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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2002
 
Commission File Number: 001-13243
 
 
PAN PACIFIC RETAIL PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland
  
33-0752457
(State of Incorporation)
  
(I.R.S. Employer
Identification No.)
 
1631-B South Melrose Drive,
Vista, California
  
92083
(Address of Principal Executive Offices)
  
(zip code)
 
Registrant’s telephone number, including area code: (760) 727-1002
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨.
 
As of October 24, 2002, the number of shares of the registrant’s common stock outstanding was 33,583,720.
 

 
PART I—FINANCIAL INFORMATION
 
ITEM 1—FINANCIAL STATEMENTS
 
PAN PACIFIC RETAIL PROPERTIES, INC.
 
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
    
September 30,
2002
     
December 31,
2001
  
    
(unaudited)
         
ASSETS:
                  
Properties, at cost:
                  
Land
   
$
368,537
 
   
$
349,694
 
Buildings and improvements
   
 
1,010,873
 
   
 
946,188
 
Tenant improvements
   
 
40,481
 
   
 
36,069
 
    
  
    
 
1,419,891
 
   
 
1,331,951
 
Less accumulated depreciation and amortization
   
 
(118,941
)
   
 
(98,762
)
    
  
    
 
1,300,950
 
   
 
1,233,189
 
Investments in unconsolidated entities
   
 
9,108
 
   
 
1,600
 
Cash and cash equivalents
   
 
36,296
 
   
 
3,429
 
Accounts receivable (net of allowance for doubtful accounts of $1,822 and $1,680, respectively)
   
 
8,050
 
   
 
7,994
 
Accrued rent receivable (net of allowance for doubtful accounts of $2,127 and $1,928, respectively)
   
 
19,141
 
   
 
17,351
 
Notes receivable
   
 
6,148
 
   
 
47,892
 
Deferred lease commissions (including unamortized related party amounts of $5,034 and $4,279, respectively, and net of accumulated amortization of $4,043 and $3,368, respectively)
   
 
7,299
 
   
 
6,352
 
Prepaid expenses
   
 
9,330
 
   
 
10,305
 
Other assets
   
 
30,648
 
   
 
11,178
 
    
  
    
$
1,426,970
 
   
$
1,339,290
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY:
                  
Notes payable
   
$
237,478
 
   
$
229,135
 
Line of credit payable
   
 
177,900
 
   
 
165,300
 
Senior notes
   
 
328,626
 
   
 
273,800
 
Accounts payable, accrued expenses and other liabilities
   
 
26,726
 
   
 
27,849
 
    
  
    
 
770,730
 
   
 
696,084
 
Minority interests
   
 
15,815
 
   
 
20,748
 
    
  
Stockholders’ equity:
                  
Common stock par value $.01 per share, 100,000,000 authorized shares, 33,583,520 and 32,789,913 shares issued and outstanding, net of 1,187,999 and 1,000,000 treasury shares, at September 30, 2002 and December 31, 2001, respectively
   
 
336
 
   
 
328
 
Paid in capital in excess of par value
   
 
731,051
 
   
 
718,525
 
Deferred compensation
   
 
(4,666
)
   
 
(3,910
)
Accumulated deficit
   
 
(86,296
)
   
 
(92,485
)
    
  
    
 
640,425
 
   
 
622,458
 
    
  
    
$
1,426,970
 
   
$
1,339,290
 
    
  
 
 
See accompanying notes to consolidated financial statements.

1

 
PAN PACIFIC RETAIL PROPERTIES, INC.
 
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
 
    
For the Three Months Ended September 30,
     
For the Nine Months Ended September 30,
  
    
2002
     
2001
     
2002
     
2001
  
    
(unaudited)
     
(unaudited)
  
REVENUE:
                                    
Base rent
   
$
38,485
 
   
$
34,474
 
   
$
112,217
 
   
$
103,099
 
Percentage rent
   
 
470
 
   
 
249
 
   
 
1,315
 
   
 
1,820
 
Recoveries from tenants
   
 
9,333
 
   
 
8,118
 
   
 
26,943
 
   
 
23,879
 
Income from unconsolidated entities
   
 
34
 
   
 
187
 
   
 
123
 
   
 
597
 
Other
   
 
1,690
 
   
 
2,123
 
   
 
4,919
 
   
 
5,750
 
    
  
  
  
    
 
50,012
 
   
 
45,151
 
   
 
145,517
 
   
 
135,145
 
    
  
  
  
EXPENSES:
                                    
Property operating
   
 
6,139
 
   
 
4,885
 
   
 
17,625
 
   
 
15,473
 
Property taxes
   
 
3,791
 
   
 
3,331
 
   
 
11,346
 
   
 
10,138
 
Depreciation and amortization
   
 
7,902
 
   
 
7,033
 
   
 
23,151
 
   
 
21,649
 
Interest
   
 
11,913
 
   
 
11,562
 
   
 
34,194
 
   
 
35,337
 
General and administrative
   
 
2,405
 
   
 
2,132
 
   
 
7,653
 
   
 
6,815
 
Other
   
 
44
 
   
 
332
 
   
 
478
 
   
 
969
 
    
  
  
  
    
 
32,194
 
   
 
29,275
 
   
 
94,447
 
   
 
90,381
 
    
  
  
  
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS, GAIN ON SALE OF REAL ESTATE AND DISCONTINUED OPERATIONS
   
 
17,818
 
   
 
15,876
 
   
 
51,070
 
   
 
44,764
 
Minority interests
   
 
(359
)
   
 
(663
)
   
 
(1,085
)
   
 
(2,043
)
Gain on sale of real estate
   
 
—  
 
   
 
926
 
   
 
—  
 
   
 
3,344
 
Discontinued operations
   
 
2,994
 
   
 
377
 
   
 
3,844
 
   
 
1,346
 
    
  
  
  
NET INCOME
   
$
20,453
 
   
$
16,516
 
   
$
53,829
 
   
$
47,411
 
    
  
  
  
Basic earnings per share:
                                    
Income from continuing operations
   
$
0.52
 
   
$
0.50
 
   
$
1.50
 
   
$
1.46
 
Discontinued operations
   
$
0.09
 
   
$
0.02
 
   
$
0.11
 
   
$
0.04
 
Net income
   
$
0.61
 
   
$
0.52
 
   
$
1.61
 
   
$
1.50
 
Diluted earnings per share:
                                    
Income from continuing operations
   
$
0.52
 
   
$
0.49
 
   
$
1.49
 
   
$
1.43
 
Discontinued operations
   
$
0.08
 
   
$
0.01
 
   
$
0.11
 
   
$
0.04
 
Net income
   
$
0.60
 
   
$
0.50
 
   
$
1.60
 
   
$
1.47
 
 
 
See accompanying notes to consolidated financial statements.

2

 
PAN PACIFIC RETAIL PROPERTIES, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
    
For the Nine Months Ended
September 30,
  
    
2002
       
2001
  
    
(unaudited)
  
CASH FLOWS FROM OPERATING ACTIVITIES:
                    
Net income
   
$
53,829
 
     
$
47,411
 
Adjustments to reconcile net income to net cash provided by operating activities:
                    
Depreciation and amortization
   
 
23,151
 
     
 
21,649
 
Restricted stock amortization
   
 
907
 
     
 
647
 
Amortization of prepaid financing costs
   
 
784
 
     
 
742
 
Gain on sale of real estate
   
 
—  
 
     
 
(3,344
)
Income from unconsolidated entities
   
 
(123
)
     
 
(597
)
Income from discontinued operations
   
 
(3,844
)
     
 
(1,346
)
Minority interests
   
 
1,085
 
     
 
2,043
 
Changes in assets and liabilities:
                    
Decrease in restricted cash
   
 
—  
 
     
 
39
 
(Increase) decrease in accounts receivable
   
 
(56
)
     
 
102
 
Increase in accrued rent receivable
   
 
(1,790
)
     
 
(2,331
)
Increase in accrued interest to notes receivable
   
 
(3,132
)
     
 
—  
 
Increase in deferred lease commissions
   
 
(2,129
)
     
 
(2,035
)
Decrease (increase) in prepaid expenses
   
 
155
 
     
 
(480
)
Increase in other assets
   
 
(273
)
     
 
(822
)
(Decrease) increase in accounts payable, accrued expenses and other liabilities
   
 
(1,660
)
     
 
6,513
 
    
    
Net cash provided by operating activities of continuing operations
   
 
66,904
 
     
 
68,191