-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O1GzwFb9TJfFHwpbKAC6Yflq74aOF1NoiL6rdVklgtwNroSC2NPyx8SeiBCgjyop el0RTAmAxkFkB7hL7Iz+UQ== 0000950130-98-002490.txt : 19980511 0000950130-98-002490.hdr.sgml : 19980511 ACCESSION NUMBER: 0000950130-98-002490 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980508 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE DEVELOPMENT CO LP CENTRAL INDEX KEY: 0001045334 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 870516235 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-34835-01 FILM NUMBER: 98614197 BUSINESS ADDRESS: STREET 1: 35 CENTURY PKWY CITY: SALT LAKE CITY STATE: UT ZIP: 84115 BUSINESS PHONE: 8014863911 MAIL ADDRESS: STREET 1: 35 CENTURY PARK WAY STREET 2: 35 CENTURY PARK WAY CITY: SALT LAKE CITY STATE: UT ZIP: 84115 10-K405/A 1 AMENDMENT NO. 1 TO FORM 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _________ to __________ Commission file number 333-34835-01 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP ---------------------------------------------- (Exact name of Registrant as specified in its charter)
87-0516235 MARYLAND (I.R.S. Employer (State of organization) Identification No.) 35 CENTURY PARK-WAY (801) 486-3911 SALT LAKE CITY, UTAH 84115 (Registrant's telephone number, including area code) (Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None 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/A or any amendment to this Form 10-K/A. DOCUMENTS INCORPORATED BY REFERENCE None Certain matters discussed under the captions "Business and Properties" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report of Form 10-K/A may constitute forward-looking statements for purposes of Section 21E of the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance and achievements of JP Realty, Inc. to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES General JP Realty, Inc. (together with its subsidiaries, the "Company"), the sole general partner of Price Development Company, Limited Partnership (the"Operating Partnership"), is a fully integrated, self-administered and self-managed real estate investment trust ("REIT") primarily engaged in the business of owning, leasing, managing, operating, developing, redeveloping and acquiring malls, community centers and other commercial and retail properties in Utah, Idaho, Colorado, Arizona, Nevada, New Mexico and Wyoming (the "Intermountain Region"), as well as in Oregon, Washington and California (together with the Intermountain Region, the "Western States"). The Company was formed on September 8, 1993 to continue and expand the business, commenced in 1957, of certain companies (the "Predecessor Companies") affliated with John Price, Chairman of the Board and Chief Executive Officer of the Company. As of December 31, 1997, the Company, through the Operating Partnership, held a portfolio consisting of 48 properties ("Properties"), including 15 enclosed regional malls, 25 community centers and two free- standing retail properties located in ten states and six mixed-use commercial properties located primarily in the Salt Lake City, Utah metropolitan area. Since 1976, the Company and the Predecessor Companies have been responsible for developing more retail malls in the Intermountain Region than any other developer having constructed, developed or redeveloped 11 malls in the region (as well as three other malls in Oregon and Washington). Based on gross leasable area (Company-owned leasable area plus any tenant-owned leasable area within the Company's properties or "Total GLA"), the Company owns and operates the largest retail property portfolio in each of the states of Utah, Idaho and Wyoming, and is the leading owner and operator of retail shopping center properties throughout the Intermountain Region. As of December 31, 1997, the Company's retail portfolio contained an aggregate of 10,909,652 square feet of total gross leasable area (together, Company-owned leasable area within the Properties ("GLA") plus tenant-owned leasable area within the Properties, "Total GLA") and its commercial portfolio contained an aggregate of 1,417,667 square feet of GLA. Based on Total GLA, the Company's retail properties were approximately 94% leased as of December 31, 1997, and, based on GLA, its commercial properties were approximately 92% leased as of that date. For the year ended December 31, 1997, the retail properites and the commerical properities contributed approximately 90.5% and 9.5%, respectively, to the Company's consolidated net operating income. The Company's strategy is to extend its dominant market position in the Intermountain Region, and to continue to achieve cash flow growth and enhance the value of the Properties by increasing their rental income and net operating income over time. The Company expects to achieve rental income and net operating income growth through (i) contractual rent increases, which are included in substantially all existing leases for the Properties, (ii) re- leasing available space at higher rent levels and (iii) selectively renovating, expanding and redeveloping the Properties. In order to extend its market position, the Company expects to concentrate its acquisition and other development activities in the Western States. 2 In January, 1994, the Company completed a series of transactions intended to allow it to reorganize and continue the business of the Predecessor Companies through the Operating Partnership. As part of these transactions, the Company issued 13,029,500 shares of common stock ("Common Stock") in a public offering (the "Offering"), issued 200,000 shares of Price Group Stock to Fairfax Realty, Inc. ("Fairfax"), a company controlled by John Price, and incurred $95 million in fixed rate mortgage debt (the "Mortgage Debt") together with $9 million in additional mortgage debt (the "Additional Mortgage Debt"). Net proceeds of the sale of Common Stock were used by the Company to purchase its general partner interest in the Operating Partnership, which in turn utilized such proceeds, together with the net proceeds from the Mortgage Debt and the Additional Mortgage Debt, to (i) retire substantially all of the then existing mortgage debt encumbering 38 of the Properties and other borrowings relating to such Properties, (ii) purchase the equity interests held by two partners in Cottonwood Mall and (iii) invest an additional $4 million in the development project for the regional mall being developed in Spokane, Washington. In August, 1995, the Company completed an additional public offering (the "1995 Offering") raising approximately $56.4 million in gross proceeds through the sale of 2,750,000 shares of Common Stock. The Company used the net proceeds raised in the 1995 Offering to purchase additional general partner interest ("OP Units") in the Operating Partnership. The Operating Partnership utilized $47 million of these funds to repay borrowings under a credit facility, which borrowings were incurred to fund the June 1995 acquisitions of the Eastridge Mall and Animas Valley Mall. On January 28, 1997, JP Realty, Inc. completed a public offering of 1,500,000 shares of Common Stock, raising approximately $38.8 million in net proceeds. The Operating Partnership, which received the net proceeds from JP Realty, Inc., in exchange for OP Units, used such proceeds to reduce outstanding borrowings under existing credit facilities. On October 16, 1997, the Company entered into a $150.0 million unsecured credit facility (the "1997 Credit Facility") with a syndicate of banks. The Company used borrowings under the 1997 Credit Facility to repay $67.1 million outstanding under its two then-existing credit facilities, a $40.0 million credit facility (the "1996 Credit Facility") and a $50.0 million credit facility (the "1995 Credit Facility"). On December 18, 1997, the Company increased the total amount available under the 1997 Credit Facility to $200.0 million. The 1997 Credit Facility bears interest, at the option of the Operating Partnership, at one, or a combination, of (i) the higher of the Federal Funds Rate plus 50 basis points or the prime rate, (ii) LIBOR plus a spread of 70 to 130 basis points based on the credit rating of the Operating Partnership (which resulted in a spread of 90 basis points at December 31, 1997) or (iii) LIBOR plus a spread as offered by the participating banks under a one to three month bid rate auction option. The 1997 Credit Facility has a term of three years and provides for monthly payments of interest only. The weighted average interest rate paid on 1997 borrowings under the 1997 Credit Facility was 6.75%, and the balance outstanding at December 31, 1997 was $127.0 million. The 1997 Credit Facility is available for general corporate purposes, including development, working capital, equity investments, repayment of indebtedness and/or amortization payments. Each of the Company's regional malls is the premier and dominant mall and, in some cases, the only mall within its trade area and is generally considered to be the financial, economic and social center for a given geographic area. The trade areas surrounding the Company's malls have a drawing radius, depending on the mall, ranging from five to over 150 miles. The malls have attracted as anchor tenants some of the leading national and regional retail companies such as JCPenney, Nordstrom, Wal-Mart, The Bon Marche, Sears, Dillard's, Mervyn's and ZCMI. The 15 regional malls in the portfolio contain and aggregate of approximately 7,745,000 square feet of Total GLA and range in size from approximately 296,000 to 876,000 square feet of Total GLA. The community center portfolio consists of 25 Properties in seven states containing over 3,159,000 square feet of Total GLA. The two freestanding retail properties contain a total of approximately 5,000 square feet of GLA. The commercial portfolio, which includes 40 commercial buildings containing approximately 1,418,000 square feet of GLA, is primarily located in the Salt Lake City, Utah area where the Company's headquarters are located. 3 Properties The following tables set forth certain information relating to the Properties, all of which (except as otherwise indicated) are 100% owned by the Operating Partnership. The Company believes that all such Properties are adequately covered by insurance.
RETAIL PROPERTIES OCCUPANCY AS OF 12/31/97 --------------- Free Based Standing Tenant Total Tenant on Based Tenant Owner- Property Stores(2) Shops(3) Anchors GLA(4) GLA(5) Owned Total on Shop SHIP Property Location Type (1)(Sq. Ft.)(Sq. Ft.)(Sq. Ft.)(Sq.Ft.)(Sq.Ft.) (Sq.Ft.) GLA GLA Space Type(6) ANCHORS - -------- -------- -------- -------- -------- -------- ------- ------- ------- ------ ------ ------- -------- ------- Utah - ---- Bank One Nephi FR 3,590 -- -- 3,590 3,590 -- 100.0% 100.0% -- Fee None Cache Valley Mall(7) Logan RM 30,120 96,839 182,889 309,848 307,348 2,500 95.2% 95.2% 84.7% Fee JCPenney, ZCMI, Lamonts Cottonwood Mall(7) Salt Lake City RM 53,300 321,314 379,508 754,122 754,122 -- 93.5% 93.5% 84.7% Fee/GL(8) JCPenney, ZCMI Cottonwood Square Salt Lake City CC -- 35,371 41,612 76,983 76,983 -- 93.3% 93.3% 85.4% Fee/GL Albertsons Fort Union Plaza Salt Lake City CC 29,240 -- -- 29,240 29,240 -- 100.0% 100.0% -- GL None Gateway Crossing Bountiful CC 35,620 65,932 174,047 275,599 145,639 129,960(9) 100.0% 100.0% 100.0% Fee Ernst Home Center(10), ShopKo, TJ Maxx North Temple Shops Salt Lake City CC -- 10,085 -- 10,085 10,085 --(11) 100.0% 100.0% 100.0% Fee Albertsons, Payless Drug Orem Plaza- Center St. Orem CC 15,491 18,814 62,420 96,725 91,125 5,600 100.0% 100.0% 100.0% Fee Savers, Showbiz Pizza Orem Plaza- State St. Orem CC 8,045 19,057 -- 27,102 27,102 --(12) 89.3% 89.3% 84.8% Fee Payless Drug Plaza 9400 Sandy CC 34,510 55,445 136,745 226,700 226,700 -- 100.0% 100.0% 100.0% GL Albertsons, Fred Meyer, Pep Boys Red Cliffs Mall(7) St. George RM 12,500 90,872 203,338 306,710 192,439 114,271(13) 97.4% 95.8% 91.2% Fee JCPenney, ZCMI, Wal-Mart Red Cliffs Plaza St. George CC 9,327 -- 46,626 55,953 46,626 9,327 16.7% -- -- Fee Ernst Home Center(14) River Pointe Plaza West Jordan CC 18,522 56,120 135,707 210,349 56,120 154,229(15) 98.5% 94.3% 94.3% Fee Albertsons, ShopKo
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RETAIL PROPERTIES - (CONTINUED) OCCUPANCY AS OF 12/31/97 --------------- FREE BASED STANDING TENANT TOTAL TENANT ON BASED TENANT OWNER- PROPERTY STORES(2) SHOPS(3) ANCHORS GLA(4) GLA(5) OWNED TOTAL ON SHOP SHIP PROPERTY LOCATION TYPE (1) (SQ. FT.)(SQ. FT.)(SQ. FT) (SQ.FT) (SQ.FT) (SQ.FT.) GLA GLA SPACE TYPE(6) ANCHORS - -------- -------- -------- -------- -------- -------- ------- ------- ------- ------ ------ ------- -------- ------- Utah - ---- (continued) - --------- Riverside Plaza Provo CC 10,050 11,363 156,454 177,867 174,867 3,000 65.7% 65.1% 84.8% Fee Best Products(16) Payless Drug, McFrugals, Mini World University Crossing Orem CC 33,401 38,551 128,091 200,043 199,143 900 100.0% 100.0% 100.0% Fee Burlington Coat(17), Office Max(18), CompUSA Idaho - ----- Alameda Plaza Pocatello CC 19,049 27,346 143,946 190,341 190,341 -- 100.0% 100.0% 100.0% Fee Albertsons, Fred Meyer Baskin Robbins 17th Street Idaho Falls FR 1,761 -- -- 1,761 1,761 -- 100.0% 100.0% -- Fee None Boise Towne Square(7) Boise RM 84,418 339,050 452,037 875,505 480,368 395,137(19) 98.0% 96.4% 94.9% Fee/GL(20)JCPenney, Sears, The Bon Marche, Boise Plaza Boise CC -- -- 108,464 108,464 108,464 -- 100.0% 100.0% -- PI(21) Burlington Coat(17), Albertsons Boise Towne Plaza Boise CC -- -- 76,414 76,414 76,414 -- 100.0% 100.0% -- Fee Circuit City, Linens' n Things Grand Teton Mall Idaho Falls RM 29,089 172,056 323,925 525,070 519,450 5,620 94.1% 94.0% 81.9% Fee JCPenney, Sears, ZCMI, The Bon Marche Pine Ridge Mall(7) Pocatello RM 25,818 148,976 436,528 611,322 499,822 111,500(9) 96.1% 95.2% 84.0% Fee/GL(22)JCPenney, ZCMI, The Bon Marche, Sears, ShopKo Silver Lake Mall(7) Coeur d'Alene RM 20,090 97,164 217,493 334,747 327,811 6,936 99.1% 99.1% 96.9% Fee JCPenney, Sears, Emporium, Lamonts Twin Falls Crossing Twin Falls CC -- -- 37,680 37,680 37,680 -- 100.0% 100.0% -- Fee None(23) Yellow- stone Square Idaho Falls CC 16,865 38,950 166,733 222,548 220,748 1,800 87.6% 87.5% 59.5% PI(24) Albertsons, Fred Meyer Washington - ---------- Spokane Valley Mall(7) Spokane RM 46,125 273,673 369,184 688,982 447,405 241,577(25) 89.0% 83.1% 72.4% Fee JCPenney, Sears, The Bon Marche
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RETAIL PROPERTIES - (CONTINUED) OCCUPANCY AS OF 12/31/97 --------------- FREE BASED STANDING TENANT TOTAL TENANT ON BASED TENANT OWNER- PROPERTY STORES(2) SHOPS(3) ANCHORS GLA(4) GLA(5) OWNED TOTAL ON SHOP SHIP PROPERTY LOCATION TYPE (1) (SQ. FT.)(SQ. FT.)(SQ. FT) (SQ.FT) (SQ.FT) (SQ.FT.) GLA GLA SPACE TYPE(6) ANCHORS - -------- -------- -------- -------- -------- -------- ------- ------- ------- ------ ------ ------- -------- ------- Washington (Continued) - ---------- Three Rivers Mall(7) Kelso RM 199,623 126,674 188,076 514,373 345,566 168,807(26) 97.3% 96.0% 89.1% Fee JCPenney, Sears, The Bon Marche, Emporium Oregon - ------ Bailey Hills Plaza Eugene CC 12,000 11,895 155,000 178,895 11,895 167,000(27) 100.0% 100.0% 100.0% Fee Safeway, ShopKo Division Crossing Portland CC 2,589 24,091 67,960 94,640 92,051 2,589 91.5% 91.3% 66.6% Fee United Grocers, Payless Drug Halsey Crossing Gresham CC 9,000 23,071 52,764 84,835 84,835 -- 95.3% 95.3% 82.8% GL Safeway Salem Center Salem RM 45,000 167,500 438,000 650,500 212,500 438,000 96.8% 90.2% 87.6% Fee/GL(28)Nordstrom, Meier & Frank JCPenney Wyoming - ------- Eastridge Mall Casper RM 17,500 264,388 289,796 571,684 495,801 75,883(29) 90.9% 89.5% 80.3% Fee Target, Sears, JCPenney, The Bon Marche White Mountain Mall(7) Rock Springs RM 26,025 105,962 208,452 340,439 340,439 -- 76.4% 76.4% 75.4% Fee JCPenney, Herbergers, Wal-Mart New Mexico - ---------- Animas Valley Mall Farmington RM 33,000 221,936 271,155 526,091 466,753 59,338(30) 78.5% 75.8% 71.7% Fee JCPenney, Sears, Dillard's, Beall's, Best Products North Plains Mall(7) Clovis RM 19,076 81,407 195,431 295,914 196,937 98,977(13) 96.3% 94.4% 86.6% Fee JCPenney, Sears, Wal-Mart, Beall's Nevada - ------ Fremont Plaza Las Vegas CC 6,542 19,643 77,348 103,533 103,533 -- 100.0% 100.0% 100.0% GL Smith's Food & Drug, Sav-On Drug Plaza 800 Sparks CC 5,985 21,846 139,607 167,438 167,438 -- 95.7% 95.7% 67.0% GL Albertsons, ShopKo
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RETAIL PROPERTIES - (CONTINUED) OCCUPANCY AS OF 12/31/97 --------------- FREE BASED STANDING TENANT TOTAL TENANT ON BASED TENANT OWNER- PROPERTY STORES(2) SHOPS(3) ANCHORS GLA(4) GLA(5) OWNED TOTAL ON SHOP SHIP PROPERTY LOCATION TYPE (1)(SQ. FT.) (SQ. FT.) (SQ. FT) (SQ.FT) (SQ.FT) (SQ.FT.) GLA GLA SPACE TYPE(6) ANCHORS - -------- -------- -------- -------- -------- -------- ---------- --------- ----------- ------ ------ ------- ------ ------- Colorado - -------- Austin Bluffs Plaza Colorado Springs CC 9,447 35,859 71,543 116,849 78,902 37,947(31) 100.0% 100.0% 100.0% Fee Albert- sons, Longs Drug Arizona - ------- Fry's Shopping Plaza Glendale CC 8,564 38,781 71,919 119,264 119,264 -- 98.0% 98.0% 93.8% Fee Fry's Woodlands Village Flagstaff CC 4,020 43,380 146,898 194,298 91,858 102,440(13) 100.0% 100.0% 100.0% Fee Bashas', Wal-Mart California - ---------- Anaheim Plaza Anaheim CC 10,000 -- 67,433 77,433 77,433 -- 100.0% 100.0% -- PI(32)(33) Visalia Mall Visalia RM 8,510 174,206 257,000 439,716 439,716 -- 97.8% 97.8% 94.5% Fee JC- ------- --------- --------- ---------- --------- -------- ------ ------ ------ Penney Gotts- chalk's 953,812 3,277,617 6,678,223 10,909,652 8,576,314 2,333,338 93.66% 91.94% 85.68% ======= ========= ========= ========== ========= ========= ====== ======= ======
(1) Property type definitions are as follows: Regional Mall--RM, Community Centers--CC, Freestanding Retail Properties--FR. (2) Freestanding stores means leasable buildings or other structures located on a property which are not physically attached to a mall or community center. (3) Tenant shops means non-anchor retail stores located in a mall or community center. (4) Represents Operating Partnership-owned leasable area and tenant-owned leasable area within the Properties. (5) Represents Operating Partnership-owned leasable area within the Properties. (6) Ownership type definitions are as follows: Fee, Groundlease-GL and Partnership Interest-PI. (7) Secured Property as of December 31, 1997. (8) The Operating Partnership owns a ground lease on one-half acre. (9) Tenant owned space at this Property includes ShopKo. (10)Ernst Home Center has filed for protection under the United States Bankruptcy Code ("Bankruptcy Code") but continues to be responsible for lease payments and at December 31, 1997 was still paying rent pursuant to the terms of the lease and the Bankruptcy Code. (11)Tenant-owned space at this Property includes Albertsons and Payless Drug. (12)Tenant-owned space at this Property includes Payless Drug. (13)Tenant-owned space at this Property includes Wal-Mart. (14)Ernst Home Center has filed for protection under the Bankruptcy Code. The trustee in bankruptcy has rejected the terms of the lease and the Company is currently in the process of re-leasing the space. (15)Tenant-owned space at this Property includes Albertsons and ShopKo. (16)Best Products has filed for protection under the Bankruptcy Code. The trustee in bankruptcy has rejected the terms of this lease and the Company is currently in the process of re-leasing the space. (17)The Operating Partnership's lease is with Fred Meyer which subleases the Property space to Burlington Coat. (18)The Operating Partnership's lease is with Fred Meyer which subleases the space to Burlington Coat. 33.6% of the space represented by the Burlington Coat sublease is further subleased to Office Max. (19)Tenant-owned space at this Property includes JCPenney, Sears and Mervyn's. (20)The Operating Partnership owns a ground lease on two acres. 7 Retail Properties - (Continued) (21)The Operating Partnership's ownership represents a 73.3 partnership interest in the current fee holder of the property. (22)The Operating Partnership owns two ground leases on 7.3 acres and 1.2 acres. (23)The Operating Partnership's lease subleases the Property to several other retailers. (24)The Operating Partnership's ownership represents a 83.5% partnership interest in the current fee holder of the Property. (25)Tenant-owned space at this property includes Sears and The Bon Marche. (26)Tenant-owned space at this Property includes Target and Top Foods. (27)Tenant-owned space at this Property includes Safeway and ShopKo. (28)The Operating Partnership owns seven ground leases comprising a total of 1.58 acres and 2.35 acres in fee. (29)Tenant-owned space at this Property includes Target. (30)Tenant-owned space at this Property includes property owned by a third party which leases its space to Best Products. (31)Tenant-owned space at this Property includes Longs Drugs. (32)The Operating Partnership's ownership interest represents a 50% partnership interest in the current ground lease holder of the Property. (33)Anchor space is vacant as of December 31, 1997. 8
COMMERCIAL PROPERTIES OCCUPANCY PROPERTY GLA BASED ON OWNERSHIP PROPERTY LOCATION TYPE(1) (SQ.FT) GLA TYPE - -------- -------------- -------- ---------- ----------- --------- UTAH - ---- Price Business Center- Pioneer Square Salt Lake City BP 530,484 97.52% Fee Price Business Center- South Main Salt Lake City BP 144,554 96.41% Fee Price Business Center- Timesquare Salt Lake City BP 289,423 84.07% Fee Sears-Eastbay Provo CP 48,880 100.00% Fee Price Business Center- Commerce Park West Valley City BP 393,268 89.74% Fee IDAHO - ----- Boise/FSB Plaza Boise CP 11,058 38.55% Fee --------- ---------- 1,417,667 92.13% ========= ==========
___________________ (1) Property type definitions are as follows: Business Park--BP, Commercial Property--CP. SIGNIFICANT PROPERTIES Boise Towne Square contributed in excess of 10% of the Company's total aggregate gross revenue for the year ended December 31, 1997. Additionally, Spokane Valley Mall, comprised in excess of 10% of the Company's assets the year ended December 31, 1997. Certain additional information relating to these Properties is set forth below. 9 Boise Towne Square Boise Towne Square is centrally located in Boise, Idaho adjacent to the main thoroughfare of the city. Boise Towne Square was opened by the Predecessor Companies in October of 1988. Boise Towne Square is the dominant regional mall in its trade area, with several community centers as its major competition. The real estate tax rate on the improvements for the year ended December 31, 1997 was 1.9%, amounting to a total tax of $764,000 for the year. The Company leases approximately two acres which is utilized for perimeter parking and landscaping from Union Pacific Railroad Company on a year- to-year basis from December 1 to November 30 at a current rental rate of $21,000 per year. Boise Towne Square is part of the collateral securing the Mortgage Debt and the Company believes it is adequately insured. Depreciation is taken utilizing a straight line method over 40 years with a net book basis of approximately $31,301,000, $32,543,000 and $33,687,000 at December 31, 1997, 1996 and 1995, respectively. It is the Company's policy to renovate, expand and upgrade as warranted by market conditions. The Company is currently constructing a 273,000 square foot expansion at Boise Towne Square which upon completion will include new anchor tenant space for a fifth anchor tenant, additional anchor tenant space for an existing anchor tenant and additional shop tenant space. The project will add approximately 180,000 square feet of Total GLA for Dillards department store, 30,000 square feet of GLA for the expansion of The Bon Marche department store and approximately 63,000 square feet of GLA for additional shops. As of December 31, 1997, 1996 and 1995, Boise Towne Square was 98%, 99% and 98% occupied, respectively, with an average annual rent per square foot of $15.00, $14.80 and $14.65 for the years ended on those respective dates. Its major tenants occupying 10% or more of Total GLA are all department stores and include JCPenney, Sears, The Bon Marche and Mervyn's. JCPenney, Sears and Mervyn's own their own land and buildings and are subject to a Construction, Operation and Reciprocal Easement Agreement that expires in 2078, while The Bon Marche's lease is for a term of 20 years, expiring in 2008, with two 20-year extension options. Boise Towne Square's leases will expire on the following schedule:
Average Annualized Annualized Base Percentage Of GLA Base Rent Per Square Represented by Expiring Leases Number Approximate Rent Under Foot Under Assuming No Assuming Full Lease Expiration of Leases GLA Expiring Expiring Exercise of Exercise of Year Ending December 31, Expiring Square Feet Leases Leases(1) Renewal Options Renewal Options - ------------------------ -------- ----------- ------------ ----------- --------------- --------------- 1998 41 50,723 $ 1,107,101 $ 21.83 10.56% 8.03% 1999 27 72,434 1,253,000 17.30 15.08 7.94 2000 28 60,650 1,132,938 18.68 12.63 9.69 2001 14 43,144 798,535 18.51 8.98 8.84 2002 8 14,492 228,181 15.75 3.02 1.65 2003 14 25,795 588,623 22.82 5.37 5.14 2004 3 10,625 212,214 19.97 2.21 1.93 2005 1 3,710 68,635 18.50 0.77 0.77 2006 5 13,525 240,281 17.77 2.82 1.56 2007 4 9,185 227,900 24.81 1.91 1.91 2008 and thereafter 7 143,287 1,049,756 7.33 29.83 0.41 ----- ---------- ----------- ---------- --------- Total 152 447,570 93.18% 47.87% ===== ========== ========== =========
(1) Excludes tenants paying percentage rents in lieu of minimum rents. 10 Spokane Valley Mall On August 13, 1997, the Company held the grand opening of its Spokane Valley Mall, a two-level, 688,982 square foot regional mall, located on an 85 acre parcel of land overlooking the Spokane River and the Centennial Trail in Spokane, Washington. The mall was 72% leased on August 13, 1997 and was 89% leased on December 31, 1997. Its major tenants occupying 10% or more of Total GLA are department stores and include JCPenney, Sears and The Bon Marche. Sears and The Bon Marche own their own land and buildings and are subject to a Construction, Operation and Reciprocal Easement Agreement that expires in 2046, while JCPenney's lease is for a term of 20 years, expiring in 2017, with six five-year extension options. Spokane Valley Mall's leases will expire on the following schedule:
Average Annualized Annualized Base Percentage of GLA Base Rent Per Square Represented by Expiring Leases Number Approximate Rent Under Foot Under Assuming No Assuming Full Lease Expiration of Leases GLA Expiring Expiring Exercise of Exercise of Year Ending December 31, Expiring Square Feet Leases Leases(1) Renewal Options Renewal Options - ------------------------ -------- ------------ ----------- --------------- --------------- --------------- 1999 1 120 $ 15,600 $ 130.00 0.03% 0.03% 2000 9 5,295 159,317 30.09 1.18 1.18 2001 1 120 14,400 120.00 0.03 0.03 2002 12 18,971 378,627 19.96 4.24 4.24 2003 2 1,740 36,656 21.07 0.39 0.39 2004 2 1,780 43,807 24.61 0.40 0.40 2005 1 899 22,475 25.00 0.20 0.20 2006 -- -- -- -- -- -- 2007 30 44,993 1,480,507 32.91 10.06 10.06 2008 and thereafter 17 207,053 1,832,536 8.85 46.28 7.45 ------- --------- ------------- ---------- Total 75 280,971 62.81% 23.98% ======= ========= ============= ==========
(1) Excludes tenants paying percentage rents in lieu of minimum rents. THE COMPANY'S LARGEST TENANTS Large stores (over 20,000 square feet per store) occupy 63.5% of the Total GLA of the Company's regional malls and community centers. The Company's largest tenants include JCPenney, ZCMI, Wal-Mart, The Bon Marche, Sears, Meier & Frank, Mervyn's and Gottschalk's. No tenant represented more than 10% of the Company's total rental revenues (I.E. minimum rents plus percentage rents) for the year ended December 31, 1997. Anchors Regional malls and community centers usually contain one or more large retail companies known as "anchors." Anchors, which include traditional department stores, general merchandise stores, large fashion specialty stores, value oriented specialty stores and discount stores, usually inventory a broad range of products that appeal to many shoppers. Anchors either own their own stores (and sufficient parking) or lease their stores from the owner of the mall or center. Although the rent and other charges paid by anchors are usually much less (on a per square foot basis) than the rent and other charges paid by other tenants, their presence typically attracts many shoppers and enhances the value of a mall or community center. Anchor tenants in the regional malls are JCPenney, ZCMI, Nordstrom, Wal-Mart, The Bon Marche, Sears, Gottschalk's, ShopKo, The Emporium, Lamonts, Mervyn's, Meier & Frank, Target and Dillard's. Anchors in the regional malls occupy 57.0% of Total GLA of the regional malls. The following table summaries the Total GLA owned and leased as of December 31, 1997 by these anchors: 11
Anchor Company-Owned Number of Company-owned Anchor-Owned Total GLA Percent Anchors as Anchors Anchor Stores Square Feet Square Feet Square Feet Total GLA % Of Revenue(1) - ------- ------------- ----------- ------------ ----------- ---------- --------------- JCPenney 15 913,188 243,591 1,156,779 9.38% 3.52% Sears 9 471,669 227,780 699,499 5.67% 3.10% The Bon Marche 6 354,794 120,420 475,215 3.85% 3.15% ZCMI 5 562,754 -- 562,754 4.57% 2.67% Wal-Mart 3 86,944 210,128 297,072 2.41% * Meier & Frank 1 -- 183,500 183,500 1.49% -- Mervyn's 2 -- 159,648 159,648 1.30% -- Gottschalk's 1 150,000 -- 150,000 1.22% * ShopKo 1 -- 111,500 111,500 0.90% -- The Emporium 2 84,261 -- 84,261 0.68% * Lamonts 2 80,953 -- 80,953 0.66% * Target 1 -- 75,883 75,883 0.62% -- Dillard's 1 72,212 -- 72,212 0.59% * Nordstrom 1 -- 72,000 72,000 0.58% --
- --------------------------- * Less than 1% (1) Revenue defined as minimum rents plus percentage rents 12 Anchor tenants occupying the greatest amount of GLA in the Company's community centers are ShopKo, Fred Meyer, Albertsons, Burlington Coat, Safeway, Wal-Mart and Payless Drug Stores. Anchors in the community centers occupy approximately 71.2% of Total GLA of the community centers. The following table summarizes the Total GLA owned and leased as of December 31, 1997 by these anchors:
Anchor Company-Owned Number of Company-Owned Anchor-Owned Total GLA Percentage Anchors As Anchor Anchor Stores Square Feet Square Feet Square Feet Total GLA % Of Revenue(1) - ------------ ------------- ------------- ----------- ----------- ---------- --------------- ShopKo 4 104,000 297,140 401,140 3.25% * Albertsons 8 269,098 41,407 310,505 2.52% 1.24% Fred Meyer 3 309,944 -- 309,944 2.51% 1.16% Burlington Coat (2) 2 174,248 -- 174,248 1.41% * Safeway 2 52,764 53,000 105,764 0.86% * Wal-Mart 1 -- 102,440 102,440 0.83% -- Ernst Home Centers(3) 2 94,783 -- 94,783 0.77% * PayLess Drug 2 70,583 -- 70,583 0.57% * Best Products(4) 1 59,350 -- 59,350 0.48% *
_________________ * Less than 1%. (1) Revenue defined as minimum rents plus percentage rents. (2) Sublease from Fred Meyer, Inc. (3) Ernst Home Center has filed for protection under the Bankruptcy Code but continues to be responsible for lease payment pursuant to the terms of the Gateway Crossing lease and the Bankruptcy Code. The Ernst Home Center lease for space at the Red Cliffs Plaza has been rejected and the Company is currently in the process of releasing the space. (4) Best Products lease for space at the Riverside Plaza has been rejected and the Company is currently in the process of re-leasing the space. 13 Major Tenants Nonanchor tenants owned by major national retail chains lease a considerable amount of space in the Company's retail properties. Such retail chains include Amcena Corporation (Maurice's), Brown Group (Naturalizer Shoes), Claire's (Claire's Boutique), Edison Brothers (Bakers Shoes, Jeans West, J. Riggings, 5-7-9), Waldenbooks Books, Inc., The Limited (Lane Bryant, Lerner, Limited Express, Victoria's Secret, Bath & Body Works, Structure), May Department Stores (PayLess ShoeSource), Kay-Bee Toys, Wilson's Suede & Leather, Musicland Land Group (Musicland, Sam Goody, Suncoast Pictures), Tandy Corporation (Radio Shack), Woolworth Corporation, (Northern Reflections, Afterthoughts, Athletic X-press, Foot Locker, Kinney Shoes, Lady Footlocker, San Francisco Music Box Company), B. Dalton (B. Dalton Bookseller, Barnes & Noble), Charming Shoppes, Inc. (Fashion Bug), Deb Shops, Regis Corporation, Jay Jacobs, County Seat, General Mills (Olive Garden, Red Lobster), Gap Stores, Inc. (Gap, GapKids), The Buckle, Eddie Bauer, Zales Corporation, Gymboree, Fred Meyer, Millers Outpost, Pearle Vision and Pendleton. LEASES Most of the Company's leases are long-term leases that contain fixed base rents and step-ups in rent typically occurring every three to five years. These leases generally pass through to the tenant the tenant's share of common area charges, including insurance costs and real estate taxes. Generally, all of the regional mall leases and certain of the community center leases include roof and structure repair costs in common area charges. The Company's leases also generally provide for additional rents based on a percentage of tenant sales. For the years ended December 31, 1996 and 1997, such percentage rents accounted for approximately 7.2% and 6.1% respectively, of total rental income from the Properties owned by the Company during such periods. The following table sets forth information relating to the rental revenue from the Properties for the periods indicated:
Years Ended December 31, ---------------------------------------------- Property Type 1997 1996 1995 1994 1993 ------------- --------- --------- -------- -------- -------- (Dollars in thousands) Regional Malls $ 44,005 $ 36,286 $ 29,299 $ 24,860 $ 22,882 Community Centers and Free-Standing Retail Properties 13,192 13,591 12,173 10,658 9,453 Commercial Properties 6,323 6,631 5,633 4,929 4,646 -------- --------- -------- -------- -------- Total $ 63,520 $ 56,508 $ 47,105 $ 40,447 $ 36,981 ======== ========= ======== ======== ========
Vacant Space Approximately 803,000 square feet, or 6.51%, of Total GLA was vacant as of December 31, 1997. Of this vacant space, approximately 523,000 square feet was in the regional mall portfolio (20% of which is anchor and 80% of which is mall shop space), 168,171 square feet was in the community center portfolio and 111,586 square feet was in the commercial portfolio. The following tables set forth information relating to lease expirations for retail store and commercial property leases in effect as of December 31, 1997, over the ten-year period commencing January 1, 1998 and thereafter for large stores (over 20,000 square feet) and small stores (20,000 square feet or less) at the retail properties and for all leases at the commercial properties. Unless otherwise indicated, all information set forth below assumes that none of the tenants exercise renewal options and excludes leases that had not commenced as of December 31, 1997. 14
Lease Expirations For Retail Store Leases (Over 20,000 Square Feet) Average Annualized Base Lease Expiration Number of Approximate Annualized Base Rent Per Square Year Ending Leases GLA in Rent Under Foot Under December 31, Expiring Square Feet Expiring Leases Expiring Leases(1) ------------ -------- ----------- --------------- ------------------ 1998 8 370,846 $ 510,121 $ 1.38 1999 2 201,690 323,647 1.60 2000 3 119,045 365,534 3.07 2001 9 595,718 1,423,260 2.39 2002 4 231,458 711,643 3.07 2003 3 100,249 303,001 3.02 2004 4 255,669 725,957 2.84 2005 1 33,421 111,605 3.34 2006 3 185,240 562,696 3.04 2007 and thereafter 40 2,409,564 11,874,088 4.93 -------- ---------- Total 77 4,502,900 ======== ==========
Lease Expirations For Retail Store Leases (20,000 Square Feet or Less) Average Annualized Base Lease Expiration Number of Approximate Annualized Base Rent Per Square Year Ending Leases GLA in Rent Under Foot Under December 31, Expiring Square Feet Expiring Leases Expiring Leases(1) ------------ -------- ----------- --------------- ------------------ 1998 177 294,545 $ 3,847,377 $ 13.06 1999 160 337,915 4,562,648 13.50 2000 177 347,098 5,403,907 15.57 2001 125 282,675 4,008,790 14.18 2002 134 331,438 4,273,324 12.89 2003 70 211,116 3,067,072 14.53 2004 63 181,666 3,094,598 17.03 2005 46 133,587 2,421,583 18.13 2006 51 144,223 2,745,303 19.04 2007 and thereafter 150 509,436 9,418,638 18.49 -------- ---------- Total 1,153 2,773,699 ======== ==========
Lease Expirations For Commercial Properties Average Annualized Base Lease Expiration Number of Approximate Annualized Base Rent Per Square Year Ending Leases GLA in Rent Under Foot Under December 31, Expiring Square Feet Expiring Leases Expiring Leases(1) ------------ -------- ----------- --------------- ----------------- 1998 15 363,165 $ 1,616,563 $ 4.45 1999 12 195,205 929,800 4.76 2000 12 422,641 2,002,513 4.74 2001 3 113,115 922,213 8.15 2002 10 170,585 1,174,651 6.89 2003 1 20,988 275,572 13.13 2004 2 28,621 146,464 5.12 2005 -- -- -- -- 2006 -- -- -- -- 2007 and thereafter -- -- -- -- -------- ---------- Total 55 1,314,320
======== ========== _______________ (1) Excludes tenants paying percentage rents in lieu of minimum rents. As leases expire, the Company currently expects to be able to increase rental revenue by re-leasing the underlying space (either to a new tenant or to an existing tenant) at rental rates that are at or higher than the existing rates. 15 OPERATIONS AND MANAGEMENT The Company performs all property management functions for the Properties. At December 31, 1997 the Company had 311 full-time employees devoted exclusively to property management. Each of the regional malls has on- site management and maintenance personnel as well as a marketing staff to assist the mall tenants in promoting and advertising their products. Overall supervision of mall operations, headed by a Director of Enclosed Malls and a Director of Marketing, is conducted in a centralized fashion in order to take advantage of economies of scale and to deliver a uniform presentation of all management functions. The Company's internal property management information system enables it to quickly determine tenant status, tenant gross sales, insurance, and other critical information in order to effectively manage the affairs of its real property portfolio. The data collected regarding percentage sales allows the Company to predict sales, to retain tenants and enhance mall stability. The Leasing/Development Department is responsible for maintaining relationships with tenants that afford the Company opportunities for new development and expansion. The Company conducts an active program of leasing, within the common area space of its malls and community centers, kiosks and other promotional displays on a seasonal basis. In addition to increased customer traffic, this approach generates additional revenue for the Company and offers an opportunity for entrepreneurial individuals interested in opening stores on a more permanent basis within one of the Company's Properties. The Company's property management efforts will continue to be directed toward improving the attractiveness and appeal of its retail properties and a pleasant shopping environment in order to increase overall tenant sales and rents. The Company strives to meet the needs of its tenants in the areas of promotion, marketing and ongoing management of its properties and seeks to bring together a sufficient critical mass of complementary upscale and brand- name tenants. As part of its property management efforts, the Company monitors tenant mix, store size, sales results and store locations, and works closely with tenants to improve the overall performance of their stores. The Company seeks to anticipate trends in the retailing industry and introduce new retail names and concepts into its retail properties in response to these trends. The Company maintains its malls and community centers to very high standards and believes that the aesthetics, ambiance and cleanliness of these Properties contribute to repeat visits by customers. ACQUISTION PROGRAM In June 1997, the Company acquired Silver Lake Mall, a 298,711 square foot mall located in Coeur d'Alene, Idaho. The Company, which had held a 30% interest in Silver Lake Mall, Ltd., a limited partnership owning Silver Lake Mall, prior to its acquisition of the mall, acquired the remaining 70% interest in such limited partnership in exchange for 72,000 partnership units ("OP Units") and the assumption of approximately $24.8 million in outstanding indebtedness. Silver Lake Mall is anchored by JCPenney, Sears, Emporium and Lamonts and contains 65 mall shops. Silver Lake Mall was 99% leased as of December 31, 1997. In June 1997, the Company also acquired Visalia Mall, a 439,716 square foot mall located in Visalia, California for approximately $38.0 million. Visalia Mall is anchored by JCPenney and Gottschalk's and contains 68 mall shops. Prior to the Company's purchase of Visalia Mall, the mall underwent a major renovation which included the expansion of anchor tenant space, the addition of a new food court, the renovation and expansion of additional tenant shop space and the construction of a new 1,000 stall parking facility. Visalia Mall was 98% leased as of December 31, 1997. In December 1997, the Company acquired the Salem Center, a 650,000 square foot enclosed mall located in Salem, Oregon. The Company acquired the Salem Center for approximately $32.0 million of which the Company financed by borrowing under the 1997 Credit Facility and assuming debt for the remainder. Salem Center is located in Salem's downtown business district covering over five contiguous city blocks and is anchored by Nordstrom, Meryvn's, Meier & Frank, JCPenney and a 7-screen, 2,300 seat theater. Salem Center was 97% leased as of December 31, 1997. 16 DEVELOPMENT Since 1976, the Company and the Predecessor Companies have been responsible for developing more retail malls in the Intermountain Region than any other developer, having constructed, developed or redeveloped 11 malls in the region (as well as three other malls in Oregon and Washington). The Company maintains the in-house capability to bring a project from concept to completion. The Leasing/Development Department had a total of 30 full-time employees at December 31, 1997, including directors of Leasing, Development, Tenant Coordination and Design/Drafting. In August 1997, the Company held a grand opening for its development of the Spokane Valley Mall, a two-level, 688,982 square foot regional mall, located on an 85 acre parcel of land overlooking the Spokane River and the Centennial Trail in Spokane, Washington. The mall is anchored by JCPenney, Sears and The Bon Marche and contains 101 mall shops. In addition to the 273,673 square feet of retail mall space, the mall contains a 40,000 square foot 12-screen ACT III theater and seven out-parcel pads for retail and restaurant development. In early 1997, the Company began developing Boise Towne Plaza, a 105,664 square foot shopping center located adjacent to Boise Towne Square in Boise, Idaho. The first phase of construction at Boise Towne Plaza, containing 76,414 square feet of retail space, was completed and opened in November 1997. The second phase of construction at Boise Towne Plaza, containing 29,250 square feet of retail space, is expected to be completed in the second quarter of 1998. During 1997, the Company also completed the construction of (i) a 76,411 square foot Sears department store at the Pine Ridge Mall located in Pocatello, Idaho, (ii) a 36,036 square foot addition to the Sears department store at the Silver Lake Mall and (iii) a 5,500 square foot Applebees restaurant at the Animas Valley Mall located in Farmington, New Mexico. The Company is currently expanding Boise Towne Square which will add Dillard's as a fifth anchor. The project will add approximately 273,000 Total GLA with approximately 180,000 Total GLA for Dillard's, 30,000 GLA for the expansion of The Bon Marche and approximately 63,000 GLA for additional shops. The Company is also developing Provo Towne Centre, a 750,000 square foot enclosed regional mall, located in Provo, Utah. Provo Towne Center will be anchored by JCPenney, Sears, and Dillard's and will include space for more than 80 mall shops. Additionally, the Company is currently contemplating the expansion and renovation of several other of its Properties as well as other developments and acquisitions. Further, the Properties contain approximately 48 acres of vacant land suitable for additional retail expansion projects. Likewise, the Properties include additional improved land ready for development of approximately 263,000 square feet of free standing retail space. The Company will seek to expand these and other Properties in its retail portfolio, as well as newly acquired properties, depending on tenant demand and market conditions. THIRD PARTY MANAGEMENT The Company provides third-party property management for an office building and a commercial building located in the greater Salt Lake City, Utah metropolitan area, a commercial building located in Albuquerque, New Mexico and Silver Lake Plaza, a community center, located in Coeur d'Alene, Idaho. In addition to these arrangements, the Company plans to pursue other property management opportunities. Because property management facilitates an understanding of a property's value and potential for cash flow growth, the Company believes that, in addition to generating property management fees, third-party property management arrangements can be a source of future acquisitions for the Company. For example, the Company was the property manger for Eastridge Mall and Silver Lake Mall prior to their acquisitions by the Company. EMPLOYEES The Company had over 506 employees at December 31, 1997. The Company believes its relationship with its employees is very good. None of the Company's employees are unionized. 17 ITEM 3. LEGAL PROCEEDINGS The Operating Partnership is not aware of any pending or threatened litigation at this time that will have a materially adverse effect on the Operating Partnership or any of the Properties or it's development parcels. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the Operating Partnership's security holders during the fourth quarter of the period covered by this report. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANTS The following table sets forth certain information with respect to the executive officers of the Company as of December 31, 1997.
Name Age Position - ----------- --- -------- John Price 64 Chairman of the Board of Directors and Chief Executive Officer G. Rex Frazier 54 President, Chief Operating Officer and Director Paul K. Mendenhall 50 Vice President--Chief Investment Officer and Secretary Martin G. Peterson 51 Vice President--Administration Thomas L. Mulkey 45 Vice President--Leasing/Development Greg Curtis 47 Vice President--Management David R. Sabey 45 Vice President and General Counsel M. Scott Collins 42 Vice President--Chief Financial Officer and Treasurer
Set forth below is a summary of the business experience of the executive officers of the Company: John Price has served as Chairman of the Board of Directors and Chief Executive Officer since September, 1993. Mr. Price formed Fairfax Realty, Inc. ("Fairfax"), the principal entity through which the business of the Predecessor Companies was conducted, in 1972, and it's predecessor, John Price Associates, Inc., a construction company, in 1957. Mr. Price has developed and built substantial retail and commercial real estate properties during his 40 years in the real estate industry and has been involved in all facets of real estate development, construction, leasing, management and financing. Mr. Price is a member of the Board of Directors and the Executive Committee of Alta Industries-Utah, Inc. (a distributor of ferrous and nonferrous metals and a manufacturer of roofing, siding, and other structural components). Mr. Price is also a member of the NAREIT Legislative Advisory Council, a trustee of the University of Utah, a member of the Board of Directors of the Utah State Fairpark Corporation which operates the Utah State Fairgrounds and a member of the Advisory Board of the First Security Bank of Utah, N.A. Mr. Price is a graduate of the University of Utah. G. Rex Frazier has served as President, Chief Operating Officer and a Director since September, 1993. Mr. Frazier has served as President and Chief Operating Officer of Fairfax since 1986, prior to which he had served as Executive Vice- President, Vice President-Finance and Director of Finance. Mr. Frazier has been involved in the real estate industry since 1976. He is a certified public accountant and, prior to joining Fairfax, worked as an audit supervisor with Touche Ross & Company. Mr. Frazier is a graduate of the University of Utah. Paul K. Mendenhall has served as Vice President-Chief Investment Officer and Secretary since May, 1997, prior to which he served as Vice President- Finance and Secretary. Mr. Mendenhall has served as Vice President-Finance and Secretary of Fairfax since 1986, prior to which he served as Director of Finance and as Financial Analyst. Mr. Mendenhall has been involved in the real estate industry since 1977. He is a certified public accountant and, prior to joining Fairfax, worked as a senior auditor for Touche Ross & Company. Mr. Mendenhall is a former President and Director of the Utah Association of Certified Public Accountants (UACPA). Mr. Mendenhall is a graduate of the University of Utah. 18 Martin G. Peterson has served as Vice President-Administration since September, 1993, prior to which he served as Vice President- Administration/Accounting and Treasurer and as Assistant Vice President. In addition, Mr. Peterson has served as Vice President-Administration and Treasurer of Fairfax since 1978. Mr. Peterson has been involved in the real estate industry since 1975. He is a certified public accountant and, prior to joining Fairfax, worked as a senior auditor for Price Waterhouse & Co. Mr. Peterson is a member of the Advisory Board of the Marriott School of Management at Brigham Young University. Mr. Peterson is a graduate of Brigham Young University. Thomas L. Mulkey has served as Vice President-Leasing/Development since September, 1993. In addition, Mr. Mulkey has served as the Vice President- Leasing/Development of Fairfax since 1987, prior to which he oversaw the development of many of the Company's properties. Mr. Mulkey has been involved in the real estate industry since 1974. Prior to joining Fairfax, Mr. Mulkey was a project manager for the May Stores Centers, Inc. (a retail department store company). Mr. Mulkey is a graduate of the University of Missouri. Greg Curtis has served as Vice President-Management since September, 1993. In addition, Mr. Curtis has served as Vice President-Management of Fairfax since 1982, prior to which he served as Director of Enclosed Malls and as a Mall Manager. Mr. Curtis has been involved in real estate since 1977. Mr. Curtis is a graduate of Brigham Young University. David R. Sabey has served as Vice President and General Counsel since September, 1993. In addition, Mr. Sabey has served as Vice President and General Counsel of Fairfax since 1990. Prior to joining Fairfax, Mr. Sabey worked as Assistant General Counsel for the Longs Drug Stores Corporation (a retail drug store company). Mr. Sabey has been in the retail and real estate industry since 1983. Mr. Sabey is a graduate of McGeorge School of Law and the University of Utah. M. Scott Collins has served as Vice President-Chief Financial Officer and Treasurer since May, 1997. From November, 1992 through May, 1997, Mr. Collins served as Vice President-Finance and Administration, Chief Financial Officer and Secretary of Park City Group, Inc. (a software development company). Prior to his employment with Park City Group, Mr. Collins worked as a senior manager for Price Waterhouse where he was also involved with the real estate industry. Mr. Collins is a certified public accountant and is a graduate of Brigham Young University. 19 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS At December 31, 1997, there was no established public trading market for the Operating Partnership's OP Units. As of March 10, 1998, there were 64 holders of OP Units. The following table sets forth to the distributions paid per OP Unit for each of the quarters presented: Distribution Per OP Unit ------------ Year Ended 12/31/96 First Quarter $ .420 Second Quarter .420 Third Quarter .420 Fourth Quarter .435 Year Ended 12/31/97 First Quarter $ .435 Second Quarter .435 Third Quarter .435 Fourth Quarter .450 During 1997 and 1996, the Operating Partnership recorded regular quarterly distributions, totaling $37,220,000 and $33,977,000, respectively, or $1.755 and $1.695 per OP Unit, respectively. On behalf of the Operating Partnership, the Board of Directors of the Company has declared a quarterly distribution, payable to holder of OP Units of record as of April 3, 1998, of $.45 per OP Unit which is an amount equivalent to an annual distribution of $1.80 per OP Unit. Future distributions will be determined by the Board of Directors of the Company, the general partner of the Operating Partnership, and will be dependent upon cash available for distribution, financial position and cash requirements of the Company and the Operating Partnership. On June 1, 1997, the Operating Partnership acquired the remaining 70% partner interest in Silver Lake Mall, Ltd., a limited partnership owning Silver Lake Mall, from Roebbelen Engineering, Inc. in exchange for 72,000 OP Units, which at the time of acquisition had a value of $1,863,000, and the assumption of debt totaling $24,755,000. In connection with the issuance of the OP Units, the Operating Partnership relied upon the exemption from registration contained in Section 4(2) of the Securities Act and the rules and regulations of the Commission thereunder. The OP Units are convertible on a one-for-one basis into shares of Common Stock of the Company. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial and other data for (i) the Operating Partnership for the years ended December 31, 1997, 1996, 1995, and for the period January 21, 1994 through December 31, 1994 and (ii) for the Predecessor Companies for the period January 1, 1994 through January 20, 1994 and for the year ended December 31, 1993. The historical financial information for all the periods have been derived from the audited historical consolidated and combined financial statements. The following selected financial information should be read in conjunction with all of the financial statements included elsewhere herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 20
SELECTED FINANCIAL DATA (Dollars in Thousands Except Per Share Data) Operating Partnership Predecessor Predecessor _________________________________________________ Companies Companies Company Company Company January 2, January 1, Year Year Ended Year Ended Year Ended 1994 to 1994 to Ended December 31, December 31, December 31, December 31, January 20, December 31, 1997 1996 1995 1994(1) 1994 1993 ----------- ------------ ----------- ------------- ------------ ------------ REVENUES $ 82,973 $ 72,949 $ 60,950 $ 50,071 $ 2,578 $ 47,728 ---------- ----------- ---------- ------------ ----------- ----------- EXPENSES Operating Expenses before Interest, Depreciation and Amortization 27,434 24,405 20,389 17,090 893 17,226 Interest 9,066 7,776 6,623 5,873 893 18,482 Depreciation and Amortization 13,410 11,979 11,528 8,734 430 8,530 ---------- ----------- ---------- ------------ ----------- ----------- Total 49,910 44,160 38,540 31,697 2,149 44,238 ---------- ----------- ---------- ------------ ----------- ----------- 33,063 28,789 22,410 18,374 429 3,490 Minority Interest in Income of Consolidated Partnerships (394) (389) (421) (277) -- (251) Equity in Net Loss of Partnership Interest -- -- (184) (82) 7 (238) Gain of Sales of Real Estate 339 94 918 -- -- 607 ---------- ----------- ---------- ------------ ----------- ----------- Income Before Extraordinary Item 33,008 28,494 22,723 18,015 436 3,608 Extraordinary Item - Loss on Extinguishment of Debt (162) -- -- (6,670) -- -- ---------- ----------- ---------- ------------ ----------- ----------- Net Income $ 32,846 $ 28,494 $ 22,723 $ 11,345 $ 436 $ 3,608 ========== =========== ========== ============ =========== =========== Basic Earnings Per OP Unit (2): Income Before Extraordinary Item 1.57 1.45 1.26 1.07 Extraordinary Item (.01) -- -- (.40) ---------- ----------- ---------- ----------- Net Income $ 1.56 $ 1.45 $ 1.26 $ .67 ========== =========== ========== =========== Diluted Earnings Per OP Unit (2): Income Before Extraordinary Item $ 1.55 $ 1.44 $ 1.26 $ 1.07 Extraordinary Item (.01) -- -- (.40) ---------- ----------- ---------- ----------- Net Income $ 1.54 $ 1.44 $ 1.26 $ .67 ========== =========== ========== =========== Distributions per OP Unit $ 1.755 $ 1.695 $ 1.635 $ 1.525 ========== =========== ========== ===========
21
SELECTED FINANCIAL DATA (Dollars in Thousands Except Per Share Data) Operating Partnership Predecessor Predecessor _________________________________________________ Companies Companies January 21, January 1, Year Year Ended Year Ended Year Ended 1994 to 1994 to Ended December 31, December 31, December 31, December 31, January 20, December 31, 1997 1996 1995 1994(1) 1994 1993 ----------- ------------ ----------- ------------- ------------ ------------ Balance Sheet Data Real Estate, before Accumulated Depreciation $ 619,371 $ 453,241 $ 388,205 $ 321,242 N/A $ 286,719 Total Assets 545,684 381,360 327,061 281,696 N/A 236,482 Total Debt 283,390 162,375 106,406 108,741 N/A 235,799 Shareholders' Equity (Deficit) 207,986 172,556 175,754 127,593 N/A (6,951) Other Data Funds From Operations (3) 44,523 39,098 32,139 26,083 859 10,792 Net Operating Income 55,539 48,544 40,561 32,981 1,685 30,502
NUMBER OF PROPERTIES/TOTAL GLA AT DECEMBER 31, 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ----------- Number of Properties at Year End 48 44 43 40 38 Total GLA in square feet at Year End: Malls 7,745,000 5,553,000 5,020,000 3,898,000 3,855,000 Community Centers and Free-Standing Retail Properties 3,164,000 3,091,000 3,091,000 2,997,000 2,742,000 Commercial Properties 1,418,000 1,418,000 1,394,000 1,113,000 1,113,000 ---------- ---------- ---------- ---------- ----------- Total 12,327,000 10,062,000 9,505,000 8,008,000 7,710,000 ========== ========== ========== ========== ===========
___________________ (1) The Company closed its initial public offering of shares of Common Stock on January 21, 1994. (2) Basic Earnings Per OP Unit based on 21,119,000, 19,668,000, 18,037,000 and 16,923,000 weighted average number of OP Units outstanding for the years ended December 31, 1997, 1996, 1995 and 1994, respectively. Diluted Earnings Per OP Unit based on 21,285,000, 19,753,000, 18,103,000 and 16,992,000 weighted diluted average number of OP Units outstanding for years ended December 31, 1997, 1996, 1995, and 1994, respectively. (3) The Company, the general partner of the Operating Partnership, considers funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." While the Company believes that FFO is the most relevant and widely used measure of its operating performance, it does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indication of the Company's or the Operating Partnership's operating performance or as an alternative to cash flow as a measure of liquidity. The Company's presentation of FFO, however, may not be comparable to other similarly titled measures used by other equity REITs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with "Selected Financial Data" and the Consolidated Financial Statements of the Operating Partnership and the Notes thereto appearing elsewhere herein. JP Realty, Inc. completed its initial public offering on January 21, 1994, and conducts all of its business operations through, and holds an 83% controlling general partner interest in, Price Development Company, Limited Partnership ("the Operating Partnership") as of December 31, 1997. JP Realty, Inc. together with its subsidiaries which included Price Development Company, Limited Partnership will herein be referred to as the Company. The Company is a fully integrated, self-administered and self-managed REIT primarily engaged in the ownership, leasing, management, operation, development, redevelopment and acquisition of retail properties in the Intermountain Region, as well as in Oregon, Washington and California. The Company's existing portfolio consists of 48 properties, including 15 enclosed regional malls, 25 community centers, two freestanding retail properties and six mixed-use commercial properties ("Properties"). The Company's financial condition and results of operations were positively impacted by the Operating Partnership's June 1997 acquisitions of the Silver Lake Mall, Visalia Mall, the August 13, 1997 opening of the Spokane Valley Mall, the 1996 acquisition of the Grand Teton Mall and the 1995 acquisition of two regional malls, Eastridge Mall and Animas Valley Mall, and one community center, Cottonwood Square. The Company also acquired Salem Center on December 30, 1997 which has not affected financial results in 1997. The Company's acquisition and development activities added a combined 2,798,000 square feet of Total GLA to the retail portfolio and 24,000 square feet of GLA to the commercial portfolio during 1996 and 1997. The Company completed an additional public offering in August 1995, raising approximately $56.4 million in gross proceeds through the sale of 2,750,000 shares of its Common Stock. An additional public offering was completed in January 1997, raising approximately $40.7 million in gross proceeds through the sale of 1,500,000 shares of Common Stock. During 1995, the Company obtained a $50 million credit facility (the "1995 Credit Facility") to fund working capital and property acquisition, expansion and development activities. On January 22, 1996, the Company obtained an additional $25 million credit facility (the "1996 Credit Facility," together with the 1995 Credit Facility, the "Credit Facilities") which was available for the same purposes as the 1995 Credit Facility. In October 1997 the 1996 Credit Facility was increased to $40 million. On November 7, 1997 these Credit Facilities were paid off and canceled. On October 16, 1997, the Company obtained a $150 million unsecured Credit Facility (the "1997 Credit Facility") to fund working capital, property acquisition, expansion and development activities, to pay off and cancel the $50 million 1995 Credit Facility and pay off and cancel the 1996 Credit Facility which were obtained for the same purpose as the 1997 Credit Facility. On December 18, 1997, the $150 million 1997 Credit Facility was increased to $200 million. RESULTS OF OPERATIONS Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996 For the year ended December 31, 1997, income before extraordinary item and minority interest of the Operating Partnership Unitholders increased $4,515,000 or 16% when compared to the year ended December 31, 1996. The improvement in operations was primarily attributable to the following factors: an increase in minimum rents of $7,177,000; and an increase in recoveries from tenants of $2,642,000 and an increase in other revenues of $373,000. These increases were offset by an increase in operating expenses of $1,775,000; an increase in taxes and insurance of $867,000; an increase in general and administrative expense of $387,000; an increase in interest expense of $1,290,000 and a net increase in depreciation and amortization of $1,431,000. Funds from operations increased $5,425,000 or 14% primarily as a result of acquisitions and developments as discussed herein. 22 Total revenues for the year ended December 31, 1997 increased $10,024,000 or 14% to $82,973,000 as compared to $72,949,000 in 1996. This increase is primarily attributable to a $7,177,000 or 14% increase in minimum rents to $59,624,000 as compared to $52,447,000 in 1996. Additionally, recoveries from tenants increased $2,642,000 or 17% to $18,199,000 as compared to $15,557,000 in 1996 and other income increased $373,000 due to development and leasing fees relating to the opening of Spokane Valley Mall. Recoveries from Tenants as a percentage of operating expenses were 83% in 1997, compared to 80% in 1996. The April 1996 acquisition of Grand Teton Mall, the June 1997 acquisitions of Silver Lake Mall and Visalia Mall and the August 13, 1997 opening of Spokane Valley Mall contributed $6,923,000 to the minimum rent increase and $2,453,000 of the increase in recoveries from tenants. Minimum rent growth in the remaining portfolio was offset by certain unexpected vacancies in the retail and commercial properties. Property operating expenses, including operating and maintenance and real estate taxes and insurance increased $1,775,000 or 15% and $867,000 or 11%, respectively. These increases were attributable to the acquisitions of Grand Teton Mall, Silver Lake Mall, Visalia Mall and the opening of Spokane Valley Mall. These properties contributed $1,804,000 to operating and maintenance costs and $885,000 to taxes and insurance. General and administrative expenses increased $387,000 or 8% to $5,447,000 as compared to $5,060,000. The increase is primarily due to payroll costs from additional personnel added to support the Company's growth. Interest expense increased $1,290,000 or 17% to $9,066,000 as compared to $7,776,000 in 1996. This increase is the result of additional interest on new borrowings to acquire Silver Lake Mall, Visalia Mall and to the opening of Spokane Valley Mall. Depreciation expense increased $1,572,000 or 15% to $11,802,000 as compared to $10,230,000 in 1996. This increase is primarily due to the acquisition of Grand Teton Mall, Silver Lake Mall, Visalia Mall, the opening of the Spokane Valley Mall and tenant allowances given on existing GLA. Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995 For the year ended December 31, 1996, income before extraordinary item and minority interest of the Operating Partnership Unitholders increased $5,790,000 or 25% when compared to the year ended December 31, 1995. The improvement in operations was primarily attributable to the following factors: an increase in minimum rents of $8,807,000; an increase in percentage and overage rents of $596,000; and an increase in recoveries from tenants of $3,305,000. These increases were offset by a decrease in interest and other income of $709,000; an increase in operating expenses of $3,041,000; an increase in taxes and insurance of $787,000; an increase in general and administrative expense of $215,000; and an increase in interest expense of $1,153,000. These were also offset by an increase in depreciation and amortization of $451,000. Funds from operations increased $6,959,000 or 22% primarily as a result of acquisitions, minimum rent increases and percentage and overage rent increases as discussed herein. Total revenues for the year ended December 31, 1996 increased $11,999,000 or 20% to $72,949,000 as compared to $60,950,000 in 1995. This increase is primarily attributable to an $8,807,000 or 20% increase in minimum rents to $52,447,000 as compared to $43,640,000 in 1995. Additionally, percentage and overage rents increased $596,000 or 17% to $4,061,000 as compared to $3,465,000 in 1995. The April 1996 acquisition of the Grand Teton Mall, the June 1995 acquisitions of the Eastridge Mall and the Animas Valley Mall and the December 1995 acquisition of Cottonwood Square contributed a combined $6,915,000 to the minimum rent increase and $459,000 to the percentage and overage rent increase in 1996. 23 Recoveries from tenants increased $3,305,000 or 27% to $15,557,000 as compared to $12,252,000 in 1995. Property operating expenses, including operating and maintenance and real estate taxes and insurance increased $3,014,000 or 35% and $787,000 or 11%, respectively. These increases are mainly due to the 1995 and 1996 property acquisitions. Recoveries from tenants as a percentage of property operating expenses were 80% in 1996, compared to 79% in 1995. Interest expense increased $1,153,000 or 17% to $7,776,000 as compared to $6,623,000 in 1995. This increase resulted from additional borrowings used to acquire the Grand Teton Mall in April 1996. Depreciation increased $620,000 or 6% to $10,230,000 as compared to $9,610,000 in 1995. This increase is primarily due to the 1995 and 1996 property acquisitions and the development of additional GLA at the Properties. LIQUIDITY AND CAPITAL RESOURCES The Company's principal uses of its liquidity and capital resources have historically been for distributions, property development, expansion and renovation programs and debt repayment. To maintain its qualification as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), the Company is required to distribute to its shareholders at least 95% of its "Real Estate Investment Trust Taxable Income" as defined in the Code. The Company declared quarterly distributions aggregating $1.755 per share in 1997. Approximately 11% of the distributions represented a return of capital. Future distributions will be determined based on actual results of operations and cash available for distribution. The Company's principal source of liquidity is its cash flow from operations generated from its real estate investments. As of December 31, 1997, the Company's cash and restricted cash amounted to approximately $8.1 million. In addition to its cash and restricted cash, unused capacity under its 1997 Credit Facility totaled $73 million at year end. On January 28, 1997, the Company completed an additional public offering of 1,500,000 shares of Common Stock, raising approximately $40.7 million in gross proceeds. The net proceeds of approximately $38.8 million were used to pay costs of the offering and to reduce outstanding borrowings under the Credit Facilities by approximately $38.6 million. The Company generally intends to distribute approximately 80% to 85% of its funds from operations with the remaining 20% to 15% to be held for capital expenditures and additional growth. The Company expects to meet its other short-term cash requirements, through undistributed funds from operations, cash balances and advances under the 1997 Credit Facility. The Company prepares an annual capital expenditure and maintenance budget for each Property which includes provisions for all necessary recurring capital improvements. The Company believes that its undistributed funds from operations will provide the necessary funding for these requirements. The Company believes that these funds will be sufficient to cover (i) tenant finish costs associated with the renewal or replacement of current tenant leases as existing leases expire and (ii) capital expenditures which will not be reimbursed by tenants. During 1997, the Company had capital expenditures, excluding acquisitions, totaling approximately $51,683,000. This amount consists of $49,166,000 in revenue enhancing construction and development, $1,167,000 in revenue enhancing tenant allowances, $567,000 in non-revenue enhancing tenant allowances and $783,000 in other non-revenue enhancing capital expenditures. The Company also had $1,132,000 in leasing commissions paid to outside parties. Of this amount, $1,003,000 was considered revenue enhancing and $129,000 was considered non-revenue enhancing. Exclusive of construction and development, capital expenditures (both revenue and non-revenue enhancing) for the existing Properties are budgeted in 1998 to be approximately $5,000,000. The Company's principal long-term liquidity requirements will be the repayment of principal on the $95 million mortgage debt, which matures in 2001 and which may require principal payments in an amount necessary to reduce the debt to $83.1 million as of January 21, 2000, and to retire outstanding balances under the 1997 Credit Facility. 24 An additional long-term capital need of the Company is the construction of the regional mall in Spokane, Washington, through its consolidated partnership, Spokane Mall Development Company Limited Partnership. On July 30, 1996, this consolidated partnership entered into a $50 million construction facility to meet its development and construction needs regarding the Spokane project. The mall opened August 13, 1997, and contains approximately 689,000 square feet of Total GLA. Continued payments for initial tenant construction allowances and completion of construction will increase borrowings on the loan. The Company estimates the total cost of this project will be approximately $67 million. The difference between the estimated cost of the project and amount of the construction facility is comprised of costs incurred to date for the purchase of land and payment of fees and other development costs. As of December 31, 1997, borrowings on the loan were approximately $43.0 million. The Operating Partnership has initiated the development of Provo Towne Centre, an enclosed regional mall in Provo, Utah through its consolidated partnership Provo Mall Development Company, Ltd. This property will also represent a future long-term capital need for the Company. The Company expects to fund this project through advances under its 1997 Credit Facility in combination with construction financing. The Company is also contemplating the expansion and renovation of several of its existing properties and additional development projects and acquisitions as a means to expand its portfolio. The Company does not expect to generate sufficient funds from operations to meet such long-term needs and intends to finance these costs primarily through advances under the 1997 Credit Facility, together with equity and debt offerings and individual property financing. On September 2, 1997 the Company and the Operating Partnership filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission for the purpose of registering common stock, preferred stock, depositary shares, common stock warrants, debt securities and guaranties. This registration statement, when combined with the Company's unused portion of its previous shelf registration, would allow for up to $400 million of securities to be offered by the Company and the Operating Partnership. On March 11, 1998 the Operating Partnership under its shelf registration, issued $100 million of ten year senior unsecured notes bearing annual interest at a rate of 7.29%. Principal payments of $25 million are due annually beginning March 2005. The proceeds were used to partially repay outstanding borrowings under the 1997 Credit Facility. The Company intends to fund its distribution, development, expansion, renovation, acquisition and debt repayment activities from its credit facility as well as other debt and equity financing, including public financing, in a manner consistent with its intention to operate with a conservative debt-to- total market capitalization ratio of less than 50%. The Company's ratio of debt-to-total market capitalization was approximately 34% as of December 31, 1997. The Company believes that to facilitate a clear understanding of the consolidated historical operating results of the Company and Predecessor Companies, net income should be examined in conjunction with funds from operations. The Company considers funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures." While the Company believes that FFO is the most relevant and widely used measure of its operating performance, it does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indication of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. The Company's presentation of FFO, however, may not be comparable to other similarly titled measures used by other equity REITs. 25 The Company's calculation of funds from operations is as follows:
(DOLLARS IN THOUSANDS) COMPANY COMPANY HISTORICAL HISTORICAL YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Income from Operations before Equity in Net Income of Partnership Investment and Minority Interests in Income of Consolidated Partnerships $ 33,063 $ 28,789 Add: Depreciation Buildings & Improvements 11,599 10,011 Add: Amortization of Deferred Leasing Costs 639 664 Less: Minority Interests in Income of Consolidated Partnerships (273) (269) Less: Straight-Line Rent Accrual (505) (97) ----------- ------------ Funds From Operations $ 44,523 $ 39,098 =========== ============
INFLATION Inflation has remained relatively low during the past three years and has had minimal impact on the operating performance of the Properties. Nonetheless, substantially all of the retail tenants' leases contain provisions designed to protect the Company from the impact of inflation. Such provisions include clauses enabling the Company to receive percentage rents based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rents during the terms of the leases. In addition, many of the leases are for terms less than ten years, which may enable the Company to replace existing leases with new leases at higher base and/or percentage rents if rents of the existing leases are below then-existing market rates. Substantially all of the leases, other than those for anchors, require the tenants to pay a proportionate share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. However, inflation may have a negative impact on some of the Company's other operating items. Interest and general and administrative expenses may be adversely affected by inflation as these specified costs could increase at a rate higher than rents. Also, for tenant leases with specified rent increases, inflation may have a negative effect as the specified rent increases in these leases could be lower than the increase in the inflation rate at any given time. All forward looking statements included in this document are based on information available to the Operating Partnership on the date hereof, and the Operating Partnership assumes no obligation to update any such forward looking statement. It is important to note that the Operating Partnership's actual results could differ materially from those in such forward looking statements. Certain factors that might cause such differences include those relating to changes in economic climate, local conditions, law and regulations, the relative illiquidity of real property investments, the potential bankruptcy of tenants and the development, redevelopment or expansion of properties. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data are listed in the Index to Financial Statements and Financial Statement Schedules appearing on Page F-1 of this Form 10-K/A. 26 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. During the two most recent fiscal years, the Operating Partnership has not experienced any changes in or disagreements with its independent auditors. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Company is the sole general partner of the Operating Partnership. The following information is furnished regarding the Directors of the Company. JOHN PRICE, age 64, has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since September 1993. Mr. Price formed Fairfax in 1972, and its predecessor, John Price Associates, Inc., a construction company, in 1957. Mr. Price has developed and built substantial retail and commercial real estate properties during his 40 years in the real estate industry and has been involved in all facets of real estate development, construction, leasing, management and financing. Mr. Price is a member of the Board of Directors and the Executive Committee of Alta Industries--Utah, Inc. (a distributor of ferrous and nonferrous metals and a manufacturer of roofing, siding, and other structural components). Mr. Price is also a member of the NAREIT Legislative Advisory Council, a trustee of the University of Utah, a member of the Board of Directors of the Utah State Fairpark Corporation which operates the Utah State Fairgrounds and a member of the Advisory Board of the First Security Bank of Utah, N.A. Mr. Price is a graduate of the University of Utah. G. REX FRAZIER, age 54, has served as President, Chief Operating Officer and a Director of the Company since September 1993. Mr. Frazier has served as President and Chief Operating Officer of Fairfax since 1986, prior to which he had served as Executive Vice President, Vice President--Finance and Director of Finance. Mr. Frazier has been involved in the real estate industry since 1976. He is a certified public accountant and, prior to joining Fairfax, worked as an audit supervisor with Touche Ross & Company. Mr. Frazier is a graduate of the University of Utah. WARREN P. KING, age 60, has been a Director since the formation of the Company and was appointed Vice Chairman of the Board of Directors in August 1994. Prior to the formation of the Company, Mr. King served as Vice Chairman of the Board of Directors and Chairman of the Finance Committee of Fairfax beginning in 1977, and has been involved in the real estate industry since 1974. He is the President and Chief Executive Officer and director of Alta Industries--Utah, Ltd. Mr. King is also a director of A.T.S. Industrial Supply (an industrial tool and supply distributor). He is a certified public accountant and is a graduate of Stevens Henager Business College. JAMES A. ANDERSON, age 62, has been a Director since the formation of the Company. From April 1978 to March 1993, Mr. Anderson was the Chairman of the Board of Directors of the State of California Mining and Geology Board. He also was the Executive Vice President of Fulcrum Management, Inc. (a public and private natural resource venture capital investment company) from 1987 to 1991, and was a director of Venture Trident Ltd. Partnership (the parent company of Fulcrum Management, Inc.). He also served as a director of Homestake Mining Company from 1980 to 1987 and as Executive Vice President from 1979 to 1987. Mr. Anderson received his bachelor's degree in geological engineering from the University of Utah, a masters degree in mining geology and a doctorate degree in economic geology from Harvard University and a degree in business administration from the Stanford University Executive Program. SAM W. SOUVALL, age 77, has been a Director since the formation of the Company. Since 1979, Mr. Souvall has been Chairman of the Board of Alta Industries--Utah, Ltd. and, from 1970 to 1978, was President and Chief Executive Officer of that company. From 1972 to 1984, Mr. Souvall served as a director of Valley Bank & Trust Company and as Chairman of the Board of Directors from 1984 to 1988. Mr. Souvall also served as Chairman of the Board of Directors of Utah Bancorporation from 1980 to 1988, and as President and Chief Executive Officer of Souvall Bros. Intermountain Wholesalers from 1946 to 1969. ALLEN P. MARTINDALE, age 66, has been a Director since the formation of the Company. Since 1988, Mr. Martindale has served as the President of A.P.M. Associates (a management consulting firm). Mr. Martindale has served as a director of Smith's Food and Drug Center, Inc. (a retail food and drug store) since 1970 and served such company in several senior executive capacities since that date, including Chairman of the Board of Directors and Chief Executive Officer. He also served as President and Chief Executive Officer of Arden-Mayfair from 1964 to 1970. Mr. Martindale is a certified public accountant and a graduate of the University of California at Los Angeles. ALBERT SUSSMAN, age 81, has been a Director since the formation of the Company. Since January 1985, Mr. Sussman has been the Senior Advisor and a lifetime member of the Board of Trustees of the International Council of Shopping Centers, an organization of which he had previously served as executive head for 28 years. From 1987 to 1988, Mr. Sussman was consultant to LaSalle Partners (a national firm which specializes in the management and investment of real estate properties held by major corporations) and he also was a consultant to Kimco Realty Corporation (a public company owning/managing small and medium-size shopping centers). Mr. Sussman is a graduate of the City College of New York. The following information is furnished regarding compliance with Section 16(a) of the Securities Exchange Act of 1934. Section 16(a) of the Exchange Act requires the Company's directors, executive officers and holders of more than 10% of the outstanding shares of Common Stock ("10% Stockholders") to file with the Commission and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Directors, executive officers and 10% Stockholders are required by the Commission's regulations to furnish the Company with copies of all Section 16(a) forms and amendments thereto filed during any given year. Based on review of the copies of such reports and amendments thereto furnished to the Company and representations from the Company's directors, executive officers and 10% Stockholders that no other reports were required to be filed, the Company believes that for the year ended December 31, 1997, the Company's directors, executive officers and 10% Stockholders complied with all Section 16(a) filing requirements applicable to them. The information required by this item regarding Executive Officers appears in Item 4A of this Annual Report on Form 10-K/A. ITEM 11. EXECUTIVE COMPENSATION The following information is furnished regarding executive compensation of the Company. SUMMARY COMPENSATION TABLE The following table sets forth certain information concerning the compensation paid by the Company to its Chief Executive Officer and Chairman of the Board of Directors and to its President and Chief Operating Officer, Vice President and General Counsel, Vice President-Leasing/Development and Vice President-Chief Investment Officer and Secretary, the Company's four most highly compensated executive officers other than the Chief Executive Officer (together with the Chief Executive Officer, the "Named Executive Officers").
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS --------------------- --------------------- NAME AND PRINCIPAL SECURITIES ALL OTHER POSITIONS YEAR SALARY($) BONUS($)(1) UNDERLYING OPTIONS(#) COMPENSATION($) ------------------ ---- --------- ----------- --------------------- --------------- John Price(2) 1997 $118,500 $53,325 -- $13,313(3) Chairman of the Board 1996 115,000 86,250 -- 11,767(4) and Chief Executive 1995 100,000 45,000 -- 9,397(5) Officer G. Rex Frazier 1997 $134,000 $60,300 -- $14,596(3) President and Chief 1996 130,000 97,500 12,500 11,007(4) Operating Officer 1995 125,000 56,250 -- 16,440(5) David R. Sabey 1997 $103,000 $20,394 -- $ 8,941(3) Vice President and 1996 100,000 33,000 5,000 8,925(4) General Counsel 1995 97,500 19,305 -- 7,836(5) Thomas L. Mulkey 1997 $103,000 $30,900 -- $ 8,981(3) Vice President-- 1996 100,000 50,000 10,000 7,581(4) Leasing/Development 1995 97,000 29,100 -- 8,293(5) Paul K. Mendenhall 1997 $ 82,500 $24,750 -- $10,459(3) Vice President-- 1996 80,000 40,000 10,000 9,194(4) Chief Investment 1995 77,500 23,250 -- 9,272(5) Officer and Secretary
- -------- (1) Bonuses received for 1995, 1996 and 1997 were paid in February, 1996, 1997 and 1998, respectively. (2) Mr. Price receives a minimum of $100,000 in annual compensation and participates in other standard benefit programs available to senior executives generally pursuant to a year-to-year employment and non- competition agreement that was entered into on January 21, 1994, the closing date of the Company's initial public offering (the "IPO"). (3) Amounts received in 1997 for each of the Named Executive Officers are as follows:
HEALTH LIFE RETIREMENT INSURANCE INSURANCE 401(K) PLAN PLAN TOTAL --------- --------- ----------- ---------- ------- John Price $7,708 $1,053 $1,000 $3,552 $13,313 G. Rex Frazier 9,147 432 1,000 4,017 14,596 David R. Sabey 4,592 261 1,000 3,088 8,941 Thomas L. Mulkey 4,632 261 1,000 3,088 8,981 Paul K. Mendenhall 6,530 432 1,000 2,497 10,459
(4) Amounts received in 1996 for each of the Named Executive Officers are as follows:
HEALTH LIFE RETIREMENT INSURANCE INSURANCE 401(K) PLAN PLAN TOTAL --------- --------- ----------- ---------- ------- John Price $6,264 $1,053 $1,000 $3,450 $11,767 G. Rex Frazier 5,675 432 1,000 3,900 11,007 David R. Sabey 4,772 153 1,000 3,000 8,925 Thomas L. Mulkey 3,370 153 1,000 3,058 7,581 Paul K. Mendenhall 5,487 261 1,000 2,446 9,194
(5) Amounts received in 1995 for each of the Named Executive Officers are as follows:
HEALTH LIFE RETIREMENT INSURANCE INSURANCE 401(K) PLAN PLAN TOTAL --------- --------- ----------- ---------- ------ John Price $4,344 $1,053 $1,000 $3,000 $9,397 G. Rex Frazier 11,258 432 1,000 3,750 16,440 David R. Sabey 3,758 153 1,000 2,925 7,836 Thomas L. Mulkey 4,230 153 1,000 2,910 8,293 Paul K. Mendenhall 5,686 261 1,000 2,325 9,272
OPTION GRANTS FOR CALENDAR YEAR 1997 No options were granted to any of the Named Executive Officers during 1997. OPTION EXERCISES/VALUES OF UNEXERCISED OPTIONS The following table sets forth as to each of the Named Executive Officers information with respect to option exercises during 1997 and unexercised options on December 31, 1997. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS ACQUIRED FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)(2) ON VALUE ------------------------- ------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------ ----------- ---------- ----------- ------------- ----------- ------------- John Price -- -- 106,000 106,000 $894,375 $894,375 G. Rex Frazier 625 $5,625 31,550 30,000 259,953 228,125 David R. Sabey 900 8,775 12,100 12,000 99,594 91,250 Thomas L. Mulkey -- -- 20,000 20,000 163,750 148,750 Paul K. Mendenhall 285 2,565 19,143 20,000 156,519 148,750
- -------- (1) No SARs are held by any of the Named Executive Officers. (2) In accordance with the rules of the Securities and Exchange Commission (the "Commission"), values are calculated by subtracting the exercise price of an option from the fair market value of the underlying Common Stock. For purposes of this table, fair market value is deemed to be $25.9375, the closing price of the Common Stock reported for the New York Stock Exchange on December 31, 1997. REPORT ON EXECUTIVE COMPENSATION This report is presented to describe the compensation policies applied by the Executive Compensation Committee of the Board of Directors with regard to the Company's executive officers and the basis for the compensation of John Price, Chief Executive Officer of the Company, for the year 1997. Compensation Philosophy. The Company's compensation program for executive officers is based upon a desire to achieve both its short-term and long-term business goals and strategies with a view to enhancing stockholder value. To achieve its goals, the Company recognizes that it must adopt a compensation program which will attract, retain and motivate qualified and experienced executive officers and that its compensation program should align the financial interests of its executive officers with those of its stockholders. Compensation of Executive Officers (other than the Chief Executive Officer). Each year, the Executive Compensation Committee reviews the compensation of each executive officer of the Company for the previous year. In approving the 1997 annual salary for each of the executive officers, the Executive Compensation Committee considered several factors, including the individual's salary for the previous year, the individual's anticipated bonus (if any) for the previous year, the scope of the individual's responsibilities, the recommendations of management as to salary and bonus formula for the subsequent year, the Company's historical financial results and the Company's anticipated financial performance. The compensation determination for each individual was largely subjective, and no specific weight was given to any particular factor. In addition to their base salaries, these executive officers of the Company are eligible to participate in the Management Incentive Compensation Plan described below and to receive discretionary bonuses tied to their individual performances and the overall performance of the Company. Compensation of Chief Executive Officer. The Executive Compensation Committee determined the 1997 annual salary for John Price, Chief Executive Officer of the Company, based upon a number of factors and criteria, including the Company's historical financial results, the Company's anticipated financial performance and the requirements of Mr. Price. As Chief Executive Officer of the Company, Mr. Price is also eligible to participate in the Management Incentive Compensation Plan described below and to receive discretionary bonuses tied to his individual performance and the overall performance of the Company. 1993 Stock Option Plan. The Company believes that providing executive officers with opportunities to acquire significant equity stakes in its growth and prosperity through the grant of stock options will enable the Company to attract and retain qualified and experienced executive officers. Stock options represent a valuable portion of the compensation program for the Company's executive officers. Stock options are generally awarded to executive officers at the time that they join the Company and periodically thereafter. The exercise price of stock options has thus been tied to the fair market value of the Company's Common Stock on the date of the grant, and will only have value if the value of the Common Stock increases. The size of the initial grants of stock options made to the existing executive officers was determined in connection with the formation of the Company. As of December 31, 1997, there has been only one additional grant of stock options under the plan. Future grants of stock options to executive officers will generally be made by the Executive Compensation Committee upon the recommendation of management and be based upon the level of each executive officer's position with the Company, an evaluation of the executive officer's past and expected future performance, the number of outstanding and previously granted options, and discussions with the executive officer. Management Incentive Compensation Plan. The Company established an incentive compensation plan for its officers beginning in 1995. The plan provides that each officer will earn a cash bonus for a calendar year equal to a percentage of his annual base salary provided that funds from operations per share of Common Stock increase at specified levels as compared to the previous year. The Executive Compensation Committee will review the plan at the end of each fiscal year to determine if it should be retained or revised to take into consideration future developments. Executive Compensation Committee Warren P. King, Chairman James A. Anderson Sam W. Souvall COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION John Price, Chief Executive Officer of the Company, is a director of Alta Industries--Utah, Ltd.; Warren P. King, a Director of the Company and the Chairman of the Executive Compensation Committee of the Company's Board of Directors, is the President and Chief Executive Officer of Alta Industries-- Utah, Ltd. SHARE PERFORMANCE GRAPH The graph and table set forth below compare the cumulative total stockholder return on the Company's Common Stock for the period of January 1994 through December 1997, with the NAREIT Equity Retail REIT Total Return Index, the NAREIT Equity Mall REIT Total Return Index and the S&P 500 Index for the same period. The graph and table assume an investment of $100 in the Common Stock and each index on or about January 21, 1994, the date trading of the Common Stock commenced on the New York Stock Exchange, and the reinvestment of all dividends. [SHARE PERFORMANCE GRAPH APPEARS HERE]
Jan. 31, 1994 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1996 Dec. 31,1997 - ---------------------------------------------------------------------------------------------------- Equity Retail REIT 100.00 99.45 104.53 140.70 164.54 - ---------------------------------------------------------------------------------------------------- Equity Mall REIT 100.00 105.42 108.58 157.73 179.33 - ---------------------------------------------------------------------------------------------------- S & P 500 Index 100.00 98.02 134.71 165.64 220.92 - ---------------------------------------------------------------------------------------------------- JP Realty, Inc. 100.00 123.11 144.80 184.74 198.40 - ----------------------------------------------------------------------------------------------------
The foregoing Share Performance Graph and the Report on Executive Compensation shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), except to the extent that the Company specifically incorporates such graph or report by reference and shall not otherwise be deemed filed under such acts. There can be no assurance that the Company's share performance will continue into the future with the same or similar trends depicted in the graph above. The Company will not make or endorse any predictions as to future share performance. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of March 31, 1998 regarding the beneficial ownership of the Company's Common Stock and Price Group Stock with respect to (i) each person known to the Company to be the beneficial owner of 5% or more of the Company's outstanding shares of Common Stock and Price Group Stock; (ii) the Named Executive Officers; (iii) the Company's directors; and (iii) all directors and executive officers of the Company as a group. BENEFICIAL OWNERSHIP TABLE(1)
SHARES NAME AND BUSINESS ADDRESS BENEFICIALLY PERCENT OF OF BENEFICIAL OWNER OWNED SHARES - --------------------------------------------- ------------ ---------- John Price(2)................................ 3,167,868 15.43% Warren P. King(3)............................ 153,297 * G. Rex Frazier(4)............................ 78,365 * Paul K. Mendenhall(5)........................ 34,865 * Sam W. Souvall(6)............................ 33,061 * Allen P. Martindale(7)....................... 23,000 * David R. Sabey(8)............................ 19,061 * Thomas L. Mulkey(9).......................... 11,291 * James A. Anderson(10)........................ 9,000 * Albert Sussman(11)........................... 9,000 *
SHARES NAME AND BUSINESS ADDRESS BENEFICIALLY PERCENT OF OF BENEFICIAL OWNER OWNED SHARES - --------------------------------------------- ------------ ---------- All Directors and Executive Officers of the Company as a Group (13 Persons)....... 3,606,567 17.23 Fairfax Realty, Inc.(12) 35 Century Park-Way Salt Lake City, Utah 84115................... 2,967,313 14.60 Fairfax Holding, L.L.C.(13) 35 Century Park-Way Salt Lake City, Utah 84115................... 2,967,313 14.60 Cohen & Steers Capital Management, Inc.(14) 757 Third Avenue New York, New York 10017..................... 2,198,600 12.50 Grantham, Mayo, Van Otterloo & Co., LLC(15) 40 Rowes Wharf Boston, Massachusetts 02110.................. 1,502,500 8.54 The Equitable Companies Incorporated(16) 787 Seventh Avenue New York, New York 10019..................... 1,321,100 7.50
- -------- * An asterisk indicates ownership of less than 1%. (1) For purposes of this table, a person is deemed to be the beneficial owner of shares of Common Stock if that person has the right to acquire such shares within 60 days of the Record Date by the exercise of any stock option or any other right to convert or exchange outstanding securities. The Company is the sole general partner of, and owns an 83% interest in, the Operating Partnership. OP Units are exchangeable, at the option of the holders thereof, for shares of Common Stock on a one-for-one basis (subject to adjustment in the event of stock splits, dividends, combinations or reclassifications). OP Units and stock options held by a person are deemed to have been exchanged or exercised for the purpose of computing the percentage of outstanding shares of Common Stock beneficially owned by such person, but shall not be deemed to have been exchanged or exercised for the purpose of computing the percentage of outstanding shares of Common Stock beneficially owned by any other person. The Company has the right to convert any outstanding shares of Price Group Stock on a one-for-one basis into shares of Common Stock in the event that the combined direct or indirect economic interest held by the Price Group in the Operating Partnership falls below 10%. Even though such economic interest held by the Price Group is not below the 10% level, for purposes of this table, shares of Price Group Stock are deemed to be converted into an equivalent number of shares of Common Stock. Additionally, for the purposes of this table, a person or entity shall be deemed to be a beneficial owner of shares of Common Stock if such person or entity has or shares either investment or voting power with respect to such shares. (2) Includes (i) 37,101 OP Units held by Mr. Price, (ii) 2,713,313 OP Units and 200,000 shares of Price Group Stock held by Fairfax Holding, L.L.C., a limited liability company in which Mr. Price holds an approximate 85% direct and indirect interest ("Holding"), (iii) 4,454 OP Units held by JPET, and (iv) options to purchase 159,000 shares of Common Stock. Mr. Price, through his control of Holding and JPET, exercises sole investment and voting power over the OP Units and shares of Price Group Stock held by such entities and disclaims beneficial ownership of the OP Units held by Holding and JPET, except to the extent of his approximate 85% interest in Holding and his approximate 6% interest in JPET. (3) Includes (i) 80,952 OP Units held by Mr. King, (ii) 16,008 OP Units held by Mr. King's wife, Florence K. King, (iii) 29,337 OP Units held by W.P. King & Co., a partnership in which Mr. King holds an approximate 8.5% interest, and (iv) options to purchase 27,000 shares of Common Stock. (4) Includes (i) 31,831 OP Units and (ii) options to purchase 43,515 shares of Common Stock. (5) Includes (i) 7,187 OP Units and (ii) options to purchase 27,143 shares of Common Stock. (6) Includes (i) 23,371 OP Units and (ii) options to purchase 9,000 shares of Common Stock. Of the shares of Common Stock reported in the table, 2,300 shares are owned of record by S.W. Souvall Co., a partnership in which Mr. Souvall and his wife each hold 2% general partner interests, and 2,300 shares are owned of record by Sary Enterprises, a partnership of which Mr. Souvall and his wife are 11% and 3% owners, respectively. Mr. Souvall disclaims beneficial ownership of the shares of Common Stock held by S.W. Souvall Co. and Sary Enterprises, except to the extent of Mr. and Mrs. Souvall's ownership interests therein. (7) Includes options to purchase 1,000 shares of Common Stock. (8) Includes (i) 1,595 OP Units and (ii) options to purchase 17,100 shares of Common Stock. (9) Includes (i) 3,291 OP Units and (ii) options to purchase 8,000 shares of Common Stock. (10) Includes options to purchase 9,000 shares of Common Stock. (11) Includes options to purchase 3,000 shares of Common Stock. (12) Includes 200,000 shares of Price Group Stock and 2,713,313 OP Units held by Holding. Fairfax exercises shared investment and voting power with respect to the OP Units held by Holding and disclaims beneficial ownership of such OP Units, except to the extent of its approximate 44% interest in Holding. All shares beneficially owned by Fairfax and Holding are additionally identified as being beneficially owned by Mr. Price. (13) Includes 200,000 shares of Price Group Stock and 2,713,313 OP Units, of which 1,157,298 OP Units and 1,100,945 OP Units are additionally identified as being beneficially owned by Mr. Price and Fairfax, respectively. (14) On its Schedule 13G filed with the Commission February 12, 1998, Cohen & Steers Capital Management, Inc. reported sole voting power with respect to 1,861,200 shares of Common Stock beneficially owned by them and sole dispositive power with respect to 2,198,600 shares of Common Stock beneficially owned by them. (15) On its Schedule 13G filed with the Commission on January 21, 1998, Grantham, Mayo, Van Otterloo & Co., LLC reported sole voting power and sole dispositive power with respect to 1,502,500 shares of Common Stock beneficially owned by them. (16) On its Schedule 13G/A filed with the Commission February 17, 1998, The Equitable Companies Incorporated, Alpha Assurances Vie Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle and AXA-UA reported sole voting power with respect to 102,686 shares of Common Stock beneficially owned by them, shared voting power with respect to 1,203,021 shares of Common Stock beneficially owned by them, sole dispositive power with respect to 1,317,459 shares of Common Stock beneficially owned by them and shared dispositive power with respect to 3,721 shares of Common Stock beneficially owned by them. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS MANAGEMENT CONTRACTS The Company provided third-party management services for certain properties owned directly or indirectly by John Price, Chairman of the Board of Directors and Chief Executive Officer of the Company, as follows: (i) an office building in Salt Lake City, Utah, the owner of which paid the Company a management fee of $105,000, $114,000 and $100,000 in 1997, 1996 and 1995, respectively (Fairfax, a company which is wholly owned by John Price, is a general partner of the owner of this building); (ii) a commercial building in Layton, Utah, the owner of which paid the Company a management fee of $22,000, $21,000 and $21,000 in 1997, 1996 and 1995, respectively; and (iii) a commercial building in Salt Lake City, Utah, the owner of which paid the Company a management fee of $1,900, $3,000 and $1,000 in 1997, 1996 and 1995, respectively (John Price is the general partner of the owner of this building). COMPUTER SERVICES The Operating Partnership leases computer services from Alta Computer Services, Inc. ("Alta Computer"). Alta Computer is majority owned by John Price, Chairman of the Board of Directors and Chief Executive Officer of the Company, Warren P. King, a Director of the Company, and Sam W. Souvall, a Director of the Company. The Operating Partnership paid $200,000, $194,000 and $196,000 in 1997, 1996 and 1995, respectively, for such services. ACCOUNTING AND MANAGEMENT SERVICES The Operating Partnership has entered into a management agreement under which it performs certain accounting and management functions on behalf of Fairfax. Management fees collected by the Operating Partnership under this agreement totaled $72,000 for each of the three years ended December 31, 1997. BOISE TOWNE SQUARE SETTLEMENT On March 17, 1997, a settlement agreement was entered into by the Company, Boise Mall Development Company, Ltd., a Utah partnership which is beneficially owned by, among others, John Price (Chairman of the Board of Directors and Chief Executive Officer of the Company), G. Rex Frazier (President and Chief Operating Officer and a Director of the Company), Paul K. Mendenhall (Vice President--Chief Investment Officer and Secretary of the Company), Martin G. Peterson (Vice President--Administration of the Company), Greg Curtis (Vice President--Management of the Company), Warren P. King (a Director of the Company), Fairfax and JPET II Company, Ltd. (a limited partnership in which John Price is the sole general partner ("JPET")) and which contributed Boise Towne Square to the Company ("BMDC"), and the successor to the company that owned a certain parcel adjacent to Boise Towne Square (the "Prior Owner"), which parcel is believed to be the source of an environmental contaminant that has been found to affect Boise Towne Square as well as certain other adjacent parcels. The settlement agreement, which was approved by the unanimous vote of the independent directors of the Board of Directors of the Company, memorializes the final settlement of all claims that the Company and BMDC have against the Prior Owner relating to the environmental condition existing at Boise Towne Square. In connection with the settlement agreement, BMDC, which retained all claims of an environmental nature with respect to Boise Towne Square that it held on the date of the contribution of such property to the Company received a cash payment totaling $4.5 million for its prior damages. In addition, the Company received a cash payment of $1.1 million which is intended to defray, based on independent studies of the condition, the additional costs that may be incurred by the Company in any future expansion of Boise Towne Square as result of such environmental condition and to reimburse the Company for certain sums escrowed at the time of, and in connection with, its formation and the closing of the IPO. In addition, the Company has received from the Prior Owner a broad indemnification relating to such environmental condition as well as covenant to complete the ongoing remediation of such environmental condition. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Statements Schedules See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 of this Form 10-K/A (b) Reports on Form 8-K None (c) Exhibits 27 ITEM 14A. SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE EXCHANGE ACT No annual report to security holders or any proxy statement, form of proxy or other proxy solicitating material will be sent by the Registrant to security holders. 28 EXHIBIT INDEX Description ----------- Exhibit Page Number Number - ------ ------ 4.1 Form of Debt Security (4.6)* 4.2 Indenture, dated March 11, 1998, by and between the Operating Partnership and The Chase Manhattan Bank as trustee (4.8)* 4.3 First Supplemental Indenture, dated March 11, 1998, by and between the Operating Partnership and The Chase Manhattan Bank as trustee (4.9)* 10.1 Amended and Restated Agreement of Limited Partnership of Price Development Company, Limited Partnership (10(a))** 10.2 Agreement of Limited Partnership of Price Financing Partnership, L.P. (10(b))** 10.3 Loan Agreements related to Mortgage Debt and related documents (10(c))** i) Deed of Trust, Mortgage, Security Agreement and Assignment of Leases and Rents of Price Financing Partnership, L.P. ii) Intentionally Omitted iii) Indenture between Price Capital Corp. and a Trustee iv) Limited Guarantee Agreement (Guarantee of Collection) for outside investors v) Limited Guarantee Agreement (Guarantee of Collection) for Price Group Investors vi) Cash Collateral Account Security, Pledge and Assignment Agreement among Price Financing Partnership, L.P., Price Capital Corp. and Continental Bank N.A. vii) Note Issuance Agency Agreement between Price Capital Corp. and Price Financing Partnership, L.P. viii)Management and Leasing Agreement among Price Financing Partnership, L.P.and Price Development Company, Limited Partnership ix) Assignment of Management and Leasing Agreement of Price Financing Partnership, L.P. 10.6 Registration Rights Agreement among the Company and the Limited Partners of Price Development Company, Limited Partnership (10(g))** 10.7 Amendment No. 1 to Registration Rights Agreement, dated August 1, 1995, among the Company and the Limited Partners of Price Development Company, Limited Partnership** 10.8 Exchange Agreement among the Company and the Limited Partners of Price Development Company, Limited Partnership (10(h))** 10.10 Amendment to Groundlease between Price Development Company and Alvin Malstrom as Trustee and C.F. Malstrom, dated December 31, 1985. (Groundlease for Plaza 9400) (10(j))** 10.11 Lease Agreement between The Corporation of the President of the Church of Jesus Christ of Latter Day Saints and Price-James and Assumptions, dated September 24, 1979. (Groundlease for Anaheim Plaza) (10(k))** 10.12 Indenture of Lease between Ambrose and Zelda Motta and Cordova Village, dated July 26, 1974, and Amendments and Transfers thereto. (Groundlease for Fort Union Plaza) (10(l))** 10.13 Lease Agreement between Advance Management Corporation and Price Rentals, Inc. and dated August 1, 1975 and Amendments thereto. (Groundlease for Price Fremont) (10(m))** 10.14 Groundlease between Aldo Rossi and Price Development Company, dated June 1, 1989, and related documents. (Groundlease for Halsey Crossing) (10(n))** 23. Consent of Independent Accountants 33 *Documents were previously filed with the Operating Partnership's Current Report on Form 8-K dated March 12, 1998, under the exhibit numbered in the parenthetical, and are incorporated herein by reference. **Documents were previously filed with the Company's Registration Statement on Form S-11, File No. 33-68844, under the exhibit numbered in the parenthetical, and are incorporated herein by reference. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP BY: JP Realty, Inc. as a General Partner Date: May 8, 1998 By: /s/ M. Scott Collins -------------------------- M. Scott Collins Vice President - Chief Financial Officer 30 EXHIBIT INDEX Description ----------- Exhibit Page Number Number - ------ ------ 4.1 Form of Debt Security (4.6)* 4.2 Indenture, dated March 11, 1998, by and between the Operating Partnership and The Chase Manhattan Bank as trustee (4.8)* 4.3 First Supplemental Indenture, dated March 11, 1998, by and between the Operating Partnership and The Chase Manhattan Bank as trustee (4.9)* 10.1 Amended and Restated Agreement of Limited Partnership of Price Development Company, Limited Partnership (10(a))** 10.2 Agreement of Limited Partnership of Price Financing Partnership, L.P. (10(b))** 10.3 Loan Agreements related to Mortgage Debt and related documents (10(c))** i) Deed of Trust, Mortgage, Security Agreement and Assignment of Leases and Rents of Price Financing Partnership, L.P. ii) Intentionally Omitted iii) Indenture between Price Capital Corp. and a Trustee iv) Limited Guarantee Agreement (Guarantee of Collection) for outside investors v) Limited Guarantee Agreement (Guarantee of Collection) for Price Group Investors vi) Cash Collateral Account Security, Pledge and Assignment Agreement among Price Financing Partnership, L.P., Price Capital Corp. and Continental Bank N.A. vii) Note Issuance Agency Agreement between Price Capital Corp. and Price Financing Partnership, L.P. viii)Management and Leasing Agreement among Price Financing Partnership, L.P.and Price Development Company, Limited Partnership ix) Assignment of Management and Leasing Agreement of Price Financing Partnership, L.P. 10.6 Registration Rights Agreement among the Company and the Limited Partners of Price Development Company, Limited Partnership (10(g))** 10.7 Amendment No. 1 to Registration Rights Agreement, dated August 1, 1995, among the Company and the Limited Partners of Price Development Company, Limited Partnership** 10.8 Exchange Agreement among the Company and the Limited Partners of Price Development Company, Limited Partnership (10(h))** 10.10 Amendment to Groundlease between Price Development Company and Alvin Malstrom as Trustee and C.F. Malstrom, dated December 31, 1985. (Groundlease for Plaza 9400) (10(j))** 10.11 Lease Agreement between The Corporation of the President of the Church of Jesus Christ of Latter Day Saints and Price-James and Assumptions, dated September 24, 1979. (Groundlease for Anaheim Plaza) (10(k))** 10.12 Indenture of Lease between Ambrose and Zelda Motta and Cordova Village, dated July 26, 1974, and Amendments and Transfers thereto. (Groundlease for Fort Union Plaza) (10(l))** 10.13 Lease Agreement between Advance Management Corporation and Price Rentals, Inc. and dated August 1, 1975 and Amendments thereto. (Groundlease for Price Fremont) (10(m))** 10.14 Groundlease between Aldo Rossi and Price Development Company, dated June 1, 1989, and related documents. (Groundlease for Halsey Crossing) (10(n))** 23. Consent of Independent Accountants 33 *Documents were previously filed with the Operating Partnership's Current Report on Form 8-K dated March 12, 1998, under the exhibit numbered in the parenthetical, and are incorporated herein by reference. **Documents were previously filed with the Company's Registration Statement on Form S-11, File No. 33-68844, under the exhibit numbered in the parenthetical, and are incorporated herein by reference. 31 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (No. 333-34835 and No. 333-34835-01) of Price Development Company, Limited Partnership of our report dated February 4, 1998 appearing on page F-2 of this Form 10-K. /s/ Price Waterhouse LLP - -------------------- Price Waterhouse LLP Salt Lake City, Utah March 24, 1998 32 INDEX TO FINANCIAL STATEMENTS PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP PAGE ---- Report of Independent Accountants F-2 Consolidated Balance Sheet as of December 31, 1997 and 1996 F-3 Consolidated Statement of Operations for the years ended December 31, 1997, 1996 and 1995 F-4 Consolidated Statement of Partners' Capital F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-6 Notes to Consolidated Financial Statements F-7 Schedule II - Valuation and Qualifying Accounts F-18 Schedule III - Real Estate and Accumulated Depreciation F-19 33 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Price Development Company, Limited Partnership In our opinion, the consolidated financial statements listed in the accompanying index, present fairly, in all material aspects, the financial position of Price Development Company, Limited Partnership and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP - ------------------------ Price Waterhouse LLP Salt Lake City, Utah February 4, 1998 F-2 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ ASSETS Real Estate Assets Land $ 95,523 $ 69,714 Buildings 490,183 353,500 ---------- --------- 585,706 423,214 Less: Accumulated Depreciation (98,404) (87,318) ---------- --------- Operating Real Estate Assets 487,302 335,896 Real Estate Under Development 33,665 30,027 ---------- --------- Net Real Estate Assets 520,967 365,923 Cash 5,603 1,750 Restricted Cash 2,465 2,372 Accounts Receivable, Net 5,759 3,498 Deferred Charges, Net 7,536 6,512 Other Assets 3,354 1,305 ---------- --------- $ 545,684 $ 381,360 ========== ========= LIABILITIES AND PARTNERS' CAPITAL Borrowings $ 283,390 $ 162,375 Accounts Payable and Accrued Expenses 18,840 11,611 Accumulated Losses in Excess of Equity Investment -- 1,555 Other Liabilities 617 485 ---------- --------- 302,847 176,026 ---------- --------- Minority Interests 1,830 668 ---------- --------- Commitments and Contingencies PARTNERS' CAPITAL General Partner 207,581 172,286 Limited Partners 33,426 32,380 ---------- --------- 241,007 204,666 ---------- --------- $ 545,684 $ 381,360 ========== ========= See accompanying notes to consolidated financial statements. F-3 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS - EXCEPT PER PARTNERSHIP UNIT AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------- 1997 1996 1995 --------- --------- ---------- REVENUES Minimum Rents $ 59,624 $ 52,447 $ 43,640 Percentage and Overage Rents 3,896 4,061 3,465 Recoveries from Tenants 18,199 15,557 12,252 Interest 546 549 1,231 Other 708 335 362 --------- --------- ---------- 82,973 72,949 60,950 --------- --------- ---------- EXPENSES Operating and Maintenance 12,990 11,240 8,288 Real Estate Taxes and Insurance 8,546 7,679 6,892 Advertising and Promotions 451 426 364 General and Administrative 5,447 5,060 4,845 Depreciation 11,802 10,230 9,610 Amortization of Deferred Financing Costs 969 1,085 1,256 Amortization of Deferred Leasing Costs 639 664 662 Interest 9,066 7,776 6,623 --------- --------- ---------- 49,910 44,160 38,540 --------- --------- ---------- 33,063 28,789 22,410 Minority Interest in Income of Consolidated Partnerships (394) (389) (421) Equity in Net Loss of Partnership Interest -- -- (184) Gain on Sales of Real Estate 339 94 918 --------- --------- ---------- Income Before Extraordinary Item 33,008 28,494 22,723 Extraordinary Item - Loss on Extinguishment of Debt (162) -- -- --------- --------- ---------- Net Income $ 32,846 $ 28,494 $ 22,723 ========= ========= ========== Basic Earnings Per Partnership Unit: Income Before Extraordinary Item $ 1.57 $ 1.45 $ 1.26 Extraordinary Item (.01) -- -- --------- --------- ---------- Net Income $ 1.56 $ 1.45 $ 1.26 ========= ========= ========== Diluted Earnings Per Partnership Unit: Income Before Extraordinary Item $ 1.55 $ 1.44 $ 1.26 Extraordinary Item (.01) -- -- --------- --------- ---------- Net Income $ 1.54 $ 1.44 $ 1.26 ========= ========= ==========
See accompanying notes to consolidated financial statements. F-4 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DOLLARS IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNERS TOTAL --------- --------- ---------- Partners' Capital at December 31, 1994 $ 127,550 $ 35,523 $ 163,073 Units Issued for Proceeds from Sale of Common Stock 52,888 -- 52,888 Units Issued Upon Exercise of Stock Options 976 -- 976 Distributions (23,881) (6,037) (29,918) Net Income 18,071 4,652 22,723 --------- --------- ---------- Partners' Capital at December 31, 1995 175,604 34,138 209,742 Units Issued Upon Exercise of Stock Options 407 -- 407 Conversion of Limited Partners' Interests 164 (164) -- Distributions (27,139) (6,838) (33,977) Net Income 23,250 5,244 28,494 --------- --------- ---------- Partners' Capital at December 31, 1996 172,286 32,380 204,666 Units Issued for Proceeds from Sale of Common Stock 38,632 -- 38,632 Units Issued Upon Exercise of Stock Options 220 -- 220 Conversion of Limited Partners' Interests 40 (40) -- Units Issued for Acquisition -- 1,863 1,863 Distributions (30,797) (6,423) (37,220) Net Income 27,200 5,646 32,846 --------- --------- ---------- Partners' Capital at December 31, 1997 $ 207,581 $ 33,426 $ 241,007 ========= ========= ==========
See accompanying notes to consolidated financial statements. F-5 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP Consolidated Statement of Cash Flows (Dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- 1997 1996 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 32,846 $ 28,494 $ 22,723 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 11,802 10,230 9,610 Amortization 1,608 1,749 1,918 Minority Interest in Income of Consolidated Partnerships 394 389 421 Equity in Net Loss of Partnership Interest -- -- 184 Gain on Sales of Real Estate (339) (94) (918) Increase in Accounts Receivable (2,261) (786) (540) Increase in Deferred Charges (1,128) (387) (1,428) Increase in Accounts Payable and Accrued Expenses 3,368 3,774 887 Increase in Other Assets (1,917) (295) (138) --------- --------- --------- Net Cash Provided by Operating Activities 44,373 43,074 32,719 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Real Estate Assets, Developed or Acquired (137,560) (65,323) (69,300) Proceeds from Sales of Real Estate 469 -- 1,281 (Increase) Decrease in Restricted Cash (93) 92 636 --------- --------- --------- Net Cash Used in Investing Activities (137,184) (65,231) (67,383) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Borrowings 219,088 65,442 47,009 Repayment of Borrowings (123,320) (9,473) (49,344) Deferred Financing Costs (1,503) -- -- Net Proceeds from Sale of Partnership Units 38,865 407 53,850 Capital Contributions by Minority Interests 1,000 -- -- Distributions to Partners (37,220) (33,977) (29,918) Distributions to Minority Interests (246) (319) (258) --------- --------- --------- Net Cash Provided by Financing Activities 96,664 22,080 21,339 --------- --------- --------- Net Increase (Decrease) in Cash 3,853 (77) (13,325) Cash, Beginning of Period 1,750 1,827 15,152 --------- --------- --------- Cash, End of Period $ 5,603 $ 1,750 $ 1,827 ========= ========= =========
See accompanying notes to consolidated financial statements. F-6 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 1. BUSINESS AND BASIS OF PRESENTATION BUSINESS Price Development Company, Limited Partnership (the "Operating Partnership") a Maryland Limited Partnership, is engaged in the business of owning, leasing, managing, operating, developing and redeveloping regional malls, community centers and other commercial properties. The Operating Partnership's general partner, JP Realty, Inc. ("the Company"), is a real estate investment trust ("REIT") as defined by the Internal Revenue Code and owns an interest in and conducts its business activities through the Operating Partnership. The Company owned an 82.7 and 81.7 percent general partnership interest in the Operating Partnership at December 31, 1997 and 1996, respectively, which owns a portfolio of 48 properties consisting of 15 enclosed regional malls, 25 community centers, two free-standing retail properties and six mixed-use commercial properties. The tenant base includes primarily national, regional and local retailers; as such, the Company's credit risk is concentrated in the retail industry. BASIS OF PRESENTATION The accompany consolidated financial statements include the accounts of the Operating Partnership and all controlled affiliates. During 1995, the Operating Partnership used the equity method to account for a 30 percent limited partnership interest in a partnership owning a regional mall. Commencing in 1996, the Operating Partnership discontinued recording its proportionate interest in the losses generated by this partnership, as it was not required to fund such losses. During 1997, the Operating Partnership acquired the remaining 70 percent interest in this partnership. The effect of all significant intercompany balances and transactions have been eliminated in the consolidated presentation. Certain amounts in the 1996 and 1995 financial statements have been reclassified to conform with the 1997 presentation. The preparation of these financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. SUMMARY OF SIGNIFICANT ACCOUNTING REAL ESTATE ASSETS Real estate assets are stated at cost less accumulated depreciation. At each balance sheet date, the Operating Partnership reviews book values of real estate assets for possible impairment based upon expectations of future nondiscounted cash flows (excluding interest) from each property. Costs directly related to the acquisition and development of real estate assets, including overhead costs directly attributable to property development are capitalized. Interest and real estate taxes incurred during the development and construction period are capitalized. Depreciation is computed on a straight-line basis generally over 40 years for buildings and four to ten years for equipment and fixtures. Tenant improvements are capitalized and depreciated on a straight-line basis over the life of the related lease. Expenditures for maintenance and repairs are charged to operations as incurred. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. F-7 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING (CONTINUED) REVENUE RECOGNITION Certain minimum rents are recognized monthly based upon amounts which are currently due from tenants, when such amounts are not materially different than recognizing the fixed cash flow over the initial term of the lease using the straight-line method. All other minimum rents are recognized using the straight-line method. Percentage rents are recognized monthly on an accrual basis based on estimated annual amounts. The Operating Partnership receives reimbursements from tenants for certain costs as provided in the lease agreements. These costs consist of real estate taxes, insurance, common area maintenance and other recoverable costs. Recoveries from tenants are recognized monthly on an accrual basis based on estimated amounts. An allowance for doubtful accounts has been provided against the portion of tenant accounts receivable which is estimated to be uncollectible. Tenant accounts receivable in the accompanying balance sheet are shown net of allowance for doubtful accounts of $570 and $489 as of December 31, 1997 and 1996, respectively. RESTRICTED CASH Restricted cash reflects cash restricted under terms of a loan agreement to be used for certain capital expenditures and funds held in reserve by a trustee for interest payments on borrowings. DEFERRED CHARGES Deferred charges consists principally of financing fees and leasing commissions paid to third parties. These costs are amortized on a straight- line basis over the terms of the respective agreements. Deferred charges in the accompanying consolidated balance sheet are shown net of accumulated amortization of $5,857 and $6,064 as of December 31, 1997 and 1996, respectively. INCOME TAXES Income taxes have not been provided in the accompanying financial statements as the tax effects of the Operating Partnership's operations accrue directly to the partners. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Standards ("SFAS") No. 130 "Reporting Comprehensive Income". SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other event and circumstances from nonowner sources. The new standard becomes effective for the Operating Partnership for the year ending December 31, 1998, and requires comparative information from earlier years to be restated to conform to the requirements of this standard. The Operating Partnership does not expect this pronouncement to materially impact the presentation or form of its financial statements. F-8 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING (CONTINUED) In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise". The new standard becomes effective for the Operating Partnership for the year ending December 31, 1998, and requires that comparative information from earlier years be restated to conform to the requirements of this standard. 3. ACQUISITIONS AND DEVELOPMENTS ACQUISITIONS On December 30, 1997, the Operating Partnership acquired Salem Center, a mall located in Salem, Oregon for $32,500. The acquisition was financed utilizing borrowings on its $200,000 unsecured credit facility. On June 30, 1997, the Operating Partnership acquired Visalia Mall located in Visalia, California for $38,000. The acquisition was financed principally from borrowings. On June 1, 1997, the Operating Partnership acquired the remaining 70% interest in Silver Lake Mall, Ltd. a Limited Partnership owning Silver Lake Mall located in Coeur d'Alene, Idaho. Prior to the acquisition, the Operating Partnership held a 30% interest in the partnership. The acquisition was financed by issuing 72,000 Operating Partnership Units ("OP Units") and assuming debt totaling $24,755. On April 4, 1996, the Operating Partnership acquired Grand Teton Mall located in Idaho Falls, Idaho for approximately $34,400. The acquisition was financed utilizing borrowings from a credit facility. DEVELOPMENTS The Operating Partnership through its consolidated partnership Spokane Mall Development Company Limited Partnership, completed the development of Spokane Valley Mall located in Spokane, Washington and held a grand opening on August 13, 1997. The mall contains approximately 689,000 square feet of total gross leasable area ("Total GLA"). The partnership expended a total of $57,855 for the development. At December 31, 1997, the Operating Partnership had leased approximately 89% of the mall. The Operating Partnership has initiated the development of Provo Towne Centre, an enclosed regional mall in Provo, Utah through its consolidated partnership Provo Mall Development Company, LTD. The mall will add approximately 750,000 square feet of Total GLA. At December 31, 1997, the partnership had expended $30,490 for development costs and anticipates expending an additional $23,039 to complete the development during 1998. F-9 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 4. BORROWINGS
DECEMBER 31, --------------------------- 1997 1996 --------- --------- Credit Facility, unsecured; weighted average interest at 6.75 percent during 1997 $ 127,000 $ -- Notes, secured by real estate; interest at 6.37 percent; due in 2001 95,000 95,000 Construction Loan, secured by real estate; interest at 7.41 percent as of December 31, 1997, due in 1999 43,009 16,943 Mortgage payable, secured by real estate; interest at 8.5 percent, due in 2000 12,827 -- Other notes payable, secured by real estate; interest ranging from 7.0 to 9.99; maturing 2000 to 2095 5,554 2,232 Credit Facility, secured by real estate; interest at 115 basis points over AAA commercial paper -- 44,000 Credit Facility, unsecured; interest at 175 basis points over LIBOR -- 4,200 --------- --------- $ 283,390 $ 162,375 ========= =========
CREDIT FACILITIES On October 16, 1997, the Operating Partnership obtained a $150,000 three year unsecured credit facility (the "1997 Credit Facility") from a group of banks. On December 18, 1997, the amount was increase to $200,000. The facility has a three year term and bears interest, at the option of the Operating Partnership, at one, or a combination, of (i) the higher of the federal funds rate plus 50 basis points or the prime rate, or (ii) LIBOR plus a spread of 70 to 130 basis points. The LIBOR spread is determined by the Operating Partnership's credit rating and/or leverage ratio. The 1997 Credit Facility also includes a competitive bid option in the amount of $100,000 which will allow the Operating Partnership to solicit bids for borrowings from the bank group. The facility will be used for general purposes including development, working capital, equity investments, repayment of amounts outstanding under its other credit facilities, repayment of indebtedness and/or amortization payments. The facility contains restrictive covenants including limitations on the amount of secured and unsecured debt, and requires the Operating Partnership to maintain certain financial ratios. At December 31, 1997, the Operating Partnership was in compliance with these covenants. For the year ended December 31, 1997, the Operating Partnership paid commitment fees totaling $50. On November 7, 1997, the Operating Partnership borrowed $85,000 from the 1997 Credit Facility and utilized the proceeds to retire and cancel previously existing credit facilities and to pay for development activities. Deferred financing costs related to the canceled credit facilities were written-off resulting in an extraordinary loss of $162. On December 29, 1997, the Operating Partnership borrowed an additional $42,000 to pay for acquisition of Salem Center (Note 3) and for development activities. At December 31, 1997 the 1997 Credit Facility had a balance of $127,000. On March 8, 1995, the Operating Partnership entered into a $50,000 secured credit facility agreement which provided for a two year commitment with an option to extend for an additional year (which option was exercised on January 22, 1997). Borrowings under this agreement were collateralized by certain real estate assets. The credit facility bore interest at a floating rate equal to 115 basis points over the established rate of AAA commercial paper and was guaranteed by the Company. For the year ended December 31, 1997 and 1996, the Operating Partnership paid commitment fees totaling $280 and $200, respectively. On November 7, 1997, borrowings under this credit facility were retired and the facility was canceled. F-10 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 4. BORROWINGS (CONTINUED) On January 22, 1996, the Operating Partnership entered into a $25,000 unsecured credit facility agreement which provided for a two year commitment with an option to extend for an additional year (which option was exercised on January 24, 1997). On October 6, 1997, the limit was raised to $40,000. For the year ended December 31, 1997 and 1996, the Operating Partnership paid commitment fees totaling $86 and $67, respectively. On November 7, 1997, borrowings under this credit facility were retired and the facility was canceled. NOTES On January 21, 1994, a subsidiary of the Operating Partnership issued $95,000 in secured notes bearing interest at 6.37% per annum. The notes require quarterly interest payments and a principal payment of $11,875 on January 21, 2000 with the remaining balance due on January 21, 2001. The subsidiary has an option to extend the notes to January 21, 2003. CONSTRUCTION LOAN On July 30, 1996, Spokane Mall Development Company Limited Partnership, a consolidated partnership, of which the Operating Partnership is the general partner, entered into a $50,000 construction facility. The loan bears interest at a variable interest rate indexed to the LIBOR rate. The proceeds from this facility have been used to fund the development and construction of the Spokane Valley Mall in Spokane, Washington. The construction loan has a three year term with an optional two year extension, is secured by the Spokane Valley Mall and is guaranteed by the Operating Partnership. At December 31, 1997, the loan had a balance of $43,009. MORTGAGE PAYABLE In June 1997, the Operating Partnership assumed a mortgage note of $24,755 as part of the acquisition of Silver Lake Mall (Note 3) and retired portions of the debt principally using borrowings under a credit facility. The assumed debt bears interest at 8.5% per annum and has a maturity date of October 1, 2000 when a balloon payment of $11,971 is due. At December 31, 1997 the loan had a balance of $12,827. INTEREST RATE PROTECTION AGREEMENT In December 1997, the Operating Partnership entered into an interest rate protection agreement with a notional value of $100,000 and a forward yield of 5.74% based on the 10-year treasury note. This interest rate protection agreement will be used to hedge the interest rate on an anticipated offering of unsecured debt. At December 31, 1997, the fair value of this instrument, as estimated by dealers was $0. SCHEDULED PRINCIPAL REPAYMENTS The following summarizes the scheduled maturities of borrowings at December 31, 1997: YEAR TOTAL ---- -------- 1998 $ 560 1999 43,589 2000 151,145 2001 84,741 2002 41 Thereafter 3,314 -------- $283,390 ======== F-11 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 5. CAPITAL TRANSACTIONS The limited partners of the Operating Partnership have an option to convert their OP Units into shares of the Company's common stock. The Operating Partnership will issue an equivalent number of OP Units to the Company as general partnership interests. In 1997, 4,000 OP Units were converted into shares. On January 28, 1997, the Company sold 1,500,000 shares of common stock in an underwritten public offering at $27.13 per share. Net proceeds of $38,632 were contributed to the Operating Partnership in exchange for additional OP Units and were principally used to repay indebtedness incurred by the Operating Partnership to fund acquisition activities. On August 7, 1995, the Company sold 2,750,000 shares of common stock in an underwritten public offering at $20.50 per share. Net proceeds of $52,887 were contributed to the Operating Partnership in exchange for additional OP Units and were principally used to repay indebtedness incurred by the Operating Partnership to fund acquisition activities. On June 1, 1997, the Operating Partnership issued 72,000 OP Units in the acquisition of Silver Lake Mall (Note 3). The value of the OP Units at June 1, 1997 was $1,863 (Note 8). 6. RENTAL INCOME Substantially all real estate held for investment is leased to retail and commercial tenants under arrangements which generally require the tenants to pay property taxes, insurance and maintenance charges. These operating leases generally range from 1 to 25 years and provide for minimum monthly rents and in certain instances percentage rents based on the tenants' sales. All non-cancelable leases, assuming no new or renegotiated leases or option extensions, in effect at December 31, 1997 provide for the following minimum future rental income: YEAR TOTAL ---- -------- 1998 $ 54,604 1999 59,103 2000 53,420 2001 48,026 2002 41,316 Thereafter 243,117 -------- $ 499,586 ======== F-12 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 7. COMMITMENTS AND CONTINGENCIES Future minimum rental payments under the terms of all non-cancelable operating leases under which the Operating Partnership is the lessee, principally for ground leases, are as follows: YEAR TOTAL ---- -------- 1998 $ 971 1999 983 2000 986 2001 998 2002 1,011 Thereafter 27,323 -------- $ 32,272 ======== The Operating Partnership is a defendant in certain litigation relating to its business activities. Management does not believe that the resolution of these matters will have a materially adverse effect upon the Operating Partnership. 8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION During the years ended December 31, 1997 and 1996, non-cash investing and financing transactions included an increase in accounts payable of $3,861 related to development activities, the assumption of debt related to the acquisition of Salem Center totaling $494 in December 1997, the assumption of debt related to the acquisition of Silver Lake Mall totaling $24,755 in June 1997, and the write-off of capitalized tenant allowances of $406 and $159, respectively. In addition, holders of OP Units elected to convert 4,000 and 16,000 OP Units, having a recorded value of $40 and $164, into common stock for the years ended December 31, 1997 and 1996, respectively. Interest paid (net of capitalized amounts of $3,509, $1,261 and $788, for the years ended December 31, 1997, 1996 and 1995) aggregated $8,276, $7,707, and $6,597, for the years ended December 31, 1997, 1996 and 1995, respectively. Purchase of the remaining 70% interest in Silver Lake Mall, Ltd.: 72,000 Operating Partnership Units issued $ 1,863 Book value of 30% equity investment in Silver Lake Mall, Ltd. (1,555) Debt assumed 24,755 --------- $ 25,063 ========= 9. RELATED PARTY TRANSACTIONS On January 2, 1996, the Operating Partnership purchased an interest in an affiliated limited partnership for $1,200. The affiliated limited partnership's only asset was its ownership in OP Units. In June 1996, the affiliated limited partnership was liquidated and 66,000 OP Units were received by the Operating Partnership in such liquidation. To account for this transaction, the Operating Partnership recorded a reduction in minority interest liability for the book value of the acquired partner's interest of $705, and recognized the excess cost over book value of $495 as an asset on the Operating Partnership's books. This excess cost is being amortized over 40 years. The Operating Partnership leases computer services from Alta Computer Services, Inc. ("Alta"). Alta is majority owned by three directors of the Company. The Operating Partnership paid $200, $194 and $196 in 1997, 1996 and 1995, respectively, for such services. F-13 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 9. RELATED PARTY TRANSACTIONS (CONTINUED) The Operating Partnership has entered into a management agreement under which the Operating Partnership performs certain accounting and management functions on behalf of a company, whose majority owner is the Chairman of the Board of Directors of the Company. Management fees collected by the Operating Partnership under this agreement totaled $72 for each of the three years ended December 31, 1997. 10. STOCK INCENTIVE PLAN On October 26, 1993, the Company adopted the 1993 Stock Option Plan which authorizes the discretionary grant by the Executive Compensation Committee, of options intended to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code, to key employees of the Company and the discretionary grant of nonqualified stock options to key employees, directors and consultants of the Company. The maximum number of shares of common stock subject to option under the Company's Plan is 1,100,000. The proceeds received by the Company upon exercise of options are contributed to the Operating Partnership in exchange for the issuance of an equivalent number of OP Units. No stock options may be granted after ten years from the date of adoption and options must be granted at a price generally not less than the fair market value of the Company's common stock at the date of grant. These options vest over a period of one to five years. A summary of the Company's stock option plan is set forth below:
1997 1996 1995 ----------------- -------------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- -------- ------- -------- ------ -------- Outstanding at beginning of year 558,000 $ 17.99 494,000 $ 17.56 550,000 $ 17.54 Granted 7,000 25.38 107,000 20.02 7,000 19.13 Exercised (12,000) 18.64 (22,000) 17.57 (55,000) 17.50 Forfeited -- -- (21,000) 18.85 (8,000) 17.50 ------- ------- ------- -------------- ------- Outstanding at end of year 553,000* $ 18.07 558,000 $ 17.99 494,000 $ 17.56 ======= ======= ======= ======= ======= ======= Exercisable at end of year 277,000 $ 17.87 178,000 $ 17.77 96,000 $ 17.83 ======= ======= ======= ======= ======= =======
* The weighted average remaining contractual life of options outstanding as of December 31, 1997 was 8 years. The range of option prices was $17.50 to $25.38 per share. F-14 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 10. STOCK INCENTIVE PLAN (CONTINUED) The Operating Partnership has applied Accounting Principals Board Opinion 25 and selected interpretations in accounting for the plan. Accordingly, no compensation costs have been recognized. Had compensation costs for the plan been determined based on the fair value at the grant date for options granted in 1997, 1996 and 1995, respectively, in accordance with the method required by SFAS 123, "Accounting for Stock-Based Compensation", the Operating Partnership net income and net income per OP Unit would have been reduced to the proforma amounts as follows:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- Net income As reported $ 32,846 $ 28,494 $ 22,723 Proforma $ 32,800 28,451 22,707 Basic net income per OP Unit As reported $ 1.56 $ 1.45 $ 1.26 Proforma 1.55 1.45 1.26 Diluted net income per OP Unit As reported $ 1.54 $ 1.44 $ 1.26 Proforma 1.54 1.44 1.26
The fair value of each option grant was estimated on the date of grant using the Black-Sholes options pricing model using the following assumptions:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- Risk free interest rate 6.76% 5.50% 6.96% Dividend yield 7.00% 7.00% 7.00% Expected life 9 years 10 years 10 years Expected volatility 16.50% 16.00% 20.00% Weighted average per share fair value of an option granted during the year $ 2.53 $ 1.47 $ 2.34
11. EMPLOYEE BENEFIT PLAN The Company has a 401(k) profit sharing plan which permits participating employees to defer up to a maximum of 15% of their compensation. The Company matches 50% of the qualified employees' contributions up to a maximum of $1 per employee each year. Employees working a minimum of 1,000 hours per year who have completed at least one year of service and attained the age of 21 are qualified to participate in the plan. The employees' contributions are immediately vested. Additionally, the Company annually contributes 3% of base salary to the plan for each qualified employee. Contributions from the Company vest at 20% per year. The Company's contributions to the plan for the years ended December 31, 1997, 1996 and 1995 were $225, $190, and $159, respectively. F-15 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of estimated fair value were determined by management using available market information. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Operating Partnership could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying value of cash, accounts receivable, accounts payable and accrued expenses at December 31, 1997 and 1996 are reasonable estimates of their fair values because of the short maturity of these financial instruments. Borrowings with an aggregate carrying value of $283,390 and $162,375 have an estimated aggregate fair value of $283,533 and $158,287 at December 31, 1997 and 1996, respectively. Estimated fair value is based on interest rates currently available to the Operating Partnership for issuance of borrowings with similar terms and remaining maturities. 13. EARNINGS PER OP UNIT Earnings per OP Unit have been computed pursuant to the provisions of SFAS No. 128, "Earnings Per Share" which became effective after December 15, 1997; all periods prior thereto have been restated to conform with the provisions of this Statement. The following table provides a reconciliation of both income before extraordinary items and the number of OP Units used in the computations of "basic" earnings per OP Unit, which utilizes the weighted average number of OP Units outstanding without regard to potentially dilutive OP Units and "diluted" earnings per OP Units, which includes all such OP Units. Effect has been given to the Company's Stock Option Plan (Note 10) since proceeds received by the Company upon exercise of options are contributed to the Operating Partnership in exchange for the issuance of an equivalent number of OP Units.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 --------- --------- --------- Income (Numerator): Before extraordinary item $ 33,008 $ 28,494 $ 22,723 --------- --------- --------- Applicable to OP Units $ 33,008 $ 28,494 $ 22,723 ========= ========= ========= Shares (Denominator): Basic-average OP Units outstanding 21,119 19,668 18,037 Add: Dilutive effect of stock options 166 85 66 --------- --------- --------- Diluted OP Units 21,285 19,753 18,103 ========= ========= ========= Per OP Unit - Income before extraordinary item: Basic $ 1.57 $ 1.45 $ 1.26 --------- --------- --------- Diluted $ 1.55 $ 1.44 $ 1.26 ========= ========= =========
Options to purchase 553,000, 558,000 and 494,000 shares of common stock were outstanding at December 31, 1997, 1996 and 1995, respectively (Note 10), a portion of which has been reflected above using the treasury stock method. F-16 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER PARTNERSHIP UNIT AMOUNTS) 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Financial information for each of the quarters in the years ended December 31, 1997 and 1996 are as follows:
FIRST SECOND THIRD FOURTH TOTAL -------- -------- -------- -------- -------- YEAR ENDED DECEMBER 31, 1997 - ----------------- Total Revenues $ 18,375 $ 18,617 $ 21,773 $ 24,208 $ 82,973 Income Before Extraordinary Item, Gain on Sale of Real Estate and Minority Interest 7,555 8,137 8,230 9,141 33,063 Net Income 7,456 8,368 8,137 8,885 32,846 Basic Earnings Per OP Unit .36 .39 .38 .43 1.56 Diluted Earnings Per OP Unit .36 .39 .38 .41 1.54 Distributions Declared Per OP Unit .435 .435 .435 .45 1.755
YEAR ENDED DECEMBER 31, 1997 FIRST SECOND THIRD FOURTH TOTAL - ----------------- -------- -------- -------- -------- -------- Total Revenues $ 16,942 $ 18,407 $ 18,497 $ 19,103 $ 72,949 Income Before Extraordinary Item, Gain on Sale of Real Estate and Minority Interest 6,693 7,234 7,088 7,774 28,789 Net Income 6,696 7,068 7,059 7,671 28,494 Basic Earnings Per OP Unit .34 .36 .36 .39 1.45 Diluted Earnings Per OP Unit .34 .36 .36 .38 1.44 Distributions Declared Per OP Unit .420 .420 .420 .435 1.695
15. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The following unaudited proforma summary financial information for the years ended December 31, 1997 and 1996, is presented as if the acquisitions of Grand Teton Mall, Silver Lake Mall, Visalia Mall, Salem Center and the additional common stock offering and additional units issued on January 22, 1997, had been consummated as of January 1, 1997 and January 1, 1996, respectively:
1997 1996 -------- -------- Revenues $ 92,602 $ 88,620 Income Before Extraordinary Item 33,858 31,531 Net Income 33,696 31,531 Basic Earnings Per OP Unit: Income Before Extraordinary Item 1.59 1.48 Net Income 1.58 1.48 Diluted Earnings Per OP Unit: Income Before Extraordinary Item 1.58 1.48 Net Income 1.57 1.48
The proforma financial information summarized above is presented for information purposes only and may not be indicative of what actual results of operations would have been had the acquisitions and offering been completed as of the beginning of the periods presented, nor does it purport to represent the results of operations for future periods. F-17 SCHEDULE II PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
BALANCE AT BEGINNING CHARGED TO BALANCE AT OF YEAR EXPENSE DEDUCTIONS END OF YEAR --------- ---------- ---------- ----------- Year ended December 31, 1997 Allowance for uncollectible accounts $ 489 $ 346 $ 265 $ 570 Year ended December 31, 1996 Allowance for uncollectible accounts $ 504 $ 340 $ 355 $ 489 Year ended December 31, 1995 Allowance for uncollectible accounts $ 437 $ 258 $ 191 $ 504
F-18 SCHEDULE III PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GROSS AMOUNT AT WHICH CARRIED INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD ------------------------- SUBSEQUENT ---------------------------- RELATED BUILDING & TO BLDG. & DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROV. TOTAL(1) ----------- ------------ ---- -------------------------- ---- ------- -------- MALLS: Animas Valley Mall, Farmington, NM $ -- $ 3,902 $24,059 $ 28 $ 3,902 $24,087 $27,989 Boise Towne Square, Boise, ID 32,475 6,512 -- 37,045 6,512 37,045 43,557 Cache Valley Mall, Logan, UT 5,781 909 -- 8,419 909 8,419 9,328 Cottonwood Mall, Salt Lake City, UT 19,857 7,514 20,776 30,851 7,514 51,627 59,141 Eastridge Mall, Casper, WY -- 4,300 19,896 3,421 4,300 23,318 27,618 Grand Teton Mall, Idaho Falls, ID -- 5,802 28,614 92 5,802 28,706 34,508 North Plains Mall, Clovis, NM 5,472 1,592 -- 10,863 1,592 10,863 12,455 Pine Ridge Mall, Pocatello, ID 10,019 1,883 -- 21,566 1,883 21,566 23,449 Red Cliffs Mall, St. George, UT 6,132 903 -- 12,846 903 12,846 13,749 Salem Center Mall, Salem, OR -- 1,704 30,504 -- 1,704 30,504 32,208 Silver Lake Mall, Coeur d'Alene, ID 12,827 4,055 21,379 181 4,055 21,560 25,615 Spokane Valley Mall, Spokane, WA 43,009 6,645 34,341 16,869 6,645 51,210 57,855 Three Rivers Mall, Kelso, WA 10,175 1,977 -- 20,380 1,977 20,380 22,357 Visalia Mall, Visalia, CA -- 6,146 31,812 834 6,146 32,645 38,791 White Mountain Mall, Rock Springs, WY 5,083 1,120 -- 15,789 1,120 15,789 16,909 COMMUNITY CENTERS & FREE-STANDING RETAIL: Alameda Plaza, Pocatello, ID -- 500 -- 3,365 500 3,365 3,865 Anaheim Plaza, Anaheim, CA -- -- -- 54 -- 54 54 Austin Bluffs Plaza, Colorado Springs, CO -- 1,488 -- 1,943 1,488 1,943 3,431 Bailey Hills Plaza, Eugene, OR -- 157 -- 317 157 317 474 Bank One, Nephi, UT -- 17 183 -- 17 183 200 Baskin Robbins 17th St., Idaho Falls, ID -- 9 67 7 9 74 83 Boise Plaza, Boise, ID -- 322 -- 1,382 322 1,382 1,704 Boise Towne Plaza, Boise, ID -- 3,316 4,243 1,049 3,316 5,292 8,608 Cottonwood Square, Salt Lake City, UT -- 1,926 3,535 -- 1,926 3,535 5,461 Division Crossing, Portland, OR -- 2,429 -- 4,483 2,429 4,483 6,912 Fort Union Plaza, Salt Lake City, UT -- 21 -- 1,673 21 1,673 1,694 Fremont Plaza, Las Vegas, NV -- -- -- 2,254 -- 2,254 2,254 Fry's Shopping Plaza, Glendale, AZ -- 353 -- 4,582 1,254 3,682 4,936 Gateway Crossing, Bountiful, UT -- 3,644 -- 8,480 3,644 8,480 12,124 ACCUMULATED DATE OF DATE DEPRECIABLE DEPRECIATION CONSTRUCTION ACQUIRED LIVES-YEARS - ------------ ------------ -------- ----------- $ 1,518 -- 1995 40 12,455 1987-88 1985-86 5-40 4,209 1975-76 1973-75 10-40 18,048 1981-87 1980 4-40 1,321 -- 1995 40 1,252 -- 1996 40 3,409 1984-85 1979-84 10-40 7,916 1979-81 1979 10-40 2,913 1989-90 1989 3-40 -- -- 1997 40 293 -- 1997 40 475 1990-97 1990 40 4,971 1986-87 1984 10-40 397 -- 1997 40 6,053 1977-78 1977 40 1,837 1973 1973 40 30 1980-81 1979 40 594 1985 1979 3-40 51 1988-89 1988 40 140 -- 1976 40 18 -- 1988 40 900 1970-71 1970 40 15 1996-97 1996-97 40 177 -- 1995 40 813 1990-91 1990 20-40 628 1979-84 -- 40 1,132 1976-80 -- 40 1,544 1980-81 1980 40 1,052 1990-92 1990 40
F-19 SCHEDULE III PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED) DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
GROSS AMOUNT AT WHICH CARRIED INITIAL COSTS CAPITALIZED AT CLOSE OF PERIOD -------------------- SUBSEQUENT ----------------------------- RELATED BUILDING & TO BLDG. & DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROV. TOTAL(1) ----------- ------------ ---- ------------ ----------- ---- ------- -------- COMMUNITY CENTERS & FREE-STANDING RETAIL (CONTINUED): Halsey Crossing, Gresham, OR -- -- --2,302 -- 2,302 2,302 North Temple Shops, Salt Lake City, UT -- 60 --177 60 177 237 Orem Plaza Center Street, Orem, UT -- 371 330 1,091 344 1,448 1,792 Orem Plaza State Street, Orem, UT -- 126 --687 126 687 813 Plaza 800, Sparks, NV -- 33 2,969 38 33 3,007 3,040 Plaza 9400, Sandy, UT -- -- --4,514 -- 4,514 4,514 Red Cliffs Plaza, St. George, UT -- -- 2,403 -- -- 2,403 2,403 River Pointe Plaza, West Jordan, UT -- 1,130 --2,668 1,130 2,668 3,798 Riverside Plaza, Provo, UT -- 427 1,886 1,289 427 3,175 3,602 Twin Falls Crossing, Twin Falls, ID -- 125 --776 125 776 901 University Crossing, Orem, UT -- 230 --4,424 230 4,424 4,654 Woodlands Village, Flagstaff, AZ -- 2,068 5,329 228 2,068 5,557 7,625 Yellowstone Square, Idaho Falls, ID -- 355 --4,552 355 4,552 4,907 COMMERCIAL: First Security Place, Boise, ID -- 300 --3,249 300 3,249 3,549 Price Business Center - Commerce Park, West Valley City, UT -- 415 2,109 8,509 1,147 9,886 11,033 Price Business Center-Pioneer Square, Salt Lake City, UT -- 658 --10,468 658 10,468 11,126 Price Business Center-South Main, Salt Lake City, UT -- 317 --2,469 317 2,469 2,786 Price Business Center-Timesquare, Salt Lake City, UT -- 581 --9,019 581 9,019 9,600 Sears-Eastbay, Provo, UT 1,927 275 --2,079 275 2,079 2,354 OTHER REAL ESTATE: Provo Towne Centre, Provo, UT 3,000 13,829 16,661 -- 13,829 16,661 30,490 Miscellaneous Real Estate -- 3,471 17 7,029 3,471 7,045 10,516 -------- ------- -------- -------- ------- -------- -------- TOTAL $155,763 $93,917 $251,113 $274,341 $95,523 $523,848 $619,371 ======== ======= ======== ======== ======= ======== ======== ACCUMULATED DATE OF DATE DEPRECIABLE DEPRECIATION CONSTRUCTION ACQUIRED LIVES-YEARS - ------------ ------------ -------- ----------- 492 1989-91 -- 4-40 83 1970 1970 40 592 1976-87 1973 10-40 345 1975 1973 29-40 1,665 1974 -- 40 1,916 1976-84 -- 10-40 195 1994-95 1994-95 40 727 1987-88 1986-87 5-40 1,461 1978-81 1977 40 407 1976 1975 40 1,681 1971-92 1971 40 455 -- 1994 40 2,554 1972-77 1972 40 1,471 1978-80 1978 10-40 1,349 1980 1973-95 40 3,311 1974-92 1973 3-40 1,298 1967-82 1966-81 3-40 3,544 1974-80 1972-80 5-40 457 1989-90 1989 40 -- 1997(2) 1997 40 240 -- 1980-95 40 ------- $98,404 =======
- --------------------------- (1) The aggregate cost for Federal Income Tax purposes was approximately $642,645 at December 31, 1997. (2) Construction in progress as of December 31, 1997. F-20 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) A summary of activity for real estate investments and accumulated depreciation is as follows:
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- Real Estate Investments: Balance at Beginning of Year $ 453,241 $ 388,205 $ 321,242 Acquisitions 96,615 37,055 59,081 Improvements 69,921 28,268 9,903 Disposition of Property (406) (287) (2,021) --------- --------- --------- Balance at End of Year $ 619,371 $ 453,241 $ 388,205 ========= ========= ========= Accumulated Depreciation: Balance at Beginning of Year $ 87,318 $ 77,462 $ 69,660 Depreciation 11,492 10,015 9,386 Depreciation of Disposed Property (406) (159) (1,584) --------- --------- --------- Balance at End of Year $ 98,404 $ 87,318 $ 77,462 ========= ========= =========
F-21 EX-27 2 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1997 DEC-31-1997 5,603 0 6,329 (570) 0 0 0 0 545,684 0 0 0 0 0 241,007 545,684 0 82,973 0 0 40,844 0 9,066 0 0 0 0 (162) 0 32,846 $1.56 $1.54 The financial statements reflect an unclassified balance sheet due to the nature of the Company's industry - Real Estate. The Company utilizes a condensed balance sheet format for 10-k reporting. Amounts are included in Other Assets. Amount is comprised of $49,910 of expenses less interest expense of $9,066 reflected elsewhere in this Financial Data Schedule.
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