-----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, BHg1SDud1nR4nCiyQ2tCAuIVQleFmkiiRF4y5mHu6C18oPJTKiLTufgwbBc4lAMU 58g4q3CNp+s1njr2eFcm+A== 0001047469-99-021003.txt : 19990518 0001047469-99-021003.hdr.sgml : 19990518 ACCESSION NUMBER: 0001047469-99-021003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99626289 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, 1999 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 (I.R.S. Employer of incorporation 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 April 20, 1999, there were 22,552,440 outstanding Common Shares of Beneficial Interest. As of April 20, 1999, 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: Financial Statements Balance Sheets - March 31, 1999 and December 31, 1998 1 Statements of Operations - For the Three Months Ended March 31, 1999 and 1998 2-3 Statements of Cash Flows - For the Three Months Ended March 31, 1999 and 1998 4 Notes to Financial Statements 5 - 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 19-21
PART I: FINANCIAL INFORMATION THE PEREGRINE REAL ESTATE TRUST BALANCE SHEETS
MARCH 31, DECEMBER 31, 1999 1998 (UNAUDITED) (AUDITED) -------------- --------------- Assets Investments: Commercial and hotel properties, net of accumulated depreciation of $8,056,000 and $7,617,000 at March 31, 1999 and December 31, 1998, respectively $ 76,492,000 $ 77,873,000 Notes receivable, net of deferred gains of $78,000 at March 31, 1999 and December 31, 1998, respectively 326,000 327,000 -------------- --------------- 76,818,000 78,200,000 Cash 699,000 165,000 Restricted cash 215,000 215,000 Rents, accrued interest, and other receivables, net of allowance of $0 at March 31, 1999 and December 31, 1998, respectively 349,000 605,000 Other assets 2,702,000 1,860,000 -------------- --------------- Total assets $ 80,783,000 $ 81,045,000 -------------- --------------- -------------- --------------- Liabilities and Shareholders' Equity Liabilities: Line of Credit $ 32,494,000 $ 24,478,000 Senior Notes Payable 16,074,000 26,074,000 Long-term notes payable, collateralized by deeds of trust on commercial properties 23,863,000 23,952,000 Accounts payable and accrued liabilities 2,131,000 2,246,000 Other liabilities 355,000 392,000 -------------- --------------- Total Liabilities 74,917,000 77,142,000 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, 1999 and December 31, 1998 47,405,000 47,405,000 Accumulated deficit (41,539,000) (43,502,000) -------------- --------------- Total Shareholders Equity 5,866,000 3,903,000 -------------- --------------- Total liabilities and shareholders' equity $ 80,783,000 $ 81,045,000 -------------- --------------- -------------- ---------------
See accompanying notes to financial statements 1 THE PEREGRINE REAL ESTATE TRUST STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 REVENUES: 1999 1998 -------------- --------------- Hotel property $ 2,943,000 $ 3,195,000 Commercial property 2,180,000 2,182,000 Interest 14,000 36,000 Other 5,000 15,000 -------------- --------------- 5,142,000 5,428,000 -------------- --------------- -------------- --------------- EXPENSES: Hotel property operating expenses 2,958,000 2,526,000 Commercial property operating expenses 700,000 736,000 Commercial and hotel property management fees 4,000 -- Depreciation and amortization 898,000 811,000 Interest 1,707,000 1,331,000 General and administrative 891,000 744,000 -------------- --------------- 7,158,000 6,148,000 -------------- --------------- Loss before gain on sale of investments (2,016,000) (720,000) GAIN ON SALE OF INVESTMENTS 3,979,000 -- -------------- --------------- Net income (loss) $ 1,963,000 $ (720,000) -------------- --------------- -------------- ---------------
See accompanying notes to financial statements 2 THE PEREGRINE REAL ESTATE TRUST STATEMENTS OF OPERATIONS - CONTINUED (UNAUDITED)
THREE MONTHS ENDED MARCH 31 1999 1998 -------------- --------------- Income (loss) per Common Share of Beneficial Interest: Net Income (loss) $ 1,963,000 $ (720,000) Preferred Stock dividends, net of discounts -- (745,000) Accretion of discounts on Preferred Stock -- (124,000) -------------- --------------- Net income (loss) attributable to Common Shares of Beneficial Interest $ 1,963,000 $ (1,589,000) -------------- --------------- -------------- --------------- Net income (loss) per share attributable to Common Shares of Beneficial Interest, basic and diluted $ .09 $ (0.33) -------------- --------------- -------------- --------------- Weighted average number of Common Shares of Beneficial Interest outstanding, basic and diluted 22,553,000 4,881,000
See accompanying notes to financial statements. 3 THE PEREGRINE REAL ESTATE TRUST STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 1998 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,963,000 $ (720,000) ------------- -------------- Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Interest, fees and reimbursable expenses added to principal balance of debt 552,000 218,000 Depreciation and amortization 898,000 811,000 Gain on sale of investments (3,979,000) -- Changes in other assets and liabilities: Decrease in rents, accrued interest, and other receivables 256,000 152,000 (Decrease) increase in other assets 115,000 (284,000) (Decrease) increase in accounts payable and accrued liabilities (115,000) 406,000 (Decrease) increase in other liabilities (37,000) 8,000 ------------- -------------- Total adjustments (2,310,000) 1,311,000 ------------- -------------- Net cash (used in) provided by operating activities (347,000) 591,000 ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities -- (499,000) Proceeds from the sale and maturity of the market securities -- 516,000 Proceeds from the sales of investments 7,750,000 -- Improvements to commercial and hotel properties (3,248,000) (192,000) Purchase of office equipment (12,000) (49,000) Principal collections on notes receivable 1,000 2,000 ------------- -------------- Net cash provided by (used in) investing activities 4,491,000 (222,000) ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term notes payable (89,000) (82,000) Principal payments on Senior Notes (10,000,000) -- Borrowings on Line of Credit, net 6,479,000 -- Increase in restricted cash -- (19,000) ------------- -------------- Net cash (used in) financing activities (3,610,000) (101,000) ------------- -------------- Net increase in cash 534,000 268,000 Cash, beginning of period 165,000 1,247,000 ------------- -------------- Cash, end of period $ 699,000 $ 1,515,000 ------------- -------------- ------------- --------------
See accompanying notes to financial statements. 4 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 1. Organization, Summary of Significant Accounting Policies and Chapter 11 Proceedings ORGANIZATION The Peregrine Real Estate Trust (d.b.a. WinShip Properties), (f.k.a. Commonwealth Equity Trust) ("Peregrine" or the "Trust") 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"). At March 31, 1999, Peregrine owned fourteen commercial properties located primarily in the Sacramento area, four hotel properties located in northern California, a partnership interest, and one mortgage note secured by real property. 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, 1999 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, 1998 audited financial statements and notes thereto, included in The Peregrine Real Estate Trust's Annual Report on Form 10-K. NET INCOME (LOSS) PER SHARE Net income (loss) per Common Share of Beneficial Interest, basic and diluted, has been computed and presented in accordance with Statement of Financial Accounting Standard No. 128, "Earnings Per Share", ("SFAS 128"). The weighted-average number of Common Shares of Beneficial Interest outstanding during the three month periods ended March 31, 1999 and 1998 was 22,553,000 and 4,881,000, respectively. Common Shares of Beneficial Interest equivalents are anti-dilutive for the three month periods ended March 31, 1999 and 1998, and are not considered in calculating net income (loss) per Common Share of Beneficial Interest. 5 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 1. ORGANIZATION AND BASIS OF PRESENTATION, CONTINUED COMPREHENSIVE INCOME (LOSS) On January 1, 1998, the Trust adopted SFAS No. 130, Reporting Comprehensive Income. This statement requires that all items recognized under accounting standards as components of comprehensive income (loss) be reported in a financial statement that is displayed with the same prominence as other annual financial statements. This statement also requires that an entity classify items of other comprehensive income (loss) by their nature in an annual financial statement. Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss). For the quarter ended March 31, 1999, and 1998, the Trust had no other comprehensive income (loss) items. INCOME TAXES No provision for income taxes for the quarter ended March 31, 1999, has been recorded in the accompanying financial statement as the Trust has sufficient tax operating loss carry forwards available to apply against income taxes due for 1999, if any. 2. COMMERCIAL AND HOTEL PROPERTIES At March 31, 1999, there were no commercial or hotel properties classified as "held-for-sale". At December 31, 1998, Burbank Mini-Storage with a total carrying value of $1,373,000 and 3900 Lennane with a total carrying value of $ 2,438,000 were classified as "held-for-sale" (and were sold March 12, 1999). 3. INVESTMENT IN MARKETABLE SECURITIES AVAILABLE-FOR-SALE At March 31, 1999, and December 31, 1998, the Trust had no marketable securities. 4. RESTRICTED CASH At March 31, 1999, and December 31, 1998 cash of $215,000 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. 6 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 5. COMMITMENTS AND CONTINGENCIES CAPITAL EXPENDITURES At March 31,1999, Peregrine's capital expenditure commitments include approximately $1,200,000, $400,000 and $225,000 to complete refurbishments at the Sacramento, Walnut Creek and Chico hotel properties; approximately $4,300,000, to refurbish the Concord hotel of which $2,300,000 is required to be spent as a condition to the grant of the Holiday Inn franchise license for the Concord hotel. FINANCIAL STATUS OF PEREGRINE At March 31, 1999, management of Peregrine believes, because of the Trust's borrowing capacity and improving conditions of the economy and the commercial and hotel industries, it will be able to fund its day-to-day business operations, and meet its debt service obligations on its Line of Credit, first mortgage notes, Senior Lender Group, and fund its capital expenditures for the remainder of 1999. 6. GAIN ON SALE OF INVESTMENTS 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. For the three month period ended March 31, 1998, there were no gains or losses from the foreclosure or sale of investment. 7. RELATED PARTY TRANSACTIONS During 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. For the three months ended March 31, 1998, Peregrine paid $10,000 to one of its then current officers, Brian Engstrom, for services performed as a consultant prior to the commencement of his employment as an officer of the Trust. 7 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 8. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION Cash paid for interest during the three month periods ended March 31, 1999 and 1998, was $1,468,000 and $1,107,000, respectively. 9. LINES OF CREDIT On March 10, 1999, Peregrine replaced the Fleet Capital Line of Credit ("Old Line of Credit") with a new line of credit pursuant to 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 new 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 new 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 year, then at a range from the six-month LIBOR plus 350 basis points to LIBOR plus 400 basis points. The Trust applied approximately $27,500,000 of borrowings incurred under the new Line of Credit to repay all amounts outstanding under the Old Line of Credit. An additional $10,000,000 of borrowings incurred under the new 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. 8 THE PEREGRINE REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS ---------- 9. LINES OF CREDIT (CONTINUED) 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. 10. 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, 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 ---------- 11. OPERATING SEGMENTS In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued for the fiscal years ending after December 15, 1998. 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.
(Numbers shown in thousands) REVENUES (EXCLUDING NET INTEREST INTEREST OPERATING INTEREST GAIN/LOSS INCOME/ TOTAL SEGMENT INCOME) INCOME EXPENSES EXPENSE DEPRECIATION ON SALES (LOSS) ASSETS ------- ---------- -------- ---------- -------- ------------ -------- ------ ------- 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 ============ ========== =========== =========== ============ =========== ========== =========== FOR THREE MONTHS ENDED MARCH 31, 1998 Hotels $3,195 $ -- $2,526 $ 437 $ 283 $ -- $ (51) $ 16,396 Commercial 2,182 -- 736 894 512 -- 40 50,551 Corporate 15 36 744 -- 16 -- (709) 2,766 ============= ========= =========== =========== ============= =========== ========== ========== Total $5,392 $ 36 $4,006 $ 1,331 $ 811 $ -- $(720) $ 69,713 ============= ========= =========== =========== ============= =========== ========== ==========
12. SUBSEQUENT EVENT On April 28, 1999, the Trust made a motion to the United States Bankruptcy Court to have a final motion and closing of the Trust's bankruptcy case that was filed in August 1993. The motion was granted and the final decree and closing of the Trust bankruptcy case was consummated. 10 - ------------------------------------------------------------------------------ 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. 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 quarter ended March 31, 1999, management of Peregrine continued to concentrate on the development and implementing of an operating strategy designed 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. Pursuant to this strategy, management continued its efforts to improve the physical and operating condition of its commercial and hotel properties by completing repairs and deferred maintenance on the commercial properties, and completing required refurbishments at the hotel properties. In addition, management implemented plans to control the commercial and hotel operating expenses and improve occupancy and collections of rent. 11 COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 TO THE THREE MONTHS ENDED MARCH 31, 1998 REVENUES Total revenues were $5,142,000 during the three months ended March 31, 1999, down $286,000, or 5%, from total revenues of $5,428,000 during the three months ended March 31, 1998. HOTEL PROPERTY REVENUES. Hotel revenue was $2,943,000 for the three months ended March 31, 1999, a decrease of $252,000, or 8%, from $3,195,000 for the three months ended March 31, 1998. The decrease is primarily related to the Sacramento hotel having lower occupancy during the first three months of 1999 compared to 1998. The Sacramento hotel was closed due to required refurbishment being completed. The hotel reopened in January 1999. The lower revenue is slightly offset by revenues received from the Concord hotel, which was purchased in July 1998. COMMERCIAL PROPERTY REVENUES. Commercial property revenue decreased $2,000, or less than 1%, to $2,180,000 for the three months ended March 31, 1999, down from $2,182,000 for the three months ended March 31, 1998. The decrease is primarily attributable to the sales of the Commerce and Consumer industrial properties in fourth quarter of 1998, Burbank Mini-Storage facility, and 3900 Lenanne Office Park in March 1999, offset by higher occupancy at certain of the Trust's office buildings. INTEREST REVENUE. Interest revenue decreased $22,000, or 63%, from $36,000 for the three months ended March 31, 1998, to $14,000 for the three months ended March 31, 1999. The decrease is primarily attributable to a decrease in interest revenue resulting from decreased cash balances. TOTAL EXPENSES Total expenses were $7,158,000 during the three months ended March 31, 1999, an increase of $1,010,000, or 16%, from total expenses of $6,148,000 during the three months ended March 31, 1998. HOTEL PROPERTY OPERATING EXPENSES. Operating expenses for the hotels increased $432,000, or 17%, from $2,526,000 during the three months ended March 31, 1998, to $2,958,000 during the three months ended March 31, 1999. The increase is attributable to operating expenses related to the Concord hotel, which was purchased in July 1998. 12 COMMERCIAL PROPERTY OPERATING EXPENSES. Operating expenses for the commercial properties decreased $36,000, or 5%, to $700,000 during the three months ended March 31, 1999, down from $736,000 during the three months ended March 31, 1998. The decrease is primarily attributable to the absence of expenses for the Commerce and Consumer properties that were sold in August and September 1998, respectively. HOTEL AND COMMERCIAL PROPERTY MANAGEMENT FEES. Hotel and commercial property management fees increased $4,000, or 100%, from $0 for the three months ended March 31, 1999, to $4,000 for the three months ended March 31, 1999. The increase is attributable to management fees for the Downtown Mini-Storage facility paid to an outside management company in 1999. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased $87,000, or 11%, to $898,000 for the three months ended March 31, 1999, up from $811,000 for the three months ended March 31, 1998. The increase is primarily attributable to an increase in depreciation and amortization at the hotel and commercial properties due to capital improvements, tenant improvements and lease commissions completed and incurred in 1998 and 1999, and the purchase of the Concord hotel in July 1998. INTEREST EXPENSE. Interest expense increased $376,000, or 28%, from $1,331,000 for the three months ended March 31, 1998, to $1,707,000 for the three months ended March 31, 1999. The increase is primarily attributable a higher average balance outstanding under the Line of Credit. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $147,000, or 20%, from $744,000 for the three months ended March 31, 1998, to $891,000 for the three months ended March 31, 1999. The increase is primarily attributable to an increase in wages and benefits resulting from increased staff; partially offset by a decrease in consulting costs. GAIN ON SALE OF INVESTMENTS 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. For the three month period ended March 31, 1998, there were no gains or losses from the sale of investments. 13 DIVIDENDS Peregrine made no cash distributions during the three months ended March 31, 1999 or 1998. In addition, Peregrine is substantially restricted from and does not anticipate making any cash distributions to shareholders in the foreseeable future. OCCUPANCY HOTEL AND COMMERCIAL PROPERTY OCCUPANCY. At March 31, 1999 and March 31, 1998, overall weighted occupancy levels for the Trust's properties were as follows:
Overall Weighted Average Occupancy Property Type March 31, 1999 March 31, 1998 ------------- -------------- -------------- Retail Shopping Centers 76% 75% Office Buildings 82% 73% Industrial Buildings 80% 88% Mini-Storage Facilities 93% 96% Hotels 45% 58%
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 $699,000 on March 31, 1999 down from $165,000 at December 31, 1998. During the three months ended March 31, 1999, 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, 1999, $5,910,000 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 replaced the Fleet Capital Line of Credit ("Old Line of Credit") with a new line of credit pursuant to 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 14 by Peregrine. The commitments made under the new 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 new 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 year, then at a range from the six-month LIBOR plus 350 basis points to LIBOR plus 400 basis points. The Trust applied approximately $27,500,000 of borrowings incurred under the new Line of Credit to repay all amounts outstanding under the Old Line of Credit. An additional $10,000,000 of borrowings incurred under the new 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. Debt service paid on Peregrine's first mortgage notes totaled $675,000 during the three months ended March 31, 1999. Total debt service requirements on first mortgage notes in 1999 are approximately $2,646,000. Interest paid on the Senior Lender Group Notes during the three months ended March 31, 1999 totaled $554,000. Interest on the Senior Lender Group Notes is required to be paid in cash on a monthly basis, with aggregate interest payable during 1999 currently estimated at $1,366,000, based on $16,074,000 principal outstanding. At March 31, 1999 Peregrine's short and long term cash commitments include approximately $1,200,000, $400,000 and $225,000 to complete refurbishments at the Sacramento, Walnut Creek and Chico hotel properties; approximately $4,300,000, to refurbish the Concord hotel of which $2,300,000 is required to be spent as a condition to the grant of the Holiday Inn franchise license for the Concord hotel. The refurbishments will be financed by borrowings against the Line of Credit. Peregrine is obligated to make debt service payments on its first mortgage notes of approximately $2,646,000 per year; interest on its Senior Notes, currently estimated at $1,366,000 per year; monthly interest payments on the Line of Credit, currently estimated at $1,950,000, repayment of its Line of Credit obligation on April 1, 2001; and repayment of principal on the Senior Notes in October 2000 currently estimated at $16,074,000. Based on cash flows from operations and its revolving Line of Credit, Peregrine anticipates that it will be able to fund its day-to-day business operations, meet its debt service obligations on its Line of Credit, first mortgage notes and Senior Lender Group Notes, and fund its capital expenditures through the end of 1999. 15 Peregrine experienced a net increase in unrestricted cash of $534,000 for the three months ended March 31, 1999 as compared to a net increase in unrestricted cash of $268,000 for the three months ended March 31, 1998. For the three months ended March 31, 1999 cash used in operating activities was $347,000, a decrease of $938,000 from cash provided by operating activities for the three months ended March 31, 1998 of $591,000, primarily attributable to the gain record for the sale of investments. This was offset by a decrease in the payments of interest and fees on the Line of Credit, resulting from such interest and fees being added to the principal balance outstanding in 1999. Cash provided by investing activities during the three months ended March 31, 1999 was $4,491,000 compared to cash used in investing activities for the three month period ended March 31,1998 of $222,000. The decrease of $4,713,000 is primarily attributable to the proceeds from the sales of investments offset by improvements at the hotel and commercial properties during 1998 that were financed by the Line of Credit. Cash used in financing activities for the three months ending March 31, 1999 was $3,610,000 compared to $101,000 for the three months ended March 31, 1998. The increase of $3,509,000 is primarily due to draws on the Line of Credit for financing the hotel refurbishments. SIGNIFICANT CHANGES IN THE ECONOMIC ENVIRONMENT Peregrine is exposed to market risk related to interest rates and inflation. Peregrine does not expect interest rates to materially fluctuate throughout year. Thus Peregrine's fixed and variable interest debt obligations will not be adversely affected in 1999. During 1998 and 1997, 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 1999. YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of Peregrine's computer programs or other date sensitive equipment may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations. The Trust's plan to address the year 2000 issue affecting its application systems has three phases: o In the first phase, Peregrine identified which systems required modification, replacement or no adjustment. An inventory of all financial application systems has been made and a plan for compliance developed. The plan was for both Information Technology ("IT"), such as Peregrine's accounting and property management system and non-IT systems such as elevators, phone system, fire sprinkler & control panel, etc. The determination of which systems required modification and a timetable for such modifications were completed in the first quarter of 1998. o In the second phase, Peregrine made the necessary upgrades or modifications to both the IT and non-IT systems. For the IT systems the accounting, property and hotel management systems required replacement, and the Trust's operating system required upgrading. The 16 Trust replaced its accounting, property and hotel management systems during 1998 with a new accounting and property management system for Windows. The new system has been certified by the vendor to be Year 2000 Compliant. The Trust has upgraded its Windows operating system with the purchase of Windows 98 for several computers and will be completing the process during the second quarter of 1999. The vendor has certified that Windows 98 is Year 2000 compliant. Peregrine purchased new personal computers and hardware, which have been certified by the vendors to be Year 2000 compliant. For non-IT systems, all required upgrades were completed in 1998. All of the elevators, fire alarms, heating & air conditioning ventilation, and security alarm systems were inspected by certified technicians to detect any possible interruptions related to the year 2000. Peregrine is in the process of upgrading the phone system and the Holiday Inn Encore & Holidex Reservation systems. These modifications are expected to be complete by mid-1999. The total cost for inspections, testing, and upgrades of computer software and hardware was approximately $60,000, which was incurred during 1998 and 1997. o In the third phase, the Trust determined the Year 2000 readiness of relationships they have with vendors and service providers. The Trust conducted a survey of major vendors and service providers to determine their readiness and found that the majority of them will be compliant. For example, the Trust has received a letter from its major depository institution. The depository institution certified that its systems would be Year 2000 compliant. The determination of compliance for major vendors and service providers is complete. Peregrine believes that it has identified all significant operating issues that could affect day-to-day operations if Peregrine's systems are not compliant with the year 2000. However, should these programs fail, certain measures are being taken to ensure that the day-to-day operations of Peregrine's corporate office, commercial properties, and hotel properties would continue. Peregrine does not expect any material cost due to service interruptions. Peregrine will have several back-ups performed prior to December 31, 1999 and will be able to perform daily activities in a manual environment until a solution is found. Additionally, a plan is currently being formulated for emergency procedures if a system fails. 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.
1999 2000 2001 2002 2003 Thereafter ---- ---- ---- ---- ---- ---------- Mortgage Notes $ 282,000 $ 409,000 $ 448,000 $ 19,722,000 $ 159,000 $2,842,000 Average Interest Rate 9.5% 9.5% 9.5% 9.5% 8.7% 8.7% Senior Notes -- $16,074,000 -- -- -- -- Average Interest Rate 8.5% 8.5% Revolving Line of Credit -- -- $32,494,000 -- -- -- Average Interest Rate 8.6% 8.6% 8.6%
18 PART II. OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K - ------------------------------------------------------------------------------- (a) 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. (14) 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. (14) 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) 27 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. (14) Incorporated herein by reference to Peregrine's Report on Form 10-K for year ended December 31, 1998. (b) Reports on Form 8-K Form 8-K, reported in Item 2, the sale of an office building located on 3900 Lennane, Sacramento, California and the sale of a mini-storage facility located at 1435 Sebastopol, Santa Rosa, California. In Item 8, the entry into the Loan and Security Agreement, the Secured Promissory Note and the Fifth Amendment to the Second Amended and Restated Note Agreement. 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 17, 1999 /s/ Larry Knorr - ------------ -------------------------------- Date Larry Knorr Vice President and Chief Accounting Officer 22 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 914 0 326 0 61 2,990 84,548 (8,056) 80,783 2,486 72,431 0 0 47,405 (41,539) 80,783 0 5,142 0 (3,662) (1,789) 0 (1,707) (2,016) 0 (2,016) 0 3,979 0 1,963 0.09 0.09
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