Pacific Office Properties Trust, Inc. (NYSE Amex:PCE), a West
Coast office REIT, today announced its financial results for the
quarter ended September 30, 2010. The Company also announced
financial and portfolio highlights.
Financial Highlights
- Entered into two purchase agreements
for the GRE portfolio, a portfolio of 12 office properties
consisting of 31 buildings containing approximately 1.95 million
rentable square feet, located primarily in southern California. The
aggregate purchase price for the portfolio is approximately $305.9
million.
- Sold 596,611 shares of our Senior
Common Stock for net proceeds of $5.4 million for the quarter ended
September 30, 2010.
- On September 20, 2010, the Board of
Directors of the Company declared a cash dividend of $0.05 per
share on our Listed Common Stock for the third quarter 2010, which
was paid on October 15, 2010 to stockholders of record on September
30, 2010.
- Substantially all mortgage debt is
fixed rate and 78.2% of our consolidated debt does not mature until
2016.
Portfolio Highlights
- Leasing activity resulted in the total
portfolio being 84.0% leased at September 30, 2010 compared to
83.8% at June 30, 2010. Our tenant retention ratio was 82% for our
consolidated properties for the 12 months ended September 30,
2010.
- Approximately 145,212 square feet of
new and renewal leases signed during the three months ended
September 30, 2010.
- 80.0% of our consolidated revenues for
the three months ended September 30, 2010 derived from
Honolulu.
- As of September 30, 2010, the Company’s
property portfolio, including the interests in our joint venture
properties, included 24 office properties consisting of 45 office
buildings totaling approximately 4.7 million leasable square
feet.
Three Month Financial and Operating Results
The Company reported Funds from Operations attributable to
common stockholders (FFO) for the quarter ended September 30, 2010
of $(2.2) million, or $(0.12) per share, compared to $0.9 million,
or $0.05 per diluted share, for the quarter ended September 30,
2009.
During the quarter ended September 30, 2010, the Company
incurred acquisition costs related to the contemplated acquisition
of the GRE portfolio of $0.6 million. In addition, the Company
recorded default interest and penalties related to the Company’s
Pacific Business News Building and City Square mezzanine loans of
approximately $0.7 million and $1.6 million, respectively. FFO
excluding these non-recurring items for the quarter ended September
30, 2010 was $0.7 million, or $0.04 per diluted share.
The Company reported Adjusted Funds from Operations attributable
to common stockholders (AFFO) for the quarter ended September 30,
2010 of $0.8 million, or $0.05 per diluted share, compared to $1.2
million, or $0.07 per diluted share, for the quarter ended
September 30, 2009.
The Company also reported a GAAP net loss attributable to common
stockholders for the quarter ended September 30, 2010 of $1.8
million, or $0.46 per basic and diluted share, which includes the
Company’s portion of depreciation and amortization expense of $1.2
million. This compares to a GAAP net loss attributable to common
stockholders for the quarter ended September 30, 2009 of $1.2
million, or $0.40 per basic and diluted share, which includes the
Company’s portion of depreciation and amortization expense of $1.4
million.
Nine Month Financial and Operating Results
The Company reported FFO for the nine months ended September 30,
2010 of $(0.1) million, or $0.00 per share, compared to $3.3
million, or $0.19 per diluted share, for the nine months ended
September 30, 2009.
During the nine months ended September 30, 2010, the Company
incurred acquisition costs related to the contemplated acquisition
of the GRE portfolio of $0.6 million. In addition, the Company
recorded default interest and penalties related to the Company’s
Pacific Business News Building and City Square mezzanine loans of
approximately $0.8 million and $1.6 million, respectively. FFO
excluding these non-recurring items for the nine months ended
September 30, 2010 was $3.0 million, or $0.16 per diluted
share.
The Company reported AFFO for the nine months ended September
30, 2010 of $3.3 million, or $0.18 per diluted share, compared to
$3.9 million, or $0.23 per diluted share, for the nine months ended
September 30, 2009.
The Company also reported a GAAP net loss attributable to common
stockholders for the nine months ended September 30, 2010 of $4.1
million, or $1.06 net loss per basic and diluted share, which
includes the Company’s portion of depreciation and amortization
expense of $3.7 million. This compares to a GAAP net loss
attributable to common stockholders for the nine months ended
September 30, 2009 of $3.4 million, or $1.12 net loss per basic and
diluted share, which includes the Company’s portion of depreciation
and amortization expense of $4.4 million.
Supplemental Information
Supplemental financial information for the Company’s quarterly
financial results may be accessed on the Company’s website under
the Investor Relations section at
www.pacificofficeproperties.com.
About Pacific Office Properties Trust, Inc.
Pacific Office Properties Trust, Inc.
(www.pacificofficeproperties.com) is a real estate investment trust
that owns, acquires and operates primarily institutional-quality
office properties principally in selected long-term growth markets
in California and Hawaii.
Our investment strategy is to acquire those types of office
buildings often described as “core” investment properties which,
generally, due to their location, building quality and tenant base,
produce a predictable and growing income stream, and “value-added”
investment properties which generally offer upside potential
through improvement upgrades, repositioning, aggressive leasing and
intensive management. We access potential acquisitions through a
broad network that The Shidler Group has developed over the past 30
years, including lenders, brokers, developers and owners.
Certain Information About Forward-Looking Statements
Some of the statements contained in this press release
constitute forward-looking statements within the meaning of the
federal securities laws. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies,
anticipated events or trends and similar expressions concerning
matters that are not historical facts. In some cases, you can
identify forward-looking statements by the use of forward-looking
terminology such as “pipeline,” “may,” “will,” “should,” “expects,”
“intends,” “plans,” “anticipates,” “assumes,” “believes,”
“estimates,” “predicts” or “potential” or the negative of these
words and phrases or similar words or phrases which are predictions
of or indicate future events or trends and which do not relate
solely to historical matters. You can also identify forward-looking
statements by discussions of strategy, plans or intentions.
The forward-looking statements contained in this press release
reflect our current views about future events and are subject to
numerous known and unknown risks, uncertainties, assumptions and
changes in circumstances that may cause our actual results to
differ significantly from those expressed in any forward-looking
statement. Statements regarding the following subjects, among
others, may be forward-looking: identification of office properties
to acquire and completing acquisitions on terms favorable to us;
our ability to source off-market deal flow in the future; our
ability to manage our growth effectively; operation of acquired
properties; adverse economic or real estate conditions or
developments in the office real estate sector and/or in the markets
in which we acquire properties; our projected operating results;
decreased rental rates or increased vacancy rates; defaults on,
early terminations of or non-renewal of leases by tenants; tenant
bankruptcies; our ability to sell our interests in properties on a
timely basis and on favorable terms; our joint ventures; declining
real estate valuations and impairment charges; insurance coverage;
our ability to comply with the laws, rules and regulations
applicable to us; impact of changes in governmental regulations,
tax law and rates, and similar matters; the impact of litigation;
market trends in our industry, interest rates, real estate values,
the capital markets and the general economy; our understanding of
our competition; our ability to obtain financing arrangements or
refinance existing debt; future debt service obligations; our
expected leverage; increased interest rates and operating costs;
availability, terms and deployment of capital; our ability to
maintain our qualification as a REIT for U.S. federal income
tax purposes; changes in our business and investment strategy; and
those additional factors described under the heading “Risk Factors”
and elsewhere in our Annual Report on Form 10-K for the year ended
December 31, 2009 and in our subsequent Quarterly Reports on Form
10-Q.
While forward-looking statements reflect our good faith beliefs,
assumptions and expectations, they are not guarantees of future
performance. Furthermore, we disclaim any obligation to publicly
update or revise any forward-looking statement to reflect changes
in underlying assumptions or factors, new information, data or
methods, future events or other changes. For a further discussion
of these and other factors that could cause our future results to
differ materially from any forward-looking statements, reference
should be made to our filings with the Securities and Exchange
Commission.
Pacific Office Properties Trust,
Inc.
Consolidated Balance Sheets
(unaudited and in thousands, except
share and per share data)
September 30, 2010 December 31,
2009 ASSETS Investments in real estate, net $ 378,274 $
382,950 Cash and cash equivalents 7,355 2,354 Restricted cash 7,232
7,348 Rents and other receivables, net 7,441 6,471 Intangible
assets, net 28,943 33,228 Acquired above-market leases, net 403 612
Other assets, net 13,213 5,055 Goodwill 62,019 62,019 Investments
in unconsolidated joint ventures 9,444 10,911
Total assets $ 514,324 $ 510,948
LIABILITIES AND EQUITY Mortgage and other loans, net $
419,720 $ 406,439 Unsecured notes payable to related parties 21,104
21,104 Accounts payable and other liabilities 30,601 22,000
Acquired below-market leases, net 8,420 10,124
Total liabilities 479,845 459,667
Commitments and contingencies Equity:
Preferred Stock, $0.0001 par value, 100,000,000 shares authorized,
one share of Proportionate Voting Preferred Stock issued and
outstanding at September 30, 2010 and December 31, 2009 - - Senior
Common Stock, $0.0001 par value (liquidation preference $10 per
share, $6,633 and $0, respectively) 40,000,000 shares authorized,
663,394 shares issued and outstanding at September 30, 2010; 0
shares authorized, issued and outstanding at December 31, 2009
5,905 - Listed Common Stock, $0.0001 par value, 599,999,900 shares
authorized, 3,903,050 shares issued and outstanding at September
30, 2010; 239,999,900 shares authorized, 3,850,420 shares issued
and outstanding at December 31, 2009 185 185 Class B Common Stock,
$0.0001 par value, 100 shares authorized, issued and outstanding at
September 30, 2010 and December 31, 2009 - - Additional paid-in
capital - - Cumulative deficit (137,336 ) (132,511 )
Total stockholders' equity (deficit) (131,246 ) (132,326 )
Non-controlling interests: Preferred unitholders in the Operating
Partnership 127,268 127,268 Common unitholders in the Operating
Partnership 38,457 56,339 Total equity
34,479 51,281 Total liabilities and
equity $ 514,324 $ 510,948
Pacific Office Properties Trust,
Inc.
Consolidated Statements of
Operations
(unaudited and in thousands, except
share and per share data)
For the three months ended September 30,
2010 2009
Revenue: Rental $ 10,876 $ 10,486 Tenant reimbursements
5,324 5,163 Parking 2,025 2,012 Other 91 83
Total revenue 18,316 17,744
Expenses: Rental property operating
10,168 9,781 General and administrative 687 351 Depreciation and
amortization 5,649 6,913 Interest 9,133 6,823 Loss on
extinguishment of debt - 171 Acquisition costs 630
- Total expenses 26,267 24,039
Loss before equity in net earnings of unconsolidated
joint ventures and non-operating income (7,951 ) (6,295 ) Equity in
net earnings of unconsolidated joint ventures 140 189 Non-operating
income - 2 Net loss (7,811 ) (6,104 )
Net (income) loss attributable to non-controlling interests:
Preferred unitholders in the Operating Partnership (568 ) (571 )
Common unitholders in the Operating Partnership 6,617
5,434 6,049 4,863 Dividends on Senior Common Stock
(49 ) - Net loss attributable to common
stockholders $ (1,811 ) $ (1,241 ) Net loss per common share
- basic and diluted $ (0.46 ) $ (0.40 ) Weighted average
number of common shares outstanding - basic and diluted
3,903,150 3,112,888
Pacific Office Properties Trust,
Inc.
Consolidated Statements of
Operations
(unaudited and in thousands, except
share and per share data)
For the nine months ended September 30,
2010 2009
Revenue: Rental $ 31,621 $ 31,999 Tenant reimbursements
16,742 16,184 Parking 6,093 6,080 Other 267
270 Total revenue 54,723 54,533
Expenses: Rental property operating 29,885 29,356
General and administrative 2,091 1,997 Depreciation and
amortization 17,178 20,470 Interest 22,580 20,348 Loss on
extinguishment of debt - 171 Acquisition costs 630
- Total expenses 72,364 72,342
Loss before equity in net earnings of unconsolidated
joint ventures and non-operating income (17,641 ) (17,809 ) Equity
in net earnings of unconsolidated joint ventures 184 406
Non-operating income - 6 Net loss
(17,457 ) (17,397 ) Net (income) loss attributable to
non-controlling interests: Preferred unitholders in the Operating
Partnership (1,704 ) (1,696 ) Common unitholders in the Operating
Partnership 15,113 15,680 13,409 13,984
Dividends on Senior Common Stock (53 ) - Net
loss attributable to common stockholders $ (4,101 ) $ (3,413 )
Net loss per common share - basic and diluted $ (1.06 ) $
(1.12 ) Weighted average number of common shares outstanding
- basic and diluted 3,869,991 3,059,678
Pacific Office Properties Trust,
Inc.
Funds from Operations (FFO) and
Adjusted Funds from Operations (AFFO)
(unaudited and in thousands, except
share and per share data)
For the three months For the nine months
ended September 30, ended September 30,
2010 2009
2010 2009
Reconciliation of net loss to FFO (1): Net
loss attributable to common stockholders $ (1,811 ) $ (1,241 ) $
(4,101 ) $ (3,413 ) Add: Depreciation and amortization of real
estate assets 5,649 6,913 17,178 20,470 Depreciation and
amortization of real estate assets - unconsolidated joint ventures
607 621 1,949 1,897 Less: Distributions to preferred unitholders
(568 ) (568 ) (1,704 ) (1,696 ) Net loss attributable to
non-controlling interests (6,049 ) (4,863 )
(13,409 ) (13,984 )
FFO attributable to common
stockholders $ (2,172 ) $ 862 $ (87 ) $ 3,274
Reconciliation of FFO to FFO, excluding non-recurring
items: FFO $ (2,172 ) $ 862 $ (87 ) $ 3,274 Add: Acquisition
costs $ 630 $ - $ 630 $ - Default interest and late penalties
accrued on non-recourse loans in default 2,289
- 2,433 - FFO, excluding
non-recurring items $ 747 $ 862 $ 2,976 $
3,274
Reconciliation of FFO to AFFO
(2): FFO attributable to common stockholders $ (2,172
) $ 862 $ (87 ) $ 3,274 Acquisition costs 630 - 630 - Default
interest and late penalties accrued on non-recourse loans in
default 2,289 - 2,433 - Amortization of interest rate contracts,
loan premiums and prepaid financings 330 368 1,026 1,214 Non-cash
compensation expense 50 50 150 139 Interest expense deferred on
unsecured notes payable 432 453 1,261 1,333 Amortization of
acquired above- and below-market leases (492 ) (651 ) (1,578 )
(2,037 ) Straight-line rent adjustments, net 93 281 403 592
Recurring capital expenditures, tenant improvements and leasing
commissions (327 ) (193 ) (987 ) (606 )
AFFO attributable to common stockholders $ 833 $ 1,170
$ 3,251 $ 3,909 FFO per share - diluted
$ (0.12 ) $ 0.05 $ (0.00 ) $ 0.19 FFO, excluding
non-recurring items - diluted $ 0.04 $ 0.05 $ 0.16
$ 0.19 AFFO per share - diluted $ 0.05 $ 0.07
$ 0.18 $ 0.23 Weighted average number
of common shares and common share equivalents outstanding - diluted
(3) 18,077,425 17,412,155
18,127,136 17,358,945
Explanation of Notations
(1) FFO is a widely recognized measure of REIT performance. The
National Association of Real Estate Investment Trusts, or NAREIT,
has provided a recommendation on how REITs should define FFO.
NAREIT suggests that FFO be defined as net income (loss)
attributable to stockholders (as computed in accordance with GAAP),
excluding gains (or losses) from dispositions of property,
extraordinary items, real estate-related depreciation and
amortization (including capitalized leasing expenses, tenant
allowances or improvements and excluding amortization of deferred
financing costs) and after adjustments for unconsolidated
partnerships and joint ventures. We calculate FFO in accordance
with NAREIT guidelines. Management uses FFO as a supplemental
performance measure because, in excluding real estate-related
depreciation and amortization, gains (or losses) from property
dispositions and extraordinary items, it provides a performance
measure that, when compared year over year, captures trends in
occupancy, rental rates and operating costs. We also believe that,
as a widely recognized measure of the performance of REITs, FFO
will be used by investors as a basis to compare our operating
performance with that of other REITs.
However, because FFO excludes depreciation and amortization and
captures neither the changes in the value of our properties that
result from use or market conditions nor the level of capital
expenditures and leasing commissions necessary to maintain the
operating performance of our properties, all of which have real
economic effect and could materially impact our results from
operations, the utility of FFO as a measure of our performance is
limited. Other equity REITs may not calculate FFO in accordance
with the NAREIT definition and, accordingly, our FFO may not be
comparable to such other equity REITs’ FFO. As a result, FFO should
be considered only as a supplement to net income (loss) as a
measure of our performance. FFO should not be used as a measure of
our liquidity, nor is it indicative of funds available to fund our
cash needs, including our ability to pay dividends or make
distributions. FFO also should not be used as a supplement to or
substitute for cash flow from operating activities (computed in
accordance with GAAP).
(2) AFFO is a non-GAAP financial measure we believe is a useful
supplemental measure of our performance. We compute AFFO by adding
straight-line rent adjustments (straight-line ground rent expense
minus straight-line rent revenue) the amortization of interest rate
contracts, loan premium and prepaid financing costs, non-cash
compensation expense, and interest expense deferred on unsecured
notes and then subtracting from FFO the recurring capital
expenditures, tenant improvements and leasing commissions. AFFO is
not intended to represent cash flow for the period, and it only
provides an additional perspective on our ability to fund cash
needs and make distributions to shareholders by adjusting the
effect of the non-cash items included in FFO, as well as recurring
capital expenditures and leasing costs. We believe that net income
or loss is the most directly comparable GAAP financial measure to
AFFO. We also believe that AFFO provides useful information to the
investment community about the Company’s financial position as
compared to other REITs since AFFO is a widely reported measure
used by other REITs. However, other REITs may use different
methodologies for calculating AFFO and, accordingly, our AFFO may
not be comparable to other REITs.
(3) The weighted average number of common shares and common
share equivalents outstanding – diluted includes common unit
limited partnership interests in our Operating Partnership.
Our outstanding preferred unit interests in our Operating
Partnership are convertible into common unit limited partnership
interests in our Operating Partnership, but no earlier than the
date an underwritten public equity offering of our common stock in
an amount equal to or greater than $75 million is consummated,
which is a contingent event as of September 30, 2010. These common
unit interests will become exchangeable for shares of our Listed
Common Stock one year after such conversion. Our outstanding
preferred unit interests at September 30, 2010 represent 32,597,528
common share equivalents, on an as-if converted basis, and any
impact related to these outstanding limited preferred interests
have not been included in our calculation of diluted earnings per
share or FFO per share, including our calculation of the weighted
average number of common and common equivalent shares outstanding,
in accordance with GAAP.
Our Senior Common Stock may be exchanged, at the option of the
holder, for shares of our Listed Common Stock after the fifth
anniversary of the issuance of such shares of Senior Common Stock.
The exchange ratio to be calculated using a value for our Listed
Common Stock based on the average of the trailing 30-day closing
price of the Listed Common Stock on the date the shares are
submitted for exchange, but in no event less than $1.00 per share,
and a value of Senior Common Stock of $10.00 per share. Based on a
30-day average Listed Common Stock share price of $4.82 for the
month ended September 30, 2010, the exchange ratio as of September
30, 2010, on an as-if converted basis was 2.07. The weighted
average number of Senior Common shares outstanding for the three
months ended September 30, 2010 was 275,483, resulting in 571,147
of potentially dilutive common share equivalents outstanding for
the three months ended September 30, 2010. The weighted average
number of Senior Common shares outstanding for the nine months
ended September 30, 2010 was 99,309, resulting in 205,893 of
potentially dilutive common share equivalents outstanding for the
nine months ended September 30, 2010.
Assuming the full conversion of our outstanding preferred unit
interests and our Senior Common Stock at September 30, 2010 and
2009, our FFO per share, on a fully diluted basis, would have been
$(0.03) and $0.03, and our AFFO per share, on a fully diluted
basis, would have been $0.03 and $0.03, for the three months then
ended, respectively. Assuming the full conversion of our
outstanding preferred unit interests and our Senior Common Stock at
September 30, 2010 and 2009, our FFO per share, on a fully diluted
basis, would have been $0.03 and $0.10, and our AFFO per share, on
a fully diluted basis, would have been $0.10 and $0.11, for the
nine months then ended, respectively. Assuming the full conversion
of our outstanding preferred unit interests and our Senior Common
Stock at September 30, 2010, our FFO excluding non-recurring items
would have been $0.03 and $0.09 for the three and nine months ended
September 30, 2010, respectively.
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