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 March 31, 2004
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 |
92081 | |
| (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 ¨.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨.
As of April 30, 2004, the number of shares of the registrant’s common stock outstanding was [40,288,507].
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS: |
||||||||
| Properties, at cost: |
||||||||
| Land |
$ | 510,438 | $ | 509,887 | ||||
| Buildings and improvements |
1,377,841 | 1,374,663 | ||||||
| Tenant improvements |
51,077 | 49,793 | ||||||
| 1,939,356 | 1,934,343 | |||||||
| Less accumulated depreciation and amortization |
(169,495 | ) | (160,449 | ) | ||||
| 1,769,861 | 1,773,894 | |||||||
| Investments in unconsolidated entities |
2,609 | 3,223 | ||||||
| Cash and cash equivalents |
7,188 | 6,453 | ||||||
| Accounts receivable (net of allowance for doubtful accounts of $4,237 and $4,444, respectively) |
10,029 | 13,478 | ||||||
| Accrued rent receivable (net of allowance for doubtful accounts of $2,864 and $2,735, respectively) |
23,287 | 22,552 | ||||||
| Notes receivable |
7,450 | 7,844 | ||||||
| Deferred lease commissions (including unamortized related party amounts of $7,916 and $7,386, respectively, and net of accumulated amortization of $5,940 and $5,512, respectively) |
11,650 | 11,029 | ||||||
| Prepaid expenses |
20,439 | 19,072 | ||||||
| Other assets |
60,125 | 5,803 | ||||||
| $ | 1,912,638 | $ | 1,863,348 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: |
||||||||
| Notes payable |
$ | 330,704 | $ | 345,077 | ||||
| Line of credit payable |
157,750 | 48,250 | ||||||
| Senior notes |
453,762 | 503,708 | ||||||
| Accounts payable, accrued expenses and other liabilities |
44,344 | 41,703 | ||||||
| 986,560 | 938,738 | |||||||
| Minority interests |
31,306 | 32,325 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock par value $.01 per share, 30,000,000 authorized shares, no shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
— | — | ||||||
| Common stock par value $.01 per share, 100,000,000 authorized shares, 40,398,771 and 40,293,382 shares issued and outstanding, net of 1,190,999 treasury shares, at March 31, 2004 and December 31, 2003, respectively |
404 | 403 | ||||||
| Paid in capital in excess of par value |
955,039 | 952,973 | ||||||
| Deferred compensation |
(10,203 | ) | (8,781 | ) | ||||
| Accumulated deficit |
(50,468 | ) | (52,310 | ) | ||||
| 894,772 | 892,285 | |||||||
| $ | 1,912,638 | $ | 1,863,348 | |||||
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 March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (unaudited) | ||||||||
| REVENUE: |
||||||||
| Base rent |
$ | 53,464 | $ | 48,113 | ||||
| Percentage rent |
804 | 531 | ||||||
| Recoveries from tenants |
13,717 | 12,506 | ||||||
| Income from unconsolidated entities |
169 | 58 | ||||||
| Other |
1,373 | 830 | ||||||
| 69,527 | 62,038 | |||||||
| EXPENSES: |
||||||||
| Property operating |
9,686 | 9,806 | ||||||
| Property taxes |
5,703 | 5,394 | ||||||
| Depreciation and amortization |
10,960 | 9,104 | ||||||
| Interest |
15,250 | 13,826 | ||||||
| General and administrative |
3,306 | 4,180 | ||||||
| Other |
460 | 331 | ||||||
| 45,365 | 42,641 | |||||||
| INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS AND DISCONTINUED OPERATIONS |
24,162 | 19,397 | ||||||
| Minority interests |
(631 | ) | (860 | ) | ||||
| INCOME FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS |
23,531 | 18,537 | ||||||
| Discontinued operations |
206 | 7,079 | ||||||
| NET INCOME |
$ | 23,737 | $ | 25,616 | ||||
| Basic earnings per share: |
||||||||
| Income from continuing operations |
$ | 0.59 | $ | 0.48 | ||||
| Discontinued operations |
$ | — | $ | 0.18 | ||||
| Net income |
$ | 0.59 | $ | 0.66 | ||||
| Diluted earnings per share: |
||||||||
| Income from continuing operations |
$ | 0.59 | $ | 0.48 | ||||
| Discontinued operations |
$ | — | $ | 0.18 | ||||
| Net income |
$ | 0.59 | $ | 0.66 | ||||
See accompanying notes to consolidated financial statements.
2
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| For the Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (unaudited) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 23,737 | $ | 25,616 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
10,960 | 9,104 | ||||||
| Bad debt expense |
824 | 1,563 | ||||||
| Amortization of prepaid financing costs |
345 | 310 | ||||||
| Income from unconsolidated entities |
(169 | ) | (58 | ) | ||||
| Discontinued operations |
(206 | ) | (7,077 | ) | ||||
| Minority interests |
631 | 860 | ||||||
| Vesting of restricted stock |
923 | 323 | ||||||
| Changes in assets and liabilities, net of the effects of the acquisition of Center Trust in 2003: |
||||||||
| Decrease (increase) in accounts receivable |
2,760 | (77 | ) | |||||
| Increase in accrued rent receivable |
(870 | ) | (882 | ) | ||||
| Increase in accrued interest on notes receivable |
(149 | ) | (178 | ) | ||||
| Increase in deferred lease commissions |
(1,295 | ) | (867 | ) | ||||
| (Increase) decrease in prepaid expenses |
(1,715 | ) | 3,175 | |||||
| Increase in other assets |
(2,195 | ) | (3,013 | ) | ||||
| Increase in accounts payable, accrued expenses and other liabilities |
2,641 | 9,040 | ||||||
| Net cash provided by operating activities |
36,222 | 37,839 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Acquisitions of and additions to properties |
(3,921 | ) | (40,347 | ) | ||||
| Funds held in escrow pending property acquisition |
(55,600 | ) | (10,886 | ) | ||||
| Proceeds from sale of real estate |
1,300 | 152,116 | ||||||
| Distributions and equity repayments from unconsolidated entities |
783 | 4,038 | ||||||
| Acquisition of Center Trust |
— | (12,786 | ) | |||||
| Redemption of operating subsidiary units |
(2,532 | ) | (1,093 | ) | ||||
| Collections of notes receivable |
543 | 631 | ||||||
| Net cash (used in) provided by investing activities |
(59,427 | ) | 91,673 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Notes payable proceeds |
— | 2,907 | ||||||
| Notes payable payments |
(14,315 | ) | (205,901 | ) | ||||
| Line of credit proceeds |
255,500 | 221,000 | ||||||
| Line of credit payments |
(146,000 | ) | (125,500 | ) | ||||
| Repayment of senior notes |
(50,000 | ) | — | |||||
| Repurchase of common shares |
— | (112 | ) | |||||
| Issuance of common shares |
1,291 | 292 | ||||||
| Distributions paid |
(22,559 | ) | (17,221 | ) | ||||
| Net cash provided by (used in) financing activities |
23,917 | (124,535 | ) | |||||
| INCREASE IN CASH AND CASH EQUIVALENTS |
712 | 4,977 | ||||||
| Cash from discontinued operations |
23 | 4,752 | ||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS |
735 | 9,729 | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
6,453 | 1,284 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 7,188 | $ | 11,013 | ||||
(Continued)
3
PAN PACIFIC RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
| For the Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| (unaudited) | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||
| Cash paid for interest (net of amounts capitalized of $84 and $1,602, respectively) |
$ | 15,006 | $ | 11,831 | ||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
||||||
| Transfer of other assets to properties |
$ | 3,405 | $ | — | ||
| Notes receivable issued upon sales of properties |
$ | — | $ | 16,650 | ||
| Conversion of operating subsidiary units to common stock |
$ | — | $ | 1,925 | ||
| Stock issued in acquisition of Center Trust |
$ | — | $ | 208,343 | ||
| Assumption of notes payable, bonds and line of credit in Acquisition of Center Trust |
$ | — | $ | 362,257 | ||
| Minority interest from acquisition of Center Trust |
$ | — | $ | 21,242 | ||
| Note payable assumed upon acquisition of property |
$ | — | $ | 16,919 | ||
| Excess of cash paid over book value of operating subsidiary units redeemed |
$ | 1,570 | $ | 43 | ||
| Assignment of debt on sales of properties |
$ | — | $ | 30,000 | ||
| Increase in deferred compensation |
$ | 2,342 | $ | 1,998 | ||
See accompanying notes to consolidated financial statements.
4
PAN PACIFIC RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2004 (unaudited) and December 31, 2003,
and for the three months ended March 31, 2004 and 2003 (unaudited)
(Tabular amounts are in thousands, except option and share data)
1. Management statement and general
The consolidated financial statements of Pan Pacific Retail Properties, Inc. and subsidiaries (the “Company”) were prepared from the books and records of the Company without audit and in the opinion of management include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to the audited consolidated financial statements of the Company for the year ended December 31, 2003, which are included in the Company’s 2003 Annual Report on Form 10-K, as certain disclosures which would substantially duplicate those contained in the audited consolidated financial statements have been omitted from this report.
The Company consolidates each entity it controls. Control is determined, where applicable, by the sufficiency of equity invested and the rights of the equity holders, and by the ownership of a majority of the voting interests, with consideration given to the existence of approval or veto rights granted to the minority shareholder. If the minority shareholder holds substantive participation rights, it overcomes the presumption of control by the majority voting interest holder. In contrast, if the minority shareholder simply holds protective rights (such as consent rights over certain actions), it does not overcome the presumption of control by the majority voting interest holder. With respect to the partnerships and limited liability companies, the Company determines control through a consideration of each parties’ financial interests in profits and losses and the ability to participate in major decisions such as the acquisition, sale or refinancing of principal assets.
As a result of the disclosure requirements of the Financial Accounting Standards Board’s SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, the following table shows the Company’s pro forma net income had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, Accounting for Stock-Based Compensation:
| For the three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net income as reported |
$ | 23,737 | $ | 25,616 | ||||
| Add: Stock-based compensation expense included in reported net income |
$ | 923 | $ | 323 | ||||
| Deduct: Total fair value stock-based compensation expense for all awards |
$ | (1,035 | ) | $ | (456 | ) | ||
| Pro forma net income |
$ | 23,625 | $ | 25,483 | ||||
| Basic earnings per share as reported |
$</ | |||||||