-----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, NWsswhqehFyFyG+QcJxU0Emy2XC3iGyHyZiRKtWV8kz6C9EWDR8hT/n23/UFDu7Z bQlW2wkbVmDPXyjsVph0hg== 0000912057-00-024161.txt : 20000516 0000912057-00-024161.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024161 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09097 FILM NUMBER: 630904 BUSINESS ADDRESS: STREET 1: 1300 ETHAN WAY, STE 200 CITY: SACRAMENTO STATE: CA ZIP: 95825 BUSINESS PHONE: 9169298244 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 FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURTIES EXCHANGE ACT OF 1934 (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, 2000 ---------------- 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 ----- ------ 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: As of May 1, 2000, there were 22,552,440 outstanding Common Shares of Beneficial Interest. As of May 1, 2000, there were 2,319,915 outstanding Common Shares of Beneficial Interest held by non-affiliates of the registrant. - -------------------------------------------------------------------------------- THE PEREGRINE REAL ESTATE TRUST - -------------------------------------------------------------------------------- INDEX PAGE PART I. FINANCIAL INFORMATION Item 1: Consolidated Financial Statements Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 1 Statements of Consolidate Operations - For the Three Months Ended March 31, 2000 and 1999 2 Statements of Consolidated Cash Flows - For the Three Months Ended March 31, 2000 and 1999 3 Notes to Consolidated Financial Statements 4 - 10 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 17 Item 3: Quantitative and Qualitative Disclosure about Market Risk 18 PART II. OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K 19-22 PART I: FINANCIAL INFORMATION THE PEREGRINE REAL ESTATE TRUST CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2000 1999 -------------- --------------- ASSETS Investments: Commercial and hotel properties, net of accumulated depreciation of $10,411,000 and $10,230,000 at March 31, 2000 and December 31, 1999, respectively $ 68,713,000 $ 69,418,000 Notes receivable, net of deferred gains of $76,000 and $78,000 at March 31, 200 and December 31, 1999, respectively 320,000 322,000 -------------- --------------- 69,033,000 69,740,000 Cash 1,599,000 1,286,000 Restricted cash 228,000 224,000 Rents, accrued interest, and other receivables, net of allowance of $0 at March 31, 2000 and December 31, 1999, respectively 803,000 842,000 Other assets 2,081,000 2,047,000 -------------- --------------- Total assets $ 73,744,000 $ 74,139,000 ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Line of Credit $ 35,077,000 $ 34,908,000 Senior Notes Payable 16,074,000 16,074,000 Long-term notes payable, collateralized by deeds of trust on commercial Properties 19,332,000 19,406,000 Accounts payable and accrued liabilities 2,128,000 2,703,000 Other liabilities 363,000 501,000 -------------- --------------- Total Liabilities 72,974,000 73,592,000 Commitments and contingencies (Note 5 to financial statements) Common Shares of Beneficial Interest: 50,000,000 shares authorized; 22,553,000 shares outstanding at March 31, 2000 and December 31, 1999 47,405,000 47,405,000 Accumulated deficit (46,635,000) (46,858,000) -------------- --------------- Total Shareholders' Equity 770,000 547,000 -------------- --------------- Total liabilities and shareholders' equity $ 73,744,000 $ 74,139,000 ============== ===============
See accompanying notes to financial statements 1 THE PEREGRINE REAL ESTATE TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 2000 1999 -------------- --------------- REVENUES: Hotel property $ 4,285,000 $ 2,943,000 Commercial property 2,003,000 2,180,000 Interest 21,000 14,000 Other 42,000 5,000 -------------- --------------- 6,351,000 5,142,000 ============== =============== EXPENSES: Hotel property operating expenses 3,437,000 2,958,000 Commercial property operating expenses 553,000 700,000 Commercial and hotel property management fees -- 4,000 Depreciation and amortization 779,000 898,000 Interest 1,694,000 1,707,000 General and administrative 861,000 891,000 -------------- --------------- 7,324,000 7,158,000 -------------- --------------- Loss before gain on sale or transfer of investments (973,000) (2,016,000) GAIN ON SALE OR TRANSFER OF INVESTMENTS 1,196,000 3,979,000 -------------- --------------- Net income $ 223,000 $ 1,963,000 ============== =============== Income per Common Share of Beneficial Interest: Net income attributable to Common Shares of Beneficial Interest $ 223,000 $ 1,963,000 ============== =============== Net income per share attributable to Common Shares of Beneficial Interest, basic and diluted $ .01 $ .09 ============== =============== Weighted average number of Common Shares of Beneficial Interest outstanding, basic and diluted 22,553,000 22,553,000
See accompanying notes to financial statements. 2 THE PEREGRINE REAL ESTATE TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 1999 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 223,000 $ 1,963,000 ------------- -------------- Adjustments to reconcile net income to net cash (used in) operating activities: Interest, fees and reimbursable expenses added to principal balance of debt -- 552,000 Depreciation and amortization 779,000 898,000 Gain on sale of investments (1,196,000) (3,979,000) Changes in other assets and liabilities: Decrease in rents, accrued interest, and other receivables 39,000 256,000 Decrease (increase) in other assets (173,000) 115,000 (Decrease) in accounts payable and accrued liabilities (575,000) (115,000) (Decrease) in other liabilities (138,000) (37,000) ------------- -------------- Total adjustments (1,264,000) (2,310,000) ------------- -------------- Net cash (used in) operating activities (1,041,000) (347,000) ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sales of investments 2,696,000 7,750,000 Improvements to commercial and hotel properties (1,435,000) (3,248,000) Purchase of office equipment -- (12,000) Principal collections on notes receivable 2,000 1,000 ------------- -------------- Net cash provided by investing activities 1,263,000 4,491,000 ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term notes payable (74,000) (89,000) Principal payments on Senior Notes -- (10,000,000) Borrowings on Line of Credit, net 169,000 6,479,000 Increase in restricted cash (4,000) -- ------------- -------------- Net cash provided by (used in) financing activities 91,000 (3,610,000) ------------- -------------- Net increase in cash 313,000 534,000 Cash, beginning of period 1,286,000 165,000 ------------- -------------- Cash, end of period $ 1,599,000 $ 699,000 ============= ==============
See accompanying notes to financial statements. 3 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Peregrine Real Estate Trust (d.b.a. WinShip Properties), ("Peregrine" or the "Trust") was organized under the laws of the State of California pursuant to a Restated Declaration of Trust dated October 7, 1994 (the "Effective Date"). At March 31, 2000, Peregrine owned ten commercial properties located primarily in the Sacramento area, four hotel properties located in northern California, two partnership interests, and one mortgage note secured by real property. PRINCIPLES OF CONSOLIDATION For the period ended March 31, 2000, the financial statements include the accounts of Peregrine and its subsidiary on a consolidated basis. All significant intercompany balances and transactions have been eliminated in consolidation. COMMERCIAL AND HOTEL PROPERTIES The Trust recognizes an impairment to reduce the carrying amount of long-lived assets (including certain identifiable intangibles) to their estimated fair value whenever events or changes in circumstances indicate that such carrying amount may not be recoverable. The allowance for depreciation and amortization has been calculated under the straight-line method based upon the estimated useful lives of the properties, which range from 24 to 34 years. Expenditures for maintenance, repairs and betterments, which do not materially prolong the normal useful life of an asset, are charged to operations as incurred. Expenditures which prolong the useful life of an asset, are capitalized and depreciated. OTHER ASSETS The Trust amortizes leasing commissions on a straight-line basis over the lives of the leases to which they relate. Financing costs are amortized over the lives of the loans or other financial instruments to which they relate. Corporate furniture, fixtures, and equipment are capitalized and depreciated on a straight-line basis over their estimated useful lives. 4 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED INCOME TAXES Deferred taxes are recorded based on the differences between financial statement and income tax bases of assets and liabilities and available loss or credit carryforwards. A "Valuation Allowance" is recorded against deferred tax assets unless it is more likely than not that the asset will be realized in the future. REVENUE RECOGNITION The Trusts recognizes rental revenues over the life of the lease. The Trust recognizes interest income on notes receivable when it is estimated that the fair value of the collateral related to the note is adequate. 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 of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. STOCK-BASED COMPENSATION Peregrine has elected to continue to account for stock-based compensation under the provisions of Accounting Principles Board Opinion No. 25 and adopt the disclosure-only provisions of Statement of Financial Accounting Standard No. 123 ("SFAS 123"). Accordingly, the compensation costs of stock options are measured using the intrinsic value-based method, whereby the excess, if any, of the fair value of Peregrine's stock at the date of the grant over the amount an employee must pay to acquire the stock represents compensation cost. 5 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED NEW ACCOUNTING PRONOUNCEMENTS In June1998, Financial Accounting Standard Board issued SFAS No.133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The statement established accounting and accounting standards for the derivative instruments and hedging activities. The effective date of this statement was deferred until fiscal years beginning after June 15, 2000 with the issuance of SFAS No. 137. The Trust is in the process of determining the impact of SFAS No. 133 on the Trust's financial position and results of operations. NET LOSS PER SHARE The weighted-average number of Common Shares of Beneficial Interest outstanding during the three months ended March 31, 2000, and 1999, was 22,553,000. Common Shares of Beneficial Interest equivalents are anti-dilutive for the three months ended March 31, 2000, and 1999, and are not considered in calculating net loss per Common Share of Beneficial Interest. 2. INVESTMENT IN REAL ESTATE JOINT VENTURES On December 6, 1999, Peregrine and Oaktree Capital Management ("Oaktree"), which owns 27.5 percent of the Trust's outstanding stock, formed Airport Boulevard Holdings, L.L.C., ("ABH") a Delaware limited liability company. In December 1999, ABH purchased a 301-room hotel in Burlingame, California. Pursuant to the agreement, Oaktree contributed 100% of the acquisition price. Peregrine did not make any capital contribution to ABH. Peregrine is responsible for the management of the hotel. Peregrine is also 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 periods ended March 31, 2000 and 1999, 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. 6 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 3. RESTRICTED CASH At March 31, 2000 and December 31, 1999 cash of $228,000 and $224,000, respectively, was restricted. The funds represent a portion of an Indemnity Trust Fund that was established to fund possible indemnification obligations with respect to Peregrine's former Trustees and officers. The Indemnity Trust Fund, which is managed by an independent third-party trustee, is restricted as to use for a period of three years ending May 29, 2000, as defined in the Indemnity Trust Agreement. 4. COMMITMENTS AND CONTINGENCIES CAPITAL EXPENDITURES At March 31, 2000, Peregrine expects that the expenditures necessary to complete refurbishments for the Concord hotel will total approximately $2,200,000. Such refurbishments are required by Holiday Inn for a franchise license to be granted for the hotel. FINANCIAL STATUS OF PEREGRINE At March 31, 2000, 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. Peregrine is exploring various debt and equity financing alternatives to repay the balance on the Senior Notes. Also, borrowings under the Line of Credit are available to fund capital improvements to certain properties and improvements securing the Line of Credit and meet costs incurred in the ordinary course of business in connection with Peregrine's acquisition of income-producing commercial properties for its own account. 5. GAIN ON SALE OF INVESTMENTS On February 23, 2000, Peregrine sold an office building located at 2893 Sunrise Boulevard, California, to the Blumefeld Properties, L.L.C. a for gross sales price of $2,850,000 in cash, resulting in a gain of $1,196,000. On March 12, 1999, Peregrine sold an office building located at 3900 Lennane, Sacramento, California, to the Parsons Family Partnership for a gross sales price of $4,800,000 resulting in a gain of $1,999,000. In addition on March 12, 1999, Peregrine sold a mini storage facility located at 1435 Sebastopol, Santa Rosa, California to James Ledwith, an individual, for a gross sales price of $3,625,000 resulting in a gain of $1,980,000. 7 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 6. RELATED PARTY TRANSACTIONS For the three months ended March 31, 1999, Peregrine utilized the services of one of its trustees, Michael Joseph (E.S. Merriman), for negotiating the terms of the Line of Credit, and was paid $275,000 for such services. 7. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION Cash paid for interest during the three-month periods ended March 31, 2000 and 1999, was $1,694,000 and $1,468,000, respectively. 8. LINES OF CREDIT On March 10, 1999, Peregrine entered into a loan and security agreement with Fremont Investment & Loan ("Fremont") to provide for up to $44,000,000 in borrowing capacity under a revolving line of credit (the "Line of Credit"). The maximum amount that may be borrowed under the Line of Credit is based upon the appraised value of certain parcels of real estate owned by Peregrine. The commitments made under the Line of Credit expire on April 1, 2001, but may be extended until April 2, 2003 with Fremont's consent. The Line of Credit is secured by a first lien on certain Peregrine properties. In connection with the execution of the Line of Credit, the Trust entered into a Fifth Amendment to Second Amended and Restated Note Agreement (the "Fifth Amendment") with the Senior Lender Group to permit the Trust to enter into the Line of Credit, to release collateral that had previously secured the Trust's obligations under the Trust's outstanding Senior Notes and to allow interest on the outstanding Senior Notes to be paid-in-kind rather than in cash if the Trust does not achieve positive net cash flow in specified periods. Under the terms of the Fifth Amendment and the Line of Credit, the Senior Notes held by the Senior Lender Group are now unsecured. Principal amounts borrowed under the Line of Credit bear interest at 8.6% for the first six months, then at a range from the six-month LIBOR plus 350 basis points to LIBOR plus 400 basis points. The average interest rate charged during the threee months ended March 31, 2000 was 8.8%. 8 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 8. LINES OF CREDIT CONTINUED The Trust applied approximately $27,500,000 of borrowings incurred under the Line of Credit to repay all amounts outstanding under its old line of credit. An additional $10,000,000 of borrowings incurred under the Line of Credit was used to repay a portion of the amounts outstanding on the Senior Notes to the Senior Lender Group, which are held by entities that are also significant shareholders of the Trust. The remaining borrowing capacity under the Line of Credit is available to Peregrine only for i) capital improvements to certain properties and improvements securing the Line of Credit, ii) costs incurred in the ordinary course of business in connection with the Peregrine's acquisition of income-producing commercial properties for its own account, or iii) certain payments to Peregrine's public common shareholders. Borrowings under the Line of Credit may not be applied for general corporate or working capital purposes. The Line of Credit prohibits the Trust from incurring debt other than specified mortgage indebtedness and permitted refinancing, indebtedness and restricts the ability of the Trust to incur liens, distribute assets, and make payments on Senior debt, and contains certain requirements as to compliance with laws by the Trust, inspection of properties by the lender, leasing of space, environmental matters, insurance, notices and information required to be given to Fremont under Line of Credit, asbestos operations, and maintenance, lead-based paint and hotel renovations. 9. SENIOR NOTES PAYABLE In accordance with the Plan of Reorganization, restructured notes payable in the face amount of $40,000,000, which bear interest at 8.5% per annum and are due on October 1, 2000, were issued to the Senior Lender Group in partial satisfaction of the $80,000,000 obligation owed to them. Interest was payable in-kind through September 30, 1996, by means of interest deferral notes issued quarterly. Since September 30, 1996, interest has been payable monthly in cash (8.5%), with the first payment commencing November 1, 1996. The restructured notes payable and interest deferral notes ("Senior Notes Payable" or "Senior Notes") are unsecured and are subordinate to other certain liens. In connection with the execution of the Line of Credit, the Trust entered into a Fifth Amendment to Second Amended and Restated Note Agreement (the "Fifth Amendment") with the Senior Lender Group to permit the Trust to enter into the Line of Credit, to release collateral that had previously secured the Trust's obligations under the Trust's outstanding Senior Notes and to allow interest on the outstanding Senior Notes to be paid-in-kind rather than in cash if the Trust does not achieve positive net cash flow for three consecutive months. Also, no principal payments may be paid to the Senior Lender Group except from proceeds related to the sales of Peregrine properties. In the event of default under the terms of the Line of Credit there are no payments allowed to the Senior Lender Group. In addition, there are covenants related to events or conditions, which could have or result in a material adverse effect as defined in the applicable agreement. 9 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 10. OPERATING SEGMENTS Peregrine's reportable segments consist of strategic real estate groups that consist of different types of properties. The groups are managed separately because each group requires different management and marketing strategies. Peregrine's reportable segments are the hotel properties, the commercial properties, and the corporate group, which manages the hotels and commercial properties.
(Numbers shown in thousands) REVENUES (EXCLUDING INTEREST OPERATING INTEREST GAIN/LOSS NET TOTAL SEGMENT INTEREST INCOME EXPENSES EXPENSE DEPRECIATION ON SALES INCOME/ ASSETS INCOME) (LOSS) FOR THREE MONTHS ENDED MARCH 31, 2000 Hotels $4,285 $ -- $3,437 $ 754 $ 478 $ -- $ (384) $35,631 Commercial 2,003 -- 553 940 177 1,196 1,529 34,508 Corporate 42 21 861 -- 124 -- (922) 3,605 ----------------------------------------------------------------------------------------------- Total $6,330 $ 21 $4,851 $ 1,694 $ 779 $ 1,196 $ 223 $73,744 =============================================================================================== FOR THREE MONTHS ENDED MARCH 31, 1999 Hotels $2,943 $ -- $2,958 $ 659 $ 269 $ -- $ (943) $32,708 Commercial 2,180 -- 704 1,048 544 3,979 3,863 45,409 Corporate 5 14 891 -- 85 -- (957) 2,666 ----------------------------------------------------------------------------------------------- Total $5,128 $ 14 $4,553 $ 1,707 $ 898 $ 3,979 $ 1,963 $80,783 ===============================================================================================
11. SUBSEQUENT EVENT In April 2000, Peregrine and Oaktree Capital Management ("Oaktree"), which owns 27.5 percent of the Trust's outstanding stock, formed Sacramento Renaissance Holdings, L.L.C., ("SRH") a Delaware limited liability company. In April 2000, SRH purchased a 28-story office building in Sacramento, California. Pursuant to the agreement, Oaktree contributed 100% of the acquisition price. Peregrine did not make any capital contribution to SRH. Peregrine is responsible for the management of the building. 10 - -------------------------------------------------------------------------------- Item 2: Management 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. 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-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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, refurbishment, 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, loss of licenses or franchises, 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 elsewhere in the Form 10-K. 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 first quarter of 2000, Peregrine owned and operated a portfolio of investments that included real property, two partnerships interest. In the first quarter of 2000, the Trust's management continued its efforts to improve property operations while simultaneously exploring alternative operating strategies for the future designed to maximize shareholder value. The immediate priority continued to be to meet Peregrine's debt obligations, including its obligation to make cash interest payments on the Senior Notes. To achieve this objective, emphasis remained on maximizing the income stream from the commercial and hotel properties, reducing operating expenses, and the select disposition of real estate assets with negative cash flow and/or which require significant capital expenditures beyond the resources available to Peregrine. 11 - -------------------------------------------------------------------------------- Item 2: Management Discussion and Analysis of Financial Condition and Results of Operations concluded. - -------------------------------------------------------------------------------- Management continued to explore long term strategies to maximize the value of its assets, including analysis of current and expected property valuations, regional and industry market trends and potential long-term growth opportunities in single and multi-tenant buildings, retail centers and hotel properties. The assessment of long-term strategies includes consideration of financing or restructuring alternatives relating to Peregrine's first mortgage debt and its long-term unsecured debt to the Senior Notes. Under the terms of the Trust's line of credit and Senior Notes, 80% of the net proceeds from certain sales of property, certain grants of options to purchase property, certain refinancing indebtedness, certain new financing or refinancing secured by a lien on the property must be paid to the Senior Lender Group, thus restricting Peregrine from reinvesting in higher yielding investments or making capital improvements to existing assets. 12 COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED MARCH 31, 1999 REVENUES Total revenues were $6,351,000 during the three months ended March 31, 2000, an increase of $1,209,000, or 24%, from total revenues of $5,142,000 during the three months ended March 31, 1999. HOTEL PROPERTY REVENUES. Hotel revenue was $4,285,000 for the three months ended March 31, 2000, an increase of $1,342,000, or 46%, from $2,943,000 for the three months ended March 31, 1999. The increase is due to increased revenue and occupancy for the Holiday Inn Sacramento, which re-opened during January 1999. In addition, the Holiday Inns Chico and Walnut Creek had increased occupancy and revenues. COMMERCIAL PROPERTY REVENUES. Commercial property revenue was $2,003,000 for the three months ended March 31, 2000, a decrease of $177,000, or 8%, from $2,180,000 for the three months ended March 31, 1999. The decrease is primarily attributable to the sales of a mini-storage facility in fourth quarter of 1999, offset by higher occupancy at certain of the Trust's office buildings. INTEREST REVENUE. Interest revenue was $21,000 for the three months ended March 31, 2000, an increase of $7,000, or 50%, from $14,000 for the three months ended March 31, 1999. The increase is primarily due to higher average cash balances held during the three months ended March 31, 2000. TOTAL EXPENSES Total expenses were $7,324,000 during the three months ended March 31, 2000, an increase of $166,000, or 2%, from total expenses of $7,158,000 during the three months ended March 31, 1999. HOTEL PROPERTY OPERATING EXPENSES. Hotel operating expenses were $3,437,000 during the three months ended March 31, 2000, an increase of $479,000, or 16%, from total expenses of $2,958,000 during the three months ended March 31, 1999. The increase is attributable to an increase in operating expenses related to the Holiday Inn Sacramento, which re-opened in January 1999. In addition expenses increased for the Holiday Inn's Chico and Walnut Creek due to improved revenues. COMMERCIAL PROPERTY OPERATING EXPENSES. Commercial property operating expenses were $553,000 during the three months ended March 31, 2000, a decrease of $147,000, or 21%, from total expenses of $700,000, during the three months ended March 31, 1999. The decrease is primarily attributable to the absence of expenses for commercial properties sold in 1999 and first quarter of 2000. 13 DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expenses were $779,000, during the three months ended March 31, 2000, a decrease of $119,000, or 13%, from total expenses of $898,000, during the three months ended March 31, 1999. The decrease is primarily attributable to a decrease in depreciation and amortization at the commercial properties due to the sales of properties during 1999; the decrease is slightly offset due to increase deprecation and amortization for the hotels due to capital improvements completed in 1999. INTEREST EXPENSE. Interest expense was $1,694,000, during the three months ended March 31, 2000, a decrease of $13,000, or 1%, from total expenses of $1,704,000, during the three months ended March 31, 1999. The decrease is primarily attributable lower interest expenses for Senior Lender Group due to a principle payment March 31, 1999. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $861,000, during the three months ended March 31, 2000, a decrease of $30,000, or 3%, from total expenses of $891,000, during the three months ended March 31, 1999. The decrease is primarily attributable to a decrease in consulting costs and legal fees. GAIN ON SALE OF INVESTMENTS On February 23, 2000, Peregrine sold an office building located at 2893 Sunrise Boulevard, California, to the Blumefeld Properties, L.L.C. for a gross sales price of $2,850,000 in cash, resulting in a gain of $1,196,000. On March 12, 1999, Peregrine sold an office building located at 3900 Lennane, Sacramento, California, to the Parsons Family Partnership for a gross sales price of $4,800,000 resulting in a gain of $1,999,000. On March 12, 1999, Peregrine sold a mini storage facility located at 1435 Sebastopol, Santa Rosa, California to James Ledwith, an individual, for a gross sales price of $3,625,000 resulting in a gain of $1,980,000. DIVIDENDS Peregrine made no cash distributions during the three months ended March 31, 2000 or 1999. In addition, Peregrine is substantially restricted from and does not anticipate making any cash distributions to shareholders in the foreseeable future. 14 OCCUPANCY HOTEL AND COMMERCIAL PROPERTY OCCUPANCY. At March 31, 2000 and March 31, 1999, overall weighted occupancy levels for the Trust's properties were as follows: OVERALL WEIGHTED AVERAGE OCCUPANCY PROPERTY TYPE MARCH 31, 2000 MARCH 31, 1999 ------------- -------------- -------------- Retail Shopping Centers 69% 76% Office Buildings 93% 82% Industrial Buildings 90% 80% Mini-Storage Facilities N/A 93% Hotels 58% 45% The overall weighted average occupancy level is calculated by multiplying the occupancy by square footage (or rooms available) and dividing the total by the total square footage (or rooms available) in the portfolio. LIQUIDITY AND CAPITAL RESOURCES The Trust's unrestricted cash totaled $1,599,000 on March 31, 2000 an increase from $1,286,000 at December 31, 1999. During the three months ended March 31, 2000, Peregrine's principal source of funds was from proceeds related to the sales of investments and funds available from the Line of Credit. At March 31, 2000, $226,000 remained available through the Line of Credit; however, pursuant to the Line of Credit Agreement, Peregrine is subject to certain restrictions and limitations on borrowing. The remaining borrowing capacity under the Line of Credit is available to Peregrine only for i) capital improvements to certain properties and improvements securing the Line of Credit, ii) costs incurred in the ordinary course of business in connection with the Peregrine's acquisition of income-producing commercial properties for its own account, or iii) certain payments to Peregrine's public common shareholders. Borrowings under the Line of Credit may not be applied for general corporate or working capital purposes. On March 10, 1999, Peregrine entered into a loan and security agreement with Fremont Investment & Loan ("Fremont") to provide for up to $44,000,000 in borrowing capacity under a revolving line of credit (the "Line of Credit"). The maximum amount that may be borrowed under the Line of Credit is based upon the appraised value of certain parcels of real estate owned by Peregrine. The commitments made under the Line of Credit expire on April 1, 2001, but may be extended until April 2, 2003 with Fremont's consent. The Line of Credit is secured by a first lien on certain Peregrine properties. In connection with the execution of the Line of Credit, the Trust entered into a Fifth Amendment to Second Amended and Restated Note Agreement (the "Fifth Amendment") with the Senior Lender Group to permit the Trust to enter into the Line of Credit, to release collateral that had previously secured the Trust's obligations under the Trust's outstanding Senior Notes and to allow interest on the outstanding Senior Notes to be paid-in-kind rather than in cash if the Trust does not achieve positive net cash flow in 15 specified periods. Under the terms of the Fifth Amendment and the Line of Credit, the Senior Notes held by the Senior Lender Group are now unsecured. Principal amounts borrowed under the Line of Credit bear interest ranging from the six-month LIBOR plus 350 basis points to LIBOR plus 400 basis points. The borrowing capacity under the Line of Credit is available to Peregrine only for, i) capital improvements to certain properties and improvements securing the Line of Credit, ii) costs incurred in the ordinary course in connection with the Peregrine's acquisition of income-producing commercial properties for its own account, or iii) certain payments to Peregrine's public common shareholders. Borrowings under the Line of Credit may not be applied for general corporate or working capital purposes. The Line of Credit prohibits the Trust from incurring debt other than specified mortgage indebtedness and permitted refinancing, indebtedness and restricts the ability of the Trust to incur liens, distribute assets, and make payments on Senior debt, and contains certain requirements as to compliance with laws by the Trust, inspection of properties by the lender, leasing of space, environmental matters, insurance, notices and information required to be given to Fremont under Line of Credit, asbestos operations and maintenance, lead-based paint and hotel renovations. Debt service paid on Peregrine's first mortgage notes totaled $539,000 during the three months ended March 31, 2000. Total debt service requirements on first mortgage notes in 2000 are approximately $2,646,000. Interest paid on the Senior Lender Group Notes during the three months ended March 31, 2000 totaled $345,000. Interest on the Senior Lender Group Notes is required to be paid in cash on a monthly basis, with aggregate interest payable during 2000 currently estimated at $1,366,000, based on $16,074,000 principal outstanding. At March 31, 2000, Peregrine's short and long-term cash commitments include approximately $2,200,000, to complete the refurbishment at the Concord hotel, which is required by Holiday Inn for the franchise license to be granted to the hotel. The refurbishments will be financed by borrowings under the line of credit. The Senior Notes mature in October 2000, and at such time Peregrine will be obligated to repay all outstanding principal thereunder, currently estimated at $16,074,000. In addition, the line of credit matures in April 2001, unless the maturity of the Senior Notes is extended. Peregrine is exploring various debt and equity financing alternatives to repay the amounts outstanding under Senior Notes and the line of credit. Based upon proceeds from sales of real estate investments 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. Peregrine is exploring various debt and equity financing alternatives to repay the balance on the Senior Notes. Also, borrowings under the Line of Credit are available to fund capital improvements to certain properties and improvements securing the Line of Credit and meet costs incurred in the ordinary course in connection with Peregrine's acquisition of income-producing commercial properties for its own account. Peregrine experienced a net increase in unrestricted cash of $313,000 for the three months ended March 31, 2000 as compared to a net increase in unrestricted cash of $534,000 for the three months ended March 31, 1999. For the three months ended March 31, 2000, net cash used in operating activities was $1,041,000, compared to $347,000 net cash used in operation for the 16 three months ended March 31, 1999. Net cash provided by investing activities during the three months ended March 31, 2000 was $1,263,000 compared to $4,491,000 for the three month period ended March 31,1999. The decrease of $3,228,000 is primarily attributable to a reduced amount of proceeds from the sales of investments in 2000 as to compared to 1999. Net cash provided by financing activities for the three months ending March 31, 2000 was $91,000 compared to net cash used in financing activities of $3,610,000 for the three months ended March 31, 1999. The increase in net cash provided of $3,701,000 was primarily due to principal payments paid on the Senior Notes in 1999 offset by lower borrowings on the line of credit. SIGNIFICANT CHANGES IN THE ECONOMIC ENVIRONMENT Peregrine is exposed to market risk related to interest rate changes on its variable rate debt. During 1999, both rental rates and real estate values increased; therefore, the effect of inflation is not expected to have a significant effect on Peregrine's operations in 2000. 17 - -------------------------------------------------------------------------------- Item 3. Quantitative and Qualitative Disclosure about Market Risk - -------------------------------------------------------------------------------- The Trust's exposure to market risk for changes in interest rate relates primarily to the Trust's current and future debt obligations. The Trust is vulnerable to significant fluctuations of interest rates on its floating rate debt, changes in the market value of fixed rate debt and future debt. The following table presents information about the Trust's debt obligations. The table presents principal cash flows and related weighted average interest rate by expected maturity dates.
2000 2001 2002 2003 2004 Thereafter Mortgage Notes $ 274,000 $ 382,000 $ 15,675,000 $ 159,000 $ 2,267,000 $ 575,000 Average Interest Rate 9.5% 9.5% 8.2% 8.7% 8.1% 8.5% Senior Notes $ 16,074,000 -- -- -- -- Average Interest Rate 8.5% Revolving Line of Credit -- $ 35,077,000 -- -- -- -- Average Interest Rate 8.5%
18 PART II. OTHER INFORMATION (6) Exhibits and Reports on Form 8-K - -------------------------------------------------------------------------------- (c) Exhibits - -------------------------------------------------------------------------------- EXHIBIT 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) 10.1.1 First Amendment to Second Amended and Restated Note Agreement dated February 16, 1995. (13) 10.1.2 Second Amendment to Second Amended and Restated Note Agreement dated December 4, 1997, by and among The Peregrine Real Estate Trust, the Noteholders named therein, and The Prudential Insurance Company of America as agent for the Noteholders (8). 10.1.3 Third Amendment to the Second Amended and Restated Note Agreement dated May 1, 1998, by and among The Peregrine Real Estate Trust, the Noteholders Named Therein, and The Prudential Insurance Company of America as Agent for the Noteholders. (10) 10.1.4 Fourth Amendment to the Second Amended and Restated Note Agreement dated June 30, 1998, by and among The Peregrine Real Estate Trust, the Noteholders Named Therein, and The Prudential Insurance Company of America as Agent for the Noteholders. (10) 10.1.5 Fifth Amendment to the Second Amended and Restated Note Agreement dated February 15, 1999. (13) 10.2. 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) 19 10.2 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) 10.3.1 First Amendment to the Registration Rights Agreement (13) 10.4 Services and Confidentiality Agreement dated October 1, 1994, between Commonwealth Equity Trust and FAMA Management, Inc.(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 Form of Indemnification Agreement (4) 10.8 The Peregrine Real Estate Trust Trustee Stock Option Plan (5) 10.9 Form of Indemnification Agreement (7) 10.10 Loan and Security Agreement dated December 4, 1997, by and among The Peregrine Real Estate Trust and Fleet Capital Corporation (8) 10.10.1 Amendment Number One To Loan and Security Agreement dated June 30, 1998 by and between Fleet Capital Corporation and Peregrine Real Estate Trust. (11) 10.11 Employment Agreement between The Peregrine Real Estate Trust and Roger D. Snell, dated September 30, 1997 (9) 10.12 Exchange Agreement dated November 2, 1998. (12) 10.13 Agreement of Purchase and Sale dated March 23, 1998 between J. Nebout and P. Nebout as trustees of the P. Nebout and J. Nebout inter vivos trust dated July 20, 1995, as seller, and The Peregrine Real Estate Trust, as buyer. (10) 10.14 Loan and Security Agreement dated February 15, 1999, by and among The Peregrine Real Estate Trust, d.b.a. WinShip Properties, and Fremont Investment & Loan. (13) 10.15 Secured Promissory Note dated February 15, 1999, by and among The Peregrine Real Estate Trust, d.b.a. WinShip Properties, and Fremont Investment & Loan. (13) Financial Data Schedule (1) Incorporated herein by reference to Peregrine's Report on Form 8-K filed October 7, 1994. 20 (2) Incorporated herein by reference to Peregrine's Report on Form 8-K filed August 25, 1994. (3) Incorporated herein by reference to Peregrine's Report on Form 8-K filed January 17, 1997. (4) Incorporated herein by reference to Peregrine's Report on Form 10-Q for the 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. (6) Incorporated herein by reference to Peregrine's Report on Form 10-Q for the period ended March 31, 1997. (7) Incorporated herein by reference to Peregrine's Report on Form 10-Q for the period ended June 30, 1997. (8) Incorporated herein by reference to Peregrine's Report on Form 8-K filed December 23, 1997. (9) Incorporated herein by reference to Peregrine's Report on Form 10-K for the year ended December 31, 1997. (10) Incorporated herein by reference to Peregrine's Report on Form 8-K filed on July 16, 1998. (11) Incorporated herein by reference to Peregrine's Report on Form 10-Q for the period ended June 30, 1998. (12) Incorporated herein by reference to Peregrine's Report on Form 10-Q for the period ended September 30, 1998. (13) Incorporated herein by reference to Peregrine's Report on Form 8-K filed March 22, 1999. 21 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 12, 2000 /s/ LARRY KNORR - ------------ ----------------------- Date Larry Knorr Vice President and Chief Accounting Officer EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1,827 0 1,123 0 0 2,082 79,123 (10,411) 73,744 2,491 70,483 0 0 47,405 (46,635) 73,744 0 6,351 0 (3,990) (1,640) 0 (1,694) (973) 0 (973) 0 1,196 0 223 .01 .01
-----END PRIVACY-ENHANCED MESSAGE-----