Pacific Office Properties Trust, Inc. (NYSE Amex: PCE), a West
Coast office real estate investment trust (REIT), today announced
its financial results for the three and six months ended June 30,
2011.
Company Highlights
During the second quarter, 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 refinanced with a new loan that matures in January 2014.
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.
Three Month Financial and Operating Results
The Company reported Funds from Operations (FFO) attributable to
common stockholders for the quarter ended June 30, 2011 of $(7.8)
million, or $(0.43) per diluted share.
During the quarter ended June 30, 2011, the Company incurred
$11.5 million of non-cash impairment charges related to the
contributions of the Pacific Business News Building and City Square
properties into joint ventures. As noted above, both loans secured
by the properties were repaid at a discount and the Company was not
obligated to pay the accrued default interest and penalties. As
such the Company recognized a $10.0 million gain on forgiveness of
debt related to these loans. The Company also incurred an
additional $3.3 million of non-cash impairment charges related to
consolidated assets and $1.4 million of non-cash impairment charges
related to unconsolidated joint ventures during the quarter.
FFO excluding these non-recurring items for the quarter ended
June 30, 2011 was $(1.3) million, or $(0.07) per diluted share.
During the quarter ended June 30, 2010, the Company did not have
any non-recurring items and reported FFO attributable to common
stockholders of $0.9 million, or $0.05 per diluted share.
The Company reported Adjusted Funds from Operations (AFFO)
attributable to common stockholders for the quarter ended June 30,
2011 of $(0.5) million, or $(0.03) per diluted share, compared to
$0.5 million, or $0.03 per diluted share, for the quarter ended
June 30, 2010.
The Company also reported a GAAP net loss attributable to common
stockholders for the quarter ended June 30, 2011 of $2.7 million,
which includes the Company's portion of depreciation and
amortization expense of $0.9 million. For the quarter ended June
30, 2010, the Company reported a GAAP net loss attributable to
common stockholders of $1.2 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
June 30, 2011 and 2010 were $(0.70) and $(0.31) per share,
respectively.
Six Month Financial and Operating Results
The Company reported Funds from Operations (FFO) attributable to
common stockholders for the six months ended June 30, 2011 of
$(8.5) million, or $(0.47) per diluted share.
During the six months ended June 30, 2011, the Company incurred
residual acquisition costs related to the terminated acquisition of
the GRE portfolio of $0.3 million. The Company also incurred
residual expenses of $0.4 million in abandoned offering costs. In
addition, the Company incurred $11.5 million of non-cash impairment
charges related to the contributions of the Pacific Business News
Building and City Square properties into joint ventures. As noted
above, both loans secured by the properties were repaid at a
discount and the Company was not obligated to pay the accrued
default interest and penalties. As such the Company recognized a
$10.0 million gain on forgiveness of debt related to these loans.
The Company also incurred an additional $3.3 million of non-cash
impairment charges related to consolidated assets and $1.4 million
of non-cash impairment charges related to unconsolidated joint
ventures during the period.
FFO excluding these non-recurring items for the six months ended
June 30, 2011 was $(1.5) million, or $(0.08) per diluted share.
During the six months ended June 30, 2010, the Company did not have
any non-recurring items and reported FFO attributable to common
stockholders of $2.1 million, or $0.11 per diluted share.
The Company reported Adjusted Funds from Operations (AFFO)
attributable to common stockholders for the six months ended June
30, 2011 of $0.2 million, or $0.01 per diluted share, compared to
$2.3 million, or $0.13 per diluted share, for the six months ended
June 30, 2010.
The Company also reported a GAAP net loss attributable to common
stockholders for the six months ended June 30, 2011 of $4.1
million, which includes the Company's portion of depreciation and
amortization expense of $2.0 million. For the six months ended June
30, 2010, the Company reported a GAAP net loss attributable to
common stockholders of $2.3 million, which included the Company's
portion of depreciation and amortization expense of $2.4 million.
The net loss per basic and diluted share for the six months ended
June 30, 2011 and 2010 were $(1.05) and $(0.59) 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)
June 30, 2011 December 31, 2010 ASSETS
Investments in real estate, net $ 285,214 $ 353,137 Cash and cash
equivalents 4,849 9,112 Restricted cash 5,558 9,851 Rents and other
receivables, net 2,335 2,302 Deferred rents 4,755 6,332 Intangible
assets, net 14,730 24,801 Acquired above-market leases, net 254 358
Other assets, net 3,071 5,141 Goodwill 48,549 48,549 Investments in
unconsolidated joint ventures 8,049 8,802
Total assets $ 377,364 $ 468,385
LIABILITIES AND EQUITY (DEFICIT) Mortgage and other loans,
net $ 356,225 $ 420,126 Unsecured notes payable to related parties
21,104 21,104 Accounts payable and other liabilities 26,002 31,816
Acquired below-market leases, net 5,542 7,918
Total liabilities 408,873 480,964
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 June 30, 2011 and
December 31, 2010
- -
Senior Common Stock, $0.0001 par value per
share (liquidation preference $10 per share, $24,140 and $24,179 as
of June 30, 2011 and December 31, 2010, respectively) 40,000,000
shares authorized, 2,414,085 and 2,417,867 shares issued and
outstanding at June 30, 2011 and December 31, 2010,
respectively
21,491 21,525
Listed Common Stock, $0.0001 par value per
share, 599,999,900 shares authorized, 3,941,042 and 3,903,050
shares issued and outstanding at June 30, 2011 and December 31,
2010
185 185
Class B Common Stock, $0.0001 par value
per share, 100 shares authorized, issued and outstanding at June
30, 2011 and December 31, 2010
- - Additional paid-in capital 110 50 Cumulative deficit
(154,639 ) (150,524 ) Total stockholders' equity (deficit)
(132,853 ) (128,764 ) Non-controlling interests: Preferred
unitholders in the Operating Partnership 127,268 127,268 Common
unitholders in the Operating Partnership (25,924 )
(11,083 ) Total equity (deficit) (31,509 ) (12,579 )
Total liabilities and equity (deficit) $ 377,364 $ 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 June
30, 2011 2010 Revenue: Rental $
8,344 $ 10,336 Tenant reimbursements 4,899 6,010 Property
management and other services 1,521 - Parking 1,758 2,046 Other
312 81 Total revenue 16,834
18,473
Expenses: Rental property
operating 8,429 10,098 General and administrative 3,067 797
Depreciation and amortization 4,146 5,757 Interest 6,402 6,844
Acquisition costs 68 - Impairment of long-lived assets
14,784 - Total expenses 36,896
23,496
Loss before gain on forgiveness of debt,
equity in net earnings of unconsolidated joint ventures and
non-operating income
(20,062 ) (5,023 ) Gain on forgiveness of debt 10,045 -
Equity in net earnings of unconsolidated
joint ventures
(1,490 ) 33 Non-operating income (17 ) - Net
loss (11,524 ) (4,990 ) Net (income) loss attributable to
non-controlling interests: Preferred unitholders in the Operating
Partnership (568 ) (565 ) Common unitholders in the Operating
Partnership 9,811 4,377 9,243 3,812
Dividends on Senior Common Stock (438 ) (4 ) Net loss
attributable to common stockholders $ (2,719 ) $ (1,182 )
Net loss per common share - basic and diluted $ (0.70 ) $ (0.31 )
Weighted average number of common shares
outstanding - basic and diluted
3,909,429 3,855,725
Pacific Office Properties Trust, Inc.
Consolidated Statements of Operations (unaudited and in
thousands, except share and per share data)
For the six months ended June 30, 2011 2010
Revenue: Rental $ 18,604 $ 20,745 Tenant
reimbursements 10,231 11,418 Property management and other services
2,233 - Parking 3,796 4,068 Other 892 176
Total revenue 35,756 36,407
Expenses: Rental property operating 17,938 19,717
General and administrative 5,634 1,404 Depreciation and
amortization 9,084 11,529 Interest 13,729 13,447 Abandoned offering
costs 420 - Acquisition costs 267 - Impairment of long-lived assets
14,784 - Total expenses 61,856
46,097
Loss before gain on forgiveness of debt
equity in net earnings of unconsolidated joint ventures and
non-operating income
(26,100 ) (9,690 ) Gain on forgiveness of debt 10,045 -
Equity in net earnings of unconsolidated
joint ventures
(1,394 ) 44 Non-operating income 507 -
Net loss (16,942 ) (9,646 ) Net (income) loss attributable
to non-controlling interests: Preferred unitholders in the
Operating Partnership (1,136 ) (1,136 ) Common unitholders in the
Operating Partnership 14,842 8,496
13,706 7,360 Dividends on Senior Common Stock (875 )
(4 ) Net loss attributable to common stockholders $ (4,111 ) $
(2,290 ) Net loss per common share - basic and diluted $
(1.05 ) $ (0.59 )
Weighted average number of common shares
outstanding - basic and diluted
3,906,307 3,853,137
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 six months ended June 30, ended
June 30, 2011 2010 2011 2010
Reconciliation of net loss to FFO (1): Net
loss attributable to common stockholders $ (2,719 ) $ (1,182 ) $
(4,111 ) $ (2,290 ) Add: Depreciation and amortization of real
estate assets 4,146 5,757 9,084 11,529
Depreciation and amortization of real
estate assets - unconsolidated joint ventures
623 675 1,326 1,342 Less: Distributions to preferred unitholders
(568 ) (568 ) (1,136 ) (1,136 ) Net loss attributable to
non-controlling interests (9,243 ) (3,812 )
(13,706 ) (7,360 )
FFO attributable to common
stockholders
$ (7,761 ) $ 870 $ (8,543 ) $ 2,085
Reconciliation of FFO to FFO, excluding non-recurring items:
FFO $ (7,761 ) $ 870 (8,543 ) 2,085 Add (deduct):
Acquisition costs 68 - 267 -
Acquisition costs - unconsolidated joint
ventures
52 - 52 - Abandoned offering costs - - 420 - Impairment of long
lived assets 14,784 - 14,784 -
Impairment of investments in
unconsolidated joint ventures
1,358 - 1,358 -
Default interest and late penalties
accrued on non-recourse loans in default
221 - 711 - Non-operating income 17 - (507 ) - Gain on forgiveness
of debt (10,045 ) - (10,045 )
FFO, excluding non-recurring items $ (1,306 ) $ 870 $ (1,503
) $ 2,085
Reconciliation of FFO to AFFO
(2): FFO attributable to common stockholders $ (7,761
) $ 870 $ (8,543 ) $ 2,085 Acquisition costs 68 - 267 -
Acquisition costs - unconsolidated joint
ventures
52 - 52 - Abandoned offering costs - - 420 -
Default interest and late penalties
accrued on non-recourse loans in default
221 - 711 - Non-operating income 17 - (507 ) - Impairment of long
lived assets 14,784 - 14,784 -
Impairment of investments in
unconsolidated joint ventures
1,358 - 1,358 - Gain on forgiveness of debt (10,045 ) - (10,045 ) -
Amortization of interest rate contracts,
loan premiums and prepaid financings
309 358 684 696 Non-cash compensation expense 40 50 60 100 Interest
expense deferred on unsecured notes payable 451 420 889 829
Amortization of acquired above- and below-market leases (328 ) (546
) (776 ) (1,087 ) Straight-line rent adjustments, net 479 (160 )
1,178 310
Recurring capital expenditures, tenant
improvements and leasing commissions
(140 ) (484 ) (369 ) (660 ) AFFO
attributable to common stockholders $ (495 ) $ 508 $ 163
$ 2,273 FFO per share - diluted $ (0.43 ) $
0.05 $ (0.47 ) $ 0.11 FFO, excluding non-recurring
items - diluted $ (0.07 ) $ 0.05 $ (0.08 ) $ 0.11
AFFO per share - diluted $ (0.03 ) $ 0.03 $ 0.01 $
0.13
Weighted average number of common shares
and common share equivalents outstanding - diluted (3)
18,010,433 18,154,892 18,205,574
18,152,404
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 June 30, 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 June 30, 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 $2.11 for the
month ended June 30, 2011, the exchange ratio as of June 30, 2011,
on an as-if converted basis was 4.75. The weighted average number
of Senior Common shares outstanding for the three months ended June
30, 2011 was 2,414,583, resulting in 11,463,276 of potentially
dilutive common share equivalents outstanding for the three months
ended June 30, 2011. The weighted average number of Senior Common
shares outstanding for the six months ended June 30, 2011 was
2,416,216, resulting in 11,451,259 of potentially dilutive common
share equivalents outstanding for the six months ended June 30,
2011. The exchange ratio for June 30, 2010, on an as-if converted
basis would be 2.356 and the weighted average shares outstanding
was 25,241.
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 $(0.12) and our AFFO per
share, on a fully diluted basis, would have been $0.01, for the
three months ended June 30, 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 $0.03 and
$0.02, respectively, for the three months ended June 30, 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 ($0.00) for the three months
ended June 30, 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
$(0.12) and our AFFO per share, on a fully diluted basis, would
have been $0.02, for the six months ended June 30, 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 $0.04, respectively, for the six months
ended June 30, 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 six months ended June 30, 2011.
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