10-K405 1 a70755e10-k405.txt FORM 10-K405 FISCAL YEAR ENDED DECEMBER 31, 2000 1 ================================================================================ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 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 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED -------------------------------- ----------------------------------------- Common Stock, $0.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 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. [X] The aggregate market value of the shares of common stock held by non-affiliates was approximately $510,663,000 based upon the closing price on the New York Stock Exchange for such shares of $21.84 on March 16, 2001. As of March 16, 2001, the number of shares of the Registrant's common stock outstanding was 31,390,038. ================================================================================ ================================================================================ 2 DOCUMENTS INCORPORATED BY REFERENCE Part III of this report on Form 10-K incorporates by reference information from our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days of the close of our fiscal year. PAN PACIFIC RETAIL PROPERTIES, INC. TABLE OF CONTENTS
PART I Page ---- ITEM 1. BUSINESS........................................................ 1 ITEM 2. PROPERTIES...................................................... 9 ITEM 3. LEGAL PROCEEDINGS............................................... 22 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 22 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................... 22 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................ 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 24 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................... 31 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 32 ITEM 11. EXECUTIVE COMPENSATION.......................................... 32 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................... 32 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..................................................... 32 FINANCIAL PAGES ........................................................ F-1
3 PART I ITEM 1. BUSINESS We are a self-administered and self-managed real estate investment trust, or REIT. Our portfolio consists principally of community and neighborhood shopping centers predominantly located in five key Western U.S. markets. On November 13, 2000, we acquired Western Properties Trust, a California real estate investment trust. The transaction was a stock for stock exchange whereby Western common shares and units were exchanged into newly issued Company common shares and operating partnership units, based upon a fixed exchange ratio of 0.62. In connection with this transaction, we assumed Western's obligations under its senior notes and the indentures under which they were issued. As a result, we issued 10,754,256 shares of our common stock to holders of Western common shares and are obligated to issue 911,934 shares of our common stock upon the exchange of operating partnership units held by limited partners of Pan Pacific (Kienows), L.P., formerly Western/Kienow, L.P., and Pan Pacific (Pinecreek), L.P., formerly Western/Pinecreek, L.P. As of December 31, 2000, we owned a portfolio comprised of 110 shopping center properties, of which 106 are located in the Western United States including 44 in Northern California, 14 in Southern California, 24 in Oregon, 13 in Nevada and 11 in Washington. We employed 100 people as of December 31, 2000, including five executive officers and senior personnel, in the areas of administration, accounting services, property management, maintenance, leasing, acquisitions and business development. Our executive offices are located at 1631-B South Melrose Drive, Vista, California, and our telephone number is (760) 727-1002. In addition to personnel located at our executive offices, we operate regional offices in Las Vegas, Nevada; Kent, Washington; Portland, Oregon; Chino, California; and Sacramento, California. Each of our regional offices is responsible for property management, maintenance and leasing. We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended commencing with our taxable year ended December 31, 1997. We believe that, commencing with our taxable year ended December 31, 1997, we have been organized and have operated in such a manner so as to qualify for taxation as a REIT under the Internal Revenue Code, and we intend to continue to operate in such a manner, but we cannot assure you that we will continue to operate in such a manner so as to qualify or remain qualified. Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our revenue and properties. BUSINESS STRATEGIES Our business strategies involve three fundamental practices: - Owning and operating shopping centers in select markets with strong economic and demographic characteristics in order to establish and maintain a portfolio of real estate assets with stable income and the potential for long-term growth; - Developing local and regional market expertise through the hands-on participation of senior management in property operations and leasing in order to capitalize on market trends, retailing trends and acquisition opportunities; and - Establishing and maintaining a diversified and complementary tenant mix with an emphasis on tenants that provide day-to-day consumer necessities in order to provide steady rental revenue. 1 4 GROWTH STRATEGIES Our principal growth strategy is to acquire shopping centers that provide an opportunity to expand in current markets or which allows us to establish a presence in targeted markets with favorable economic and demographic characteristics. - We seek to acquire properties that can benefit from our hands-on management, that may require repositioning, redevelopment or renovation or which can be purchased at attractive capitalization rates and are consistent in terms of quality and location with our existing portfolio. - We seek to continue to utilize our in-depth market knowledge within our five key markets to pursue our strategy of opportunistic acquisitions of shopping centers for long-term investment. We believe that significant opportunities continue to exist within these markets to acquire shopping center properties that are consistent with our existing portfolio in terms of quality of construction, positive submarket demographics and location attributes and that provide attractive initial investment yields with potential for growth in cash flow. - We further believe we have certain competitive advantages which enhance our ability to identify and capitalize on acquisition opportunities, including: (i) long-standing relationships with institutional and other owners of shopping center properties in our five primary regions; (ii) fully integrated real estate operations which enable us to respond quickly to acquisition opportunities and to capitalize on the resulting economies of scale; and (iii) access to capital as a public company. From the closing of our initial public offering on August 13, 1997 through October 31, 2000, we acquired 39 shopping centers totaling 5,230,374 square feet of retail space for approximately $435,800,000. In November 2000, through our acquisition of Western, we acquired 50 additional properties totaling 5,652,044 square feet of retail space for approximately $440,000,000 in stock and the assumption of Western's debt. All of these 89 properties are located in our five key markets, and 67 of the shopping centers (75%) are anchored by grocery stores. We believe that all of these shopping centers are located in markets with strong demographic characteristics. We intend to add value to these retail properties through the application of our active, hands-on management and aggressive leasing strategies. We believe that current market conditions are generally favorable to acquisitions and, as such, we intend to continue acquiring properties as our primary growth strategy. We also seek to maximize the cash flow from our properties by continuing to enhance the operating performance of each property through our in-house leasing and property management programs. We aggressively pursue: - the leasing of currently available space; - the renewal or releasing of expiring leases at higher rental rates which we believe currently are available based on current market conditions and our recent leasing activity; and - economies of scale in the management and leasing of properties that may be realized by focusing our acquisition activities within our five primary regions. FINANCING STRATEGIES Our financing strategy is to maintain a strong and flexible financial position by maintaining a prudent level of leverage, maintaining a pool of unencumbered assets and managing our variable interest rate exposure. We intend to finance future acquisitions with the most advantageous source of capital available to us at the time of an acquisition, which may include the sale of common stock, preferred stock or debt securities through public offerings or private placements, the incurrence of additional indebtedness through secured or unsecured borrowings and the issuance of operating units of a subsidiary in exchange for contributed property. 2 5 During 1998, we completed a secondary offering of 4,348,000 shares of common stock at $21.125 per share. The net proceeds to us were approximately $85,913,000. We also obtained an increase to our unsecured credit facility from $150,000,000 to $200,000,000 and a reduction in the top borrowing rate thereunder to LIBOR plus 1.375%. Also, during 1998, we formed Pan Pacific (Portland), LLC with us as sole managing member. In the fourth quarter, Pan Pacific (Portland) acquired a portfolio of six shopping centers located in Oregon. In exchange for four properties which were contributed to Pan Pacific (Portland), 832,617 units were issued to certain non-managing members. Distributions are made to the non-managing members at a rate equal to the dividend distribution paid by us on a share of our common stock. A non-managing member can seek redemption of their units after the first anniversary. We may, at our option, redeem the units by either (i) issuing common stock at the rate of one share for each unit, or (ii) by paying cash for their units. During 1999, we completed a number of financing transactions. At the end of the second quarter, we closed a $35,000,000 financing transaction evidenced by notes, bearing interest at 7.2%, due in July 2006 and secured by deeds of trust on two properties, Rainbow Promenade and San Dimas Marketplace. At the beginning of the third quarter, we closed a second financing transaction for $56,300,000 evidenced by notes, bearing interest at 7.1%, due in August 2009 and secured by deeds of trust on four properties, Melrose Village Plaza, Monterey Plaza, Tustin Heights Shopping Center and Tanasbourne Village. The proceeds were used to pay down our unsecured credit facility. Also in the third quarter of 1999, we formed Pan Pacific (Rancho Las Palmas), LLC and Pan Pacific (RLP), Inc. in connection with the acquisition of Rancho Las Palmas. We and Pan Pacific (RLP) are co-managing members of Pan Pacific (Rancho Las Palmas). As part of the acquisition, and in exchange for an interest in the asset contributed to Pan Pacific (Rancho Las Palmas) by an individual, 314,587 units were issued to this individual, a non-managing member. Distributions are made to the non-managing member at a rate equal to dividend distributions paid by us on a share of our common stock. The non-managing member can seek redemption of its units after the first anniversary. We, at our option, may redeem the units by either (i) issuing common stock at the rate of one share for each unit, or (ii) by paying cash for their units. In December 1999, we entered into a loan modification agreement with the lender on Chino Town Square. Pursuant to the terms of the modification agreement, the maturity date was extended to January 2010 and the interest rate was reduced from 8.00% to 7.72%. This loan previously had a maturity date of March 2000. Also in December 1999, we extended our $200,000,000 Unsecured Credit Facility for an additional three years. In October 1999, we received an investment grade credit rating from Standard & Poor's. Because of this rating, the borrowing rate on the credit line was reduced to LIBOR plus 1.15%. In November 2000, we also received an investment grade credit rating from Moody's Investors Service. In connection with our acquisition of Western in November 2000, we entered into additional new financing arrangements including a $300,000,000 Revolving Credit Agreement and a $100,000,000 Term Credit Agreement. The Revolving Credit Agreement matures in January 2004 and the Term Credit Agreement matures in November 2001. Our borrowing rate under the Revolving Credit Agreement is LIBOR plus 1.10% while the borrowing rate under the Term Credit Agreement is LIBOR plus 1.20%. Also in connection with our acquisition of Western, we assumed Western's obligations including its Unsecured Senior Notes in principal amounts of $50,000,000 bearing interest at 7.875% due 2004, $25,000,000 bearing interest at 7.10% due 2006, $25,000,000 bearing interest at 7.20% due 2008 and $25,000,000 bearing interest at 7.30% due 2010, and the indentures under which these notes were issued. We also assumed a mortgage note bearing interest at 7.61% due May 2004 in the principal amount of $9,628,000, secured by a deed of trust on Lakewood Village. DISPOSITIONS During 1999, we disposed of three non-strategic assets. In June, we sold a single-tenant property in Hillsboro, Oregon. The net proceeds from the sale were used to repay indebtedness under our unsecured credit facility. In December, we sold Rosewood Village, a 50,000 square foot property in Northern California. The net proceeds were used to acquire the Cable Park property in a like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code. Also in December, we sold Foothill Center, a 20,000 square foot property in Southern California. 3 6 We took back a portion of the proceeds as a note receivable secured by a deed of trust. The balance of the net proceeds, received in cash, was used to repay indebtedness under our unsecured credit facility. In December 2000, we disposed of a single-tenant non-strategic asset located in Santa Cruz, California. The asset was a part of the Western portfolio and was sold for an amount equal to its net book value. We took back a portion of the proceeds as a note receivable secured by a deed of trust. The balance of the net proceeds, received in cash, was placed with an exchanger for use in a like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code. We may dispose of certain non-strategic assets over the next eighteen months. However, if after taking into account the tax consequences of any disposition, including our continued ability to qualify as a REIT, we determine that a disposition would not be in our best interest, we will not dispose of such asset. CERTAIN CAUTIONARY STATEMENTS REAL ESTATE INVESTMENT ASSOCIATED RISKS. Real property investments are subject to varying degrees of risk. The yields available from equity investments in real estate depend in large part on the amount of income generated and expenses incurred. If our properties do not generate revenue sufficient to meet operating expenses, including debt service, tenant improvements, leasing commissions and other capital expenditures, we may have to borrow additional amounts to cover fixed costs. This would adversely affect our cash flow and ability to service our debt and make distributions to our stockholders. Our revenue and the value of our properties may be adversely affected by a number of factors, including: - The national economic climate; - The local economic climate; - Local real estate conditions; - Changes in retail expenditures by consumers; - The perceptions of prospective tenants of the attractiveness of the properties; - Our ability to manage and maintain the properties and secure adequate insurance; and - Increases in operating costs (including real estate taxes and utilities). In addition, real estate values and income from properties are also affected by factors such as applicable laws, including tax laws, interest rate levels and the availability of financing. OUR POTENTIAL INABILITY TO RETAIN TENANTS AND RELET SPACE. We will be subject to the risks that, upon expiration or termination, leases may not be renewed, the space may not be relet or the terms of renewal or reletting (including the cost of required renovations) may be less favorable than current lease terms. Leases covering a total of approximately 6.2% and 44.0% of the leased gross leasable area, or GLA, of our properties will expire through the end of 2001 and 2005, respectively. We budget for renovation and reletting expenses, which takes into consideration our view of both the current and expected market conditions in the geographic regions in which our properties are located, but we cannot assure you that the budgeted amounts will be sufficient to cover these costs. Our cash flow and ability to make expected distributions to stockholders could be adversely affected, if: - We are unable to promptly relet or renew leases for all or a substantial portion of this space; - The rental rates upon renewal or reletting are significantly lower than expected; or - Our budgeted amounts for these purposes prove inadequate. 4 7 DEPENDENCE ON MARKET CONDITIONS IN THE GEOGRAPHIC REGIONS. We have 44 properties located in Northern California, 14 properties located in Southern California, 24 properties located in Oregon, 13 properties located in Nevada and 11 properties located in Washington. To the extent that general economic or other relevant conditions in these regions decline and result in a decrease in consumer demand in these regions, our performance may be adversely affected. POTENTIAL ILLIQUIDITY OF REAL ESTATE. Equity real estate investments are relatively illiquid. This illiquidity tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, the Internal Revenue Code limits a REIT's ability to sell properties held for fewer than four years, which may affect our ability to sell properties without adversely affecting returns to holders of common stock. COMPETITION WITH OTHER DEVELOPERS AND REAL ESTATE COMPANIES. There are numerous commercial developers and real estate companies that compete with us in seeking tenants for properties, properties for acquisition and land for development. There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. In addition, retailers at our properties face increasing competition from outlet stores, discount shopping clubs, and other forms of marketing of goods, such as direct mail, internet marketing and telemarketing. This competition may reduce properties available for acquisition or development, reduce percentage rents payable to us and may, through the introduction of competition, contribute to lease defaults or insolvency of tenants. Thus, competition could materially affect our ability to generate net income and to service our debt and make distributions to our stockholders. COST OF COMPLIANCE WITH CHANGES IN LAWS. Because increases in income, service or transfer taxes are generally not passed through to tenants under leases, these increases may adversely affect our cash flow and our ability to service our debt and make distributions to stockholders. Our properties are also subject to various federal, state and local regulatory requirements, such as requirements of the Americans with Disabilities Act of 1990 and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. In addition, we cannot assure you that these requirements will not be changed or that new requirements will not be imposed that would require significant unanticipated expenditures by us. Any of these events could adversely affect our cash flow and expected distributions. RELIANCE ON CERTAIN TENANTS AND ANCHORS. Our income and funds from operations could be adversely affected in the event of the bankruptcy or insolvency, or a downturn in the business, of any anchor store, or if any anchor tenant does not renew its lease when it expires. If tenant sales at our properties were to decline, tenants might be unable to pay their rent or other occupancy costs. In the event of default by a tenant, delays and costs in enforcing our rights could be experienced. In addition, the closing of one or more anchor-occupied stores or lease termination by one or more anchor tenants of a shopping center, whose leases may permit termination, could adversely impact that property and result in lease terminations or reductions in rent by other tenants, whose leases may permit termination or rent reduction in those circumstances. This could adversely affect our ability to re-lease the space that is vacated. Each of these developments could adversely affect our funds from operations and our ability to service our debt and make expected distributions to stockholders. LACK OF OPERATING HISTORY WITH RESPECT TO THE RECENT ACQUISITION AND DEVELOPMENT OF PROPERTIES. At December 31, 2000, we owned and operated 110 properties, consisting of approximately 15.2 million square feet of space. Fifty-three of our properties were acquired during 2000, primarily through the acquisition of Western, and may have characteristics or deficiencies currently unknown to us that affect their value or revenue potential. It is also possible that the operating performance of these properties may decline under our management. As we acquire additional properties, we will be subject to risks associated with managing new properties, including lease-up and tenant retention. In addition, our ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing management structure. We cannot assure you that we will succeed with this integration or effectively manage additional properties. We also cannot assure you that newly acquired properties will perform as expected. INFLUENCE OF CERTAIN AFFILIATES. Stuart Tanz, our Chairman, President and Chief Executive Officer, through his and his family's ownership interests in Revenue Properties Company Limited and Revenue Properties Company Limited's ownership of Revenue Properties (U.S.), Inc., owns or controls approximately 26% of our total outstanding shares of common stock as of March 16, 2001. In addition, Revenue Properties (U.S.), Inc. has the right to nominate two of our directors. Consequently, although the Tanz family will not be able to take action on our 5 8 behalf without the concurrence of other members of our board of directors, they may be able to exert substantial influence over our affairs. This influence might not be consistent with the interest of other stockholders. In addition, there may be conflicts between the interests of the public stockholders of Revenue Properties Company Limited and our public stockholders. DEPENDENCE ON KEY MANAGEMENT PERSONNEL. Our executive officers have substantial experience in owning, operating, managing, acquiring and developing shopping centers. We believe that our success will depend in large part upon their efforts. If any key management personnel do not remain in our employ, we could be materially adversely affected. DEBT FINANCING AND EXISTING DEBT MATURITIES. We are subject to risks normally associated with debt financing, including: - The risk that our cash flow will be insufficient to meet required payments of principal and interest; - The risk that existing indebtedness on our properties (which in all cases will not have been fully amortized at maturity) will not be able to be refinanced; or - The terms of any refinancing will not be as favorable as the terms of existing indebtedness. At December 31, 2000, we had outstanding indebtedness of approximately $626,411,000. Since we anticipate that only a small portion of the principal of the indebtedness will be repaid prior to maturity, and that we will not have funds on hand sufficient to repay the balance of the indebtedness in full at maturity, it will be necessary for us to refinance the debt either through additional borrowings or equity or debt offerings. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, we expect that our cash flow will not be sufficient in all years to pay distributions at expected levels and to repay all of this maturing debt. Also, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates upon refinancing, the interest expense relating to refinanced indebtedness would increase. This could adversely affect our cash flow and our ability to make expected distributions to our stockholders. In addition, if we are unable to refinance the indebtedness on acceptable terms, we might dispose of properties upon disadvantageous terms, which might result in losses to us and might adversely affect funds available for distribution to stockholders. POTENTIAL DEFAULTS UNDER MORTGAGE FINANCING. At December 31, 2000, we had approximately $233,911,000 in principal amount of mortgage financing. The payment and other obligations under certain of the mortgage financing is secured by cross-collateralized, and cross-defaulted first mortgage liens in the aggregate amount of approximately $55,333,000 on four properties, $52,524,000 on four other properties, $17,970,000 on three properties and $34,254,000 on two properties. If we are unable to meet our obligations under the mortgage financing, the properties securing that debt could be foreclosed upon. This could have a material adverse effect on us and our ability to make expected distributions and could threaten our continued viability. RISING INTEREST RATES AND VARIABLE-RATE DEBT. Advances under our Revolving Credit Agreement and our Term Credit Agreement bear interest at a variable-rate. In addition, we may incur other variable-rate indebtedness in the future. Increases in interest rates on that indebtedness would increase our interest expense, which could adversely affect our cash flow and our ability to service our debt and pay expected distributions to stockholders. Accordingly, we may in the future engage in other transactions to further limit our exposure to rising interest rates as appropriate and cost effective. TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT. Commencing with our taxable year ended December 31, 1997, we believe that we have qualified as a REIT under the Internal Revenue Code. Qualification as a REIT involves the satisfaction of numerous requirements (some on an annual and some on a quarterly basis) established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations. These requirements involve the determination of various facts and circumstances not entirely within our control. Legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. 6 9 If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Moreover, unless we were entitled to relief under certain statutory provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our qualification. This treatment would significantly reduce our net earnings available for distribution to stockholders because of our additional tax liability for the years involved. In addition, distributions to stockholders would no longer be required. ACQUISITION AND DEVELOPMENT INVESTMENTS MAY NOT PERFORM AS EXPECTED. We intend to continue acquiring, developing and redeveloping shopping center properties. Acquisitions of retail properties entail risks that investments will fail to perform in accordance with expectations. Estimates of development costs and costs of improvements, to bring an acquired property up to standards established for the market position intended for that property, may prove inaccurate. We intend to expand or renovate our properties from time to time. Expansion and renovation projects generally require expenditure of capital as well as various government and other approvals, the receipt of which cannot be assured. While our policies with respect to expansion and renovation activities are intended to limit some of the risks otherwise associated with such activities, we will still incur certain risks, including expenditures of funds on, and devotion of management's time to, projects that may not be completed. We anticipate that future acquisitions, development and renovations will be financed through a combination of advances under our Revolving Credit Agreement and other forms of secured or unsecured financing. If new developments are financed through construction loans, there is a risk that, upon completion of construction, permanent financing for newly developed properties may not be available or may be available only on disadvantageous terms. It is possible that we will in the future expand our business to new geographic markets. We will not initially possess the same level of familiarity with new markets outside of the geographic areas in which our properties are currently located. This could adversely affect our ability to acquire, develop, manage or lease properties in any new localities. We also intend to develop and construct shopping centers in accordance with our business and growth strategies. Risks associated with our development and construction activities may include: - Abandonment of development opportunities; - Construction costs of a property exceeding original estimates, possibly making the property uneconomical; - Occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable; - Financing may not be available on favorable terms for development of a property; and - Construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs. In addition, new development activities, regardless of whether they would ultimately be successful, typically require a substantial portion of management's time and attention. Development activities would also be subject to risks relating to our inability to obtain, or delays in obtaining, all necessary zoning, land use, building, occupancy, and other required governmental permits and authorizations. OUR PROPERTIES MAY BE SUBJECT TO UNKNOWN ENVIRONMENTAL LIABILITIES. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property. They may also be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by these parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants. Liability under these laws may still be imposed even when the contaminants were associated with 7 10 previous owners or operators and the liability under these laws has been interpreted to be joint and several, unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of these substances may be substantial, and the presence of these substances, or the failure to properly remediate the contamination on the property, may adversely affect the owner's ability to sell or rent the property or to borrow using the property as collateral. The presence of contamination at a property can impair the value of the property even if the contamination is migrating onto the property from an adjoining property. Those who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility may also be liable for the costs of removal or remediation of a release of hazardous or toxic substances at the disposal or treatment facility, whether or not the facility is owned or operated by them. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs incurred in connection with the contamination. Sometimes, the remedy to remediate contamination may include deed restriction or institutional control, which can restrict how the property may be used. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination stemming from the site. Some federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials, or ACMs, when these materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. These laws may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with our ownership and operation of our properties, we may be potentially liable for these costs. Shopping centers may have businesses such as dry cleaners and auto repair or servicing businesses that handle, store and generate small quantities of hazardous wastes. The operation may result in spills or releases from time-to-time that can result in soil or groundwater contamination. Independent environmental consultants have conducted or updated Phase I Environmental Assessments at our properties. These Phase I Assessments have included, among other things, a visual inspection of our properties and the surrounding area and a review of relevant state, federal and historical documents. Phase I Assessments of our properties have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets or results of operations taken as a whole, nor are we aware of any material environmental liability. It is still possible that our Phase I Assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, we cannot assure you that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of our properties will not be affected by tenants, by the condition of land or operations in the vicinity of our properties (such as the presence of underground storage tanks), or by third parties unrelated to us. NO LIMITATION ON AMOUNT OF INDEBTEDNESS WE MAY INCUR. At December 31, 2000, our debt to total market capitalization ratio was approximately 45.1% (assuming the conversion of all subsidiary LLC and LP units). We currently have a policy of incurring debt only if upon incurrence the debt to total market capitalization ratio would be 50% or less. It should be noted, however, that our organizational documents do not contain any limitation on the amount of indebtedness we may incur. Accordingly, our board of directors could alter or eliminate this policy. If this policy were changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our cash flow and, consequently, reduce the amount available for distribution to stockholders. This could also increase the risk of default on our indebtedness. CERTAIN TYPES OF LOSSES MAY EXCEED INSURANCE COVERAGE. We carry comprehensive liability, public area liability, fire, earthquake, flood, boiler and machinery, extended coverage and rental loss insurance covering our properties, with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances. There are, however, certain types of losses that are not generally insured because it is not economically feasible to insure against these losses. If an uninsured loss or a loss exceeding insured limits occurs, we could lose our capital invested in the property, as well as the anticipated future revenue from the property. In the case of debt which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the property. In these circumstances, any loss would adversely affect us. 8 11 DISPOSITION OF PROPERTIES WITH BUILT-IN GAIN. In connection with our formation in 1997, certain entities taxable as "C" corporations were merged either into us or into our subsidiaries which qualified as "qualified REIT subsidiaries". Certain of these entities held 13 properties with "built-in gain" at the time the entities were merged into us or into our subsidiaries. A property has "built-in gain" if (i) on the day it was acquired, the former owner's tax basis in the property was less than the property's fair market value, and (ii) it was acquired in a transaction in which our tax basis in the property was determined by reference to the former owner's tax basis in the property. Under recently promulgated Treasury Regulations, if these properties are sold within 10 years of the date we acquired them, we will be required to pay taxes on the built-in gain that would have been realized if the merging "C" corporation had liquidated on the day before the date of the mergers. Therefore, we may have less flexibility in determining whether or not to dispose of these properties. If we desire to dispose of these properties at some future date within this 10 year period, we may be subject to tax on the built-in gain. ITEM 2. PROPERTIES GENERAL As of December 31, 2000, we operated 110 neighborhood and community shopping centers containing 15.2 million square feet of which 13.5 million square feet is owned by us with the balance owned by certain retailers. These properties are primarily situated in five key Western U.S. markets including Northern California, Southern California, Oregon, Nevada and Washington, each of which we believe has attractive economic and demographic characteristics. The largest concentration of properties, consisting of 41% of the total gross leasable area, is located in Northern California. Another 13% of the total gross leasable area is located in Southern California, 18% in Oregon, 15% in Nevada and 11% in Washington. In addition, properties consisting of the remaining 2% of the total gross leasable area are located in New Mexico, Tennessee, Kentucky and Florida. As of December 31, 2000, 96.5% of our total gross leasable area was leased by 2,253 tenants. These properties are regionally managed under active central control by our executive officers. Property management, leasing, capital expenditures, construction and acquisition decisions are centrally administered at the Company's corporate office. We employ property managers at each of our regional offices to oversee and direct the day-to-day operations of these properties, as well as on-site personnel. Property managers communicate daily with our corporate offices to implement our policies and procedures. As a result of our in-house leasing program, these properties benefit from a diversified merchandising mix. At December 31, 2000, 61% of the total leased gross leasable area was leased to national tenants, 19% leased to regional tenants and 20% to local tenants. To promote stability and attract non-anchor tenants, we generally enter into long-term leases (typically 15 to 20 years) with major or anchor tenants which usually contain provisions permitting tenants to renew their leases at rates which often include fixed rent increases or consumer price index adjustments from the prior base rent. At December 31, 2000, anchor tenants leased 59% of the total leased gross leasable area, with only 53% of anchor-leased gross leasable area (31% of the total leased gross leasable area) scheduled to expire within the next 10 years. To take advantage of improving market conditions and changing retail trends, we generally enter into shorter term leases (typically three to five years) with non-anchor tenants. Our leases are generally on a triple-net basis, which require the tenants to pay their pro rata share of all real property taxes, insurance and property operating expenses. 9 12 PROPERTY SUMMARY The following table sets forth certain information for the 110 retail centers as of December 31, 2000.
GROSS LEASABLE AREA ------------------- YEAR COMPANY TENANT % LEASED TOTAL NUMBER COMPLETED/ OWNED OWNED TOTAL AS OF OF TENANTS AS PROPERTY AND LOCATION EXPANDED (SQ. FT.) (SQ. FT.) (SQ. FT.) 12/31/00 (4) OF 12/31/00 (4) --------------------------------------------------------------------------------------------------------------------------------- NORTHERN CALIFORNIA Anderson Square 1977 67,480 34,604 102,084 90.4 % 13 Anderson, CA Angels Camp Town Center 1986 70,323 -- 70,323 97.0 13 Angels Camp, CA Blossom Valley Plaza 1988 111,612 -- 111,612 97.7 20 Turlock, CA Brookvale Shopping Center 1968/ 131,239 -- 131,239 100.0 19 Fremont, CA 1989 Cable Park 1987 160,811 -- 160,811 99.0 33 Sacramento, CA Canal Farms 1987 110,535 -- 110,535 95.9 16 Los Banos, CA Centennial Plaza 1991 132,086 125,584 257,670 98.4 22 Hanford, CA Century Center 1979 214,772 -- 214,772 99.3 34 Modesto, CA Chico Crossroads 1988/ 267,735 -- 267,735 99.6 17 Chico, CA 1994 Cobblestone 1984 122,091 -- 122,091 88.7 21 Redding, CA Commonwealth Square 1987 141,310 -- 141,310 98.9 43 Folsom, CA Country Gables Shopping Center 1993 140,184 -- 140,184 97.3 33 Granite Bay, CA Creekside Center 1968 80,911 -- 80,911 100.0 18 Hayward, CA Currier Square 1989 131,472 -- 131,472 91.1 14 Oroville, CA Dublin Retail Center 1980 154,728 -- 154,728 89.1 7 Dublin, CA Eastridge Plaza 1985 81,010 -- 81,010 96.9 11 Porterville, CA Elverta Crossing 1991 119,998 -- 119,998 97.0 22 Sacramento, CA Fairmont Shopping Center 1988 104,281 -- 104,281 98.7 28 Pacifica, CA Fashion Faire Shopping Center 1987 95,255 -- 95,255 100.0 17 San Leandro, CA Glen Cove Center 1990 66,000 -- 66,000 100.0 11 Vallejo, CA Glenbrook Shopping Center 1990 63,330 -- 63,330 96.5 15 Sacramento, CA Heritage Park Shopping Center 1989 162,999 -- 162,999 93.3 31 Suisun City, CA Heritage Place 1986 119,412 3,500 122,912 95.6 19 Tulare, CA Kmart Center 1966/ 132,630 -- 132,630 96.4 15 Sacramento, CA 1983 Laguna 99 Plaza 1992 89,600 116,200 205,800 98.4 22 Elk Grove, CA Laguna Village 1996 114,433 -- 114,433 100.0 15 Sacramento, CA Lakewood Shopping Center 1988 107,769 -- 107,769 100.0 28 Windsor, CA Lakewood Village 1992 127,237 3,242 130,479 89.5 29 Windsor, CA Manteca Marketplace 1972/ 172,435 -- 172,435 100.0 27 Manteca, CA 1988 Mission Ridge Plaza 1992 96,657 4,500 101,157 98.8 15 Manteca, CA Monterey Plaza 1990 183,180 49,500 232,680 100.0 31 San Jose, CA Northridge Plaza 1990 98,625 -- 98,625 86.1 13 Fair Oaks, CA Park Place 1987 150,766 -- 150,766 91.6 26 Vallejo, CA Pine Creek Shopping Center 1988 212,832 -- 212,832 96.1 35 Grass Valley, CA Plaza 580 Shopping Center 1993 104,363 192,739 297,102 97.6 27 Livermore, CA Raley's Shopping Center 1983 135,114 -- 135,114 99.0 16 Yuba City, CA Serra Center (5) 1992 94,669 154,547 249,216 100.0 13 Colma, CA Shops at Lincoln School 1988 81,443 -- 81,443 100.0 18 Modesto, CA Sky Park Plaza 1985 176,182 -- 176,182 95.9 28 Chico, CA Ukiah Crossroads 1986 110,565 -- 110,565 98.9 20 Ukiah, CA Victorian Walk 1990 102,581 -- 102,581 90.0 20 Fresno, CA Wal Mart 2000 103,284 -- 103,284 100.0 1 Napa, CA Westwood Village Shopping Center 1981/ 102,375 -- 102,375 91.7 20 South Redding, CA 1998 Yreka Junction 1984 127,148 -- 127,148 100.0 19 Yreka, CA ------------ ----------- ------------ ----------- ---------------- REGION TOTAL/WEIGHTED AVERAGE 5,473,462 684,416 6,157,878 96.7 % 915 ------------ ----------- ------------ ----------- ----------------
ANNUALIZED BASE RENT IN PLACE AT 12/31/00 (1) ------------------------ ANN. BASE ANN. BASE RENT/LEASED PROPERTY AND LOCATION RENT ($) (1) SQ. FT. (3) MAJOR RETAILERS ------------------------------------------------------------------------------------------------------------------------- NORTHERN CALIFORNIA Anderson Square $362,392 $5.94 Safeway Supermarket (2), Rite Aid Anderson, CA Angels Camp Town Center 590,963 8.66 Save Mart Supermarket, Rite Aid Angels Camp, CA Blossom Valley Plaza 1,192,676 10.94 Raley's Supermarket, Jo-Ann Fabrics & Crafts Turlock, CA Brookvale Shopping Center 1,364,605 10.40 Albertson's Supermarket, Long's Drugs, Fremont, CA Bally Fitness Cable Park 1,321,377 8.30 Albertson's Supermarket, Long's Drugs Sacramento, CA Canal Farms 826,749 7.80 Save Mart Supermarket, Rite Aid Los Banos, CA Centennial Plaza 1,307,506 10.06 Wal-Mart (2), Food-4-Less Supermarket Hanford, CA Century Center 1,879,408 8.81 Raley's Supermarket, Gottschalks Modesto, CA Chico Crossroads 2,049,827 7.69 Food-4-Less Supermarket, HomeBase, Chico, CA Barnes & Noble Cobblestone 970,953 8.97 Raley's Supermarket Redding, CA Commonwealth Square 1,996,757 14.29 Raley's Supermarket Folsom, CA Country Gables Shopping Center 1,574,288 11.54 Raley's Supermarket Granite Bay, CA Creekside Center 841,052 10.39 Albertson's Supermarket, MacFrugal's Hayward, CA Currier Square 945,852 7.90 Raley's Supermarket Oroville, CA Dublin Retail Center 1,428,729 10.36 Orchard Supply, Marshall's, Ross Stores, Dublin, CA Michael's Arts & Crafts Eastridge Plaza 588,015 7.49 Save Mart Supermarket (6) Porterville, CA Elverta Crossing 1,430,892 12.29 Food-4-Less Supermarket, K-Mart (2), Sacramento, CA Factory 2 U Fairmont Shopping Center 1,267,966 12.32 Albertson's Supermarket, Rite Aid Pacifica, CA Fashion Faire Shopping Center 1,363,230 14.31 Pure Foods Supermarket, Ross Dress for Less, San Leandro, CA Michael's Arts & Crafts Glen Cove Center 866,723 13.13 Safeway Supermarket and Drug Vallejo, CA Glenbrook Shopping Center 477,819 7.82 Albertson's Supermarket Sacramento, CA Heritage Park Shopping Center 1,579,668 10.39 Raley's Supermarket Suisun City, CA Heritage Place 991,613 8.68 Save Mart Supermarket, Rite Aid Tulare, CA Kmart Center 449,878 3.52 K-Mart, MacFrugal's Sacramento, CA Laguna 99 Plaza 1,451,281 16.46 Safeway Supermarket (7), Wal-Mart (2) Elk Grove, CA Laguna Village 1,891,661 16.53 United Artists Theatres, 24 Hour Fitness Sacramento, CA Lakewood Shopping Center 1,040,909 9.66 Raley's Supermarket, U.S. Post Office Windsor, CA Lakewood Village 1,754,600 15.41 Safeway Supermarket, Long's Drugs Windsor, CA Manteca Marketplace 1,845,941 10.71 Save Mart Supermarket, Rite Aid, Manteca, CA Stadium 10 Cinemas, Ben Franklin Crafts Mission Ridge Plaza 1,339,188 14.02 Safeway (7), Wal-Mart (2), Mervyn's (2) Manteca, CA Monterey Plaza 2,650,011 14.47 Wal-Mart, Albertson's Supermarket (2), Walgreens San Jose, CA Northridge Plaza 705,730 8.31 Raley's Supermarket Fair Oaks, CA Park Place 1,689,968 12.24 Raley's Supermarket, 24 Hour Fitness Vallejo, CA Pine Creek Shopping Center 2,220,085 10.85 Raley's Supermarket, JC Penney Grass Valley, CA Plaza 580 Shopping Center 1,771,878 17.40 Target (2), Mervyn's (2), Ross Stores Livermore, CA Raley's Shopping Center 1,073,251 8.02 Raley's Supermarket, Toys R Us Yuba City, CA Serra Center (5) 1,962,329 20.73 Target, Drug Barn, Beverages & More Colma, CA Shops at Lincoln School 767,493 9.42 Save Mart Supermarket Modesto, CA Sky Park Plaza 1,576,878 9.33 Raley's Supermarket, Ross Stores, Jo-Ann Fabrics Chico, CA & Crafts, Dollar Tree Ukiah Crossroads 1,020,222 9.33 Raley's Supermarket Ukiah, CA Victorian Walk 800,833 8.67 Save Mart Supermarket, Rite Aid Fresno, CA Wal Mart 816,156 7.90 Wal-Mart Supercenter Napa, CA Westwood Village Shopping Center 690,846 7.36 Holiday Supermarket, Rite Aid South Redding, CA Yreka Junction 1,072,159 8.43 Raley's Supermarket, JC Penney Yreka, CA ----------- ---------- REGION TOTAL/WEIGHTED AVERAGE $55,810,357 $10.55 ----------- ----------
10 13 PROPERTY SUMMARY (CONTINUED)
GROSS LEASABLE AREA ------------------- YEAR COMPANY TENANT % LEASED TOTAL NUMBER COMPLETED/ OWNED OWNED TOTAL AS OF OF TENANTS AS PROPERTY AND LOCATION EXPANDED (SQ. FT.) (SQ. FT.) (SQ. FT.) 12/31/00 (4) OF 12/31/00 (4) ---------------------------------------------------------------------------------------------------------------------------------- SOUTHERN CALIFORNIA Arlington Courtyard 1991 12,221 -- 12,221 71.8 % 3 Riverside, CA Canyon Square Plaza 1988 96,727 -- 96,727 98.9 30 Santa Clarita, CA Chino Town Square 1987 336,997 188,064 525,061 83.1 50 Chino, CA Encinitas Marketplace 1981 118,458 -- 118,458 99.3 21 Encinitas, CA Granary Square 1982 136,985 -- 136,985 97.7 32 Valencia, CA Laurentian Center 1988 97,131 -- 97,131 100.0 25 Ontario, CA Marina Village 1996 149,107 -- 149,107 94.1 32 Huntington Beach, CA Melrose Village Plaza 1990 132,674 -- 132,674 100.0 32 Vista, CA Palmdale Center 1975 81,050 -- 81,050 96.3 13 Palmdale, CA Rancho Las Palmas 1980 167,852 10,815 178,667 98.6 41 Rancho Mirage, CA San Dimas Marketplace 1997 154,020 117,000 271,020 100.0 23 San Dimas, CA Sycamore Plaza 1976 105,085 -- 105,085 96.2 25 Anaheim CA Tustin Heights Shopping Center 1983 131,518 -- 131,518 100.0 21 Tustin, CA Vineyard Village East 1992 45,200 -- 45,200 100.0 4 Ontario, CA ------------ ----------- ------------ ----------- ---------------- REGION TOTAL/WEIGHTED AVERAGE 1,765,025 315,879 2,080,904 95.3 % 352 ------------ ----------- ------------ ----------- ---------------- WASHINGTON Auburn North 1977/ 171,032 -- 171,032 99.0 % 24 Auburn, WA 1999 Blaine International Center 1991 127,572 -- 127,572 73.2 12 Blaine, WA Canyon Ridge Plaza 1995 86,909 181,300 268,209 100.0 19 Kent, WA Claremont Village Plaza 1955/ 88,770 -- 88,770 96.7 15 Everett, WA 1994 Gateway Shopping Center 96,671 -- 96,671 90.5 16 Mill Creek, WA Olympia Square 1988 167,721 -- 167,721 98.8 38 Olympia, WA Olympia West Center 1980/ 69,212 3,800 73,012 100.0 6 Olympia, WA 1995 Pacific Commons 1987 151,233 55,241 206,474 100.0 23 Spanaway, WA Panther Lake 1989 69,090 44,237 113,327 100.0 21 Kent, WA Sunset Square 1989 376,023 10,634 386,657 98.9 41 Bellingham, WA Tacoma Central 1987/ 134,868 165,519 300,387 100.0 21 Tacoma, WA 1994 ------------ ----------- ------------ ----------- ---------------- REGION TOTAL/WEIGHTED AVERAGE 1,539,101 460,731 1,999,832 96.5 % 236 ------------ ----------- ------------ ----------- ----------------
ANNUALIZED BASE RENT IN PLACE AT 12/31/00 (1) ------------------------ ANN. BASE ANN. BASE RENT/LEASED PROPERTY AND LOCATION RENT ($) (1) SQ. FT. (3) MAJOR RETAILERS --------------------------------------------------------------------------------------------------------------------------- SOUTHERN CALIFORNIA Arlington Courtyard $95,191 $10.85 Harvest Christian Bookstore Riverside, CA Canyon Square Plaza 1,175,411 12.29 Albertson's Supermarket and Drug Santa Clarita, CA Chino Town Square 4,012,264 14.33 Target (2), Wal-Mart, Mervyn's (2), Chino, CA Nordstrom Rack Encinitas Marketplace 1,184,856 10.07 Albertson's Supermarket Encinitas, CA Granary Square 1,930,103 14.42 Ralph's Supermarket, Long's Drugs Valencia, CA Laurentian Center 1,193,975 12.29 Pep Boys, 24 Hour Fitness, Abbey Carpet Ontario, CA Marina Village 1,564,411 11.15 Von's Supermarket, Sav-On Drugs Huntington Beach, CA Melrose Village Plaza 1,613,928 12.16 Albertson's Supermarket, Sav-On Drugs Vista, CA Palmdale Center 457,161 5.86 Smart & Final, Dollar Tree, Pic 'N' Save Palmdale, CA Rancho Las Palmas 2,141,261 12.94 Von's Supermarket, Long's Drugs Rancho Mirage, CA San Dimas Marketplace 2,307,002 14.98 Target (2), Office Max, Ross Stores, San Dimas, CA Petco, Trader Joe's Market Sycamore Plaza 774,267 7.66 Stater Bros. Supermarket, Sav-on Drugs Anaheim CA Tustin Heights Shopping Center 1,550,125 11.79 Ralph's Supermarket, Long's Drugs, Tustin, CA Michael's Arts & Crafts Vineyard Village East 379,001 8.38 Sears, Dunn Edwards Paints Ontario, CA --------------- --------------- REGION TOTAL/WEIGHTED AVERAGE $20,378,956 $12.12 --------------- --------------- WASHINGTON Auburn North $1,301,244 $7.68 Albertson's Supermarket, Rite Aid, Auburn, WA Office Depot, Fashion Bug Blaine International Center 911,516 9.76 Cost Cutter Supermarket, Rite Aid Blaine, WA Canyon Ridge Plaza 1,017,974 11.71 Target (2), Top Foods Supermarket (2), Kent, WA Ross Dress For Less Claremont Village Plaza 1,206,469 14.05 QFC Supermarket and Drug Everett, WA Gateway Shopping Center 1,520,968 17.39 Safeway Supermarket Mill Creek, WA Olympia Square 2,027,315 12.23 Albertson's Supermarket and Drug, Olympia, WA Ross Dress For Less Olympia West Center 1,233,399 17.82 Barnes & Noble, Good Guys, Petco Olympia, WA Pacific Commons 1,554,171 10.28 The Marketplace Supermarket, K-Mart (2) Spanaway, WA Panther Lake 861,361 12.47 Albertson's Supermarket (2), Rite Aid Kent, WA Sunset Square 3,130,277 8.42 Cost Cutter Supermarket, K-Mart, Bellingham, WA Jo-Ann Fabrics & Crafts, Rite Aid Tacoma Central 2,237,040 16.59 Target (2), Top Food & Drug (2), PetSmart, Tacoma, WA Office Depot, TJ Maxx, Cineplex Odeon --------------- --------------- REGION TOTAL/WEIGHTED AVERAGE $17,001,734 $11.45 --------------- ---------------
11 14 PROPERTY SUMMARY (CONTINUED)
GROSS LEASABLE AREA ------------------- YEAR COMPANY TENANT % LEASED TOTAL NUMBER COMPLETED/ OWNED OWNED TOTAL AS OF OF TENANTS AS PROPERTY AND LOCATION EXPANDED (SQ. FT.) (SQ. FT.) (SQ. FT.) 12/31/00 (4) OF 12/31/00 (4) ---------------------------------------------------------------------------------------------------------------------------------- OREGON Albany Plaza 1977/ 114,465 30,998 145,463 100.0 % 19 Albany, OR 1998 Bear Creek Plaza 1977/ 183,850 -- 183,850 100.0 28 Medford, OR 1998 East Burnside Plaza 1999 38,363 -- 38,363 90.7 5 Portland, OR Foster Square 1970 33,808 -- 33,808 100.0 3 Portland, OR Hermiston Plaza 1998 150,396 -- 150,396 97.7 24 Hermiston, OR Hood River 1967/ 104,162 -- 104,162 77.1 10 Hood River, OR 1999 Menlo Park Plaza 1995 112,755 -- 112,755 92.4 16 Portland, OR Milwaukie Marketplace 1989 185,859 10,323 196,182 93.4 24 Milwaukie, OR NE 33rd 1999 22,847 -- 22,847 100.0 1 Portland, OR North Lombard 1994 23,252 -- 23,252 100.0 1 Portland, OR Oregon City Shopping Center 1999 247,689 -- 247,689 96.7 37 Oregon City, OR Oregon Trail Shopping Center 1977/ 208,284 -- 208,284 97.1 30 Gresham, OR 1999 Pioneer Plaza 1988 96,027 4,293 100,320 100.0 23 Springfield, OR Powell Valley Junction 1990 107,583 -- 107,583 95.2 7 Gresham, OR Raleigh Hills Plaza 1988 39,520 -- 39,520 100.0 3 Portland, OR Rockwood Plaza 2000 92,244 -- 92,244 94.7 14 Gresham, OR Sandy Marketplace 1985 101,438 -- 101,438 97.7 19 Sandy, OR SE Milwaukie 2000 21,400 -- 21,400 100.0 1 Portland, OR Shute Park Plaza 1989 58,560 -- 58,560 85.6 19 Hillsboro, OR Southgate Shopping Center 1986 50,862 -- 50,862 100.0 10 Milwaukie, OR St John's Plaza 1993 58,770 -- 58,770 45.7 4 Portland, OR Sunset Mall 1997 115,635 2,500 118,135 100.0 28 Portland, OR Tacoma Shopping Center 1999 13,448 -- 13,448 100.0 1 Portland, OR Tanasbourne Village 1990 210,992 1,209 212,201 98.6 40 Hillsboro, OR ------------ ----------- ------------ ----------- ---------------- REGION TOTAL/WEIGHTED AVERAGE 2,392,209 49,323 2,441,532 94.9 % 367 ------------ ----------- ------------ ----------- ---------------- NEVADA Caughlin Ranch 1990/ 107,688 -- 107,688 93.6 % 21 Reno, NV 1991 Cheyenne Commons 1992 362,758 -- 362,758 99.6 46 Las Vegas, NV Dodge Center 1976 49,258 -- 49,258 100.0 4 Fallon, NV Eagle Station 1982/ 114,258 60,000 174,258 95.0 27 Carson City, NV 1994 Elko Junction 1996/ 170,812 -- 170,812 98.4 20 Elko, NV 1997 Green Valley Town & Country 1990 130,722 -- 130,722 95.4 36 Henderson, NV Mira Loma Shopping Center 1985 94,361 2,546 96,907 100.0 19 Reno, NV Rainbow Promenade 1995/ 228,279 -- 228,279 99.3 25 Las Vegas, NV 1997 Raley's 1991 60,114 -- 60,114 100.0 1 Fallon, NV Sahara Pavilion North 1989 333,679 -- 333,679 99.3 67 Las Vegas, NV Sahara Pavilion South 1990 160,682 -- 160,682 100.0 26 Las Vegas, NV West Town 1978/ 65,424 -- 65,424 100.0 2 Winnemucca, NV 1991 Winterwood Pavilion 1990 144,653 -- 144,653 100.0 27 Las Vegas, NV ------------ ----------- ------------ ----------- ---------------- REGION TOTAL/WEIGHTED AVERAGE 2,022,688 62,546 2,085,234 98.7 % 321 ------------ ----------- ------------ ----------- ----------------
ANNUALIZED BASE RENT IN PLACE AT 12/31/00 (1) ------------------------ ANN. BASE ANN. BASE RENT/LEASED PROPERTY AND LOCATION RENT ($) (1) SQ. FT. (3) MAJOR RETAILERS -------------------------------------------------------------------------------------------------------------------------- OREGON Albany Plaza $909,423 $7.94 Albertson's Supermarket, Rite Aid, Albany, OR Pic 'N' Save, Dollar Tree, Factory 2 U Bear Creek Plaza 1,395,094 7.59 Bi-Mart Drug, TJ Maxx, Pic 'N' Save, Medford, OR Factory 2 U East Burnside Plaza 569,424 16.36 QFC Supermarket Portland, OR Foster Square 193,045 5.71 Dollar Tree, Phoenix Drugs Portland, OR Hermiston Plaza 892,289 6.07 Safeway Supermarket and Drug Hermiston, OR Pic 'N' Save, Dollar Tree Hood River 448,616 5.59 Rosauer's Supermarket, Hi School Pharmacy Hood River, OR Menlo Park Plaza 1,180,630 11.33 Walgreen's, Staples Portland, OR Milwaukie Marketplace 1,469,070 8.46 Albertson's Supermarket, Rite Aid, Milwaukie, OR Jo-Ann Fabrics & Crafts NE 33rd 447,000 19.56 QFC Supermarket Portland, OR North Lombard 429,756 18.48 Walgreen's Portland, OR Oregon City Shopping Center 1,787,696 7.46 Emporium, Rite Aid, Fisherman's Oregon City, OR Marine Supply, Michael's Arts & Crafts Oregon Trail Shopping Center 2,018,292 9.98 Nature's Supermarket, Office Depot, Big 5 Sporting Gresham, OR Goods, Pic 'N' Save, Michael's Arts & Crafts Pioneer Plaza 911,903 9.50 Safeway Supermarket & Drug Springfield, OR Powell Valley Junction 928,418 9.06 Food-4-Less Supermarket, Cascade Athletic Club Gresham, OR Raleigh Hills Plaza 937,092 23.71 New Season's Supermarket, Walgreen's Portland, OR Rockwood Plaza 734,182 8.40 Dollar Tree, Vintage Thrift Gresham, OR Sandy Marketplace 871,198 8.79 Danielson's Fresh Market, Hi School Pharmacy, Sandy, OR Factory 2 U SE Milwaukie 350,160 16.36 QFC Supermarket Portland, OR Shute Park Plaza 594,816 11.87 Baxter's Auto Parts Hillsboro, OR Southgate Shopping Center 622,485 12.24 Office Max Milwaukie, OR St John's Plaza 217,836 8.11 Rite Aid Portland, OR Sunset Mall 1,277,767 11.05 Safeway Supermarket & Drug Portland, OR Tacoma Shopping Center 349,728 26.01 New Season's Supermarket Portland, OR Tanasbourne Village 2,751,366 13.23 Safeway Supermarket, Rite Aid Hillsboro, OR -------------- --------------- REGION TOTAL/WEIGHTED AVERAGE $22,287,286 $9.82 -------------- --------------- NEVADA Caughlin Ranch $1,257,092 $12.47 Scolari's Supermarket Reno, NV Ross Dress For Less Cheyenne Commons 4,421,275 12.24 Wal-Mart, 24 Hour Fitness, Marshall's, Las Vegas, NV Ross Dress For Less, Consign & Design Dodge Center 275,342 5.59 Jerry's Fallon, NV Eagle Station 1,056,066 9.73 Raley's Supermarket, Mervyn's (2), Carson City, NV Wal-Mart (2) Elko Junction 1,755,587 10.45 Raley's Supermarket, Builder's Mart Elko, NV Green Valley Town & Country 1,883,073 15.10 Albertson's/Sav-On Superstore Henderson, NV Mira Loma Shopping Center 931,050 9.87 Scolari's Supermarket, Long's Drugs, Reno, NV Dollar Tree Rainbow Promenade 3,219,353 14.21 United Artists Theatres, Barnes & Noble, Las Vegas, NV Linens 'N Things, Office Max, Cost Plus Raley's 400,824 6.67 Raley's Supermarket Fallon, NV Sahara Pavilion North 4,523,646 13.65 Von's Supermarket, Long's Drugs, TJMaxx, Las Vegas, NV Shepler's, Border's Books, Gold's Gym Sahara Pavilion South 2,346,969 14.61 Sports Authority, Office Max, Las Vegas, NV Michael's Arts & Crafts West Town 461,500 7.05 Raley's Supermarket Winnemucca, NV Winterwood Pavilion 1,414,564 9.78 Von's Supermarket and Drug, Heilig-Meyers Las Vegas, NV -------------- --------------- REGION TOTAL/WEIGHTED AVERAGE $23,946,341 $12.00 -------------- ---------------
12 15 PROPERTY SUMMARY (CONTINUED)
GROSS LEASABLE AREA ------------------- YEAR COMPANY TENANT % LEASED TOTAL NUMBER COMPLETED/ OWNED OWNED TOTAL AS OF OF TENANTS AS PROPERTY AND LOCATION EXPANDED (SQ. FT.) (SQ. FT.) (SQ. FT.) 12/31/00 (4) OF 12/31/00 (4) ---------------------------------------------------------------------------------------------------------------------------------- OTHER Country Club Center 1988/ 57,626 63,000 120,626 95.7 % 19 Albuquerque, NM 1998 Maysville Marketsquare 1991/ 126,507 89,612 216,119 100.0 19 Maysville, KY 1993 Memphis Retail Center 1990 51,542 40,000 91,542 94.2 12 Memphis, TN Ocoee Plaza 1990 52,242 -- 52,242 100.0 12 Ocoee, FL ------------ ----------- ------------ ----------- ---------------- REGION TOTAL/WEIGHTED AVERAGE 287,917 192,612 480,529 98.1 % 62 ------------ ----------- ------------ ----------- ---------------- PORTFOLIO TOTAL/WEIGHTED AVERAGE 13,480,402 1,765,507 15,245,909 96.5 % 2,253 ------------ ----------- ------------ ----------- ----------------
ANNUALIZED BASE RENT IN PLACE AT 12/31/00 (1) ------------------------ ANN. BASE ANN. BASE RENT/LEASED PROPERTY AND LOCATION RENT ($) (1) SQ. FT. (3) MAJOR RETAILERS ---------------------------------------------------------------------------------------------------------------------------- OTHER Country Club Center $627,362 $11.38 Furr's Supermarket (2) Albuquerque, NM Maysville Marketsquare 913,064 7.22 Wal-Mart (2), Kroger Supermarket, Maysville, KY J.C. Penney Memphis Retail Center 457,441 9.42 Hancock Fabrics, Family Dollar Memphis, TN Ocoee Plaza 371,001 7.10 Food Lion Supermarket, Family Dollar Ocoee, FL ---------------- --------------- REGION TOTAL/WEIGHTED AVERAGE $2,368,868 $8.39 ---------------- --------------- PORTFOLIO TOTAL/WEIGHTED AVERAGE $141,793,542 $10.90 ---------------- ---------------
(1) Annualized base rent for all leases in place at December 31, 2000 is calculated as follows: total base rent to be received during the entire term of each lease, divided by the term in months of such leases, multiplied by 12. (2) These retailers own their space and are not tenants of the Company. (3) Annualized base rent divided by the owned GLA leased at December 31, 2000. (4) Percent leased and total number of tenants includes month-to-month leases. (5) The company owns a 30% interest in property. Table reflects 100% of property data. (6) Tenant is dark. (7) Tenant is Pak N Save, a division of Safeway 13 16 NATIONAL, REGIONAL AND LOCAL TENANT MIX AS OF 12/31/00 The following table sets forth certain information for the 110 retail centers owned at December 31, 2000.
NATIONAL TENANTS (1) REGIONAL TENANTS (1) LOCAL TENANTS (1) --------------------------- ------------------------- ------------------------ % OF PROPERTY % OF PROPERTY % OF PROPERTY % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE PROPERTY LEASED GLA RENT (2) LEASED GLA RENT (2) LEASED GLA RENT (2) -------- ---------- -------- ---------- -------- ---------- -------- NORTHERN CALIFORNIA Anderson Square 71.00% 68.01% 0.00% 0.00% 29.00% 31.99% Angels Camp Town Center 32.93 30.14 50.38 39.98 16.69 29.88 Blossom Valley Plaza 29.33 37.86 62.08 49.57 8.59 12.57 Brookvale Shopping Center 89.11 79.44 -- -- 10.89 20.56 Cable Park 84.25 67.42 0.51 1.39 15.24 31.19 Canal Farms 49.49 42.95 40.17 38.13 10.34 18.92 Centennial Plaza 83.63 70.18 2.56 3.50 13.81 26.32 Century Center 14.99 28.16 54.88 23.45 30.15 48.39 Chico Crossroads 98.61 97.35 -- -- 1.39 2.65 Cobblestone 27.27 39.62 62.82 49.70 9.91 10.68 Commonwealth Square 21.62 30.61 45.50 24.86 32.88 44.53 Country Gables Shopping Center 10.51 17.52 44.67 29.61 44.82 52.87 Creekside Center 76.80 60.41 -- -- 23.20 39.59 Currier Square 15.69 19.05 50.46 55.07 33.85 25.88 Dublin Retail Center 97.96 96.30 -- -- 2.04 3.70 Eastridge Plaza 39.56 47.00 50.18 41.87 10.26 11.13 Elverta Crossing 80.87 71.45 6.93 10.45 12.20 18.10 Fairmont Shopping Center 64.48 44.65 11.82 12.57 23.70 42.78 Fashion Faire Shopping Center 88.25 80.26 -- -- 11.75 19.74 Glenbrook Center 70.23 42.02 -- -- 29.77 57.98 Glen Cove Center 81.39 74.05 -- -- 18.61 25.95 Heritage Park Shopping Center 28.20 34.12 49.79 37.19 22.01 28.69 Heritage Place 54.59 53.03 34.48 32.86 10.93 14.11 Kmart Center 84.01 55.75 -- -- 15.99 44.25 Laguna 99 Plaza 73.29 55.92 6.67 11.77 20.04 32.31 Laguna Village 81.97 78.96 4.78 5.68 13.25 15.36 Lakewood Shopping Center 71.26 60.04 1.21 2.40 27.53 37.56 Lakewood Village 77.93 74.09 -- -- 22.07 25.91 Manteca Marketplace 37.64 36.01 48.86 45.48 13.50 18.51 Mission Ridge Plaza 94.55 91.22 2.24 3.50 3.21 5.28 Monterey Plaza 88.61 80.53 1.63 2.93 9.76 16.54 Northridge Plaza 9.46 20.04 80.47 60.31 10.07 19.65 Park Place 27.63 36.04 47.78 33.10 24.59 30.86 Pine Creek Shopping Center 37.39 35.50 30.85 24.84 31.76 39.66 Plaza 580 Shopping Center 65.02 59.99 1.77 2.63 33.21 37.38 Raley's Shopping Center 47.20 58.71 49.10 32.96 3.70 8.33 Serra Center (3) 35.55 33.00 59.15 61.45 5.30 5.55 Shops at Lincoln School 20.17 34.20 53.44 38.00 26.39 27.80 Sky Park Plaza 48.73 50.74 39.15 31.68 12.12 17.58 Ukiah Crossroads 24.90 34.14 61.52 51.26 13.58 14.60 Victorian Walk 41.78 39.46 39.15 30.82 19.07 29.72 Wal Mart 100.00 100.00 -- -- -- -- Westwood Village Shopping Center 41.92 46.05 1.67 2.22 56.41 51.73 Yreka Junction 44.18 50.86 50.50 40.28 5.32 8.86 ------ ------ ------ ------ ------ ------ REGION WEIGHTED AVERAGE 56.24% 55.12% 26.31% 20.49% 17.45% 24.40%
14 17 NATIONAL, REGIONAL AND LOCAL TENANT MIX AS OF 12/31/00 (continued)
NATIONAL TENANTS (1) REGIONAL TENANTS (1) LOCAL TENANTS (1) --------------------------- ------------------------- ------------------------ % OF PROPERTY % OF PROPERTY % OF PROPERTY % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE PROPERTY LEASED GLA RENT (2) LEASED GLA RENT (2) LEASED GLA RENT (2) -------- ---------- -------- ---------- -------- ---------- -------- SOUTHERN CALIFORNIA Arlington Courtyard 13.91% 15.62% 58.72% 48.59% 27.37% 35.79% Canyon Square Plaza 54.99 42.22 3.10 5.67 41.91 52.11 Chino Town Square 81.76 75.53 7.71 11.15 10.53 13.32 Encinitas Marketplace 71.92 61.13 -- -- 28.08 38.87 Granary Square 57.93 54.15 24.06 12.85 18.01 33.00 Laurentian Center 47.59 47.58 27.18 25.03 25.23 27.39 Marina Village 64.87 52.84 15.70 20.62 19.43 26.54 Melrose Village Plaza 83.52 76.26 2.06 2.74 14.42 21.00 Palmdale Center 88.08 72.38 -- -- 11.92 27.62 Rancho Las Palmas 47.83 28.19 8.69 13.50 43.48 58.31 San Dimas Marketplace 91.64 87.99 2.87 3.97 5.49 8.04 Sycamore Plaza 37.86 31.92 37.76 16.37 24.38 51.71 Tustin Heights Shopping Center 88.88 78.89 0.89 1.53 10.23 19.58 Vineyard Village East 86.28 76.02 13.72 23.98 -- -- ------ ------ ------ ------ ------ ------ REGION WEIGHTED AVERAGE 70.07% 62.32% 10.46% 10.25% 19.46% 27.43% WASHINGTON Auburn North 81.11% 76.58% 16.39% 17.56% 2.50% 5.86% Blaine International Center 91.49 90.85 2.19 2.69 6.32 6.46 Canyon Ridge Plaza 91.97 87.63 -- -- 8.03 12.37 Claremont Village Plaza 74.08 75.31 5.55 6.05 20.37 18.64 Gateway Shopping Center 80.27 74.94 1.21 1.41 18.52 23.65 Olympia Square 78.59 71.12 15.78 20.98 5.63 7.90 Olympia West Center 83.05 87.24 8.48 7.34 8.47 5.42 Pacific Commons 43.01 43.45 2.15 2.43 54.84 54.12 Panther Lake 59.66 52.32 6.08 5.99 34.26 41.69 Sunset Square 64.51 52.83 26.07 32.53 9.42 14.64 Tacoma Central 88.78 85.84 7.37 9.24 3.85 4.92 ------ ------ ------ ------ ------ ------ REGION WEIGHTED AVERAGE 73.28% 70.33% 12.35% 12.94% 14.37% 16.72% OREGON Albany Plaza 75.31% 68.24% 4.88% 6.46% 19.81% 25.30% Bear Creek Plaza 87.27 80.76 7.36 9.60 5.37 9.64 East Burnside Plaza 9.35 16.50 87.85 81.88 2.80 1.62 Foster Square -- -- -- -- 100.00 100.00 Hermiston Plaza 73.70 47.59 4.32 9.75 21.98 42.66 Hood River 8.31 10.24 12.03 42.39 79.66 47.37 Menlo Park 7.97 9.89 -- -- 92.03 90.11 Milwaukie Marketplace 87.54 68.71 4.48 13.48 7.98 17.81 NE 33rd -- -- 100.00 100.00 -- -- North Lombard 100.00 100.00 -- -- -- -- Oregon City Shopping Center 67.66 42.86 5.40 14.82 26.94 42.32 Oregon Trail Shopping Center 59.52 56.04 3.47 6.63 37.01 37.33 Pioneer Plaza 69.70 54.58 13.61 23.60 16.69 21.82 Powell Valley Junction 65.43 64.15 -- -- 34.57 35.85 Raleigh Hills Plaza 38.26 35.92 -- -- 61.74 64.08 Rockwood Plaza 14.02 18.42 -- -- 85.98 81.58 Sandy Marketplace 38.51 44.74 21.93 16.64 39.56 38.62 SE Milwaukie -- -- 100.00 100.00 -- --
15 18 NATIONAL, REGIONAL AND LOCAL TENANT MIX AS OF 12/31/00 (continued)
NATIONAL TENANTS (1) REGIONAL TENANTS (1) LOCAL TENANTS (1) --------------------------- ------------------------- ------------------------ % OF PROPERTY % OF PROPERTY % OF PROPERTY % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE PROPERTY LEASED GLA RENT (2) LEASED GLA RENT (2) LEASED GLA RENT (2) -------- ---------- -------- ---------- -------- ---------- -------- Shute Park Plaza 16.46 17.61 15.22 18.69 68.32 63.70 Southgate Shopping Center 70.63 62.94 10.69 12.38 18.68 24.68 St. John's Plaza 81.94 75.70 6.81 10.41 11.25 13.89 Sunset Mall 54.04 35.24 6.67 11.77 39.29 52.99 Tacoma Shopping Center -- -- -- -- 100.00 100.00 Tanasbourne Village 70.40 63.39 7.41 9.46 22.19 27.15 ------ ------ ------ ------ ------ ------ REGION WEIGHTED AVERAGE 59.40% 48.43% 9.61% 15.02% 30.98% 36.55% NEVADA Caughlin Ranch 7.45% 11.85% 53.59% 48.12% 38.96% 40.03% Cheyenne Commons 89.03 80.36 -- -- 10.97 19.64 Dodge Center 44.34 33.13 55.66 66.87 -- -- Eagle Station 28.18 40.67 54.36 30.68 17.46 28.65 Elko Junction 18.07 25.78 36.32 26.06 45.61 48.16 Green Valley Town & Country 55.27 43.99 4.44 4.97 40.29 51.04 Mira Loma Shopping Center 30.44 30.06 48.15 42.48 21.41 27.46 Rainbow Promenade 89.63 83.39 2.87 4.63 7.50 11.98 Raley's -- -- 100.00 100.00 -- -- Sahara Pavilion North 69.25 57.92 11.72 11.96 19.03 30.12 Sahara Pavilion South 74.14 67.38 7.25 8.79 18.61 23.83 West Town -- -- 96.33 93.93 3.67 6.07 Winterwood Pavilion 71.73 64.94 13.20 9.88 15.07 25.18 ------ ------ ------ ------ ------ ------ REGION WEIGHTED AVERAGE 57.88% 56.44% 23.00% 16.63% 19.12% 26.94% OTHER AREAS Country Club Center 31.47% 42.47% 0.00% 0.00% 68.53% 57.53% Maysville Market Square 87.38 83.19 6.32 8.12 6.30 8.69 Memphis Retail Center 39.55 49.73 -- -- 60.45 50.27 Ocoee Plaza 66.01 62.60 -- -- 33.99 37.40 ------ ------ ------ ------ ------ ------ REGION WEIGHTED AVERAGE 64.56% 62.91% 2.86% 3.18% 32.58% 33.91% ------ ------ ------ ------ ------ ------ PORTFOLIO WEIGHTED AVERAGE 60.99% 57.34% 18.80% 16.31% 20.21% 26.35% ====== ====== ====== ====== ====== ======
(1) The company defines national tenants as any tenant that operates in at least four metropolitan areas located in more than one region (i.e., northwest, northeast, midwest, southwest or southeast); regional tenants as any tenant that operates in two or more metropolitan areas located within the same region; local tenants as any tenant that operates stores only within the same metropolitan area as the shopping center. (2) Annualized base rent for all leases in place at December 31, 2000 is calculated as follows: total base rent to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. (3) The company owns a 30% interest in the property. Table reflects 100%. 16 19 ANCHOR & NON-ANCHOR TENANT MIX AS OF 12/31/00 The following table sets forth certain information for the 110 retail centers owned at December 31, 2000.
ANCHOR TENANTS (1) NON-ANCHOR TENANTS (1) ------------------------------ ------------------------------- % % OF PROPERTY % % OF PROPERTY OCCUPIED ANN. BASE OCCUPIED ANN. BASE PROPERTY GLA RENT GLA RENT -------- --------- -------- --------- NORTHERN CALIFORNIA Anderson Square 36.85% 15.09% 63.15% 84.91% Angels Camp Town Center 79.60 63.08 20.40 36.92 Blossom Valley Plaza 57.32 41.23 42.68 58.77 Brookvale Shopping Center 73.59 48.27 26.41 51.73 Cable Park 69.84 36.83 30.16 63.17 Canal Farms 65.74 56.37 34.26 43.63 Centennial Plaza 68.20 50.37 31.80 49.63 Century Center 65.36 39.12 34.64 60.88 Chico Crossroads 85.56 75.69 14.44 24.31 Cobblestone 55.58 37.69 44.42 62.31 Commonwealth Square 44.57 23.79 55.43 76.21 Country Gables Shopping Center 44.67 29.61 55.33 70.39 Creekside Center 67.45 35.44 32.55 64.56 Currier Square 50.46 55.07 49.54 44.93 Dublin Retail Center 88.02 80.50 11.98 19.50 Eastridge Plaza 71.88 59.02 28.12 40.98 Elverta Crossing 60.10 39.77 39.90 60.23 Fairmont Shopping Center 50.77 25.93 49.23 74.07 Fashion Faire Place 48.00 32.85 52.00 67.15 Glen Cove Center 76.30 67.38 23.70 32.62 Glenbrook Shopping Center 58.46 16.64 41.54 83.36 Heritage Park Shopping Center 53.61 40.52 46.39 59.48 Heritage Place 58.12 44.38 41.88 55.62 Kmart Center 78.00 29.08 22.00 70.92 Laguna 99 Plaza 67.06 44.80 32.94 55.20 Laguna Village 77.07 73.13 22.93 26.87 Lakewood Shopping Center 52.41 32.59 47.59 67.41 Lakewood Village 66.92 57.61 33.08 42.39 Manteca Marketplace 55.98 48.68 44.02 51.32 Mission Ridge Plaza 60.83 51.70 39.17 48.30 Monterey Plaza 55.68 29.03 44.32 70.97 Northridge Plaza 71.43 44.38 28.57 55.62 Park Place 60.16 42.29 39.84 57.71 Pine Creek Shopping Center 47.92 32.91 52.08 67.09 Plaza 580 Shopping Center 23.57 12.87 76.43 87.13 Raley's Shopping Center 70.07 42.29 29.93 57.71 Serra Center (3) 71.64 62.12 28.36 37.88 Shops at Lincoln School 51.72 36.00 48.28 64.00 Sky Park Plaza 65.21 48.85 34.79 51.15 Ukiah Crossroads 58.13 46.23 41.87 53.77 Victorian Walk 73.65 56.79 26.35 43.21 Wal Mart 100.00 100.00 0.00 0.00 Westwood Village Shopping Center 53.76 38.96 46.24 61.04 Yreka Junction 65.38 41.35 34.62 58.65 ------ ------ ------ ------ REGION WEIGHTED AVERAGE 63.10% 45.28% 36.90% 54.72%
17 20 ANCHOR & NON-ANCHOR TENANT MIX AS OF 12/31/00 (continued)
ANCHOR TENANTS (1) NON-ANCHOR TENANTS (1) ------------------------------ ------------------------------- % % OF PROPERTY % % OF PROPERTY OCCUPIED ANN. BASE OCCUPIED ANN. BASE PROPERTY GLA RENT GLA RENT -------- --------- -------- --------- SOUTHERN CALIFORNIA Arlington Courtyard 0.00% 0.00% 100.00% 100.00% Canyon Square Plaza 43.88 29.67 56.12 70.33 Chino Town Square 53.09 45.09 46.91 54.91 Encinitas Marketplace 46.46 27.56 53.54 72.44 Granary Square 47.47 19.55 52.53 80.45 Laurentian Center 37.70 32.42 62.30 67.58 Marina Village 44.37 28.32 55.63 71.68 Melrose Village Plaza 51.99 36.47 48.01 63.53 Palmdale Center 81.38 56.92 18.62 43.08 Rancho Las Palmas 33.28 10.21 66.72 89.79 San Dimas Marketplace 46.88 39.09 53.12 60.91 Sycamore Plaza 65.99 26.35 34.01 73.65 Tustin Heights Shopping Center 62.36 42.78 37.64 57.22 Vineyard Village East 57.52 41.16 42.48 58.84 ------ ------ ------ ------ REGION WEIGHTED AVERAGE 50.06% 32.94% 49.94% 67.06% WASHINGTON Auburn North 66.11% 46.02% 33.89% 53.98% Blaine International Center 80.80 70.86 19.20 29.14 Canyon Ridge Plaza 34.62 20.62 65.38 79.38 Claremont Village Plaza 46.12 44.81 53.88 55.19 Gateway Shopping Center 66.17 57.84 33.83 42.16 Olympia Square 46.35 32.23 53.65 67.77 Olympia West Center 56.65 62.26 43.35 37.74 Pacific Commons 50.43 46.91 49.57 53.09 Panther Lake 33.84 19.66 66.16 80.34 Sunset Square 75.88 57.34 24.12 42.66 Tacoma Central 65.36 61.00 34.64 39.00 ------ ------ ------ ------ REGION WEIGHTED AVERAGE 60.81% 49.30% 39.19% 50.70% OREGON Albany Plaza 43.20% 32.62% 56.80% 67.38% Bear Creek Plaza 68.23 51.46 31.77 48.54 East Burnside Plaza 84.82 76.75 15.18 23.25 Foster Square 0.00 0.00 100.00 100.00 Hermiston Plaza 55.46 24.72 44.54 75.28 Hood River 69.26 33.77 30.74 66.23 Menlo Park Plaza 40.44 52.86 59.56 47.14 Milwaukie Marketplace 57.79 32.58 42.21 67.42 NE 33rd 100.00 100.00 0.00 0.00 North Lombard 100.00 100.00 0.00 0.00 Oregon City Shopping Center 72.80 40.48 27.20 59.52 Oregon Trail Shopping Center 63.76 50.14 36.24 49.86 Pioneer Plaza 48.96 33.62 51.04 66.38 Powell Valley Junction 79.72 65.50 20.28 34.50 Raleigh Hills Plaza 96.01 91.99 3.99 8.01 Rockwood Plaza 37.22 26.28 62.78 73.72 Sandy Marketplace 50.50 38.98 49.50 61.02 SE Milwaukie 100.00 100.00 0.00 0.00
18 21 ANCHOR & NON-ANCHOR TENANT MIX AS OF 12/31/00 (continued)
ANCHOR TENANTS (1) NON-ANCHOR TENANTS (1) ------------------------------ ------------------------------- % % OF PROPERTY % % OF PROPERTY OCCUPIED ANN. BASE OCCUPIED ANN. BASE PROPERTY GLA RENT GLA RENT -------- --------- -------- --------- Shute Park Plaza 0.00 0.00 100.00 100.00 Southgate Shopping Center 58.98 45.46 41.02 54.54 St. John's Plaza 58.81 42.65 41.19 57.35 Sunset Mall 41.51 17.20 58.49 82.80 Tacoma Shopping Center 0.00 0.00 100.00 100.00 Tanasbourne Village 50.12 31.08 49.88 68.92 ------ ------ ------ ------ REGION WEIGHTED AVERAGE 58.18% 44.05% 41.82% 55.95% NEVADA Caughlin Ranch 50.11% 43.09% 49.89% 56.91% Cheyenne Commons 64.76 42.88 35.24 57.12 Dodge Center 84.31 63.10 15.69 36.90 Eagle Station 54.36 30.68 45.64 69.32 Elko Junction 64.12 49.14 35.88 50.86 Green Valley Town & Country 39.37 20.05 60.63 79.95 Mira Loma Shopping Center 54.07 46.97 45.93 53.03 Rainbow Promenade 65.62 56.46 34.38 43.54 Raley's 100.00 100.00 0.00 0.00 Sahara Pavilion North 48.56 29.12 51.44 70.88 Sahara Pavilion South 48.55 28.21 51.45 71.79 West Town 96.33 93.93 3.67 6.07 Winterwood Pavilion 47.41 25.73 52.59 74.27 ------ ------ ------ ------ REGION WEIGHTED AVERAGE 58.65% 40.10% 41.35% 59.90% OTHER AREAS Country Club Center 0.00% 0.00% 100.00% 100.00% Maysville Market Square 62.72 55.05 37.28 44.95 Memphis Retail Center 0.00 0.00 100.00 100.00 Ocoee Plaza 47.85 45.82 52.15 54.18 ------ ------ ------ ------ REGION WEIGHTED AVERAGE 37.35% 28.82% 62.65% 71.18% ------ ------ ------ ------ PORTFOLIO WEIGHTED AVERAGE 59.05% 42.64% 40.95% 57.36% ====== ====== ====== ======
(1) Anchors defined as single tenants which lease 15,000 square feet or more, non-anchors defined as tenants which lease less than 15,000 square feet. (2) Annualized base rent for all leases in place in which tenants are in occupancy at December 31, 2000 is calculated as follows: total base rent to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. (3) The company owns a 30% interest on the property. Table reflects 100%. 19 22 MAJOR TENANTS* AS OF 12/31/00 The following table sets forth certain information for the 110 retail centers at December 31, 2000.
ANNUALIZED BASE RENT IN PLACE AT 12/31/00 --------------------------------------- LEASED GLA % OF TOTAL TOTAL ANN. BASE % OF TOTAL NUMBER OF AS OF 12/31/00 LEASED ANN. BASE RENT/SQ. FT. ANN. BASE TENANT LEASES (SQ. FT.) GLA RENT ($)(1) ($)(2) RENT ----------- ----------- ------ ----------- ------ ------ Raley's 20 1,136,895 8.97 % $ 7,698,546 $ 6.77 5.57 % Von's/Safeway/Pak 'N Save 12 588,634 4.64 4,948,324 8.41 3.58 Wal-Mart 4 419,872 3.31 3,652,528 8.70 2.64 Albertson's/Savon 15 613,289 4.84 3,532,699 5.76 2.55 Rite Aid 18 440,443 3.47 2,753,560 6.25 1.99 Blockbuster Video 19 104,907 0.83 1,788,757 17.05 1.29 Ross Dress for Less 9 207,821 1.64 1,783,719 8.58 1.29 Hollywood Video 15 94,684 0.75 1,776,336 18.76 1.28 QFC 4 113,960 0.90 1,770,382 15.54 1.28 Save Mart Supermarket 7 246,714 1.95 1,632,644 6.62 1.18 Office Max 5 134,550 1.06 1,499,871 11.15 1.08 24 Hour Fitness 4 108,305 0.85 1,489,303 13.75 1.08 ----------- ----------- ------ ----------- ------ ------ TOTAL 132 4,210,074 33.20 % $34,326,670 $ 8.15 24.82 % =========== =========== ====== =========== ====== ======
* Tenants which individually account for 1% or more of Annualized base rent. (1) Annualized base rent for all leases in place at December 31, 2000 is calculated as follows: total base rent to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. (2) Annualized base rent divided by leased area at December 31, 2000. 20 23 LEASE EXPIRATION ANALYSIS* The following table sets forth certain information for the 110 retail centers owned at December 31, 2000.
ANNUALIZED BASE RENT IN PLACE AT 12/31/00 ------------------------------------------ LEASE NUMBER OF GLA UNDER TOTAL ANN. ANN. BASE EXPIRATION LEASES EXPIRING % OF BASE RENT($) % OF ANN. RENT YEAR EXPIRING LEASES(SQ.FT.) GLA (2) BASE RENT ($/SQ. FT.)(3) ---------- --------- -------------- --- ------------ --------- -------------- All Anchor Leases (1) 1 .......................... 2001 4 121,224 1.62 509,383 0.86 4.20 2 .......................... 2002 9 292,299 3.90 1,232,683 2.09 4.22 3 .......................... 2003 15 360,671 4.82 2,561,665 4.34 7.10 4 .......................... 2004 9 403,245 5.39 1,645,541 2.79 4.08 5 .......................... 2005 20 456,325 6.09 3,659,318 6.20 8.02 6 .......................... 2006 18 765,986 10.23 5,873,574 9.96 7.67 7 .......................... 2007 8 197,625 2.64 1,449,215 2.46 7.33 8 .......................... 2008 14 531,496 7.10 3,236,591 5.49 6.09 9 .......................... 2009 11 389,182 5.20 3,338,531 5.66 8.58 10 ......................... 2010 14 435,318 5.81 3,736,559 6.34 8.58 11 and after ............... 2011 + 91 3,534,526 47.20 31,735,647 53.81 8.98 ------ ----------- -------- ------------- -------- ------- TOTAL/WEIGHTED AVERAGE 213 7,487,897 100.00% $58,978,707 100.00% $7.88 ====== =========== ======== ============= ======== ======= ALL NON-ANCHOR LEASES (1) 1 .......................... 2001 324 670,015 12.90 9,218,356 11.62 13.76 2 .......................... 2002 365 778,723 15.00 11,775,046 14.84 15.12 3 .......................... 2003 379 899,006 17.31 13,088,718 16.50 14.56 4 .......................... 2004 288 777,843 14.98 11,275,178 14.21 14.50 5 .......................... 2005 286 817,784 15.75 12,279,678 15.48 15.02 6 .......................... 2006 68 270,274 5.21 3,800,634 4.79 14.06 7 .......................... 2007 42 153,671 2.96 2,675,570 3.37 17.41 8 .......................... 2008 40 176,900 3.41 2,914,860 3.67 16.48 9 .......................... 2009 48 227,841 4.39 3,789,203 4.78 16.63 10 ......................... 2010 53 180,239 3.47 3,523,794 4.44 19.55 11 and after ............... 2011 + 57 240,143 4.62 4,997,171 6.30 20.81 ------ ----------- -------- ------------- -------- ------- TOTAL/WEIGHTED AVERAGE 1,950 5,192,439 100.00% $79,338,208 100.00% $15.28 ====== =========== ======== ============= ======== ======= All Leases 1 .......................... 2001 328 791,239 6.24 9,727,739 7.03 12.29 2 .......................... 2002 374 1,071,022 8.45 13,007,729 9.40 12.15 3 .......................... 2003 394 1,259,677 9.93 15,650,383 11.31 12.42 4 .......................... 2004 297 1,181,088 9.31 12,920,718 9.34 10.94 5 .......................... 2005 306 1,274,109 10.05 15,938,996 11.52 12.51 6 .......................... 2006 86 1,036,260 8.17 9,674,207 6.99 9.34 7 .......................... 2007 50 351,296 2.77 4,124,785 2.98 11.74 8 .......................... 2008 54 708,396 5.59 6,151,451 4.45 8.68 9 .......................... 2009 59 617,023 4.87 7,127,735 5.15 11.55 10 ......................... 2010 67 615,557 4.85 7,260,353 5.25 11.79 11 and after ............... 2011 + 148 3,774,669 29.77 36,732,818 26.58 9.73 ------ ----------- -------- ------------- -------- ------- TOTAL/WEIGHTED AVERAGE 2,163 12,680,336 100.00% $138,316,914 100.00% $10.91 ====== =========== ======== ============= ======== =======
Note: Number of Leases expiring does not include tenants on a month-to-month agreement and future tenants, whose combined occupancy totals 327,298 sq. ft. * Assumes no renewal options are exercised. (1) The company defines anchors as single tenants which lease 15,000 square feet or more, non-anchors defined as tenants which lease less than 15,000 square feet. (2) Annualized base rent for all leases in place at December 31, 2000 is calculated as follows: total base rent, to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. (3) Annualized base rent divided by gross leasable area at December 31, 2000. 21 24 ITEM 3. LEGAL PROCEEDINGS On November 8, 2000, Bryant M. Bennett, as Trustee of the Bryant M. Bennett and Inga A. Bennett Trust U/A October 25, 1990, known as The Bennett Family Trust, filed a complaint in the Superior Court of the State of California, County of Alameda, on behalf of himself and all others similarly situated, against us; Western, WPT; Bradley N. Blake; L. Gerald Hunt; Dennis D. Ryan; James L. Stell; Reginald B. Oliver; L. Michael Foley; Joseph P. Colmery; Revenue Properties (U.S.), Inc.; and Stuart A. Tanz. The allegations of the complaint arise from our November 2000 acquisition of Western. Plaintiffs' complaint alleges that the merger terms between us and Western were unfair and violated the defendant's fiduciary obligations to Western's shareholders. We believe we have meritorious defenses against each of Plaintiff's claims and we intend to vigorously and effectively defend against them. It should be noted, however, that the outcome of any litigation is by its nature unpredictable and we therefore cannot assure you that we will successfully defend this action. In addition, we are a party to legal proceedings that arise in the normal course of business, which matters are generally covered by insurance. The resolution of these matters cannot be predicted with certainty. However, in the opinion of management, based upon currently available information, liability under such proceedings, either individually or in the aggregate, will not have a material adverse effect on our consolidated financial statements taken as a whole. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 9, 2000, we held a special meeting and our stockholders voted on and approved our merger with Western with 18,883,801 votes for, 65,953 votes against and 19,694 votes abstaining. Our stockholders also voted on and approved an amendment to our 2000 Stock Incentive Plan which increased the number of shares reserved for issuance under this plan. This item passed with 15,102,163 votes for, 3,841,292 votes against and 25,993 votes abstaining. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock began trading on the New York Stock Exchange on August 8, 1997, under the symbol "PNP". On March 16, 2001 we had approximately 984 stockholders of record and approximately 12,500 beneficial owners. The following table sets forth, for the periods indicated, the high and low sales prices as reported by the New York Stock Exchange and the distributions declared by us.
DISTRIBUTIONS HIGH LOW DECLARED ------- ------- ------------- First Quarter 1999 $20.250 $17.500 $0.40 Second Quarter 1999 $20.188 $17.375 $0.40 Third Quarter 1999 $20.188 $17.063 $0.40 Fourth Quarter 1999 $18.250 $15.125 $0.40 First Quarter 2000 $19.125 $16.625 $0.42 Second Quarter 2000 $20.125 $18.750 $0.42 Third Quarter 2000 $20.938 $19.000 $0.42 Fourth Quarter 2000 (special dividend) $22.750 $19.813 $0.28
22 25 In the fourth quarter 2000, we declared and paid a special, two-month dividend of $0.28 a share to stockholders of record before the merger with Western was completed. The special dividend addressed the two-month shift in timing for the payment of our normal quarterly dividend in future periods. All distributions will be made by us at the discretion of our board of directors and will depend upon our earnings, our financial condition and any other factors our board of directors deems relevant. In order to qualify for the beneficial tax treatment accorded to REITs under the Internal Revenue Code, the Company is required to make distributions to holders of its shares in an amount at least equal to 95%, or, for taxable years beginning after December 31, 2000, 90%, of the Company's "real estate investment trust taxable income," as defined in Section 857 of the Internal Revenue Code. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected financial data for the Company on a historical basis. The following data should be read in connection with management's discussion and analysis of financial condition and results of operations and the consolidated financial statements and notes thereto located elsewhere in this report. SELECTED CONSOLIDATED FINANCIAL DATA(1) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- ------- ------- ------- STATEMENTS OF INCOME DATA: Total revenue $120,493 $101,062 $79,253 $46,710 $35,623 Operating and general and administrative 28,884 25,513 19,765 14,216 12,766 expenses Merger related expenses 3,204 -- -- -- -- Depreciation and amortization 20,374 17,476 14,298 8,928 7,693 Interest expense 32,112 23,939 18,295 14,057 14,671 Income before extraordinary item 33,800 32,576 26,634 9,356 449 Net income 33,800 32,576 26,634 8,313 449 Per share data: Income before extraordinary item--diluted(2) 1.48 1.54 1.35 0.55 -- Net income--diluted(2) 1.48 1.54 1.35 0.49 -- Distributions declared 1.54 1.60 1.52 0.58 --
AS OF DECEMBER 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- -------- -------- -------- -------- BALANCE SHEET DATA: Properties, net $1,194,824 $748,061 $667,478 $455,514 $264,017 Total assets 1,297,690 784,537 705,541 487,220 293,186 Notes payable 233,911 228,490 144,024 108,316 192,915 Line of credit and term loan payable 267,650 128,800 138,500 62,450 -- Senior notes 124,850 -- -- -- -- Advances from related party -- -- -- -- 32,113 Minority interests 41,754 23,347 17,318 1,521 1,539 Stockholders' equity 606,998 381,866 383,088 301,055 -- Owner's equity -- -- -- -- 61,808
(1) The financial data as of the dates and for the periods prior to August 13, 1997 represents the combined financial data of predecessor entities prior to the registrant's initial public offering. (2) The 1997 data is calculated as if the shares were outstanding for the entire year based on the diluted number of shares assumed to be outstanding. There were no outstanding shares of common stock in 1996 and therefore the information is not relevant or included here. 23 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY LANGUAGE The discussions in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect management's current views with respect to future events and financial performance. Forward-looking statements are subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations include market valuations of our stock, financial performance and operations of our shopping centers, real estate conditions, execution of shopping center development programs, successful completion of renovations, completion of pending acquisitions, changes in the availability of additional acquisitions, changes in local or national economic conditions, and other risks detailed from time to time in reports filed with the Securities and Exchange Commission. OVERVIEW The following discussion should be read in connection with the consolidated financial statements of Pan Pacific Retail Properties, Inc. and our subsidiaries, and the notes thereto, appearing elsewhere in this report. On November 13, 2000, we acquired Western Properties Trust, a California real estate investment trust. The transaction was a stock for stock exchange whereby Western common shares and units were exchanged into newly issued Company common shares and operating partnership units, based upon a fixed exchange ratio of 0.62. As a result, we issued 10,754,256 shares of our common stock to holders of Western common shares and are obligated to issue 911,934 shares of our common stock upon the exchange of operating partnership units held by limited partners of Pan Pacific (Kienows), L.P., formerly Western/Kienow, L.P., and Pan Pacific (Pinecreek), L.P., formerly Western/Pinecreek, L.P. In connection with this transaction, we assumed $135,000,000 of Western's debt obligations. We receive income primarily from rental revenue from shopping center properties, including recoveries from tenants. Primarily as a result of our acquisition program, including the acquisition of Western which included interests in 50 shopping centers, the financial data show increases in total revenue from period to period. We have experienced economies of scale as we have grown our portfolio from 25 properties in August 1997 to 110 properties at December 31, 2000. For example, in 2000, 1999 and 1998, we experienced lower overhead costs as a percentage of total revenue as compared to 1997 and 1996. For the years ended December 31, 2000, 1999 and 1998, general and administrative expenses, as a percentage of total revenue were 4.2%, 5.3% and 5.2%, respectively. This compares favorably with the years ended December 31, 1997 and 1996, where this same ratio was 8.4% and 9.2%, respectively. Another example of economies of scale is the reduction in operating expenses on a square foot basis. For example, during the year ended December 31, 2000, we owned properties comprising a weighted average gross leasable area of 8,800,000 square feet. Total expenses, excluding interest, depreciation and amortization and non-recurring merger related expenses for the year ended December 31, 2000 were $28,884,000 or $3.28 per square foot. During the year ended December 31, 1999, we owned properties comprising a weighted average gross leasable area of 7,640,000 square feet. Total expenses, excluding interest and depreciation and amortization for the year ended December 31, 1999 were $25,513,000 or $3.34 per square foot. During the year ended December 31, 1998, we owned properties comprising a weighted average gross leasable area of 6,026,000 square feet. Total expenses, excluding interest and depreciation and amortization for the year ended December 31, 1998 were $19,765,000 or $3.28 per square foot. These expense rates per square foot compare favorably with the same calculations for the years ended December 31, 1997 and 1996 where the rates per square foot were $3.97 and $4.38, respectively. We anticipate there will be continued benefits in the future due to these economies of scale, particularly in light of our acquisition of Western. We expect that the more significant part of our revenue growth in the next year or two will come from additional acquisitions, rent increases from re-leasing and re-tenanting initiatives of the assets acquired in the Western acquisition and the benefit of the stabilization of other properties acquired during 2000. 24 27 RESULTS OF OPERATIONS Comparison of the Year Ended December 31, 2000 to the Year Ended December 31, 1999. Total revenue increased by $19,431,000 or 19.2% to $120,493,000 from $101,062,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999. Rental revenue increased by $14,606,000 or 18.2% to $94,743,000 from $80,137,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999. The increase in rental revenue resulted principally from six property acquisitions in 1999, three property acquisitions in 2000 and the acquisition of Western in November 2000. Recoveries from tenants increased by $3,755,000 or 21.0% to $21,648,000 from $17,893,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999. This increase resulted primarily from the 1999 and 2000 acquisitions. Recoveries from tenants were 93.2% of property operating expenses and property taxes for the year ended December 31, 2000 compared to 89.7% of the same expenses for the same period in 1999. Property operating expenses increased by $1,734,000 or 13.8% to $14,285,000 from $12,551,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999. The increase in property operating expenses was primarily attributable to the 1999 and 2000 acquisitions. Property taxes increased by $1,539,000 or 20.8% to $8,938,000 from $7,399,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999. The increase in property taxes was also primarily the result of the 1999 and 2000 acquisitions. Depreciation and amortization increased by $2,898,000 or 16.6% to $20,374,000 from $17,476,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999. This was primarily due to the 1999 and 2000 acquisitions. Interest expense increased by $8,173,000 or 34.1% to $32,112,000 from $23,939,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999, primarily as a result of interest expense relating to amounts drawn on our unsecured credit facility and Term Credit Agreement to finance the 1999 and 2000 acquisitions, interest expense on the fixed-rate mortgage assumed related to Rancho Las Palmas in the third quarter of 1999 and interest expense on the fixed-rate mortgage on Lakewood Village which was assumed as part of the Western acquisition in November 2000. Interest expense also increased as a result of an increase in the LIBOR component of the borrowing cost on our unsecured credit facility over the comparable period in 1999. General and administrative expenses decreased by $210,000 or 4.0% to $5,105,000 from $5,315,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999. This decrease was primarily attributable to one-time executive severance costs recorded in 1999 and an increase in internal capitalized leasing costs recorded in 2000, which offset related general and administrative expenses, offset by annual compensation increases in 2000. As a percentage of total revenue, general and administrative expenses were 4.2% for the year ended December 31, 2000 and 5.3% for the year ended December 31, 1999. Merger related expenses were incurred during 2000 in connection with the acquisition of Western. The Company incurred approximately $3,200,000 of these expenses which are non-recurring. 25 28 The following table compares the operating data for the 52 properties ("Same Properties") that were owned and in operation for the entirety of both years ended December 31, 2000 and 1999:
2000 1999 ----------- ----------- Revenue: Rental $77,434,000 $75,473,000 Recoveries from tenants 17,546,000 16,746,000 Operating income from unconsolidated partnership 324,000 349,000 Other 2,119,000 1,610,000 ----------- ----------- $97,423,000 $94,178,000 Operating expenses: Property operating and property taxes 18,788,000 18,678,000 ----------- ----------- Operating income $78,635,000 $75,500,000 =========== ===========
Operating income for the Same Properties for the year ended December 31, 2000 increased over the same period in the prior year by $3,135,000, or 4.2%. This increase was attributable primarily to increased rental revenue of $1,961,000 due to increases in rental rates at Creekside Center, Green Valley Town & Country, Mira Loma Shopping Center, Monterey Plaza, Olympia West Center and Pioneer Plaza, as well as increases in occupancy at Claremont Village Plaza, Olympia Square, Oregon Trail Shopping Center, Panther Lake, Sandy Marketplace and Sunset Square. Recoveries from tenants increased by $800,000, while property operating and property tax expense only increased by $110,000. The increase in recoveries from tenants over the increase in related expenses is due to increases in occupancy during the year and stronger recovery language in our leases. Other income increased over the prior year by $509,000 due to a termination fee received at Chino Town Square. Comparison of the Year Ended December 31, 1999 to the Year Ended December 31, 1998. Total revenue increased by $21,809,000 or 27.5% to $101,062,000 from $79,253,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. Rental revenue increased by $16,924,000 or 26.8% to $80,137,000 from $63,213,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. The increase in rental revenue resulted principally from the acquisition of San Dimas Marketplace and Bear Creek Plaza in January 1998; Milwaukie Marketplace, Pioneer Plaza, Powell Valley Junction and Shute Park Plaza in February 1998; Manteca Marketplace in March 1998; a 24 Hour Fitness building, Panther Lake Shopping Center and Creekside Center in April 1998; Westwood Village Shopping Center and Fashion Faire Shopping Center in May 1998; Pacific Commons Shopping Center in June 1998; Oregon Trail Shopping Center, Hermiston Plaza and Hood River Center in October 1998; Sandy Marketplace, Southgate Center, Oregon City Shopping Center, Sunset Mall, Mira Loma Shopping Center and Glen Cove Center in November 1998; the remaining 50% interest in Melrose Village Plaza in January 1999; Auburn North Shopping Center in March 1999; Marina Village in April 1999; Canyon Square Plaza and Rancho Las Palmas Retail Center in September 1999; and The Shops at Lincoln School and Albany Plaza in October 1999. Recoveries from tenants increased by $4,165,000 or 30.3% to $17,893,000 from $13,728,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. This increase resulted primarily from our 1998 and 1999 acquisitions. Recoveries from tenants were 89.7% of property operating expenses and property taxes for the year ended December 31, 1999 compared to 88.3% of the same expenses for the same period in 1998. Property operating expenses increased by $2,738,000 or 27.9% to $12,551,000 from $9,813,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. The increase in property operating expenses was primarily attributable to our 1998 and 1999 acquisitions. Property taxes increased by $1,664,000 or 29.0% to $7,399,000 from $5,735,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. The increase in property taxes was also primarily the result of our 1998 and 1999 acquisitions. Depreciation and amortization increased by $3,178,000 or 22.2% to $17,476,000 from $14,298,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. This was primarily due to our 1998 and 1999 acquisitions. 26 29 Interest expense increased by $5,644,000 or 30.9% to $23,939,000 from $18,295,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998, primarily as a result of interest expense relating to amounts drawn on our unsecured credit facility to finance acquisitions, interest expense on the fixed-rate mortgage assumed related to Westwood Village Shopping Center in the second quarter of 1998, interest expense on the fixed-rate mortgages assumed related to Sunset Mall, Oregon City Shopping Center, Sandy Marketplace and Southgate Center in the fourth quarter of 1998 and interest expense on the fixed-rate mortgage assumed related to Rancho Las Palmas Retail Center in the third quarter of 1999. Interest expense also increased as a result of the secured financings on Rainbow Promenade, San Dimas Marketplace, Melrose Village Plaza, Monterey Plaza, Tustin Heights Shopping Center and Tanasbourne Village completed in June and July 1999. Although the proceeds were used to pay down our unsecured credit facility, the fixed interest rates on the secured financings were greater than our variable-rate borrowings under our unsecured credit facility. These increases were offset by a decrease in interest expense related to the repayment of debt of approximately $82,000,000 in May 1998 in connection with our secondary offering of common stock. General and administrative expenses increased by $1,206,000 or 29.4% to $5,315,000 from $4,109,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. This increase was primarily attributable to costs associated with additional staffing necessitated by acquisitions in 1998, annual compensation increases as well as a one-time accrual for executive severance cost in 1999. As a percentage of total revenue, general and administrative expenses were 5.3% for the year ended December 31, 1999 and 5.2% for the year ended December 31, 1998. The following table compares the operating data for the 31 properties ("Same Properties") that were owned and in operation for the entirety of both years ended December 31, 1999 and 1998:
1999 1998 ----------- ----------- Revenue: Rental $52,331,000 $51,169,000 Recoveries from tenants 11,722,000 11,297,000 Operating income from unconsolidated partnerships 349,000 303,000 Other 1,204,000 745,000 ----------- ----------- $65,606,000 $63,514,000 Operating expenses: Property operating and property taxes 13,191,000 12,647,000 ----------- ----------- Operating income $52,415,000 $50,867,000 =========== ===========
Operating income for the Same Properties for the year ended December 31, 1999 increased over the same period in the prior year by $1,548,000 or 3.0%. This increase was attributable to increased rental revenue primarily related to the development of pads at Brookvale Shopping Center, Canyon Ridge Plaza, Sunset Square and Winterwood Pavilion, and increased occupancy at Laguna Village, Laurentian Center, Sahara Pavilion North and Winterwood Pavilion. These increases were offset by a decrease due to a vacancy at Memphis Retail Center. Other income also increased due to lease settlements recorded at Cheyenne Commons, Claremont Village Plaza, Green Valley Town & Country, Sahara Pavilion North and Tacoma Central. Operating expenses for these Same Properties increased by $544,000 or 4.3% primarily due to increases in common area maintenance costs at Cheyenne Commons, Rainbow Promenade, Sahara Pavilion South and Winterwood Pavilion, and increases in bad debt expense at Green Valley Town & Country and Sahara Pavilion South. FUNDS FROM OPERATIONS The White Paper on Funds from Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in March 1995 (the "White Paper") defines Funds from Operations as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We consider Funds from Operations an appropriate measure of performance of an equity REIT because it is predicated on cash flow analyses. We compute Funds from Operations in accordance with standards established by the White Paper. The Company's computation of Funds from Operations may, however, differ from the methodology for calculating Funds from Operations utilized by other equity REITs and, therefore, may not be comparable to these other REITs. Funds from Operations should not be considered as an alternative to 27 30 net income (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. NAREIT's clarification to the definition of Funds from Operations, which became effective January 1, 2000, had no impact on our calculation of Funds from Operations. The following table presents our Funds from Operations for the years ended December 31, 2000, 1999 and 1998:
DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Net income $ 33,800,000 $ 32,576,000 $ 26,634,000 Add: Depreciation and amortization 20,374,000 17,476,000 14,298,000 Depreciation of unconsolidated partnerships 21,000 8,000 211,000 Depreciation of non-real estate corporate assets (428,000) (392,000) (220,000) Operating subsidiary minority interests 2,106,000 1,530,000 211,000 Provision for loss on impairment 250,000 - - Less: Net gain on sale of real estate - (400,000) - ------------ ------------ ------------ Funds from Operations $ 56,123,000 $ 50,798,000 $ 41,134,000 ============ ============ ============ Weighted average number of shares of common stock outstanding (assuming dilution) 24,000,935 22,122,659 19,662,622
CASH FLOWS Comparison of the Year Ended December 31, 2000 to the Year Ended December 31, 1999. Net cash provided by operating activities increased by $9,125,000 to $55,865,000 for the year ended December 31, 2000, as compared to $46,740,000 for the year ended December 31, 1999. The increase was primarily the result of an increase in operating income due to property acquisitions and an increase in accounts payable, accrued expenses and other liabilities. Net cash used in investing activities decreased by $3,698,000 to $73,973,000 for the year ended December 31, 2000, compared to $77,671,000 for the year ended December 31, 1999. The decrease was primarily the result of a reduction in acquisitions of and additions to operating properties and a decrease in proceeds from sale of real estate offset by an increase in other assets and cash expended on the acquisition of Western. Net cash provided by financing activities decreased by $10,657,000 to $18,612,000 for the year ended December 31, 2000, compared to $29,269,000 for the year ended December 31, 1999. The decrease primarily resulted from an increase in line of credit payments and a decrease in notes payable proceeds offset by an increase in line of credit and term loan proceeds. Comparison of the Year Ended December 31, 1999 to the Year Ended December 31, 1998. Net cash provided by operating activities increased by $7,377,000 to $46,740,000 for the year ended December 31, 1999, as compared to $39,363,000 for the year ended December 31, 1998. The increase was primarily the result of an increase in operating income due to property acquisitions. Net cash used in investing activities decreased by $89,292,000 to $77,671,000 for the year ended December 31, 1999, compared to $166,963,000 for the year ended December 31, 1998. The decrease was primarily the result of a reduction in acquisitions of and additions to operating properties and an increase in proceeds from sale of real estate offset by an acquisition of interest in an unconsolidated partnership. 28 31 Net cash provided by financing activities decreased by $101,090,000 to $29,269,000 for the year ended December 31, 1999, compared to $130,359,000 for the year ended December 31, 1998. The decrease primarily resulted from a decrease in line of credit proceeds, an increase in line of credit payments, an increase in notes payable payments, a decrease in the issuance of common stock and an increase in distributions paid offset by an increase in notes payable proceeds. LIQUIDITY AND CAPITAL RESOURCES Our total market capitalization at December 31, 2000, was approximately $1,388,015,000, based on the market closing price of our common stock at December 31, 2000 of $22.3125 per share (assuming the conversion of 2,059,139 operating subsidiary units) and the debt outstanding of approximately $626,411,000 (exclusive of accounts payable and accrued expenses). As a result, our debt to total market capitalization ratio was approximately 45.1% at December 31, 2000. Our board of directors adopted a policy of limiting our indebtedness to approximately 50% of our total market capitalization. However, we may from time to time modify our debt policy in light of current economic or market conditions including but not limited to the relative costs of debt and equity capital, market conditions for debt and equity securities and fluctuations in the market price of its common stock. Accordingly, we may increase or decrease its debt to market capitalization ratio beyond the limit described above. In connection with our acquisition of Western in November 2000, we entered into a new financing arrangement including a $300,000,000 Revolving Credit Agreement and a $100,000,000 Term Credit Agreement. The Revolving Credit Agreement matures in January 2004 and the Term Credit Agreement matures in November 2001. At December 31, 2000, we had $132,350,000 available under our Revolving Credit Agreement and the full amount of the Term Credit Agreement had been drawn. At our option, amounts borrowed under the Revolving Credit Agreement bear interest at either LIBOR plus 1.10% or a reference rate. At our option, amounts borrowed under the Term Credit Agreement bear interest at either LIBOR plus 1.20% or a reference rate. The weighted average interest rate for short-term LIBOR contracts under the Revolving Credit Agreement and the Term Credit Agreement at December 31, 2000 were 7.89% and 7.99%, respectively. We will continue to use the Revolving Credit Agreement to take advantage of select acquisition opportunities as well as to provide funds for general corporate purposes. During 1999, we completed a number of financing transactions. At the end of the second quarter, we closed a $35,000,000 financing transaction evidenced by notes, bearing interest at 7.2%, due in July 2006 and secured by deeds of trust on two properties, Rainbow Promenade and San Dimas Marketplace. At the beginning of the third quarter, we closed a second financing transaction for $56,300,000 evidenced by notes, bearing interest at 7.1%, due in August 2009 and secured by deeds of trust on four properties, Melrose Village Plaza, Monterey Plaza, Tustin Heights Shopping Center and Tanasbourne Village. The proceeds were used to pay down our unsecured credit facility. Also in the third quarter of 1999, we formed Pan Pacific (Rancho Las Palmas), LLC and Pan Pacific (RLP), Inc. in connection with the acquisition of Rancho Las Palmas. As part of the acquisition, and in exchange for an interest in the asset contributed to Pan Pacific (Rancho Las Palmas) by an individual, 314,587 units in Pan Pacific (Rancho Las Palmas) were issued. In the fourth quarter of 1999, we entered into a loan modification agreement with the lender on Chino Town Square. The loan was set to mature in March of 2000. Pursuant to the terms of the loan modification agreement the maturity date was extended to January 2010 and the interest rate was reduced from 8.00% to 7.72%. At December 31, 2000, 90 of our 110 properties remain unencumbered. Our indebtedness outstanding at December 31, 2000 requires balloon payments of $100,000,000 in 2001, $230,392,000 in 2004, $7,395,000 in 2005, $55,520,000 in 2006, $74,644,000 in 2007, $25,000,000 in 2008, $46,355,000 in 2009, $48,191,000 in 2010 and $5,836,000 in 2012. The balloon payment due in the year 2001 represents the balance drawn on the Term Credit Agreement at December 31, 2000 of $100,000,000. The balloon payments due in the year 2004 include the balance drawn on the Revolving Credit Agreement at December 31, 2000 of $167,650,000. With regard to the balloon payments noted above, it is likely that we will not have sufficient funds on hand to repay these balloon amounts at maturity. Therefore, we expect to refinance this debt either through additional debt financings secured by individual properties or groups of properties, by unsecured private or public debt offerings or by additional equity offerings. 29 32 We expect to make distributions from net cash provided by operations. Operating cash flows in excess of amounts to be used for distributions will be invested by us primarily in short-term investments such as collateralized securities of the United States government or its agencies, high-grade commercial paper and bank deposits or will be used to pay down outstanding balances on our Revolving Credit Agreement, if any. The following table provides historical distribution information for the three years ended December 31, 2000:
Distribution Quarter Ended Date Declared Record Date Date Paid Per Share ------------- ------------- ----------- --------- ------------ March 31, 1998 March 17, 1998 March 31, 1998 April 17, 1998 $0.3800 June 30, 1998 June 19, 1998 June 30, 1998 July 17, 1998 $0.3800 September 30, 1998 September 11, 1998 October 5, 1998 October 21, 1998 $0.3800 December 31, 1998 December 8, 1998 December 22, 1998 January 20, 1999 $0.3800 March 31, 1999 February 10, 1999 March 17, 1999 April 16, 1999 $0.4000 June 30, 1999 June 15, 1999 June 28, 1999 July 16, 1999 $0.4000 September 30, 1999 September 9, 1999 September 24, 1999 October 22, 1999 $0.4000 December 31, 1999 December 9, 1999 December 22, 1999 January 21, 2000 $0.4000 March 31, 2000 February 9, 2000 March 17, 2000 April 14, 2000 $0.4200 June 30, 2000 June 13, 2000 June 26, 2000 July 21, 2000 $0.4200 September 30, 2000 September 15, 2000 September 25, 2000 October 20, 2000 $0.4200 December 31, 2000 October 30, 2000 November 3, 2000 November 15, 2000 $0.2800
During the fourth quarter of 2000 we distributed a special, two-month dividend of $0.28 a share. This dividend was in connection with the Western acquisition, and was paid to our stockholders of record before the merger transaction was closed to address the two-month shift in timing for the payment of our normal quarterly dividend in future periods. We expect to meet our short-term liquidity requirements generally through our current working capital and net cash provided by operations. We believe that our net cash provided by operations will be sufficient to allow us to make the distributions necessary to enable us to continue to qualify as a REIT. We also believe that the foregoing sources of liquidity will be sufficient to fund our short-term liquidity needs for the foreseeable future. We expect to meet certain long-term liquidity requirements such as property acquisition and development, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness, the issuance of additional equity or debt securities and the use of net proceeds from the disposition of non-strategic assets. We also expect to use funds available under the Revolving Credit Facility to finance acquisition and development activities and capital improvements on an interim basis. INFLATION Substantially all of the leases provide for the recovery of real estate taxes and operating expenses incurred by us. In addition, many of the leases provide for fixed base rent increases or indexed escalations (based on the consumer price index or other measures) and percentage rent. We believe that inflationary increases in expenses will be substantially offset by expense reimbursements, contractual rent increases and percentage rent described above. The Revolving Credit Agreement and Term Credit Agreement bear interest at a variable rate, which will be influenced by changes in short-term interest rates, and will be sensitive to inflation. 30 33 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to interest rate changes primarily as a result of our credit agreements and long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives, we borrow primarily at fixed rates and could enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate our interest rate risk on a related financial instrument. We are not a party to any derivative financial instrument at December 31, 2000. We do not enter into derivative or interest rate transactions for speculative or trading purposes. Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts, weighted average interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
Fair 2001 2002 2003 2004 2005 Thereafter Total Value(2) ------- ------ ------ ------- ------- ---------- -------- -------- Fixed-rate debt (1) $ 3,925 $4,202 $4,542 $ 67,315 $12,164 $265,195 $357,343 $357,962 Average interest rate 7.61% 7.61% 7.61% 7.77% 7.71% 7.56% 7.61% 7.96% Variable-rate LIBOR debt (1) $100,000 -- -- $167,650 -- -- $267,650 $267,650 Average interest rate 7.99% -- -- 7.89% -- -- 7.93% 7.93%
(1) Principal amounts shown are in thousands. (2) The fair value of fixed-rate debt and variable-rate LIBOR debt were determined based on the current rates offered for fixed-rate debt and variable-rate LIBOR debt with similar risks and maturities. The table incorporates only those exposures that exist as of December 31, 2000, and does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, our interest rate fluctuations will depend on the exposures that arise during the period and interest rates. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulation S-X are included in this Annual Report on Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 31 34 PART III Certain information required by Part III is omitted from this annual report on Form 10-K in that the Company will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A for its Annual Meeting of Stockholders to be held in May 2001 (the "Proxy Statement") and the information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the sections captioned "Proposal One; Election of Directors" and "Compliance with Federal Securities Laws" of the Proxy Statement are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained in the section captioned "Executive Compensation" of the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the section captioned "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the section captioned "Certain Relationships and Related Transactions" of the Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K. 1. Consolidated Financial Statements:
Page (s) -------- Independent Auditors' Report....................................... F-1 Consolidated Balance Sheets as of December 31, 2000 and 1999........................................................ F-2 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998................................ F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998................................ F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998................................ F-5 Notes to Consolidated Financial Statements......................... F-7
2. Consolidated Financial Statement Schedule: Schedule III--Properties and Accumulated Depreciation.............. F-19
32 35
Exhibits Exhibit No. Description ----------- ----------------------------------------------------------------- 3.1 Articles of Amendment and Restatement of the Company (previously filed as Exhibit 3.1 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 3.2 Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.2 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 4.1 Form of Certificate of Common Stock (previously filed as Exhibit 4.1 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333- 28715) and incorporated herein by reference) 4.2 Form of Indenture relating to the Senior Notes (previously filed as Exhibit 4.1 to Western Properties Trust's Registration Statement on Form S-3 (Registration No. 333-32721) and incorporated herein by this reference) 4.3 Form of Senior Notes (previously filed as Exhibit 4.1 to Western Properties Trust's Registration Statement on Form S-3 (Registration No. 333-32721) and incorporated herein by this reference) 4.4 Form of Supplemental Indenture relating to the 7.1% Senior Notes due 2006 (previously filed as Exhibit 4.5 to Western Properties Trust's Form 8-K dated September 24, 1997, and incorporated herein by this reference) 4.5 Form of Supplemental Indenture relating to the 7.2% Senior Notes due 2008 (previously filed as Exhibit 4.6 to Western Properties Trust's Form 8-K, dated September 24, 1997, and incorporated herein by this reference) 4.6 Form of Supplemental Indenture relating to the 7.3% Senior Notes due 2010 (previously filed as Exhibit 4.7 to Western Properties Trust's Form 8-K, dated September 24, 1997, and incorporated herein by this reference) 4.7 Form of Supplemental Indenture relating to the assumption by Pan Pacific Retail Properties, Inc. of the Indenture relating to the 7.1% Senior Notes due 2006, the 7.2% Senior Notes due 2008 and the 7.3% Senior Notes due 2010 (previously filed as Exhibit 4.7 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-3 (Registration No. 333-51230) and incorporated herein by reference) 4.8 Form of Indenture relating to the 7.875% Senior Notes due 2004 (previously filed as Exhibit 4.2 to Western Properties Trust Registration Statement on Form S-3 (Registration No. 333-71270) and incorporated herein by reference) 4.9 Form of Supplemental Indenture relating to the assumption by Pan Pacific Retail Properties, Inc. of the Indenture relating to the 7.875% Senior Notes due 2004 (previously filed as Exhibit 4.9 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-3 (Registration No. 333-51230) and incorporated herein by reference) 10.1 Form of Restricted Stock Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.1 to Pan Pacific Retail Properties, Inc.'s filing on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference)
33 36
Exhibits Exhibit No. Description ----------- ----------------------------------------------------------------- 10.2 The 1997 Stock Option and Incentive Plan of Pan Pacific Retail Properties, Inc. (previously filed as Exhibit 10.1 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.3 The 2000 Stock Incentive Plan of Pan Pacific Retail Properties, Inc. (previously filed as Appendix A to Pan Pacific Retail Properties, Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders) 10.4 Form of Officers and Directors Indemnification Agreement (previously filed as Exhibit 10.2 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 Registration No. 333-28715) and incorporated herein by reference) 10.5 Amended and Restated Employment Agreement, dated as of August 14, 2000, between Pan Pacific Retail Properties, Inc. and Mr. Stuart A. Tanz (previously filed as Exhibit 10.5 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.6 Employment Agreement, dated as of October 11, 1999, between Pan Pacific Retail Properties, Inc. and Mr. Joseph B. Tyson (previously filed as Exhibit 10.6 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333- 45944) and incorporated herein by reference) 10.7 Amended and Restated Employment Agreement, dated as of August 14, 2000, between Pan Pacific Retail Properties, Inc. and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.7 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.8 Form of Miscellaneous Rights Agreement (previously filed as Exhibit 10.6 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333- 28715) and incorporated herein by reference) 10.9 Form of Non-Competition Agreement (previously filed as Exhibit 10.7 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333- 28715) and incorporated herein by reference) 10.10 Revolving Credit Agreement, dated as of November 13, 2000, by and among Pan Pacific Retail Properties, Inc., certain subsidiaries of Pan Pacific Retail Properties, Inc. and Bank of America, N.A., as Administrative Agent, First Union National Bank, as Syndication Agent, and U.S. Bank, National Association, as Documentation Agent, Dresdner Bank AG, New York and Grand Cayman Branches, Guaranty Federal Banks, F.S.B., as Co- Agent and Wells Fargo Bank, N.A., as Co-Agent (previously filed as Exhibit 10.9 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-3 (Registration No. 333-51230) and incorporated herein by reference) 10.11 Term Credit Agreement, dated as of November 13, 2000, by and among Pan Pacific Retail Properties, Inc., certain subsidiaries of Pan Pacific Retail Properties, Inc. and Bank of America, N.A., as Administrative Agent (previously filed as Exhibit 10.10 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-3 (Registration No. 333- 51230) and incorporated herein by reference)
34 37
Exhibits Exhibit No. Description ----------- ----------------------------------------------------------------- 10.12 Member's Interest Purchase Agreement, dated as of August 13, 1999, by and among Pan Pacific Retail Properties, Inc., Pan Pacific (RLP), Inc. and Stanley W. Gribble (previously filed as Exhibit 10.15 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.13 Loan Assumption and Modification Agreement, dated as of September 23, 1999, by and between Pan Pacific Retail Properties, Inc. and La Salle National Bank (previously filed as Exhibit 10.16 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.14 Operating Agreement of Pan Pacific (Rancho Las Palmas), LLC, dated as of September 23, 1999 (previously filed as Exhibit 10.17 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.15 Contribution Agreement and Escrow Instructions, dated as of August 13, 1999, by and between Pan Pacific Retail Properties, Inc. and Ranch Las Palmas Center Associates (previously filed as Exhibit 10.18 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 21.1 Subsidiaries of the Registrant 23.1 Consent of KPMG LLP
(b) Reports on Form 8-K. 1. A form 8-K was filed on August 23, 2000 for purposes of reporting that Pan Pacific Retail Properties, Inc. and Western Properties Trust had entered into an Agreement and Plan of Merger. 2. A Form 8-K was filed on October 6, 2000 for purposes of reporting information prepared by Pan Pacific Retail Properties, Inc.'s management relating to the proposed merger of WPT, Inc., successor in interest to Western Properties Trust immediately prior to the merger, with and into Pan Pacific Retail Properties, Inc. 3. A Form 8-K was filed on November 28, 2000 for purposes of reporting that the proposed merger of WPT, Inc. (successor to Western Properties Trust) with and into Pan Pacific Retail Properties, Inc. was completed on November 13, 2000. In addition, it was reported that in connection with the closing of the merger, Pan Pacific assumed Western Properties Trust's obligations under its unsecured senior notes. Further, certain historical and pro forma financial information was incorporated by reference. 4. A Form 8-K was filed on December 21, 2000 for purposes of reporting certain operational and other information about Pan Pacific Retail Properties, Inc. after the closing of the merger with Western Properties Trust. Included in the disclosure was information concerning a shareholder lawsuit which was filed on November 8, 2000. A copy of the complaint was included. 35 38 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 on March 16, 2001. PAN PACIFIC RETAIL PROPERTIES, INC. By: /s/ Stuart A. Tanz By: /s/ Joseph B. Tyson ------------------------------------- ----------------------------- Stuart A. Tanz Joseph B. Tyson, CPA President and Chief Executive Officer Executive Vice President and Chief Financial Officer By: /s/ Laurie A. Sneve ------------------------------------- Laurie A. Sneve, CPA Vice President and Controller 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Stuart A. Tanz Director, Chairman, Chief Executive March 16, 2001 -------------------------------- Officer and President Stuart A. Tanz /s/ Joseph B. Tyson Executive Vice President, Chief Financial March 16, 2001 -------------------------------- Officer, Treasurer and Secretary Joseph B. Tyson, CPA /s/ Laurie A. Sneve Vice President and Controller March 16, 2001 -------------------------------- Laurie A. Sneve, CPA /s/ Paul D. Campbell Director March 16, 2001 -------------------------------- Paul D. Campbell /s/ Mark J. Riedy Director March 16, 2001 -------------------------------- Mark J. Riedy /s/ Bernard M. Feldman Director March 16, 2001 -------------------------------- Bernard M. Feldman /s/ David P. Zimel Director March 16, 2001 -------------------------------- David P. Zimel /s/ Joseph P. Colmery Director March 16, 2001 -------------------------------- Joseph P. Colmery /s/ James L. Stell Director March 16, 2001 -------------------------------- James L. Stell
36 39 INDEPENDENT AUDITORS' REPORT The Board of Directors Pan Pacific Retail Properties, Inc.: We have audited the accompanying consolidated balance sheets of Pan Pacific Retail Properties, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule III. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pan Pacific Retail Properties, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP San Diego, California February 9, 2001 F-1 40 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31, ASSETS: 2000 1999 ------------ ------------ Properties, at cost: Land $ 350,604 $ 209,071 Buildings and improvements (including related party development and acquisition fees of $1,235) 887,353 569,519 Tenant improvements 30,762 26,496 ----------- --------- 1,268,719 805,086 Less accumulated depreciation and amortization (73,895) (57,025) ----------- --------- 1,194,824 748,061 Investments in unconsolidated partnerships 6,816 1,496 Cash and cash equivalents 1,601 1,097 Restricted cash 331 592 Accounts receivable (net of allowance for doubtful accounts of $1,404 and $608, respectively) 7,107 3,295 Accrued rent receivable (net of allowance for doubtful accounts of $1,588 and $1,377, respectively) 14,288 12,391 Notes receivable 37,944 3,043 Deferred lease commissions (including unamortized related party amounts of $2,978 and $2,396, respectively, and net of accumulated amortization of $2,415 and $2,281, respectively) 4,836 3,943 Prepaid expenses 9,133 7,987 Other assets 20,810 2,632 =========== ========= $ 1,297,690 $ 784,537 =========== ========= LIABILITIES AND EQUITY: Notes payable $ 233,911 $ 228,490 Line of credit and term loan payable 267,650 128,800 Senior notes 124,850 -- Accounts payable, accrued expenses and other liabilities (including related party amounts of $663 and $404, respectively) 22,527 13,074 Distributions payable (including related party amount of $4,323) -- 8,960 ----------- --------- 648,938 379,324 Minority interests 41,754 23,347 ----------- --------- Stockholders' equity: Common stock par value $.01 per share, 100,000,000 authorized shares, 32,074,368 and 21,252,512 shares issued and outstanding at December 31, 2000 and 1999, respectively 321 213 Paid in capital in excess of par value 705,265 481,312 Accumulated deficit (98,588) (99,659) ----------- --------- 606,998 381,866 ----------- --------- $ 1,297,690 $ 784,537 =========== =========
See accompanying notes to consolidated financial statements. F-2 41 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 --------- --------- -------- REVENUE: Base rent $ 93,990 $ 79,377 $ 62,585 Percentage rent 753 760 628 Recoveries from tenants 21,648 17,893 13,728 Net gain on sale of real estate -- 400 -- Income from unconsolidated partnerships 364 341 737 Other 3,738 2,291 1,575 --------- --------- -------- 120,493 101,062 79,253 --------- --------- -------- EXPENSES: Property operating 14,285 12,551 9,813 Property taxes 8,938 7,399 5,735 Depreciation and amortization 20,374 17,476 14,298 Interest 32,112 23,939 18,295 General and administrative 5,105 5,315 4,109 Merger related expenses 3,204 -- -- Other 556 248 108 --------- --------- -------- 84,574 66,928 52,358 --------- --------- -------- INCOME BEFORE MINORITY INTERESTS 35,919 34,134 26,895 Minority interests (2,119) (1,558) (261) --------- --------- -------- NET INCOME $ 33,800 $ 32,576 $ 26,634 ========= ========= ======== Basic earnings per share $ 1.49 $ 1.54 $ 1.37 Diluted earnings per share $ 1.48 $ 1.54 $ 1.35
See accompanying notes to consolidated financial statements. F-3 42 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
PAID IN COMMON STOCK CAPITAL IN ----------------------- EXCESS OF ACCUMULATED SHARES AMOUNT PAR VALUE DEFICIT TOTAL ---------- ------ ---------- ----------- --------- Balance at December 31, 1997 16,814,012 $168 $395,313 $(94,426) $ 301,055 Net proceeds from secondary offering 4,348,000 44 85,869 -- 85,913 Net income -- -- -- 26,634 26,634 Cash distributions paid and declared -- -- -- (30,514) (30,514) ---------- ---- -------- -------- --------- Balance at December 31, 1998 21,162,012 212 481,182 (98,306) 383,088 Restricted stock awards 90,500 1 130 -- 131 Net income -- -- -- 32,576 32,576 Cash distributions paid and declared -- -- -- (33,929) (33,929) ---------- ---- -------- -------- --------- Balance at December 31, 1999 21,252,512 213 481,312 (99,659) 381,866 Vesting of restricted stock -- -- 1,615 -- 1,615 Stock issued in acquisition of Western 10,754,256 107 221,027 -- 221,134 Stock grant 6,000 -- 120 -- 120 Options exercised 61,600 1 1,191 -- 1,192 Net income -- -- -- 33,800 33,800 Cash distributions paid and declared -- -- -- (32,729) (32,729) ---------- ---- -------- -------- --------- Balance at December 31, 2000 32,074,368 $321 $705,265 $(98,588) $ 606,998 ========== ==== ======== ======== =========
See accompanying notes to consolidated financial statements. F-4 43 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------- 2000 1999 1998 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 33,800 $ 32,576 $ 26,634 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,374 17,476 14,298 Amortization of prepaid financing costs 700 707 697 Net gain on sale of real estate -- (400) -- Income from unconsolidated partnerships (364) (341) (737) Minority interests 2,119 1,558 261 Vesting of restricted stock 1,615 -- -- Stock grant 120 -- -- Changes in assets and liabilities, net of the effects of the acquisition of Western: Decrease (increase) in restricted cash 261 320 (251) Increase in accounts receivable (2,230) (337) (1,332) Increase in accrued rent receivable (1,897) (2,748) (2,023) Increase in deferred lease commissions (1,757) (1,785) (1,039) Increase in prepaid expenses (505) (732) (1,480) Increase in other assets (1,569) (948) (609) Increase in accounts payable, accrued expenses and other liabilities 5,198 1,394 4,944 --------- --------- --------- Net cash provided by operating activities 55,865 46,740 39,363 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of and additions to operating properties (49,913) (81,219) (169,140) Proceeds from sale of real estate 198 12,915 -- Increase (decrease) in construction accounts payable and accrued expenses 116 (2,573) 1,656 Distributions from unconsolidated partnerships 355 84 712 Acquisition of Western (14,371) -- -- Acquisition of interest in unconsolidated partnership -- (7,163) -- Acquisition of minority interests (570) (204) (160) Increase in other assets (13,339) (841) -- Collections of notes receivable 6,224 1,599 113 Increases in notes receivable (2,673) (269) (144) --------- --------- --------- Net cash used in investing activities (73,973) (77,671) (166,963) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Line of credit and term loan proceeds 346,260 106,962 177,101 Line of credit payments (279,910) (116,662) (101,051) Notes payable proceeds -- 91,300 -- Notes payable payments (4,207) (14,949) (2,479) Prepaid financing costs (1,267) (2,719) (601) Refunds from loan escrow -- -- 43 Issuance of common stock 1,192 -- 85,913 Distributions paid (43,456) (34,663) (28,567) --------- --------- --------- Net cash provided by financing activities 18,612 29,269 130,359 --------- --------- --------- NET INCREASE/(DECREASE) IN CASH AND CASH 504 (1,662) 2,759 EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,097 2,759 -- ========= ========= ========= CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,601 $ 1,097 $ 2,759 ========= ========= =========
(Continued) F-5 44 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 -------- ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest (net of amounts capitalized of $ 30,699 $22,995 $17,539 $202, $231 and $286, respectively) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Transfer from investment in unconsolidated partnerships to property $ -- $15,775 $ -- Transfer of acquisition deposits from other assets to property $ -- $ -- $ 1,465 Notes receivable issued upon sales of property $ 1,801 $ 1,962 $ -- Notes payable assumed upon acquisition of properties and Western $ 9,628 $12,523 $38,187 Note payable assumed by buyer upon sale of property $ -- $ 4,408 $ -- Foreclosure of a property securing a note receivable $ -- $ -- $ 601 Minority interest from acquisition of properties and Western $ 18,751 $ 6,134 $15,722 Distributions payable $ -- $ 8,960 $ 8,227 Accrued liability for acquisition of partnership interests $ 126 $ -- $ -- Assumption of senior notes and line of credit $197,350 $ -- $ -- Stock issued in acquisition of Western $221,134 $ -- $ --
See accompanying notes to consolidated financial statements. F-6 45 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 1. ORGANIZATION AND BASIS OF PRESENTATION Pan Pacific Retail Properties, Inc. (together with its subsidiaries, the "Company") is an equity real estate investment trust ("REIT") that owns, leases and manages neighborhood and community shopping centers. As of December 31, 2000, the Company owned a portfolio comprised of 110 properties located primarily in the Western region of the United States. Commencing with its taxable year ended December 31, 1997, the Company believes it qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code. On May 18, 1998, the Company completed a secondary offering of 4,348,000 shares of common stock at $21.125 per share (including 348,000 shares issued as a result of the partial exercise of the over-allotment option by the underwriters on June 11, 1998). The aggregate proceeds to the Company, net of underwriters' discount, advisory fee and offering costs were approximately $85,913,000. In September 1998, the Company formed Pan Pacific (Portland), LLC ("PPP LLC"), with the Company as the sole managing member. In October and November of 1998, PPP LLC acquired a portfolio of six shopping centers located in Oregon. In exchange for four properties which were contributed to PPP LLC, 832,617 units were issued to certain non-managing members. A non-managing member can seek redemption of the units after the first anniversary of the date of issuance. The Company, at its option, may redeem the units by either (i) issuing common stock at the rate of one share of common stock for each unit, or (ii) paying cash to the non-managing member based on the average trading price of its common stock. Distributions are made to the non-managing members at a rate equal to the distribution being paid by the Company on a share of common stock. Net income or loss is allocated to the non-managing members in an amount equal to the cumulative distributions earned by such members. All remaining net income or loss is allocated to the managing member. In September 1999, the Company formed Pan Pacific (Rancho Las Palmas), LLC ("RLP LLC") and Pan Pacific (RLP), Inc. ("RLP, Inc.") in connection with the acquisition of Rancho Las Palmas Retail Center. The Company and RLP, Inc., a wholly-owned subsidiary of the Company, are co-managing members of RLP LLC. As part of the acquisition, and in exchange for an interest in the asset contributed to RLP LLC by an individual, 314,587 units were issued to a non-managing member. The non-managing member can seek redemption of the units beginning on the first anniversary of the date of issuance. The Company, at its option, may redeem the units by either (i) issuing common stock at the rate of one share of common stock for each unit, or (ii) paying cash to the non-managing member based on the average trading price of its common stock. Distributions are made to the non-managing member at a rate equal to the distribution being paid by the Company on a share of common stock. Net income or loss is allocated to the non-managing member in an amount equal to the cumulative distributions earned by the non-managing member. All remaining net income or loss is allocated to the managing members. On November 13, 2000, the Company acquired Western Properties Trust ("Western"), a real estate investment trust, at a cost of approximately $440,000,000. The transaction was a stock for stock exchange including assumption of debt whereby Western common shares and units were exchanged into newly issued Company common shares and units, based upon a price of $20.5625 per share/unit issued and a 0.62 exchange ratio. As a result, the Company issued 10,754,256 common shares and 911,934 operating partnership units to Western's equity holders. The Company accounted for this transaction using the purchase method of accounting; accordingly, the Company's results of operations for the period from November 13, 2000 through December 31, 2000 include Western. F-7 46 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) In connection with the acquisition of Western, the Company has an investment in certain operating partnerships. Pan Pacific (Kienows), L.P., formerly Western/Kienow, L.P., issued units currently convertible into 857,065 shares of Company common stock or cash, at the Company's option. Distributions are made to the limited partners at a rate equal to the distribution being paid by the Company on a share of common stock. Net income or loss is allocated to the limited partners in an amount equal to the cumulative distributions earned by such partners. All remaining net income or loss is allocated to the Company as general partner. Pan Pacific (Pinecreek), L.P., formerly Western/Pinecreek, L.P., issued units currently convertible into 54,869 shares of Company common stock or cash, at the Company's option. Distributions are made to the limited partners after a 10% preferred return to the Company as general partner. Net income is allocated to the Company, as general partner, and to the limited partners in amounts equal to the cumulative distributions earned by such partners and thereafter based on their ownership interests. Losses are allocated 99% to the Company as general partner and 1% to the limited partners. Unaudited pro forma revenue and expense information for 2000 reflecting the acquisition of Western is presented in the following table. The amounts included therein assume that the acquisition had taken place at the beginning of the year.
For the years ended December 31, -------------------------------- 2000 1999 -------- -------- (Pro forma, unaudited) Total revenue $181,497 $166,614 Total expenses $120,151 $108,749 Net income $ 61,346 $ 57,865 Basic earnings per share $ 1.92 $ 1.81 Diluted earnings per share $ 1.89 $ 1.81
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated. At December 31, 2000, the Company consolidated certain entities the Company controls and recorded a minority interest for the portions not owned by the Company. (b) CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, highly liquid investments with an original maturity of three months or less are considered cash equivalents. (c) INCOME RECOGNITION Rental revenue is recognized on a straight-line basis over the terms of the leases, less a general allowance for doubtful accounts relating to accrued rent receivable for leases which may be terminated before the end of the contracted term. F-8 47 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) (d) CAPITALIZATION OF COSTS The Company capitalizes certain acquisition and development related costs to the carrying costs of the property acquired or developed. These costs are being depreciated over the estimated useful lives of the properties. The capitalized costs associated with unsuccessful acquisitions are charged to expense when the acquisition is abandoned. (e) DEPRECIATION AND AMORTIZATION Depreciation on buildings and improvements is provided using a forty-year straight-line basis. Tenant improvements and costs incurred in obtaining leases are depreciated on a straight-line basis over the lives of the respective leases. Prepaid financing costs are amortized over the lives of the loans and the related amortization expense is included as a component of interest expense. (f) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (g) INCOME TAXES As of April 16, 1997, the Company elected to be taxed as a REIT pursuant to the Internal Revenue Code, as amended. In general, a corporation that distributes at least 95% of its REIT taxable income to stockholders in any taxable year and complies with certain other requirements (relating primarily to the nature of its assets and the sources of its revenue) is not subject to federal income taxation to the extent of the income which it distributes. Management believes that the Company has qualified and intends for it to continue to qualify as a REIT in the future. As discussed more fully in Note 10, management also does not expect that the Company will pay income taxes on "built-in gains" on certain of its assets. Based on these considerations, management does not believe that the Company will be liable for income taxes at the federal level or in most of the states in which it operates in future years. (h) CREDIT RISK The Company predominantly operates in one industry segment: real estate ownership, management and development. No single tenant accounts for 10% or more of rental revenue. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and receivables. The Company places its temporary cash investments with financial institutions which the Company believes are of high credit quality. Concentration of credit risk with respect to receivables is limited due to the large number of tenants comprising the Company's customer base, and their dispersion across many geographical areas. At December 31, 2000 and 1999, the Company had no significant concentration of credit risk. F-9 48 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) (i) NET INCOME PER SHARE Basic earnings per share ("EPS") is computed by dividing earnings available to common stockholders during the period by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing the amount of earnings for the period available to common stockholders during the period by the weighted average number of shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period, net of shares assumed to be repurchased using the treasury stock method. The following is a reconciliation of the numerator and denominator for the calculation of basic and diluted EPS (all net income is available to common stockholders for the period presented):
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Income available to common stockholders: Basic $ 33,800 $ 32,576 $ 26,634 Add-back income allocated to dilutive 585 1,530 211 operating partnership and LLC units (minority interests) ----------- ----------- ----------- Diluted $ 34,385 $ 34,106 $ 26,845 =========== =========== =========== Weighted average shares: Basic 22,695,877 21,196,238 19,507,141 Incremental shares from assumed: Exercise of dilutive stock options 35,765 8,478 32,404 Conversion of dilutive operating partnership 436,677 917,943 123,077 and LLC units ----------- ----------- ----------- Diluted 23,168,319 22,122,659 19,662,622 =========== =========== ===========
At December 31, 2000 and 1999, 310,167 and 1,210,067 stock options, respectively, were excluded from the calculation of diluted weighted-average shares because they were anti-dilutive. At December 31, 2000, 832,617 LLC units were excluded from the calculation of diluted weighted-average shares because they were anti-dilutive. F-10 49 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) (j) STOCK PLANS The Company accounts for its stock plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards No. 123 ("SFAS No. 123",) "Accounting for Stock-Based Compensation", permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the annual pro forma disclosures required by SFAS No. 123. (k) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reporting of revenue and expenses during the reporting period to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. 3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS The accompanying consolidated financial statements include investments in partnerships in which the Company does not own a controlling interest. At December 31, 2000, the Company owned a 50% general partner interest in North Coast Health Center and a 30% undivided co-tenant interest in Serra Center. At December 31, 1999, the Company owned a 50% general partner interest in North Coast Health Center. These investments are reported using the equity method. F-11 50 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 4. NOTES PAYABLE
DECEMBER 31, ------------------------ 2000 1999 -------- -------- Notes payable consist of the following: Bank notes payable, secured by deeds of trust, bearing interest at 7.10% with monthly principal and interest payments of $391, due in August 2009 $ 55,333 $ 56,067 Bank notes payable, secured by a mortgage and deeds of trust, bearing interest at 8.17% with monthly principal and interest payments of $404, due in January 2007 52,524 52,989 Bank notes payable, secured by deeds of trust, bearing interest at 7.21% with monthly principal and interest payments of $252, due in July 2006 34,254 34,788 Bank note payable, secured by a deed of trust, bearing interest at 7.72% with monthly principal and interest payments of $190, due in January 2010 26,331 26,546 Bank note payable, secured by deeds of trust, bearing interest at 8.73% with monthly principal and interest payments of $144, due in February 2007 (a) 16,704 16,933 Bank note payable, secured by a deed of trust, bearing interest at 8.10% with monthly principal and interest payments of $94, due in August 2007 12,367 12,493 Bank note payable, secured by a deed of trust, bearing interest at 7.80% with monthly principal and interest payments of $107, due in December 2005 10,280 10,743 Bank note payable, secured by a deed of trust, bearing interest at 7.61% with monthly principal and interest payments of $80, due in May 2004 9,591 -- Bank note payable, secured by a deed of trust, bearing interest at 7.65% with monthly principal and interest payments of $54, due in October 2012 (b) 7,413 7,495 Bank note payable, secured by a deed of trust, bearing interest at 7.00% with monthly principal and interest payments of $37, due in March 2004 4,411 4,485 Bank note payable, secured by a deed of trust, bearing interest at 7.88% with monthly principal and interest payments of $56, due in August 2008 3,136 4,189 -------- -------- 232,344 226,728 Unamortized note payable premiums 1,567 1,762 -------- -------- $233,911 $228,490 ======== ========
(a) Excludes unamortized note payable premium of $1,266 and $1,443 at December 31, 2000 and 1999, respectively. (b) Excludes unamortized note payable premium of $301 and $319 at December 31, 2000 and 1999, respectively. F-12 51 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 4. NOTES PAYABLE (CONTINUED) Principal payments under these notes payable are due as follows: 2001 $ 3,925 2002 4,202 2003 4,542 2004 17,315 2005 12,164 2006 and subsequent 190,196 ========= $232,344 =========
5. LINE OF CREDIT AND TERM LOAN PAYABLE In November 2000, the Company entered into a $300,000,000 Revolving Credit Agreement which bears interest, at the Company's option, at either LIBOR plus 1.10% or a reference rate and expires in January 2004. At December 31, 2000, the amount drawn on this line of credit was $167,650,000 and the interest rate was 7.89%. The credit facility requires a quarterly fee of 0.20% per annum on the total aggregate commitment. At December 31, 1999, the Company had a $200,000,000 Unsecured Credit Facility which bore interest, at the Company's option, at either LIBOR plus 1.15% or a reference rate. The amount drawn on this line of credit was $128,800,000 and the interest rate was 8.79%. The credit facility required a quarterly fee of 0.20% per annum on the total aggregate commitment. The $200,000,000 Unsecured Credit Facility was terminated in 2000. In November 2000, the Company also executed a $100,000,000 Term Credit Agreement which bears interest, at the Company's option, at either LIBOR plus 1.20% or a reference rate and expires in November 2001 with a three month option to extend at the Company's discretion. At December 31, 2000, the full amount was drawn on this loan and the interest rate was 7.99%. The Company intends to replace this loan with medium to long-term fixed-rate financing at maturity. 6. SENIOR NOTES In November 2000, in connection with the acquisition of Western, the Company assumed $49,952,000 of 7.88% senior notes due 2004, $24,977,000 of 7.10% senior notes due 2006, $24,958,000 of 7.20% senior notes due 2008 and $24,958,000 of 7.30% senior notes due 2010. The senior notes were assumed net of a $155,000 discount which represents the amount of the principal reduction recorded by Western to achieve the required yield at pricing of the debt. The effective yields approximated fair value at the date of the merger. 7. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate fair value of each class of financial instruments: (a) CASH AND CASH EQUIVALENTS, RESTRICTED CASH, ACCOUNTS RECEIVABLE, NOTES RECEIVABLE OF $22,079,000, ACCOUNTS PAYABLE AND ACCRUED EXPENSES AND OTHER LIABILITIES The carrying amounts approximate fair values because of the short maturity of these instruments. (b) NOTES RECEIVABLE OF $13,406,000 It was not practicable to estimate the fair value of these notes receivable due to the uncertainty of the timing of repayment. F-13 52 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 7. FINANCIAL INSTRUMENTS (CONTINUED) (c) NOTES RECEIVABLE OF $2,459,000 The fair value of these notes receivable approximates the carrying amount based on market rates for the same or other instruments with similar risk, security and remaining maturities. (d) NOTES PAYABLE, LINE OF CREDIT AND TERM LOAN PAYABLE AND SENIOR NOTES PAYABLE The fair value of notes payable, line of credit and term loan payable and senior notes payable approximates the carrying amount based on the current rates offered for loans with similar risks and maturities. 8. NET GAIN ON SALE OF REAL ESTATE The Company recorded a net gain of $400,000 on the sale of three assets for the year ended December 31, 1999. This consisted of the sale of a single-tenant property on June 30, 1999 for cash of $4,400,000 recognizing a gain of $75,000. In addition, the Company sold a shopping center on December 9, 1999 for $7,750,000, representing cash and a note receivable, recognizing a gain of $988,000. On December 22, 1999 the Company sold a shopping center for $820,000, representing cash and a note receivable, recognizing a loss of $663,000. 9. STOCK PLANS In August 1997, the Company established the 1997 Stock Option and Incentive Plan (the "1997 Plan") pursuant to which the Company's Board of Directors may grant stock, restricted stock awards and stock options to officers, directors and key employees. The Plan authorizes grants of stock, restricted stock and options to purchase up to 1,620,000 shares of authorized but unissued common stock. In March 2000, the Company established the 2000 Stock Incentive Plan (the "2000 Plan") pursuant to which the Company's Board of Directors may grant stock, restricted stock awards and stock options to officers, directors and key employees. The Plan authorizes grants of stock, restricted stock and options to purchase up to 489,971 shares of authorized but unissued common stock. The 2000 Plan was approved by the Company's stockholders at the annual meeting held in May 2000. In November 2000, the 2000 Plan was increased to 1,786,695 shares upon approval of the Company's stockholders in connection with the merger with Western. (a) STOCK OPTIONS Stock options are granted with an exercise price equal to the stock's fair value at the date of grant. The stock options have seven-year terms and vest 33 1/3% per year over three years from the date of grant, except for the options granted to the independent directors which vest 33 1/3% immediately, with the remainder vesting ratably over two years. In connection with the acquisition of Western, all issued and outstanding stock options became fully vested. The per share weighted-average fair value of stock options granted during 2000, 1999 and 1998 were $1.71, $1.64, and $2.48, respectively, on the dates of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:
2000 1999 1998 ------- ------- ------- Expected distribution yield 8.30% 8.50% 7.50% Risk-free interest rate 5.00% 5.00% 5.00% Expected volatility 22.88% 23.90% 23.72% Expected life (years) 5.9 6.5 5.0
F-14 53 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 9. STOCK PLANS (CONTINUED) The Company applies APB Opinion No. 25 in accounting for the 1997 Plan and 2000 Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
2000 1999 1998 ----------------------- ---------------------- ----------------------- AS PRO AS PRO AS PRO REPORTED FORMA REPORTED FORMA REPORTED FORMA -------- ------- -------- ------- -------- ------- Net income $33,800 $32,535 $32,576 $31,481 $26,634 $25,676 Diluted earnings per share $ 1.48 $ 1.43 $ 1.54 $ 1.49 $ 1.35 $ 1.31
Pro forma net income reflects options granted since adoption of the 1997 Plan and the 2000 Plan. Stock option activity during the periods presented is as follows:
NUMBER OF WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE --------- ---------------- Balance at December 31, 1997 900,000 $19.5000 Granted 337,500 $22.1875 Exercised -- $ -- Forfeited (20,666) $20.6700 Expired (1,667) $19.5000 --------- Balance at December 31, 1998 1,215,167 $20.2265 Granted 283,000 $17.6250 Exercised -- $ -- Forfeited (17,000) $20.0600 Expired (3,333) $19.5000 --------- Balance at December 31, 1999 1,477,834 $19.7750 Granted 173,000 $18.6250 Exercised (61,600) $19.3478 Forfeited (15,333) $19.4743 Expired (10,667) $20.0192 --------- Balance at December 31, 2000 1,563,234 $19.6605 =========
At December 31, 2000, the weighted-average exercise price and weighted-average remaining contractual life of outstanding options were $19.661 and 4.1 years, respectively. At December 31, 2000, all of the 1,563,234 outstanding options were exercisable. (b) RESTRICTED STOCK AND STOCK GRANTS During 1999, the Company granted 90,500 shares of restricted stock to certain officers and key employees pursuant to the 1997 Plan. The restricted shares vest 20% per year over five years from the date of grant. Compensation expense, for the portion that vested during 1999 and 2000 prior to the acquisition of Western, has been recognized in general and administrative expenses. In connection with the acquisition of Western, the restricted shares became fully vested and the remaining compensation expense of $1,305,000 has been recognized in merger related expenses. In November 2000, the Company's Board of Directors granted a total of 6,000 shares of stock to the independent directors of the Board. Expense related to this grant has been recognized in merger related expenses. At December 31, 2000, there were 1,746,961 additional shares available for grant under the 1997 Plan and the 2000 Plan. F-15 54 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 10. INCOME TAXES As discussed in Note 2(g), the Company elected to be taxed as a REIT, effective April 16, 1997. Management believes that the Company qualified and management's intent is to continue to qualify as a REIT and therefore does not expect the Company will be liable for income taxes on "built-in gains" on its assets at the federal level or in most states in future years. Accordingly, for the years ended December 31, 2000, 1999 and 1998, no provision was recorded for federal or substantially all state income taxes. In connection with its election to be taxed as a REIT, the Company also elected to be subject to the "built-in gain" rules. Under these rules, taxes may be payable at the time and to the extent that the net unrealized gains on the Company's assets at the date of conversion to REIT status are recognized in taxable dispositions of such assets in the ten-year period following conversion. Such net unrealized gains were approximately $50,000,000 at December 31, 2000, 1999 and 1998. Management believes that the Company will not be required to make payments of income taxes on built-in gains during the ten-year period ending December 31, 2007 due to the availability of its net operating loss carryforward to offset built-in gains which might be recognized, the potential for the Company to make nontaxable dispositions, if necessary (e.g., like-kind exchanges of properties) and the intent and ability of the Company to defer asset dispositions to periods when related gains will not be subject to the built-in gains income taxes. However, it may be necessary to recognize a liability for such income taxes in the future if management's plans and intentions with respect to asset dispositions, or the related tax laws, change. 11. FUTURE LEASE REVENUE Total future minimum lease receipts under noncancellable operating tenant leases in effect at December 31, 2000 are as follows: 2001 $ 133,181 2002 124,533 2003 110,689 2004 96,782 2005 82,479 2006 and subsequent 466,820 =========== $1,014,484 ===========
12. RELATED PARTY TRANSACTIONS (a) Distributions on common stock paid to Revenue Properties (U.S.), Inc., an affiliate of the Company, during 2000 and 1999 were $20,968,000 and $17,077,000, respectively. At December 31, 2000 and 1999, $0 and $4,323,000, respectively, were payable as distributions to Revenue Properties (U.S.), Inc. (b) The Company received $85,000, $150,000 and $270,000 for the years ended December 31, 2000, 1999 and 1998, respectively, which represent a reimbursement of costs incurred by the Company in providing financial services to Revenue Properties (U.S.), Inc. These amounts are included as a reduction of general and administrative expenses. (c) The Company has notes receivable at December 31, 2000 of $687,000 and $116,000 due from executive officers. These notes bear interest at 7.50% and 7.00%, and mature in October 2008 and August 2001, respectively. In addition, during 2000 notes receivable of $297,000 were issued to executive officers. These notes bore interest at 7.00% and were forgiven in November 2000 as a result of the acquisition of Western and were a component of merger related expenses. The Company had notes receivable at December 31, 1999 of $260,000 due from executive officers. The notes bore interest at 7.00% and were forgiven in 2000 as a component of annual compensation. F-16 55 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 13. EMPLOYEE BENEFIT PLAN The Company implemented an employee benefit plan in March 1997. All employees of the Company who meet certain minimum age and period of service requirements are eligible to participate in a Section 401(k) plan as defined by the Internal Revenue Code. The employee benefit plan allows eligible employees to defer up to 15% of their annual compensation. The amounts contributed by employees are immediately vested and non-forfeitable. The Company, at management's discretion, may match employee contributions. This cost is accrued as incurred. The Company's cost for the years ended December 31, 2000, 1999 and 1998 was approximately $58,000, $23,000 and $17,000, respectively. 14. COMMITMENTS AND CONTINGENCIES (a) The Company leases certain real estate and office equipment under operating leases expiring at various dates through 2021. Rental expense was $892,000, $769,000 and $810,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Minimum rentals under noncancellable operating leases in effect at December 31, 2000 were as follows: 2001 $ 1,702 2002 1,756 2003 1,585 2004 1,649 2005 1,721 2006 and subsequent 23,061 ======== $31,474 ========
(b) In connection with the acquisition of Western, the Company was named in a complaint alleging, among other things, that the merger terms between the Company and Western were unfair and violated fiduciary obligations to Western's shareholders. Management believes, based in part upon discussions with legal counsel, that these claims are without merit and intends to vigorously defend against this action; however, the outcome of any litigation is by its nature unpredictable and we therefore cannot assure that we will successfully defend this action. (c) Various claims and legal proceedings arise in the ordinary course of business. The ultimate amount of liability from all claims and actions cannot be determined with certainty, but in the opinion of management, the ultimate liability from all pending and threatened legal claims will not materially affect the consolidated financial statements taken as a whole. 15. SEGMENT REPORTING The Company predominantly operates in one industry segment, real estate ownership, management and development. As of December 31, 2000 and 1999, the Company owned 110 and 58 community shopping centers, respectively, primarily located in the Western United States (see Note 1). Management reviews operating and financial data for each property separately and independently from all other properties when making resource allocation decisions and measuring performance. Therefore, the Company defines operating segments as individual properties with no segment representing more than 10% of the total for the Company. No single tenant accounts for 10% or more of rental revenue and none of the shopping centers are located in a foreign country. F-17 56 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 16. QUARTERLY FINANCIAL DATA (UNAUDITED) The following summarizes the condensed quarterly financial information for the Company:
QUARTERS ENDED 2000 ------------------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ ------- -------- Revenue $38,021 $28,044 $27,365 $27,063 Expenses and minority interests 29,669 19,320 18,951 18,753 ------- ------- ------- ------- Net income $ 8,352 $ 8,724 $ 8,414 $ 8,310 ======= ======= ======= ======= Basic and diluted earnings per share $ 0.31 $ 0.41 $ 0.40 $ 0.39
QUARTERS ENDED 1999 ------------------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ ------- -------- Revenue $27,536 $25,365 $24,346 $23,815 Expenses and minority interests 18,897 17,345 16,267 15,977 ------- ------- ------- ------- Net income $ 8,639 $ 8,020 $ 8,079 $ 7,838 ======= ======= ======= ======= Basic and diluted earnings per share $ 0.41 $ 0.38 $ 0.38 $ 0.37
F-18 57 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION DECEMBER 31, 2000 (IN THOUSANDS)
COSTS CAPITALIZED SUBSEQUENT TO INITIAL COSTS ACQUISITION TOTAL COSTS ------------------- ------------------ ------------------------------ DATE OF BUILDINGS ACQUIS. AND BUILDINGS ACCUMULATED (A) ENCUM- IMPROVE- IMPROVE- CARRYING AND TOTAL DEPRECIATION CONSTR. DESCRIPTION BRANCES LAND MENTS (2) MENTS(2) COSTS LAND IMPROVEMENTS (1)(2)(3) (2)(3) (C) ----------- ------- ------ --------- -------- -------- ------- ------------ --------- ------------ -------- PROPERTIES: Albany Plaza Albany, OR $ -- $1,525 $ 4,638 $ 1,190 $ -- $ 1,525 $ 5,828 $ 7,353 $ 218 1999(A) Anderson Square Anderson, CA -- 796 2,389 -- -- 796 2,389 3,185 8 2000(A) Angels Camp Town Center Angels Camp, CA -- 1,111 3,331 -- -- 1,111 3,331 4,442 10 2000(A) Arlington Courtyard Riverside, CA -- 401 753 74 -- 401 827 1,228 223 1994(A) Auburn North Auburn, WA -- 2,275 8,053 1,612 -- 2,275 9,665 11,940 460 1999(A) Bear Creek Plaza Medford, OR -- 3,275 9,825 1,543 -- 3,275 11,368 14,643 814 1998(A) Blaine International Center Blaine, WA -- 1,888 5,065 -- -- 1,888 5,065 6,953 17 2000(A) Blossom Valley Turlock, CA -- 2,404 7,214 -- -- 2,404 7,214 9,618 24 2000(A) Brookvale Center Fremont, CA -- 3,164 9,489 1,014 -- 3,164 10,503 13,667 829 1997(A) Cable Park Orangevale, CA -- 3,043 9,174 18 -- 3,043 9,192 12,235 224 1999(A) Canal Farms Las Brunos, CA -- 1,520 4,557 -- -- 1,520 4,557 6,077 15 2000(A) Canyon Ridge Plaza Kent, WA -- 2,457 -- 8,784 -- 2,904 8,337 11,241 1,308 1992(A) 1995(C) Canyon Square Plaza Santa Clarita, CA -- 2,725 8,338 86 -- 2,725 8,424 11,149 286 1999(A) Caughlin Ranch Reno, NV -- 2,201 6,605 -- -- 2,201 6,605 8,806 22 2000(A) Centennial Plaza Hartford, CA -- 2,662 7,988 -- -- 2,662 7,988 10,650 27 2000(A) Century Center Modesto, CA -- 4,608 13,867 -- -- 4,608 13,867 18,475 46 2000(A) Cheyenne Commons Las Vegas, NV -- 8,540 26,810 2,966 -- 8,540 29,776 38,316 4,228 1995(A) Chico Crossroads Chico, CA -- 3,600 17,063 24 -- 3,600 17,087 20,687 1,652 1997(A) Chino Town Square Chino, CA 26,331 8,801 10,297 25,756 -- 21,283 23,571 44,854 3,595 1992(A) Claremont Village Everett, WA -- 2,320 6,987 231 -- 2,320 7,218 9,538 622 1997(A) Cobblestone Redding, CA -- 1,801 5,431 -- -- 1,801 5,431 7,232 19 2000(A) Commonwealth Square Folsom, CA -- 4,266 12,797 -- -- 4,266 12,797 17,063 43 2000(A) Country Club Center Rio Rancho, NM 3,198 566 2,514 901 -- 566 3,415 3,981 1,066 1992(A) Country Gables Granite Bay, CA -- 4,455 10,395 -- -- 4,455 10,395 14,850 32 2000(A) Creekside Center Hayward, CA -- 1,500 4,500 626 -- 1,500 5,126 6,626 334 1998(A) Currier Square Oroville, CA -- 1,533 4,598 -- -- 1,533 4,598 6,131 15 2000(A) Dodge Center Fallon, NV -- 406 1,219 -- -- 406 1,219 1,625 4 2000(A)
(Continued) F-19 58 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED) DECEMBER 31, 2000 (IN THOUSANDS)
COSTS CAPITALIZED SUBSEQUENT TO INITIAL COSTS ACQUISITION TOTAL COSTS ------------------- ------------------ ------------------------------ DATE OF BUILDINGS ACQUIS. AND BUILDINGS ACCUMULATED (A) ENCUM- IMPROVE- IMPROVE- CARRYING AND TOTAL DEPRECIATION CONSTR. DESCRIPTION BRANCES LAND MENTS (2) MENTS(2) COSTS LAND IMPROVEMENTS (1)(2)(3) (2)(3) (C) ----------- ------- ------ --------- -------- -------- ------- ------------ --------- ------------ -------- PROPERTIES: Dublin Retail Center Dublin, CA -- 2,801 8,404 -- -- 2,801 8,404 11,205 28 2000(A) Eagle Station Carson City, NV -- 2,366 7,098 -- -- 2,366 7,098 9,464 24 2000(A) East Burnside Portland, OR -- 1,525 3,624 -- -- 1,525 3,624 5,149 15 2000(A) Eastridge Plaza Porterville, CA -- 1,128 3,386 -- -- 1,128 3,386 4,514 11 2000(A) Elko Junction Elko, NV -- 3,156 9,469 -- -- 3,156 9,469 12,625 32 2000(A) Elverta Crossing Sacramento, CA -- 2,969 8,903 -- -- 2,969 8,903 11,872 28 2000(A) Encinitas Marketplace Encinitas, CA -- 3,529 8,385 -- -- 3,529 8,385 11,914 149 2000(A) Fairmont Shopping Center Fairmont, CA -- 3,420 8,003 322 -- 3,420 8,325 11,745 812 1997(A) Fashion Faire San Leandro, CA -- 2,863 8,588 242 -- 2,863 8,830 11,693 582 1998(A) Foster Square Portland, OR -- 335 780 -- -- 335 780 1,115 2 2000(A) Glenbrook Center Sacramento, CA -- 1,461 3,409 -- -- 1,461 3,409 4,870 11 2000(A) Glen Cove Center Vallejo, CA -- 1,925 5,775 56 -- 1,925 5,831 7,756 321 1998(A) Granary Square Valencia, CA -- 5,479 12,940 -- -- 5,479 12,940 18,419 108 2000(A) Green Valley Town & Country Henderson, NV -- 4,096 12,333 105 -- 4,096 12,438 16,534 1,069 1997(A) Heritage Park Suison City, CA -- 3,325 9,976 -- -- 3,325 9,976 13,301 31 2000(A) Heritage Place Tulare, CA -- 2,023 6,071 -- -- 2,023 6,071 8,094 20 2000(A) Hermiston Plaza Hermiston, OR -- 1,931 5,791 1,425 -- 1,931 7,216 9,147 394 1998(A) Hood River Center Hood River, OR -- 1,169 3,507 563 -- 1,169 4,070 5,239 224 1998(A) Kmart Center Sacramento, CA -- 1,089 3,269 -- -- 1,089 3,269 4,358 10 2000(A) Laguna 99 Plaza Elk Grove, CA -- 3,127 9,380 -- -- 3,127 9,380 12,507 31 2000(A) Laguna Village Sacramento, CA -- 3,226 -- 15,931 1,644 3,448 17,353 20,801 2,601 1992(A) 1996/97(C) Lakewood Shopping Center Lakewood, CA -- 2,363 7,125 64 -- 2,363 7,189 9,552 670 1997(A) Lakewood Village Windsor, CA 9,591 5,154 12,028 -- -- 5,154 12,028 17,182 38 2000(A) Laurentian Center Ontario, CA 4,411 2,767 6,445 (357) -- 2,767 6,088 8,855 655 1994/96(A) Lodi Lodi, CA -- 3,031 -- -- -- 3,031 -- 3,031 -- 2000(A) Manteca Marketplace Manteca, CA -- 3,904 11,713 620 -- 3,904 12,333 16,237 946 1998(A) Marina Village Huntington Beach, CA -- 3,586 10,933 36 -- 3,586 10,969 14,555 474 1999(A)
(Continued) F-20 59
COSTS CAPITALIZED SUBSEQUENT TO INITIAL COSTS ACQUISITION TOTAL COSTS ------------------- ------------------ ------------------------------ DATE OF BUILDINGS ACQUIS. AND BUILDINGS ACCUMULATED (A) ENCUM- IMPROVE- IMPROVE- CARRYING AND TOTAL DEPRECIATION CONSTR. DESCRIPTION BRANCES LAND MENTS(2) MENTS(2) COSTS LAND IMPROVEMENTS (1)(2)(3) (2)(3) (C) ----------- ------- ------ --------- -------- -------- ------- ------------ --------- ------------ -------- PROPERTIES: Maysville Marketsquare Maysville, KY 5,233 3,454 2,001 3,731 79 3,299 5,966 9,265 1,318 1992(A) 1993(C) Melrose Village Vista, CA 9,067 5,125 11,621 (11) -- 5,125 11,610 16,735 2,330 1999(A) Memphis Retail Center Memphis, TN -- 1,204 3,780 (34) -- 1,204 3,746 4,950 759 1992(A) Menlo Park Portland, OR -- 2,946 6,951 -- -- 2,946 6,951 9,897 21 2000(A) Milwaukie Marketplace Milwaukie, OR -- 3,181 9,554 397 -- 3,184 9,948 13,132 774 1998(A) Mira Loma Shopping Center Reno, NV -- 1,925 5,775 274 -- 1,925 6,049 7,974 341 1998(A) Mission Ridge Plaza Manteca, CA -- 2,777 8,329 -- -- 2,777 8,329 11,106 28 2000(A) Monterey Plaza San Jose, CA 17,199 7,688 18,761 479 -- 7,702 19,226 26,928 1,859 1997(A) NE 33rd Portland, OR -- 1,106 2,581 -- -- 1,106 2,581 3,687 8 2000(A) North Hills Reno, NV -- 2,500 -- -- -- 2,500 -- 2,500 -- 2000(A) North Lombard Portland, OR -- 1,140 2,790 -- -- 1,140 2,790 3,930 9 2000(A) Northridge Plaza Fair Oaks, CA -- 1,598 4,797 -- -- 1,598 4,797 6,395 15 2000(A) Ocoee Plaza Ocoee, FL -- 651 2,911 64 -- 588 3,038 3,626 675 1992(A) Olympia Square Olympia, WA 13,761 3,737 11,580 1,006 -- 3,737 12,586 16,323 3,510 1992(A) Olympia West Center Olympia, WA 3,136 2,735 8,295 142 -- 2,735 8,437 11,172 719 1997(A) Olympic Place Walnut Creek, CA -- 13,453 -- -- -- 13,453 -- 13,453 -- 2000(A) Oregon City Shopping Center Oregon City, OR 10,063 4,426 13,272 1,653 -- 4,426 14,925 19,351 753 1998(A) Oregon Trail Gresham, OR -- 3,593 10,779 3,313 -- 3,593 14,092 17,685 824 1998(A) Pacific Commons Shopping Center Spanaway, WA -- 3,419 10,256 87 -- 3,419 10,343 13,762 650 1998(A) Palmdale Center Palmdale, CA -- 1,150 3,454 208 -- 1,150 3,662 4,812 269 1997(A) Panther Lake Shopping Center Kent, WA -- 1,950 5,850 269 -- 1,950 6,119 8,069 451 1998(A) Park Place Vallejo, CA -- 3,875 9,043 -- -- 3,875 9,043 12,918 28 2000(A) Pine Creek Shopping Center Grass Valley, CA -- 4,820 14,500 -- -- 4,820 14,500 19,320 45 2000(A) Pioneer Plaza Springfield, OR -- 1,864 5,591 143 -- 1,864 5,734 7,598 428 1998(A) Plaza 580 Livermore, CA -- 3,866 11,599 -- -- 3,866 11,599 15,465 39 2000(A) Powell Valley Junction Gresham, OR -- 1,546 4,639 591 -- 1,546 5,230 6,776 377 1998(A) Rainbow Promenade Las Vegas, NV 19,574 9,390 21,774 261 -- 9,381 22,044 31,425 1,819 1997(A) Raleigh Hills Raleigh Hills, OR -- 1,710 5,131 -- -- 1,710 5,131 6,841 17 2000(A)
(Continued) F-21 60 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (Continued) December 31, 2000 (In thousands)
COSTS CAPITALIZED SUBSEQUENT TO INITIAL COSTS ACQUISITION TOTAL COSTS ------------------- ------------------ ------------------------------ DATE OF BUILDINGS ACQUIS. AND BUILDINGS ACCUMULATED (A) ENCUM- IMPROVE- IMPROVE- CARRYING AND TOTAL DEPRECIATION CONSTR. DESCRIPTION BRANCES LAND MENTS (2) MENTS(2) COSTS LAND IMPROVEMENTS (1)(2)(3) (2)(3) (C) ----------- -------- -------- --------- -------- --------- -------- ------------ ---------- ------------ -------- PROPERTIES: Raley's Fallon, NV -- 817 2,453 -- -- 817 2,453 3,270 8 2000(A) Raley's Shopping Center Yuba City, CA -- 2,031 6,093 -- -- 2,031 6,093 8,124 19 2000(A) Rancho Las Palmas Rancho Mirage, CA 12,367 5,025 15,235 189 -- 5,025 15,424 20,449 493 1999(A) Rockwood Plaza Gresham, OR -- 1,136 3,452 -- -- 1,136 3,452 4,588 11 2000(A) Sahara Pavilion North Las Vegas, NV 30,332 11,914 28,560 804 -- 11,914 29,364 41,278 6,931 1992(A) Sahara Pavilion South Las Vegas, NV -- 4,833 12,988 1,679 -- 4,833 14,667 19,500 3,792 1992(A) San Dimas Market Place San Dimas, CA 14,680 5,700 17,100 214 -- 5,700 17,314 23,014 1,299 1998(A) Sandy Marketplace Sandy, OR 4,672 2,046 6,064 272 -- 2,046 6,336 8,382 361 1998(A) SE Milwaukie Portland, OR -- 692 2,074 -- -- 692 2,074 2,766 7 2000(A) Shops at Lincoln School Modesto, CA -- 1,672 5,067 3 -- 1,672 5,070 6,742 158 1999(A) Shute Park Plaza Hillsboro, OR -- 994 2,981 218 -- 994 3,199 4,193 252 1998(A) Sky Park Plaza Chico, CA -- 3,438 10,315 -- -- 3,438 10,315 13,753 34 2000(A) Southgate Center Milwaukie, OR 3,235 1,424 4,268 497 -- 1,424 4,765 6,189 248 1998(A) St. John's Portland, OR -- 1,932 1,932 -- -- 1,932 1,932 3,864 6 2000(A) Sunset Mall Portland, OR 7,714 2,996 8,989 97 -- 2,982 9,100 12,082 493 1998(A) Sunset Square Bellingham, WA -- 6,100 18,647 2,346 -- 6,100 20,993 27,093 5,447 1992(A) Sycamore Plaza Anaheim, CA -- 1,856 5,601 -- -- 1,856 5,601 7,457 53 2000(A) Tacoma Central Tacoma, WA 10,280 5,314 16,288 354 -- 5,314 16,642 21,956 1,325 1997(A) Tacoma Shopping Center Portland, OR -- 807 1,884 -- -- 807 1,884 2,691 6 2000(A) Tanasbourne Village Hillsboro, OR 18,526 5,573 13,861 1,216 -- 5,573 15,077 20,650 3,603 1992(A) Tustin Heights Tustin, CA 10,541 3,675 10,776 431 -- 3,675 11,207 14,882 895 1997(A) Ukiah Crossroads Ukiah, CA -- 1,801 5,406 -- -- 1,801 5,406 7,207 17 2000(A) Victorian Walk Fresno, CA -- 1,615 4,844 -- -- 1,615 4,844 6,459 16 2000(A) Vineyard Village East Ontario, CA -- 649 2,716 137 -- 649 2,853 3,502 544 1994(A) Wal Mart Napa, CA -- 9,700 -- -- -- 9,700 -- 9,700 -- 2000(A) Washington Mutual Monterey, CA -- 420 1,257 -- -- 420 1,257 1,677 4 2000(A) West Town Winnemucca, NV -- 1,046 3,140 -- -- 1,046 3,140 4,186 10 2000(A)
(Continued) F-22 61 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (Continued) December 31, 2000 (In thousands)
COSTS CAPITALIZED SUBSEQUENT TO INITIAL COSTS ACQUISITION TOTAL COSTS ------------------- ------------------ ------------------------------ DATE OF BUILDINGS ACQUIS. AND BUILDINGS ACCUMULATED (A) ENCUM- IMPROVE- IMPROVE- CARRYING AND TOTAL DEPRECIATION CONSTR. DESCRIPTION BRANCES LAND MENTS (2) MENTS(2) COSTS LAND IMPROVEMENTS (1)(2)(3) (2)(3) (C) ----------- -------- -------- --------- -------- --------- -------- ------------ ---------- ------------ -------- PROPERTIES: Westwood Village Shopping Center Redding, CA -- 1,131 3,393 442 -- 1,131 3,835 4,966 321 1998(A) Winterwood Pavilion Las Vegas, NV -- 4,573 13,015 1,730 -- 4,573 14,745 19,318 4,026 1992(A) Yreka Junction Yreka, CA -- 2,347 7,040 -- -- 2,347 7,040 9,387 23 2000(A) -------- -------- -------- ------- ------ -------- -------- ---------- ------- $233,911 $337,677 $842,285 $87,034 $1,723 $350,604 $918,115 $1,268,719 $73,895 ======== ======== ======== ======= ====== ======== ======== ========== =======
(Continued) F-23 62 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED) DECEMBER 31, 2000 (IN THOUSANDS) NOTES: (1) The aggregate gross cost of the properties owned by Pan Pacific Retail Properties, Inc. for federal income tax purposes, approximated $1,249,531 as of December 31, 2000. (2) Net of write-offs of fully depreciated assets. (3) The following table reconciles the historical cost and related accumulated depreciation and amortization of Pan Pacific Retail Properties, Inc. from January 1, 1998 through December 31, 2000:
FOR THE YEARS ENDED DECEMBER 31, COST OF PROPERTIES 2000 1999 1998 ----------- --------- --------- Balance, beginning of year $ 805,086 $ 709,522 $ 485,590 Additions (acquisition, improvements, etc.) 467,848 109,613 224,989 Interest capitalized 202 231 286 Deductions (write-off of tenant improvements, cost of real estate sold and provision for loss on impairment) (4,417) (14,280) (1,343) ----------- --------- --------- Balance, end of year $ 1,268,719 $ 805,086 $ 709,522 =========== ========= =========
FOR THE YEARS ENDED DECEMBER 31, ACCUMULATED DEPRECIATION AND AMORTIZATION 2000 1999 1998 -------- -------- -------- Balance, beginning of year $ 57,025 $ 42,044 $ 30,076 Additions (depreciation and amortization expense) 19,083 17,782 13,311 Deductions (write-off of accumulated depreciation of tenant improvements and cost of real estate sold) (2,213) (2,801) (1,343) -------- -------- -------- Balance, end of year $ 73,895 $ 57,025 $ 42,044 ======== ======== ========
See accompanying independent auditors' report. F-24 63 EXHIBIT INDEX
Exhibit No. Description ----------- ----------------------------------------------------------------- 3.1 Articles of Amendment and Restatement of the Company (previously filed as Exhibit 3.1 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 3.2 Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.2 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 4.1 Form of Certificate of Common Stock (previously filed as Exhibit 4.1 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 4.2 Form of Indenture relating to the Senior Notes (previously filed as Exhibit 4.1 to Western Properties Trust's Registration Statement on Form S-3 (Registration No. 333-32721) and incorporated herein by this reference) 4.3 Form of Senior Notes (previously filed as Exhibit 4.1 to Western Properties Trust's Registration Statement on Form S-3 (Registration No. 333-32721) and incorporated herein by this reference) 4.4 Form of Supplemental Indenture relating to the 7.1% Senior Notes due 2006 (previously filed as Exhibit 4.5 to Western Properties Trust's Form 8-K dated September 24, 1997, and incorporated herein by this reference) 4.5 Form of Supplemental Indenture relating to the 7.2% Senior Notes due 2008 (previously filed as Exhibit 4.6 to Western Properties Trust's Form 8-K, dated September 24, 1997, and incorporated herein by this reference) 4.6 Form of Supplemental Indenture relating to the 7.3% Senior Notes due 2010 (previously filed as Exhibit 4.7 to Western Properties Trust's Form 8-K, dated September 24, 1997, and incorporated herein by this reference) 4.7 Form of Supplemental Indenture relating to the assumption by Pan Pacific Retail Properties, Inc. of the Indenture relating to the 7.1% Senior Notes due 2006, the 7.2% Senior Notes due 2008 and the 7.3% Senior Notes due 2010 (previously filed as Exhibit 4.7 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-3 (Registration No. 333-51230) and incorporated herein by reference) 4.8 Form of Indenture relating to the 7.875% Senior Notes due 2004 (previously filed as Exhibit 4.2 to Western Properties Trust Registration Statement on Form S-3 (Registration No. 333-71270) and incorporated herein by reference) 4.9 Form of Supplemental Indenture relating to the assumption by Pan Pacific Retail Properties, Inc. of the Indenture relating to the 7.875% Senior Notes due 2004 (previously filed as Exhibit 4.9 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-3 (Registration No. 333-51230) and incorporated herein by reference) 10.1 Form of Restricted Stock Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.1 to Pan Pacific Retail Properties, Inc.'s filing on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference)
64
Exhibit No. Description ----------- ----------------------------------------------------------------- 10.2 The 1997 Stock Option and Incentive Plan of Pan Pacific Retail Properties, Inc. (previously filed as Exhibit 10.1 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.3 The 2000 Stock Incentive Plan of Pan Pacific Retail Properties, Inc. (previously filed as Appendix A to Pan Pacific Retail Properties, Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders) 10.4 Form of Officers and Directors Indemnification Agreement (previously filed as Exhibit 10.2 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 Registration No. 333-28715) and incorporated herein by reference) 10.5 Amended and Restated Employment Agreement, dated as of August 14, 2000, between Pan Pacific Retail Properties, Inc. and Mr. Stuart A. Tanz (previously filed as Exhibit 10.5 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.6 Employment Agreement, dated as of October 11, 1999, between Pan Pacific Retail Properties, Inc. and Mr. Joseph B. Tyson (previously filed as Exhibit 10.6 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.7 Amended and Restated Employment Agreement, dated as of August 14, 2000, between Pan Pacific Retail Properties, Inc. and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.7 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.8 Form of Miscellaneous Rights Agreement (previously filed as Exhibit 10.6 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.9 Form of Non-Competition Agreement (previously filed as Exhibit 10.7 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.10 Revolving Credit Agreement, dated as of November 13, 2000, by and among Pan Pacific Retail Properties, Inc., certain subsidiaries of Pan Pacific Retail Properties, Inc. and Bank of America, N.A., as Administrative Agent, First Union National Bank, as Syndication Agent, and U.S. Bank, National Association, as Documentation Agent, Dresdner Bank AG, New York and Grand Cayman Branches, Guaranty Federal Banks, F.S.B., as Co-Agent and Wells Fargo Bank, N.A., as Co-Agent (previously filed as Exhibit 10.9 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-3 (Registration No. 333-51230) and incorporated herein by reference) 10.11 Term Credit Agreement, dated as of November 13, 2000, by and among Pan Pacific Retail Properties, Inc., certain subsidiaries of Pan Pacific Retail Properties, Inc. and Bank of America, N.A., as Administrative Agent (previously filed as Exhibit 10.10 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-3 (Registration No. 333-51230) and incorporated herein by reference)
65
Exhibit No. Description ----------- ----------------------------------------------------------------- 10.12 Member's Interest Purchase Agreement, dated as of August 13, 1999, by and among Pan Pacific Retail Properties, Inc., Pan Pacific (RLP), Inc. and Stanley W. Gribble (previously filed as Exhibit 10.15 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.13 Loan Assumption and Modification Agreement, dated as of September 23, 1999, by and between Pan Pacific Retail Properties, Inc. and La Salle National Bank (previously filed as Exhibit 10.16 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.14 Operating Agreement of Pan Pacific (Rancho Las Palmas), LLC, dated as of September 23, 1999 (previously filed as Exhibit 10.17 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 10.15 Contribution Agreement and Escrow Instructions, dated as of August 13, 1999, by and between Pan Pacific Retail Properties, Inc. and Ranch Las Palmas Center Associates (previously filed as Exhibit 10.18 to Pan Pacific Retail Properties, Inc.'s Registration Statement on Form S-4 (Registration No. 333-45944) and incorporated herein by reference) 21.1 Subsidiaries of the Registrant 23.1 Consent of KPMG LLP
(b) Reports on Form 8-K. 1. A form 8-K was filed on August 23, 2000 for purposes of reporting that Pan Pacific Retail Properties, Inc. and Western Properties Trust had entered into an Agreement and Plan of Merger. 2. A Form 8-K was filed on October 6, 2000 for purposes of reporting information prepared by Pan Pacific Retail Properties, Inc.'s management relating to the proposed merger of WPT, Inc., successor in interest to Western Properties Trust immediately prior to the merger, with and into Pan Pacific Retail Properties, Inc. 3. A Form 8-K was filed on November 28, 2000 for purposes of reporting that the proposed merger of WPT, Inc. (successor to Western Properties Trust) with and into Pan Pacific Retail Properties, Inc. was completed on November 13, 2000. In addition, it was reported that in connection with the closing of the merger, Pan Pacific assumed Western Properties Trust's obligations under its unsecured senior notes. Further, certain historical and pro forma financial information was incorporated by reference. 4. A Form 8-K was filed on December 21, 2000 for purposes of reporting certain operational and other information about Pan Pacific Retail Properties, Inc. after the closing of the merger with Western Properties Trust. Included in the disclosure was information concerning a shareholder lawsuit which was filed on November 8, 2000. A copy of the complaint was included.