Consolidated Financial Statements
The Price REIT, Inc.
December 31, 1996, 1995 and 1994
with Report of Independent Auditors
Report of Independent Auditors
The Board of Directors and Stockholders
The Price REIT, Inc.
We have audited the accompanying consolidated balance sheets of The Price REIT,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Price REIT, Inc. at December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
San Diego, California
January 22, 1997
The Price REIT, Inc.
Consolidated Balance Sheets
December 31
1996 1995
---------- ----------
(In Thousands)
Assets
Rental property, net (Note 2) $380,482 $351,585
Investments in Joint Ventures (Note 3) 19,202 17,568
Cash and cash equivalents 11,369 1,241
Deferred rent receivable 8,489 6,219
Other assets 6,749 5,431
Secured note receivable (Note 4) 1,346 -
Investment in Development Company (Note 12) 434 434
---------- ----------
Total assets $428,071 $382,478
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities $ 4,474 $ 3,408
Senior Notes payable (Note 5) 154,114 99,082
Unsecured line of credit (Note 5) 19,000 56,000
Secured notes payable (Note 5) 11,794 2,750
---------- ----------
Total liabilities 189,382 161,240
Minority interest 1,707 -
Commitments and contigencies (Note 10) - -
Stockholders' Equity (Notes 6, 7 and 8):
Preferred stock, $.01 par value;
2,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.01 par value;
25,000,000 shares authorized
Series A Common Stock, 0 and 44,546 shares issued
and outstanding, convertible 1 for 1 to Common Stock - 1
Common Stock, 9,069,249 and 8,256,302 shares
issued and outstanding 91 82
Additional paid-in capital 259,518 236,365
Accumulated deficit (22,627) (15,210)
---------- ----------
Total stockholders' equity 236,982 221,238
---------- ----------
Total liabilities and stockholders' equity $428,071 $382,478
========== ==========
See accompanying notes.
The Price REIT, Inc.
Consolidated Statements of Income
Year ended December 31
1996 1995 1994
-------- -------- --------
(In Thousands, except
per share data)
Revenue
Rental Income $ 51,292 $ 40,152 $ 37,599
Management fees (Note 9) 1,085 1,042 789
Equity in earnings of Joint Ventures 1,556 1,456 584
Dividend from Development Company - 432 536
Interest and other income 392 441 417
-------- -------- --------
54,325 43,523 39,925
======== ======== ========
Expenses
Rental operations 4,344 3,266 2,978
Real estate taxes 5,565 3,911 3,606
General and administrative (Note 9) 3,550 3,335 3,187
Depreciation 11,876 9,686 9,165
Interest 12,071 6,939 4,085
-------- -------- --------
37,406 27,137 23,021
-------- -------- --------
Net income $ 16,919 $ 16,386 $ 16,904
======== ======== ========
Net income per share $ 1.98 $ 1.98 $ 2.07
======== ======== ========
Weighted average number of shares
outstanding 8,560 8,259 8,165
======== ======== ========
See accompanying notes.
The Price REIT, Inc.
Consolidated Statements of Stockholders' Equity
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ --------- --------- ---------
(In Thousands)
Balance at January 1, 1994 8,143 $ 81 $231,783 $ (5,603) $226,261
Issuance of Common Stock
under dividend reinvestment
and share purchase plan 74 1 2,293 - 2,294
Dividends paid - - - (20,859) (20,859)
Net income - - - 16,904 16,904
------ ------ --------- --------- ---------
Balance at December 31, 1994 8,217 82 234,076 (9,558) 224,600
Issuance of Common Stock
under dividend reinvestment
and share purchase plan 56 1 1,589 - 1,590
Exercise of stock options 28 - 700 - 700
Dividends paid - - - (22,038) (22,038)
Net income - - - 16,386 16,386
------- ------ --------- --------- ---------
Balance at December 31, 1995 8,301 83 236,365 (15,210) 221,238
Issuance of Common Stock
Public offering 690 7 22,159 - 22,166
Offering costs - - (1,389) - (1,389)
Issuance of Common Stock
under dividend reinvestment
and share purchase plan 37 - 1,164 - 1,164
Exercise of stock options 41 1 1,219 - 1,220
Dividends paid - - - (24,336) (24,336)
Net income - - - 16,919 16,919
------- ------ --------- --------- ---------
Balance at December 31, 1996 9,069 $ 91 $259,518 $(22,627) $236,982
======= ====== ========= ========= =========
See accompanying notes.
The Price REIT, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1996 1995 1994
--------- --------- ---------
(In Thousands)
Operating activities
Net Income $ 16,919 $ 16,386 $ 16,904
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 11,876 9,686 9,165
Amortization of deferred loan fees 543 284 152
Amortization of debt discount 162 32 -
Equity in earnings of Joint Ventures (1,556) (1,456) (584)
Deferred rent (2,269) (1,806) (2,129)
Changes in operating assets and liabilities:
Decrease in deferred rent receivable - 68 -
Increase in rent receivable and other
assets (1,495) (1,313) (1,459)
Increase in accounts payable and accrued
liabilities 577 920 105
Increase (decrease) in security deposits 28 109 (42)
Increase in accured interest payable 462 1,310 72
--------- --------- ---------
Net cash provided by operating activities 25,247 24,220 22,184
--------- --------- ---------
Investing activities
Purchases of rental property (30,600) (61,831) (8,240)
Additions to rental property (9,845) (12,401) (2,947)
Investments in Joint Ventures (2,000) (1,977) (15,837)
Distributions from Joint Ventures 1,867 1,660 555
Secured note receivable (1,347) - -
Distributions from Development Company - 113 203
--------- --------- ---------
Net cash used in investing activities (41,925) (74,436) (26,266)
--------- --------- ---------
The Price REIT, Inc.
Consolidated Statements of Cash Flows
(Continued)
Year ended December 31
1996 1995 1994
--------- --------- ---------
(In Thousands)
Financing activities
Proceeds from Senior Notes payable due 2000 - 99,050 -
Proceeds from Senior Notes payable due 2006 54,870 - -
Payment of debt issuance costs (640) (1,938) -
Proceeds from unsecured line of credit 39,000 68,000 19,000
Repayment of unsecured line of credit (76,000) (96,000) -
Proceeds from secured notes payable 11,841 - 2,750
Repayment of secured notes payable (2,797) - -
Minority interest contributions 1,707 - -
Gross proceeds from issuance of Common Stock 23,642 919 329
Issuance costs (1,389) - -
Dividends paid, net of dividends reinvested (23,428) (20,667) (18,893)
-------------------- ---------
Net cash provided by financing activities 26,806 49,364 3,186
-------------------- ---------
Increase (decrease) in cash and cash
equivalents 10,128 (852) (896)
Cash and cash equivalents at beginning of
the year 1,241 2,093 2,989
-------------------- ---------
Cash and cash equivalents at end of year $ 11,369 $ 1,241 $ 2,093
==================== =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $ 11,364 $ 5,759 $ 4,247
===============================
See accompanying notes.
The Price REIT, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1.Organization and Summary of Significant Accounting Policies
Organization
The Price REIT, Inc., a Maryland corporation formed in 1991, is a self-
administered and self-managed real estate investment trust which is focused on
the acquisition, development, redevelopment and management of retail shopping
center properties.
Consolidation
The consolidated financial statements include the accounts of The Price REIT,
Inc.; Price/Texas, Inc., a wholly-owned subsidiary; Price/Baybrook, Ltd., a
limited partnership between The Price REIT, Inc. and Price/Texas, Inc.; and
Smithtown Venture Limited Liability Company ("Smithtown Venture"), an
approximate 80% owned joint venture (collectively referred to as the "Company").
All significant intercompany accounts and transactions have been eliminated.
The Company acquired its ownership in Smithtown Venture in October 1996.
Use of Estimates
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the financial
statement date and the reported amounts of revenue and expenses during the
reporting period. Due to uncertainties inherent in the estimation process, it
is reasonably possible that actual results could differ from these estimates.
Rental Property and Depreciation
Rental property is recorded at cost. At such times where events or
circumstances indicate that the carrying amount of property may be impaired, the
Company makes an assessment of its recoverability by estimating the future
undiscounted cash flows, excluding interest charges, of the property. If the
carrying amount exceeds the aggregate future cash flows, the Company would
recognize an impairment loss to the extent the carrying amount exceeds the fair
value of the property.
The Price REIT, Inc.
1. Organization and Summary of Significant Accounting Policies (continued)
Rental Property and Depreciation (continue)
Depreciation is provided using the straight-line method over estimated useful
lives as follows:
Furniture and fixtures 7 years
Land improvements 15 years
Buildings 25 years
Investments
The equity method of accounting is used for investments in joint ventures in
which the Company has a financial interest and exercises significant influence.
Under this method, the Company recognizes its share of the net earnings or
losses of the joint ventures as earned or incurred and reduces or increases the
carrying value of the investments by the amount of distributions received or
contributions paid.
The cost method of accounting is used for the Company's investment in K&F
Development Company ("Development Company"). Under this method, the Company
recognizes as income, dividends received that are distributed from net
accumulated earnings of the Development Company.
Cash Equivalents
The Company considers highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
The Company has no requirements for compensating balances. The Company
maintains its operating cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company also maintains a money market
mutual fund which invests primarily in U.S. Treasury obligations. The Company
has not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents.
Deferred Loan Fees
Deferred loan fees are amortized, using the straight-line method, over the term
of the related loan and are reflected as a component of interest expense.
The Price REIT, Inc.
1. Organization and Summary of Significant Accounting Policies (continued)
Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires that the Company disclose estimated
fair values for its financial instruments, as well as the methods and
significant assumptions used to estimate fair values. The Company believes that
the carrying values reflected in the balance sheets at December 31, 1996 and
1995 reasonably approximate the fair values for cash and cash equivalents,
receivables and all liabilities. In making such assessments, the Company used
estimates and market rates for similar instruments.
Minority Interest
Minority interest represents the approximate 20% ownership of Smithtown Venture
not owned by the Company.
Revenue Recognition
Rental income is recorded on a straight-line basis over the term of the leases.
Deferred rent receivable represents the excess of rental revenue recognized on a
straight-line basis over cash received under the applicable lease provisions.
Income Taxes
The Company has met all conditions necessary to qualify as a real estate
investment trust under the Internal Revenue Code. To qualify as a real estate
investment trust, the Company is required to pay dividends of at least 95% of
its ordinary taxable income each year and meet certain other criteria. As a
qualifying real estate investment trust, the Company will not be taxed on income
distributed to its shareholders. Since the Company distributed all of its
taxable income to stockholders for the years ended December 31, 1996, 1995 and
1994, the accompanying financial statements contain no provision for income
taxes.
Taxable income differs from net income for financial reporting purposes
principally due to differences in the timing of recognition of depreciation
expense and rental revenue.
The reported amounts of the Company's net assets as of December 31, 1996 and
1995 were less than its tax basis for Federal tax purposes by approximately
$272,000 and $451,000, respectively.
The Price REIT, Inc.
1. Organization and Summary of Significant Accounting Policies (continued)
Net Income Per Share
Net income per share is calculated using the weighted average number of shares
outstanding. The assumed exercise of outstanding stock options, using the
treasury stock method, is not materially dilutive for the earnings per share
computation.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2.Rental Property
Rental property as of December 31, 1996, geographically by state, is as follows:
Total California Arizona Connecticut
---------------------------------------------
(In Thousands)
Land $ 136,148 $ 63,754 $ 21,662 $ 7,713
Land improvements 40,907 15,578 6,264 4,201
Buildings 245,038 111,737 31,543 15,952
---------------------------------------------
422,093 191,069 59,469 27,866
Accumulated depreciation (41,611) (21,612) (5,951) (4,705)
---------------------------------------------
$ 380,482 $ 169,457 $ 53,518 $ 23,161
=============================================
Net rentable square feet 4,858 2,022 855 332
=============================================
Maryland New York Virginia Texas Oklahoma
-------------------------------------------------
Land $ 2,582 $ 10,321 $ 12,575 $ 13,174 $ 4,367
Land improvements 3,409 2,270 9,185 - -
Buildings 6,858 22,637 17,063 26,814 12,434
-------------------------------------------------
12,849 35,228 38,823 39,988 16,801
Accumulated depreciation (1,607) (2,394) (4,366) (914) (62)
-------------------------------------------------
$ 11,242 $ 32,834 $ 34,457 $ 39,074 $ 16,739
=================================================
Net rentable square feet 210 246 323 636 234
=================================================
The Price REIT, Inc.
2. Rental Property (continued)
Rental property as of December 31, 1995, geographically by state, is as follows:
Total California Arizona Connecticut
----------------------------------------------
(In Thousands)
Land $ 127,625 $ 63,736 $ 21,662 $ 7,713
Land improvements 40,833 15,568 6,199 4,201
Buildings 213,190 110,400 30,825 15,952
----------------------------------------------
381,648 189,704 58,686 27,866
Accumulated depreciation (30,063) (16,128) (4,288) (3,787)
----------------------------------------------
$ 351,585 $ 173,576 $ 54,398 $ 24,079
==============================================
Net rentable square feet 4,393 2,016 840 332
==============================================
Maryland New York Virginia Texas
----------------------------------------------
Land $ 2,582 $ 10,321 $ 12,575 $ 9,036
Land improvements 3,411 2,270 9,184 -
Buildings 6,858 15,246 17,063 16,846
----------------------------------------------
12,851 27,837 38,822 25,882
Accumulated depreciation (1,106) (1,599) (3,071) (84)
----------------------------------------------
$ 11,745 $ 26,238 $ 35,751 $ 25,798
==============================================
Net rentable square feet 210 246 323 426
==============================================
Rental property owned through the Company's investments in joint ventures is
described in Note 3.
The Company's shopping centers are generally leased under noncancellable
operating leases with remaining terms ranging from 1 to 25 years. Certain of
the leases contain up to seven five-year renewal options. The leases generally
contain provisions for increases in rents based on the Consumer Price Index, or
a predetermined fixed amount, and require the tenant to reimburse the Company
for substantially all operating expenses of the properties.
Certain of the leases provide for additional rental payments based on gross
tenant revenues in excess of specified amounts. During the year ended December
31, 1996, 1995 and 1994, the Company earned additional rents of approximately
$418,000, $372,000 and $225,000, respectively, relating to these leases.
The Price REIT, Inc.
2. Rental Property (continued)
Future minimum rental income due under the terms of noncancellable operating
leases is as follows (in thousands):
1997 $ 42,279
1998 41,812
1999 40,789
2000 39,722
2001 38,431
Thereafter 287,290
The following tenants account for greater than 10% of total revenues:
Year ended December 31
1996 1995 1994
------ ------ ------
(In Thousands)
The Home Depot $8,955 $7,401 $6,119
Price/Costco 5,029 5,268 5,985
Acquisitions of Shopping Centers
In November 1996, the Company acquired a 234,000 square foot shopping center in
Oklahoma City, Oklahoma for $16,700,000 (Note 5).
In July 1996, the Company acquired a 210,000 square foot shopping center near
Dallas, Texas for $12,650,000.
In January 1996, the Company acquired a 9.7 acre land parcel adjacent to the
Company's shopping center near Houston, Texas for $1,250,000.
In December 1995, the Company acquired a 172,000 square foot shopping center in
Oxnard (Ventura County), California for $10,332,000 and a 279,000 square foot
shopping center in La Mirada (Los Angeles County), California for $25,824,000.
In November 1995, the Company acquired a 426,000 square foot shopping center
near Houston, Texas for $25,675,000.
The Price REIT, Inc.
2. Rental Property (continued)
Acquisitions of Shopping Centers (continued)
In December 1994, the Company acquired a 143,000 square foot shopping center in
Phoenix, Arizona for $8,240,000. During 1995, the Company began redevelopment
and expansion activities to increase the center by approximately 85,000 square
feet of new space.
Smithtown Venture
The Company acquired its interest in Smithtown Venture from Development Company
for $250,000. Prior to its ownership acquisition, the Company had advanced
$4,550,000 to Smithtown Venture for development of a shopping center in Long
Island, New York. Condensed financial information of Smithtown Venture, upon
acquisition by the Company on October 2, 1996, is as follows (in thousands):
Rental property under development $6,059
--------
Company advances $4,550
Members' capital 1,509
------
$6,059
======
In connection with the development of the shopping center, Smithtown Venture
entered into a 49-year ground lease, with four ten-year renewal options, which
provides for monthly payments. While the shopping center is under development,
the lease payments are being capitalized to rental property. Future minimum
lease payments, excluding renewal options, are as follows (in thousands):
1997 $ 1,067
1998 1,400
1999 1,400
2000 1,400
2001 1,400
Thereafter 82,653
The Price REIT, Inc.
3.Investment in Joint Ventures
Centrepoint Associates
In April 1994, the Company acquired a 50% general partnership interest in
Centrepoint Associates for $11,388,000. The general partnership interest was
acquired from a partnership in which Price/Costco and Messrs. Kornwasser and
Friedman were the general partners. The joint venture owns and operates a
236,000 square foot power center in Tempe, Arizona, with an additional 149,000
square feet of adjacent retail space, constructed and completed in 1995. During
the years ended December 31, 1996 and 1995 and for the period from April 15,
1994 through December 31, 1994, the Company contributed cash of approximately
$271,000, $1,186,000 and $4,449,000, respectively, to the joint venture, to fund
construction costs and acquisitions.
In accordance with the original purchase agreement, certain development
contingencies required Price/Costco to advance the Company approximately
$130,000 during 1994 and the Company was required to make net payments to
Price/Costco totaling $791,000 during 1995 resulting in a net additional cost to
the Company of $661,000. As a result of these payments, the recorded amount of
the Company's investment in the joint venture was $661,000 greater than the
amount of its capital account as reflected in the joint venture's accounting
records. The Company is amortizing the excess cost over 15 years.
In December 1995, the joint venture purchased two properties located in the
Phoenix metropolitan area. One of the properties is located in Glendale,
Arizona, which was purchased for $6,724,000, and consists of an existing 85,000
square foot shopping center with potential to expand by approximately 20,000
additional square feet. The other property is located in Goodyear, Arizona,
which was purchased for $4,232,000, and contains approximately 40 acres of
vacant land for future development. In connection with these purchases, the
joint venture obtained a $10,500,000 loan which is due in December 1997.
Hayden Plaza North Associates
In April 1996, the Company formed a partnership with Kimco Realty Corporation
("Kimco"), a retail real estate investment trust, to purchase a 191,000 square
foot shopping center in Phoenix, Arizona at a cost of $3,490,000. The Company
holds a 50% general partnership interest. The acquisition was completed in May
1996.
The Price REIT, Inc.
3.Investment in Joint Ventures (continued)
Condensed combined financial information of the joint ventures is as follows:
December 31
1996 1995
---------------------
(In Thousands)
Rental property, net $45,648 $41,590
Other assets 3,125 2,038
---------------------
$48,773 $43,628
=====================
Liabilities $11,701 $10,989
The Company's capital 18,596 16,907
Other partner's capital 18,476 15,732
---------------------
$48,773 $43,628
=====================
Year ended
December 31
1996 1995
---------------------
(In Thousands)
Revenue $ 6,723 $ 5,201
Expenses (3,538) (2,248)
---------------------
Net income $ 3,185 $ 2,953
=====================
The accounting policies of the joint ventures are substantially the same as the
Company's.
4.Secured Note Receivable
In connection with the development of a shopping center in Long Island, New
York, Smithtown Venture made a loan to the ground lessor for the payoff of an
existing mortgage on the property. The secured note receivable bears interest at
a fixed rate of 7.41% and is due in monthly principal and interest payments
through October 2026.
The Price REIT, Inc.
5.Notes Payable
Notes payable consists of the following:
December 31
1996 1995
---------------------
(In Thousands)
Senior Notes payable due 2000 $ 99,242 $ 99,082
Senior Notes payable due 2006 54,872 -
---------------------
154,114 99,082
Unsecured line of credit 19,000 56,000
Secured notes payable 11,794 2,750
---------------------
$184,908 $157,832
=====================
Senior Notes Payable
In November 1996, the Company issued unsecured 7.50% Senior Notes in the
aggregate principal amount of $55,000,000 which are due November 2006. Interest
on the 7.50% Senior Notes is payable semi-annually in arrears on May 5 and
November 5. The notes were priced at an aggregate amount of $54,870,000 and
have an effective interest rate of 7.53%.
In November 1995, the Company issued unsecured 7.25% Senior Notes in the
aggregate principal amount of $100,000,000 which are due November 2000. Interest
on the 7.25% Senior Notes is payable semi-annually in arrears on May 1 and
November 1. The notes were priced at an aggregate amount of $99,050,000 and have
an effective interest rate of 7.48%.
As of December 31, 1996 and 1995, the unamortized discount of senior notes
payable was $886,000 and $918,000, respectively. Amortization of the discount
during the year ended December 31, 1996 and 1995, in the amount of $162,000 and
$32,000 is reported as a component of interest expense and an increase to Senior
Notes payable.
The Senior Notes payable contain certain restrictive financial covenants
relating to debt-to-asset ratios, cash flow coverage ratio and distribution
limitations.
The Price REIT, Inc.
5. Notes Payable (continued)
Unsecured Line of Credit
In September 1993, the Company obtained a revolving credit facility from a group
of banks for up to $75 million in unsecured advances through September 1996. In
May 1994, the credit facility was modified to increase the commitment amount to
$100 million. In November 1995, the credit facility was modified in various
respects including a reduction in the borrowing capacity to $75 million,
amendment of the interest rate, extension of the maturity to October 1997, and
the incorporation of certain additional financial covenants. In October 1996,
the credit facility was further modified to provide for an interest rate
reduction.
Advances under the credit facility, at the Company's option, bear interest at
either LIBOR plus 1.25% or a Base Rate, as defined, plus .50%. The effective
rate of interest as of December 31, 1996 and 1995 was 6.63% and 7.05%,
respectively. Interest on the out-standing balance is payable no less than
quarterly.
The agreement requires the Company to meet various financial covenant ratios,
including minimum net operating income and net worth levels, as defined, and the
Company is precluded from paying dividends in excess of 95% of its annual net
income plus depreciation. The Company is required to pay a commitment fee of
.25% per annum on the unused portion of the unsecured line of credit under its
current borrowings.
Secured Notes Payable
At December 31, 1996, the secured notes payable bear interest at fixed rates of
9.0% and 9.25% and are secured by a shopping center in Oklahoma City, Oklahoma.
The notes provide for monthly payments of principal and interest with all
principal due in June 2013 and December 2014.
Principal maturities of all notes payable as of December 31, 1996 are summarized
as follows (in thousands):
1997 $ 19,299
1998 328
1999 359
2000 100,393
2001 430
Thereafter 64,985
-----------
$ 185,794
===========
The Price REIT, Inc.
5. Notes Payable (continued)
The Company incurred $12,540,000, $7,354,000 and $4,471,000 of interest costs
which included amortization of loan discount and fees, of which $469,000,
$415,000 and $234,000 were capitalized to rental property for the years ended
December 31, 1996, 1995 and 1994, respectively.
6. 1996 Stock Offering
On September 9, 1996, the Company completed a public offering of 690,000 shares
of Common Stock at an offering price of $32.125 per share (the "Stock
Offering"). The Company used the net proceeds of approximately $21 million for
repayment of indebtedness under the Company's unsecured line of credit and for
general corporate purposes. Expenses of the Stock Offering were approximately
$1,389,000 and were charged against the gross proceeds of the Stock Offering.
7. Dividends
The Company paid quarterly dividends to stockholders as follows:
Year ended December 31
1996 1995 1994
-----------------------------------
Series A Common Stock
First $ 0.6667 $ 0.6286 $ 0.6000
Second N/A 0.6286 0.6000
Third N/A 0.6381 0.6190
Fourth N/A 0.6476 0.6190
-----------------------------------
Total $ 0.6667 $ 2.5429 $ 2.4380
===================================
Common Stock
First $ 0.7000 $ 0.6600 $ 0.6300
Second 0.7000 0.6600 0.6300
Third 0.7000 0.6700 0.6500
Fourth 0.7000 0.6800 0.6500
-----------------------------------
Total $ 2.8000 $ 2.6700 $ 2.5600
===================================
Taxable portion - ordinary dividend 78.36% 82.00% 86.92%
Return of capital portion 21.64% 18.00% 13.08%
-----------------------------------
100.00% 100.00% 100.00%
===================================
The Price REIT, Inc.
7. Dividends (continued)
Common Stock
The Company had previously issued two series of common stock equity, Common
Stock and Series A Common Stock. On May 23, 1996, the Company's stockholders
approved an amendment to the Company's charter to provide that all outstanding
shares of Series A Common Stock be converted into shares of Common Stock;
eliminate the provision which entitled holders of Common Stock to receive an
annualized quarterly per share dividend equal to 105% of the annualized
quarterly per share dividend on the Series A Common Stock and changed the name
of the Company's Series A Common Stock to Common Stock. There were 38,266
shares of Series A Common Stock that were converted into Common Stock.
8. Stock Options/Dividend Reinvestment Plan
In 1991, the Company adopted a stock option plan for certain of its employees.
The options generally vest 20% upon grant and 20% per year over the subsequent
four years. Vested options expire ten years from the date of vesting. Unvested
options expire at termination of employment.
In 1993, the Company adopted an incentive stock option plan for certain of its
officers and other key employees. The options generally vest 20% upon grant and
20% per year over the subsequent four years. The options are exercisable upon
vesting and expire ten years from the date of grant. Unvested options expire at
termination of employment.
In 1996, the Company adopted a stock option plan for non-employee directors of
its Board of Directors. The options are fully vested and exercisable on the
date of grant.
The Price REIT, Inc.
8. Stock Options/Dividend Reinvestment Plan (continued)
Stock options outstanding are as follows (in thousands, except per share data):
Stock Options
--------------------------------
Non- Total Price
Incentive Incentive Exercise Range
Shares Shares Value Per Share
----------------------------------------------
Outstanding at January 1, 1994 128 399 $ 16,643 $25.00-$32.50
Granted on February 14, 1994 - 27 905 33.50
--------------------------------
Outstanding at December 31, 1994 128 426 17,548 25.00-33.50
Exercised on June 30, 1995 (28) - (700) 25.00
Expired on July 1, 1995 (17) - (506) 29.75
Granted on December 11, 1995 - 148 4,237 28.63
--------------------------------
Outstanding at December 31, 1995 83 574 20,579 28.63-33.50
Granted on January 29, 1996 31 49 2,360 29.50
Exercised on February 29, 1996 (41) - (1,220) 29.75
Expired on March 31, 1996 (2) - (60) 29.75
Granted on August 1, 1996 12 - 354 29.50
Granted on December 18, 1996 - 34 1,224 36.00
Granted on December 31, 1996 12 - 462 38.50
--------------------------------
Outstanding at December 31, 1996 95 657 $ 23,699 $28.63-$38.50
================================
At December 31, 1996, 1995 and 1994, 423,100, 325,200 and 253,000 stock options,
respectively, were exercisable.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The new accounting standards prescribed by SFAS
No. 123 are optional, and the Company has elected to account for its stock
option plans under the previous accounting standards as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
The effect of applying the SFAS No. 123 fair value method to the Company's stock
based awards would result in net income and net income per share that are not
materially different from amounts reported.
The Price REIT, Inc.
8. Stock Options/Dividend Reinvestment Plan (continued)
In February 1994, the Company adopted a dividend reinvestment and share purchase
plan (the "Plan"). This Plan gives the holders of shares of common stock the
opportunity to purchase additional common stock shares through reinvestment of
distributions or volun-tary cash investments. At the Company's option, the
common stock shares purchased under the Plan can be newly issued or purchased on
the open market. Concurrent with the adoption of this Plan, the Company filed a
Form S-3 Registration Statement with the Securities and Exchange Commission to
register 500,000 common stock shares that are eligible to be issued under this
Plan. During the years ended December 31, 1996 and 1995, 37,000 and 56,000
shares, respectively, were issued under the Plan. Through December 31, 1996, a
total of 167,000 shares have been issued under the Plan.
9. Related Party Transactions
Mr. Sol Price previously provided office space to the Company's corporate
headquarters at no cost. Effective December 1995, the Company has agreed to pay
Mr. Price $7,200 per year for office space provided.
1996
Management fees revenue includes $817,000 earned from Price Enterprises, Inc.
owned rental properties and $92,000 earned from K&F affiliated companies.
Development fees totaling $142,000 were paid to Development Company and
capitalized to rental property.
Leasing commissions totaling $250,000 were paid to Development Company and
capitalized to other assets.
Other income includes $30,000 of consulting fee income received from Price
Enterprises, Inc.
1995
Management fees revenue includes $785,000 earned from Price Enterprises, Inc.
owned rental properties and $128,000 earned from K&F affiliated companies.
General and administrative expense includes $114,000 of rent expense paid to a
partnership in which Messrs. Joseph Kornwasser and Jerald Friedman are partners.
The Price REIT, Inc.
9. Related Party Transactions (continued)
1995 (continued)
Development fees totaling $379,000 were paid to Development Company and
capitalized to rental property.
Leasing commissions totaling $489,000 were paid to Development Company and
capitalized to other assets.
Other income includes $164,000 of consulting fee income received from Price
Enterprises, Inc. for various consulting services.
1994
Management fees revenue includes $617,000 earned from Price Enterprises, Inc.
owned rental properties and $134,000 earned from K&F affiliated companies.
General and administrative expense includes $139,000 of rent expense paid to a
partnership in which Messrs. Kornwasser and Friedman are partners.
Development fees totaling $207,000 were paid to Development Company and
capitalized to rental property.
Leasing commissions totaling $364,000 were paid to Development Company and
capitalized to other assets.
10. Commitments and Contingencies
The Company sponsors a 401(k) deferred compensation plan. Employees may
contribute up to 15% of their wages subject to Internal Revenue Code limits.
The plan provides for discretionary matching and profit sharing contributions by
the Company. The Company may match contributions up to 2.5% of an employee's
annual compensation for annual compensation below $50,000 or up to 2.0% for
annual compensation equal to or above $50,000. During the years ended December
31, 1996, 1995 and 1994, the Company contributed $23,000, $23,000 and $17,000,
respectively, to the plan. The plan is fully funded.
The Price REIT, Inc.
10. Commitments and Contingencies (continued)
Certain of the Company's properties were acquired from The Price Company or its
successor, Price/Costco. The Price Company has indemnified the Company, with the
exception of the Company's 50% interest in the Tempe, Arizona property, with
respect to the presence of any hazardous material (as defined under various
environmental laws) on properties purchased from The Price Company in the event
such hazardous materials were determined to be present on the date of the
purchase. The Company is not aware of any environmental issues with respect to
its properties which would require a material expenditure by the Company,
regardless of whether the Company might ultimately be indemnified by The Price
Company.
11. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the years ended December 31, 1996, 1995
and 1994 is as follows:
Earnings
Revenues Net Income Per Share
---------------------------------
(In Thousands, except
per share data)
1996
----
First $13,430 $ 4,058 $ 0.49
Second 12,883 4,135 0.50
Third 13,362 4,103 0.48
Fourth 14,650 $,623 0.51
1995
----
First $10,366 $ 4,008 $ 0.49
Second 10,405 4,091 0.50
Third 10,579 4,082 0.49
Fourth 12,173 4,205 0.50
1994
----
First $ 9,216 $ 3,938 $ 0.48
Second 9,653 4,148 0.51
Third 9,828 4,477 0.55
Fourth 11,228 4,341 0.53
The Price REIT, Inc.
12. Subsequent Events
On January 22, 1997, the Company completed a public offering of 1,600,000 shares
of Common Stock at an offering price of $37.625 per share. The Company plans to
use the net proceeds of approximately $57 million for repayment of indebtedness
under the Company's unsecured line of credit and to fund its future acquisition
and development activities.
On January 16, 1997, the Company acquired a 134,000 square foot shopping center
in Wichita, Kansas for $9.8 million.
Effective January 1, 1997, the Company acquired the assets and assumed the
liabilities of the Development Company.