-----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, DI1M2L2y7VY1vr3opdfbi7QgHuqqSBGV4+575ugD1AF2U0fNq0FViq3OoZdJYOqA ibdVuE3xKEop01nx71qVtA== 0000912057-96-022792.txt : 19961016 0000912057-96-022792.hdr.sgml : 19961016 ACCESSION NUMBER: 0000912057-96-022792 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961015 SROS: AMEX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSION WEST PROPERTIES/NEW/ CENTRAL INDEX KEY: 0000704874 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 952635431 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08383 FILM NUMBER: 96643225 BUSINESS ADDRESS: STREET 1: 6815 FLANDERS DR STE 250 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194503135 MAIL ADDRESS: STREET 1: 6815 FLANDERS DR STREET 2: SUITE 250 CITY: SAN DIEGO STATE: CA ZIP: 92121-3914 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 --------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 31, 1996 Commission File Number 1-8383 MISSION WEST PROPERTIES Incorporated in California IRS Employer Identification Number: 95-2635431 Principal Executive Offices: Telephone: (619) 450-3135 6815 Flanders Drive, Suite 250 San Diego, California 92121-3914 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 [ ] The number of shares of the Registrant's common stock outstanding as of August 31, 1996 was 1,371,121. PART I FINANCIAL INFORMATION ITEM 1. QUARTERLY FINANCIAL STATEMENTS Following are three-month third quarter and nine-month year-to-date (as applicable) fiscal year 1996 consolidated financial statements (unaudited) and accompanying notes (unaudited). MISSION WEST PROPERTIES Consolidated Balance Sheets (Unaudited) August 31 November 30 1996 1995 ----------- ----------- ASSETS Cash and cash equivalents $ 1,880,000 $ 566,000 Short-term investments, held-to-maturity 1,123,000 2,528,000 Real estate investments: Rental Properties, less accumulated depreciation of $10,080,000 in 1996 and $9,054,000 in 1995 ($44,772,000 pledged in 1996 and $45,729,000 in 1995) 46,154,000 47,136,000 Unimproved land ($461,000 pledged in 1996 and 1995) 461,000 461,000 ----------- ----------- 46,615,000 47,597,000 Less allowance for estimated losses (4,413,000) (4,413,000) ----------- ----------- Net real estate investments 42,202,000 43,184,000 Other assets, less allowances of $412,000 in 1996 and $541,000 in 1995 and accumulated depreciation of $319,000 in 1996 and $312,000 in 1995 1,168,000 1,292,000 ----------- ----------- $46,373,000 $47,570,000 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable $30,982,000 $31,967,000 Accounts payable and accrued expenses 1,181,000 1,466,000 ----------- ----------- Total liabilities 32,163,000 33,433,000 ----------- ----------- Shareholders' equity: Common stock, no par value, 10,000,000 shares authorized; 1,371,121 shares issued and outstanding (1,368,721 in 1995) 19,456,000 19,446,000 Accumulated deficit (5,246,000) (5,309,000) ----------- ----------- Total shareholders' equity 14,210,000 14,137,000 ----------- ----------- $46,373,000 $47,570,000 ----------- ----------- ----------- ----------- See accompanying notes to consolidated financial statements. MISSION WEST PROPERTIES Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended ------------------------- ------------------------- August 31 August 31 August 31 August 31 1996 1995 1996 1995 ---------- ---------- ---------- ---------- REVENUES: Rental revenues from real estate $1,749,000 $1,801,000 $5,342,000 $5,320,000 Sales of real estate 27,000 28,000 86,000 125,000 Other, including interest 91,000 96,000 237,000 282,000 ---------- ---------- ---------- ---------- 1,867,000 1,925,000 5,665,000 5,727,000 ---------- ---------- ---------- ---------- EXPENSES: Operating expenses of real estate 434,000 662,000 1,224,000 1,448,000 Depreciation of real estate 342,000 334,000 1,026,000 1,011,000 General and administrative 482,000 231,000 987,000 701,000 Interest 754,000 876,000 2,319,000 2,663,000 ---------- ---------- ---------- ---------- 2,012,000 2,103,000 5,556,000 5,823,000 ---------- ---------- ---------- ---------- Income (loss) before income taxes (145,000) (178,000) 109,000 (96,000) Provision for (benefit from) income taxes (56,000) (70,000) 46,000 (40,000) ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (89,000) $ (108,000) $ 63,000 $ (56,000) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) PER SHARE $ (0.06) $ (0.08) $ 0.05 $ (0.04) ------- ------- ------- ------- ------- ------- ------- -------
See accompanying notes to consolidated financial statements. MISSION WEST PROPERTIES Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended -------------------------- August 31 August 31 1996 1995 ----------- ----------- Cash flows from operating activities: Net income (loss) $ 63,000 $ (56,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 1,033,000 1,016,000 Changes in assets and liabilities: Increase in net real estate investments (44,000) (229,000) Decrease (increase) in other assets 117,000 (287,000) Decrease in accounts payable and accrued expenses (285,000) (330,000) ----------- ----------- Net cash provided by operating activities 884,000 114,000 ----------- ----------- Cash flows from investing activities: Net redemptions of short-term investments 1,405,000 565,000 ----------- ----------- Cash flows from financing activities: Repayments on notes payable (985,000) (1,405,000) Proceeds from stock options exercised 10,000 - ----------- ----------- Net cash used for financing activities (975,000) (1,405,000) ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,314,000 (726,000) Cash and cash equivalents at beginning of period 566,000 2,192,000 ----------- ----------- Cash and cash equivalents at end of period $ 1,880,000 $ 1,466,000 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. MISSION WEST PROPERTIES Notes to Consolidated Financial Statements (Unaudited) August 31, 1996 NOTE 1 -- BASIS OF PRESENTATION The accompanying consolidated financial statements (unaudited) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and, therefore, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The preparation of 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, the disclosure of contingent assets and liabilities at financial statement date, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The operating results for the interim period are not necessarily indicative of the results to be expected for a full fiscal year or for any future periods. In the opinion of management, the information furnished herein reflects all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of results for the unaudited interim period. NOTE 2 -- CASH FLOW INFORMATION For purposes of reporting cash flows, cash and cash equivalents include cash on hand, money market funds, certificates of deposit, and obligations of the U.S. Treasury with an original maturity of 90 days or less. Short-term investments consist of certificates of deposit and obligations of the U.S. Treasury with an original maturity exceeding 90 days. Cash paid during the nine months ended August 31 for interest was $2,400,000 in 1996 and $2,656,000 in 1995. Cash paid for income taxes during the nine-month periods was $38,000 in 1996 and $236,000 in 1995. NOTE 3 -- NOTES PAYABLE Notes payable comprise the following: August 31 November 30 1996 1995 ----------- ----------- Secured notes payable to banks, due 1998 through $29,565,000 $30,218,000 2001, interest rates ranging from 9% (fixed) to 9.75% (prime plus 1.5%), principal and interest due in monthly installments of $283,000, balance of principal due at maturity Unsecured note payable to bank, due July 1996, - 250,000 interest rate of 9.75% prime plus 1.5%), interest only due monthly, principal due at maturity Secured note payable to insurance company, due 1997, interest rate of 10%, principal and interest due in monthly installments of $21,000 1,417,000 1,499,000 ----------- ----------- $30,982,000 $31,967,000 ----------- ----------- ----------- ----------- A secured loan that matured July 10, 1996 was renewed in due course during the third quarter. The $250,000 unsecured note was paid in full during the third quarter of 1996, upon maturity. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 4 -- NET INCOME (LOSS) PER SHARE Net income (loss) per share is based on 1,371,121 and 1,368,721 shares for the quarter ended August 31, and 1,370,336 and 1,401,203 for the nine months ended August 31, the weighted average number of shares outstanding during the periods presented for fiscal years 1996 and 1995, respectively. The effect of stock options is not significant and such effect is not reflected in the per share computations. NOTE 5 -- PENDING SALE OF REAL ESTATE ASSETS On July 1, 1996, the Company entered into a definitive agreement to sell all its real estate assets to DMB/SVP California Investments, LLC ("DMB/SVP") for $42,000,000 cash. As allowed under provisions of the agreement, the transaction was amended effective August 20, 1996 to exclude one property; the sales price was correspondingly reduced to $38,500,000 and a special meeting of shareholders to vote on the proposed transaction was rescheduled to October 15, 1996 (with an anticipated closing date of October 24, 1996 if the sale is approved by shareholders). The Company will satisfy the indebtedness related to the assets being sold from proceeds of the sale. The transaction will be accounted for as a sale of assets upon completion. Estimated transaction costs approximating $250,000 were recorded through August 31, 1996. An estimated loss on sale of the assets, if any, and the related selling costs will be determined and recorded upon closing. As the Company continues to perform under the terms of the agreement with DMB/SVP, the Company has also received third party expressions of interest in purchasing its real estate portfolio. Under the terms of the agreement with DMB/SVP, if the Company were to receive an offer to purchase its portfolio that the Board of Directors determined was superior to the DMB/SVP transaction, the Company is entitled to issue a "fiduciary out" notice to DMB/SVP to terminate that transaction and proceed with the superior transaction. In certain circumstances a termination fee of $2,000,000 would be due DMB/SVP if the Company were to exercise its fiduciary out rights. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: THIRD QUARTER FISCAL 1996 COMPARED TO THIRD QUARTER FISCAL 1995 Compared to the third quarter of fiscal 1995, the Company's rental revenues from real estate decreased $52,000, or three percent, in 1996; the related operating expenses of real estate decreased $228,000, or 34 percent. The decrease in rental revenue primarily resulted from a decrease in occupancy (85 percent average occupancy during third quarter fiscal 1996 compared to 88 percent in fiscal 1995). The decrease in operating expenses primarily resulted from a $185,000 decrease in building repairs/reconditioning, a $45,000 decrease in property taxes (successful assessment appeals in Arizona), and a $32,000 decrease in bad debt expense. General and administrative expenses for the third fiscal quarter increased $251,000 between 1995 and 1996, primarily due to recording transaction costs related to the pending sale of real estate assets to DMB/SVP California Investments, LLC (see "Liquidity and Capital Resources" below). Interest expense decreased $122,000 between the third quarter of fiscal 1995 and the third quarter of fiscal 1996 as a result of a reduction in outstanding notes payable ($30,982,000 outstanding at August 31, 1996 compared to $32,977,000 at August 31, 1995) and decreases in the Company's aggregate borrowing rate (9.03 percent during the third quarter of fiscal 1996 compared to 10.19 percent during the third quarter of fiscal 1995). FIRST NINE MONTHS FISCAL 1996 COMPARED TO FIRST NINE MONTHS FISCAL 1995 During the nine months ended August 31, 1996, compared to 1995, rental revenues from real estate increased $22,000 and the related operating expenses of real estate decreased $224,000, or 15 percent. Compared to fiscal 1995, increases in rental revenue due to higher rental rates for the first six months of fiscal 1996 were offset by a decrease in occupancy during the third quarter of 1996; thus, no significant changes in rental revenue for the nine-month periods occurred between years. The decrease in operating expenses was a result of the factors discussed in the third quarter results of operations above (primarily a decrease in building repairs/reconditioning). Year-to-date general and administrative expenses are $286,000 higher in fiscal 1996 than 1995, primarily due to transaction costs related to the pending sale of real estate assets. Interest expense is $344,000 lower in 1996 than 1995, the result of factors previously detailed in the third quarter results of operations discussion above. CHANGES IN FINANCIAL POSITION: AUGUST 31, 1996 COMPARED TO NOVEMBER 30, 1995 During the first nine months of fiscal 1996, cash and investments decreased a net $91,000. Contributing to the decrease was a $250,000 payoff of an unsecured loan upon maturity, payment of $206,000 in loans fees upon renewal of other maturing loans, and payment of approximately $155,000 in transaction costs related to the pending sale of real estate assets (see "Liquidity and Capital Resources" below). These decreases in funds were offset by increases that included a $118,000 bankruptcy settlement receipt (former tenant) and normal cash inflow from operations. Normal debt service (principal and interest payments) continued during the first nine months of fiscal 1996. The secured note payable that matured July 10, 1996 was renewed with terms virtually unchanged from those of the previous loan. Other assets decreased a net $124,000 during the first nine months of fiscal 1996 due to the bankruptcy settlement receipt and various other collections on accounts receivable, and due to normal activity of prepaid expenses (amortization offset by annual payments). Accounts payable and accrued expenses decreased $285,000, or 19 percent, during the nine months primarily as a result of the timing of payments for property taxes, legal and audit fees, and payroll. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED LIQUIDITY AND CAPITAL RESOURCES: On July 1, 1996, the Company entered into a definitive agreement to sell all its real estate assets to DMB/SVP California Investments, LLC for $42,000,000 cash. The purchaser was granted a certain amount of time to conduct a due diligence review, which has been completed. As allowed under provisions of the agreement, the transaction was amended effective August 20, 1996 to exclude one property, the Company's leasehold operations at McClellan-Palomar Airport, from the sale. The sales price was correspondingly reduced to $38,500,000 and a special meeting of shareholders to vote on the proposed transaction was rescheduled to October 15, 1996 (with an anticipated closing date of October 24, 1996 if the sale is approved by shareholders). Upon completion of the proposed sale, the Company will satisfy the indebtedness related to the assets being sold from proceeds of the sale. Entering the agreement to sell the real estate assets constituted an event of default under several of the Company's debt agreements; however, through the date of this filing, none of the related financial institutions have called a formal default of any loans. The sale transaction will be accounted for as a sale of assets upon completion. Estimated transaction costs approximating $250,000 were recorded through August 31, 1996. An estimated loss on sale of the assets, if any, and the related selling costs will be determined and recorded upon closing. If this proposed transaction is approved by the Company's shareholders and completed, the Company is expected to have net realizable assets of approximately $12,500,000, consisting of cash and cash equivalents and a leasehold interest in the airport operating property. Upon completion of the transaction, the Company intends to consider making a substantial distribution to shareholders; the Company will then review available strategic alternatives, which may include business or asset acquisitions or a sale of the remaining real estate asset and/or the Company. Concurrent with these activities, a review of general and administrative expenses would be made; it is likely that these expenses would be significantly reduced through staffing reductions and other appropriate measures. As the Company and the purchaser continue to perform under the terms of the DMB/SVP agreement, the Company has received third party expressions of interest in purchasing its real estate portfolio. Under the terms of the agreement with DMB/SVP, if the Company were to receive an offer to purchase its portfolio that the Board of Directors determined was superior to the DMB/SVP transaction, the Company is entitled to issue a "fiduciary out" notice to DMB/SVP to terminate that transaction and proceed with the superior transaction. In certain circumstances a termination fee of $2,000,000 would be due DMB/SVP if the Company were to exercise its fiduciary out rights. Aside from the proposed sale transaction, during the first nine months of fiscal 1996, the Company's financial condition and operations remained stable. Cash and investment balances decreased minimally while notes payable continued to be amortized monthly and a $250,000 payoff of an unsecured loan was made. Forty percent of the debt portfolio was renewed during the second and third quarters, upon normal loan maturity dates, on terms comparable to those previously in place. The rental properties continued to generate sufficient rental revenue to cover real estate operating expenses and interest and they generated cash, after normal debt service (interest and principal amortization). The rental properties currently are, in aggregate, 85 percent leased. In the event a sale of the real estate assets is not completed, the Company anticipates continuing normal operation of the real estate portfolio, while also considering and pursuing other strategic alternatives. While operating the portfolio, capital expenditures for interior improvements to existing buildings may be required as new tenants are obtained or existing leases extended. The Company would continue to finance its capital expenditures and general and administrative operations with internally generated funds, including rental receipts from the rental properties, and existing cash and investments. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company was not involved in any material legal proceedings during the quarter ended August 31, 1996. ITEM 2. CHANGES IN SECURITIES No changes in the rights of the Company's securities occurred during the quarter ended August 31, 1996. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter were submitted to a vote of security holders during the quarter ended August 31, 1996. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS (27) Financial Data Schedule (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended August 31, 1996. SIGNATURE Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. MISSION WEST PROPERTIES - ----------------------- Registrant By: /s/Katrina L. Thompson ------------------------------------------------- Katrina L. Thompson Chief Financial Officer & Secretary (Principal Financial and Accounting Officer) October 11, 1996 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheets as of August 31, 1996 and the related consolidated statements of operations for the nine months then ended and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS NOV-30-1996 AUG-31-1996 3,003 0 395 337 0 0 334 319 46,373 0 30,982 0 0 19,456 5,246 46,373 0 5,665 0 2,250 987 30 2,319 109 46 63 0 0 0 63 .05 .05
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