-----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, Rno0SEB5/Ah0ZUu8aIMgUhLO3cuC3t4T1MI8Rl3nMlp3y0qZIDmwKMnvuG7sp41a Q+pny13EuHlZckfwPpQ8Hw== 0000891618-97-002287.txt : 19970515 0000891618-97-002287.hdr.sgml : 19970515 ACCESSION NUMBER: 0000891618-97-002287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEREGRINE REAL ESTATE TRUST CENTRAL INDEX KEY: 0000314485 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942255677 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09097 FILM NUMBER: 97604622 BUSINESS ADDRESS: STREET 1: 1300 ETHAN WAY, SUITE 200 CITY: SACRAMENTO STATE: CA ZIP: 95825 BUSINESS PHONE: 916-929-82 MAIL ADDRESS: STREET 1: 1300 EATHAN WAY SUITE 200 STREET 2: 705 UNIVERSITY AVE CITY: SACRAMENTO STATE: CA ZIP: 95825 FORMER COMPANY: FORMER CONFORMED NAME: COMMONWEALTH EQUITY TRUST DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 3/31/97 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 From the transition period from __________________ to __________________ Commission file number 0-9097 The Peregrine Real Estate Trust (Exact name of registrant as specified in its charter) California 94-2255677 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1300 Ethan Way, Suite 200, Sacramento, CA 95825 (Address of principal executive offices) (Zip Code) (916) 929-8244 (Registrant's telephone number, including area code) 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 --- --- 2 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at May 5, 1997 - ------------------------------------ -------------------------- Common Shares of Beneficial Interest 4,881,122 3 - ------------------------------------------------------------------------------ THE PEREGRINE REAL ESTATE TRUST - ------------------------------------------------------------------------------
INDEX PAGE PART I. FINANCIAL INFORMATION Item 1: Financial Statements Balance Sheets - March 31, 1997 and December 31, 1996 1 Statements of Operations - For the Three Months Ended March 31, 1997 and 1996 2-3 Statements of Cash Flows - For the Three Months Ended March 31, 1997 and 1996 4 Notes to Financial Statements 5-13 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 14-22 PART II. OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K 23-24
4 PART I: FINANCIAL INFORMATION THE PEREGRINE REAL ESTATE TRUST BALANCE SHEETS
MARCH 31, DECEMBER 31, 1997 1996 (UNAUDITED) (AUDITED) ----------- --------- ASSETS INVESTMENTS: Rental properties, net of accumulated depreciation of $2,672,000 and $1,986,000 at March 31, 1997 and December 31, 1996, respectively $ 68,443,000 $ 77,412,000 Notes receivable, net of deferred gains of $80,000 and $319,000 at March 31, 1997 and December 31, 1996, respectively 718,000 2,296,000 Marketable securities available-for-sale -- 14,115,000 ------------ ------------- 69,161,000 93,823,000 Cash 4,627,000 5,972,000 Restricted cash 994,000 986,000 Rents, accrued interest and other receivables, net of allowance of $129,000 and $1,153,000 at March 31, 1997 and December 31, 1996, respectively 1,086,000 1,706,000 Other assets 1,590,000 2,239,000 ------------ ------------- Total assets $ 77,458,000 $ 104,726,000 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) LIABILITIES: Long-term notes payable, collateralized by deeds of trust on rental properties $ 27,018,000 $ 32,263,000 Senior Lender Group Notes Payable 28,889,000 44,467,000 Line of credit 8,000,000 8,583,000 Accounts payable and accrued liabilities 2,918,000 3,446,000 Other liabilities 278,000 343,000 ------------ ------------- Total liabilities 67,103,000 89,102,000 ------------ ------------- Commitments and contingencies (Note 12 to financial statements) Minority interest -- 5,759,000 ------------ ------------- Redeemable Convertible Preferred Stock: 25,000,000 shares authorized; 14,424,000 and 14,073,000 shares issued and outstanding at March 31, 1997 and December 31, 1996, respectively; net of unaccreted discount of $1,818,000 and $1,881,000 at March 31, 1997 and December 31, 1996, respectively; liquidation preference of $28,848,000 and $28,146,000 at March 31, 1997 and December 31, 1996, respectively 27,030,000 26,265,000 ------------ ------------- Common Shares of Beneficial Interest: 50,000,000 shares authorized; 4,881,000 shares outstanding 13,356,000 13,356,000 Unrealized holding gains on marketable securities -- (22,000) Accumulated deficit (30,031,000) (29,734,000) ------------ ------------- Total liabilities and shareholders' equity (deficit) $ 77,458,000 $ 104,726,000 ============ =============
See accompanying notes to financial statements. 1 5 THE PEREGRINE REAL ESTATE TRUST STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996 ---- ---- REVENUES: Hotel $ 3,322,000 $ 3,187,000 Rent 2,310,000 2,954,000 Interest 86,000 379,000 ----------- ----------- 5,718,000 6,520,000 ----------- ----------- EXPENSES: Hotel operating expenses 2,482,000 2,624,000 Commercial property operating expenses 671,000 993,000 Commercial and hotel property management 163,000 218,000 Depreciation and amortization 760,000 780,000 Interest 1,500,000 2,033,000 General and administrative 708,000 1,615,000 ----------- ----------- 6,284,000 8,263,000 ----------- ----------- Loss before gain on foreclosure or sale of investments, valuation losses, extraordinary item and minority interest (566,000) (1,743,000) Gain on foreclosure or sale of investments, net 1,012,000 299,000 ----------- ----------- Income (loss) before valuation losses, extraordinary item and minority interest 446,000 (1,444,000) Valuation losses -- (1,685,000) ----------- ----------- Income (loss) before extraordinary item and minority interest 446,000 (3,129,000) Extraordinary item, forgiveness of debt 22,000 -- ----------- ----------- Income (loss) before minority interest 468,000 (3,129,000) Minority interest -- (105,000) ----------- ----------- Net income (loss) $ 468,000 $(3,234,000) =========== ===========
See accompanying notes to financial statements. 2 6 THE PEREGRINE REAL ESTATE TRUST STATEMENTS OF OPERATIONS - CONTINUED (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996 ---- ---- Loss per Common Share of Beneficial Interest: Net income (loss) $ 468,000 $(3,234,000) Preferred stock dividends, net of discounts (664,000) (599,000) Accretion of discounts on Preferred Stock (101,000) (82,000) ----------- ----------- Net loss attributable to Common Shares of Beneficial Interest $ (297,000) $(3,915,000) =========== =========== Loss per Common Share of Beneficial Interest before extraordinary item $ (0.07) $ (0.80) Extraordinary item per Common Share of Beneficial Interest 0.01 -- ----------- ----------- Net loss per share attributable to Common Shares of Beneficial Interest $ (0.06) $ (0.80) =========== =========== Weighted average number of Common Shares of Beneficial Interest outstanding 4,881,000 4,881,000
See accompanying notes to financial statements. 3 7 THE PEREGRINE REAL ESTATE TRUST STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 468,000 $(3,234,000) ------------ ----------- Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Interest and fees added to principal balance of debt -- 1,102,000 Depreciation and amortization 760,000 780,000 Gain on foreclosure or sale of investments (1,012,000) (299,000) Minority interest in net income -- 105,000 Extraordinary item, forgiveness of debt (22,000) -- Valuation losses -- 1,685,000 Changes in other assets and liabilities: Increase in rents, accrued interest and other receivables (56,000) (29,000) Increase in other assets (241,000) (315,000) (Decrease) increase in accounts payable and accrued liabilities (181,000) 825,000 Increase (decrease) in other liabilities 5,000 (185,000) ------------ ----------- Total adjustments to net income (loss) (747,000) 3,669,000 ------------ ----------- Net cash (used in) provided by operating activities (279,000) 435,000 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of investments 20,222,000 -- Improvements to rental properties (330,000) (654,000) Purchase of office equipment (16,000) -- Principal collections on notes receivable 2,000 17,000 ------------ ----------- Net cash provided by (used in) investing activities 19,878,000 (637,000) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term notes payable (77,000) (30,000) Principal (payments) borrowings on Line of Credit, net (583,000) 1,850,000 Principal payments on Senior Lender Group Notes Payable (15,578,000) -- Increase in restricted cash (8,000) (1,250,000) ------------ ----------- Net cash (used in) provided by financing activities (16,246,000) 570,000 ------------ ----------- Net increase in unrestricted cash 3,353,000 368,000 Unrestricted cash, beginning of period 5,972,000 5,079,000 Less unrestricted cash, beginning of period, attributable to CalREIT (4,698,000)(1) -- ------------ ----------- Unrestricted cash, end of period $ 4,627,000 $ 5,447,000 ============ ===========
(1) Amount is deducted to reflect Peregrine's sale of its 76% stock ownership interest in CalREIT on January 3, 1997. See accompanying notes to financial statements. 4 8 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 1. Organization and Basis of Presentation Organization The Peregrine Real Estate Trust ("Peregrine") was organized under the laws of the State of California pursuant to a Declaration of Trust dated July 31, 1973, and pursuant to a Plan of Reorganization (the "Plan") under Chapter 11 of the United States Bankruptcy Code was reorganized under a Restated Declaration of Trust dated October 7, 1994 (the "Effective Date"). Commencing September 1, 1993, Peregrine became self-administered. Peregrine's obligation of approximately $80,000,000 to a group of secured lenders (the "Senior Lender Group") was satisified by the Plan by the issuance to the Senior Lender Group of 52% of the Common Shares of Beneficial Interest, Redeemable Convertible Preferred Stock ("Preferred Stock") in the original face amount of $22,500,000, which carries a dividend of 10% per annum and notes payable in the original face amount of $40,000,000 which bears interest at 8.5% per annum (the "Senior Lender Group Notes Payable"). At March 31, 1997, Peregrine owned nineteen commercial properties located primarily in the Sacramento area, three hotel properties located in Northern California, a partnership interest and three mortgage notes secured by real property. Peregrine's 76% stock ownership interest in the California Real Estate Investment Trust ("CalREIT") was sold on January 3, 1997, for $20,222,000 in cash. Basis of Presentation The accompanying financial statements are unaudited; however, they have been prepared in accordance with generally accepted accounting principles for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. The results for the interim period ended March 31, 1997 are not necessarily indicative of the results to be obtained for the full fiscal year. These financial statements should be read in conjunction with the December 31, 1996 audited financial statements and notes thereto, included in The Peregrine Real Estate Trust's Annual Report on Form 10-K. The accompanying unaudited financial statements as of and for the three months ended March 31, 1997 reflect the accounts of Peregrine. The accompanying audited balance sheet as of December 31, 1996 and unaudited statements of operations and cash flows for the three months ended March 31, 1996 reflect the consolidated accounts of Peregrine and its former majority-owned subsidiary CalREIT, in which Peregrine had a 76% stock ownership interest until January 3, 1997, when it was sold for $20,222,000 in cash. Herein, Peregrine and CalREIT, on a consolidated basis, are referred to as the "Trust". 5 9 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 1. Organization and Basis of Presentation, continued Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts or 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. Reclassifications Certain reclassifications have been made in the presentation of the 1996 financial statements to conform to the 1997 presentation. 2. Investments in Rental Properties, Notes Receivable and Partnerships At March 31, 1997, 3900 Lennane Drive with a total carrying value of $1,895,000 was classified as "held-for-sale". At December 31, 1996, 3900 Lennane Drive and CalREIT's two directly owned properties with total carrying values of $1,895,000 and $8,585,000, respectively, were classified as "held-for-sale". At March 31, 1997, no notes receivable were classified as "held-for-sale". At December 31, 1996, all notes receivable directly owned by CalREIT with a carrying value of $1,576,000, were classified as "held-for-sale". At March 31, 1997 and December 31, 1996, Peregrine was a partner in CR Properties, a general partnership, in which Peregrine owns a 50% interest. CR Properties is a limited partner in a partnership which owns an office building in Sacramento, California. No portion of the CR Properties partnership loss has been recognized in the Trust's financial statements for the three month periods ended March 31, 1997 and 1996, as the partnership agreement specifies that net losses shall be allocated 100% to the other partner. As CR Properties has a limited partnership interest, it has no contingent liability with respect to the office building debt. Peregrine's investment in CR Properties had a carrying value of $0 at March 31, 1997 and December 31, 1996. 6 10 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 2. Investments in Rental Properties, Notes Receivable and Partnerships, continued At March 31, 1997 and December 31, 1996, the Trust's investments are recorded at reorganization value net of accumulated depreciation and amortization and impairment losses ("valuation losses") recognized since the Effective Date, unless they are CalREIT's investments, in which case they are carried at cost, net of accumulated depreciation and amortization and impairment losses recognized. The valuation allowances for possible investment losses recorded through March 31, 1997 and December 31, 1996, represent the excess of the carrying value of individual assets over their appraised or estimated fair value (less estimated selling costs if "held-for-sale"). During the three month period ended March 31, 1997, the Trust reported no valuation losses. During the three month period ended March 31, 1996, the Trust reported total valuation losses of $1,685,000, which were attributable to an impairment in the value of CalREIT's Fulton Square Shopping Center in Sacramento, California ($295,000) and an impairment in the value of Peregrine's Placer Ranch partnership investment ($1,390,000), which was sold in July 1996. 3. Investments in Marketable Securities At March 31, 1997, the Trust had $0 invested in marketable securities. At December 31, 1996, the Trust had $14,115,000 invested in U.S. Government Agency mortgage-backed securities classified as "available-for-sale", all of which were held by CalREIT. 4. Restricted Cash At March 31, 1997 and December 31, 1996, cash of $994,000 and $986,000, respectively, was restricted. Such funds, which represent the balance of the net proceeds from the sale of certain assets of Peregrine, are being held in an escrow account for the benefit of the Senior Lender Group. 5. Long-Term Notes Payable At March 31, 1997 and December 31, 1996, the Trust had long-term notes payable, other than the Senior Lender Group Notes Payable and the Line of Credit, of $27,018,000 and $32,263,000, respectively. Most of the long-term notes payable are collateralized by first deeds of trust on rental properties, with an aggregate net book value of $31,228,000 and $38,695,000, at March 31, 1997 and December 31, 1996, respectively. 7 11 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 5. Long-Term Notes Payable, continued During 1996, Peregrine's office building located at 3900 Lennane Drive, Sacramento, California continued to be vacant despite efforts to lease the property. In addition, management continued its efforts to either sell the property or restructure the debt due to negative cash flow resulting from the required debt service payments (including tax impounds) of approximately $25,000 per month. All efforts to lease or sell the property or restructure the debt to a manageable level failed. As a result, in February 1997, after consent from both the Senior Lender Group and Foothill Capital Corporation (the lender on the Line of Credit), Peregrine ceased debt service payments. In March 1997, Peregrine was notified that the lender has initiated judicial foreclosure proceedings against the note. The unpaid balance of the note at the time of default was approximately $2,493,000, of which approximately $2,380,000 is subject to recourse. 6. Related-Party Transactions Peregrine and CalREIT are both self-administered. During the three month period ended March 31, 1997, Peregrine charged CalREIT $1,600 for direct services provided by Peregrine employees based upon computed hourly rates, including salary, taxes, and benefits. During 1996, Peregrine and CalREIT shared certain costs, including personnel costs, for which CalREIT reimbursed Peregrine pursuant to a cost allocation agreement based respective asset values. The cost allocation agreement between Peregrine and CalREIT was terminated in January 1997, following Peregrine's sale of its 76% stock ownership interest in CalREIT. During the three month period ended March 31, 1996, reimbursable costs charged by Peregrine to CalREIT approximated $71,000. At March 31, 1997 and December 31, 1996, Peregrine had amounts due from CalREIT aggregating $1,600 and $31,000, respectively. Peregrine utilized the services of certain of its independent Trustees in connection with its analysis of alternative operating strategies, asset dispositions and day-to-day management activities. In connection with the consulting services performed, the following amounts were paid to such Trustees 8 12 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 6. Related-Party Transactions, continued (or affiliated companies) during the three month periods ended March 31, 1997 and 1996, in addition to the quarterly and meeting fees paid to the Trustees:
For the Three Months Ended March 31, 1997 1996 ---- ---- The McMahan Group (John McMahan, Trustee) $ -- $ 9,000 John F. Salmon, Trustee $ 3,000 $11,000 The Presidio Group (Kenneth T. Seeger, Trustee) $50,000 $ 9,000 Hickey & Hill, Inc. (E. Lawrence Hill, Jr., Trustee) $ 5,000 $ --
7. Gain on Foreclosure or Sale of Investments Components of the gain on foreclosure or sale of investments for the three month periods ended March 31, 1997 and 1996 were as follows:
For the Three Months Ended March 31, 1997 1996 ---- ---- Components Sale of Investment in CalREIT $1,012,000 $ -- Sale of Redfield Commerce Center -- 299,000 ---------- -------- $1,012,000 $299,000 ========== ========
On January 3, 1997, the date on which Peregrine sold its investment in CalREIT, the book value of Peregrine's investment in CalREIT was $18,733,000. CalREIT was sold for $20,222,000 in cash, with $477,000 in related selling costs incurred, resulting in a gain of $1,012,000. In March 1996, CalREIT sold the Redfield Commerce Center. The book value of the property was on the date of the transaction was $734,000. The Redfield Commerce Center was sold for $1,118,000 with $76,000 in related selling costs and $9,000 in liabilities applied towards the selling price, resulting in a gain of $299,000. 9 13 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 8. Extraordinary item, forgiveness of debt Peregrine benefited from a forgiveness of debt related to the extinguishment of certain debt related to the bankruptcy proceedings of $22,000 during the three month period ended March 31, 1997. 9. Statement of Cash Flows Supplemental Information In connection with the sale and foreclosure of properties and notes receivable the Trust entered into various non-cash transactions as follows:
For the Three Months Ended March 31, March 31, 1997 1996 ---- ---- Sales price less selling costs $ -- $ 1,033,000 Amount due from buyer -- (1,033,000) ---------------- ----------- Net cash received $ -- $ -- ================ ===========
One parcel of land located in Sacramento with a carrying value of $30,000 was sold at a county public auction during the three month period ended March 31, 1997. No gain or loss was recorded on this transaction, as the carrying value of the land was equal to the carrying value of the liabilities. Two parcels of land located in Sacramento with a carrying value of $82,000 were returned to the bond holder in lieu of foreclosure during the three month period ended March 31, 1996. No gain or loss was recorded on this transaction, as the carrying value of the land was equal to the carrying value of the liabilities. CalREIT's Casa Grande Motor Inn, which was collateralized by notes payable of $3,089,000, was foreclosed upon during the quarter ended March 31, 1996. The carrying value of the assets was equal to the carrying value of the debt; therefore, no gain or loss on foreclosure was recorded. Additionally, on March 31, 1997 and 1996, Peregrine issued Redeemable Convertible Preferred Stock in the face amounts of $702,000 and $643,000, respectively, as payment in kind for the dividends then due on the outstanding Preferred Stock. On March 31, 1996, Interest Deferral Notes at 8.5% per annum in the principal amount of $933,000 were issued as payment in kind for the interest then due on the Senior Lender Group Notes. 10 14 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 9. Statement of Cash Flows Supplemental Information, continued During the three month period ended March 31, 1996, the outstanding balance on the Line of Credit was increased by $169,000, for interest and expenses incurred. Cash paid for interest during the three month periods ended March 31, 1997 and 1996, was $1,566,000 and $962,000, respectively. 10. Per Share Data Per share data for the three month periods ended March 31, 1997 and 1996, were computed in conformity with the provisions of Accounting Principles Board Opinion 15 ("APB 15"). In accordance with APB 15, the earnings per share calculation includes all dilutive Common Shares of Beneficial Interest equivalents, based on stock options outstanding during the period (using the treasury stock method). There were 86,666 and 53,332 stock options outstanding at March 31, 1997 and 1996, respectively; however, stock options had an antidilutive effect on earnings per share and accordingly were excluded from all earnings per share computations. The weighted average number of shares used in the computation was 4,881,000 during the three month periods ended March 31, 1997 and 1996. 11. Distributions No cash distributions were made to the holders of Common Shares of Beneficial Interest during the three month periods ended March 31, 1997 and 1996. Under the terms of the agreements with respect to the Senior Lender Group Notes, Peregrine is substantially restricted from and does not anticipate making any distributions to shareholders in the foreseeable future. 12. Commitments and contingencies Unused Line of Credit At March 31, 1997, $600,000 of the Line of Credit, the maximum amount of which is $8,600,000, was unused. 11 15 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 12. Commitments and contingencies, continued Litigation At March 31, 1997, Peregrine was a party to a number of lawsuits. Most involved ordinary disputes common in the real property management business and amounts immaterial to the overall financial position of Peregrine. At March 31, 1997, Peregrine was a defendant in a case filed by MDC REIT Holdings, L.L.C. ("MDC") in California state court, on December 24, 1996. MDC alleges that Peregrine breached a certain stock purchase agreement pursuant to which Peregrine was to have sold to MDC certain shares of the Common Shares of Beneficial Interest of CalREIT that were owned by Peregrine. MDC is seeking damages it allegedly incurred in excess of $900,000, and recovery of its attorney fees, costs, and interest. Management believes, and has been advised by its counsel, that MDC's claims are without merit. Peregrine has answered the complaint, denying any breach of the stock purchase agreement and asserting numerous affirmative defenses to MDC's claims. The financial statements do not include an accrual for any losses related to the complaint. Financial Status of The Peregrine Real Estate Trust The following matters raise substantial doubt about Peregrine's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. - Subsequent to its emergence from bankruptcy on October 7, 1994, Peregrine has incurred cumulative losses through March 31, 1997, of approximately $23,000,000. - At March 31, 1997, Peregrine estimates that additional capital expenditures of approximately $1,700,000 are necessary to refurbish the three hotel properties, of which approximately $1,400,000 are required to be completed during 1997 in order to comply with Holiday Inn franchise requirements. As a result of not completing the required refurbishments within the time frame specified by Holiday Inn, Peregrine received a 30-day notice of default under the Holiday Inn License Agreements (the "Notice of Default") for its Chico and Sacramento hotels in February 1997. Management has negotiated with Holiday Inn and has obtained an extension of time to June 15, 1997 with respect to the Chico Holiday Inn, and an extension of time to August 15, 1997 with respect to the Sacramento Holiday Inn, in which to complete the refurbishments required. Should the refurbishments not be completed within the time frame established by Holiday Inn or not meet Holiday Inn's requirements, the License Agreements could be terminated on or after June 15, 1997 with respect to the Chico Holiday Inn and August 15, 1997 with respect to the Sacramento Holiday Inn, which could constitute events of default under the Line of Credit and Senior Lender Group Notes and could result in termination fees of approximately $500,000 and $800,000 for Chico and Sacramento, respectively. Management has developed an action plan to complete the required refurbishments which are currently underway. As a result of the sale of its 76% ownership interest in CalREIT on January 3, 1997, Peregrine believes it has the necessary resources to complete the required refurbishments. 12 16 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 12. Commitments and contingencies, continued Financial Status of The Peregrine Real Estate Trust, continued - Peregrine was required to begin paying interest in cash to its Senior Lender Group in November 1996 and estimates that payments in 1997 will be approximately $2,500,000. - The Line of Credit matures on October 7, 1997. - At March 31, 1997, Peregrine was in compliance with the Line of - Credit's Tangible Net Worth Covenant; however, it is anticipated that prior to the October 7, 1997 maturity date of the Line of Credit, Peregrine will be unable to meet the financial covenant due to anticipated net losses. - At March 31, 1997, Peregrine was a defendant in a case filed by MDC REIT Holdings, L.L.C. ("MDC") in California state court, on December 24, 1996, as described above. 13 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-Q. In addition, as a result of Peregrine's sale of its 76% stock ownership interest in CalREIT on January 3, 1997, operating and financial results for the three months ended March 31, 1997 represent results of Peregrine only; operating and financial results for the three months ended March 31, 1996 represent the results of Peregrine and CalREIT on a consolidated basis. Historical results set forth are not necessarily indicative of the future financial position and results of operations of Peregrine. In addition to historical information, the Form 10-Q contains forward-looking statements such as those pertaining to Peregrine's ability to fund its operations or otherwise satisfy capital requirements, both in the short and long term; to undertake property repairs, maintenance, improvements, refurbishments, or other capital expenditures; and to negotiate satisfactory terms with creditors, licensors, franchisors, or others. Forward-looking statements involve numerous risks and uncertainties. The following factors, among others discussed herein, could cause results and future events to differ materially from those set forth or contemplated in the forward-looking statements: increased interest rates and operating costs, deteriorating market conditions affecting occupancy or lease rates, difficulties in finding buyers for property dispositions, environmental uncertainties, risks related to natural disasters, financial market fluctuations, changes in real estate laws, real property taxes, and governmental regulation, as well as general economic trends and the factors discussed herein. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as of the date hereof. Peregrine assumes no obligation to update forward-looking statements. Readers should refer to Peregrine's reports to be filed from time to time with the Securities and Exchange Commission pursuant to the Exchange Act. Overview During the quarter ended March 31, 1997, management of Peregrine continued to concentrate on the operating strategy developed in 1996 to maximize the income stream from the commercial and hotel properties and to dispose of real estate assets with negative cash flows and/or which require significant capital expenditures beyond the resources available. Pursuant to this strategy, management continued its efforts to improve the physical 14 18 and operating condition of its commercial and hotel properties by completing repairs and deferred maintenance on the commercial properties, developing and implementing plans to complete the required refurbishments at the hotel properties, controlling property expenses and improving both occupancy levels and collections of rent. On January 3, 1997, Peregrine sold its 76% stock ownership interest in CalREIT for $20,222,000 in cash, a premium of approximately $1,500,000 over the book value of Peregrine's CalREIT shares. Peregrine was unable to reach an agreement with the Senior Lender Group as to alternative uses of the sales proceeds. As a result, 80% of the net sales proceeds were used to reduce outstanding obligations to the Senior Lender Group, as required, and the balance is being used for operating purposes, as discussed below. On March 20, 1997, several members of the Senior Lender Group notified Peregrine that they intended to nominate four alternative candidates for election as trustees of Peregrine at the annual meeting. At March 31, 1997 Peregrine believes the following factors have adversely affected, and in the future, could adversely affect its financial condition, results of operations and liquidity: - The capital structure of Peregrine resulting from the confirmed Plan of Reorganization, including the leverage resulting from the Senior Lender Group Notes, the first mortgage debt and the Preferred Stock, plus the associated present and future debt service and dividend obligations; - The additional $1,400,000 in estimated capital improvements required to be complete the refurbishments of Peregrine's three hotel properties in accordance with Holiday Inn franchise standards, that if not completed, will result in the termination of the Holiday Inn License Agreements and will have a material adverse affect on hotel operations; - Peregrine's general and administrative expenses, including costs associated with its estimated 16,000 shareholder base and the ongoing costs of being a public company; - The limited sources and amount of funds currently available to Peregrine from operations, its revolving Line of Credit, which matures on October 7, 1997, and from property dispositions, after payment of associated indebtedness, and the inability of Peregrine to raise capital from third parties in light of, among other things, its debt and capital structure, operating history and contingent liabilities; and - The overall lack of synergy and investment quality of Peregrine's real estate portfolio. 15 19 Comparison of the Three Months Ended March 31, 1997 to the Three Months Ended March 31, 1996 Net Income of $468,000 was reported by Peregrine for the three months ended March 31, 1997, an increase of $3,702,000, or 114%, from the net loss of $3,234,000 for the three months ended March 31, 1996. The increase for the three months ended March 31, 1997, is primarily the result of an increase in gains on the foreclosure or sale of investments of $713,000, a decrease in expenses of $1,979,000, and a decrease in valuation losses of $1,685,000. Revenues Total revenues were $5,718,000 during the three months ended March 31, 1997, down $802,000, or 12%, from total revenues of $6,520,000 during the three months ended March 31, 1996. Hotel Revenues. Hotel revenue increased $135,000, or 4%, to $3,322,000 for the three months ended March 31, 1997, up from $3,187,000 for the three months ended March 31, 1996. The increase is attributable to an overall increase in hotel revenue at the Sacramento and Walnut Creek Holiday Inns of $354,000, primarily resulting from increased room occupancy and room rates; offset by an overall decrease in hotel revenue at the Chico Holiday Inn of $219,000, primarily resulting from decreased room occupancy. Rental Revenues. Rental revenue decreased $644,000, or 22%, to $2,310,000 for the three months ended March 31, 1997, down from $2,954,000 for the three months ended March 31, 1996. The decrease is attributable to the absence of $569,000 in rental revenues from CalREIT, which was sold on January 3, 1997; the absence of $169,000 in rental revenues from the Sierra Oaks Shopping Center, which was sold in April 1996; and the absence of $28,000 in rental revenues from the Timberlake Medical Building, which was sold in August 1996; offset by $62,000 in rental revenues from the Corona, California properties, which were obtained in September 1996 through the foreclosure of a note; and an overall combined increase of $60,000 in rental revenues from all other commercial properties in Peregrine's portfolio. Interest Revenue. Interest revenue decreased $293,000, or 77%, from $379,000 for the three months ended March 31, 1996, to $86,000 for the three months ended March 31, 1997. The decrease is attributable to the absence of $302,000 in interest revenue from CalREIT, which was sold on January 3, 1997; and a decrease of $44,000 in interest revenue from mortgage notes due to the payoff of a $2,240,000 note in June 1996; offset by an increase in interest revenue on cash accounts resulting from an increased cash balance. Total Expenses Total expenses were $6,284,000 during the three months ended March 31, 1997, down $1,979,000, or 24%, from total expenses of $8,263,000 during the three months ended March 31, 1996. 16 20 Operating Expenses. Operating expenses for the hotels decreased $142,000, or 5%, from $2,624,000 during the three months ended March 31, 1996, to $2,482,000 during the three months ended March 31, 1997. The decrease is attributable to the absence of $118,000 in operating expenses at the Park Terrace Inn in Redding, California, due to the sale of the hotel in October 1996; and a decrease of $59,000 in operating expenses at the Chico Holiday Inn primarily a result of decreased occupancy; offset by an overall combined increase in operating expenses of $35,000 at the Sacramento and Walnut Creek Holiday Inns resulting from increased occupancy. Operating expenses for the commercial properties decreased $322,000, or 32%, to $671,000 during the three months ended March 31, 1997, down from $993,000 during the three months ended March 31, 1996. The decrease is attributable to the absence of $148,000 in operating expenses for CalREIT, which was sold on January 3, 1997; the absence of $61,000 in operating expenses at the Sierra Oaks Shopping Center, which was sold in April 1996; the absence of $26,000 in operating expenses at the Timberlake Medical Building, which was sold in August 1996; and an overall combined decrease of $102,000 in operating expenses at all other commercial properties in Peregrine's portfolio; offset by an increase of $15,000 in operating expenses at the Corona, California properties, which were obtained in September 1996 through the foreclosure of a note. Commercial and Hotel Property Management Fees. Commercial and hotel property management fees decreased $55,000, or 25%, from $218,000 for the three months ended March 31, 1996, to $163,000 for the three months ended March 31, 1997. The decrease is attributable to the absence of $27,000 in management fees for CalREIT, which was sold on January 3, 1997; the absence of $6,000 in management fees at the Sierra Oaks Shopping Center, which was sold in April 1996; the absence of $1,000 in management fees at the Timberlake Medical Building, which was sold in August 1996; an overall combined decrease of $8,000 in management fees at all other commercial in Peregrine's portfolio resulting from decreased cash collections; the absence of $9,000 in management fees at the Park Terrace Inn in Redding, California, which was sold in October 1996; and a decrease in management fees of $19,000 at the Chico Holiday Inn as a result of decreased hotel revenues; offset by an overall combined increase in management fees at the Sacramento and Walnut Creek Holiday Inns of $15,000 resulting from an overall increase in hotel revenues. Depreciation and Amortization Expense. Depreciation and amortization expense decreased $20,000, or 3%, to $760,000 for the three months ended March 31, 1997, down from $780,000 for the three months ended March 31, 1996. The decrease is attributable to the absence of $5,000 in depreciation from CalREIT, which was sold on January 3, 1997; the absence of $17,000 in depreciation on assets at the Timberlake Medical Building, which was sold in August 1996; and the absence of $35,000 in depreciation on assets at Park Terrace Inn in Redding, California, which was sold in October 1996; offset by $10,000 in depreciation of the Corona, California properties, which were obtained in September 1996 through the foreclosure of a note; and an overall combined increase of $27,000 in depreciation at all other commercial and hotel properties resulting from increases in building and tenant improvements and lease commissions. 17 21 Interest Expense. Interest expense decreased $533,000, or 26%, from $2,033,000 for the three months ended March 31, 1996, to $1,500,000 for the three months ended March 31, 1997. The decrease is primarily attributable to the absence of $137,000 in interest expense from CalREIT, which was sold January 3, 1997; the absence of $118,000 in interest expense on the first mortgage note on the Sierra Oaks Shopping Center, which was paid in full when the subject property was sold in April 1996; the absence of $11,000 in interest expense on the first mortgage note on the Timberlake Medical Building, which was paid in full when the subject property was sold in August 1996; the absence of $45,000 in interest expense on the first mortgage note on the Park Terrace Inn in Redding, California, which was paid in full when the subject property was sold in October 1996; and a decrease in interest expense on the Senior Lender Group Notes of $301,000 due to a reduction in the balance of notes which is primarily attributable to the application of $15,578,000 in net proceeds from the sale of CalREIT on January 3, 1997; offset by an increase in interest expense on the Line of Credit of $56,000 due to an increase in the balance outstanding; and an increase of $30,000 in interest expense on the first mortgage note on the 3900 Lennane Drive property, resulting from an increase in principal due to the deferral of interest in 1996. General and Administrative Expenses. General and administrative expenses decreased $907,000, or 56%, from $1,615,000 for the three months ended March 31, 1996, to $708,000 for the three months ended March 31, 1997. The decrease is primarily attributable to the absence of $342,000 in general and administrative expenses attributable to CalREIT, which was sold on January 3, 1997; a reduction in Peregrine's general and administrative expenses due to the absence of $250,000 in fees to its investment banker which were incurred in 1996 and not incurred in 1997; a reduction in salaries and wages of $213,000, which represents the severance pay for Peregrine's former Chief Executive Officer which was incurred in 1996 and not incurred in 1997; and an overall reduction in salaries and wages of $47,000 due to a reduction in staffing. Many of the administrative costs to service Peregrine's large shareholder base and to meet public regulatory requirements are fixed costs. As a result, Peregrine expects its general and administrative expenses to continue to be disproportionately high compared to the size of its asset base. Gain on Foreclosure or Sale of Investments During the three months ended March 31, 1997, Peregrine recorded total gains on the foreclosure or sale of investments of $1,012,000, as compared to total gains on the foreclosure or sale of investments of $299,000 during the three months ended March 31, 1996. In 1997, the amount is comprised of the gain recorded upon the sale of CalREIT on January 3, 1997. At the time of the transaction, the book value of Peregrine's investment in CalREIT was $18,733,000. CalREIT was sold for $20,222,000 in cash, with $477,000 in related selling costs incurred, resulting in a gain of $1,012,000. The 1996 amount is comprised of a gain recorded by CalREIT on the sale of its Redfield Commerce Center. 18 22 Valuation Losses During the three months ended March 31, 1997, Peregrine recorded no valuation losses. During the three months ended March 31, 1996, $1,685,000 in valuation losses were recorded. The 1996 amount was comprised of a $1,390,000 valuation loss recorded by Peregrine against its former Placer Ranch Partnership Investment and a $295,000 valuation loss recorded by CalREIT against its Fulton Square Shopping Center in Sacramento, California. Extraordinary Item, Forgiveness of Debt During the three months ended March 31, 1997, Peregrine benefited from a forgiveness of debt related to the extinguishment of certain debt related to the bankruptcy proceedings of $22,000. No such amount was recorded during the three months ended March 31, 1996. Dividends Peregrine made no cash distributions during the three months ended March 31, 1997 or 1996. In addition, Peregrine is substantially restricted from and does not anticipate making any cash distributions to shareholders in the foreseeable future. Property Operations Commercial Property Operations. At March 31, 1997 and March 31, 1996, overall weighted occupancy levels by commercial property type were as follows:
Overall Occupancy Property Type March 31, 1997 March 31, 1996 ------------- -------------- -------------- Retail Shopping Centers 82% 81% Office Buildings 79% 67% Industrial Buildings 92% 75% Mini-Storage Facilities 92% 92% CalREIT Properties N/A 91%
The weighted average occupancy level is calculated by multiplying the occupancy by square footage and dividing the total by the total square footage in the portfolio. The overall weighted average occupancy for Peregrine's commercial portfolio (excluding CalREIT) as of March 31, 1997 was 85% and as of March 31, 1996 was 76%. The increases in occupancy levels at Peregrine's retail shopping centers, office buildings, and industrial buildings noted above are the result of management's continued efforts to improve the physical and operating condition of the properties and improvements in the Sacramento area market where the majority of Peregrine's commercial properties are located. In addition, during the quarter ended March 31, 1997, management continued its efforts to lease or sell the property or restructure the associated first mortgage debt on the property located at 3900 Lennane Drive in Sacramento, California, which has been vacant since late 1994 and has negative cash flow in excess of the debt service payments of $25,000 per month; however, all such efforts failed, and early in 1997 management and the Board of Trustees made the decision to cease debt service payments and allow the lender to foreclose on the subject property. In February 1997, after consent from both the Senior Lender Group and Foothill Capital Corporation (the lender on the Line of Credit), Peregrine ceased debt service payments and was notified in March 1997, that the lender had initiated judicial foreclosure proceedings. 19 23 Hotel Operations. Overall weighted average occupancy at the hotels during the three months ended March 31, 1997 and 1996 was as follows:
Overall Occupancy Hotel 1997 1996 ----- ---- ---- Holiday Inn Chico 52% 87% Holiday Inn Sacramento 73% 72% Holiday Inn Walnut Creek 73% 61%
Throughout the first quarter of 1997, substantial attention remained on completing the required improvements at the hotel properties and increasing both occupancy levels and room rates. Dispositions On January 3, 1997, Peregrine sold its 76% stock ownership interest in CalREIT to a third party, CalREIT Investors Limited Partnership, for $20,222,000 in cash, or $2.91 per share of CalREIT previously held by Peregrine. As a result of the sale of CalREIT on January 3, 1997, all assets, liabilities and shareholders' equity (deficit) attributable to CalREIT included in the balance sheet at December 31, 1996 were eliminated as follows: the investment in rental properties decreased $8,585,000; the investment in notes receivable decreased $1,576,000; the investment in marketable securities available-for-sale decreased $14,115,000; unrestricted cash decreased $4,698,000; rents, accrued interest and other receivables decreased $707,000; other assets decreased $355,000; long-term notes payable collateralized by deed of trust on rental properties decreased $5,169,000; accounts payable and accrued liabilities decreased $295,000; other liabilities decreased $70,000; minority interest decreased $5,759,000; and the unrealized holding losses on marketable securities decreased $22,000. In addition, at the time of the sale, $32,000 due to Peregrine from CalREIT was recorded as a receivable. Of the $20,222,000 in proceeds received from the sale of CalREIT, $15,631,000 was required to be paid to the Senior Lender Group as payment of principal and accrued interest on the Senior Lender Group Notes Payable; the remaining $4,591,000 is held in cash and available to Peregrine for operations. 20 24 Liquidity and Capital Resources Peregrine had $4,627,000 in unrestricted cash at March 31, 1997, compared to $5,972,000 in unrestricted cash at December 31, 1996, of which $4,698,000 was held by CalREIT at December 31, 1996 and unavailable to Peregrine for operating, working capital, or other purposes. During the three months ended March 31, 1997, Peregrine's principal source of funds was from operating income, principal and interest payments on mortgage notes receivable, and proceeds from the sale of CalREIT. At March 31, 1997, $600,000 remained available on the Line of Credit. Debt service paid on Peregrine's first mortgage notes totaled $683,000 during the three months ended March 31, 1997. Total debt service requirements on first mortgage notes in 1997 are approximately $2,903,000. Interest paid on the Senior Lender Group Notes during the three months ended March 31, 1997 totaled $746,000. Interest on the Senior Lender Group Notes is required to be paid in cash on a monthly basis, with aggregate interest payable during 1997 currently estimated at $2,456,000, based on $28,889,000 principal outstanding. At March 31, 1997, Peregrine's short and long term cash commitments include approximately $1,700,000 in remaining capital expenditures to complete the refurbishment of its hotel properties; the maturity of the Line of Credit in October 1997; debt service payments on its first mortgage notes of approximately $2,903,000 per year; interest on its Senior Lender Group Notes currently estimated at $2,456,000 per year; cash dividend payments of approximately $3,300,000 per year on the Preferred Stock commencing in October 1998; and repayment of principal on the Senior Lender Group Notes in October 2000. It is presently anticipated that Peregrine will be unable to pay the Preferred Stock dividends in cash commencing in October 1998, and as a result the Preferred Stock will automatically convert to Common Shares of Beneficial Interest in accordance with the Preferred Stock Agreement, thereby substantially diluting the ownership interests of current holders of Common Shares of Beneficial Interest. Based on cash flows from operations, its revolving Line of Credit, and its 20% share of the net proceeds received from its disposition of its 76% stock ownership interest in CalREIT on January 3, 1997, Peregrine anticipates that it will be able to fund its day-to-day business operations, and meet its debt service obligations on its first mortgage notes and Senior Lender Group Notes through the end of 1997. Management plans to seek an extension of the maturity date on its Line of Credit, with its current lender; however, if unable to do so, management will seek an alternative source from which to obtain a new operating line of credit. Peregrine's Line of Credit contains a financial covenant, among others, which requires that Peregrine maintain a specific tangible net worth, as defined in the Agreement, measured on a fiscal quarter-end basis. While Peregrine was in compliance with the covenant at March 31, 1997, it is anticipated that prior to the October 7, 1997 maturity date of the Line of Credit, Peregrine will be unable to meet the financial covenant due to anticipated net losses, and will require a waiver in relation to the covenant from the lender. Failure to renew or obtain a new operating line of credit would have a material adverse affect on the financial position and operations of Peregrine. Management also expects to be able to fund the refurbishments at its three hotel properties from existing resources; absent this expenditure and timely completion of the refurbishments, two of the hotel properties will lose their Holiday Inn licenses, the result of which will be a decline in occupancy levels and room rental rates, which would have a material adverse impact on Peregrine's overall financial performance. 21 25 Peregrine experienced a net increase in unrestricted cash of $3,353,000 for the three months ended March 31, 1997 as compared to a net increase in unrestricted cash of $368,000 for the three months ended March 31, 1996, a difference of $2,985,000. For the three months ended March 31, 1997 cash (used in) operating activities was $279,000, down $714,000 from cash provided by operating activities of $435,000 during the comparable period in 1996, which is primarily attributable to increased cash interest payments as a result of interest on the Senior Lender Group Notes being paid in cash commencing November 1, 1996. Cash provided by investing activities during the three months ended March 31, 1997 was $19,878,000 up from cash (used in) investing activities of $637,000 during the three months ended March 31, 1996, an increase of $20,515,000. The increase is primarily attributable to proceeds received from the sale of CalREIT. Cash (used in) financing activities was $16,246,000 during the three months ended March 31, 1997, as compared to cash provided by financing activities of $570,000 during the three months ended March 31, 1996, an increased use of $16,816,000, which is primarily attributable to the required payments made on the Senior Lender Group Notes from the proceeds of CalREIT and payments made on the Line of Credit. Significant Changes in the Economic Environment Changing interest rates are not expected to have a significant effect on Peregrine's operations in 1997, as most of Peregrine's debt obligations are at fixed interest rates. The effect on inflation on Peregrine's operations and properties is varied. In recent years, rental rates and real estate values have decreased which has had a material impact both on revenues and asset values; however, in 1996 and during the first quarter of 1997, the real estate market showed increases in both rental rates and real estate values; therefore, the effect of inflation is not expected to have a significant effect on Peregrine's operations in 1997. 22 26 PART II. OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K (a) Exhibits Number Description 3.1(a) Restated Declaration of Trust of The Peregrine Real Estate Trust (1) 3.1(b) Bylaws of The Peregrine Real Estate Trust (1) 10.1 Second Amended and Restated Note Agreement dated September 27, 1994, by and among Commonwealth Equity Trust, the Noteholders named therein, and The Prudential Insurance Company of America as Agent for the Noteholders (1) 10.2 Loan and Security Agreement dated October 6, 1994, between Commonwealth Equity Trust and Foothill Capital Corporation (1) 10.3 Redeemable Convertible Preferred Stock Purchase Agreement dated as of October 1, 1994, by and among The Peregrine Real Estate Trust, Pacific Mutual Life Insurance Company, The Prudential Insurance Company of America, PRUCO Life Insurance Company, ORIX USA Corporation, Weyerhaeuser Company Master Retirement Trust, TCW Special Credits Fund IV, TCW Special Credits Plus Fund, TCW Special Credits Trust IV, and TCW Special Credits Trust IVA (1) 10.4 Registration Rights Agreement dated as of October 1, 1994, by and among The Peregrine Real Estate Trust, Pacific Mutual Life Insurance Company, The Prudential Insurance Company of America, PRUCO Life Insurance Company, ORIX USA Corporation, Weyerhaeuser Company Master Retirement Trust, TCW Special Credits Fund IV, TCW Special Credits Plus Fund, TCW Special Credits Trust IV, and TCW Special Credits Trust IVA (1) 10.5 Third Amended Plan of Reorganization of Commonwealth Equity Trust (2) 10.6 Stock Purchase Agreement, dated as of January 3, 1997, by and between The Peregrine Real Estate Trust and CalREIT Investors Limited Partnership (3) 10.7 The Peregrine Real Estate Trust Trustee Stock Option Plan (4) 10.8 Form of Indemnification Agreement (4) 10.9 The Peregrine Real Estate Trust Trustee Stock Option Plan (5) 23 27 10.10 Employment Agreement between The Peregrine Real Estate Trust and Joseph M. Mock, dated June 1, 1996 (5) 10.11 First Amendment to Employment Agreement between The Peregrine Real Estate Trust and Joseph M. Mock, dated December 1, 1996 (5) 10.12 Second Amendment to Employment Agreement between The Peregrine Real Estate Trust and Joseph M. Mock, dated April 30, 1997 27 Financial Data Schedule (1) Incorporated herein by reference to Peregrine's Report on Form 8-K dated October 7, 1994. (2) Incorporated herein by reference to Peregrine's Report on Form 8-K dated August 25, 1994. (3) Incorporated herein by reference to Peregrine's Report on Form 8-K dated January 17, 1997. (4) Incorporated herein by reference to Peregrine's Report on Form 10-Q for period ended September 30, 1996. (5) Incorporated herein by reference to Peregrine's Report on Form 10-K for the year ended December 31, 1996. (b) Reports on Form 8-K Peregrine filed a Current Report on Form 8-K on January 17, 1997, reporting under Item 2 of such Form, the execution and consummation of a Stock Purchase Agreement, dated as of January 3, 1997, by and between The Peregrine Real Estate Trust and CalREIT Investors Limited Partnership. 24 28 SIGNATURES 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 thereunto duly authorized. THE PEREGRINE REAL ESTATE TRUST May 14, 1997 /s/Joseph M. Mock - ------------ ----------------- Date Joseph M. Mock Chief Executive Officer and Principal Accounting Officer 25 29 EXHIBIT INDEX Exhibit No. Description ------- ----------- 10.12 Second Amendment to Employment Agreement 27 Financial Data Schedule EX-10.12 2 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.12 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the "Second Amendment") is made and entered into as of April 30, 1997 by and between THE PEREGRINE REAL ESTATE TRUST ("Company") and JOSEPH M. MOCK ("Executive"). WHEREAS, the Company and Executive are parties to an Employment Agreement dated as of June 1, 1996, as amended as of December 1, 1996 (the "Employment Agreement"). WHEREAS, the parties desire to further amend the Employment Agreement as it relates to compensation payable by the Company to Executive upon termination of employment without cause. NOW, THEREFORE, the parties agree as follows: 1. Section 8.1 of the Employment Agreement is hereby amended and restated to read in its entirety as follows: "8.1 Upon Termination Without Cause. In the event of termination by Company pursuant to Section 7.1 of this Agreement ("Termination by Either Party Without Cause"), the Executive shall be entitled to receive Salary (a) for the period ending on the date which is three months after the date of termination specified in the Company's termination notice, provided that such date of termination occurs on or before December 31, 1997, which amount shall be paid to Executive in a single lump sum within ten (10) days of the date of termination or (b) through the date of termination specified in the Company's termination notice, if such date of termination occurs after December 31, 1997. In the event of termination by Executive pursuant to Section 7.1 of this Agreement, Executive shall receive Salary through the effective date of such termination." 2. As amended hereby, the Employment Agreement shall remain in full force and effect. 1 2 IN WITNESS WHEREOF, this Second Amendment has been executed as of the date specified in the first paragraph. COMPANY: THE PEREGRINE REAL ESTATE TRUST By: ___________________________ Name: ___________________________ Its: ___________________________ EXECUTIVE: JOSEPH M. MOCK ______________________________ 2 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 5,621 0 2,013 (209) 0 9,015 71,115 (2,672) 77,458 3,196 63,907 27,030 0 13,356 (30,031) 77,458 0 6,730 0 (3,316) (1,468) 0 (1,500) 446 0 446 0 22 0 468 (0.06) (0.06) SHARES OF BENEFICIAL INTEREST EQUIVALENTS WERE ANTI-DILUTIVE. THE FIGURES PRESENTED ABOVE ARE SIMPLE EPS AND INCLUDE THE EFFECTS OF STOCK DIVIDENDS, DISCOUNTS, AND ACCRETION OF DISCOUNTS ON REDEEMABLE CONVERTIBLE PREFERRED STOCK.
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