- ------------------------------------------------------------------------------- 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 ENDED JUNE 30, 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 - ------------------------------------------------------------------------------- PACIFIC REAL ESTATE INVESTMENT TRUST PART I - FINANCIAL INFORMATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ITEM I - FINANCIAL STATEMENTS THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 ------------- ------------- ------------- ------------- (LIQUIDATION (LIQUIDATION (LIQUIDATION (LIQUIDATION BASIS) BASIS) BASIS) BASIS) Rental revenues............................................ $ 48,000 $ 465,000 $ 94,000 $ 871,000 ---------- ----------- ---------- ----------- Operating expenses (including related party amounts of $64,000 for the three months ended June 30, 1999, $32,000 for the three months ended June 30, 1998, $82,000 for the six months ended June 30, 1999 and $108,000 for the six months ended June 30, 1998) Operating............................................ 53,000 143,000 68,000 330,000 Property tax......................................... 5,000 23,000 10,000 46,000 General and administrative........................... 129,000 78,000 247,000 173,000 Property management fees............................ 3,000 16,000 5,000 31,000 Loss (gain) on property sale......................... (36,000) (36,000) ---------- ----------- ---------- ----------- Total operating expenses.......................... 190,000 224,000 330,000 544,000 ---------- ----------- ---------- ----------- Operating income (loss).................................... (142,000) 241,000 (236,000) 327,000 ---------- ----------- ---------- ----------- Other income/(expense): Interest income...................................... 35,000 24,000 73,000 47,000 Interest expense..................................... (33,000) (65,000) ---------- ----------- ---------- ----------- Total other income/(expense)........................ 35,000 (9,000) 73,000 (18,000) ---------- ----------- ---------- ----------- Net income (loss) before minority interest................. (107,000) 232,000 (163,000) 309,000 ---------- ----------- ---------- ----------- Minority interest in joint venture......................... (172,000) (313,000) Income tax................................................. (65,000) ---------- ----------- ---------- ----------- Net income (loss).......................................... $(107,000) $ 60,000 $(228,000) $ (4,000) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- Basic and diluted income (loss) per share of beneficial interest................................................ $ (0.03) $ 0.02 $ (0.06) $ (0.00) ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- See notes to consolidated financial statements. Page 1 of 6 PACIFIC REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF NET ASSETS (LIQUIDATION BASIS) (UNAUDITED) ASSETS JUNE 30,1999 DEC 31, 1998 ------------------ ----------------- Investment in operating commercial properties: Land................................................. $ 1,650,000 $ 1,650,000 Buildings and improvements........................... 1,344,000 1,275,000 ------------------ ----------------- Commercial properties - net.......................... 2,994,000 2,925,000 Cash........................................................ 3,637,000 3,563,000 Accounts receivable (net of allowance of $33,000 in 1999 and $42,000 in 1998)........................................ 12,000 30,000 Other assets................................................ 177,000 578,000 ------------------ ----------------- Total.............................................. $ 6,820,000 $ 7,096,000 ------------------ ----------------- ------------------ ----------------- LIABILITIES Security deposits..................................... $ 4,000 $ 1,000 Accounts payable and other liabilities................ 18,000 69,000 Reserve for estimated costs during the period of liquidation........................................... 244,000 244,000 ------------------ ----------------- Total liabilities.................................. 266,000 314,000 ------------------ ----------------- Net assets.................................................. $ 6,554,000 $ 6,782,000 ------------------ ----------------- ------------------ ----------------- See notes to consolidated financial statements. Page 2 of 6 PACIFIC REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998 ------------------- ------------------- (liquidation basis) (liquidation basis) Cash Flow from Operating Activities: Net loss............................................. $ (228,000) $ (4,000) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Minority interest in joint venture's operations.... 313,000 Gain on sale of property........................... (36,000) Changes in operating assets and liabilities Accounts payable and other liabilities............. (51,000) (465,000) Security deposits.................................. 3,000 2,000 Accounts receivable................................ 18,000 52,000 Other assets....................................... 401,000 136,000 -------------------- -------------------- Net cash provided (used) by operating activities.......... 143,000 (2,000) -------------------- -------------------- Cash Flow from Investing Activities: Construction of properties......................... (69,000) (463,000) Collection of notes receivable..................... 9,000 Proceeds from the sale of property................. 36,000 -------------------- ------------------- Net cash used by investing activities..................... (69,000) (418,000) -------------------- -------------------- Cash Flow from Financing Activities: Re-payment of mortgage loans....................... (18,000) Distributions of joint venture partner............. (180,000) -------------------- -------------------- Net cash used by financing activities..................... (198,000) -------------------- -------------------- Increase (decrease) in cash.......................... 74,000 (618,000) Cash, January 1.................................... 3,563,000 3,479,000 -------------------- -------------------- Cash, June 30...................................... $ 3,637,000 $ 2,861,000 -------------------- -------------------- -------------------- -------------------- See notes to consolidated financial statements. Page 3 of 6 PACIFIC REAL ESTATE INVESTMENT TRUST NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) Basis of Presentation The accompanying unaudited financial statements include all adjustments that 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 and six months ended 1999 and 1998 were as follows: Three months ended Six months ended June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 --------------------------------------------------------------------- MENLO MANAGEMENT COMPANY Property management fees...................... $ 3,000 $ 16,000 $ 5,000 $ 31,000 Administrative services....................... 17,000 16,000 33,000 33,000 Lease commissions............................. 44,000 44,000 44,000 -------------- --------------- --------------- -------------- Total.................................. $ 64,000 $ 32,000 $ 82,000 $ 108,000 -------------- --------------- --------------- -------------- -------------- --------------- --------------- -------------- Basic and diluted income (loss) Per Share of Beneficial Interest Basic and diluted income (loss) per share of beneficial interest, computed by dividing net income (loss) by the weighted average number of shares outstanding, for the three months and six months ended June 30, 1999 and 1998 were as follows: 1999 1998 ---- ---- Weighted average number of shares outstanding 3,706,845 3,706,845 Page 4 of 6 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 provided by operating activities was $143,000 for the six months ended June 30, 1999 as compared to cash flow used by operating activities of $2,000 for the six months ended June 30, 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 $69,000 for the six months ended June 30, 1999 compared to $418,000 for the six months ended June 30, 1998. The net change is primarily the result of a decrease in construction costs at the Wanlass property. Cash flow used by financing activities was zero for the six months ended June 30, 1999 as compared to $198,000 for the six months ended June 30, 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 SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO 1998: Net loss for the six months ended June 30, 1999 was $228,000 as compared to a net loss of $4,000 for the six months ended June 30, 1998. During the first six months rental revenues decreased from $871,000 in 1998 to $94,000 in 1999, a decrease of $777,000 or 89%. This decrease resulted from the sale of Kings Court Shopping Center in August 1998. Operating expenses decreased from $330,000 in 1998 to $68,000 in 1999, a decrease of $262,000 or 79%. Property taxes decreased from $46,000 in 1998 to $10,000 in 1999, a decrease of $36,000, or 78%. Property management fees decreased from $31,000 in 1998 to $5,000 in 1999, a decrease of $26,000, or 84%. Each of these decreases resulted from the sale of Kings Court Shopping Center in August 1998 General and administrative expense increased from $173,000 in 1998 to $247,000 in 1999, an increase of $74,000 or 43%. The increase in 1999 is the result of insurance expense related to the liquidation. Interest income increased from $47,000 in 1998 to $73,000 in 1999, an increase of $26,000, or 55%. The net change is the result of cash received from the sale of Kings Court Shopping Center in August 1998. Interest expense decreased from $65,000 in 1998 to zero in 1999, a decrease of $65,000, or 100%. The decrease was due to the re-payment of the Kings Court Shopping Center mortgage debt in August 1998. Material changes for the three months ended June 30, 1999 as compared to 1998 were for the same reason in relative proportionate amounts as those shown for the six months. ITEM 6 (B) - Report on Form 8K -- None was filed for the six months ended June 30, 1999. Page 5 of 6 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: August 6, 1999 By: ROBERT CH. GOULD --------------- ----------------------- Robert Ch. Gould VICE PRESIDENT Date: August 6, 1999 By: HARRY E. KELLOGG -------------------- ----------------------- Harry E. Kellogg TREASURER Page 6 of 6