- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER MARCH 31, 1999 Commission File Number 0-8725 PACIFIC REAL ESTATE INVESTMENT TRUST A CALIFORNIA TRUST I.R.S. Employer Identification No. 94-1572930 1010 El Camino Real, Suite 210 Menlo Park, CA 94025 Telephone: (650) 327-7147 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. $10 Par Value, 3,706,845 shares - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Page 1 of 7 PACIFIC REAL ESTATE INVESTMENT TRUST PART I - FINANCIAL INFORMATION CONSOLIDATED STATEMENTS OF OPERATIONS (LIQUIDATION BASIS) (UNAUDITED) ITEM I - FINANCIAL STATEMENTS THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 1999 MARCH 31, 1998 Rental revenues............................................................ $ 46,000 $ 406,000 ------------------ ---------------- Operating expenses (including related party amounts of $19,000 and $76,000 in 1999 and 1998 respectively): Operating........................................................... 15,000 187,000 Property tax........................................................ 5,000 23,000 General and administrative.......................................... 118,000 95,000 Property management fees............................................ 2,000 15,000 ------------------ ---------------- Total operating expenses................................. 140,000 320,000 ------------------ ---------------- Operating income (loss).................................................... (94,000) 86,000 ------------------ ---------------- Other income/(expense): Interest income..................................................... 38,000 23,000 Interest expense.................................................... (32,000) ------------------ ---------------- Total other income/(expense)...................................... 38,000 (9,000) ------------------ ---------------- Income (loss) before minority interest & income tax........................ (56,000) 77,000 ------------------ ---------------- Minority interest in joint venture......................................... (141,000) Income tax................................................................. (65,000) Net loss................................................................... $ (121,000) $ (64,000) ================== ================ Basic and diluted loss per share of beneficial interest.................... $ (0.03) $ (0.02) ================== ================ See notes to consolidated financial statements. Page 2 of 7 PACIFIC REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF NET ASSETS (LIQUIDATION BASIS) (UNAUDITED) ASSETS MAR 31, 1999 DEC 31, 1998 ---------------- ---------------- Investment in commercial properties: Land................................................. $ 1,650,000 $ 1,650,000 Buildings and improvements........................... 1,295,000 1,275,000 ------------------ ----------------- Commercial properties - net.......................... 2,945,000 2,925,000 Cash........................................................ 3,466,000 3,563,000 Accounts receivable (net of allowance of $33,000 in 1999 and $42,000 in 1998......................................... 13,000 30,000 Other assets................................................ 555,000 578,000 ------------------ ----------------- Total.............................................. $ 6,979,000 $ 7,096,000 ------------------ ----------------- LIABILITIES Liabilities: Security deposits..................................... $ 1,000 $ 1,000 Accounts payable and other liabilities................ 73,000 69,000 Reserve for estimated costs during the period of liquidation........................................... 244,000 244,000 ------------------ ----------------- Total liabilities.................................. 318,000 314,000 ------------------ ----------------- Net assets.................................................. $ 6,661,000 $ 6,782,000 ================== ================= See notes to consolidated financial statements. Page 3 of 7 PACIFIC REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (LIQUIDATION BASIS) (UNAUDITED) For the three months ended March 31, 1999 1998 -------------------- ---------------------- Cash Flow from Operating Activities: Net loss............................................... $ (121,000) $ (64,000) Adjustments to reconcile net loss to net cash used by Operating activities: Minority interest in joint venture's operations...... 141,000 Changes in operating assets and liabilities: Accounts payable and other liabilities............... 4,000 (291,000) Security deposits.................................... (1,000) Accounts receivable.................................. 17,000 45,000 Other assets......................................... 23,000 (25,000) -------------------- ---------------------- Net cash used by operating activities..................... (77,000) (195,000) -------------------- ---------------------- Cash Flow from Investing Activities: Construction of properties........................... (20,000) (112,000) Collection of notes receivable....................... 5,000 -------------------- ---------------------- Net cash used in investing activities..................... (20,000) (107,000) -------------------- ---------------------- Cash Flow from Financing Activities: Re-payment of mortgage loans......................... (9,000) Distributions to joint venture partner............... (120,000) Net cash used by financing activities..................... (129,000) -------------------- ---------------------- Decrease in cash....................................... (97,000) (431,000) Cash, January 1...................................... 3,563,000 3,479,000 -------------------- ---------------------- Cash, March 31....................................... $ 3,466,000 $ 3,048,000 ==================== ====================== See notes to consolidated financial statements. Page 4 of 7 PACIFIC REAL ESTATE INVESTMENT TRUST NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) Basis of Presentation The accompanying unaudited financial statements include all adjustments, which are, in the opinion of management, necessary for fair presentation of the Trust's financial position, including changes therein, and results of operations for the interim period reported upon. Such statements have been prepared from the Trust's accounting records in accordance with the instructions to Form 10-Q. Plan of Liquidation On February 4, 1998, the Trust's shareholders approved a Plan of Dissolution. As a result, the Trust's financial statements as of December 31, 1997 and thereafter have been prepared on a liquidation basis. Accordingly, assets have been valued at estimated net realizable value and liabilities include estimated costs associated with carrying out the plan of liquidation. Income Taxes The Trust qualifies as a real estate investment trust under the Internal Revenue Code. Wanlass Shopping Center In 1998, the Trust purchased the fee title to the land at the Wanlass Shopping Center. The purchase was required under the terms of the then existing ground lease between the Trust and the ground lessor. The Trust will dispose of the property when the redevelopment is complete. This is expected to occur during 1999. Related Party Transactions Fees paid or payable to Menlo Management Company for three months ended March 31, 1999 and 1998 are as follows: 1999 1998 ----------------- ----------------- MENLO MANAGEMENT COMPANY Property management fees......... $ 2,000 $ 15,000 Administrative services.......... 17,000 17,000 Lease commissions................ 44,000 ----------------- ----------------- Total....................... $ 19,000 $ 76,000 ================= ================= Basic and Diluted Loss Per Share of Beneficial Interest Basic and diluted loss income per share of beneficial interest is computed by dividing net loss by the weighted average number of shares outstanding for the three months ended March 31, 1999 and 1998 were as follows: 1999 1998 ---- ---- Weighted average number of shares outstanding 3,706,845 3,706,845 Page 5 of 7 PACIFIC REAL ESTATE INVESTMENT TRUST PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OF OPERATIONS. (1) LIQUIDITY AND CAPITAL RESOURCES: Cash flow used by operating activities was $77,000 for the three months ended March 31, 1999 as compared to cash flow used by operating activities of $195,000 for the three months ended March 31, 1998. The net change is primarily due to the change in expense levels resulting from the sale of Kings Court Shopping Center in 1998. Cash flow used by investing activities was $20,000 for the three months ended March 31, 1999 compared to $107,000 for the three months ended March 31, 1998. The net change was primarily the result of a decrease in construction costs at the Wanlass property. Cash flow used by financing activities was zero for the three months ended March 31, 1999 as compared to $129,000 for the three months ended March 31, 1998. The decrease is primarily due to the re-payment of the Kings Court mortgage debt and distribution to joint venture partners in 1998. (2) MATERIAL CHANGES IN RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1999 VS. 1998: Net loss for the three months ended March 31, 1999 was $121,000 as compared to a net loss of $64,000 for the three months ended March 31, 1998, an increased loss of $58,000. During the first three months rental revenues decreased from $406,000 in 1998 to $46,000 in 1999, a decrease of $360,000 or 89%. This decrease resulted from the sale of Kings Court Shopping Center in August 1998 Operating expenses decreased from $187,000 in 1998 to $15,000 in 1999, a decrease of $172,000 or 92%. Property taxes decreased from $23,000 in 1998 to $5,000 in 1999, a decrease of $18,000, or 78%. Property management fees decreased from $15,000 in 1998 to $2,000 in 1999, a decrease of $13,000, or 87%. Each of these decreases resulted primarily from the sale of Kings Court Shopping Center in August 1998. General and administrative expense increased from $95,000 in 1998 to $118,000 in 1999, an increase of $23,000 or 24%. The increase in 1999 is the result of insurance expense related to the liquidation. Interest income increased by $15,000, or 65%, from $23,000 in 1998 to $38,000 in 1999, as a result of cash received from the sale of Kings Court Shopping Center in August 1998. Interest expense decreased by $32,000, or 100%, from $32,000 in 1998 to zero in 1999, due to the re-payment of the Kings Court mortgage debt in 1998. ITEM 6 (B) - Report on Form 8K - None for the three months ended March 31, 1999. Page 6 of 7 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned. PACIFIC REAL ESTATE INVESTMENT TRUST Date: By: ---------------------- --------------------------------- Robert Ch. Gould VICE PRESIDENT Date: By: ---------------------- --------------------------------- Harry E. Kellogg SECRETARY AND TREASURER Page 7 of 7