ITEM 1. BUSINESS - -----------------
Burnham Pacific Properties, Inc. (the "Corporation" or the "Registrant") is an equity real estate investment trust which owns a portfolio of commercial properties, primarily in Southern California. In 1987 the Corporation succeeded a publicly-traded real estate limited partnership organized in 1963. The Corporation operates so as to qualify as a REIT under Sections 856-860 of the Internal Revenue Code. As a REIT, the Corporation distributes to its shareholders substantially all of its cash flow from operations and, in any event, at least 95% of its real estate investment trust taxable income.
The Corporation's investment objectives are to acquire, own and manage a portfolio of income-producing commercial real estate that will provide cash for distribution to shareholders and protect investor capital, while providing potential for capital appreciation. The Corporation's investment focus is on commercial properties, primarily in established locations, that are capable of generating operating cash flow and appreciation in value through active management, leasing, re-leasing or development of additional tenant space. The Corporation's focus on California enables the Corporation to concentrate on the market in which it has knowledge. However, investors should understand that this concentration involves the risk that if the adverse economic conditions in California, and Southern California particularly, become severe, it could have a material adverse impact on the business and financial results of the Corporation.
The Corporation's properties consist of 15 retail centers (which represent approximately 64% of real estate assets at cost), 5 single tenant office/industrial buildings (21% of cost), 2 multi-tenant office buildings (11% of cost) and 2 other properties (4% of cost). Nineteen of these properties are located in San Diego County, two in Orange County, two in Los Angeles County, and one in Santa Clara County. The Corporation may diversify its geographical focus with future property acquisitions.
Total occupancy of properties owned by the Corporation at December 31, 1993 decreased during calendar 1994 by 1% to 94%, and gross rents (on an annualized basis) from such properties were approximately $337,000 higher. At December 31, 1994, the aggregate occupancy rate for all of the Corporation's properties was 94%.
The Corporation's investments consist of approximately 3.1 million square feet of rentable building area, an 892 unit storage warehouse and an interest in a 258 room hotel. The Corporation leases its properties to approximately 439 different tenants. No single tenant accounts for more than 10% of the Corporation's current scheduled revenues. (See "Properties.")
Historically, the Corporation has incurred indebtedness and raised equity capital to acquire properties. Based upon the Corporation's initial purchase price for its properties of $388 million, the total outstanding debt of $141.5 million ($25.7 million of which is
convertible into Common Stock at a price of $16 per share) represents less than 37% of the historical cost of property at December 31, 1994. At December 31, 1994, the average interest rate on the Corporation's debt was approximately 8.35%. If all convertible debt were converted, the remaining outstanding debt would represent less than 30% of the historical cost of property and would have an average interest rate of approximately 8.32%.
At the time of its reorganization in 1987 from partnership to corporation, the Corporation engaged the former general partner, Burnham Investment Group, Inc. (the "Advisor"), to serve as its advisor and to assist in the acquisition and operation of its real estate investments. The Advisor was a wholly-owned subsidiary of John Burnham & Company. Established in 1891, John Burnham & Company is an independent real estate financial services company located in San Diego, California. Its activities include real estate sales, leasing, property management, mortgage banking, and general insurance brokerage.
On January 27, 1992, the shareholders of the Corporation voted to merge the Advisor into the Corporation and to become self-administered. Implementation of self-administration involved the issuance of 80,000 shares of the Corporation's Common Stock and the termination of the advisory agreement. In connection with the merger, the Corporation employed twelve former employees of John Burnham & Company. The Corporation continues to engage John Burnham & Company, on a non- exclusive basis, to provide various services, including property management and leasing, with respect to certain of its individual properties.
Although the Corporation owns nineteen properties in San Diego County, management estimates that it owns substantially less than 1% of the retail shopping centers and office buildings in the county. In leasing space to tenants, the Corporation must compete with many other property owners, some of whom are larger and financially stronger than the Corporation.
During the first quarter of 1994, the Corporation obtained $5.0 million of additional capacity on its secured credit facility, bringing the capacity to $30 million. During the third quarter of 1994 the Corporations $35 million non- revolving line of credit, which was secured by the Plaza at Puente Hills, was replaced by a seven-year mortgage note. The note, which is also secured by the Plaza at Puente Hills, bears interest at 180 day LIBOR (London Inter Bank Offer Rate) plus 2.10% (7.35% at December 31, 1994). The note has the one-time option to convert the rate to a fixed rate of interest tied to seven-year treasuries plus 2.10%. At December 31,1994, approximately $34.8 million was outstanding.
The Corporation is organized under the laws of the State of California. Its principal executive office is located at 610 West Ash Street, Suite 1600, San Diego, California, 92101, telephone, (619) 232-2001.
ITEM 2.
ITEM 2. PROPERTIES - ------------------- The following table sets forth the properties owned by the Corporation at December 31, 1994.
*Includes proforma rents for vacant space.
Point Loma Plaza and the Plaza at Puente Hills are the only properties that accounted for 10% or more of the Corporation's total assets at December 31, 1994. The Plaza at Puente Hills and the Pacific West Outlet Center are the only properties that accounted for 10% or more of the Corporation's revenues during 1994.
POINT LOMA PLAZA represents 10.38% of the Corporation's total assets as of December 31, 1994. This center has 52 tenant spaces, 46 of which are leased resulting in 97% occupancy based on square footage. Real estate taxes for 1994 were at a rate of approximately 1.12% of assessed value or approximately $344,000, substantially all of which is reimbursed under tenant leases. Management believes that the property is adequately covered by insurance. Annual rentals range from $4.68 to $114.96 per square foot with the higher rentals attributable to the food court and/or smaller tenants. The average square foot rental is $13.52 per year. During the period 1990-1994 this property has experienced the following operating results:
Two tenants represent more than 10% of the total space. One is Von's supermarket, which leases 50,000 square feet at a rental of $525,000 per annum, for a term ending in 2008. Von's has six five-year renewal options. The other tenant is Sport Chalet, a retail sporting goods store which leases 31,560 square feet at a rental of $338,976 per annum for a term ending in 1997. This tenant has four five-year renewal options. The following tabulation shows the expiration schedule of leases in effect on December 31, 1994 both by square footage and revenue.
The center is subject to a mortgage with a balance at December 31, 1994 of $16.7 million. Annual payments of $1.8 million, which include principal and interest at the rate of 8.125% are required until January 2000, at which time the unpaid balance of $14.2 million will be due.
THE PLAZA AT PUENTE HILLS represents 16.3% of the Corporation's total property at cost as of December 31, 1994. The center has 60 tenant spaces, 53 of which are leased resulting in a 95% occupancy. Annual rentals range from $7.20 to $42.96 per square foot with an average per square foot of $12.79. Only one tenant, IKEA Furniture, occupies more than 10% of the rentable square footage (150,000 square feet) at a rental of $1.1 million per annum, for a term ending in 2007. IKEA has four five-year renewal options. the 1994 property tax rate was 1.97% resulting in a tax of approximately $1,245,000 (including special assessments), substantially all of which is reimbursed by tenants under their leases. Management believes that the property is adequately covered by insurance.
The property was constructed in three phases from 1987 to 1992. During the period 1992 to 1994 this property has experienced the following operating results:
*Based on information provided by the former owner.
The Corporation does not believe that operating data during the various construction phases would be meaningful.
The following tabulation shows the expiration schedule of leases as of December 31, 1994.
The property is subject to a term loan with a balance at December 31, 1994 of approximately $34,793,000. The term loan bears interest at 180 day LIBOR plus 2.10% (7.35% at December 31, 1994). Annual payments of approximately $3,063,000 (at December 31, 1994), which include principal and interest, are required until July 2001, at which time the unpaid balance of approximately $30,529,000 will be due.
THE PACIFIC WEST OUTLET CENTER has 58 tenant spaces, all of which are leased resulting in a 100% occupancy at December 31, 1994. Annual rentals range from $14 to $23 with an average annual rental of $19.01 per square foot at December 31, 1994. No tenant leases more than 10% of the total space. Real property taxes for 1994 were at the rate of 1.11% and the tax was $503,689 (including special assessments), substantially all of which is reimbursed by tenants under their leases. Management believes that the property is adequately covered by insurance. The center serves as part of the collateral pool of the corporation's $30 million credit facility.
The property was constructed in 2 phases from 1990 to 1992. During the period 1992 to 1994 this property has experienced the following operating results:
*Based on information provided by the former owner.
The Corporation does not believe that operating data during the various construction phases would be meaningful.
The following tabulation shows the expiration schedule of leases in effect on December 31, 1994, both by square footage and revenue.
Insurance - ---------
All properties are covered by insurance policies from companies with a minimum Best Insurance Rating of "A". Those companies insure against risk of direct physical damage in amounts structured to reimburse the Corporation on a replacement cost basis for all costs incurred to repair each facility, including loss of rental income during the period of reconstruction. In addition, the Corporation carries general liability insurance in amounts of no less than $5.0 million to insure the Corporation against liability claims and provide for the costs of defense. The Corporation does not insure the properties for loss caused by earthquake, except for the Pacific West Outlet Center. This type of insurance is only available at extremely high rates. The Corporation has made the determination that the risk of loss does not justify the cost of coverage. The Corporation believes that its properties are adequately insured.
Other Considerations - --------------------
Southern California recently has been exposed to a variety of adverse factors. Defense and aerospace spending has been reduced. Brush fires and earthquakes have caused property damage. The Corporation's properties have not been materially impacted by any of these events. The Corporation has been affected by an increased awareness of crime and vandalism. This has resulted in the need for increased security patrols, the costs of which are generally recoverable under common area maintenance reimbursement provisions of tenant leases. However, the California Supreme Court has issued a ruling reversing the trend toward absolute liability being imposed upon property owners for damage to invitees from criminal activity occurring on their property.
The foregoing and other factors, some of which may not be currently anticipated, may have unpredictable impacts on the Corporation's financial condition, operations, or both.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - --------------------------
Not Applicable.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - -----------------------------------------------------------------------------
Common Stock of the Corporation is listed on the New York Stock Exchange under the symbol "BPP". The following table sets forth the high and low sale prices of the Common Stock, as reported by the New York Stock Exchange Composite Tape, and the per share dividends paid by the Corporation for each calendar quarter during 1993 and 1994.
At December 31, 1994, there were approximately 4,200 holders of record of the Corporation's Common Stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - --------------------------------
The following selected financial data is supplied to shareholders in order to present significant data covering the last five fiscal years, and also as an analysis of trends in Company size, earnings, dividends, and scope of operations.
(in thousands except per share amounts)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS: - --------------
GENERAL
The Corporation's investment objectives are to acquire, own and manage a portfolio of income-producing commercial real estate which provides cash for distribution to shareholders and protects investor capital, while providing potential for capital appreciation. As a part of implementing these objectives, the Corporation has expanded its portfolio of real properties over the past several years. Capital to acquire these properties has been obtained from securities offerings, from additional mortgage debt on new and existing properties and from short-term credit facilities. The Corporation's most recent underwritten public offerings involved the sales of shares of common stock in April 1993, and Common Stock and Convertible Debentures in March 1992. During recent years, the Corporation also has utilized a combination of working capital, short-term debt and proceeds from the optional share purchases under the Corporation's dividend reinvestment plan, to improve its properties and to construct additional tenant space.
RESULTS OF OPERATIONS
1994 Compared with 1993.
OPERATIONS - Net Income increased $3.3 million, or 33.7%, to $13.2 million ($.84 per share) in 1994 from $9.8 million ($0.77 per share) in 1993. Funds from operations (net income excluding gains (losses) from debt restructurings and sales of property plus depreciation and amortization) increased $5.9 million, or 30.4%, to $25.1 million in 1994. These increases were primarily the result of property acquisitions and financing activities during 1993. Funds from operations differs from cash flows from operating activities set forth in the accompanying Statements of Cash Flows in the Corporation's financial statements, primarily because funds from operations does not include changes in operating assets and liabilities. Funds from operations does not represent cash generated from operating activities, in accordance with generally accepted accounting principles, and therefore should not be considered as a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity.
Rental revenues were $51.0 million for 1994 as compared to $40.4 million for 1993. The $10.6 million difference represents a 26.2% increase. The April 1993 Pacific West Outlet Center acquisition accounted for $2.1 million of the increase, $690,000 was due to the July 1993 and October 1993 acquisitions of the Plasma and K-Mart Buildings, respectively, $340,000 was due to the August 1993 acquisition of an additional 20% interest in the Beverly Garland Hotel, $360,000 was due to the September 1993 acquisitions of the remaining 50% interests in the Navajo and Village Station Shopping Centers, $6.9 million was due to the October 1993 acquisition of the Plaza at Puente Hills, and the balance was primarily due to minor changes in occupancy and rental rates at existing properties.
Interest revenue decreased $408,000 in 1994 as compared with 1993. This was the combined result of temporarily investing the proceeds of the April 1993 public offering in interest bearing money market securities, until suitable permanent investments were made, and the 1993 reduction of $1.9 million of notes receivable related to the Navajo Shopping Center.
Interest expense increased $1.1 million in 1994 to $11.6 million, as compared to $10.5 million in 1993. This was primarily due to the $58 million of credit advances for the purchase of the Plaza at Puente Hills in October 1993, and rising interest rates, offset by the conversion of Convertible Debentures during 1994 and the second half of 1993, and the paydown of notes payable and credit line advances from the proceeds of the April 1993 public offering.
Rental Operating Costs were $12.2 million for 1994 and $9.2 million for 1993, and Depreciation and Amortization were $12 million for 1994 and $9.4 million for 1993. These increases were primarily the result of the property additions made by the Corporation during 1993.
1993 Compared with 1992.
OPERATIONS - Net Income increased $8.8 million, or 831%, to $9.8 million ($0.77 per share) in 1993 from $1.0 million ($0.13 per share) in 1992. Funds from operations increased $11.0 million, or 134%, to $19.3 million in 1993. These increases were primarily due to increased rental revenues.
Rental revenues were $40.4 million for 1993 as compared to $26.7 million for 1992. The $13.7 million difference represents a 51.3% increase. The June 1992 San Diego Factory Outlet Center acquisition accounted for $1.8 million of the increase, $3.9 million of the increase was due to the October 1992 Bergen Brunswig Building acquisition, $2.5 million was due to the December 1992 Anacomp Building acquisition, $3.7 million was due to the April 1993 Pacific West Outlet Center acquisition, $1.5 million was due to the October 1993 Plaza at Puente Hills acquisition, and the balance was primarily due to minor changes in occupancy and rental rates at existing properties.
Interest revenue decreased $518,000 in 1993 as compared with 1992. This was a result of temporarily investing the proceeds of the March 1992 public offering in interest bearing money market securities, until suitable permanent investments were made.
Interest expense decreased $700,000 in 1993 to $10.5 million, as compared to $11.2 million in 1992. This was primarily due to the conversion of $36.5 million of Convertible Debentures during 1993 and the paydown of $29.5 million in notes payable and credit line advances from the proceeds of the April 1993 public offering, offset by $58.0 million of credit line advances for the purchase of the Plaza at Puente Hills in October 1993.
Rental Operating Costs were $9.2 million for 1993 and $6.4 million for 1992, and Depreciation and Amortization were $9.4 million for 1993 and $7.2 million for 1992. These increases were primarily the result of the property additions made by the Corporation during the past two years. The $354,000 decrease in the Provision for Bad Debts reflects greater problems affecting certain tenants during 1992 than in 1993.
PUBLIC OFFERING OF SECURITIES - In April 1993, the Corporation completed a public offering of 3.5 million shares of Common Stock at a public offering price of $19.75 per share. Of the net proceeds to the Corporation of approximately $64.0 million, $22.0 million was immediately applied to the retirement of notes payable and to advances outstanding under the Corporation's $5.0 million unsecured line of credit.
ACQUISITION OF PACIFIC WEST OUTLET CENTER - In April 1993, the Corporation purchased the 202,795 square foot Pacific West Outlet Center in Gilroy, California for $35.0 million in cash. Funds were provided by proceeds of the April 1993 issuance of Common Stock.
HIGHLANDS PLAZA LOAN PAYOFF - In May 1993, the Corporation retired the $7.5 million, 9.75% mortgage loan on Highlands Plaza, with remaining proceeds from the April 1993 issuance of Common Stock.
ACQUISITION OF PLASMA BUILDING - In July 1993, the Corporation purchased a 6,556 square foot building known as the Plasma Building located adjacent to the San Diego Factory Outlet Center for $590,000 in cash.
ACQUISITION OF 20% OF BEVERLY GARLAND'S HOLIDAY INN HOTEL - In August 1993, the Corporation acquired an additional 20% interest in Beverly Garland's Holiday Inn Hotel for $1.95 million ($1.0 million by cancellation of receivables and $950,000 by assumption of the property's mortgage loan.) The Corporation's total interest in the hotel property is 70%.
ACQUISITION OF 50% OF NAVAJO SHOPPING CENTER - In September 1993, the Corporation purchased the remaining 50% interest in the Navajo Shopping Center for $3.74 million. The purchase price consisted of 92,039 shares of the Corporation's Common Stock and the cancellation of a note receivable of $1.92 million.
ACQUISITION OF 50% OF VILLAGE STATION SHOPPING CENTER - In September 1993, the Corporation purchased the remaining 50% interest in the Village Station Shopping Center for $3.47 million. The purchase price consisted of cash of $400,000, 54,342 shares of the Corporation's Common Stock and the assumption of $2.0 million of debt.
ACQUISITION OF K-MART BUILDING - In October 1993, the Corporation purchased the 98,194 square foot building known as the K-Mart Building located adjacent to the San Diego Factory Outlet Center for $5.8 million. Funds were provided by a $500,000 draw on the Corporation's $30.0 million secured line of credit, the assumption of a $3.5 million loan with an interest rate of 8.67% and the remainder from available cash.
ACQUISITION OF PLAZA AT PUENTE HILLS - In October 1993, the Corporation purchased the 516,538 square foot Plaza at Puente Hills power-center located in the City of Industry, California for $58.0 million. Funds were provided by drawing $35.0 million on the Corporation's $35.0 million non-revolving secured line of credit and by drawing $23.0 million on the Corporation's $30.0 million secured line of credit.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, there was a net $3.1 million decrease in the Corporation's borrowing under its secured and unsecured credit facilities and a net $1.4 million decrease in other notes payable. As of December 31, 1994, the Corporation had $9.0 million capacity available under its credit facilities. As of December 31, 1994, there was $110.8 million in Notes Payable. Included in this figure was $21.0 million borrowed on the Corporations $30.0 million secured
facility and approximately $89.8 million outstanding on various mortgage notes. In addition, the Corporation had $5.0 million outstanding on its $5.0 million unsecured facility. As of December 31, 1994, of the approximately $115.8 million of debt outstanding, $60.8 million was at variable rates tied to either LIBOR (London Inter-Bank Offer Rate) or IBOR (the bank's international reference rate) and $55.0 million was at fixed rates. The Corporation's average variable and fixed rates at December 31, 1994 were 7.74% and 8.95% respectively. The Corporation at December 31, 1994 had 12 properties, producing rents accounting for approximately 34% of 1994 rental revenue, which were free of debt, thereby providing a collateral base, if needed, for future borrowings.
Subsequent to December 31, 1994, the Corporation received a commitment for a new secured and unsecured revolving line of credit. The secured facility will have a $40 million capacity and be secured by the same properties which secure the current line of credit and will bear interest at prime or IBOR plus 1.75%. The unsecured facility will have a $10 million capacity and borrowings will bear interest at prime or IBOR plus 2.00%. Both facilities mature in June 1997. Effective January 1, 1995 and until the new lines of credit are finalized, the above rates will accrue on the Corporation's secured and unsecured lines of credit which were in place at December 31, 1994.
During 1994, $16.7 million of Convertible Debentures were converted into 1.04 million shares of the Corporation's Common Stock. Also during 1994, reinvested dividends and optional purchases under the Dividend Reinvestment Plan provided approximately $13.2 million of additional equity to the Corporation (864,998 shares of Common Stock). Effective January 1, 1995, the Corporation temporarily suspended the optional cash payment portion of the Dividend Reinvestment Plan.
The Corporation has on file with the Securities and Exchange Commission a $200 million shelf registration statement on Form S-3. This registration statement was filed for the purpose of issuing either common stock or debentures for the purpose of repaying outstanding debt, potential future acquisitions of commercial properties and for general corporate purposes.
The Corporation expects to continue to seek additional commercial property acquisitions through the use of additional equity and/or debt securities offerings, mortgage borrowings, and the use of bank lines of credit. Such acquisitions could be pursuant to transactions in which the Corporation or a Partnership controlled by it, issues securities of the Corporation or of such Partnership to property owners in exchange for their properties. The Corporation anticipates that cash flow from operations, cash on hand, available borrowings under credit facilities and the use of project financing, as well as other debt and equity alternatives, will be adequate to fund debt service obligations, dividend payments in accordance with REIT qualification requirements and provide the necessary capital to achieve growth. The Corporation satisfied its REIT qualification requirement of distributing at least 95% of ordinary taxable income with dividend distributions of $22.7 million in 1994 of which 33% has been determined to be a return of capital to shareholders for Federal tax purposes.
OTHER FACTORS AFFECTING FINANCIAL CONDITION AND OPERATIONS
IMPACT OF INFLATION - Management believes that inflation has a positive effect on the Corporation's portfolio, but that this effect is not fully realized until properties are sold or exchanged. Although the current rate of inflation is less than that of prior years, the
Corporation has continued to collect increased rents based on cost-of-living adjustments, minimum fixed rent increases or percentage rent increases at many of its properties, although to a lesser degree than in the past. Management's policy of negotiating leases on a net basis, to the extent practicable, is designed to help protect against increased operating costs as a result of inflation.
IMPACT OF THE ECONOMY AND OTHER CONSIDERATIONS - The current economic conditions in California appear to have affected businesses in the Corporation's marketplace. While some tenants have experienced a slowdown in sales, others have enjoyed increases. A continued slowdown or recession could adversely affect the business of tenants of the Corporation and, consequently, the amount of percentage rents received from retail tenants and, indeed, certain tenants' ability to continue to meet their lease commitments. Continued economic slowdown could adversely affect the Corporation's ability to maintain current occupancy rates at its properties and could result in reduced rental rates and reduced value of its properties. Since the majority of the Corporation's significant tenants have leases which remain in effect for a number of years, management does not expect reduced market rental rates to have a material impact on earnings in 1995. However, the Corporation could experience a decline in rental revenues as current leases expire.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Burnham Pacific Properties, Inc. as of December 31, 1994 and 1993, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in Item 14(a). These financial statements and financial statement schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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, such financial statements present fairly, in all material respects, the financial position of Burnham Pacific Properties, Inc. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth herein.
[sig of Deloitte & Touche LLP]
February 17, 1995 San Diego, California
BURNHAM PACIFIC PROPERTIES, INC. BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (in thousands, except share amounts)
See the Accompanying Notes
BURNHAM PACIFIC PROPERTIES, INC. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992 (in thousands, except share and per share amounts)
See the Accompanying Notes
BURNHAM PACIFIC PROPERTIES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 1994, 1993 and 1992 (in thousands, except share amounts)
See the Accompanying Notes
BURNHAM PACIFIC PROPERTIES, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1994, 1993 and 1992 (in thousands)
BURNHAM PACIFIC PROPERTIES, INC. STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992 (in thousands) (continued)
See the Accompanying Notes
BURNHAM PACIFIC PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Burnham Pacific Properties, Inc. (the "Corporation") is an equity real estate investment trust ("REIT") which owns a portfolio of retail and commercial properties primarily in Southern California. The Corporation's properties consist of 15 retail centers, 5 single tenant office/industrial buildings, 2 multi-tenant office buildings and 2 other properties. Nineteen of these properties are located in San Diego County, two in Orange County, two in Los Angeles County and one in Santa Clara County. On January 27, 1992, the stockholders of the Corporation approved a merger of Burnham Investment Group, Inc. ("Bigi"), the Corporation's former Advisor, into the Corporation to effect the conversion of the Corporation to a self-administered REIT. The merger terminated an advisory contract between the Corporation and Bigi effective January 1, 1992, at which time the Corporation employed the former Bigi employees. The Corporation issued 80,000 shares of Common Stock to the stockholders of Bigi to complete the merger and conversion to self- administration.
Property
Property is stated at cost. Additions, renovations and improvements are capitalized. Maintenance and repairs which do not extend asset lives are expensed as incurred. Depreciation is computed using the straight-line method over estimated useful lives ranging from 14 to 30 years for buildings, 2 to 17 years for improvements, and 3 to 10 years for furniture, fixtures and equipment.
Amortization
Deferred loan fees, direct lease costs and certain other costs are amortized using the straight-line method over the related estimated life.
Income Taxes
Income taxes have not been provided as the Corporation believes that it has met all requirements in 1994, 1993, and 1992 to qualify as a REIT under Internal Revenue Code Sections 856-860 including the distribution of at least 95% of ordinary taxable income to stockholders. Taxable income differs from net income for financial reporting purposes principally because of differences in the timing of recognition of interest, depreciation, rental revenue, and deferred gains on sales of properties. The reported amounts of the Corporation's net assets at December 31, 1994 exceeded their tax basis for Federal purposes by approximately $5,827,000.
Net Income Per Share
Net income per share is calculated using the weighted average number of shares outstanding during each year.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and certificates of deposit with original maturities of less than 90 days.
Financial Instruments
The carrying values reflected in the balance sheet at December 31, 1994 and 1993 reasonably approximate the fair values for cash and cash equivalents, receivables, accounts payable, and line of credit advances. In making such assessment, the Corporation has utilized discounted cash flow analyses, estimates, and quoted market prices as appropriate. The Corporation estimates that the fair value of the Convertible Debentures at December 31, 1994 is lower than their carrying value by approximately $3.4 million and the fair value of notes payable is higher than their carrying value by approximately $2.2 million. At December 31, 1993, the Corporation estimated that the fair value of the Convertible Debentures and notes payable were higher than their respective carrying values by approximately $3 million and $2.8 million, respectively.
Reclassifications
Certain of the 1993 and 1992 amounts have been reclassified to conform to 1994 presentation.
2. PUBLIC OFFERINGS
On April 7, 1993, the Corporation issued 3,450,000 shares of Common Stock at a public offering price of $19.75 per share. The net proceeds of this offering were approximately $64,000,000. On March 6, 1992, the Corporation issued 1,725,000 shares of Common Stock at a public offering price of $16.00 per share and sold $75,000,000 of 8-1/2% Convertible Debentures due 2002. (See Note 6). The net proceeds of this offering were approximately $98,000,000. The proceeds from these offerings were used to retire debt and for general corporate purposes, primarily to purchase commercial real estate.
During September 1993, the Corporation filed with the Securities and Exchange Commission a $200 million shelf registration statement on Form S-3. This registration statement was filed for the purpose of issuing either Common Stock or debentures for repaying outstanding debt, potential future acquisitions of commercial properties and general corporate purposes. As of December 31, 1994, no issuances have occurred.
3. RELATED PARTY TRANSACTIONS
During 1993, the Corporation loaned to its then president $898,700, due March 31, 1995. The note bears interest at the same variable rate the Corporation pays on its unsecured line of credit plus .25%. The note is secured by approximately 71,000 shares of the Corporation's Common Stock owned by such former officer. In connection with the resignation of such officer in the fourth quarter of 1994, the note was modified to be interest-free from January 1, 1994 through March 31, 1995. Additionally, effective April 1, 1995 the note will be reduced by the amount of accrued incentive compensation plus interest thereon (approximately $145,000), and be extended on an interest bearing basis, until March 31, 1996.
4. PROPERTY
Property is stated at cost and is summarized as follows (in thousands):
The properties are leased to tenants under leases expiring at various dates through 2014. Certain of these leases contain provisions for rent increases based on cost-of-living indices and certain leases contain renewal options of up to 55 years. Future minimum rental income to be received by the Corporation under the terms of these operating leases is as follows as of December 31, 1994 (in thousands):
Certain properties, with a net book value of $226,147,000 at December 31, 1994, are pledged as collateral for notes payable described in Note 5. In addition, the notes are secured by assignments of rents on such properties. Certain properties are located on land which is subject to noncancelable ground leases expiring at various dates through 2035 with minimum annual lease payments of approximately $411,000.
5. NOTES PAYABLE
Mortgage notes and secured line of credit advances are summarized as follows (in thousands):
Principal maturities on the notes payable are summarized as follows (in thousands):
Secured Line of Credit Agreements
The Corporation has a $30,000,000 revolving bank line of credit secured by certain properties on which outstanding borrowings during 1994 accrued interest at prime plus 0.5% or IBOR (the bank's international reference rate) plus 2.5%. At December 31, 1994 and 1993, the Corporation had $21,000,000 and $24,100,000, respectively, outstanding under this line at an average rate of approximately 8.24% and 5.94%, respectively. This line expires in May 1995. (See Note 15).
The Corporation also had a $35,000,000 non-revolving bank line of credit secured by one of its properties. During 1994, the line was replaced by a seven-year term mortgage note. At December 31, 1994, the term loan bears interest at 180 day LIBOR (London Inter-Bank Offer Rate) plus 2.10% (7.35% at December 31, 1994) and had approximately $34,793,000 outstanding.
All of the Corporation's lines of credit are subject to various borrowing base and debt service coverage limitations including that the ratio of dividends paid to "funds from operations" (net income plus depreciation and amortization) must not exceed 110%.
6. CONVERTIBLE DEBENTURES
On July 15, 1987, the Corporation issued $23,000,000 of 8-1/2% Convertible Debentures due July 15, 2012 at $25.00 per Debenture. The Debentures were convertible at any time prior to maturity into shares of the Corporation's Common Stock at a conversion price of $17.50 per share, subject to adjustment under certain conditions. The Corporation called for redemption the remaining Debentures effective June 11, 1993. During the period January 1, 1993 to the June 11, 1993 redemption date, 830,732 shares of Common Stock were issued as a result of the conversion of $14,538,850 of these Debentures. The remaining $1,631,150 of these Debentures were redeemed on June 11, 1993.
On March 6, 1992, the Corporation issued $75,000,000 of 8-1/2% Convertible Debentures due 2002 at $1,000 per Debenture. The Debentures are convertible at any time prior to maturity into shares of Common Stock at a conversion price of $16 per share, subject to adjustment under certain conditions. On December 31, 1994, the last sale price of the Common Stock, as reported on the New York Stock Exchange, was $12.75 per share. Through December 31, 1994, 3,081,238 shares were issued as a result of the conversion of $49,300,000 of these Debentures.
7. LINE OF CREDIT ADVANCES
The Corporation has a $5,000,000 unsecured line of credit with a bank under which outstanding borrowings during 1994 accrued interest at the bank's prime rate plus 0.25% or IBOR plus 2.25%. At December 31, 1994 and 1993, $5,000,000 was outstanding at a rate of 8.44% and 5.50%, respectively. This line is subject to various borrowing base and debt service coverage limitations and expires in May 1995. (See Note 15).
8. RETIREMENT SAVINGS PLAN
In 1992, the Corporation implemented a contributory Retirement Savings Plan. The maximum contribution is 15% of annual salaries of which up to 3% is contributed by the Corporation at a rate of up to 75% of employee contributions. The Corporation's contributions to this Plan for 1994, 1993 and 1992 were approximately $25,000, $27,000 and $6,000, respectively.
9. DIVIDEND DISTRIBUTIONS
Based on information provided by the Corporation's regular tax advisor, the status of the dividends distributed for 1994, 1993 and 1992 for Federal income tax purposes is as follows:
10. PRICE RANGE OF COMMON STOCK
Market quotations are from the New York Stock Exchange Composite Tape. As of December 31, 1994, there were approximately 4,200 holders of record of the Corporation's shares.
11. STOCK OPTIONS
The Corporation has a stock option plan which expires in November 1997 and is administered by the Compensation Committee of the Board of Directors. The plan provides options for a maximum of 1,000,000 shares of Common Stock at an exercise price of at least 100% of the market value of such stock on the date the options are granted. Options granted expire 10 years from the date of grant. At December 31, 1994, options for 399,537 shares are exercisable and options for 460,152 shares are available for granting.
Activity under the stock option plan is summarized below:
12. DIVIDEND REINVESTMENT PLAN
The Corporation has a Dividend Reinvestment Plan which provides stockholders an opportunity to invest their dividends in newly issued shares at a 5% discount from "fair market value" (as defined in the Plan) without brokerage commissions or service charges. For 1994, 1993 and 1992, 161,363 shares, 133,828 shares, and 122,305 shares, respectively, were issued through the Plan.
Effective January 1, 1993, the Plan was modified to allow participants under the Plan to make optional cash payments to purchase stock at a 5% discount with a $100 minimum and a $5,000 maximum investment per quarter. During 1994 and 1993, approximately $10,731,000 and $3,141,000, respectively, of such optional payments were received and 703,635, and 178,113 shares, respectively, were issued. (See Note 15).
13. REPURCHASE OF STOCK
The Board of Directors has approved the repurchase of shares of the Corporation's Common Stock. In 1992, the Corporation purchased 50,000 shares of stock at an average price of $15.67. No such repurchases occurred during 1993 or 1994.
14. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data for 1994 and 1993 is as follows (in thousands, except per share amounts):
15. SUBSEQUENT EVENTS
Subsequent to December 31, 1994, the Corporation received a commitment for new secured and unsecured revolving lines of credit. The secured facility will have a $40.0 million capacity and be secured by certain properties on which outstanding borrowings will bear interest at prime or IBOR plus 1.75%. The unsecured facility will have a $10.0 million capacity and borrowings will bear interest at prime or IBOR plus 2.00%. Both facilities will mature in June 1997. Effective January 1, 1995 and until the new lines of credit are finalized, the above rates will accrue on the Corporation's secured and unsecured lines of credit which were in place at December 31, 1994.
Effective January 1, 1995, the Corporation temporarily suspended the optional cash payment portion of the Dividend Reinvestment Plan.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------------------------------
The Corporation has had no disagreements with its independent auditors on accounting or financial disclosure.
PART III
ITEMS 10 THROUGH 13. - ----------------------
Incorporated by reference to the Corporation's Proxy Statement for its 1995 Annual Meeting to be filed subsequently hereto.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------
(a) The following financial statements and Independent Auditors' Report are included under Item 8.
Independent Auditors Report.
Balance sheets as of December 31, 1994 and 1993.
Statements of Income for each of the three years in the period ended December 31, 1994.
Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1994.
Statements of Cash Flows for each of the three years in the period ended December 31, 1994.
Notes to Financial Statements, December 31, 1994, 1993, and 1992.
The following Supplemental Financial Schedules are included herein:
III - Real Estate and Accumulated Depreciation.
All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements and notes.
(b) Reports on Form 8-K -----------------------
No reports on Form 8-K were filed during the quarter ended December 31, 1994.
(c) Exhibits ------------
3.1 Articles of Incorporation of the Corporation, incorporated by reference to Registration Statement No. 33-14571. Reference is also made to pages A-4 through A-6 of Registration Statement No. 33-20489 for amendments adopted at the Corporation's Annual Meeting of Shareholders on June 3, 1988.
3.2.1 Bylaws of the Corporation incorporated by reference to Amendment No. 2 to Registration Statement No. 33-14571, and for amendment thereto to pages 3, 5 and 10-11 of the Corporation's Proxy Statement dated October 21, 1987. Reference is also made to pages A-6 through A-8 of the Registration Statement No. 33-20489 for amendments adopted at the Corporation's Annual Meeting of Shareholders on June 3, 1988.
3.2.2 Restated and Amended Bylaws effective May 3, 1994, subject to Shareholder approval at the 1994 Annual Meeting.
4.1 Share certificate for Common Stock of the Corporation, incorporated by reference to Exhibit 4.0 to Registration Statement No. 33-20489.
4.2 Indenture for 8-1/2% Convertible Debentures Due 2002 dated as of January 1, 1992, between the Corporation and Trustee (including text of Debenture), incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-45160.
10.1 Stock Option Plan of the Corporation, as amended July 26, 1993, incorporated by reference to Exhibit 10.1 filed with the Corporations 1993 report on Form 10-K.
10.2.1 Bank of America NT&SA Loan Agreement dated October 19, 1992 for $25,000,000 secured revolving line of credit and $5,000,000 unsecured revolving line of credit, incorporated by reference to Exhibit 10.3 to Registration Statement No. 33-58024.
10.2.2 Bank of America NT&SA Modification Loan Agreement dated October 6, 1993 for $25,000,000 secured revolving line of credit, incorporated by reference to Exhibit 10.2.2 filed with the Corporation's 1993 report on Form 10-K.
10.2.3 Bank of America NT&SA Modification Loan Agreement dated October 6, 1993 for $5,000,000 unsecured revolving line of credit, incorporated by reference to Exhibit 10.2.3 filed with the Corporation's 1993 report on Form 10-K.
10.3 Bank of America NT&SA Loan Agreement dated October 6, 1993 for $35,000,000 non-revolving secured line of credit, incorporated by reference to Exhibit 10.3 filed with the Corporation's 1993 report on Form 10-K.
10.4 Bank of America NT&SA Loan Agreement dated July 26, 1994 for $35,000,000, incorporated by reference to Exhibit 10.1 filed with the Corporation's September 30, 1994 report on Form 10-Q.
23.1* Consent of Independent Auditors.
- ----------------------- *Exhibit enclosed with this filing.
BURNHAM PACIFIC PROPERTIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION FORM 10-K SCHEDULE III DECEMBER 31, 1994
See Notes to Schedule III on next page
BURNHAM PACIFIC PROPERTIES, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION FORM 10-K SCHEDULE III NOTES December 31, 1994
Note 1: Fireman's Fund Building, Poway Plaza, Santee Village and Pacific West Outlet Center are jointly encumbered under a secured revolving line of credit agreement, under which $21,000,000 was outstanding at December 31, 1994, which was not included in the table above.
Note 2: The amounts above do not include $2,077,040 of furniture, fixtures and equipment and $944,022 of related accumulated depreciation which are also classified with property in the financial statements.
Note 3: The aggregate cost for federal income tax purposes for buildings and improvements December 31, 1994 was approximately $267,174,000.
Note 4: Reconciliation of Additions to real estate.
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.
Burnham Pacific Properties, Inc.
By: //Malin Burnham// ------------------------ Malin Burnham, President
Dated: 3-20-95 ---------------------
SIGNATURES
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.