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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)
Registrant's telephone number, including area code: 858-675-9400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock $.0001 Par Value
8 3/4% Series A Cumulative Redeemable
Preferred Stock $.0001 Par Value
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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] or No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity
held by nonaffiliates of the registrant as of March 21, 1999 was $8,304,493
based on the last reported sale price of $7.19 per share on March 21, 2000.
The number of outstanding shares of the registrant's common stock as of
March 21, 2000 was 13,309,006.
DOCUMENTS INCORPORATED BY REFERENCE: Certain information called for by
Part III of the Form 10-K will either be filed with the Commission under
Regulation 14A under the Securities Exchange Act of 1934 or by amendment to this
Form 10-K, in either case on or before April 30, 2000.
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PRICE ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I........................................................................................................... 3
ITEM 1 - BUSINESS............................................................................................. 3
ITEM 2 - PROPERTIES........................................................................................... 11
ITEM 3 - LEGAL PROCEEDINGS.................................................................................... 14
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................. 14
ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT................................................................ 15
PART II......................................................................................................... 18
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................ 18
ITEM 6 - SELECTED FINANCIAL DATA.............................................................................. 19
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 20
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................... 29
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................................... 31
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................. 56
PART III........................................................................................................ 56
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................................. 56
ITEM 11 - EXECUTIVE COMPENSATION.............................................................................. 56
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................... 56
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................... 56
PART IV......................................................................................................... 57
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................................... 57
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
provides a "safe harbor" for these types of statements. To the extent statements
in this Form 10-K involve, without limitation, our expectations for growth,
estimates of future revenue, expenses, profit, cash flow, balance sheet items or
any other guidance on future periods, these statements are forward-looking
statements. Forward-looking statements contain risks and uncertainties which
include those identified in this Form 10-K and other risks identified from time
to time in our filings with the Securities and Exchange Commission (SEC), press
releases and other communications. We assume no obligation to update
forward-looking statements.
In this Form 10-K:
- "Company," "we," "our," "PEI," and "us" means Price Enterprises, Inc.
- "Legacy" means Excel Legacy Corporation
- "REIT" means real estate investment trust
- "GLA" means gross leasable area
- "FFO" means funds from operations
PART I
ITEM 1 - BUSINESS
FORMATION OF THE COMPANY AND SUBSEQUENT TRANSACTIONS
Price Enterprises, Inc. is a REIT incorporated in the state of Maryland. Our
principal business is to own, acquire, develop, operate, manage and lease real
property. We originally incorporated in July 1994 as a Delaware corporation and
began operations as a wholly owned subsidiary of Costco Companies, Inc.
(Costco), formerly Price/Costco, Inc.
In 1994 Costco spun-off PEI and transferred to PEI the following as part of a
voluntary exchange offer:
- - substantially all of the real estate assets which historically formed
Costco's non club real estate business segment
- - four existing Costco warehouses adjacent to certain transferred properties
(which we subsequently leased back to Costco in August 1994)
- - certain merchandising business entities
- - notes receivable from various municipalities and agencies (City Notes)
- - certain other assets
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In June 1997, our Board of Directors determined that it would be in the best
interest of our Company and our stockholders to separate our core real estate
business from our merchandising businesses. Accordingly, our board approved a
spin-off transaction in which we would continue to conduct our real estate
business consisting of an initial asset base of 27 retail properties and $40
million of cash following the spin-off. PEI's merchandising businesses, real
estate properties held for sale by PEI, the City Notes and certain secured notes
receivable from buyers of properties formerly held by PEI would be spun-off to
PriceSmart, Inc. (PriceSmart), a Delaware corporation and a wholly-owned
subsidiary of PEI.
On August 29, 1997, we separated ourself from PriceSmart by distributing one
share of common stock of PriceSmart for every four shares of common stock held
by our stockholders of record on August 15, 1997 pursuant to a distribution
agreement between PEI and PriceSmart (the Distribution). Since the Distribution,
we engage in a combination of acquiring, developing, owning, managing and/or
selling real estate assets, primarily shopping centers.
The Distribution resulted in our Company becoming eligible to elect Federal tax
treatment as a REIT. In addition, we distributed an amount of taxable dividends
at least equal to our current and accumulated earnings and profits, much of
which represented an allocation from Costco as a result of the spin-off by
Costco of PEI in December 1994. By qualifying as a REIT, we substantially
eliminate our obligation to pay taxes on income.
On June 2, 1999, Excel Legacy Corporation (Legacy), a Delaware corporation, and
PEI jointly announced that they entered into an agreement regarding Legacy's
acquisition of the outstanding common stock of our Company. This announcement
followed the May 12, 1999 announcement of an earlier agreement between Legacy
and Sol Price, as trustee of certain trusts, and other stockholders of our
Company.
On November 12, 1999, 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. PEI stockholders who
tendered their shares of PEI common stock in the exchange offer received from
Legacy a total of $8.50 consisting of $4.25 in cash, $2.75 in principal amount
of Legacy's 9.0% Convertible Redeemable Subordinated Secured Debentures due 2004
and $1.50 in principal amount of Legacy's 10.0% Senior Redeemable Secured Notes
due 2004 for each share of PEI common stock.
OVERVIEW OF THE COMPANY'S BUSINESS
Our current property portfolio substantially consists of shopping centers and
"power centers" leased to major retail tenants including Costco, The Sports
Authority, The Home
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Depot, Kmart, Marshalls, PETsMART and Borders Books and Music. We receive
approximately 70% of annual minimum rents from tenants with investment grade
credit ratings.
For a description of our properties and of material developments during the year
regarding these investments and our Company as a whole please refer to "Item 2 -
Properties" and "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Form 10-K.
Our business strategy is to continue to enhance the value and operating income
of our portfolio by, among other things, completing the development and leasing
of existing properties and acquiring new investment properties. In making new
real estate investments, we emphasize acquiring well-located income-producing
commercial properties, principally occupied by credit rated tenants in the
western and northeastern United States, with attractive yields and potential for
increases in income and capital appreciation. We may also take advantage of
particularly attractive investments in other geographic areas and product types,
including self storage properties as discussed below, in order to enhance
stockholder value. In addition, we will, from time to time, consider disposing
or exchanging existing investments in order to improve our investment portfolio
or increase our funds from operations. We continuously evaluate our properties
and review potential strategies of repositioning or redeveloping our properties
in order to maximize FFO and enhance property values. Our investment and
portfolio management goal is maximizing FFO. We also own and operate a self
storage business, "Price Self Storage," with four facilities open in southern
California at year end. In addition to the self storage business, our portfolio
includes one office complex (Sacramento/Bradshaw, CA) and one multi-use property
(San Diego, CA) which includes retail, office and self storage.
Through Legacy's personnel, we provide property management for all but one of
our properties. Self-management enables us to more closely control leasing and
management of our property. Internal property management also provides
opportunities for operating efficiencies by enabling us to acquire additional
properties without proportionate increases in property management expenses. Our
property management program is implemented by property management and leasing
professionals located in offices in San Diego, CA, Fountain Valley, CA and
Fairfax, VA.
Our operating results depend on:
- - performance and continuing viability of the existing tenants in our current
real estate investment portfolio
- - the existence of new replacement tenants
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- - competition from other retail centers and other forms of retail shopping,
including internet commerce
Our growth depends on:
- - availability of new real estate investment opportunities
- - return on investment of new real estate investment opportunities
- - cost of capital related to new real estate investments
Real estate industry cycles heavily influence our performance as a REIT. We
discuss this further in "Factors That May Affect Future Performance - Economic
Performance and Value of Our Centers Depend on Many Factors" located elsewhere
in this Form 10-K.
COMPETITION
We compete with a wide variety of corporate and individual real estate
developers and REITs which have similar investment objectives and may have
greater financial resources, larger staffs or longer operating histories than
us.
We also compete with other property owners to obtain tenants for our retail
shopping center properties. Our competitive advantages are primarily based on
significant customer traffic generated by our national and regional tenants,
competitive lease terms and relatively high occupancy rates. The closing or
relocation of any anchor tenant could have a material adverse effect on the
operation of a shopping center. We discuss this further in "Factors That May
Affect Future Performance - Competition for Acquisition of Real Estate" located
elsewhere in this Form 10-K.
SIGNIFICANT TENANTS
Our Company's eight largest tenants account for approximately 46% of total GLA
and approximately 55% of our total annual minimum rent revenues. We show certain
information about these tenants in the following table (dollars in thousands):
PERCENT OF ANNUAL PERCENT OF
NUMBER AREA UNDER GLA UNDER MINIMUM TOTAL ANNUAL
TENANT OF LEASES LEASE (SQ.FT) LEASE RENT MINIMUM RENT
--------- --------- --------- --------- ---------
Costco 4 618,192 15.6% $ 8,396.3 18.2%
The Sports Authority 8 341,217 8.6% 4,365.4 9.4%
The Home Depot 2 214,173 5.4% 2,775.2 6.0%
AT&T Wireless 1 156,576 4.0% 2,327.7 5.0%
Level One Communications 1 140,369 3.5% 2,224.8 4.8%
Kmart 1 110,054 2.8% 2,027.2 4.4%
Marshalls 2 87,968 2.2% 1,889.5 4.1%
PETsMART 6 155,785 3.9% 1,622.4 3.5%
--------- --------- --------- --------- ---------
25 1,824,334 46.0% $25,628.5 55.4%
========= ========= ========= ========= =========
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It is not uncommon for economic conditions, market surpluses of retail space,
internet purchasing and competitive pressures to negatively impact a retail
operator's financial results, especially smaller retail operators. Caldor, a
large retailer, filed for Chapter XI bankruptcy protection and closed their
store at our Moorestown, NJ property in March 1999. When a tenant files for
bankruptcy we assess our alternatives for the potentially available space. We
discuss this further in "Factors That May Affect Future Performance - Risk of
Bankruptcy of Major Tenants" located elsewhere in this Form 10-K.
ENVIRONMENTAL MATTERS
Our properties are affected by Federal, state and local environmental laws.
These laws relate to the discharge of materials and protection of the
environment. We have made, and intend to continue to make, necessary
expenditures for compliance with applicable laws. The properties listed below
have required remediation and clean-up of certain past industrial activity:
- Azusa, CA
- Pentagon City, VA
- Signal Hill, CA
- New Britain, CT
Expenses related to monitoring and cleaning up these properties have not been
material to our operations. While we cannot predict with certainty the future
costs of such clean up activities, or operating costs for environmental
compliance, we do not believe they will have a material effect on our capital
expenditures, earnings or competitive position.
We owned additional properties with environmental issues that we sold prior to
the Distribution or that we transferred to PriceSmart in the Distribution.
PriceSmart agreed to indemnify us for environmental liabilities arising out of
these properties.
EMPLOYEES
At the close of our transaction with Legacy, Legacy took over daily management
of our Company, including property management, finance and administration and
our self storage business. We reimburse Legacy for these services based on our
historical costs for similar expenses.
SEASONALITY
Our real estate operations generally are not subject to seasonal fluctuations.
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CORPORATE HEADQUARTERS
Our headquarters are located at 17140 Bernardo Center Drive Suite 300, San
Diego, CA, and we believe that our current facilities meet our expected
requirements over the next 12 months. Our telephone number is (858)675-9400.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
Economic Performance and Value of Our Centers Depend on Many Factors. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors,
including:
- changes in the national, regional and local economic climates
- local conditions such as an oversupply of space or a reduction in demand
for real estate in the area
- the attractiveness of the properties to tenants
- competition from other available space
- the ability of the owner to provide adequate maintenance and insurance
- increased operating costs
Market Forces in the Retail Industry Could Affect our Ability to Lease Space. In
recent years, there has been a proliferation of new retailers and a growing
consumer preference for value-oriented shopping alternatives, such as internet
commerce, that have heightened competitive pressures. In certain areas of the
country, there may also be an oversupply of retail space. As a consequence, many
companies in all sectors of the retailing industry have encountered significant
financial difficulties. A substantial portion of our income comes from rental
revenues from retailers in community shopping centers and power centers.
Accordingly, no assurance can be given that our financial results will not be
adversely affected by these developments in the retail industry.
Our Income Depends on Rental Income from Real Property. Substantially all of our
income is derived from rental income from real property. Accordingly, our income
and funds available for distribution would be adversely affected if a
significant number of our tenants were unable to meet their obligations to us or
if we were unable to lease a significant amount of space in our properties on
economically favorable lease terms. There can be no assurance that any tenant
whose lease expires in the future will renew such lease or that we will be able
to re-lease space on economically advantageous terms.
Illiquidity of Real Estate Investments. Equity real estate investments are
relatively illiquid and therefore tend to limit our ability to vary our
portfolio promptly in response to changes in economic or other conditions. In
addition, to the extent the properties are not subject to triple net leases,
certain significant expenditures such as real estate taxes and maintenance costs
are generally not reduced when circumstances cause a reduction in
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income from the investment. Should such events occur, our income and funds
available for distribution would be adversely affected.
Risk of Bankruptcy of Major Tenants. The bankruptcy or insolvency of a major
tenant or a number of smaller tenants may have an adverse impact on the
properties affected and on the income produced by such properties. Under
bankruptcy law, a tenant has the option of assuming (continuing) or rejecting
(terminating) any unexpired lease. If a tenant in bankruptcy assumes its lease
with us, such tenant must cure all defaults under the lease and provide us with
adequate assurance of its future performance under the lease. If a tenant in
bankruptcy rejects the lease, our claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. We may
not receive all amounts owed us under terms of a lease if a tenant rejects a
lease in bankruptcy due to certain limits imposed by bankruptcy laws.
Reliance on Major Tenants. As of December 31, 1999, our largest tenant was
Costco which accounted for approximately 18.2% of our total annual minimum rent
revenue. In addition to our four properties where Costco is the major tenant,
Costco warehouses are adjacent to an additional 16 of our properties. If Costco
were to terminate a lease with us or a lease for space adjacent to our
properties, certain of our tenants at such properties would have rights to
reduce their rent or terminate their leases. In addition, tenants at such
properties, including those with termination rights, could elect not to extend
or renew their lease at the end of the lease term. Our financial position,
results of operations and our ability to make distributions may be adversely
affected by financial difficulties experienced by Costco, or any of our other
major tenants, including a bankruptcy, insolvency or general downturn in
business of any major tenant, or in the event any major tenant does not renew
their leases as they expire.
Control by Series A Preferred Stockholders. Following the close of Legacy's
exchange offer, the holders of PEI's preferred stock are entitled to elect a
majority of our board of directors and to have one designee on Legacy's board of
directors, until:
- less than two million shares of our preferred stock remain outstanding,
- Legacy makes an offer to purchase any and all outstanding shares of our
preferred stock at a cash price of $16.00 per share, and purchase all
shares duly tendered and not withdrawn, or
- our directors (1) issue any equity securities without unanimous approval
of our board or (2) fail to pay dividends on our common stock in an
amount equal to 100% of our taxable income or an amount necessary to
maintain our status as a REIT, or in an amount equal to the excess, if
any, if our funds from operations, less preferred stock dividends, over
$7.5 million.
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Robert E. Price and Sol Price, significant stockholders of PEI, beneficially
owned as of December 31, 1999 an aggregate of approximately 9.4 million shares,
or 40% of the outstanding Series A Preferred Stock distributed to stockholders
in August 1998. As a result, these stockholders could effectively control the
outcome of all matters submitted to our preferred stockholders for approval,
including the election of a majority of our board of directors.
Competition for Acquisition of Real Estate. We face competition in the
acquisition, operation and sale of our properties. Competition can be expected
from other businesses, individuals, fiduciary accounts and plans and other
entities engaged in real estate investment. Some of our competitors are larger
than us and have greater financial resources available to them. This competition
may result in a higher cost for properties we wish to purchase.
Environmental Risks. Under various Federal, state and local laws, ordinances and
regulations, we may be considered an owner or operator of real property and,
therefore, may become liable for the costs of removal or remediation of certain
hazardous substances released on or in our property, as well as certain other
potential costs which could relate to hazardous or toxic substances (including
governmental fines and injuries to persons and property). In addition, we may
have arranged for the disposal or treatment of hazardous or toxic substances and
may be liable under these environmental laws as a result of such activity. These
environmental liabilities may be imposed whether or not we knew of, or were
responsible for, the presence of such hazardous or toxic substances. Any such
liability, if imposed, could have a material adverse effect on our business and
our funds available for distribution.
Taxation of the Company. We elected to be taxed as a REIT under the Internal
Revenue Code of 1986, as amended (the Code), beginning with the four months
ended December 31, 1997. To maintain our status as a REIT for Federal income tax
purposes, we generally are required each year to distribute to our stockholders
at least 95% of our taxable income. Beginning in 2001 this requirement changes
to where we will be required to distribute at least 90% of our taxable income to
our stockholders to maintain our status as a REIT. In addition, we are subject
to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by us with respect to any calendar year are less than the sum
of 85% of our ordinary income for such calendar year, 95% of our capital gain
income for the calendar year and any amount of such taxable income that was not
distributed in prior years. As long as we meet the requirements under the Code
for qualification as a REIT each year, we will be entitled to a deduction when
calculating our taxable income for dividends paid to our stockholders. For us to
qualify as a REIT, however, certain detailed technical requirements must be met
(including certain income, asset and stock ownership tests) under Code
provisions for which, in many cases, there
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are only limited judicial or administrative interpretations. Although we intend
to operate so that we will continue to qualify as a REIT, the highly complex
nature of the rules governing REITs, the ongoing importance of factual
determinations and the possibility of future changes in our circumstances
preclude any assurance that we will so qualify in any year. For any taxable year
that we fail to qualify as a REIT, we would not be entitled to a deduction for
dividends paid to our stockholders in calculating our taxable income.
Consequently, distributions to our stockholders would be substantially reduced
and could be eliminated because of our increased tax liability. Should our
qualification as a REIT terminate, we may not be able to elect to be treated as
a REIT for the subsequent five-year period, which would substantially reduce and
could eliminate distributions to our stockholders for the years involved.
ITEM 2 - PROPERTIES
OVERVIEW
At December 31, 1999, we owned 29 commercial real estate properties and held one
property with a 20-year ground lease, in addition to land in Tucson, AZ and
Temecula, CA held for future development. These properties encompass
approximately 4.3 million square feet of GLA and were 94% leased. The five
largest properties include 1.7 million square feet of GLA that generate annual
minimum rent of $26.2 million, based on leases existing as of December 31, 1999.
Included in the properties we owned at December 31, 1999 are four self storage
facilities. Two of these facilities, San Diego, CA and Azusa, CA are located on
the same sites as our commercial properties. The other two self storage
facilities are stand-alone properties. At year end, these facilities had 0.5
million square feet of GLA and were 96% occupied. We also have a 50% investment
in a joint venture which owns a retail center in Fresno, CA.
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Here is the geographic concentration of our Company's properties, excluding our
joint venture in Fresno:
NUMBER OF PERCENT OF MINIMUM
STATE PROPERTIES ANNUAL RENT
---------- -----------
Northeastern States
New York 2 18%
Virginia 2 15%
New Jersey 2 11%
Pennsylvania 1 6%
Massachusetts 1 4%
Maryland 1 3%
Connecticut 1 1%
---------- -----------
Total Northeastern 10 58%
California 18 40%
Arizona 2 1%
Colorado 2 1%
---------- -----------
Total 32 100%
PROPERTY TABLE
Amounts shown for annual minimum rents are based on executed leases as of
December 31, 1999. We made no allowances for contractually-based delays to
commencement of rental payments. Due to the nature of real estate investments,
our actual rental income may differ from amounts shown in this schedule. The
following table describes our portfolio of real estate properties as of December
31, 1999. Self storage properties are shown separately from our commercial
portfolio.
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REAL ESTATE PORTFOLIO
LEASES IN EFFECT AS OF DECEMBER 31, 1999
--------------------------------------------
NUMBER GROSS ANNUAL % OF
OF LEASABLE PERCENT MINIMUM G.L.A. LEASE
TENANTS AREA(SQ FT) LEASED RENT (1) PRINCIPAL TENANTS (SQ FT) EXPIRES
--------- --------- --------- --------- ------------------------------------------------
(000's) ($000's)
COMMERCIAL PROPERTIES
- -----------------------------
Westbury, NY 8 398.6 100% $ 7,736.9 Costco 37% 2009
Kmart 28% 2013
Marshalls 11% 2009
The Sports Authority 11% 2013
Borders Books 8% 2019
Pentagon City, VA 9 336.8 100% 6,627.3 Costco 50% 2009
Marshalls 13% 2010
Best Buy 11% 2010
Linens'n Things 10% 2010
Borders Books 10% 2010
Sacramento/Bradshaw, CA 2 296.9 100% 4,552.4 AT&T 53% 2006
Level One Communications 47% 2006
Wayne, NJ 5 348.1 89% 4,304.5 Costco 42% 2009
(includes 37,000 sq. ft. of Lackland Storage 13% 2012
vacant storage space) The Sports Authority 13% 2012
Nobody Beats the Wiz 11% 2002
Philadelphia, PA 22 308.7 98% 2,964.9 The Home Depot 37% 2009
Babys R Us 13% 2006
AMC Theaters 13% 2015
ACME Supersaver 11% 2000
Signal Hill, CA 14 154.8 100% 2,327.7 The Home Depot, PETsMART
Roseville, CA 16 188.5 98% 2,334.7 The Sports Authority, Linens`n
Things, Ross Stores
San Diego, CA (2) 3 443.2 100% 1,971.5 Costco, Charlotte Russe
Seekonk, MA 11 213.6 86% 1,723.5 The Sports Authority, Circuit
City, Pier 1
Fountain Valley, CA 14 119.0 92% 1,691.1 The Sports Authority, PETsMART,
Souplantation
Glen Burnie, MD 9 130.6 85% 1,345.1 The Sports Authority, PETsMART,
Computer City, Staples
San Diego/Rancho San Diego, CA 16 93.7 95% 1,056.0 Rite Aid, Ross Stores, Petco
Inglewood, CA 1 119.9 100% 926.7 HomeBase
San Diego/Carmel Mountain, CA 7 35.0 100% 788.3 Claim Jumper, McMillin Realty,
Islands
Northridge, CA 2 22.0 100% 734.0 Barnes & Noble, Fresh Choice
New Britain, CT 1 112.4 100% 671.1 Wal-Mart
Moorestown, NJ (leased land) 2 172.6 36% 652.9 The Sports Authority
Azusa, CA (2) 3 121.4 100% 589.0 S&S Foods, Taco Bell, Carl's Jr.
San Juan Capistrano, CA 6 56.4 100% 537.1 PETsMART, Staples
Smithtown, NY 1 55.6 100% 500.6 Levitz Furniture
Sacramento/Stockton, CA 2 50.2 100% 470.2 PETsMART, Office Depot
Hampton, VA 2 45.6 100% 445.2 The Sports Authority, Commerce
Bank
Redwood City, CA 2 49.4 100% 417.5 Orchard Supply (ground lease)
Tucson, AZ 9 40.1 100% 270.7 PETsMART
Denver/Littleton, CO 1 26.4 100% 216.1 PETsMART
Denver/Aurora, CO 1 7.3 100% 164.3 Red Robin
San Diego/Southeast, CA 2 8.9 100% 150.4 Navy Federal C.U., Burger King
Chula Vista/Rancho del Rey, CA 1 6.7 100% 75.0 Burger King (ground lease)
------ -------- --------- ----------
TOTAL COMMERCIAL PROPERTIES 172 3,962.4 94% $46,244.7
====== ========= ========= ==========
(1) Annual Minimum Rent does not include percentage rents, expense
reimbursements, revenue from month-to-month leases, or rents expiring in
2000
(2) Price Self Storage is also located at this property.
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AS OF DECEMBER 31, 1999
-------------------------------
GROSS LEASEABLE PERCENT
AREA (SQ FT) LEASED
----------------- ------------
(000'S)
SELF STORAGE PROPERTIES
- -----------------------------
San Diego/Murphy Canyon, CA 243.2 99%
San Diego, CA (3) 89.6 99%
Azusa, CA 84.3 98%
Solana Beach, CA (4) 59.4 75%
------------ ----------------
TOTAL SELF STORAGE PROPERTIES 476.5 96%
============== ==============
(3) GLA of this facility is also included in GLA for the San Diego, CA
commercial property location listed above.
(4) Expansion of this facility is currently under development.
The annual gross potential rent for the four operating self storage facilities
is $5.9 million. Gross potential rent equals the GLA times the average rent per
square foot.
PENDING REAL ESTATE TRANSACTIONS
Since December 31, 1999 we executed five leases for approximately 11,000 square
feet of GLA. These new leases will generate $159,000 in annual minimum rents. We
also executed a lease with Legacy in connection with the purchase of an office
building from them in February 2000, which will generate $450,000 in annual
minimum rents. The development costs necessary to provide appropriate facilities
for these signed leases is estimated to be approximately $18,000. We are also
currently in negotiations to purchase additional commercial properties as well
as evaluating various properties for acquisition.
ITEM 3 - LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during 1999.
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ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers at the date of this report are:
NAME AGE TITLE
- ---- --- -----
Gary B. Sabin ........................... 45 President and Chief Executive Officer
Richard B. Muir ......................... 44 Executive Vice President, Chief Operating Officer
Kelly D. Burt ........................... 42 Executive Vice President - Development
S. Eric Ottesen ......................... 44 Senior Vice President, General Counsel and
Secretary
James Y. Nakagawa ....................... 34 Chief Financial Officer
Graham R. Bullick, Ph.D. .. 49 Senior Vice President - Capital Markets
Mark T. Burton .......................... 39 Senior Vice President - Acquisitions
John A. Visconsi ........................ 55 Senior Vice President - Leasing/Asset Management
Gary B. Sabin has served as President and Chief Executive Officer and a Director
of our Company since November 1999. Mr. Sabin also has served as Chairman of the
Board of Directors, President and Chief Executive Officer of Legacy since its
formation. Mr. Sabin served as Director and President of New Plan Excel from
September 1998 to April 1999 and as Chairman, President and Chief Executive
Officer of Excel Realty Trust from January 1989 to September 1998. In addition,
Mr. Sabin has served as Chief Executive Officer of various companies since his
founding of Excel Realty Trust's predecessor company and its affiliates starting
in 1977. He has been active for over 20 years in diverse aspects of the real
estate industry, including the evaluation and negotiation of real estate
acquisitions, management, financing and dispositions.
Richard B. Muir has served as Executive Vice President, Chief Operating Officer,
and a Director of our Company since November 1999. Mr. Muir has served as
Director, Executive Vice President and Secretary of Legacy since its formation
and has served as Legacy's Chief Operating Officer since November 1999. Mr. Muir
served as a Director, Executive Vice President and Co-Chief Operating Officer of
New Plan Excel from September 1998 to April 1999 and served as Director,
Executive Vice President and Secretary of Excel Realty Trust from January 1989
to September 1998. In addition, Mr. Muir served as an officer and director of
various affiliates of Excel Realty Trust since
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1978, primarily in administrative and executive capacities, including direct
involvement in and supervision of asset acquisitions, management, financing and
dispositions.
Kelly D. Burt has served as Executive Vice President - Development of our
Company since November 1999 and in the same position with Legacy since May 1998.
From 1992 to May 1998, Mr. Burt served as President and founder of TenantFirst,
a real estate development company in San Diego, CA that was acquired by Legacy
in May 1998. From 1984 to 1992, Mr. Burt was an Industrial/Office Partner at the
San Diego division of Trammell Crow Company, a real estate development company
headquartered in Dallas, TX.
S. Eric Ottesen has served as Senior Vice President, General Counsel and
Secretary of our Company since November 1999. Mr. Ottesen also has served
as Senior Vice President, General Counsel and Assistant Secretary of Legacy
since its formation. Mr. Ottesen served as Senior Vice President - Legal Affairs
and Secretary of New Plan Excel from September 1998 to April 1999. Mr. Ottesen
served as Senior Vice President, General Counsel and Assistant Secretary of
Excel Realty Trust from September 1996 to September 1998. From 1987 to 1995, Mr.
Ottesen was a senior partner in a San Diego law firm.
James Y. Nakagawa has served as Chief Financial Officer of our Company since
November 1999. Mr. Nakagawa also has served as Chief Financial Officer and
Treasurer of Legacy since October 1998. From March 1998 to October 1998, Mr.
Nakagawa served as Controller of Legacy. Mr. Nakagawa served as Controller of
Excel Realty Trust and then New Plan Excel from September 1994 to April 1999.
Prior to joining Excel Realty Trust, Mr. Nakagawa was a manager at Coopers &
Lybrand LLP. Mr. Nakagawa is a certified public accountant.
Graham R. Bullick, Ph.D., has served as Senior Vice President - Capital Markets
of our Company since November 1999 and in the same position with Legacy since
its formation. Mr. Bullick served as Senior Vice President - Capital Markets of
Excel Realty Trust and then New Plan Excel from January 1991 to April 1999.
Previously, Mr. Bullick was associated with Excel Realty Trust as a Director
from 1991 to 1992. From 1985 to 1991, Mr. Bullick served as Vice President and
Chief Operations Officer for a real estate investment firm, where his
responsibilities included acquisition and financing of investment real estate
projects.
Mark T. Burton has served as Senior Vice President - Acquisitions of our Company
since November 1999 and in the same position with Legacy since its formation.
Mr. Burton served as Senior Vice President - Acquisitions with Excel Realty
Trust and then New Plan Excel from October 1995 to April 1999. He also served as
a Vice President of Excel
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Realty Trust from January 1989 to October 1995. Mr. Burton was associated with
Excel Realty Trust and its affiliates beginning in 1983, primarily in the
evaluation and selection of property acquisitions.
John A. Visconsi has served as Senior Vice President - Leasing/Asset Management
of our Company since November 1999 and in the same position with Legacy since
May 1999. Mr. Visconsi served as Vice President - Leasing with Excel Realty
Trust and then New Plan Excel from January 1995 to April 1999. He also served as
Senior Vice President of our Company from January 1994 to March 1995. From 1981
to 1994, Mr. Visconsi was Director of Leasing and Land Development of Ernest W.
Hahn, Inc.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK PRICES Our common stock trades on The Nasdaq Stock Market(R) under the
symbol PREN. On August 17, 1998 we distributed one share of 8 3/4% Series A
Cumulative Redeemable Preferred Stock (Series A Preferred Stock) for every one
share of common stock owned by our stockholders on July 30, 1998. The Series A
Preferred Stock began trading on August 18, 1998 under the symbol PRENP. The
table below provides the high and low sales prices of our common stock and
preferred stock for the period indicated, as reported by The Nasdaq Stock
Market(R).
COMMON STOCK PREFERRED STOCK
-------------------- ---------------------
HIGH LOW HIGH LOW
------ ----- ------ -------
Calendar Year --- 1997
First Quarter 19 16 3/4
Second Quarter 19 5/8 17 3/8
Third Quarter 23 17 5/8
Fourth Quarter 19 3/8 17 1/8
Calendar Year --- 1998
First Quarter 20 1/4 18
Second Quarter 19 1/2 17 3/8
Third Quarter 19 1/4 2 1/4 15 12 7/8
Fourth Quarter 6 7/32 4 1/4 14 1/4 13
Calendar Year --- 1999
First Quarter 6 4 11/32 15 1/8 13 1/2
Second Quarter 8 4 7/8 15 1/2 14 5/16
Third Quarter 8 7 1/4 16 1/4 14 5/8
Fourth Quarter 8 3/8 6 13/32 15 11/16 13 3/4
Calendar Year --- 2000
First Quarter (through 3/21/00) 7 5/8 7 1/16 14 5/8 13 1/4
On March 21, 2000, the last reported sales price per share of the common stock
was $7.19, and we had approximately 250 common stockholders of record plus those
who hold their shares in street name.
In October 1998, we completed a tender offer and purchased approximately 10.5
million shares of our common stock for $5.50 per share totaling $57.6 million.
We now have approximately 13.3 million shares of common stock outstanding,
including 12.2 million shares held by Legacy as a result of Legacy's exchange
offer which was completed in November 1999.
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In August 1997 we completed our spin-off distribution of one share of common
stock of PriceSmart for every four shares of our Company's common stock held of
record. PriceSmart began separate trading on The Nasdaq Stock Market(R) on
September 2, 1997.
DIVIDENDS
We intend to distribute at least 95% of our taxable earnings to maintain our
qualification as a REIT.
During 1999, we declared and paid four quarterly dividends of $0.35 on each
share of Series A Preferred Stock for a total of $1.40 per share or $33.3
million. Prior to the distribution of Series A Preferred Stock, we paid
dividends on our common stock. Beginning with our November 1998 dividend
payment, dividends of $1.40 per year are now paid on the Series A Preferred
Stock. Any dividends required to be paid in excess of $1.40 will be paid to our
common stockholders.
During 1998, we declared and paid three quarterly dividends of $0.35 on each
common share and one quarterly dividend of $0.35 on each share of Series A
Preferred Stock for a total of $1.40 per share or $33.3 million.
For the transition period ended December 31, 1997, our Board of Directors
declared and paid one dividend of $0.35 per share for a total of $8.3 million.
During the year ended August 31, 1997, our Board of Directors declared and paid
four quarterly dividends of $0.30 per share for a total of $1.20 per share, or
$28.0 million.
It is possible that, from time to time, we may not have sufficient cash or other
liquid assets to meet our distribution requirements due to timing differences
between (i) the actual receipt of such income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses in
arriving at our taxable income. In the event that such timing differences occur,
in order to meet these distribution requirements, we may find it necessary to
arrange for short-term, or possibly long-term borrowings or to pay dividends in
the form of taxable stock dividends.
ITEM 6 - SELECTED FINANCIAL DATA
The following selected data should be read in conjunction with our financial
statements located elsewhere in this Form 10-K and "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(amounts in thousands, except per share data)
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FOUR MONTHS ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31 YEAR ENDED AUGUST 31
--------------- -------------- ------------------ --------------------------------
1999 1998 1997 1997 1996 1997 1996 1995
-------- ------- -------- ------- -------- -------- -------- --------
Selected Income Statement Data
Rental revenues $ 66,667 $62,485 $ 56,067 $18,170 $ 18,941 $ 56,838 $ 56,221 $ 51,897
Operating income (loss) 35,143 31,393 23,289 9,045 8,178 22,422 5,829 16,635
Income (loss) from
continuing operations 32,671 29,429 29,003 17,508 7,590 19,085 8,340 13,297
Discontinued operations -- -- (1,625) -- (3,235) (4,860) (8,250) (12,751)
Net income 32,671 29,429 27,378 17,508 4,355 14,225 90 546
Net income (loss) per share
from continuing operations -
basic (.05) .97 1.23 .74 .33 .82 .36 .53
Cash dividends per share 1.40 1.40 1.25 .35 .30 1.20 -- .08
AS OF DECEMBER 31 AS OF AUGUST 31
------------------------------ ------------------------------
1999 1998 1997 1997 1996 1995
-------- -------- -------- -------- -------- --------
Selected Balance Sheet Data
Real estate assets, net $550,869 $418,507 $353,056 $337,139 $337,098 $330,443
Total assets 562,558 457,352 408,478 403,757 540,325 555,994
Long-term debt -- -- -- -- -- 15,425
Stockholders' equity 461,260 344,811 406,624 396,476 532,899 532,085
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
In Management's Discussion and Analysis of Financial Conditions and Results of
Operations we explain our general financial condition and results of operations
including:
- results of operations
- why revenues, costs and earnings changed from the prior period
- funds from operations (FFO)
- how we used cash for capital projects and dividends during 1997 through
1999 and how we expect to use cash in 2000
- where we plan on obtaining cash for future dividend payments and future
capital expenditures
- impact of year 2000 technology issues on our operations
Because of Legacy's exchange offer for our common stock, we report operating
results for the year ended December 31, 1999 divided between the periods of
January 1, 1999 to November 11, 1999 and November 12, 1999 to December 31, 1999,
due to a new basis of accounting as required by generally accepted accounting
principles. For purposes of this discussion however, we combined these two
periods of 1999 to make an equivalent twelve month period in order to compare
operating results with the year ended December 31, 1998.
In 1997 we changed our fiscal year end from August 31 to December 31, which is
required for REITs. Because of this change, the transition period ended December
31,
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1997 consisted of only four months. For that reason, we will compare our
discussion of the year ended December 31, 1998 with the equivalent recast twelve
month period of 1997. Financial information for the year ended December 31, 1997
is unaudited and used for this discussion only.
As you read Management's Discussion and Analysis, it may be helpful to refer to
our financial statements and accompanying notes beginning on page 31. 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.
RENTAL REVENUES
RENTAL PERCENT
REVENUES CHANGE CHANGE
----------- -------- --------
1999 - Year ended December 31 $66,667 $4,182 7%
1998 - Year ended December 31 62,485 --- ---
1998 - Year ended December 31 62,485 6,418 11%
1997 - Year ended December 31 56,067 --- ---
(unaudited)
Revenues increased $4.2 million to $66.7 million in 1999 compared to 1998
because:
- properties we acquired after the first quarter of 1998 generated $4.3
million of additional revenues
- expansion of our self storage business provided an additional $2.1
million of revenues
- revenues from properties we owned in both 1998 and 1999 increased $0.8
million
- partially offsetting these increases were:
- revenues from two properties which we sold in the second quarter of
1999, which contributed $2.1 million of revenues in the prior year
and
- a reduction in revenues of $0.8 million due to the Caldors
bankruptcy, a former tenant at our Moorestown, NJ location
The impact in 1999 of our new accounting basis for the straight-line accrual of
future rental income, due to Legacy's exchange offer for our common stock, was
not material.
Revenues increased $6.4 million to $62.5 million in 1998 compared to 1997
because:
- properties we acquired at the end of 1997 and in 1998 generated $6.5
million of revenues in 1998
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- expansion of our self storage business provided an additional $1.7
million of revenue
- revenues from properties we owned in both 1997 and 1998 generated an
additional $0.3 million from new leases generating revenues
- revenues from properties sold or transferred to PriceSmart in the
distribution contributed $2.0 million of revenues in the prior year
- revenues of $0.8 million were lost from the Homeplace bankruptcy, a
former tenant at our Dallas, TX location
EXPENSES
PERCENT
AMOUNT CHANGE CHANGE
------- ------- -------
1999 - Year ended December 31 $31,524 $ 432 1%
1998 - Year ended December 31 31,092 -- --
1998 - Year ended December 31 31,092 (1,686) -5%
1997 - Year ended December 31 32,778 -- --
(unaudited)
Expenses increased $0.4 million to $31.5 million in 1999 compared to 1998
primarily because:
- properties we acquired after the first quarter of 1998 increased
expenses $0.6 million
- expansion of our self storage business increased expenses $1.1 million
- these increases in expenses were partially offset by:
- properties we sold in the second quarter of 1999 which reduced
expenses by $1.6 million and
- by the reduction of bad debt expense of $0.7 million resulting in
part from recovery of amounts previously written off related to the
Bradlee's bankruptcy, a former tenant at our Seekonk, MA property
The impact in 1999 of our new accounting basis for real estate asset
depreciation, due to Legacy's exchange offer for our common stock, was not
material.
Expenses decreased $1.7 million to $31.1 million in 1998 compared to 1997
primarily because:
- we wrote off $2.0 million in 1997 for asset impairments on properties
held for sale because their book value was higher than what we expected
to receive when the properties sold
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- we wrote off costs in 1997 related to the PriceSmart distribution,
consisting of insurance, legal and accounting fees of $1.5 million which
contributed to our decrease in general and administrative expenses in
1998
- properties we acquired at the end of 1997 and in 1998 increased 1998
expenses $3.0 million
- expansion of our self storage business in 1998 increased expenses an
additional $0.6 million
- properties sold or transferred to PriceSmart resulted in a decrease in
expenses of $1.1 million
OPERATING INCOME
PERCENT
AMOUNT CHANGE CHANGE
------- ------- -------
1999 - Year ended December 31 $35,143 $ 3,750 12%
1998 - Year ended December 31 31,393 -- --
1998 - Year ended December 31 31,393 8,104 35%
1997 - Year ended December 31 23,289 -- --
(unaudited)
Operating income increased for 1999 and 1998 compared to the same periods in the
prior year primarily because of the changes in Rental Revenues and Expenses
discussed above.
INTEREST EXPENSE
PERCENT
AMOUNT CHANGE CHANGE
------ ------ ------
1999 - Year ended December 31 $5,874 $3,063 109%
1998 - Year ended December 31 2,811 -- --
1998 - Year ended December 31 2,811 2,789 12,677%
1997 - Year ended December 31 22 -- --
(unaudited)
During 1999, interest expense increased $3.1 million because:
- we recorded $6.3 million in interest expense related to our unsecured
revolving credit facilities because our average debt outstanding in 1999
was $90.0 million compared to $21.5 million in 1998, which relates
primarily to the borrowing of $57.6 million for our common stock
repurchase in November 1998
- we recorded $0.8 million in interest expense related to the note payable
associated with our San Diego/Murphy Canyon, CA self storage facility
purchase
- we capitalized $1.2 million of this $7.1 million interest incurred to
real estate assets
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During 1998, interest expense increased $2.8 million because:
- we recorded $2.6 million in interest expense related to our unsecured
revolving credit facilities because our average debt outstanding in 1998
was $21.5 million and we had no debt in 1997
- we recorded $0.5 million in interest expense related to the note payable
associated with our San Diego/Murphy Canyon, CA self storage facility
purchase
- we capitalized $0.3 million of this $3.1 million interest incurred to
real estate assets
We discuss our outstanding debt further in "Liquidity and Capital Resources"
located elsewhere in this Form 10-K.
INTEREST INCOME
PERCENT
AMOUNT CHANGE CHANGE
------- ------- -------
1999 - Year ended December 31 $ 504 $ (159) -24%
1998 - Year ended December 31 663 -- --
1998 - Year ended December 31 663 (5,610) -89%
1997 - Year ended December 31 6,273 -- --
(unaudited)
Interest income decreased $0.2 million to $0.5 million in 1999 compared to 1998
primarily because of lower cash balances in 1999 and we used available cash and
began borrowing in the second quarter of 1998 to fund acquisitions.
Interest income decreased $5.6 million to $0.7 million in 1998 compared to 1997
primarily because:
- we received full payment for a $41.2 million interest bearing note
receivable in 1997
- we transferred previously invested cash and other interest bearing notes
receivable to PriceSmart in August 1997
- we used previously invested cash for acquiring and developing properties
GAIN (LOSS) ON SALE OF REAL ESTATE AND INVESTMENTS (net)
PERCENT
AMOUNT CHANGE CHANGE
------- ------- ------
1999 - Year ended December 31 $ 4,717 $ 4,533 2464%
1998 - Year ended December 31 184 -- --
1998 - Year ended December 31 184 362 203%
1997 - Year ended December 31 (178) -- --
(unaudited)
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During 1999 we sold the following properties for a gain of $4.7 million:
LOCATION DESCRIPTION DATE SALES PRICE GAIN
------------------- ------------------------------ ----------- ------------ -----------
Buffalo, NY Retail Building (vacant) 4/1/99 $ 6,100 $1,333
Dallas, TX Shopping Center 4/22/99 26,400 3,384
During 1998 we sold a free-standing restaurant building at our Azusa, CA
property and recorded a $184,000 gain. We also sold a free-standing carwash at
our Northridge, CA site and recognized no gain or loss. We consider these two
parcels incidental to our main business. The loss recorded in the year ended
December 31, 1997 relates to the properties and investments sold prior to the
PriceSmart distribution.
PROVISION FOR INCOME TAXES
We have no income tax expense for 1999 and 1998 because of our REIT status.
Before we became a REIT in September 1997 we recorded income taxes at an
effective tax rate of 41%. We recorded an income tax benefit of $7.6 million in
the year ended December 31, 1997 that offset the tax expense recorded. The tax
benefit related to a previously recorded income tax liability that was presumed
no longer payable because of our conversion to a REIT as well as income tax
refunds receivable related to Federal tax net operating loss carrybacks.
MERGER RELATED COSTS
In connection with the completion of Legacy's exchange offer in November 1999,
we expensed $1.8 million as follows:
AMOUNT
------
Vesting of preferred stock options $ 934
Accounting and legal 327
Other 558
------
$1,819
======
Because our transaction with Legacy resulted in a change of control in our
Company, we expensed $0.9 million related to the vesting of preferred stock
options as required by generally accepted accounting principles.
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DISCONTINUED OPERATIONS
Due to the PriceSmart distribution in August 1997, there were no discontinued
operations in 1999 and 1998. The discontinued merchandising segment was
transferred to PriceSmart in the Distribution.
FUNDS FROM OPERATIONS
YEAR ENDED DECEMBER 31
-----------------------------------------
1999 1998 1997
------------- ------------- -------------
Income before provision for income taxes $32,671 $29,429 $29,362
Depreciation and amortization 11,825 12,471 9,887
Provision for asset impairments --- --- 2,000
(Gain) loss on sale of real estate and
investments, net (4,717) --- 179
Other --- 509 ---
------------- ------------- -------------
Funds from operations 39,779 42,409 41,428
Straight-line rents (2,498) (2,654) (2,305)
------------- ------------- -------------
Adjusted funds from operations $37,281 $39,755 $39,123
============= ============= =============
Real estate industry analysts generally consider 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 exclude provisions for asset impairments and gains (losses)
from sale of investments when we calculate FFO. We also adjust the NAREIT
definition to eliminate straight-line rents in 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 1999 decreased 6% to $37.3 million compared to 1998 because:
- interest expense increased $3.1 million, which relates directly to the
borrowing of $57.6 million for our common stock repurchase in November
1998
- we expensed $1.8 million in merger costs related to our transaction with
Legacy
- two properties we sold in the second quarter of 1999 reduced FFO $1.5
million
- Caldors, a former bankrupt tenant at our Moorestown, NJ location reduced
FFO $0.8 million
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- these increases in expenses were partially offset by:
- properties we acquired in 1998 which increased FFO $3.6 million
- expansion of our self storage business which increased FFO $1.0
million excluding intercompany rent
The impact on FFO in 1999 of our new accounting basis due to Legacy's exchange
offer for our common stock was not material.
FFO during 1998 increased 2% to $42.4 million compared to 1997 because:
- properties acquired at the end of 1997 and in 1998 generated $5.2
million
- we reduced general and administrative expenses $1.9 million primarily
related to the PriceSmart distribution
- expansion of our self storage business in 1998 generated $1.4 million
- the change in net interest of $8.4 million from $6.3 million net
interest income in 1997 to $2.1 net interest expense in 1998 offset the
increases in net operating income generated from our properties
FFO for 1998, excluding income earned from assets transferred to PriceSmart,
increased 17% to $42.4 million in 1998 from $36.3 million in 1997.
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 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.
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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 sales may
not be completed due to uncertainties associated with contract negotiations and
buyer due diligence contingencies.
In December 1998 we obtained a $100 million unsecured credit facility from Wells
Fargo Bank, AmSouth Bank and Bank One. This facility has a three-year term with
an initial interest rate of LIBOR plus 135 basis points. The rate may vary based
on our leverage and other financial ratios. At December 31, 1999, there was
$88.4 million outstanding on the Wells Fargo facility at a 7.85% interest rate.
In February 2000 we increased our unsecured credit facility to $125 million. The
participating banks are now Wells Fargo Bank, AmSouth Bank, Bank One and Fleet
BankBoston. The facility's interest rate is now LIBOR plus 140 basis points.
In November 1998 we purchased 10.5 million shares of our common stock for $5.50
per share. To fund this purchase, we obtained a $50 million credit facility from
Morgan Guaranty Trust Company (the Morgan Facility) which was subsequently
amended to $25 million. In September 1999 we repaid the remaining $25 million on
our Morgan Facility and terminated the facility.
In conjunction with the San Diego/Murphy Canyon, CA self storage facility
purchase, we assumed an existing $8.9 million note secured by the property. The
note, payable to a financial institution, matures in July 2004 and bears an
interest rate of 9.0%. The note does not permit repayment prior to July 2001.
In August 1998 we distributed to stockholders of record one share of newly
created Series A Preferred Stock, par value $.0001, for each share of common
stock held by them on the record date. We raised no capital through this
transaction. The Series A Preferred Stock pays quarterly dividends totaling
$1.40 per year with a $16.00 per share liquidation
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preference. Prior to the distribution of Series A Preferred Stock, we paid
dividends on our common stock. Dividends of $1.40 will be paid on the Series A
Preferred Stock and any dividends paid in excess of $1.40, will be paid to our
common stockholders. We have the right to redeem the Series A Preferred Stock
after August 16, 2003 or after a change of control of our Company, which
occurred with Legacy's completion of their exchange offer for our common stock,
at a redemption price of $16.00 per share plus accrued and unpaid dividends, if
any.
YEAR 2000
In prior years, we discussed the nature and progress of our plans to become Year
2000 ready. In 1999, we completed upgrading our existing computer software and
information technology and testing of our systems. As a result of our planning
and implementation efforts, we experienced no significant disruptions in
information technology and non-information technology systems and we believe
those systems successfully responded to the Year 2000 date change. We spent
approximately $220,000 in connection with upgrading our information technology
systems. We are not aware of any material problems resulting from Year 2000
issues, either with our internal systems or the products and services of third
parties. We will continue to monitor our computer systems throughout the year
2000 to ensure that we address any unknown Year 2000 issues that may arise in a
prompt manner.
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 7A. - 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. We did not have any derivative financial instruments at
December 31, 1999.
Our exposure to market risk for changes in interest rates relates primarily to
our unsecured lines of credit. We enter into 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
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and other factors, including our assessment of the current and future economic
environment.
We had $88.4 million in variable rate debt outstanding at December 31, 1999.
Based upon these year-end debt levels, a hypothetical 10% adverse change in
interest rates would increase interest expense by approximately $0.7 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.
30
31
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PRICE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
PREDECESSOR
----------
DECEMBER 31 DECEMBER 31
1999 1998
---------- ----------
Real estate assets
Land and land improvements $ 248,177 $ 210,839
Building and improvements 293,686 260,709
Fixtures and equipment 394 581
Construction in progress 9,942 3,744
--------- ---------
552,199 475,873
Less accumulated depreciation (1,330) (57,366)
--------- ---------
550,869 418,507
Investment in real estate joint venture 4,338 4,050
Cash and cash equivalents 2,145 3,691
Accounts receivable 697 2,699
Income tax receivable 3,171 7,615
Deferred rents 571 14,921
Other assets 767 5,869
--------- ---------
Total assets $ 562,558 $ 457,352
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Revolving lines of credit and note payable $ 97,241 $ 108,023
Accounts payable and other liabilities 4,057 4,518
--------- ---------
Total liabilities 101,298 112,541
Commitments
Stockholders' equity
Series A preferred stock, cumulative, redeemable, $.0001 par value,
26,000,000 shares authorized, 23,759,456 and 23,758,801 shares
issued and
outstanding 353,404 353,404
Common stock, $.0001 par value, 74,000,000 shares authorized, 13,309,006
and 13,293,456 shares issued and outstanding 1 1
Additional paid-in capital 111,670 929
Accumulated deficit (3,815) (9,523)
--------- ---------
Total stockholders' equity 461,260 344,811
--------- ---------
Total liabilities and stockholders' equity $ 562,558 $ 457,352
========= =========
See accompanying notes.
31
32
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR
--------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED FOUR MONTHS YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 ENDED DECEMBER 31 AUGUST 31
----------- ----------- ----------- --------------------- -----------
1999 1999 1998 1997 1996 1997
----------- ----------- ----------- -------- -------- -----------
(unaudited)
Rental revenues $ 9,251 $ 57,416 $ 62,485 $ 18,170 $ 18,941 $ 56,838
Expenses
Operating and maintenance 962 7,307 7,616 2,392 3,037 9,105
Property taxes 1,412 7,252 8,025 2,361 2,789 7,882
Depreciation and amortization 1,086 10,739 12,471 3,326 3,299 9,860
General and administrative 268 2,498 2,980 1,046 1,638 5,569
Provision for asset impairments -- -- -- -- -- 2,000
-------- -------- -------- -------- -------- --------
Total expenses 3,728 27,796 31,092 9,125 10,763 34,416
-------- -------- -------- -------- -------- --------
Operating income 5,523 29,620 31,393 9,045 8,178 22,422
Interest and other
Interest expense (848) (5,026) (2,811) -- (158) (180)
Interest income 22 482 663 833 2,773 8,213
Merger related costs -- (1,819) -- -- -- --
-------- -------- -------- -------- -------- --------
Total interest and other (826) (6,363) (2,148) 833 2,615 8,033
-------- -------- -------- -------- -------- --------
Income before gain on sale of real estate and
investment net 4,697 23,257 29,245 9,878 10,793 30,455
Gain on sale of real estate and investments, net -- 4,717 184 -- 2,071 1,893
-------- -------- -------- -------- -------- --------
Income before provision (benefit) for income taxes 4,697 27,974 29,429 9,878 12,864 32,348
Provision (benefit) for income taxes -- -- -- (7,630) 5,274 13,263
-------- -------- -------- -------- -------- --------
Income from continuing operations 4,697 27,974 29,429 17,508 7,590 19,085
Discontinued operations (Note 2):
Net loss from operations of discontinued
merchandising segment (less applicable benefit
for income taxes of $2,248 and $3,379 -- -- -- -- (3,235) (4,860)
respectively)
-------- -------- -------- -------- -------- --------
Net income 4,697 27,974 29,429 17,508 4,355 14,225
Dividends paid to preferred stockholders -- (33,263) (8,316) -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss) applicable to common stockholders $ 4,697 $ (5,289) $ 21,113 $ 17,508 $ 4,355 $ 14,225
======== ======== ======== ======== ======== ========
Earnings per common share - basic
Income from continuing operations $ .35 $ (.40) $ .97 $ .74 $ .33 $ .82
Net income $ .35 $ (.40) $ .97 $ .74 $ .19 $ .61
Earnings per common share - assuming dilution
Income from continuing operations $ .35 $ (.40) $ .96 $ .73 $ .32 $ .82
Net Income $ .35 $ (.40) $ .96 $ .73 $ .18 $ .61
See accompanying notes.
32
33
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- --------- --------- ---------
Balance at August 31, 1996 -- $ -- 23,290 $ 2 $ 534,004 $ (1,107) $ 532,899
Net income -- -- -- -- -- 14,225 14,225
Stock options exercised including income
tax benefits -- -- 343 -- 5,429 -- 5,429
Cash dividends, $1.20 per share -- -- -- -- -- (28,037) (28,037)
Special dividend - Distribution of
PriceSmart -- -- -- -- (128,040) -- (128,040)
--------- --------- --------- --------- --------- --------- ---------
Balance at August 31, 1997 -- -- 23,633 2 411,393 (14,919) 396,476
Net income -- -- -- -- -- 17,508 17,508
Stock options exercised -- -- 98 -- 928 -- 928
Cash dividend, $.35 per share -- -- -- -- -- (8,288) (8,288)
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 -- -- 23,731 2 412,321 (5,699) 406,624
Net income -- -- -- -- -- 29,429 29,429
Stock options exercised and stock grants -- -- 37 -- 350 -- 350
Adjustment to special dividend -
Distribution of PriceSmart -- -- -- -- (550) -- (550)
Cash dividends (1) -- -- -- -- -- (33,253) (33,253)
Distribution of 8_% Series A Preferred
Stock 23,759 353,404 -- -- (353,404) -- --
Shares repurchased, including costs -- -- (10,475) (1) (57,788) -- (57,789)
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 23,759 353,404 13,293 1 929 (9,523) 344,811
Net income -- -- -- -- -- 27,974 27,974
Stock options exercised and stock grants -- -- 16 -- 114 -- 114
Vesting preferred stock options due to
merger -- -- -- -- 934 -- 934
Cash dividends -- -- -- -- -- (33,263) (33,263)
--------- --------- --------- --------- --------- --------- ---------
BALANCE AT NOVEMBER 11, 1999 23,759 353,404 13,309 1 1,977 (14,812) 340,570
Net income -- -- -- -- -- 4,697 4,697
Purchase accounting adjustment -- -- -- -- 109,693 6,300 115,993
--------- --------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1999 23,759 $ 353,404 13,309 $ 1 $ 111,670 $ (3,815) $ 461,260
========= ========= ========= ========= ========= ========= =========
See accompanying notes.
(1) $1.05 per share of common stock and $.35 per share of preferred stock
33
34
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR
----------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED FOUR MONTHS YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 ENDED DECEMBER 31 AUGUST 31
--------- ---------- --------- --------- --------- ---------
1999 1999 1998 1997 1996 1997
--------- --------- --------- --------- --------- ---------
(unaudited)
Operating activities
Net income $ 4,697 $ 27,974 $ 29,429 $ 17,508 $ 4,355 $ 14,225
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,086 10,739 12,471 3,326 3,299 9,860
Deferred rents (571) (1,757) (2,521) (590) (1,024) (2,406)
Gain on sale of real estate and investments, net -- (4,717) (184) -- (2,071) (1,893)
Merger related costs -- 1,440
Deferred income taxes -- -- -- (6,660) 4,267 15,894
Provision for asset impairments -- -- -- -- -- 2,000
Changes in operating assets and liabilities:
Accounts receivable and other assets 645 5,036 (1,432) (1,548) (406) (4,417)
Accounts payable and other liabilities 774 (1,686) 2,664 1,233 (685) (1,123)
Net assets of discontinued segment -- -- -- -- 3,112 4,495
--------- --------- --------- --------- --------- ---------
Net cash flows provided by operating activities 6,631 37,029 40,427 13,269 10,847 36,635
Investing activities
Additions to real estate assets (1,511) (29,707) (70,648) (18,906) (919) (2,720)
Proceeds from sale of real estate assets -- 30,385 2,571 -- 13,234 29,279
Contributions to real estate joint venture (78) (364) (4,050) -- -- --
Additions to notes receivable -- -- -- -- -- (200)
Payments of notes receivable -- -- -- -- 4,450 50,526
Net investing activities of discontinued segment -- -- -- -- (677) (7,987)
--------- --------- --------- --------- --------- ---------
Net cash flows (used in) provided by investing
activities (1,589) 314 (72,127) (18,906) 16,088 68,898
Financing activities
Advances from revolving lines of credit 6,000 81,900 181,213 -- -- --
Repayments from revolving lines of credit and note
payable (2,012) (96,670) (82,133) -- -- --
Dividends paid (8,316) (24,947) (33,253) (8,288) (6,988) (28,037)
Proceeds from exercise of stock options including
tax benefits -- 114 350 928 426 5,429
Purchase of common stock -- -- (57,789) -- -- --
Cash transferred to PriceSmart -- -- -- -- -- (58,383)
--------- --------- --------- --------- --------- ---------
Net cash flows (used in) provided by financing
activities (4,328) (39,603) 8,388 (7,360) (6,562) (80,991)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in cash 714 (2,260) (23,312) (12,997) 20,373 24,542
Cash and cash equivalents at beginning of period 1,431 3,691 27,003 40,000 15,458 15,458
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 2,145 $ 1,431 $ 3,691 $ 27,003 $ 35,831 $ 40,000
========= ========= ========= ========= ========= =========
34
35
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR
-------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED FOUR MONTHS YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 ENDED DECEMBER 31 AUGUST 31
--------- --------- --------- ---------------------- ---------
1999 1999 1998 1997 1996 1997
--------- --------- --------- --------- --------- ---------
Supplemental disclosure:
Cash paid for interest $ 566 $ 5,777 $ 2,252 $ -- $ 150 $ 150
Net (refunds received) cash
paid for income taxes -- (3,087) 25 (1,061) (2,723) (717)
Supplemental schedule of noncash
operating and financing activities:
Purchase accounting adjustment 115,993 -- -- -- -- --
Assumption of note payable to acquire
real estate
assets -- -- 8,943 -- -- --
Adjustment to special dividend -
distribution of PriceSmart -- -- 550 -- -- --
See accompanying notes
35
36
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND ACQUISITION
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.
On June 2, 1999, Excel Legacy Corporation (Legacy) and PEI jointly announced
that they entered into an agreement regarding Legacy's acquisition of the
outstanding common stock of our Company. This announcement followed the May 12,
1999 announcement of an earlier agreement between Legacy and Sol Price, as
trustee of certain trusts, and other stockholders of our Company.
On November 12, 1999 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. PEI stockholders who
tendered their shares of PEI common stock in the exchange offer received from
Legacy a total of $8.50 consisting of $4.25 in cash, $2.75 in principal amount
of Legacy's 9.0% Convertible Redeemable Subordinated Secured Debentures due 2004
and $1.50 in principal amount of Legacy's 10.0% Senior Redeemable Secured Notes
due 2004 for each share of PEI common stock.
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 merger with
Legacy and after completion of the merger is affected by our purchase accounting
adjustments and by adopting Legacy's depreciation policy, discussed elsewhere in
this footnote.
ACCOUNTING PRINCIPLES
We prepare our financial statements in accordance with generally accepted
accounting principles. We follow the accounting standards established by the
Financial Accounting Standards Board and the American Institute of Certified
Public Accountants.
36
37
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONSOLIDATION
We combine our financial statements with those of our wholly-owned subsidiaries
and present them on a consolidated basis. The consolidated financial statements
do not include the results and transactions between us and our subsidiaries or
among our subsidiaries.
FISCAL YEAR
Effective September 1, 1997 we changed our fiscal year end from August 31 to
December 31 as required by the Internal Revenue Code for REITs. The four-month
transition period ending December 31, 1997 bridges the gap between our old and
new fiscal year ends.
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 sheet at December 31, 1999
reflects 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:
AFTER NOVEMBER 11, 1999 PRIOR TO NOVEMBER 11, 1999
------------------------------- -------------------------------
Land improvements 40 years 25 years
Building and improvements 40 years 10-25 years
Tenant improvements Term of lease or 10 years Term of lease or 10 years
Fixtures and equipment 3-7 years 3-5 years
We review long-lived assets for impairment when events or changes in business
conditions indicate that their full carrying value may not be recovered. We
consider assets to be impaired and write them down to fair value if their
expected associated future undiscounted cash flows are less than their carrying
amounts. We reduced historical costs for real estate and related assets $2.0
million during the year ended August 31, 1997. We determined fair value using
the present value of the expected associated cash flows.
37
38
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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):
PREDECESSOR
---------------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED FOUR MONTHS ENDED YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 DECEMBER 31 AUGUST 31
-------- -------- -------- --------------------- ---------
1999 1999 1998 1997 1996 1997
-------- -------- -------- -------- -------- --------
Interest incurred $ 1,079 $ 5,971 $ 3,112 -- $ 165 $ 187
Interest capitalized 231 944 301 -- 7 7
INVESTMENTS
We use the "equity method" of accounting for our joint venture, which means we
carry this investment at cost, adjusted for our share of earnings or losses and
any distributions received.
RENTAL REVENUE RECOGNITION
Rental revenues include: (1) minimum annual rentals, adjusted for the
straight-line method for recognition of fixed future increases; (2) additional
rentals, including recovery of property operating expenses, and certain other
expenses which we accrue in the period in which the related expense occurs; and
(3) percentage rents which we accrue on the basis of actual sales reported by
tenants.
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments with a maturity of less than three
months when purchased to be cash and cash equivalents.
LEASING COSTS
We capitalize costs associated with leasing space to tenants and amortize
leasing costs using the straight-line method over the initial terms of the
related tenant leases.
FINANCIAL INSTRUMENTS
The carrying amounts reflected in our balance sheets for cash and cash
equivalents, receivables and all liabilities approximate their fair values. In
making these assessments we used estimates and market rates for similar
instruments.
AUTHORIZED STOCK As of December 31, 1999, our Company's authorized stock
consisted of 100 million shares of capital stock of which 26 million shares have
been designated as 8 3/4% Series A Cumulative Redeemable Preferred Stock, par
value $.0001 per share.
38
39
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
We intend to continue meeting all conditions necessary to qualify as a REIT
under the Internal Revenue Code. To qualify as a REIT, we are required to pay
dividends of at least 95% of our "REIT taxable income" each year and meet
certain other criteria. Beginning in 2001 this requirement changes to where we
will be required to distribute at least 90% of our taxable income to our
stockholders to maintain our status as a REIT. As a qualifying REIT, we will not
be taxed on income distributed to our stockholders. Also, if we sell properties
that would result in a significant tax liability, we intend to use tax deferred
exchange transactions so we will not be taxed on potential gains. The reported
amounts of our net assets, as of December 31, 1999 and 1998 were more than their
tax basis for Federal tax purposes by approximately $159.3 million and $35.9
million, respectively.
The following table shows the tax status of our dividend payments between
ordinary income, return of capital and capital gains:
FOUR MONTHS
YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31
--------------------------- -------------
1999 1998 1997
------------- ------------- -------------
Ordinary income 73.7% 94.3% 52.7%
Return of capital 12.4% 5.7% 47.3%
Capital gain 13.9% -- --
In prior years, we reported income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
That standard requires companies to account for deferred taxes using the asset
and liability method. Accordingly, deferred income taxes are provided to reflect
temporary differences between financial and tax reporting, including: asset
write-downs of real estate and related assets, deferred gains on sales of real
estate, accelerated tax depreciation methods, and accruals for straight-line
rents.
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 divided by
weighted average common shares outstanding during the period. Diluted earnings
per common share equals net income 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 were
exercised. All earnings per share
39
40
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts for all periods have been presented, and where appropriate, restated to
reflect these calculations.
PREDECESSOR
-----------------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED FOUR MONTHS YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 ENDED DECEMBER 31 AUGUST 31
---------- ----------- ---------- ------------------------- ----------
1999 1999 1998 1997 1996 1997
---------- ----------- ---------- ---------- ---------- ----------
(unaudited)
Weighted average shares outstanding
13,309,006 13,300,234 21,687,776 23,675,310 23,298,255 23,353,666
Effect of dilutive securities:
Employee stock options -- -- 322,335 244,164 321,936 --
---------- ----------- ---------- ---------- ---------- ----------
Weighted average shares outstanding
- assuming dilution 13,309,006 13,300,234 22,010,111 23,919,474 23,620,191 23,353,666
========== ========== ========== ========== ========== ==========
In September 1998 we announced a self-tender offer to purchase a portion of our
common stock for $5.50 per share and completed the offer on October 21, 1998. We
purchased approximately 10.5 million shares, which was 44% of our outstanding
shares, for $57.6 million. We now have approximately 13.3 million shares of
common stock outstanding, including 12.2 million shares held by Legacy.
RECLASSIFICATIONS
Certain reclassifications have been reflected in the financial statements in
order to conform with the current year presentation.
USE OF ESTIMATES
Preparing financial statements in conformity with generally accepted accounting
principles requires us to 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
turn out different than what we envisioned when we made these estimates.
STOCK-BASED COMPENSATION
We follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25), and related interpretations, in accounting
for our employee and non-employee director stock options instead of following
SFAS No. 123, "Accounting for Stock- Based Compensation." The alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. As a result, deferred compensation is
recorded only in the event that the fair market value of the stock on the date
of the option grant exceeds the exercise
40
41
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
price of the options. Since the exercise price of our stock options equals the
market price of our stock on the day the options are granted there is no related
compensation expense.
NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," and in 1999 they voted to delay the effective date of this
SFAS by one year. SFAS No. 133 establishes a new model for accounting for
derivatives and hedging activities, where all derivatives must be recognized as
assets and liabilities and measured at fair value. This statement currently has
no impact on our financial statements.
NOTE 2 - PURCHASE ACCOUNTING
On November 12, 1999, Legacy completed its exchange offer for our common stock,
acquiring approximately 91.3% of our outstanding common stock. For financial
reporting purposes, we revalued our assets as of November 12, 1999 to reflect
the price Legacy paid to acquire our common stock. This process is referred to
as purchase accounting. Our consolidated financial statements as of December 31,
1999 and for the period of November 12, 1999 through December 31, 1999 reflect
the allocation of Legacy's purchase price. The consolidated financial statements
through November 11, 1999 reflect our historical cost of assets, liabilities and
results of operations and we refer to them as predecessor consolidated financial
statements.
The following table summarizes the adjustments made to our assets and
liabilities as of November 12, 1999 in following purchase accounting as a result
of Legacy's acquisition of our common stock:
PURCHASE ACCOUNTING
ADJUSTMENTS
-------------------
Fair value adjustments to land and buildings $ 75,016
Elimination of accumulated depreciation 63,092
Elimination of deferred rents (16,678)
Other assets (9,930)
---------
Total purchase price allocated $ 111,500
=========
The following table summarizes our unaudited pro forma results of operations as
if Legacy completed its exchange offer and acquired our common stock on January
1, 1998:
41
42
NOTE 2 - PURCHASE ACCOUNTING (CONTINUED)
PRO FORMA
YEAR ENDED DECEMBER 31
----------------------------------
1999 1998
---------------- ----------------
Rental revenues $66,057 $58,805
Operating expenses 25,378 23,798
Net income 35,758 33,943
Net income applicable to common stockholders 2,495 679
Earnings per common share, basic and diluted $.19 $.03
In arriving at our pro forma results of operations, we made the following
adjustments:
- operating results for both years do not include the two properties we
sold in 1999
- depreciation and amortization expense reflect the new fair value of
properties and our adoption of Legacy's accounting policy of
depreciating properties over an estimated useful life of 40 years
instead of 25
- net income applicable to common stockholders assumes four quarterly
dividends paid to preferred stockholders in 1998 instead of one
We present pro forma information for comparative purposes only and the pro forma
information may not be indicative of our actual results of operations had Legacy
completed its exchange offer on January 1, 1998.
NOTE 3 - DISCONTINUED OPERATIONS
In August 1997, we completed a distribution of our merchandising segment and
certain other assets to PriceSmart. As a result, the financial statements for
all periods presented reflect our merchandising segment as a discontinued
operation. The results of operations and cash flows of other assets and
liabilities transferred to PriceSmart that were not part of the merchandising
segment are included in our continuing operations.
Summarized results of operations of the discontinued merchandising segment were
as follows (amounts in thousands):
42
43
NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)
FOUR MONTHS
ENDED YEAR ENDED
DECEMBER 31 AUGUST 31
---------- ----------
1996 1997
---------- ----------
(unaudited)
Sales $ 23,462 $ 59,042
Other revenues 1,611 5,487
Cost of sales (23,270) (55,948)
Operating expenses (7,286) (16,761)
Minority interest -- (59)
Income tax benefit 2,248 3,379
---------- ----------
$ (3,235) $ (4,860)
========== ==========
Discontinued operations loss per share -
basic and diluted $ (.14) $ (.21)
========== ==========
NOTE 4 - REAL ESTATE PROPERTIES
Our real estate properties are generally leased under noncancelable leases with
remaining terms ranging from one to 21 years. Rental revenues include the
following (amounts in thousands):
PREDECESSOR
---------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED FOUR MONTHS YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 ENDED DECEMBER 31 AUGUST 31
--------- ----------- --------- --------- --------- ---------
1999 1999 1998 1997 1996 1997
--------- --------- --------- --------- --------- ---------
(unaudited)
Minimum rent $ 7,088 $ 44,848 $ 48,230 $ 13,727 $ 14,358 $ 42,681
Straight-line accrual of future rent 465 2,033 2,654 828 1,024 2,499
Additional rent - cost recoveries 1,695 10,172 11,388 3,605 3,557 11,467
Percentage rent 3 363 213 10 2 191
--------- --------- --------- --------- --------- ---------
Rental revenues $ 9,251 $ 57,416 $ 62,485 $ 18,170 $ 18,941 $ 56,838
========= ========= ========= ========= ========= =========
Costco, our largest tenant, contributes 17.1% of total annual minimum rent from
four leases in 1999. Rental revenues generated from Costco were as follows
(amounts in thousands):
PREDECESSOR
--------------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED FOUR MONTHS YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 ENDED DECEMBER 31 AUGUST 31
----------- ------------ ----------- ------------------- -----------
1999 1999 1998 1997 1996 1997
----------- ------------ ----------- ------ -------- -----------
(unaudited)
Costco rental revenues $1,100 $7,200 $8,300 $2,700 $2,700 $8,100
43
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NOTE 4 - REAL ESTATE PROPERTIES (CONTINUED)
As of December 31, 1999, future minimum rental income due under the terms of all
noncancelable tenant leases is as follows (amounts in thousands):
2000 $ 48,106
2001 48,040
2002 46,755
2003 45,633
2004 45,515
After 2004 286,838
ACQUISITIONS
We acquired the following properties during 1999:
DATE PURCHASE PRICE
LOCATION DESCRIPTION ACQUIRED (000'S)
- ----------------- ------------------------- ------------ ----------------
Tucson/Marana, AZ land (future development) 1/4/99 $ 2,635
Temecula, CA land (future development) 7/16/99 12,622
We funded these acquisitions through available cash and advances under our
unsecured revolving credit facilities.
We acquired the following properties during 1998:
GROSS
DATE LEASEABLE PURCHASE
LOCATION DESCRIPTION ACQUIRED AREA(SQ.FT.) PRICE (000'S)
- ------------------------------- --------------------------- ---------- ---------- -------------
Sacramento/Bradshaw, CA office complex 5/1/98 296,900 $ 35,551
San Diego/Murphy Canyon, CA self storage facility 5/26/98 243,600 17,750
Solana Beach, CA land (future development) 6/22/98 - 3,450
San Diego/Rancho San Diego, CA retail complex 7/13/98 93,700 11,300
Fresno, CA land (contributed to joint 7/29/98 - 3,950
venture)
We funded these acquisitions through available cash, advances under our
unsecured revolving credit facilities, and by assuming a note payable in
conjunction with the San Diego/Murphy Canyon, CA self storage facility purchase.
On May 28, 1998, we announced a joint venture with River Park Properties to
develop a 173,000 square foot retail and commercial center in Fresno, CA. We own
50% of this joint venture investment. We purchased the land from PriceSmart at
the appraised value of $4.0 million and contributed the land to the joint
venture.
In December 1997 we purchased a shopping center in Roseville, CA for $23.6
million.
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45
NOTE 4 - REAL ESTATE PROPERTIES (CONTINUED)
DISPOSITIONS
During 1999 we sold the following properties:
DATE SALES PRETAX
LOCATION DESCRIPTION SOLD PRICE GAIN (LOSS)
- ----------- ------------------------ ------- -------- -----------
Buffalo, NY Retail Building (vacant) 4/1/99 $ 6,100 $1,333
Dallas, TX Shopping Center 4/22/99 26,400 3,384
We used the net proceeds from the sale of these properties to reduce the amount
outstanding on our unsecured revolving credit facility and to purchase land in
Temecula, CA.
During 1998 we sold a free-standing restaurant building at our Azusa, CA
property and recorded a $184,000 gain on the sale. We also sold a free-standing
car wash at our Northridge, CA site and recognized no gain on the sale. We
consider both of these parcels incidental to our main business.
We sold no properties during the four months ended December 31, 1997. During the
year ended August 31, 1997 we sold certain significant real estate properties to
unrelated parties and recognized related gains or losses on dispositions, as
shown in the following table. In addition, we recognized $644,000 of net gains
during the year ended August 31, 1997 on sales of insignificant real estate
properties. In conjunction with the PriceSmart distribution, we transferred all
remaining properties held for sale to PriceSmart (amounts in thousands).
DATE SALES PRETAX
LOCATION DESCRIPTION SOLD PRICE GAIN (LOSS)
- ---------------------------- ------------------ -------- ------- -----------
YEAR ENDED AUGUST 31, 1997
Santee, CA warehouse building 12/6/96 $3,187 $ 17
Schaumburg, IL undeveloped land 12/10/96 6,865 802
Houston, TX retail building 5/29/97 6,000 (352)
NOTE 5 - CREDIT FACILITIES AND NOTE PAYABLE
Our revolving credit facility activity consists of the following:
- - In December 1998 we obtained a $100 million unsecured credit facility with
Wells Fargo Bank, AmSouth Bank and Bank One. This facility has a term of
three 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
December 31, 1999, we owed $88.4 million on this credit facility at a
weighted average interest rate of 7.85%.
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46
NOTE 5 - CREDIT FACILITIES AND NOTE PAYABLE (CONTINUED)
- - In January 1999 we repaid $25 million on our credit facility with Morgan
Guaranty Trust Company and amended the facility to reduce our maximum
principal amount of borrowing from $50 million to $25 million. In September
1999 we repaid the remaining $25 million we owed and terminated this
facility. We repaid these amounts through advances on our unsecured credit
facility with Wells Fargo Bank, AmSouth Bank and Bank One.
In conjunction with the San Diego/Murphy Canyon, CA self storage facility
purchase in May 1998, we assumed an existing $8.9 million note secured by the
property. The note, payable to a financial institution, matures in July 2004 and
bears an interest rate of 9.0%. Prepayment of the note may not occur prior to
July 2001.
The amount of secured debt that becomes due in each of the next five years is as
follows (amounts in thousands):
2000 $ 76
2001 84
2002 91
2003 100
2004 8,490
NOTE 6 - RELATED PARTY TRANSACTIONS
Following Legacy's completion of its exchange offer, Gary B. Sabin, Chairman,
President and Chief Executive Officer of Legacy, became our Company's President
and Chief Executive Officer, and certain other Legacy executives became our
Company's executives. Legacy also took over daily management of our Company,
including property management, finance and administration and our self storage
business. We reimburse Legacy for these services. We expensed $249,000 for these
services during the period of November 12, 1999 through December 31, 1999 which
was based on our historical costs for similar expenses.
Because of the PriceSmart distribution and for the purpose of governing certain
of the ongoing relationships between PriceSmart and PEI after the distribution,
and to provide for an orderly transition, PriceSmart and PEI entered into
various agreements as described below.
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NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
Our Company and PriceSmart entered into an Asset Management and Disposition
Agreement in August 1997 for us to provide asset management services for certain
properties distributed to PriceSmart. PriceSmart pays us management fees,
leasing fees, disposition fees and developer's fees for providing these
services. This agreement has a two-year term; provided that either the Company
or PriceSmart may terminate the agreement with 60 days written notice. During
1998, we charged PriceSmart $201,000 for asset management services and $43,000
during the four months ending December 31, 1997.
We also entered into a Tax Sharing Agreement with PriceSmart in August 1997
defining rights and obligations with respect to tax returns and tax liabilities
for taxable years and other taxable periods ending on or before August 31, 1997.
In general, we will be responsible for (i) filing all Federal and state income
tax returns of our Company, PriceSmart and any of their subsidiaries for all
taxable years ending on or before or including August 31, 1997 and (ii) paying
the taxes relating to these returns (or be entitled to tax refunds) to the
extent attributable to pre-August 31, 1997 periods.
PriceSmart leases space from us for its corporate offices in San Diego. The
lease expires August 31, 2001. In 1999 we recorded $647,000 in revenue related
to this lease, $590,000 in 1998 and $158,000 in revenue during the four months
ended December 31, 1997.
In July 1998 we acquired approximately 15 acres of land in Fresno, CA from
PriceSmart for $4.0 million.
In May 1998, we acquired an office complex in Sacramento, CA for $35.6 million.
We acquired the property from Ivanhoe-Bradshaw, L.L.C. (Ivanhoe-Bradshaw), a
company controlled by Sol Price. In addition, James F. Cahill, a member of our
Board of Directors, served as Manager of Ivanhoe-Bradshaw and previously held
membership interests in Ivanhoe-Bradshaw.
NOTE 7 - PROFIT SHARING AND 401(k) PLAN
Substantially all of our employees participate in a defined contribution profit
sharing and 401(k) plan. Profit sharing contributions, if any, are based on a
discretionary amount determined by our Board of Directors and we allocate
contributions to each participant
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48
NOTE 7 - PROFIT SHARING AND 401(k) PLAN (CONTINUED)
based on their relative compensation, subject to certain limitations, to the
compensation of all participants. We make these contributions annually. We also
make a matching 401(k) contribution equal to 50% of each participant's
contribution up to an annual maximum matching contribution of $250.
We contributed the following amounts to our profit sharing and 401(k) plan
(amounts in thousands):
PREDECESSOR
--------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 AUGUST 31
----------- ------------ ----------- ----------
1999 1999 1998 1997
----------- ------------ ----------- ----------
Profit Sharing --- $119 $117 $490
401(k) --- 8 7 29
NOTE 8 - STOCK OPTION PLANS
In 1995, we established an Employee Stock Option and Stock Grant Plan and a
Director Stock Option Plan and we may grant stock options to any employee or
director under these two plans. We reserved 1,500,000 shares for issuance under
the employee plan and 150,000 for issuance under the director plan. The director
plan was amended on October 1, 1997. Options generally vest over five years and
expire six years after the grant date. Once exercisable, the employee or
director can purchase shares of our stock at the market price on the date we
granted the option. Subsequent to August 31, 1997, and as a direct result of the
PriceSmart distribution, we adjusted all outstanding options, both in quantity
and exercise price, so each optionee remained in the same economic position as
before the distribution. We made an equitable adjustment by issuing 54,352
additional stock options to compensate for a reduction in our stock price
because of the PriceSmart distribution.
In August 1998 we distributed one share of Series A Preferred Stock for every
share of common stock outstanding. Subsequent to this distribution our common
stock began trading at a significantly reduced price. In order to put optionees
with outstanding stock options in the same position as common stockholders of
the Company after the distribution, each optionee was granted the right to
receive one share of preferred stock upon the exercise of a share of common
stock. This right was granted instead of adjusting the exercise price or
quantity of common stock options outstanding. This right is triggered by the
exercise of the common stock option and the optionee may not
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49
NOTE 8 - STOCK OPTION PLANS (CONTINUED)
exercise options in the common or preferred stock independently. We amended both
stock option plans in August 1998 to allow for this change.
In connection with Legacy's exchange offer for our common stock, all options and
rights to purchase our common stock and our preferred stock became fully vested
and exercisable upon the closing of the exchange offer. Additionally, all
options to purchase our Company's common stock were canceled. Each outstanding
option which represents the right to purchase a share of both our common stock
and our preferred stock was modified so that the holder:
- was paid by Legacy an amount in cash determined by multiplying:
- the excess, if any, of $8.50 over an amount equal to 22.7% of the
applicable exercise price of such option (rounded to the nearest
whole cent), by
- the number of shares of common stock subject to the option, and
- received a replacement option to purchase shares of our preferred stock,
exercisable on the same terms and conditions as the surrendered right to
purchase the same number of shares of our preferred stock at an exercise
price equal to 77.3% of the applicable exercise price of the option
(rounded to the nearest whole cent); except that the option received in
exchange will be fully exercisable and vested and will not expire for a
period ending upon the earlier of:
- two years following the closing of the exchange offer or such longer
period as may be applicable to holders who remain employed by us or
Legacy after the exchange offer, or
- such time as no shares of our preferred stock remain outstanding, at
which time the option will represent the right to receive the
redemption price for our preferred stock.
You will see in the following table the activity in the common stock options and
related weighted average exercise price per share. The quantity of stock options
granted, exercised and cancelled reflect only common stock options. In order to
make this disclosure more meaningful, we have reflected the weighted average
exercise price per share as a prorated price based on the relative value of the
common stock and the
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50
NOTE 8 - STOCK OPTION PLANS (CONTINUED)
preferred stock. We used the closing prices on the first day of trading of the
preferred stock, where the common stock closed at $4.38, or 22.7%, and the
preferred closed at $14.87, or 77.3%, of the total of $19.25.
The following table summarizes the activity for both plans:
WEIGHTED AVERAGE
STOCK EXERCISE PRICE
OPTIONS PER SHARE
----------- -----------------
Outstanding at August 31, 1996 1,043,765 $12.35
Granted 11,900 21.67
Exercised (342,880) 12.12
Canceled (446,776) 12.78
-----------
Outstanding at August 31, 1997 266,009 12.34
Adjustment and revaluation resulting from distribution
of PriceSmart 54,352
-----------
Adjusted outstanding at August 31, 1997 320,361 10.25
Granted 476,329 18.87
Exercised (98,383) 9.19
Canceled (45,312) 11.55
-----------
Outstanding at December 31, 1997 652,995 16.60
Granted 68,750 4.60
Exercised (23,397) 10.43
Canceled (13,500) 18.75
-----------
Outstanding at December 31, 1998 684,848 3.89
Granted 0 --
Exercised (655) 4.26
Canceled (684,193) 4.12
-----------
Outstanding at November 11, 1999 -- --
============
As we stated in Note 1, we follow the provisions for APB No. 25, "Accounting for
Stock Issued to Employees." In 1997 we implemented the disclosure provisions
required by SFAS No. 123, "Accounting for Stock-Based Compensation" for our
stock option plans. SFAS No. 123 requires pro forma net income and earnings per
share information, which is calculated assuming we had accounted for our stock
option plans under the "fair value" method described in that statement. The
effect of applying SFAS No. 123's fair value method to our stock-based awards
results in net income and earnings per share that are not materially different
from amounts reported.
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51
NOTE 8 - STOCK OPTION PLANS (CONTINUED)
Because our transaction with Legacy resulted in the vesting of preferred stock
options, we expensed $0.9 million during the period from January 1 through
November 11, 1999 as required by generally accepted accounting principles. The
amount is included in merger related costs. At year end 669,848 options of
preferred stock remained outstanding at a weighted average exercise price of
$13.16 per share. The exercise price of the outstanding options of preferred
stock ranges from $7.03 to $15.37 per share with an average life of two years.
NOTE 9 - INCOME TAXES
Because we have operated as a REIT since September 1997, there is no Federal
income tax expense for 1999, 1998 or the transition period ended December 31,
1997. The income tax benefit recorded in the four months ending December 31,
1997 is a result of our previously deferred tax liability being eliminated
because of our conversion to a REIT as well as income tax refunds receivable
that are a result of Federal tax net operating loss carrybacks. The provision
(benefit) for income taxes for the years prior to our conversion to a REIT
consists of the following (amounts in thousands):
FOUR MONTHS ENDED YEAR ENDED
DECEMBER 31 AUGUST 31
------------------------ --------
1997 1996 1997
-------- -------- --------
(unaudited)
Current:
Federal $ (970) $ 1,709 $ (655)
State -- 293 (432)
-------- -------- --------
(970) 2,002 (1,087)
Allocated to discontinued operations -- 835 2,301
-------- -------- --------
(970) 2,837 1,214
Deferred:
Federal (5,451) 874 8,509
State (1,209) 150 2,462
-------- -------- --------
(6,660) 1,024 10,971
Allocated to discontinued operations -- 1,413 1,078
-------- -------- --------
(6,660) 2,437 12,049
Provision (benefit) for income tax- continuing operations $ (7,630) $ 5,274 $ 13,263
======== ======== ========
A reconciliation between the Federal statutory rate and the effective tax rate
follows (amounts in thousands):
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NOTE 9 - INCOME TAXES (CONTINUED)
FOUR MONTHS ENDED YEAR ENDED
DECEMBER 31 AUGUST 31
---------------------- --------
1997 1996 1997
------- ------- -------
Federal taxes at the statutory rate $ 3,457 $ 4,502 $11,322
State taxes, net of Federal benefit 593 772 1,941
------- ------- -------
4,050 5,274 13,263
Deduction for dividends paid (4,050) -- --
Adjustment due to change in tax status (7,630) -- --
------- ======= =======
Total provision (benefit) $(7,630) $ 5,274 $13,263
======= ======= =======
The significant components of deferred income taxes are attributable to the
following temporary differences (amounts in thousands):
AUGUST 31
----------
1997
----------
Deferred tax assets:
Real estate properties $ ---
All other, net 1,214
--------
1,214
Deferred tax liabilities:
Deferred rental income (5,128)
Real estate properties (2,746)
--------
(7,874)
--------
Net deferred tax assets (liabilities) $(6,660)
========
NOTE 10 - STOCKHOLDERS' EQUITY
On August 17, 1998, we distributed to stockholders of record on July 30, 1998,
one share of newly created 8_% Series A Cumulative Redeemable Preferred Stock,
par value $.0001, for each share of common stock held by them on the record
date. We raised no capital through this transaction. The Series A Preferred
Stock pays quarterly dividends at a rate of $1.40 per year and has a $16.00 per
share liquidation preference. Prior to the distribution of Series A Preferred
Stock, we paid dividends on our common stock. Beginning with our November 1998
dividend payment, annual dividends of $1.40 per share will be paid on the Series
A Preferred Stock. Any dividends required to be paid in excess of $1.40 will be
paid to our common stockholders. We have the right to redeem the Series A
Preferred Stock anytime after August 16, 2003 at a redemption price of $16.00
per share plus accrued and unpaid dividends, if any. Holders of the Series A
Preferred Stock have one-tenth of one vote per share, voting together with our
common stock.
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NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)
The total market value of the Series A Preferred Stock is based on the closing
price on its first day of trading and is shown on the balance sheet as Series A
Preferred Stock. We reduced additional paid in capital by the Series A Preferred
Stock's value to reflect our change in capital structure.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Our Company owns a property in New Jersey with a ground lease that has a
remaining term of 20 years with three 15-year options to renew. Rent expense
related to the ground lease is summarized below (amounts in thousands):
PREDECESSOR
--------------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1
THROUGH THROUGH YEAR ENDED FOUR MONTHS YEAR ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 ENDED DECEMBER 31 AUGUST 31
------------- ------------- ------------- ----------------------- -------------
1999 1999 1998 1997 1996 1997
------------- ------------- ------------- ----------- ---------- -------------
Ground lease rent expense $103 $652 $800 $300 $800 $1,700
Prior years' rental expense included additional leases which we either
transferred to PriceSmart in the distribution or terminated. Future minimum
payments during the next five years and thereafter under this noncancelable
lease at December 31, 1999 are as follows (amounts in thousands):
2000 $ 754
2001 754
2002 754
2003 754
2004 754
After 2004 12,384
--------
Total minimum payments $16,154
========
The above property is subleased and as of year end total future sublease
revenues are $9.3 million, which are included in future minimum rental income
amounts in Note 3.
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is an unaudited summary of our quarterly results for the last two
years (amounts in thousands, except per share data):
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NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
PREDECESSOR
---------------------------------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 1 NOVEMBER 12
FIRST SECOND THIRD THROUGH THROUGH
QUARTER QUARTER QUARTER NOVEMBER 11 DECEMBER 31
-------- -------- -------- -------- --------
YEAR ENDED DECEMBER 31, 1999
Revenues $ 17,427 $ 16,854 $ 15,603 $ 7,532 $ 9,251
Operating income 8,894 8,702 8,031 3,994 5,523
Net income 7,370 12,260 6,777 1,567 4,697
Earnings per common share
Basic (.07) .30 (.12) (.51) .35
Diluted (.07) .29 (.12) (.51) .35
PREDECESSOR
-------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------- ------------- ------------
YEAR ENDED DECEMBER 31, 1998
Revenues $14,486 $15,287 $15,915 $16,797
Operating income 7,408 7,836 8,409 7,740
Net income 7,795 7,689 7,536 6,409
Earnings per common share
Basic and diluted .33 .32 .32 (.12)
NOTE 13 - SUBSEQUENT EVENTS
In February 2000 we loaned $2.8 million to Barclay Group No. 9, Ltd. The loan,
secured by a property in Pueblo, CO, pays 25% interest and matures December
2000.
In February 2000 we purchased a retail building in Middletown, OH from Legacy
for $6.7 million, paying $3.0 million cash and assuming a $3.7 million mortgage
secured by the property.
In February 2000 we purchased a retail building in Terre Haute, IN from Legacy
for $5.8 million, paying $2.2 million cash and assuming a $3.6 million mortgage
secured by the property.
In February 2000 we purchased an office building in San Diego, CA from Legacy
for $16.0 million, paying $5.0 million cash and assuming an $11.0 million
construction loan secured by the property.
In February 2000 we amended our unsecured credit facility with Wells Fargo Bank,
BankOne and AmSouth Bank by increasing the facility from $100 million to $125
million by adding BankBoston into the group of banks.
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Price Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Price
Enterprises, Inc. as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the period
from November 12, 1999 through December 31, 1999, period from January 1, 1999
through November 11, 1999, year ended December 31, 1998, period from September
1, 1997 through December 31, 1997 and for the year ended August 31, 1997. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Price Enterprises,
Inc. at December 31, 1999 and 1998 and the consolidated results of their
operations and their cash flows for the period from November 12, 1999 through
December 31, 1999, period from January 1, 1999 through November 11, 1999, year
ended December 31, 1998, period from September 1, 1997 through December 31,
1997, and for the year ended August 31, 1997, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
San Diego, California
January 21, 2000, except for Note 13, as to which the date is February 29, 2000
55
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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Note that in this Form 10-K, we "incorporate by reference" certain information
in parts of other documents filed with the Securities and Exchange Commission
(SEC). The SEC allows us to disclose important information by referring to it in
that manner. Please refer to such information.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about Directors of the Company is incorporated by reference from the
discussion under the heading Enterprises' Directors and Officers in our Proxy
Statement for the 2000 Annual Meeting of Stockholders. The balance of the
response to this item is contained in the discussion entitled Executive Officers
of the Company contained in Item 4A of Part I of this report.
ITEM 11 - EXECUTIVE COMPENSATION
Information about executive compensation is incorporated by reference from the
discussion under the heading Executive Compensation in our Proxy Statement for
the 2000 Annual Meeting of Stockholders.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about security ownership of certain beneficial owners and management
is incorporated by reference from the discussion under the heading Securities
Ownership of Certain Beneficial Owners and Management in our Proxy Statement for
the 2000 Annual Meeting of Stockholders.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and transactions with related parties is
incorporated by reference from the discussion under the heading certain
relationships and related transactions in our proxy statement for the 2000
annual meeting of stockholders.
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of Financial Statements and Financial Statement Schedules:
The following consolidated financial statements of Price Enterprises,
Inc. are included in Item 8
Page
----
(1) (A) Report of Independent Auditors 49
(b) Consolidated Financial Statements
(i) Consolidated Balance Sheets - December 31, 1999 and 1998 31
(ii) Consolidated Statements of Operations - Period
from November 12 through December 31,
1999, Period from January 1 through November
11, 1999, Year Ended December 31, 1998, Four
Months Ended December 31, 1997 and 1996 and
the Year Ended August 31, 1997 32
(iii) Consolidated Statements of Stockholders'
Equity - Period from November 12 through
December 31, 1999, Period from January 1
through November 11, 1999, Year Ended
December 31, 1998, Four Months Ended December
31, 1997 and the Year Ended August 31, 1997 33
(iv) Consolidated Statements of Cash Flows -
Period from November 12 through December 31,
1999, Period from January 1 through November
11, 1999, Year Ended December 31, 1998, Four
Months Ended December 31, 1997 and 1996 and
the Year Ended August 31, 1997 34
(v) Notes to Consolidated Financial Statements 35
(2) Financial Statement Schedules:
The following consolidated financial statement schedules of Price Enterprises,
Inc. is included in Item 14(d)
Schedule II - Valuation and Qualifying Accounts 59
Schedule III - Real Estate and Accumulated Depreciation 61
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58
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(b) Reports on Form 8-K.
We filed a report on Form 8-K with respect to Item 1 thereof on
November 15, 1999, relating to the acquisition of approximately
91.3% of our common stock by Legacy as a result of the
consummation by Legacy of an exchange offer for our common stock.
We did not file any other reports on Form 8-K during the quarter
ended December 31, 1999.
(c) Exhibits: For a list of exhibits filed with this annual report,
refer to the exhibit index beginning on page 64.
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59
PRICE ENTERPRISES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
PREDECESSOR
------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 12 JANUARY 1 FOUR MONTHS
THROUGH THROUGH YEAR ENDED ENDED
DECEMBER 31 NOVEMBER 11 DECEMBER 31 DECEMBER 31
--------- --------- --------- ---------
Allowance for Uncollectible Accounts 1999 1999 1998 1997
- ---------------------------------- --------- --------- --------- ---------
Balance at beginning of period $ 154 $ 339 $ 502 $ --
Additions
Charged to bad debt expense (83) (51) 580 502
Deductions
Accounts receivable written off -- (134) (743) --
--------- --------- --------- ---------
Balance at end of period $ 71 $ 154 $ 339 $ 502
========= ========= ========= =========
For periods prior to the one ending December 31, 1997, this calculation is not
applicable for our Company
59
60
Initial Costs Costs
-------------------------------- Capitalized
Land and Building and Subsequent
Location (2) Description Improvements Improvements To Acquisition
- --------------------------------------------------------------------------------------------------------------------------------
Westbury, NY Shopping Center $ 41,784 $ 0 $ 43,875
Pentagon City, VA Shopping Center 24,742 14,473 33,765
Wayne, NJ Shopping Center 19,760 6,912 20,475
Sacramento/Bradshaw, CA Office Complex 4,220 31,403 5,608
Philadelphia, PA Shopping Center 8,649 4,382 18,558
San Diego, CA Warehouse/Office Building/Self Storage 5,244 7,990 16,014
Signal Hill, CA Shopping Center 5,872 0 21,899
Roseville, CA Shopping Center 9,173 8,165 8,527
San Diego/Murphy Canyon, CA Self Storage 9,274 8,575 5,801
Fountain Valley, CA Shopping Center 4,551 0 13,167
Glen Burnie, MD Shopping Center 1,795 0 13,227
Seekonk, MA Shopping Center 7,636 0 6,818
Temecula, CA Land 12,622 0 918
San Diego/Rancho San Diego, CA Shopping Center 4,424 6,889 1,967
Azusa, CA Warehouse/Self Storage 4,248 896 5,716
San Diego/Carmel Mtn., CA Shopping Center 3,464 0 6,710
Solana Beach, CA Self Storage 2,324 1,227 4,874
Northridge, CA Shopping Center 4,029 0 3,673
Inglewood, CA Warehouse Building 1,438 0 5,389
San Juan Capistrano, CA Shopping Center 3,150 0 3,114
Moorsetown, NJ (leased land) Shopping Center Leased 0 6,250
Smithtown, NY Retail Building 721 0 4,646
Sacramento/Stockton, CA Shopping Center 1,437 0 3,379
Hampton, VA Retail Building/Bank 1,132 0 3,497
Tucson, AZ Shopping Center 1,073 0 3,236
Redwood City, CA Retail Building 1,860 0 2,354
New Britain, CT Warehouse Building 3,640 0 380
Tucson/Marana, AZ Land 2,635 0 247
Denver/Littleton, CO Retail Building 607 847 591
Denver/Aurora, CO Restaurant 105 0 1,531
San Diego/Southeast, CA Restaurant/Bank 217 0 1,299
Chula Vista/Rancho del Rey, CA Land 915 0 (200)
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Properties $192,741 $91,759 $267,305
================================================================================================================================
Gross amount at which carried
at close of period
--------------------------------------------
Land and Building and
Location (2) Description Improvements Improvements Total (1)
- ----------------------------------------------------------------------------------------------------------------------
Westbury, NY Shopping Center $ 56,956 $ 28,703 $ 85,659
Pentagon City, VA Shopping Center 29,576 43,404 72,980
Wayne, NJ Shopping Center 26,524 20,623 47,147
Sacramento/Bradshaw, CA Office Complex 4,878 36,353 41,231
Philadelphia, PA Shopping Center 10,640 20,949 31,589
San Diego, CA Warehouse/Office Building/Self Storage 6,971 22,277 29,248
Signal Hill, CA Shopping Center 14,267 13,504 27,771
Roseville, CA Shopping Center 7,641 18,224 25,865
San Diego/Murphy Canyon, CA Self Storage 10,422 13,228 23,650
Fountain Valley, CA Shopping Center 8,039 9,679 17,718
Glen Burnie, MD Shopping Center 5,248 9,774 15,022
Seekonk, MA Shopping Center 6,550 7,904 14,454
Temecula, CA Land 12,736 804 13,540
San Diego/Rancho San Diego, CA Shopping Center 5,165 8,115 13,280
Azusa, CA Warehouse/Self Storage 4,539 6,321 10,860
San Diego/Carmel Mtn., CA Shopping Center 5,518 4,656 10,174
Solana Beach, CA Self Storage 2,648 5,777 8,425
Northridge, CA Shopping Center 4,590 3,112 7,702
Inglewood, CA Warehouse Building 2,205 4,622 6,827
San Juan Capistrano, CA Shopping Center 2,879 3,385 6,264
Moorsetown, NJ (leased land) Shopping Center 0 6,250 6,250
Smithtown, NY Retail Building 2,409 2,958 5,367
Sacramento/Stockton, CA Shopping Center 2,311 2,505 4,816
Hampton, VA Retail Building/Bank 2,248 2,381 4,629
Tucson, AZ Shopping Center 1,999 2,310 4,309
Redwood City, CA Retail Building 4,214 0 4,214
New Britain, CT Warehouse Building 2,230 1,790 4,020
Tucson/Marana, AZ Land 2,635 247 2,882
Denver/Littleton, CO Retail Building 620 1,425 2,045
Denver/Aurora, CO Restaurant 377 1,259 1,636
San Diego/Southeast, CA Restaurant/Bank 427 1,089 1,516
Chula Vista/Rancho del Rey, CA Land 715 - 715
- ----------------------------------------------------------------------------------------------------------------------
Total Investment Properties $248,177 $303,628 $551,805
======================================================================================================================
Accumulated Date of Date of
Location (2) Description Depreciation Construction Acquisition
- ------------------------------------------------------------------------------------------------------------------------
Westbury, NY Shopping Center $ (120) 1992-93 1992
Pentagon City, VA Shopping Center (188) 1993-94 1993
Wayne, NJ Shopping Center (87) 1991-93 1991
Sacramento/Bradshaw, CA Office Complex (167) 1998
Philadelphia, PA Shopping Center (86) 1992,1994-95 1991
San Diego, CA Warehouse/Office Building/Self Storage (96) 1981
Signal Hill, CA Shopping Center (57) 1992-93 1991
Roseville, CA Shopping Center (74) 1997
San Diego/Murphy Canyon, CA Self Storage (59) 1998
Fountain Valley, CA Shopping Center (40) 1990-93 1989
Glen Burnie, MD Shopping Center (41) 1990-92 1985
Seekonk, MA Shopping Center (28) 1991-94 1991
Temecula, CA Land 0 1999
San Diego/Rancho San Diego, CA Shopping Center (34) 1998
Azusa, CA Warehouse/Self Storage (29) 1983, 1998 1983
San Diego/Carmel Mtn., CA Shopping Center (19) 1992-93 1991
Solana Beach, CA Self Storage (27) 1998 1998
Northridge, CA Shopping Center (13) 1993-94 1988
Inglewood, CA Warehouse Building (19) 1989 1984
San Juan Capistrano, CA Shopping Center (14) 1988-89, 94-95 1987
Moorsetown, NJ (leased land) Shopping Center (48) 1989-91 1989
Smithtown, NY Retail Building (12) 1988-89 1985
Sacramento/Stockton, CA Shopping Center (10) 1994-95 1993
Hampton, VA Retail Building/Bank (10) 1992 1987
Tucson, AZ Shopping Center (10) 1989-91 1988
Redwood City, CA Retail Building 0 1982
New Britain, CT Warehouse Building (7) 1991
Tucson/Marana, AZ Land 0 1999
Denver/Littleton, CO Retail Building (6) 1990
Denver/Aurora, CO Restaurant (5) 1993 1990
San Diego/Southeast, CA Restaurant/Bank (4) 1989-90 1989
Chula Vista/Rancho del Rey, CA Land 0 1993
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Properties $(1,310)
========================================================================================================================
Depreciable Life
---------------------------------------------
Land Building
Location (2) Description Improvements Building Improvements
- -----------------------------------------------------------------------------------------------------------------------
Westbury, NY Shopping Center 40 40 10
Pentagon City, VA Shopping Center 40 40 10
Wayne, NJ Shopping Center 40 40 10
Sacramento/Bradshaw, CA Office Complex 40 40 10
Philadelphia, PA Shopping Center 40 40 10
San Diego, CA Warehouse/Office Building/Self Storage 40 40 10
Signal Hill, CA Shopping Center 40 40 10
Roseville, CA Shopping Center 40 40 10
San Diego/Murphy Canyon, CA Self Storage 40 40 10
Fountain Valley, CA Shopping Center 40 40 10
Glen Burnie, MD Shopping Center 40 40 10
Seekonk, MA Shopping Center 40 40 10
Temecula, CA Land - - -
San Diego/Rancho San Diego, CA Shopping Center 40 40 10
Azusa, CA Warehouse/Self Storage 40 40 10
San Diego/Carmel Mtn., CA Shopping Center 40 40 10
Solana Beach, CA Self Storage 40 40 10
Northridge, CA Shopping Center 40 40 10
Inglewood, CA Warehouse Building 40 40 10
San Juan Capistrano, CA Shopping Center 40 40 10
Moorsetown, NJ (leased land) Shopping Center 40 40 10
Smithtown, NY Retail Building 40 40 10
Sacramento/Stockton, CA Shopping Center 40 40 10
Hampton, VA Retail Building/Bank 40 40 10
Tucson, AZ Shopping Center 40 40 10
Redwood City, CA Retail Building - - -
New Britain, CT Warehouse Building 40 40 10
Tucson/Marana, AZ Land - -
Denver/Littleton, CO Retail Building 40 40 10
Denver/Aurora, CO Restaurant 40 40 10
San Diego/Southeast, CA Restaurant/Bank 40 40 10
Chula Vista/Rancho del Rey, CA Land - - -
- --------------------------------------------------------------------------------------------------------------------------
Total Investment Properties
==========================================================================================================================
(1) The aggregate cost for Federal income tax purposes is $460,438
(2) Does not include our investment in a joint venture which owns a retail
center in Fresno, CA
61
61
PRICE ENTERPRISES, INC.
SCHEDULE III (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
FOUR MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 AUGUST 31
--------- --------- --------- ---------
RECONCILIATION TO REPORTED AMOUNTS 1999 1998 1997 1997
--------- --------- --------- ---------
PROPERTY AND EQUIPMENT
Balance at beginning of period .................. $ 475,292 $ 399,011 $ 380,145(2) $ 436,672
Additions during the period:
Purchases .................................. 31,218 78,781 18,866 2,720
Deductions during the period:
Cost of properties sold .................... (29,721) (2,500) -- (35,741)
Asset impairment loss ...................... -- -- -- (2,000)
--------- --------- --------- ---------
Subtotal .............................. 476,789 475,292 399,011 401,651
Other:
Purchase accounting adjustment to fair value 75,016 -- -- --
Property and equipment transferred
to PriceSmart ......................... -- -- -- (21,506)
FF&E ....................................... 394 581 242 203
--------- --------- --------- ---------
Balance at end of period ........................ $ 552,199 $ 475,873 $ 399,253 $ 380,348
========= ========= ========= =========
ACCUMULATED DEPRECIATION
Balance at beginning of period .................. $ 57,174 $ 46,089 $ 43,131(2) $ 43,991
Depreciation expense ............................ 11,396(1) 11,085 2,958 9,347
Accumulated depreciation of properties sold ..... (4,168) -- -- (7,589)
--------- --------- --------- ---------
Subtotal .............................. 64,402 57,174 46,089 45,749
Other:
Purchase accounting adjustment to fair value (63,092) -- -- --
Accumulated depreciation of property and
equipment transferred to PriceSmart ... -- -- -- (2,618)
Accumulated depreciation of FF&E ........... 20 192 108 78
--------- --------- --------- ---------
Balance at end of period ........................ $ 1,330 $ 57,366 $ 46,197 $ 43,209
========= ========= ========= =========
(1) Combined depreciation expense for the periods January 1 through November
11 and November 12 through December 31, 1999
(2) Adjusted for property and equipment transferred to PriceSmart
62
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: March 28, 2000 By: /s/ Gary B. Sabin
-------------- ---------------------------------
Gary B. Sabin
President and
Chief Executive Officer
DATED: March 28, 2000 By: /s/ James Y. Nakagawa
-------------- ---------------------------------
James Y. Nakagawa
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Jack McGrory March 28, 2000
- ---------------- --------------
JACK McGRORY, Chairman of the Board of Date
Directors
/s/ Gary B. Sabin March 28, 2000
- ----------------- --------------
GARY B. SABIN, Director, President, Date
and Chief Executive Officer
/s/ Richard B. Muir March 28, 2000
- ------------------- --------------
RICHARD B. MUIR, Director, Executive Vice Date
President and Chief Operating Officer
/s/ James F. Cahill March 28, 2000
- ------------------- --------------
JAMES F. CAHILL, Director Date
/s/ Simon M. Lorne March 28, 2000
- ------------------ --------------
Simon M. Lorne, Director Date
63
63
EXHIBIT INDEX
PAGE DESCRIPTION
- ---- -----------
2.1 Distribution Agreement dated as of August 26, 1997 between Price
Enterprises, Inc. and PriceSmart, Inc. (incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K of Price Enterprises, Inc.
filed with the Commission on September 12, 1997 (File No. 0-20449))
3.1 Articles of Incorporation of Price Enterprises, Inc. (incorporated by
reference to Exhibit 3.1 to Transition Report on Form 10-K of Price
Enterprises, Inc. filed with the Commission on March 27, 1998 (File No.
0-20449))
3.2 Articles Supplementary of Price Enterprises, Inc. (incorporated by
reference to Exhibit 3.2 to Registration Statement on Form 8-A of Price
Enterprises, Inc. filed with the Commission on August 7, 1998 (File No.
0-20449))
3.3 Bylaws of Price Enterprises, Inc. (incorporated by reference to Exhibit
3.2 to Transition Report on Form 10-K of Price Enterprises, Inc. filed
with the Commission on March 27, 1998 (File No. 0-20449))
10.1 Employee Benefits and Other Employment Matters Allocation Agreement
dated as of August 26, 1997 between Price Enterprises, Inc. and
PriceSmart, Inc. (incorporated by reference to Exhibit 10.1 to Current
Report on Form 8-K of Price Enterprises, Inc. filed with the Commission
on September 12, 1997 (File No. 0-20449))
10.2 Tax Sharing Agreement dated as of August 26, 1997 between Price
Enterprises, Inc. and PriceSmart, Inc. (incorporated by reference to
Exhibit 10.2 to Current Report on Form 8-K of Price Enterprises, Inc.
filed with the Commission on September 12, 1997 (File No. 0-20449))
10.3 Asset Management Agreement dated as of August 26, 1997 between Price
Enterprises, Inc. and PriceSmart, Inc. (incorporated by reference to
Exhibit 10.3 to Current Report on Form 8-K of Price Enterprises, Inc.
filed with the Commission on September 12, 1997 (File No. 0-20449))
10.4 Transitional Services Agreement dated as of August 26, 1997 between
Price Enterprises Inc. and PriceSmart, Inc. (incorporated by reference
to Exhibit 10.4 to Current Report on Form 8-K of Price Enterprises, Inc.
filed with the Commission on September 12, 1997 (File No. 0-20449))
10.5 Employment Agreement dated June 18, 1997, by and between Price
Enterprises, Inc. and Jack McGrory (incorporated by reference to Exhibit
10.5 to Transition Report on Form 10-K of Price Enterprises, Inc. filed
with the Commission on March 27, 1998 (File No. 0-20449))
10.6 Amendment No. 1 to Employment Agreement dated as of August 27, 1997, by
and between Price Enterprises, Inc. and Jack McGrory (incorporated by
reference to Exhibit 10.6 to Transition Report on Form 10-K of Price
Enterprises, Inc. filed with the Commission on March 27, 1998 (File No.
0-20449))
10.7 Form of Indemnity Agreement (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 filed with the Commission on May 14, 1998 (File No.
0-20449))
10.8 Revolving Credit Agreement dated as of December 3, 1998 among the
Company, and Wells Fargo Bank, National Association, as Agent
(incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K
of Price Enterprises, Inc. filed with the Commission on March 29, 1999
(File No. 0-20449))
64
64
10.9 Form of Promissory Note under Revolving Credit Agreement as amended and
schedule of notes signed, dates, banks and amounts (incorporated by
reference to Exhibit 10.10 to Annual Report on Form 10-K of Price
Enterprises, Inc. filed with the Commission on March 29, 1999 (File No.
0-20449))
10.10 Form of Guaranty between Price Enterprises, Inc. and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 10.11 to
Annual Report on Form 10-K of Price Enterprises, Inc. filed with the
Commission on March 29, 1999 (File No. 0-20449))
10.11 First Amendment to Revolving Credit Agreement and Loan Documents dated
as of December 29, 1998 among the Company, Wells Fargo Bank, National
Association, as a Lender (the "Original Lender"), BankOne, Arizona, NA,
AmSouth Bank, and Wells Fargo Bank, National Association, as Agent
(incorporated by reference to Exhibit 10.12 to Annual Report on Form
10-K of Price Enterprises, Inc. filed with the Commission on March 29,
1999 (File No. 0-20449))
10.12 Pro rata share of lenders participating in Amended Revolving Credit
Agreement dated as of December 29, 1998 among the Company, Wells Fargo
Bank, National Association, BankOne, Arizona, NA, AmSouth Bank and Wells
Fargo Bank, NA, as agent (incorporated by reference to Exhibit 10.13 to
Annual Report on Form 10-K of Price Enterprises, Inc. filed with the
Commission on March 29, 1999 (File No. 0-20449))
10.13 Amendment No. 2 to Employment Agreement dated as of February 2, 1999, by
and between Price Enterprises, Inc. and Jack McGrory (incorporated by
reference to Exhibit 10.14 to Annual Report on Form 10-K of Price
Enterprises, Inc. filed with the Commission on March 29, 1999 (File No.
0-20449))
10.14 Revolving Credit Agreement dated as of March 31, 1998 among the Company,
Union Bank of Switzerland and Union Bank of Switzerland, as Agent
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 filed with the
Commission on May 14, 1998 (File No. 0-20449))
10.15 Amendment No. 1 to Revolving Credit Agreement dated as of August 27,
1998 among the Company, Union Bank of Switzerland and Union Bank of
Switzerland, as Agent (incorporated by reference to Exhibit (b)(2) to
Issuer Tender Offer Statement on Schedule 13-E4 of Price Enterprises,
Inc. filed with the Commission on September 17, 1998 (File No.
005-43425))
10.16 Letter Agreement dated as of September 15, 1998 by and between the
Company and Morgan Guaranty Trust Company of New York (incorporated by
reference to Exhibit (b)(3) to Issuer Tender Offer Statement on Schedule
13-E4 of Price Enterprises, Inc. filed with the Commission on September
17, 1998 (File No. 005-43425))
10.17 Guaranty and Pledge Agreement dated as of September 15, 1998 among Sol
Price, Helen Price, The Sol and Helen Price Trust and Morgan Guaranty
Trust Company of New York (incorporated by reference to Exhibit (c)(1)
to Issuer Tender Offer Statement on Schedule 13-E4 of Price Enterprises,
Inc. filed with the Commission on September 17, 1998 (File No.
005-43425))
10.18 The Price Enterprises 1995 Combined Stock Grant and Stock Option Plan
(the "Stock Plan") (incorporated by reference to Exhibit 10.23 to
Registration Statement on Form 10 of Price Enterprises, Inc. filed with
the Commission on December 13, 1994 (File No. 0-20449))
65
65
10.19 Form of Incentive Stock Option Agreement under the Stock Plan
(incorporated herein by reference to Exhibit 4.2 of the Current Report
on Form S-8 of Price Enterprises, Inc. filed with the Commission on July
13, 1995 (File No. 33-60999))
10.20 Form of Non-Qualified Stock Option Agreement under the Stock Plan
(incorporated by reference to Exhibit 4.3 of the Current Report on Form
S-8 of Price Enterprises, Inc. filed with the Commission on July 13,
1995 (File No. 33-60999))
10.21 The Price Enterprises Directors' 1995 Stock Option Plan (the "Directors'
Plan) (incorporated by reference to Exhibit 10.24 to Registration
Statement on Form 10 of Price Enterprises, Inc. filed with the
Commission on December 13, 1994 (File No. 0-20449))
10.22 Form of Non-Qualified Stock Option Agreement under the Directors' Plan
(incorporated by reference to Exhibit 4.5 of the Current Report on Form
S-8 of Price Enterprises, Inc. filed with the Commission on July 13,
1995 (File No. 33-60999))
10.23 First Amendment to the Price Enterprises Directors' 1995 Stock Option
Plan (incorporated by reference to Exhibit 4.7 to Transition Report on
Form 10-K of Price Enterprises, Inc. filed with the Commission on March
27, 1998 (File No. 0-20449))
10.24 First Amendment to The Price Enterprises 1995 Combined Stock Grant and
Stock Option Plan (incorporated by reference to Exhibit 4.2 to
Registration Statement on Form S-8 of Price Enterprises, Inc. filed with
the Commission on September 2, 1998 (File No. 333-62723))
10.25 Second Amendment to the Price Enterprises Directors' 1995 Stock Option
Plan (incorporated by reference to Exhibit 4.5 to Registration Statement
on Form S-8 of price Enterprises, Inc. filed with the Commission on
September 2, 1998 (File No. 333-62723))
10.26 Form of Amended and Restated Non-Qualified Stock Option Agreement under
the 1995 Plan (incorporated by reference to Exhibit 4.6 to Registration
Statement on Form S-8 of Price Enterprises, Inc. filed with the
Commission on September 2, 1998 (File No. 333-62723))
10.27 Form of Amended and Restated Non-Qualified Stock Option Agreement under
the Director's Plan (incorporated by reference to Exhibit 4.7 to
Registration Statement on Form S-8 of Price Enterprises, Inc. filed with
the Commission on September 2, 1998 (File No. 333-62723))
10.28 Purchase and Sale Agreement as Amended for Sacramento/Bradshaw Business
Park dated April 6, 1998, by and between Price Enterprises, Inc. and
Ivanhoe-Bradhsaw, L.L.C. (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 filed with the Securities Exchange Commission on August 12,
1998 (File No. 0-20449))
10.29 Employment Agreement date January 6, 1998, by and between Price
Enterprises, Inc. and Gary W. Nielson (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 filed with the Commission on May 14, 1998
(File No. 0-20449))
10.30 Agreement, dated May 12, 1999, by and among Excel Legacy Corporation and
certain stockholders of Price Enterprises, Inc. listed on the signature
pages thereto (incorporated by reference to Annex A to the Offer to
Exchange/Prospectus dated October 6, 1999 filed as Exhibit (a)(1) to the
Excel Legacy Corporation's Tender Offer Statement on Schedule 14D-1 as
filed with the Commission on October 6, 1999 (File No. 005-43425))
(incorporated by reference to Exhibit 10.1 to Current
66
66
Report on Form 8-K filed May 14, 1999 by Excel Legacy Corporation(File
No. 0-23503))
10.31 Agreement, dated June 2, 1999, as amended, between Excel Legacy
Corporation and Price Enterprises, Inc. (incorporated by reference to
Annex B to the Offer to Exchange/Prospectus dated October 6, 1999 filed
as Exhibit (a)(1) to the Excel Legacy Corporation's Tender Offer
Statement on Schedule 14D-1 as filed with the Commission on October 6,
1999 (File No. 005-43425))
10.32 First Amended and Restated Revolving Credit Agreement dated as of
February 14,2000 among the Company and Wells Fargo Bank, National
Association, as Agent
10.33 Pro rata share of lenders participating in First Amended and Restated
Revolving Credit Agreement dated as of February 14,2000 among the
Company and Wells Fargo Bank, National Association, Bank One, Arizona,
NA, AmSouth Bank, Bank Boston and Wells Fargo Bank, NA, as Agent
10.34 Settlement and Termination Agreement dated May 24, 1999, by and between
Price Enterprises, Inc. and Gary W. Nielson (incorporated by reference
to Exhibit 10.5 to Quarterly Report on Form 10-Q filed with the
Commission on August 4, 1999 (File No. 0-20449))
10.35 Second Amendment to the Price Enterprises 1995 Combined Stock Grant and
Stock Option Plan (incorporated by reference to Exhibit 10.6 to
Quarterly Report on Form 10-Q filed with the Commission on August 4,
1999 (File No. 0-20449))
10.36 Third Amendment to the Price Enterprises Directors 1995 Stock Option
Plan (incorporated by reference to Exhibit 10.7 to Quarterly Report on
Form 10-Q filed with the Commission on August 4, 1999 (File No.
0-20449))
12.1 Computation of ratio of earnings to fixed charges
21.1 Subsidiaries of Price Enterprises, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
67