Pacific Office Properties Trust, Inc. (NYSE Amex: PCE), a West
Coast office real estate investment trust (REIT), today announced
its financial results for the quarter ended March 31, 2011.
Company Highlights and Subsequent Events
Effective as of February 1, 2011, the Company internalized its
management by acquiring its former advisor, and became self-managed
and self-advised.
Subsequent to March 31, 2011, the Company formed two joint
ventures with Angelo, Gordon & Co., a privately held investment
manager with approximately $23 billion of assets under management.
The joint ventures were formed to own two separate office
properties, the City Square Office Towers in Phoenix, Arizona and
the Pacific Business News Building, in Honolulu, Hawaii.
Subsequent to the formation of the joint venture to own the
Pacific Business News Building, $11.6 million of matured debt
secured by the Pacific Business News Building and outstanding on
the Company’s balance sheet as of March 31, 2011, was repaid at a
discount after negotiations with the lender. The Company was not
obligated to pay default penalties and interest.
Subsequent to the formation of the joint venture to own the City
Square Office Towers, $25.3 million of matured mezzanine debt
secured by ownership interests in the City Square Office Towers and
outstanding on the Company’s balance sheet as of March 31, 2011,
was repaid at a discount after negotiations with the lender. The
Senior Note of $27.5 million secured by the City Square Office
Towers was extended to June 15, 2011. The joint venture is in
negotiations with other lenders to refinance the senior note and
expects to repay the debt in full.
Default interest and penalties totaling $0.5 million related to
the matured debt and recorded by the Company in the first quarter
2011 were subsequently abated as part of the negotiated debt
repayments.
Financial and Operating Results
The Company reported Funds from Operations (FFO) attributable to
common stockholders for the quarter ended March 31, 2011 of $(0.8)
million, or $(0.04) per diluted share.
During the quarter ended March 31, 2011, the Company incurred
residual acquisition costs related to the terminated acquisition of
the GRE portfolio of $0.2 million. The Company also incurred
residual expenses of $0.4 million in abandoned offering costs. 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 $0.1 million and $0.4
million, respectively. As noted above, subsequent to March 31,
2011, the Company contributed both properties into joint ventures
and both loans were repaid at a discount. The Company was not
obligated to pay the accrued default interest and penalties.
FFO excluding these non-recurring items for the quarter ended
March 31, 2011 was $(0.2) million, or $(0.01) per diluted
share.
During the quarter ended March 31, 2010, the Company did not
have any non-recurring items and reported FFO attributable to
common stockholders of $1.2 million, or $0.07 per diluted
share.
The Company reported Adjusted Funds from Operations (AFFO)
attributable to common stockholders for the quarter ended March 31,
2011 of $0.7 million, or $0.04 per diluted share, compared to $1.8
million, or $0.10 per diluted share, for the quarter ended March
31, 2010.
The Company also reported a GAAP net loss attributable to common
stockholders for the quarter ended March 31, 2011 of $1.4 million,
which includes the Company's portion of depreciation and
amortization expense of $1.1 million. For the quarter ended March
31, 2010, the Company reported a GAAP net loss attributable to
common stockholders of $1.1 million, which included the Company's
portion of depreciation and amortization expense of $1.2 million.
The net loss per basic and diluted share for the quarters ended
March 31, 2011 and 2010 were $0.36 and $0.29 per share,
respectively.
About Pacific Office Properties Trust, Inc.
Pacific Office Properties Trust, Inc.
(www.pacificofficeproperties.com) is a self-administered and
self-managed real estate investment trust that owns and operates
primarily institutional-quality office properties principally in
selected long-term growth markets in southern California and
Hawaii. The Company’s strategy is to acquire, often in partnership
with institutional co-investors, value-added office buildings whose
potential can be maximized through improvements, repositioning and
superior leasing and management.
Certain Information About Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. We intend such
forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this
statement for purposes of complying with those safe harbor
provisions. Forward-looking statements are not historical
information and are based on current expectations and involve risks
and uncertainties. Without limiting the generality of the
foregoing, words such as “should,” “may,” “will,” “expect,”
“believe,” “anticipate,” “intend,” “could,” “estimate,” “potential”
or “continue,” or the negative or other variations thereof or
comparable terminology, are intended to identify forward-looking
statements. The risks and uncertainties inherent in such statements
may cause actual future events or results to differ materially and
adversely from those described in the forward-looking statements.
Important factors that may cause a difference between projected and
actual results for Pacific Office Properties Trust, Inc. are
discussed in the Company’s filings from time to time with the SEC.
Pacific Office Properties Trust, Inc. disclaims any obligation to
revise or update any forward-looking statements that may be made
from time to time by it or on its behalf.
Pacific Office Properties Trust,
Inc.
Consolidated Balance Sheets
(unaudited and in thousands, except
share and per share data)
March 31,
2011 December 31, 2010 ASSETS Investments in real
estate, net $ 350,059 $ 353,137 Cash and cash equivalents 7,524
9,112 Restricted cash 10,817 9,851 Rents and other receivables, net
1,774 2,302 Deferred rents 6,185 6,332 Intangible assets, net
23,679 24,801 Acquired above-market leases, net 320 358 Other
assets, net 3,578 5,141 Goodwill 48,549 48,549 Investments in
unconsolidated joint ventures 8,516 8,802
Total assets $ 461,001 $ 468,385
LIABILITIES AND EQUITY Mortgage and other loans, net $
420,642 $ 420,126 Unsecured notes payable to related parties 21,104
21,104 Accounts payable and other liabilities 30,780 31,816
Acquired below-market leases, net 7,457 7,918
Total liabilities 479,983 480,964
Commitments and contingencies Equity:
Preferred Stock, $0.0001 par value per share, 100,000,000 shares
authorized, one share of Proportionate Voting Preferred Stock
issued and outstanding at March 31, 2011 and December 31, 2010 - -
Senior Common Stock, $0.0001 par value per share (liquidation
preference $10 per share, $24,179 for both periods) 40,000,000
shares authorized, 2,417,867 shares issued and outstanding at March
31, 2011 and December 31, 2010 21,525 21,525 Listed Common Stock,
$0.0001 par value per share, 599,999,900 shares authorized,
3,903,050 shares issued and outstanding at March 31, 2011 and
December 31, 2010 185 185
Class B Common Stock, $0.0001 par value
per share, 100 shares authorized, issued and outstanding at March
31, 2011
and December 31, 2010 - - Additional paid-in capital 70 50
Cumulative deficit (151,917 ) (150,524 ) Total
stockholders' equity (deficit) (130,137 ) (128,764 )
Non-controlling interests: Preferred unitholders in the Operating
Partnership 127,268 127,268 Common unitholders in the Operating
Partnership (16,113 ) (11,083 ) Total equity
(deficit) (18,982 ) (12,579 ) Total liabilities and
equity $ 461,001 $ 468,385
Pacific Office Properties Trust,
Inc
Consolidated Statements of
Operations
(unaudited and in thousands, except
share and per share data)
For the three months ended March 31,
2011 2010 Revenue: Rental
$ 10,260 $ 10,409 Tenant reimbursements 5,332 5,408 Property
management and other services 712 - Parking 2,038 2,022 Other
580 95 Total revenue 18,922
17,934
Expenses: Rental property
operating 9,509 9,619 General and administrative 2,567 607
Depreciation and amortization 4,938 5,772 Interest 7,327 6,603
Abandoned offering costs 420 - Acquisition costs 199
- Total expenses 24,960 22,601
Loss before equity in net earnings of unconsolidated
joint ventures and non-operating income (6,038 ) (4,667 ) Equity in
net earnings of unconsolidated joint ventures 96 11 Non-operating
income 524 - Net loss (5,418 ) (4,656 )
Net (income) loss attributable to non-controlling interests:
Preferred unitholders in the Operating Partnership (568 ) (568 )
Common unitholders in the Operating Partnership 5,031
4,116 4,463 3,548 Dividends on Senior Common Stock
(438 ) - Net loss attributable to common
stockholders $ (1,393 ) $ (1,108 ) Net loss per common share
- basic and diluted $ (0.36 ) $ (0.29 ) Weighted average
number of common shares outstanding - basic and diluted
3,903,150 3,850,520
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 ended March 31,
2011 2010 Reconciliation of net loss
to FFO (1): Net loss attributable to common
stockholders $ (1,393 ) $ (1,108 ) Add: Depreciation and
amortization of real estate assets 4,938 5,772 Depreciation and
amortization of real estate assets - unconsolidated joint ventures
703 667 Less: Distributions to preferred unitholders (568 ) (568 )
Net loss attributable to non-controlling interests (4,463 )
(3,548 )
FFO attributable to common stockholders $
(783 ) $ 1,215
Reconciliation of FFO to FFO,
excluding non-recurring items: FFO $ (783 ) $ 1,215 Add:
Acquisition costs 199 - Abandoned offering costs 420 - Default
interest and late penalties accrued on non-recourse loans in
default 490 - Deduct: Non-operating income (524 ) -
FFO, excluding non-recurring items $ (198 ) $ 1,215
Reconciliation of FFO to AFFO (2): FFO
attributable to common stockholders $ (783 ) $ 1,215 Acquisition
costs 199 - Abandoned offering costs 420 - Default interest and
late penalties accrued on non-recourse loans in default 490 -
Non-operating income (524 ) - Amortization of interest rate
contracts, loan premiums and prepaid financings 375 338 Non-cash
compensation expense 20 50 Interest expense deferred on unsecured
notes payable 438 409 Amortization of acquired above- and
below-market leases (448 ) (541 ) Straight-line rent adjustments,
net 699 470 Recurring capital expenditures, tenant improvements and
leasing commissions (229 ) (176 ) AFFO attributable
to common stockholders $ 657 $ 1,765 FFO per
share - diluted $ (0.04 ) $ 0.07 FFO, excluding
non-recurring items - diluted $ (0.01 ) $ 0.07 AFFO per
share - diluted $ 0.04 $ 0.10 Weighted
average number of common shares and common
share equivalents outstanding - diluted
(3)
18,004,154 18,149,687
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
to FFO nonrecurring items, 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 amortization of acquired above- and below-market
leases and 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 March 31, 2011. 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 March 31, 2011 represent 32,597,528 common share
equivalents, on an as-if converted basis, and any impact related to
these outstanding preferred unit 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 is 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 $2.25 for the
month ended March 31, 2011, the exchange ratio as of March 31,
2011, on an as-if converted basis was 4.44. The weighted average
number of Senior Common shares outstanding for the three months
ended March 31, 2011 was 2,417,867, resulting in 10,723,282 of
potentially dilutive common share equivalents outstanding for the
three months ended March 31, 2011.
Assuming the full conversion of our outstanding preferred unit
interests and our Senior Common Stock, our FFO per share, on a
fully diluted basis, would have been $0.00 and our AFFO per share,
on a fully diluted basis, would have been $0.02, for the three
months ended March 31, 2011. Assuming the full conversion of our
outstanding preferred unit interests, our FFO per share and AFFO
per share, on a fully diluted basis would have been $0.04 and
$0.05, respectively, for the three months ended March 31, 2010.
Assuming the full conversion of our outstanding preferred unit
interests and our Senior Common Stock, our FFO excluding
non-recurring items would have been $0.01 for the three months
ended March 31, 2011. There would be positive FFO on a fully
diluted per share basis for the three months ended March 31, 2011
due to the assumption that the $0.6 million of distribution to
preferred unitholders and the Senior Common Stock dividend of $0.4
million would cease upon conversion to shares of Listed Common
Stock. Assuming the full conversion of our outstanding preferred
unit interests, our FFO excluding non-recurring items would have
been $0.04 for the three months ended March 31, 2010.
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