-----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, H3x4RH2RFI686u5a+0hrZe/uQVOP0unIWFU/S4yPw8tb3Eb6MFXAHtANkayAnkcl 5bJSRBdaAC71RYL1FzV5nA== 0000950131-96-003977.txt : 19960816 0000950131-96-003977.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950131-96-003977 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY CAPITAL PACIFIC TRUST CENTRAL INDEX KEY: 0000080737 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 746056896 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10272 FILM NUMBER: 96614978 BUSINESS ADDRESS: STREET 1: 7777 MARKET CENTER AVE CITY: EL PASO STATE: TX ZIP: 79912 BUSINESS PHONE: 9158773900 MAIL ADDRESS: STREET 1: 7777 MARKET CENTER AVE CITY: EL PASO STATE: TX ZIP: 79912 FORMER COMPANY: FORMER CONFORMED NAME: PROPERTY TRUST OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EL PASO REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19700108 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 1-10272 SECURITY CAPITAL PACIFIC TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 74-6056896 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 7777 MARKET CENTER AVENUE, EL PASO, 79912 TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (915) 877-3900 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) 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 for the past 90 days. Yes X No The number of shares outstanding of the Registrant's common stock as of August 6, 1996 was: 72,392,081 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITY CAPITAL PACIFIC TRUST INDEX PART I. Condensed Financial Information Item 1. Financial Statements Condensed Balance Sheets--June 30, 1996 (unaudited) and December 31, 1995............................................. 3 Condensed Statements of Earnings--Three and six months ended June 30, 1996 and 1995 (unaudited)............................ 4 Condensed Statements of Cash Flows--Six months ended June 30, 1996 and 1995 (unaudited)..................................... 5 Notes to Condensed Financial Statements....................... 6 Independent Auditors' Review Report........................... 11 Management's Discussion and Analysis of Financial Condition Item 2. and Results of Operations..................................... 12 PART II. Other Information Item 4. Submission of Matters to Vote of Securities Holders........... 18 Item 5. Other Information............................................. 18 Item 6. Exhibits and Reports on Form 8-K.............................. 18
2 SECURITY CAPITAL PACIFIC TRUST CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 1996 1995 ----------- ------------ ASSETS ------ (UNAUDITED) Real estate........................................... $2,069,873 $1,855,866 Less accumulated depreciation......................... 97,820 81,979 ---------- ---------- 1,972,053 1,773,887 Mortgage notes receivable............................. 14,696 15,844 ---------- ---------- Total investments................................. 1,986,749 1,789,731 Cash and cash equivalents............................. 4,376 26,919 Accounts receivable................................... 3,473 3,318 Other assets.......................................... 22,318 21,031 ---------- ---------- Total assets...................................... $2,016,916 $1,840,999 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Line of credit...................................... $ 179,250 $ 129,000 Long term debt...................................... 350,000 200,000 Mortgages payable................................... 131,180 158,054 Distributions payable............................... -- 22,437 Accounts payable.................................... 28,014 21,040 Accrued expenses and other liabilities.............. 33,311 34,800 ---------- ---------- Total liabilities................................. 721,755 565,331 ---------- ---------- Shareholders' Equity: Series A Preferred shares (9,051,000 convertible shares in 1996 and 9,200,000 in 1995; stated liquidation preference of $25 per share)........... 226,275 230,000 Series B Preferred shares (4,200,000 shares issued; stated liquidation preference of $25 per share).... 105,000 105,000 Common shares (shares issued--72,557,033 in 1996 and 72,375,819 in 1995)................................ 72,557 72,376 Additional paid-in capital.......................... 956,223 952,679 Distributions in excess of net earnings............. (62,956) (82,450) Treasury shares (164,952 in 1996 and 164,901 in 1995).............................................. (1,938) (1,937) ---------- ---------- Total shareholders' equity........................ 1,295,161 1,275,668 ---------- ---------- Total liabilities and shareholders' equity........ $2,016,916 $1,840,999 ========== ==========
The accompanying notes are an integral part of the condensed financial statements. 3 SECURITY CAPITAL PACIFIC TRUST CONDENSED STATEMENT OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, --------------- ----------------- 1996 1995 1996 1995 ------- ------- -------- -------- Rental income................................ $79,491 $65,719 $155,300 $119,236 Interest..................................... 452 719 999 1,274 ------- ------- -------- -------- 79,943 66,438 156,299 120,510 ------- ------- -------- -------- Expenses: Rental expenses............................ 22,226 18,501 42,565 33,344 Real estate taxes.......................... 6,256 5,624 13,359 10,364 Property management fees paid to affiliates................................ 2,973 1,808 5,828 3,907 Depreciation............................... 10,624 9,126 21,242 16,550 Interest................................... 7,257 5,123 13,777 11,129 REIT management fee paid to affiliates..... 5,724 5,176 11,279 9,133 General and administrative................. 230 201 506 415 Provision for possible loss on investments. -- -- -- 120 Other...................................... 191 73 361 202 ------- ------- -------- -------- 55,481 45,632 108,917 85,164 ------- ------- -------- -------- Earnings from operations..................... 24,462 20,806 47,382 35,346 Gain on sale of investments.................. 5,160 -- 8,083 -- ------- ------- -------- -------- Net earnings before extraordinary item....... 29,622 20,806 55,465 35,346 Less extraordinary item--loss on early extinguishment of debt...................... 870 -- 870 -- ------- ------- -------- -------- Net earnings................................. 28,752 20,806 54,595 35,346 Less preferred share dividends............... 6,386 5,023 12,774 9,048 ------- ------- -------- -------- Net earnings attributable to common shares... $22,366 $15,783 $ 41,821 $ 26,298 ======= ======= ======== ======== Weighted average common shares outstanding... 72,223 72,027 72,217 61,812 ======= ======= ======== ======== Per common share amounts: Net earnings attributable to common shares. $ 0.31 $ 0.22 $ 0.58 $ 0.43 ======= ======= ======== ======== Distributions paid......................... $ 0.31 $0.2875 $ 0.62 $ 0.5750 ======= ======= ======== ========
The accompanying notes are an integral part of the condensed financial statements. 4 SECURITY CAPITAL PACIFIC TRUST CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------- 1996 1995 --------- --------- Operating activities: Net earnings............................................ $ 54,595 $ 35,346 Adjustments to reconcile net earnings to net cash flow provided by operating activities: Depreciation and amortization......................... 22,069 17,119 Provision for possible loss on investments............ -- 120 Gain on sale of investments........................... (8,083) -- Decrease in accounts payable............................ (6,085) (1,614) Decrease in accrued real estate taxes................... (3,326) (1,213) Increase in accrued interest on long term debt.......... 3,853 1,717 Increase (decrease) in accrued expenses and other liabilities............................................ (2,016) 2,063 Net change in other operating assets.................... (885) (3,158) --------- --------- Net cash flow provided by operating activities...... 60,122 50,380 --------- --------- Investing activities: Real estate investments................................. (283,961) (146,945) Mortgage notes receivable............................... -- (38) Proceeds from mortgage notes receivable repayments...... 1,148 4,732 Proceeds from sale of investments....................... 85,696 -- --------- --------- Net cash flow used in investment activities......... (197,117) (142,251) --------- --------- Financing activities: Proceeds from line of credit............................ 233,885 146,000 Proceeds from long term debt............................ 150,000 -- Principal payments on line of credit.................... (183,635) (248,000) Payoff of PACIFIC's line of credit...................... -- (51,900) Regularly scheduled principal payments on mortgages payable................................................ (1,029) (804) Prepayment of mortgages payable......................... (25,845) -- Debt issuance costs incurred............................ (1,385) (299) Proceeds from sale of shares, net of expenses........... -- 317,747 Proceeds from dividend reinvestment and share purchase plan, net.............................................. -- 1,002 Cash distributions paid on common shares................ (44,785) (35,267) Cash dividends paid on preferred shares................. (12,774) (9,048) Other................................................... 20 15 --------- --------- Net cash flow provided by financing activities...... 114,452 119,446 --------- --------- Net increase (decrease) in cash and cash equivalents..... (22,543) 27,575 Cash and cash equivalents at beginning of period......... 26,919 8,092 --------- --------- Cash and cash equivalents at end of period............... $ 4,376 $ 35,667 ========= ========= Non-cash investing and financing activities: Mortgage notes assumed upon purchase of multifamily properties............................................. $ -- $ 4,784 ========= ========= Series A Preferred Shares exchanged for common shares... $ 3,725 $ -- ========= ========= Multifamily properties and other net assets acquired in connection with the merger with Security Capital Pacific Incorporated ("PACIFIC") which were funded by: PTR common shares exchanged for all of the outstanding shares of PACIFIC's common stock..................... $ -- $ 138,671 Mortgage notes assumed................................ -- 54,403 Repayment of the outstanding balance on PACIFIC's line of credit............................................ -- 51,900 --------- --------- Net increase in net assets related to the merger...... $ -- $ 244,974 ========= =========
The accompanying notes are an integral part of the condensed financial statements. 5 SECURITY CAPITAL PACIFIC TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1996 AND 1995 (UNAUDITED) (1) GENERAL The financial statements of SECURITY CAPITAL PACIFIC TRUST ("PTR") are unaudited and certain information and footnote disclosures normally included in financial statements have been omitted. While management of PTR believes that the disclosures presented are adequate, these interim financial statements should be read in conjunction with the financial statements and notes included in PTR's 1995 Annual Report on Form 10-K, as amended by Form 10-K/A No. 1. In the opinion of management, the accompanying unaudited financial statements contain all adjustments consisting of normal recurring adjustments for a fair presentation of PTR's financial statements for the interim periods presented. The results of operations for the three and six month periods ended June 30, 1996 are not necessarily indicative of the results to be expected for the entire year. 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 and disclosure of contingent 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. (2) PROPOSED SPIN-OFF OF PTR'S HOMESTEAD VILLAGE EXTENDED-STAY LODGING ASSETS TO HOMESTEAD VILLAGE INCORPORATED On May 21, 1996, the Board of Trustees of PTR approved the spin-off (the "Spin-off") of PTR's Homestead Village(R) extended-stay lodging assets to a newly formed company, Homestead Village Incorporated (formerly Homestead Village Properties Incorporated) ("Homestead"). As part of the Spin-off, PTR is expected to contribute 54 Homestead Village properties (or the rights to acquire such properties) to Homestead in exchange for 9,485,727 shares of Homestead common stock. Simultaneously with the Spin-off, PTR is expected to receive 6,363,789 warrants to acquire additional shares of Homestead common stock in exchange for entering into a funding commitment agreement for which PTR has agreed to provide $129.0 million in secured financing for developments to Homestead and receive up to $144.0 million in convertible mortgage notes. In addition, upon consumation of the Spin-off, it is expected that an additional $77.0 million of convertible mortgage notes will be held by PTR. Upon consumation of the Spin-off the Homestead common stock and warrants will be distributed to PTR shareholders. Giving effect to the issuance of the Homestead common stock at the consummation of the Spin-off, the exercise of all Homestead warrants and the conversion of all mortgage loans outstanding and which could be made under the funding commitment agreement, PTR and its shareholders will own 63.21% of Homestead. A combined proxy statement and registration statement relating to the Spin-off was declared effective on August 12, 1996 and PTR's shareholders are scheduled to vote on the Spin-off on September 12, 1996. As of June 30, 1996 PTR's Homestead Village properties consisted of 26 operating properties and 28 properties under construction or in planning, representing a total expected investment of $282.7 million. For the six months ended June 30, 1996, PTR's Homestead Village operations accounted for approximately 5% of PTR's total earnings from operations. If approved by PTR's shareholders, the reduction in operating results attributable to Homestead Village would be partially offset by interest earned on the convertible mortgages on an as funded basis. 6 SECURITY CAPITAL PACIFIC TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED) (3) REAL ESTATE Investments Investments in real estate, at cost, were as follows (dollar amounts in thousands):
JUNE 30, 1996 DECEMBER 31, 1995 ----------------- ----------------- INVESTMENT UNITS INVESTMENT UNITS ---------- ------ ---------- ------ Multifamily: Operating properties............ $1,744,705 44,575 $1,584,994 41,503 Developments under construction. 230,718 6,943(1) 187,507 6,676(1) Developments in planning: Developments owned............ 40,239 3,719(1) 22,933 2,328(1) Developments under control(2). -- 4,499(1) -- 3,822(1) ---------- ------ ---------- ------ Total developments in planning................... 40,239 8,218 22,933 6,150 ---------- ------ ---------- ------ Land held for future development.................... 27,603 -- 29,688 -- ---------- ------ ---------- ------ Total multifamily........... 2,043,265 59,736 1,825,122 54,329 ====== ====== Non-multifamily................... 26,608 30,744 ---------- ---------- Total real estate........... $2,069,873 $1,855,866 ========== ==========
- -------- (1) Unit information is based on management's estimates and is unaudited and not reviewed by the independent auditors. (2) PTR's investment as of June 30, 1996 and December 31, 1995 for developments under control was $4.2 million and $2.2 million, respectively, and is reflected in the "Other assets" caption of PTR's balance sheets. The change in investment in real estate, at cost, consisted of the following (in thousands): Balance at December 31, 1995................................. $1,855,866 Acquisitions................................................. 121,689 Development expenditures, including land acquisitions........ 160,754 Nonrecurring capital improvements and renovation expenditures................................................ 7,771 Recurring capital improvements............................... 3,631 Acquisition and improvement of land held for future development................................................. 3,145 Real estate sold............................................. (83,015) Other........................................................ 32 ---------- Balance at June 30, 1996..................................... $2,069,873 ==========
At August 6, 1996, PTR had contingent contracts or letters of intent, including developments under control, subject to PTR's final due diligence to acquire land for the near term development of an estimated 7,084 multifamily units with an aggregate estimated development cost of $422.9 million. At the same date, PTR also had contingent contracts or letters of intent, subject to final due diligence, for the acquisition of 2,815 additional multifamily units with an aggregate investment cost of $207.9 million, including planned renovation. At August 6, 1996, PTR had unfunded development commitments for developments under construction of $178.8 million. 7 SECURITY CAPITAL PACIFIC TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED) Gain on Sale and Valuation of Long-Lived Investments PTR's strategy is to focus on the ownership of multifamily properties. PTR develops and acquires multifamily properties with a view to effective long-term operation and ownership. Based upon PTR's market research and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long-term investment objective and redeploy the proceeds therefrom, preferably through exchanges, into assets that in PTR's view offer better long-term return prospects. As a result of this asset optimization strategy, PTR disposed of six multifamily properties and one industrial building during the six months ended June 30, 1996 under disposition/exchange agreements. Under the terms of the dispositions, net cash proceeds representing the value of the properties disposed of were placed into a trust. At the direction of PTR, seven multifamily properties primarily located in California and land for a near term development were acquired utilizing the $85.7 million in aggregate net proceeds received from dispositions. For federal income tax purposes, the dispositions were structured as tax deferred like-kind exchanges. For financial reporting purposes, the dispositions qualified for profit recognition and an aggregate gain of $8.1 million was recorded for the six months ended June 30, 1996. Statement of Financial Accounting Standard No. 121 entitled "Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of" was adopted by PTR effective January 1, 1996, as required by the Statement. As part of PTR's asset optimization strategy, 13 multifamily properties and one non-multifamily property were held for disposition as of June 30, 1996. The aggregate carrying value of properties held for disposition was $140.8 million at June 30, 1996, which is less than fair market value, net of cost to sell. Such properties are not depreciated during the period for which they are determined to be held for disposition. Subject to normal closing risks, PTR expects to complete the disposition of all such properties during 1996, and redeploy the net proceeds from such dispositions through exchanges into the acquisition of other properties. The earnings from operations for properties held for disposition which is included in PTR's earnings from operations for the six months ended June 30, 1996 and 1995 was $6,441,000 and $5,965,000, respectively. Long-lived investments held and used by PTR are periodically evaluated for impairment and provisions for possible losses are made if required. As of June 30, 1996, such investments are carried at cost, which is not in excess of fair market value. Third Party Owner--Developments To enhance its flexibility in developing and acquiring multifamily properties, PTR has and will enter into presale agreements with third party owner-developers to acquire properties developed by such owner-developers where the developments meet PTR's investment criteria. PTR has and will fund such developments through development loans to such owner-developers. In addition, to provide greater flexibility for the use of land acquired for development and to dispose of excess parcels, PTR will make mortgage loans to PTR Development Services Incorporated ("PTR Development Services") to purchase land for development. PTR owns all of the preferred stock of PTR Development Services, which entitles PTR to substantially all of the net operating cash flow (95%) of PTR Development Services. All of the common stock of PTR Development Services is owned by an unaffiliated trust. The common stock is entitled to receive the remaining 5% of net operating cash flow. As of June 30, 1996, the outstanding balance of development and mortgage loans made by PTR to third party owner- developers and PTR Development Services aggregated $92.7 million and $4.6 million, respectively. The activities of PTR Development Services and development loans are consolidated with PTR's activities and all intercompany transactions have been eliminated in consolidation. (4) DISTRIBUTIONS PTR's current policy is to pay distributions to common shareholders based upon funds from operations and aggregating annually at least 95% of its taxable income. On July 23, 1996 the Trustees declared a cash distribution of $0.31 per common share to be paid on August 15, 1996 to shareholders of record on August 5, 1996. 8 SECURITY CAPITAL PACIFIC TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED) (5) BORROWINGS Line of Credit PTR has an unsecured revolving line of credit facility with Texas Commerce Bank, National Association, as agent bank for a group of lenders ("TCB") of $350 million, which matures August 1997 and may annually be extended for an additional year with the approval of TCB and the other participating lenders. In August 1996, PTR negotiated the extension of the line to August 1998 and a reduction in the adjusted LIBOR interest rate to LIBOR plus 0.75% to LIBOR plus 1.50% based upon the rating of PTR's senior unsecured debt. All debt incurrences are subject to covenants, as more fully described in the loan agreement. The TCB line bears interest at an interest rate of the greater of prime (8.25% at June 30, 1996) or the federal funds rate plus .50%, or at PTR's option, LIBOR (5.50% at June 30, 1996) plus 1.375% which can vary from LIBOR plus 1.0% to LIBOR plus 1.75% (6.875% at June 30, 1996) based upon the rating of PTR's senior unsecured debt. Additionally, there is a commitment fee on the average unfunded line of credit balance. The commitment fee was $218,000 and $260,000 for the six months ended June 30, 1996 and 1995, respectively. Long Term Debt On February 23, 1996, PTR issued $50 million of 7.15% Notes due 2010 (the "7.15% Notes") and $100 million of 7.90% Notes due 2016 (the "7.90% Notes" and together with the 7.15% Notes, the "February 1996 Notes" and together with the August 1996 Notes (as defined in note 9), the "Notes"). The 7.15% Notes require annual principal payments of $6.25 million, commencing February 15, 2003, which will fully amortize the principal balance as of February 15, 2010. The 7.90% Notes require aggregate annual principal payments of $10 million in 2011, $12.5 million in 2012, $15 million in 2013, $17.5 million in 2014, $20 million in 2015 and $25 million in 2016, which will fully amortize the principal balance as of February 15, 2016. Collectively, the February 1996 Notes are unsecured and had an original average life to maturity of 15.5 years and an average effective interest cost, including offering discounts and issuance costs of 7.84% per annum. The Notes are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relating to market yields available at redemption. The Notes are governed by the terms and provisions of a supplemental indenture agreement dated February 2, 1994 ("the Indenture") between PTR and State Street Bank and Trust Company. Under the terms of the Indenture, PTR can incur additional debt only if, after giving effect to the debt being incurred and application of proceeds therefrom, (i) the ratio of debt to total assets, as defined in the Indenture, does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined in the Indenture, does not exceed 40%, and (iii) PTR's pro forma interest coverage ratio, as defined in the Indenture, for the four preceding fiscal quarters is not less than 1.5:1. Mortgage Notes Payable and General Items During the second quarter of 1996, PTR prepaid $25.8 million in mortgage notes payable. Such early extinguishment of debt resulted in prepayment penalties and a write-off of unamortized loan costs in the aggregate of $870,000 which was recorded by PTR as an extraordinary item for the six months ended June 30, 1996. At June 30, 1996, PTR was in compliance with all debt covenants. Interest paid on all borrowings for the six months ended June 30, 1996 was $16,879,000, including $7,509,000 of interest capitalized during construction. Interest paid on all borrowings for the six months ended June 30, 1995 was $15,215,000, including $4,675,000 of interest capitalized during construction. Amortization of loan costs included in interest expense for the six months ended June 30, 1996 and 1995 was $827,000 and $569,000 respectively. 9 SECURITY CAPITAL PACIFIC TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONCLUDED) (6) SHAREHOLDERS' EQUITY During the second quarter of 1996, 149,000 of PTR's Cumulative Convertible Series A Preferred Shares of Beneficial interest ("Series A Preferred Shares") were converted, at the option of the shareholder, into 181,214 of PTR's common shares (a conversion ratio of 1.2162 common shares for each Series A Preferred Share). (7) EARNINGS PER SHARE Earnings per share is computed based on the weighted average number of common shares outstanding during the period. Exercise of outstanding options to acquire 38,000 PTR common shares would not have a material dilutive effect on earnings per share. Inclusion of PTR's Series A Preferred Shares as a common share equivalent in the earnings per share computation is antidilutive for both the three and six months ended June 30, 1996 and 1995. (8) REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS In May 1996, PTR renewed and amended its REIT Management agreement with Security Capital Pacific Incorporated (the "REIT Manager"), to provide REIT Management services to PTR. The REIT Manager is a wholly owned subsidiary of Security Capital Group Incorporated ("SCG"), which owns approximately 37.8% of PTR's outstanding common shares. SCG Realty Services Incorporated ("SCG Realty Services") has managed and currently manages a substantial majority of PTR's operating multifamily properties (83.92% and 79.09% as of June 30, 1996 and 1995, respectively). For the six months ended June 30, 1996 and 1995, PTR paid SCG Realty Services aggregate fees of $4,779,000 and $3,702,000, respectively. Homestead Realty Services Incorporated ("Homestead Realty Services"), formed in June 1995, manages all of PTR's operating Homestead Village properties. For the six months ended June 30, 1996 and 1995, PTR paid Homestead Realty Services aggregate fees of $1,049,000, and $205,000, respectively. SCG owns each of SCG Realty Services and Homestead Realty Services. Rates for services performed by SCG Realty Services and Homestead Realty Services are subject to annual approval by PTR's independent Trustees (who receive an annual review from an independent third party) and management believes are at rates prevailing in the markets in which PTR operates. (9) SUBSEQUENT EVENTS On August 6, 1996, PTR issued $20 million of 7.550% Notes due 2008 (the "7.550% Notes"), $20 million of 7.625% Notes due 2009 (the "7.625% Notes"), $20 million of 7.650% Notes due 2010 (the "7.650% Notes"), $20 million of 8.100% Notes due 2015 (the "8.100% Notes") and $20 million of 8.150% Notes due 2016 (the "8.150% Notes" and, together with the 7.550% Notes, the 7.625% Notes, the 7.650% Notes and the 8.100% Notes, the "August 1996 Notes"). The 7.550% Notes bear interest at 7.550% per annum and will mature on August 1, 2008. The 7.625% Notes bear interest at 7.625% per annum and will mature on August 1, 2009. The 7.650% Notes bear interest at 7.650% per annum and will mature on August 1, 2010. The 8.100% Notes bear interest at 8.100% per annum and will mature on August 1, 2015. The 8.150% Notes bear interest at 8.150% per annum and will mature on August 1, 2016. Collectively, the August 1996 Notes are unsecured and have an original average life to maturity of 15.60 years and an average effective interest cost, including offering discounts and issuance costs of 7.95% per annum, payable semi-annually. 10 INDEPENDENT AUDITORS' REVIEW REPORT The Board of Trustees and Shareholders SECURITY CAPITAL PACIFIC TRUST: We have reviewed the accompanying balance sheet of SECURITY CAPITAL PACIFIC TRUST as of June 30, 1996, and the related statements of earnings for the three-and six-month periods ended June 30, 1996 and 1995 and the statements of cash flows for the six-month periods ended June 30, 1996 and 1995. These condensed financial statements are the responsibility of the Trust's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of SECURITY CAPITAL PACIFIC TRUST as of December 31, 1995, and the related statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1996, except as to Note 12, which is as of February 23, 1996, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1995 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. KPMG PEAT MARWICK LLP Chicago, Illinois August 12, 1996 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Security Capital Pacific Trust's ("PTR") operating results depend primarily upon income from multifamily properties, which is substantially influenced by (i) the demand for and supply of multifamily units in PTR's target market and submarkets, (ii) operating expense levels, (iii) the effectiveness of property level operations and (iv) the pace and price at which PTR can develop and acquire additional multifamily properties. Capital and credit market conditions which affect PTR's cost of capital also influence operating results. PTR's target market and submarkets have benefitted substantially in recent periods from demographic trends (including job and population growth) that increase the demand for multifamily units. Consequently, rental rates for multifamily units have increased more than the inflation rate for the last two years and are expected to continue experiencing such increases for 1996. Expense levels also influence operating results, and operating expenses (other than real estate taxes) as a percentage of revenues for multifamily properties have decreased slightly throughout the past twelve months and are expected to increase somewhat less than the rate of inflation for 1996. RESULTS OF OPERATIONS Interim Period Comparison During the six months ended June 30, 1996, PTR acquired seven multifamily properties aggregating 2,637 units for a total purchase price, including planned renovations, of approximately $127.5 million. In addition, PTR completed development of 11 properties aggregating 2,286 units with a completion cost of approximately $106.8 million. At August 6, 1996 PTR had 7,079 multifamily units under construction with a budgeted completion cost of $397.6 million and had in planning an estimated 3,671 multifamily units with an aggregate expected investment cost of approximately $198.5 million. During the six months ended June 30, 1995, PTR acquired 22 multifamily properties aggregating 6,833 units for a total purchase price, including planned renovations, of approximately $305.2 million including properties acquired in the merger with Security Capital Pacific Incorporated (the "Merger") and completed development of six multifamily properties aggregating 757 units with a completion cost of $27.2 million. At June 30, 1995, PTR had 5,625 multifamily units under construction with a budgeted completion cost of approximately $261.4 million and had in planning an estimated 5,693 multifamily units with an aggregate budgeted completion cost of $293.9 million. The percentage of PTR's total rental income generated by multifamily properties was 99.02% and 98.57% for the six months ended June 30, 1996 and 1995, respectively. This percentage will continue to increase throughout 1996 due to past and ongoing multifamily property acquisitions and developments and the periodic sale of non-multifamily properties. Property Operations Property operations contributed to increased net earnings primarily due to property rental revenue increases of $36.1 million (30.25%), partially offset by higher rental expense, property management fees and real estate taxes, which increased by $14.1 million (29.69%) for the period. Depreciation expense increased $4.7 million (28.35%) for the six months ended June 30, 1996 as compared to the same period in 1995. These increases are due to operating multifamily properties placed in service, through development and acquisition of additional properties and to rental rate increases. At June 30, 1996, 82.83% of PTR's operating multifamily properties, based on expected cost, were classified by PTR as stabilized properties. At June 30, 1996, PTR's operating multifamily properties were 95.7% leased and PTR's stabilized multifamily properties were 96.0% leased. Proposed Spin-off of PTR's Homestead Village extended-stay lodging assets to Homestead Village Incorporated As described under Liquidity and Capital Resources, the Board of Trustees of PTR approved the Spin-off of PTR's Homestead Village extended-stay lodging assets. For the six months ended June 30, 1996, PTR's Homestead Village operations accounted for approximately 5% of PTR's total earnings from operations. If approved by PTR's shareholders, the reduction in operating results attributable to Homestead Village would be partially offset by interest earned on the convertible mortgages on an as funded basis. 12 Interest Expense Interest expense increased $2.6 million (23.79%) for the six months ended June 30, 1996 as compared to the same period in 1995. The increase is attributable to an increase in interest expense of $3.9 million resulting from the issuance of $150 million of unsecured long term notes in February 1996, as more fully discussed under "Liquidity and Capital Resources" and the increase in mortgage and line of credit interest expense as discussed below. These increases were offset by an increase in capitalized interest discussed below. Mortgage interest expense increased $1.0 million (21.5%) for the six months ended June 30, 1996 as compared to the same period in 1995 as a result of mortgages aggregating $66.5 million assumed as a result of the Merger and the acquisition of properties during 1995. Line of credit interest expense increased $521,000 (14.15%) resulting from higher outstanding balances and an increase in amortization of additional loan costs (commitment fees, administrative fees, and legal fees) relating to PTR's revolving credit facility offset by lower interest rates. Average borrowings on the line of credit were approximately $94.2 million (with an average interest rate of 7.55%) during the six months ended June 30, 1996, as compared to average borrowings of approximately $72.9 million (with an average interest rate of 8.76%) for the same period in 1995. The increases in interest expense were also offset by an increase of $2.8 million (60.62%) in capitalized interest. The increase in capitalized interest is attributable primarily to higher levels of multifamily development activity for the six months ended June 30, 1996 as compared to the same period in 1995. REIT Management Fee The REIT management fee paid by PTR fluctuates with the level of PTR's pre- REIT management fee cash flow, as defined in the REIT management agreement, and therefore increased by $2.1 million (23.50%) during the six months ended June 30, 1996 as compared to the same period in 1995 because cash flow increased substantially . With the issuance in February 1994 of $200 million and February 1996 of $150 million of amortizing, unsecured long term debt and the issuance in August 1996 of $100 million unsecured long term debt as more fully described under "Liquidity and Capital Resources," the REIT management fee effectively declines in proportion to PTR's cash flow as defined in the REIT management agreement with Security Capital Pacific Incorporated (the "REIT Manager"), because actual or assumed regularly scheduled principal and interest payments, associated with the long term debt will be deducted from the cash flow amount on which the REIT management fee is based. In addition, the REIT Management Agreement was modified in 1995 to provide that distributions paid in respect of non-convertible preferred shares, such as the Series B Cumulative Redeemable Preferred Shares of Beneficial Interest issued in May 1995 are deducted from the cash flow amount on which the REIT management fee is based. Further, from and after the Spin-off, interest income from the convertible mortgage notes will be deducted from the cash flow amount on which the REIT management fee is based. Gain on Sale and Valuation of Long-Lived Investments PTR's strategy is to focus on the ownership of multifamily properties. PTR develops and acquires multifamily properties with a view to effective long-term operation and ownership. Based upon PTR's market research and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long-term investment objective and redeploy the proceeds therefrom, preferably through exchanges, into assets that in PTR's view offer better long-term return prospects. As a result of this asset optimization strategy, PTR disposed of six multifamily properties and one industrial building during the six months ended June 30, 1996 under disposition/exchange agreements. Under the terms of the disposition, net cash proceeds representing the value of the properties disposed of were placed into a trust. At the direction of PTR, seven multifamily properties primarily located in California and land for near term development were acquired utilizing the $85.7 million in aggregate net proceeds received from dispositions. For federal income tax purposes, the dispositions were structured as tax deferred like-kind exchanges. For financial reporting purposes, the dispositions qualified for profit recognition and an aggregate gain of $8.1 million was recorded for the six months ended June 30, 1996. 13 Properties held for effective long-term operation and ownership are periodically evaluated for impairment and provisions for possible losses are made if required. As a result of such evaluation, PTR recorded a provision for possible loss during the first quarter of 1995 of $120,000 relating to the impairment of a non-multifamily investment which was sold in October 1995. As of June 30, 1996, PTR's real estate investments are carried at cost, which is not in excess of fair market value. Extraordinary Item--Loss on Early Extinguishment of Debt During the second quarter of 1996, PTR prepaid $25.8 million in mortgage notes payable. Such early extinguishment of debt resulted in prepayment penalties and a write-off of unamortized loan costs in the aggregate of $870,000 which was recorded by PTR as an extraordinary item for the six months ended June 30, 1996. Other Property revenues, operating expenses, income from property operations before depreciation, income from property operations and net earnings for the three months ended June 30, 1996 compared to the three months ended June 30, 1995 reflect changes similar to those discussed in the preceding paragraphs for the comparison of the six months ended on the same dates. The changes are substantially attributable to the same reasons discussed in the preceding paragraphs for the six month periods ended June 30, 1996 and 1995. ENVIRONMENTAL MATTERS PTR does not expect any environmental condition on its properties to have a material adverse effect upon its results of operations or financial position. LIQUIDITY AND CAPITAL RESOURCES The REIT Manager considers PTR's liquidity and ability to generate cash from operations and financings to be adequate and expects it to continue to be adequate to meet PTR's development, acquisition, operating, debt service and shareholder distribution requirements. Operating Activities Net cash flow provided by operating activities increased by $9.7 million (19.34%) for the six months ended June 30, 1996 compared to the same period in 1995. The increase is due primarily to increased net earnings and changes in the timing of the payment of accounts payable and accrued expenses in 1996 as compared to 1995. Investing Activities During the six months ended June 30, 1996, PTR invested $297.0 million in the development, acquisition and renovation of multifamily properties, of which $284.0 million was paid in cash. For the same period, PTR received $85.7 million in proceeds in connection with property dispositions. During the first six months of 1995, PTR invested $335.2 million in the development, acquisition (including properties acquired in the Merger) and renovation of multifamily properties, of which $146.9 million was paid in cash and net of $59.2 million in mortgages assumed. Except for the properties acquired in the Merger, which were financed with the issuance of common shares, developments, acquisitions, and renovations were financed with cash on hand and borrowings. At August 6, 1996, PTR had contingent contracts or letters of intent, including developments under control, subject to PTR's final due diligence to acquire land for the near term development of an estimated 7,084 multifamily units with an aggregate estimated development cost of $422.9 million. At the same date, PTR also had contingent contracts or letters of intent, subject to final due diligence, for the acquisition of 2,815 additional multifamily units with an aggregate investment cost of $207.9 million, including planned renovation. At August 6, 1996, PTR had unfunded development commitments for developments under construction of $178.8 million. On May 21, 1996, the Board of Trustees of PTR approved the spin-off (the "Spin-off") of PTR's Homestead Village(R) extended-stay lodging assets to a newly formed company, Homestead Village Properties Incorporated (formerly Homestead Village Incorporated ("Homestead"). As part of the Spin-off, PTR is 14 expected to contribute 54 Homestead Village properties (or the rights to acquire such properties) to Homestead in exchange for 9,485,727 shares of Homestead common stock. Simultaneously with the Spin-off, PTR is expected to receive 6,363,789 warrants to acquire additional shares of Homestead common stock in exchange for entering into a funding commitment agreement for which PTR has agreed to provide $129 million in secured financing for developments to Homestead and receive up to $144.0 million in convertible mortgage notes. In addition, upon consumation of the Spin-off, it is expected that an additional $77.0 million of convertible mortgage notes will be held by PTR. Upon consumation of the Spin-off, the Homestead common stock and warrants will be distributed to PTR shareholders. Giving effect to the issuance of the Homestead common stock at the consummation of the Spin-off, the exercise of all Homestead warrants and the conversion of all mortgage loans outstanding and which could be made under the funding commitment agreement, PTR and its shareholders will own 63.21% of Homestead. A combined proxy statement and registration statement relating to the Spin-off was declared effective on August 12, 1996 and PTR's shareholders are scheduled to vote on the Spin-off on September 12, 1996. As of June 30, 1996 PTR's Homestead Village properties consisted of 26 operating properties and 28 properties under construction or in planning, representing a total expected investment of $282.7 million. Financing Activities PTR's net financing activities for the six months ended June 30, 1996 provided $114.5 million as compared to $119.4 million for the same period in 1995. The decrease in cash flow provided by financing activities is due to an increase in distributions to shareholders ($57.6 million for the six months ended June 30, 1996 as compared to $44.3 million for the same period in 1995) and a decrease in debt and equity offering proceeds received during the six months ended June 30, 1996 ($150 million) as compared to the same period in 1995 ($317.7 million) offset by an increase in line of credit proceeds ($233.9 million for the six months ended June 30, 1996 as compared to $146.0 million for the same period in 1995) and less repayment of the revolving credit balances ($183.6 million for the six months ended June 30, 1996 as compared to $299.9 million for the same period in 1995). PTR has an unsecured revolving line of credit facility with Texas Commerce Bank, National Association, as agent bank for a group of lenders ("TCB") of $350 million, which matures August 1997 and may annually be extended for an additional year with the approval of TCB and the other participating lenders. In August 1996, PTR negotiated the extension of the line to August 1998 and a reduction in the adjusted LIBOR interest rate to LIBOR plus 1.125% . All debt incurrences are subject to covenants, as more fully described in the loan agreement. The TCB line bears interest at an interest rate of the greater of prime (8.25% at June 30, 1996) or the federal funds rate plus .50% or at PTR's option, LIBOR (5.50% at June 30, 1996) plus 1.375% which can vary from LIBOR plus 1.0% to LIBOR plus 1.75% (6.875% at June 30, 1996) based upon of the rating of PTR's senior unsecured debt. Additionally, there is a commitment fee on the average unfunded line of credit balance. At August 9, 1996, after giving effect to the application of net proceeds received from the issuance of the August Notes (discussed below), there were $81.8 million of borrowings outstanding under the line of credit. On August 6, 1996, PTR issued $20 million of 7.550% Notes due 2008 (the "7.550% Notes"), $20 million of 7.625% Notes due 2009 (the "7.625% Notes"), $20 million of 7.650% Notes due 2010 (the "7.650% Notes"), $20 million of 8.100% Notes due 2015 (the "8.100% Notes") and $20 million of 8.150% Notes due 2016 (the "8.150% Notes" and, together with the 7.550% Notes, the 7.625% Notes, the 7.650% Notes and the 8.100% Notes, the "August 1996 Notes"). The 7.550% Notes bear interest at 7.550% per annum and will mature on August 1, 2008. The 7.625% Notes bear interest at 7.625% per annum and will mature on August 1, 2009. The 7.650% Notes bear interest at 7.650% per annum and will mature on August 1, 2010. The 8.100% Notes bear interest at 8.100% per annum and will mature on August 1, 2015. The 8.150% Notes bear interest at 8.150% per annum and will mature on August 1, 2016. Collectively, the August 1996 Notes are unsecured and have an original average life to maturity of 15.60 years and an average effective interest cost, including offering discounts and issuance costs of 7.95% per annum, payable semi-annually. 15 On February 23, 1996, PTR issued $50 million of 7.15% Notes due 2010 (the "7.15% Notes") and $100 million of 7.90% Notes due 2016 (the "7.90% Notes" and together with the 7.15% Notes, the "February 1996 Notes" and together with the August 1996 Notes, the "Notes"). The 7.15% Notes require annual principal payments of $6.25 million, commencing February 14, 2003. The 7.90% Notes require aggregate annual principal payments of $10 million in 2011, $12.5 million in 2012, $15 million in 2013, $17.5 million in 2014, $20 million in 2015 and $25 million in 2016. Collectively, the February 1996 Notes are unsecured and had an original average life to maturity of 15.5 years and an average effective interest cost, including offering discounts and issuance costs of 7.84% per annum. The Notes are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relating to market yields available at redemption. The Notes are governed by the terms and provisions of a supplemental indenture agreement dated February 2, 1994 (the "Indenture") between PTR and State Street Bank and Trust Company. Under the terms of the Indenture, PTR can incur additional debt only if, after giving effect to the debt being incurred and application of proceeds therefrom, (i) the ratio of debt to total assets, as defined in the Indenture, does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined in the Indenture, does not exceed 40%, and (iii) PTR's pro forma interest coverage ratio, as defined in the Indenture, for the four preceding fiscal quarters is not less than 1.5:1. During the second quarter of 1996, 149,000 of PTR's Cumulative Convertible Series A Preferred Shares of Beneficial interest ("Series A Preferred Shares") were converted, at the option of the shareholder, into 181,214 of PTR's Common Shares (a conversion ratio of 1.2162 Common Shares for each Series A Preferred Share). Concurrently with the consummation of the Merger, PTR completed a subscription offering pursuant to which PTR received net proceeds of $216.3 million (13.2 million Common Shares). The subscription offering was designed to allow shareholders of PTR to purchase Common Shares at the same price PACIFIC shareholders were acquiring Common Shares in the Merger ($16.375 per Common Share). Security Capital Group Incorporated purchased $50 million (3.1 million Common Shares) in the subscription offering pursuant to the oversubscription privilege. PTR expects to finance developments, acquisitions and renovations with cash on hand and borrowings under its line of credit prior to arranging long term capital. This will allow PTR to respond efficiently to market opportunities while minimizing the amount of cash invested in short term investments at lower yields. PTR believes that its current conservative ratio of long-term debt to total long-term undepreciated book capitalization, the sum of long term debt and shareholders' equity after adding back accumulated depreciation (25.67 % at June 30, 1996 on a historical basis and 29.44% on a pro forma basis giving effect to the sale of the August 1996 Notes and the application of the net proceeds therefrom), provides considerable flexibility to prudently increase its capital base by utilizing long-term debt as a financing tool in the future. PTR has the ability to finance a significant level of investment activity with this additional debt issuance capacity, together with its asset optimization strategy and internally generated funds made available as the dividend payout ratio is reduced closer to the minimum level to qualify as a REIT (see discussion in "Distributions" below). Hence, PTR has no current plans to raise additional capital through the common equity markets. No assurance can be given that changes in market conditions or other factors will not affect these plans. Multifamily Properties Fully Operating throughout Both Periods For the 109 multifamily properties that were fully operating throughout the six months ended June 30, 1996 and 1995, which represents 54.9% of PTR's total invested capital of $2.22 billion at June 30, 1996, assuming full funding for properties under construction, operating expenses were 40.04% and 40.87% of rental revenue for such properties during the six months ended June 30, 1996 and 1995, respectively. Projected property level earnings before interest, income taxes, depreciation and amortization ("EBITDA") as a percentage of PTR's expected aggregate investment (including all planned capital expenditures and renovation costs) in these properties increased to 11.21% in 1996 from 10.61% in 1995. EBITDA is not to be construed as a substitute for 16 "net earnings" in evaluating operating results, nor as a substitute for "cash flow" in evaluating liquidity and may not be comparable to other similarly titled measures of other companies. This increase in return on investment, which is a function of rental rate growth, occupancy levels, expense rate growth and capital expenditure levels, is attributable primarily to growth in rental rates and the control of operating expense growth. This increase in return on investment was achieved at the same time that PTR increased its investment in these properties by approximately $21.7 million (2.08% of total expected investment in these properties) as a result of renovation and other capital expenditures. Net operating income increased 4.39% as a result of a 2.96% rental revenue increase and a 0.89% increase in operating expenses for such properties for the six months ended June 30, 1996 as compared to the same period in 1995. Distributions PTR's current distribution policy is to pay quarterly distributions to holders of common shares based upon what it believes to be a prudent percentage of cash flow. Such distributions will annually aggregate at least 95% of PTR's taxable income. Because depreciation is a non-cash expense, cash flow typically will be greater than net earnings attributable to common shares. Therefore, quarterly distributions paid will generally be higher than quarterly net earnings attributable to common shares. Distributions paid on common shares exceeded net earnings attributable to common shares by approximately $3.0 million and approximately $9.0 million for the six months ended June 30, 1996 and 1995, respectively. Pursuant to the terms of the preferred shares, PTR is restricted from declaring or paying any distribution with respect to its common shares unless all cumulative distributions with respect to the preferred shares have been paid and sufficient funds have been set aside for distributions that have been declared for the then current distribution period with respect to the preferred shares. Funds from Operations Funds from operations represents PTR's net earnings computed in accordance with generally accepted accounting principles excluding gains (or losses) plus depreciation and provision for possible loss on investments. PTR believes that funds from operations is helpful in understanding a property portfolio's ability to support interest payments and general operating expenses. Funds from operations attributable to common shares increased $12.8 million (29.9%) to $55.8 million for the six months ended June 30, 1996 from $43.0 million for the same period in 1995. The increase resulted primarily from increased properties in operation. Funds from operations is not to be construed as a substitute for "net earnings" in evaluating operating results nor as a substitute for "cash flow" in evaluating liquidity and may not be comparable to other similarly titled measures of other companies. Funds from operations for the three months and six months ended June 30, 1996 and 1995 was as follows (dollars and shares in thousands):
FOR THE THREE FOR THE SIX MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, ---------------- ---------------- 1996 1995 1996 1995 ------- ------- ------- ------- Net earnings attributable to common shares... $22,366 $15,783 $41,821 $26,298 Add (Deduct): Depreciation............................... 10,624 9,126 21,242 16,550 Provision for possible loss on investments. -- -- -- 120 Gain on investment properties.............. (5,160) -- (8,083) -- Extraordinary item--loss on early extinguishment of debt.................... 870 -- 870 -- Amortization of early extinguishment of debt cost................................. (33) -- (33) -- ------- ------- ------- ------- Funds from operations attributable to common shares...................................... 28,667 24,909 55,817 42,968 Distributions paid to common shareholders.... 22,348 20,761 44,785 35,267 ------- ------- ------- ------- Excess of funds from operations after distributions............................... $ 6,319 $ 4,148 $11,032 $ 7,701 ======= ======= ======= ======= Weighted average common shares outstanding... 72,223 72,027 72,217 61,812 ======= ======= ======= =======
17 PART II--OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS At the annual shareholders meeting held May 21, 1996, shareholders elected the following Trustees to office:
SHARES IN SHARES TRUSTEES FAVOR WITHHELD -------- ---------- -------- Calvin K. Kessler..................................... 61,322,957 173,234 James H. Polk, III.................................... 60,843,538 652,653 John C. Schweitzer.................................... 61,056,188 440,003 James A. Cardwell..................................... 61,045,936 450,255 John T. Kelley, III................................... 61,055,767 440,424 C. Ronald Blankenship................................. 60,864,364 631,827 William G. Myers...................................... 61,320,388 175,803
ITEM 5. OTHER INFORMATION On August 6, 1996, PTR issued $20 million of 7.550% Notes due 2008, $20 million of 7.625% Notes due 2009, $20 million of 7.650% Notes due 2010, $20 million of 8.100% Notes due 2015 and $20 million of 8.150% Notes due 2016 as more fully described under Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations--"Liquidity and Capital Resources--Financing Activities." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 12-- Statement regarding Computation of Ratio of Earnings to Fixed Charges. 15-- Letter from KPMG Peat Marwick dated August 14, 1996 regarding unaudited financial information. 27-- Financial Data Schedule
(b) Reports on Form 8-K:
DATE ITEM REPORTED FINANCIAL STATEMENTS ---- -------------- -------------------- May 22, 1996.......................... Item 5, Item 7 No August 1, 1996........................ Item 5, Item 7 Yes August 5, 1996........................ Item 5, Item 7 Yes
18 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. SECURITY CAPITAL PACIFIC TRUST /s/ James W. Kluber ------------------------------------- James W. Kluber, Vice President and Duly Authorized Officer and Principal Financial Officer Date: August 14, 1996 S-1 EX-12 2 COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 SECURITY CAPITAL PACIFIC TRUST COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30 TWELVE MONTHS ENDED DECEMBER 31, ----------------- --------------------------------------- 1996 1995 1995 1994 1993 1992 1991 -------- -------- -------- ------- ------- ------- ------ Earnings from Operations............. $ 47,382 $ 35,346 $ 81,696 $46,719 $23,191 $ 9,037 $2,078 Add: Interest Expense....... 13,777 11,129 19,584 19,442 3,923 3,214 3,952 -------- -------- -------- ------- ------- ------- ------ Earnings as adjusted.... $ 61,159 $ 46,475 $101,280 $66,161 $27,114 $12,251 $6,030 ======== ======== ======== ======= ======= ======= ====== Fixed Charges: Interest Expense....... $ 13,777 $ 11,129 $ 19,584 $19,442 $ 3,923 $ 3,214 $3,952 Capitalized Interest... 7,509 4,675 11,741 6,029 2,818 989 157 -------- -------- -------- ------- ------- ------- ------ Total Fixed Charges.. $ 21,286 $ 15,804 $ 31,325 $25,471 $ 6,741 $ 4,203 $4,109 ======== ======== ======== ======= ======= ======= ====== Ratio of Earnings as adjusted to Total Fixed Charges................ 2.9 2.9 3.2 2.6 4.0 2.9 1.5 ======== ======== ======== ======= ======= ======= ======
EX-23 3 CONSENT Board of Trustees and Shareholders Security Capital Pacific Trust Gentlemen: Re: Registration Statements Nos. 333-4455, 333-9615, 33-86444, 33-78402, 33- 71040, 33-44631, and 33-25317 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated August 12, 1996 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. KPMG Peat Marwick LLP Chicago, Illinois August 14, 1996 EX-27 4 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 4,376 0 18,169 0 0 0 2,069,873 97,820 2,016,916 0 481,180 72,557 0 331,275 891,329 2,016,916 155,300 156,299 0 61,752 0 0 13,777 41,821 0 42,691 0 (870) 0 41,821 0.58 0.58
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