-----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, UW2t4EOBKcPp6q7jkGSVbWfYSzr4utoUJT+DWbXeGuJDSz436OVnm+TxvH6YiDf0 EHrnJO5RbFl1l9yhxxWwJQ== 0000950131-96-005737.txt : 19961115 0000950131-96-005737.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950131-96-005737 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96661199 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 SEPTEMBER 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 October 29, 1996 was: 75,466,587 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITY CAPITAL PACIFIC TRUST INDEX
PAGE NUMBER ------ PART I. Condensed Financial Information Item 1. Financial Statements Condensed Balance Sheets--September 30, 1996 (unaudited) and December 31, 1995............................................ 3 Condensed Statements of Earnings--Three and nine months ended September 30, 1996 and 1995 (unaudited)...................... 4 Condensed Statements of Cash Flows--Nine months ended September 30, 1996 and 1995 (unaudited)...................... 5 Notes to Condensed Financial Statements...................... 6 Independent Auditors' Review Report.......................... 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 13 PART II. Other Information Item 4. Submission of Matters to Vote of Securities Holders.......... 20 Item 5. Other Information............................................ 20 Item 6. Exhibits and Reports on Form 8-K............................. 20
2 SECURITY CAPITAL PACIFIC TRUST CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, ASSETS 1996 1995 ------ ------------- ------------ (UNAUDITED) Real estate......................................... $2,257,560 $1,855,866 Less accumulated depreciation....................... 102,496 81,979 ---------- ---------- 2,155,064 1,773,887 Mortgage notes receivable........................... 14,394 15,844 ---------- ---------- Total investments................................. 2,169,458 1,789,731 Cash and cash equivalents--unrestricted............. 7,172 26,919 Restricted tax deferred exchange proceeds........... 13,503 -- Accounts receivable................................. 4,083 3,318 Other assets........................................ 28,783 21,031 ---------- ---------- Total assets.................................... $2,222,999 $1,840,999 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Line of credit.................................... $ 171,350 $ 129,000 Long term debt.................................... 450,000 200,000 Mortgages payable................................. 219,460 158,054 Distributions payable............................. -- 22,437 Accounts payable.................................. 30,212 21,040 Accrued expenses and other liabilities............ 35,585 34,800 ---------- ---------- Total liabilities............................... 906,607 565,331 ---------- ---------- Shareholders' Equity: Series A Preferred shares (8,703,000 convertible shares in 1996 and 9,200,000 in 1995; stated liquidation preference of $25 per share)......... 217,575 230,000 Series B Preferred shares (4,200,000 shares issued; stated liquidation preference of $25 per share)...................... 105,000 105,000 Common shares (shares issued--72,980,268 in 1996 and 72,375,819 in 1995).......................................... 72,980 72,376 Additional paid-in capital........................ 964,500 952,679 Distributions in excess of net earnings........... (41,725) (82,450) Treasury shares (164,956 in 1996 and 164,901 in 1995)............................................ (1,938) (1,937) ---------- ---------- Total shareholders' equity...................... 1,316,392 1,275,668 ---------- ---------- Total liabilities and shareholders' equity...... $2,222,999 $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 ENDED SEPTEMBER NINE MONTHS ENDED 30, SEPTEMBER 30, --------------- ----------------- 1996 1995 1996 1995 ------- ------- -------- -------- Revenues: Rental income.............................. $84,802 $70,176 $240,102 $189,412 Interest................................... 590 610 1,589 1,884 ------- ------- -------- -------- 85,392 70,786 241,691 191,296 ------- ------- -------- -------- Expenses: Rental expenses............................ 25,239 20,555 67,804 54,105 Real estate taxes.......................... 6,594 5,525 19,953 15,889 Property management fees paid to affiliates................................ 2,960 2,379 8,788 6,081 Depreciation............................... 10,987 9,611 32,230 26,162 Interest................................... 8,624 3,271 22,401 14,400 REIT management fee paid to affiliates..... 5,866 5,543 17,145 14,676 General and administrative................. 264 166 770 580 Provision for possible loss on investments. -- 100 -- 220 Other...................................... 140 433 501 635 ------- ------- -------- -------- 60,674 47,583 169,592 132,748 ------- ------- -------- -------- Earnings from operations..................... 24,718 23,203 72,099 58,548 Gain on sale of investments.................. 25,257 -- 33,340 -- ------- ------- -------- -------- Net earnings before extraordinary item....... 49,975 23,203 105,439 58,548 Less extraordinary item--loss on early extinguishment of debt...................... -- -- 870 ------- ------- -------- -------- Net earnings................................. 49,975 23,203 104,569 58,548 Less preferred share dividends............... 6,182 6,387 18,956 15,435 ------- ------- -------- -------- Net earnings attributable to common shares. $43,793 $16,816 $ 85,613 $ 43,113 ======= ======= ======== ======== Weighted average common shares outstanding... 72,628 72,211 72,355 65,315 ======= ======= ======== ======== Per common share amounts: Primary.................................... $ 0.60 $ 0.23 $ 1.18 $ 0.66 ======= ======= ======== ======== Fully diluted.............................. $ 0.57 $ -- $ 1.18 $ -- ======= ======= ======== ======== Distributions paid......................... $ 0.31 $0.2875 $ 0.93 $ 0.8625 ======= ======= ======== ========
The accompanying notes are an integral part of the condensed financial statements. 4 SECURITY CAPITAL PACIFIC TRUST CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UUAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1996 1995 --------- --------- Operating activities: Net earnings............................................ $ 104,569 $ 58,548 Adjustments to reconcile net earnings to cash flow provided by operating activities: Depreciation and amortization......................... 33,658 27,092 Provision for possible loss on investments............ -- 220 Gain on sale of investment properties................. (33,340) -- Decrease in accounts payable.......................... (2,261) (1,533) Increase in accrued real estate taxes................. 1,911 3,876 Decrease in accrued interest on long term debt........ (1,027) (3,594) Increase (decrease) in accrued expenses and other liabilities.......................................... (100) 2,573 Net change in other operating assets.................. (6,822) (4,388) --------- --------- Net cash flow provided by operating activities........ 96,588 82,794 --------- --------- Investing activities: Real estate investments................................. (462,412) (198,055) Mortgage notes receivable............................... -- (1,038) Principal repayments on mortgage notes receivable....... 1,450 4,929 Proceeds from sale of investments....................... 182,490 -- Tax deferred exchange proceeds held in escrow........... (13,503) -- --------- --------- Net cash flow used in investing activities............ (291,975) (194,164) --------- --------- Financing activities: Proceeds from line of credit............................ 353,235 171,000 Principal payments on line of credit.................... (310,885) (248,000) Proceeds from long term debt............................ 250,000 -- Payoff of PACIFIC's line of credit...................... -- (51,900) Regularly scheduled principal payments on mortgages payable................................................ (1,461) (1,203) Prepayment of mortgages payable......................... (25,845) (303) Debt issuance costs paid................................ (3,123) (1,351) Proceeds from sale of shares, net of expenses........... -- 317,591 Proceeds from dividend reinvestment and share purchase plan, net.............................................. -- 1,002 Cash distributions paid on common shares................ (67,345) (56,035) Cash dividends paid on preferred shares................. (18,956) (15,435) Other................................................... (20) 14 --------- --------- Net cash flow provided by financing activities........ 175,640 115,380 --------- --------- Net increase (decrease) in cash and cash equivalents..... (19,747) 4,010 Cash and cash equivalents at beginning of period......... 26,919 8,092 --------- --------- Cash and cash equivalents at end of period............... $ 7,172 $ 12,102 ========= ========= Non-cash investing and financing activities: Mortgage notes assumed upon purchase of multifamily properties............................................. $ 88,711 $ 4,784 ========= ========= Series A Preferred Shares exchanged for common shares... $ 12,425 $ -- ========= ========= 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 SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) (1) GENERAL The condensed 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 nine month periods ended September 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) SPIN-OFF OF PTR'S HOMESTEAD VILLAGE EXTENDED-STAY LODGING ASSETS TO HOMESTEAD VILLAGE INCORPORATED On September 12, 1996, the holders of PTR common shares 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"). The spin-off was completed on October 17, 1996. As part of the Spin-off, PTR contributed 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 received 6,363,789 warrants to acquire additional shares of Homestead common stock at a price of $10.00 per share in exchange for entering into a funding commitment agreement for which PTR agreed to provide up to $129.0 million in secured financing for developments to Homestead and receive $144.0 million in convertible mortgage notes. In addition, PTR received approximately $77.0 million of convertible mortgage notes on certain Homestead Village properties. Each mortgage note issued by Homestead will be convertible into shares of Homestead common stock on the basis of one share of Homestead common stock for every $11.50 of principal outstanding on the convertible mortgage note. Upon full funding of PTR's convertible mortgage notes, its conversion rights would represent 34.7% ownership interest in Homestead assuming conversion of outstanding convertible mortgage notes and exercise of outstanding warrants by PTR and all other holders. The Homestead common stock and warrants to acquire additional common stock will be distributed to PTR shareholders on November 12, 1996 to shareholders of record on October 29, 1996. Each PTR shareholder will receive .125694 Homestead common stock and .084326 warrants per PTR common share plus cash for fractional shares and warrants. As of September 30, 1996, PTR's Homestead Village properties consisted of 28 operating properties, 24 properties under construction or in planning, and two properties under contract, representing a total expected investment of $284.9 million. For the nine months ended September 30, 1996, PTR's Homestead Village operations accounted for approximately 10.6% of PTR's total earnings from operations attributable to common shares. The reduction in operating results attributable to the Homestead Village properties will be partially offset by interest earned on the convertible mortgage notes 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):
SEPTEMBER 30, 1996 (1) DECEMBER 31, 1995 -------------------- -------------------- INVESTMENT UNITS (2) INVESTMENT UNITS (2) ---------- --------- ---------- --------- Multifamily: Operating properties............ $1,929,019 46,891 $1,584,994 41,503 Developments under construction. 215,453 7,059 187,507 6,676 Developments in planning: Developments owned............ 44,357 3,889 22,933 2,328 Developments under control (3).......................... -- 5,031 -- 3,822 ---------- ------ ---------- ------ Total developments in planning................... 44,357 8,920 22,933 6,150 ---------- ------ ---------- ------ Land held for future development.................... 42,123 -- 29,688 -- ---------- ------ ---------- ------ Total multifamily........... 2,230,952 62,870 1,825,122 54,329 ====== ====== Non-multifamily................... 26,608 30,744 ---------- ---------- Total real estate........... $2,257,560 $1,855,866 ========== ==========
- -------- (1) Included in the amounts for September 30, 1996 are 3,884 operating units with an investment of $118.9 million, 1,488 units under construction with an investment of $30.9 million and 1,776 units of developments in planning with an investment of $12.6 million of Homestead Village properties which have been spun-off to Homestead since the end of the third quarter of 1996 (see note 2). (2) Unit information is based on management's estimates and is unaudited and not reviewed by the independent auditors. (3) PTR's investment as of September 30, 1996 and December 31, 1995, for developments under control was $5.1 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................................................. 286,562 Development expenditures, including land acquisitions........ 237,742 Nonrecurring capital improvements and renovation expenditures................................................ 11,538 Recurring capital improvements............................... 9,392 Acquisition and improvement of land held for future development................................................. 17,315 Real estate sold............................................. (160,865) Other........................................................ 10 ---------- Balance at September 30, 1996................................ $2,257,560 ==========
At October 29, 1996, PTR had contingent contracts or letters of intent, including developments under control, subject to PTR's final due diligence and approval of all entitlements, to acquire land for new development communities of an estimated 6,099 garden-style multifamily units with an aggregate estimated development cost of $449.4 million. At the same date, PTR also had contingent contracts or letters of intent, subject to final due diligence, for the acquisition of 1,208 additional garden-style multifamily units with an aggregate investment cost of $96.3 million, including planned capital expenditures. At October 29, 1996, PTR had unfunded development commitments for garden- style developments under construction of $142.6 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 tax deferred exchanges, into assets that in PTR's view offer better long-term cash flow growth prospects. As a result of this asset optimization strategy, PTR disposed of 12 multifamily properties and one industrial building during the nine months ended September 30, 1996, representing aggregate net proceeds of $182.5 million. Under the terms of the dispositions, net cash proceeds representing the value of the properties disposed were placed into a trust. At the direction of PTR, 15 multifamily properties primarily located in California and land for new development communities have been or will be acquired utilizing the net proceeds received from dispositions. For federal income tax purposes, the dispositions were structured as tax deferred exchanges. For financial reporting purposes, the dispositions qualified for profit recognition and an aggregate gain of $33.3 million was recorded for the nine months ended September 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, 21 multifamily properties and two non-multifamily properties were held for disposition as of September 30, 1996. The aggregate carrying value of properties held for disposition was $231.4 million at September 30, 1996. Each of these property's carrying value is less than its 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 properties by the end of the first quarter of 1997, 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 are included in PTR's earnings from operations for the nine months ended September 30, 1996 and 1995, were $12.7 million and $12.1 million, respectively. Long-lived investments held and used or held for disposition by PTR 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 nine months ended September 30, 1995 of $220,000 relating to the impairment of a non-multifamily investment which was sold in October 1995. As of September 30, 1996, PTR's real estate investments are carried at cost less accumulated depreciation, 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 future 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 September 30, 1996, the outstanding balance of development and mortgage loans made by PTR to third party owner-developers and PTR Development Services aggregated $119.3 million and $19.8 million, respectively. The activities of PTR Development Services and the third party owner-developer loans are consolidated with PTR's activities and all intercompany transactions have been eliminated in consolidation. 8 SECURITY CAPITAL PACIFIC TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED) (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 October 22, 1996, the Trustees declared a cash distribution of $0.31 per common share to be paid on December 4, 1996, to shareholders of record on November 20, 1996. (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 1998 and may annually be extended for an additional year with the approval of TCB and the other participating lenders. 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 September 30, 1996) or the federal funds rate plus .50%, or at PTR's option, LIBOR (5.4375% at September 30, 1996) plus 1.125% (6.5625 % at September 30, 1996) which can vary from LIBOR plus 0.75% to LIBOR plus 1.50% 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 $294,000 and $368,000 for the nine months ended September 30, 1996 and 1995, respectively. At September 30, 1996, there were $157.5 million of outstanding borrowings under this line of credit. On September 9, 1996, PTR entered into an uncommitted short-term borrowing facility agreement of $15 million with TCB, that matures September 9, 1997 and bears interest at an overnight rate, which has ranged from 5.85% to 6.30%. At September 30, 1996 there were $13.9 million of borrowings outstanding under this facility. Long Term Debt On August 6, 1996, PTR issued $20 million of Notes which bear interest at 7.550% per annum and mature August 1, 2008 (the "7.550% Notes"), $20 million of Notes which bear interest at 7.625% per annum and mature August 1, 2009 (the "7.625% Notes"), $20 million of Notes which bear interest at 7.650% per annum and mature August 1, 2010 (the "7.650% Notes"), $20 million of Notes which bear interest at 8.100% per annum and mature August 1, 2015 (the "8.100% Notes") and $20 million of Notes which bear interest at 8.150% per annum and mature August 1, 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"). Collectively, the August 1996 Notes are unsecured and had an original average life to maturity of 15.6 years and an average effective interest cost, including offering discounts and issuance costs, of 7.95% per annum, payable semi-annually. Principal on the August 1996 Notes is due at each of their respective maturity dates. On February 23, 1996, PTR issued $50 million of 7.15% Notes due 2010 (the "7.15% Notes due 2010") and $100 million of 7.90% Notes due 2016 (the "7.90% Notes" and together with the 7.15% Notes due 2010, the "February 1996 Notes" and together with the August 1996 Notes and the October 1996 Notes (as defined in Note 9), the "Notes"). The 7.15% Notes due 2010 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 average effective interest cost, including offering discounts and issuance costs, of 7.84% per annum, payable semi-annually. 9 SECURITY CAPITAL PACIFIC TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED) The Notes, other than the 6.500% Notes (discussed in Note 9), 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, is not less than 1.5:1. Mortgage Notes Payable 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 an aggregate of $870,000 which was recorded by PTR as an extraordinary item for the nine months ended September 30, 1996. General Items At September 30, 1996, PTR was in compliance with all debt covenants. Interest paid on all borrowings for the nine months ended September 30, 1996 was $33,592,000, including $12,824,000 of interest capitalized during construction. Interest paid on all borrowings for the nine months ended September 30, 1995 was $25,686,000, including $8,597,000 of interest capitalized during construction. Amortization of loan costs included in interest expense for the nine months ended September 30, 1996 and 1995 was $1,428,000 and $930,000, respectively. (6) SHAREHOLDERS' EQUITY During the nine months ended September 30, 1996, 497,000 of PTR's Cumulative Convertible Series A Preferred Shares of Beneficial Interest ("Series A Preferred Shares") were converted, at the option of shareholders, into 604,448 of PTR's common shares (a conversion ratio of 1.2162 common shares for each Series A Preferred Share). As a result of the Spin-off, PTR adjusted the conversion price, effective as of the opening of business on October 30, 1996, of its Series A Preferred Shares from $20.556 to $18.561 (a conversion ratio of 1.3469 common shares for each Series A Preferred Share) to reflect the impact of the distribution of the Homestead securities on November 12, 1996. (7) EARNINGS PER SHARE Primary earnings per share is computed based on the weighted average number of common shares outstanding for the three and nine months ended September 30, 1996 and 1995, respectively. Fully diluted earnings per common share is calculated from weighted average common shares outstanding for the three and nine months ended September 30, 1996, plus the common shares that would be outstanding assuming conversion of Series A Preferred Shares and outstanding options for the three and nine months ended September 30, 1996. Net earnings attributable to common shares for purposes of the fully diluted per share calculation has been adjusted for the dividends on the Series A Preferred Shares. Inclusion of PTR's Series A Preferred Shares as a common stock equivalent in the earnings per share computation is antidilutive for both the three and nine months ended September 30, 1995. 10 SECURITY CAPITAL PACIFIC TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONCLUDED) (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 owned 37.6% of PTR's outstanding common shares at September 30, 1996 and 36.3% of PTR's outstanding common shares giving effect to the conversion of Series A Preferred Shares through October 29, 1996. SCG Realty Services Incorporated ("SCG Realty Services") has managed and currently manages a substantial majority of PTR's operating multifamily properties (88.0% and 79.0% as of September 30, 1996 and 1995, respectively). For the nine months ended September 30, 1996 and 1995, PTR paid SCG Realty Services aggregate fees of $7,188,000 and $5,722,000, respectively. Homestead Realty Services Incorporated ("Homestead Realty Services"), formed in June 1995, managed all of PTR's operating Homestead Village properties. For the nine months ended September 30, 1996 and 1995, PTR paid Homestead Realty Services aggregate fees of $1,600,000 and $359,000, respectively. SCG owns SCG Realty Services and owned Homestead Realty Services, which merged with Homestead in the Spin-off. 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 Long Term Debt On October 21, 1996, PTR issued $15 million of Notes which bear interest at 6.600% per annum and mature October 15, 1999 (the "6.600% Notes"), $20 million of Notes which bear interest at 6.950% per annum and mature October 15, 2002 (the "6.950% Notes"), $20 million of Notes which bear interest at 7.150% per annum and mature October 15, 2003 (the "7.150% Notes due 2003"), $20 million of Notes which bear interest at 7.250% per annum and mature October 15, 2004 (the "7.250% Notes"), $20 million of Notes which bear interest at 7.300% per annum and mature October 15, 2005 (the "7.300% Notes"), $20 million of Notes which bear interest at 7.375% per annum and mature October 15, 2006 (the "7.375% Notes"), and $15 million of Notes which bear interest at 6.500% per annum and mature October 15, 2026 (the "6.500% Notes", and together with the 6.600% Notes, 6.950% Notes, 7.150% Notes due 2003, 7.250% Notes, 7.300% Notes, and 7.375% Notes, the "October 1996 Notes"). Collectively, the October 1996 Notes are unsecured and had an original average life to maturity of 6.85 years and an average effective interest cost, including discounts and issuance costs of 7.50% per annum, payable semi-annually. Principal on the October 1996 Notes is due at each of their respective maturity dates. Including the October 1996 Notes, PTR has $580 million of unsecured long-term debt with a current weighted average life to maturity of 12.03 years and an average effective interest cost, including discounts and issuance costs, of 7.62% per annum. The October 1996 Notes, other than the 6.500% 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 6.500% Notes may be repaid on October 15, 1999 at the option of the holder at their full principal amount together with accrued interest. The 6.500% Notes may be redeemed at any time after October 15, 1999 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. 11 INDEPENDENT AUDITORS' REVIEW REPORT The Board of Trustees and Shareholders SECURITY CAPITAL PACIFIC TRUST: We have reviewed the accompanying condensed balance sheet of SECURITY CAPITAL PACIFIC TRUST as of September 30, 1996, and the related condensed statements of earnings for the three- and nine-month periods ended September 30, 1996 and 1995, and the related condensed statements of cash flows for the nine-month periods ended September 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 October 30, 1996 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Security Capital Pacific Trust's ("PTR") condensed financial statements and notes thereto included elsewhere herein. The statements contained in this discussion that are not historical facts are 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. Among the important factors that could cause PTR's actual results to differ materially from those expressed in the forward-looking statements are (i) changes in general economic conditions in its target markets that could adversely affect demand for PTR's properties and (ii) changes in financial markets and interest rates that could adversely affect PTR's cost of capital and its ability to meet its financing needs and obligations. OVERVIEW PTR's 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, rents for multifamily units have increased more than the inflation rate for the last two years and are expected to continue experiencing such increases during 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 during 1995 and are expected to increase somewhat less than the rate of inflation during 1996. SPIN-OFF OF HOMESTEAD VILLAGE PROPERTIES On October 17, 1996, PTR completed the spin-off ("Spin-off") of its Homestead Village extended-stay lodging assets to a newly formed company, Homestead Village Incorporated ("Homestead"). As part of the Spin-off, PTR contributed 54 Homestead Village properties to Homestead in exchange for 9,485,727 shares of Homestead common stock. Simultaneously with the Spin-off, PTR received 6,363,789 warrants to acquire additional shares of Homestead common stock at a price of $10.00 per share in exchange for entering into a funding commitment agreement for which PTR agreed to provide up to $129.0 million in secured financing for developments to Homestead and receive $144.0 million in convertible mortgage notes. In addition, PTR received approximately $77.0 million of convertible mortgage notes on certain Homestead Village properties. Each convertible mortgage note issued by Homestead will be convertible into shares of Homestead common stock on the basis of one share of Homestead common stock for every $11.50 of principal outstanding on the convertible mortgage note. Upon full funding of PTR's convertible mortgage notes, its conversion rights would represent 34.7% ownership interest in Homestead assuming conversion of outstanding convertible mortgage notes and exercise of outstanding warrants by PTR and all other holders. The Homestead common stock and warrants to acquire additional common stock were distributed to PTR shareholders payable on November 12, 1996, to shareholders of record on October 29, 1996. The distribution ratio was .125694 Homestead common stock and .084326 warrants per PTR common share. For the nine months ended September 30, 1996, PTR's Homestead Village operations accounted for approximately 10.6% of PTR's total earnings from operations attributable to common shares. The reduction in operating results attributable to Homestead Village will be partially offset by interest earned on the convertible mortgage notes on an as funded basis. RESULTS OF OPERATIONS Nine Months Ended September 30, 1996 Compared to September 30, 1995 During the nine months ended September 30, 1996, PTR acquired 13 multifamily properties aggregating 4,992 units for a total purchase price, including planned capital expenditures, of approximately $309.7 million. 13 In addition, PTR completed development of 18 properties aggregating 3,964 units with a completion cost of approximately $193.6 million. Of the completed developments, eight properties aggregating 1,116 units with a completion cost of approximately $39.9 million were Homestead Village properties. At October 29, 1996, after giving effect to the Spin-off, PTR had 4,827 garden-style multifamily units under construction with a budgeted completion cost of $291.1 million and had an estimated 7,732 garden-style multifamily units in planning with an aggregate budgeted completion cost of approximately $450.5 million. During the nine months ended September 30, 1995, PTR acquired 22 multifamily properties aggregating 6,833 units for a total purchase price, including planned renovations, of approximately $305.9 million, including properties acquired in the merger with Security Capital Pacific Incorporated (the "Merger"), and completed development of 11 multifamily properties aggregating 1,842 units with a completion cost of $74.4 million. At September 30, 1995, PTR had 6,045 multifamily units under construction with a budgeted completion cost of approximately $295.9 million and had in planning an estimated 6,889 multifamily units with an aggregate budgeted completion cost of $368.8 million. The percentage of PTR's total rental income generated by multifamily properties was 99.0% and 98.5% for the nine months ended September 30, 1996 and 1995, respectively. Property Operations Property operations contributed to increased net earnings primarily due to property rental revenue increases of $50.7 million (26.8%), partially offset by higher rental expense, property management fees and real estate taxes, which increased by $20.5 million (26.9%) for the period. Depreciation expense increased $6.1 million (23.2%) for the nine months ended September 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 September 30, 1996, 76.3% of PTR's operating multifamily properties, based on expected cost, were classified by PTR as stabilized properties. At September 30, 1996, PTR's operating multifamily properties were 95.5% leased and PTR's stabilized multifamily properties were 95.6% leased. Interest Expense Interest expense increased $8.0 million (55.6%) for the nine months ended September 30, 1996, as compared to the same period in 1995, resulting from the issuance of $150 million of unsecured long term notes in February 1996 and the issuance of $100 million of unsecured long term notes in August 1996, as more fully discussed under "--Liquidity and Capital Resources." Mortgage interest expense increased $933,000 (11.8%) for the nine months ended September 30, 1996, as compared to the same period in 1995, resulting from mortgages aggregating $66.5 million assumed in the Merger in 1995 and mortgages aggregating $88.7 million assumed as a result of acquisitions of properties during the third quarter of 1996. Line of credit interest expense increased $3.2 million (75.6%) for the nine months ended September 30, 1996, as compared to the same period in 1995, resulting from higher outstanding balances and an increase in amortization of additional loan costs (administrative fees, renewal fees, and legal fees) relating to PTR's revolving credit facility which were offset in part by lower interest rates. Average borrowings on the line of credit were approximately $114.0 million (with an average interest rate of 7.00%) during the nine months ended September 30, 1996, as compared to average borrowings of approximately $51.0 million (with an average interest rate of 7.96%) for the same period in 1995. The commitment fee on the unfunded line of credit balance was $294,000 and $368,000 for the nine months ended September 30, 1996 and 1995, respectively. The increases in interest expense were also offset in part by an increase of $4.2 million (49.2%) in capitalized interest. The increase in capitalized interest is attributable to higher levels of multifamily development activity for the nine months ended September 30, 1996, as compared to the same period in 1995. 14 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 $2.5 million (16.8%) during the nine months ended September 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 and October 1996 of $130 million of 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 issued by Homestead 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 tax deferred exchanges, into assets that in PTR's view offer better long-term cash flow growth prospects. As a result of this asset optimization strategy, PTR disposed of 12 multifamily properties and one industrial building during the nine months ended September 30, 1996, representing aggregate net proceeds of $182.5 million. Under the terms of the dispositions, net cash proceeds representing the value of the properties disposed were placed into a trust. At the direction of PTR, 15 multifamily properties primarily located in California and land for new development communities have been or will be acquired utilizing the net proceeds received from the dispositions. For federal income tax purposes, the dispositions were structured as tax deferred exchanges. For financial reporting purposes, the transactions qualified for profit recognition and an aggregate gain of $33.3 million was recorded for the nine months ended September 30, 1996. Long-lived investments held and used or held for disposition by PTR 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 nine months ended September 30, 1995 of $220,000 relating to the impairment of a non-multifamily investment which was sold in October 1995. As of September 30, 1996, PTR's real estate investments are carried at cost less accumulated depreciation, 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 as an extraordinary item for the nine months ended September 30, 1996. Three-Month Period Ended September 30, 1996 and 1995 Property revenues, operating expenses, income from property operations before depreciation, income from property operations and net earnings for the three months ended September 30, 1996 compared to the three months ended September 30, 1995 reflect changes similar to those discussed in the preceding paragraphs for the comparison of the nine months ended on the same dates. The changes are substantially attributable to the same reasons discussed in the preceding paragraphs for the nine month periods ended September 30, 1996 and 1995. 15 Preferred Share Dividends In November 1993, PTR issued $230 million of Series A Preferred Shares that are entitled to receive an annual dividend of $1.75 per share (7.0% annual dividend rate), which amounted to $11.9 million and $12.1 million for the nine months ended September 30, 1996 and 1995, respectively. In May 1995, PTR issued $105 million of Series B Preferred Shares that are entitled to receive an annual dividend of $2.25 per share (9.0% annual dividend rate), which amounted to $7.1 million and $3.4 million for the nine months ended September 30, 1996 and 1995, respectively. 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 PTR considers its 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 $13.8 million (16.7%) for the nine months ended September 30, 1996 compared to the same period in 1995. The increase is due primarily to increased net earnings in 1996 as compared to 1995. Investing Activities During the nine months ended September 30, 1996, PTR invested $462.4 million in cash in the development, acquisition and renovation of multifamily properties and assumed $88.7 million in mortgages. For the same period, PTR received $182.5 million in proceeds in connection with property dispositions. During the first nine months of 1995, PTR invested $198.1 million in cash in the development, acquisition and renovation of multifamily properties and assumed $59.2 million in mortgages. Except for the properties acquired in the Merger, which were financed with the issuance of common shares, these developments, acquisitions, and renovations were financed with cash on hand, borrowings and the assumption of mortgages. At October 29, 1996 PTR had contingent contracts or letters of intent, including developments under control, subject to PTR's final due diligence and approval of all entitlements, to acquire land for new development communities of an estimated 6,099 garden-style multifamily units with an aggregate estimated development cost of $449.4 million. At the same date, PTR also had contingent contracts or letters of intent, subject to final due diligence, for the acquisition of 1,208 additional garden-style multifamily units with an aggregate investment cost of $96.3 million, including planned capital expenditures. At October 29, 1996, PTR had unfunded development commitments for garden-style developments under construction of $142.6 million. Financing Activities PTR's net financing activities for the nine months ended September 30, 1996 provided $175.6 million as compared to $115.4 million for the same period in 1995. The increase in cash flow provided by financing activities is due to an increase in line of credit proceeds ($353.2 million for the nine months ended September 30, 1996 as compared to $171.0 million for the same period in 1995) offset by an increase in distributions to shareholders ($86.3 million for the nine months ended September 30, 1996 as compared to $71.5 million for the same period in 1995) and a decrease in debt and equity offering proceeds received ($250.0 million for the nine 16 months ended September 30, 1996 as compared to $317.6 million for the same period in 1995), more repayments of the revolving credit balances ($310.9 million for the nine months ended September 30, 1996 as compared to $299.9 million for the same period in 1995) and the prepayment of mortgages during the second quarter of 1996. PTR has an unsecured revolving line of credit facility with Texas Commerce Bank, National Association ("TCB"), as agent bank for a group of lenders of $350 million, which matures August 1998 and may annually be extended for an additional year with the approval of TCB and the other participating lenders. 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 September 30, 1996) or the federal funds rate plus .50% or at PTR's option, LIBOR (5.4375% at September 30, 1996) plus 1.125% (6.5625% at September 30, 1996) which can vary from LIBOR plus 0.75% to LIBOR plus 1.50% based upon the rating of PTR's senior unsecured debt. Additionally, there is a commitment fee on the average unfunded line of credit balance. At November 11, 1996, there were $78.0 million of borrowings outstanding under the line of credit. On September 9, 1996, PTR entered into an uncommitted short-term borrowing facility agreement of $15 million with TCB, that matures September 9, 1997 and bears interest at an overnight rate, which has ranged from 5.85% to 6.30%. At November 11, 1996 there were $4.0 million of borrowings outstanding under this facility. On October 21, 1996, PTR issued $15 million of Notes which bear interest at 6.600% per annum and mature October 15, 1999 (the "6.600% Notes"), $20 million of Notes which bear interest at 6.950% per annum and mature October 15, 2002 (the "6.950% Notes"), $20 million of Notes which bear interest at 7.150% per annum and mature October 15, 2003 (the "7.150% Notes due 2003"), $20 million of Notes which bear interest at 7.250% per annum and mature October 15, 2004 (the "7.250% Notes"), $20 million of Notes which bear interest at 7.300% per annum and mature October 15, 2005 (the "7.300% Notes"), $20 million of Notes which bear interest at 7.375% per annum and mature October 15, 2006 (the "7.375% Notes"), and $15 million of Notes which bear interest at 6.500% per annum and mature October 15, 2026 (the "6.500% Notes", and together with 6.600% Notes, 6.950% Notes, 7.150% Notes due 2003, 7.250% Notes, 7.300% Notes, and 7.375% Notes, the "October 1996 Notes"). Collectively, the October 1996 Notes are unsecured and had an original average life to maturity of 6.85 years and an average effective interest cost, including discounts and issuance costs, of 7.50% per annum, payable semi-annually. Principal on the October 1996 Notes is due at their respective maturity dates. On August 6, 1996, PTR issued $20 million of Notes which bear interest at 7.550% per annum and mature August 1, 2008 (the "7.550% Notes"), $20 million of Notes which bear interest at 7.625% per annum and mature August 1, 2009 (the "7.625% Notes"), $20 million of Notes which bear interest at 7.650% per annum and mature August 1, 2010 (the "7.650% Notes), $20 million of Notes which bear interest at 8.100% per annum and mature August 1, 2015 (the "8.100% Notes") and $20 million of Notes which bear interest at 8.150% per annum and mature August 1, 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"). Collectively, the August 1996 Notes are unsecured and had 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 semiannually. Principal on the August 1996 Notes is due at their respective maturity dates. On February 23, 1996, PTR issued $50 million of 7.15% Notes due 2010 (the "7.15% Notes due 2010") and $100 million of 7.90% Notes due 2016 (the "7.90% Notes" and together with the 7.15% Notes due 2010, the "February 1996 Notes" and together with the August 1996 Notes and the October 1996 Notes (the "Notes"). The 7.15% Notes due 2010 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 if 2013, $17.5 million if 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 average effective interest cost, including offering discounts and issuance costs, of 7.84% per annum. 17 The Notes, other than the 6.500% 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 6.500% Notes may be repaid on October 15, 1999 at the option of the holder at their full principal amount together with accrued interest. The 6.500% Notes may be redeemed at any time after October 15, 1999 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 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, is not less than 1.5:1. The Notes have a current weighted average life to maturity of 12.03 years and an average effective interest cost, including discounts and issuance costs, of 7.62% per annum. Concurrently with the consummation of the Merger (see discussion in "Investing Activities" above), 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 (32.06% at September 30, 1996 on a historical basis and 36.0% on a pro forma basis giving effect to the sale of the October 1996 Notes and the application of 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. 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 The 103 multifamily properties that were fully operating throughout the nine months ended September 30, 1996 and 1995, represent 52.7% of PTR's invested capital of $2.2 billion at September 30, 1996, including developments under construction at their fully funded amounts and giving effect to the Spin-off. Rental expenses for such properties were 40.97% and 41.65% of rental revenue for such properties during the nine months ended September 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 11.1% in 1996 from 10.6% in 1995. EBITDA 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. 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 $18.4 million (1.6% of total expected investment in these properties) as a result of renovation and other capital expenditures. Net operating income increased 4.16% as a result of a 2.95% rental revenue increase and a 1.27% increase in rental expenses for such properties for the nine months ended September 30, 1996 as compared to the same period in 1995. 18 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. PTR paid quarterly distributions to holders of common shares of $0.31 on February 15, 1996, May 16, 1996 and August 15, 1996. On October 22, 1996, the Board of Trustees declared a cash distribution of $0.31 per common share payable on December 4, 1996 to shareholders of record on November 20, 1996, which will result in an annual dividend of $1.24 per common share. 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 $15.8 million (22.7%) to $85.3 million for the nine months ended September 30, 1996 from $69.5 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 nine months ended September 30, 1996 and 1995 was as follows (dollars and shares in thousands):
FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------- ----------------- 1996 1995 1996 1995 -------- ------- -------- ------- Net earnings attributable to common shares. $ 43,793 $16,816 $ 85,613 $43,113 Add (Deduct): Depreciation............................. 10,987 9,611 32,230 26,162 Provision for possible loss on investments............................. -- 100 -- 220 Gain on sale of investment properties.... (25,257) -- (33,340) -- Extraordinary item--loss on early extinguishment of debt.................. -- -- 870 -- Amortization of early extinguishment of debt cost............................... (49) -- (82) -- -------- ------- -------- ------- Funds from operations attributable to common shares............................. 29,474 26,527 85,291 69,495 Distributions paid to common shareholders.. 22,560 20,761 67,345 56,035 -------- ------- -------- ------- Excess of funds from operations after distributions............................. $ 6,914 $ 5,766 $ 17,946 $13,460 ======== ======= ======== ======= Weighted average common shares outstanding. 72,628 72,211 72,355 65,315 ======== ======= ======== =======
19 PART II--OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS At a special meeting held September 12, 1996, the holders of PTR common shares approved the following items relating to the spin-off of PTR's Homestead Village extended-stay lodging assets to a newly formed company, Homestead Village Incorporated: (i) the Merger and Distribution Agreement and transactions contemplated thereby which was approved by 60,763,306 common shares (83.5% of PTR's common shares) with 345,328 common shares voting against (.48% of PTR's common shares) and 356,114 common shares abstaining (.49% of PTR's common shares); and (ii) the amendment to PTR's Declaration of Trust which was approved by 60,873,445 common shares (83.6% of PTR's common shares), with 357,663 common shares voting against (.49% of PTR's common shares) and 381,805 common shares abstaining (.52% of PTR's common shares). ITEM 5. OTHER INFORMATION On October 21, 1996, PTR issued $15 million of 6.600% Notes due 1999, $20 million of 6.950% Notes due 2002, $20 million of 7.150% Notes due 2003, $20 million of 7.250% Notes due 2004 and $20 million of 7.300% Notes due 2005, $20 million of 7.375% Notes due 2006 and $15 million of 6.500% Notes due 2026, as more fully described under "Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". 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 November 11, 1996 regarding unaudited financial information. 27-- Financial Data Schedule 99-- Security Capital Pacific Trust Supplemental Information--Third Quarter 1996
(b) Reports on Form 8-K:
FINANCIAL DATE ITEM REPORTED STATEMENTS ---- ------------- ---------- August 1, 1996 Item 5, Item 7 Yes September 23, 1996 Item 5 No October 14, 1996 Item 5, Item 7 Yes October 21, 1996 Item 5, Item 7 No
20 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/ ------------------------------------- Bryan Flanagan, Senior Vice President and Principal Financial Officer /s/ ------------------------------------- Thomas L. Poe, Vice President, Controller and Duly Authorized Officer Date: November 13, 1996 21 EX-12 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 SECURITY CAPITAL PACIFIC TRUST COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, --------------- --------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------- ------- -------- ------- ------- ------- ------ Earnings from Operations............. $72,099 $58,548 $ 81,696 $46,719 $23,191 $ 9,037 $2,078 Add: Interest Expense...... 22,401 14,400 19,584 19,442 3,923 3,214 3,952 ------- ------- -------- ------- ------- ------- ------ Net Earnings as adjusted............... $94,500 $72,948 $101,280 $66,161 $27,114 $12,251 $6,030 ======= ======= ======== ======= ======= ======= ====== Fixed Charges: Interest Expense...... $22,401 $14,400 $ 19,584 $19,442 $ 3,923 $ 3,214 $3,952 Capitalized Interest.. 12,824 8,597 11,741 6,029 2,818 989 157 ------- ------- -------- ------- ------- ------- ------ Total Fixed Charges. $35,225 $22,997 $ 31,325 $25,471 $ 6,741 $ 4,203 $4,109 ======= ======= ======== ======= ======= ======= ====== Ratio of Net Earnings to Fixed Charges.......... 2.7 3.2 3.2 2.6 4.0 2.9 1.5 ======= ======= ======== ======= ======= ======= ======
EX-15 3 LETTER FROM KPMG PEAT MARWICK EXHIBIT 15 BOARD OF TRUSTEES AND SHAREHOLDERS SECURITY CAPITAL PACIFIC TRUST Gentlemen: Re: Registration Statements Nos. 33-25317, 333-4455, and 333-12885 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated October 30, 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 November 11, 1996 EX-27 4 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 20,675 0 18,477 0 0 0 2,257,560 102,496 2,222,999 0 669,460 72,980 0 322,575 920,837 2,222,999 240,102 241,691 0 96,545 0 0 22,401 85,613 0 86,483 0 (870) 0 85,613 1.18 1.18
EX-99 5 SUPPLEMENTAL INFORMATION Exhibit 99 [LOGO APPEARS HERE] ----------------------------------------- SECURITY CAPITAL PACIFIC TRUST ----------------------------------------- SUPPLEMENTAL INFORMATION Third Quarter 1996
Page ---- Financial Highlights ......................................................... 1 Statements of Funds From Operations .......................................... 2 Statements of Earnings ....................................................... 3 Balance Sheets ............................................................... 4 Components of Growth in PTR Funds From Operations Per Share .................. 5 PTR Garden Style Multifamily Portfolio Composition ........................... 6 Same Store Analysis .......................................................... 7a 1/1/95 Same Store Universe and Total PTR Investment By Market ................ 7b Garden Style Multifamily Investment Summary .................................. 8a Homestead Village Investment Summary ......................................... 8b Pro Forma Funds From Operations Relating to Homestead Village Spin-Off ....... 9a Other Information Relating to the Homestead Village Spin-Off.................. 9b
Information included in this supplemental information is unaudited. SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Financial Highlights (in thousands, except per share amounts and ratios)
Three Months Nine Months Ended September 30, Ended September 30, 1996 1995 % Change 1996 1995 % Change - ------------------------------------------------------------------------------------------------------------------- Operating Performance Rental Revenues $84,802 $70,176 20.84% $240,102 $189,412 26.76% Net Operating Income /1/ 50,009 41,717 19.88% 143,557 113,337 26.66% Funds From Operations Attributable to Common Shares 29,474 26,527 11.11% 85,291 69,495 22.73% Funds From Operations per Common Share /2/ $0.41 $0.37 10.81% $1.18 $1.06 11.32% Distributions per Share $0.31 $0.2875 7.83% $0.93 $0.8625 7.83% As of September 30, 1996 1995 % Change ----------- ------------------- Assets Real Estate Investments Before Depreciation $2,257,560 $1,744,343 29.42% Total Assets $2,222,999 $1,723,962 28.95% Capitalization Total Long Term Debt $669,460 $351,305 90.56% Total Debt $840,810 $376,305 123.44% Total Long Term Undepreciated Book Capitalization $2,088,348 $1,722,927 21.21% Total Undepreciated Book Capitalization $2,259,698 $1,747,927 29.28% Total Long Term Debt/Total Long Term Undepreciated Book Capitalization 32.06% 20.39% 57.22% Total Debt/Total Undepreciated Book Capitalization 37.21% 21.53% 72.83% Total Common Shares Outstanding at Quarter End 72,815 72,211 0.84% Price at Quarter End $21.125 $19.00 11.18% Common Equity Market Capitalization at Quarter End /3/ $1,538,217 $1,372,009 12.11%
DEFINITIONS (amounts and shares are not in thousands) - ----------------------------------------------------- 1 Net Operating Income is total rental revenues less property operating expenses (excluding depreciation and interest expense). 2 Per share amounts are calculated based on weighted average common shares outstanding. 3 Conversion of all 8,703,000 shares of Series A convertible preferred stock would result in 83,399,900 total common shares outstanding and a common equity market capitalization of $1,761,822,888 as of the September 30, 1996 closing price of $21.25 per common share. Supplemental Information Page 1 SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Statements of Funds From Operations (in thousands except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, - ------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ============================================================================================================= Revenues: Rental Income $84,802 $70,176 $240,102 $189,412 Other Interest Income 590 610 1,589 1,884 - ------------------------------------------------------------------------------------------------------------- 85,392 70,786 241,691 191,296 - ------------------------------------------------------------------------------------------------------------- Expenses: Rental Expenses, excluding real estate taxes 28,199 22,934 76,592 60,186 Real Estate Taxes 6,594 5,525 19,953 15,889 Interest 8,624 3,271 22,401 14,400 General and Administrative, including REIT management fee 6,130 5,709 17,915 15,256 Other 189 433 583 635 - ------------------------------------------------------------------------------------------------------------- 49,736 37,872 137,444 106,366 - ------------------------------------------------------------------------------------------------------------- Funds From Operations 35,656 32,914 104,247 84,930 Less Preferred Share Dividends 6,182 6,387 18,956 15,435 - ------------------------------------------------------------------------------------------------------------- Funds From Operations Attributable to Common Shares $29,474 $26,527 $85,291 $69,495 ============================================================================================================= Weighted Average Common Shares Outstanding 72,628 72,211 72,355 65,315 ============================================================================================================= Funds From Operations Per Common Shares: $0.41 $0.37 $1.18 $1.06
Pro Forma Adjustments to Funds From Operations Assuming the Spin-Off of Homestead Village Assets as of January 1, 1995/1/ (in thousands except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, - ------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ============================================================================================================= Pro Forma Per Share Adjustment ($0.05) ($0.05) ($0.12) ($0.10) Pro Forma Funds From Operations Per Common Share $0.36 $0.32 $1.06 $0.96 - -------------------------------------------------------------------------------------------------------------
DEFINITIONS - ----------- /1/ See pages 9a and 9b for detail. Supplemental Information Page 2 SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Statements of Earnings (in thousands except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, - ------------------------------------------------------------------------------------------------------------ 1996 1995 1996 1995 ============================================================================================================ Revenues: Rental Income $84,802 $70,176 $240,102 $189,412 Other Interest Income 590 610 1,589 1,884 - ------------------------------------------------------------------------------------------------------------ $85,392 $70,786 $241,691 $191,296 - ------------------------------------------------------------------------------------------------------------ Expenses: Rental Expenses, excluding real estate taxes $28,199 $22,934 $76,592 $60,186 Real Estate Taxes 6,594 5,525 19,953 15,889 Depreciation 10,987 9,611 32,230 26,162 Interest 8,624 3,271 22,401 14,400 General and Administrative, including REIT management fee 6,130 5,709 17,915 15,256 Other 140 533 501 855 - ------------------------------------------------------------------------------------------------------------ $60,674 $47,583 $169,592 $132,748 - ------------------------------------------------------------------------------------------------------------ Earnings From Operations $24,718 $23,203 $72,099 $58,548 Gain on Sale of Investments 25,257 -- 33,340 -- - ------------------------------------------------------------------------------------------------------------ Earnings Before Extraordinary Item $49,975 $23,203 $105,439 $58,548 Less Extraordinary Item - loss on early extinguishment of debt -- -- 870 -- - ------------------------------------------------------------------------------------------------------------ Net Earnings $49,975 $23,203 $104,569 $58,548 Less Preferred Share Dividends 6,182 6,387 18,956 15,435 - ------------------------------------------------------------------------------------------------------------ Net Earnings Attributable to Common Shares $43,793 $16,816 $85,613 $43,113 ============================================================================================================ Weighted Average Common Shares Outstanding 72,628 72,211 72,355 65,315 ============================================================================================================ Earnings Per Common Share: Primary/1/ $0.60 $0.23 $1.18 $0.66 Fully Diluted $0.57 -- $1.18 -- - ------------------------------------------------------------------------------------------------------------ Distributions Paid Per Common Share $0.31 $0.2875 $0.93 $0.8625 - ------------------------------------------------------------------------------------------------------------
/1/ Primary earnings per common share is calculated from weighted average common shares outstanding for the three and nine months ended 9/30/96 and 9/30/95. Supplemental Information Page 3 SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Balance Sheets (in thousands except per share amounts)
September 30, December 31, - ----------------------------------------------------------------------------------------------- Assets 1996 1995 1995 =============================================================================================== Real Estate $2,257,560 $1,744,343 $1,855,866 Less: Accumulated Depreciation 102,496 72,119 81,979 - ----------------------------------------------------------------------------------------------- 2,155,064 1,672,224 1,773,887 Mortgage Notes Receivable 14,394 18,706 15,844 - ----------------------------------------------------------------------------------------------- Total Investments 2,169,458 1,690,930 1,789,731 Cash and Cash Equivalents 20,675 12,102 26,919 Accounts Receivable 4,083 2,788 3,318 Other Assets 28,783 18,142 21,031 - ----------------------------------------------------------------------------------------------- Total Assets $2,222,999 $1,723,962 $1,840,999 =============================================================================================== - ----------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity =============================================================================================== Liabilities: Line of Credit $171,350 $25,000 $129,000 Long Term Debt 450,000 200,000 200,000 Mortgages Payable 219,460 151,305 158,054 Payables, Accrued Expenses and Other Liabilities 65,797 48,153 78,277 - ----------------------------------------------------------------------------------------------- Total Liabilities $906,607 $424,458 $565,331 - ----------------------------------------------------------------------------------------------- Shareholders' Equity: Series A Cumulative Convertible Preferred Shares $217,575 $230,000 $230,000 Series B Cumulative Redeemable Perpetual Preferred Shares 105,000 105,000 105,000 Common Shares, $1 Par Value 72,980 72,376 72,376 Additional Paid-In-Capital 964,500 952,691 952,679 Dividends In Excess of Net Earnings (41,725) (58,627) (82,450) Treasury Shares At Cost (1,938) (1,936) (1,937) - ----------------------------------------------------------------------------------------------- Total Shareholders' Equity $1,316,392 $1,299,504 $1,275,668 =============================================================================================== Total Liabilities and Shareholders' Equity $2,222,999 $1,723,962 $1,840,999 =============================================================================================== Share Data: Weighted Average Common Shares Outstanding 72,355 65,315 67,052 ============= =========== =========== Total Common Shares Outstanding/1/ 72,815 72,211 72,211 ============= =========== ===========
DEFINITIONS - ----------- /1/ During the third quarter, 348,000 Series A convertible preferred shares were converted into 423,235 common shares. Supplemental Information Page 4 SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Components of Growth in PTR Funds From Operations Per Share - ------------------- Q3 1996 vs. Q3 1995 - ------------------- 52% Developments/3/ [PIE CHART APPEARS HERE] 15% Same Store Universe/1/ 33% Acquisitions - --------------------- YTD 1996 vs. YTD 1995 - --------------------- 50% Developments/2/ [PIE CHART APPEARS HERE] 17% Same Store Universe/1/ 33% Acquisitions DEFINITIONS - ----------- 1 Same Store Universe: FFO per share growth from NOI increases on properties which were fully operational as of 1/1/95. 2 Developments: FFO per share growth from the stabilization of new developments. 3 Acquisitions: FFO per share growth from properties acquired after 1/1/95. Supplemental Information Page 5 SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 PTR Garden Style Multifamily Portfolio Composition The following graphs illustrate the changing composition of PTR's portfolio during 1996. - ------------------------------------------------- Garden Style Multifamily Portfolio as of 12/31/95 - ------------------------------------------------- 20% Other Acquisitions & Developments/2/ [PIE CHART APPEARS HERE] 9% West Coast Acquisitions & Developments/1/ 71% Same Store Properties/1/ - ------------------------------------------------ Garden Style Multifamily Portfolio as of 9/30/96 - ------------------------------------------------ 20% Other Acquisitions & Developments/1/ [PIE CHART APPEARS HERE] 53% Same Store Properties/2/ 27% West Coast Acquisitions & Developments/2/ DEFINITIONS - ----------- 1 Same Store Properties: Fully operating properties as of 1/1/95 adjusted for sales (includes two California properties). 2 West Coast Acquisitions and Developments: Total expected investment in properties in California, Portland, Seattle and Salt Lake City (excluding those in the same store universe). 3 Other Acquisitions and Developments: Properties acquired or completed after 1/1/95 and properties under construction on the dates indicated in each graph, based on total expected investment. Supplemental Information Page 6 SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Same Store Analysis
- -------------------------------------------------------------------------------------------------- Same Store Universe Fully Operating Fully Operating Properties on Properties on 7/1/95 1/1/95 - -------------------------------------------------------------------------------------------------- Portfolio Properties 113 103 Units 33,189 30,376 Total Investment in Same Store Properties $1,270,726,244 $1,143,282,590 % of Total PTR Portfolio 54.01% 52.73% Q3 1996 vs. YTD 1996 vs. Operating Performance Q3 1995 YTD 1995 ----------------- ----------------- Collections Growth 3.07% 2.95% Property Operating Expense Growth 2.46% 1.27% Net Operating Income Growth 3.51% 4.16% - -------------------------------------------------------------------------------------------------- Summary Information on 7/1/95 Same Store Universe Q3 1996 Q3 1995 - -------------------------------------------------------------------------------------------------- Average Physical Occupancy 94.86% 94.43% Property Operating Expense Ratio 41.51% 41.75% Average Rental Rate Per Unit $611 $597 Recurring Capital Expenditures Per Unit $69 $42
DEFINITIONS - ----------- Same Store Universe: (a) Fully Operating Properties on 7/1/95: All operating garden apartment properties (including stabilized and pre-stabilized properties) that were fully operational during the entire third quarter of 1996 and the entire third quarter of 1995. (b) Fully Operating Properties on of 1/1/95: All operating garden apartment properties (including stabilized and pre-stabilized properties) that were fully operational during the entire first nine months of 1996 and the entire first nine months of 1995. Total Investment in Same Store Properties: Represents cost, including planned capital expenditures. % of Total PTR Portfolio: Same store investment as a percentage of PTR's total investment, including properties under construction, based on total expected investment as of September 30, 1996. Collections: Actual rent and other income collected, net of vacancies, bad debts and concessions. Property Operating Expense: Includes core property operating expenses, make- ready expenses and real estate taxes. Net Operating Income: Total rental revenues less property operating expenses (excluding depreciation and interest expense). Property Operating Expense Ratio: Property operating expenses as a percentage of collected revenues. Average Rental Rate Per Unit: Weighted average asking rents during the quarter. Supplemental Information Page 7a SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 1/1/95 Same Store Universe and Total PTR Investment By Market
- ---------------------------------------------------------------------------------------------------------------------- Collections Average Average Growth Physical Physical 1996 YTD 1/1/95 Same Store Total PTR Occupancy % Occupancy % vs. 1995 Universe % by Portfolio % by Market Distribution 1996 YTD 1995 YTD YTD/1/ Market/2/ Market/3/ - ---------------------------------------------------------------------------------------------------------------------- Central: Austin 95.41% 95.31% 3.60% 5.27% 4.82% Dallas 96.17% 95.71% 5.38% 8.36% 5.20% Houston 96.00% 91.99% 5.93% 10.49% 7.28% San Antonio 92.81% 93.52% -1.16% 10.28% 6.60% ----- ----- ----- ------ ------ Central Region Subtotal 94.90% 93.86% 3.21% 34.40% 23.90% ----- ----- ----- ------ ------ Northwest: Portland 93.61% 96.51% -1.39% 6.40% 6.90% Salt Lake City 94.36% 94.49% 6.05% 1.03% 3.91% Seattle 94.07% 94.56% 2.14% 2.38% 5.58% ----- ----- ----- ------ ------ Northwest Region Subtotal 93.83% 95.79% 0.32% 9.81% 16.39% ----- ----- ----- ------ ------ Southwest: Albuquerque 95.20% 95.37% 0.69% 5.14% 5.58% Denver 96.60% 96.22% 3.52% 7.93% 4.75% El Paso 93.91% 91.15% 1.11% 6.03% 4.79% ----- ----- ----- ------ ------ Southwest Region Subtotal 95.18% 94.01% 1.94% 19.10% 15.12% ----- ----- ----- ------ ------ West: Las Vegas 95.31% 92.02% 5.82% 10.42% 5.49% Phoenix 95.03% 95.25% 6.60% 13.73% 13.43% Northern California - - - - 8.12% Southern California 95.63% 93.84% 6.50% 2.54% 9.15% Tucson 92.80% 93.75% -3.77% 5.32% 4.64% ----- ----- ----- ------ ------ West Region Subtotal 94.71% 93.91% 4.49% 32.01% 40.83% ----- ----- ----- ------ ------ Other Markets: 94.95% 93.90% 0.23% 4.68% 3.77% ----- ----- ----- ------ ------ Total Properties 94.82% 94.06% 2.95% 100.00% 100.00% ===== ===== ===== ====== ====== Same Store as a % of Total PTR Portfolio 52.73% ======
DEFINITIONS - ----------- 1 Collections Growth YTD 1996 vs. YTD 1995: Percentage growth in actual rent and other income collected, net of vacancies, bad debts and concessions in aggregate for the 1/1/95 same store universe. 2 1/1/95 Same Store Universe % by Market: 1/1/95 same store universe by market as a percentage of total 1/1/95 same store universe, based upon total expected investment as of September 30, 1996. 3 Total PTR Portfolio % by Market: Total PTR garden style multifamily portfolio by market as a percentage of the total PTR garden style multifamily portfolio, including properties under construction and based upon total expected investment as of September 30, 1996. Supplemental Information Page 7b SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Garden Style Multifamily Investment Summary
- ------------------------------------------------------------------------------------------------------ 1996 ----------------------------------------------------------- Q1 Q2 Q3 YTD ====================================================================================================== Operating Properties - ------------------------------------------------------------------------------------------------------ Properties 130 137 142 142 Units 38,970 40,981 43,007 43,007 Total Investment $1,546,998,359 $1,655,797,109 $1,835,567,381 1,835,567,381 Cost Per Unit $39,697 $40,404 $42,681 42,681 Development Properties - ------------------------------------------------------------------------------------------------------ Starts During Period Properties 1 4 4 9 Units 324 1,552 1,119 2,995 Total Investment $20,478,906 $102,317,033 $63,006,985 $185,802,924 Cost Per Unit $63,207 $65,926 $56,307 $62,038 Completions During Period Properties 1 4 5 10 Units 424 1,036 1,388 2,848 Total Investment $24,762,391 $53,298,495 $75,638,745 $153,699,631 Cost Per Unit $58,402 $51,446 $54,495 $53,968 Stabilizations During Period Properties -- 3 5 8 Units -- 864 1,460 2,324 Total Investment -- $52,515,298 $70,737,309 $123,252,607 Cost Per Unit -- $60,782 $48,450 $53,035 Under Construction at Quarter End Properties 17 17 16 16 Units 5,324 5,840 5,571 5,571 Total Investment $296,260,860 $345,279,398 $332,647,638 $332,647,638 Cost Per Unit $55,646 $59,123 $59,711 $59,711 Investment To Date At Quarter End $187,676,247 $207,054,462 $184,539,070 $184,539,070 Development Expenditures During Period $37,600,353 $50,708,494 $48,258,719 $136,567,566 Acquisitions - ------------------------------------------------------------------------------------------------------ Properties 2 5 6 13 Units 815 1,822 2,355 4,992 Total Investment $31,327,500 $96,172,485 $182,170,795 $309,670,780 Cost Per Unit $38,439 $52,784 $77,355 $62,033 Dispositions - ------------------------------------------------------------------------------------------------------ Properties 4 2 6 12 Units 1,004 848 1,718 3,570 Sales Proceeds $39,740,000 $47,909,825 $98,217,800 $185,867,625 Gains $2,896,938 $5,186,385 $25,206,493 $33,289,816
DEFINITIONS - ----------- Total Investment: For operating properties, this equals the total investment to date plus planned capital expenditures. For development properties, this equals the total expected investment at completion. Stabilizations During Period: Completed development properties achieving 93% occupancy at stabilized rental rates. Under Construction at Quarter End: Development properties on which construction has commenced, but all units have not been completed or accepted. Development Expenditures During Period: Costs expended on projects under construction during the period. Dispositions: Second quarter sales proceeds include disposition of an industrial building for $4.1 million. Supplemental Information Page 8a SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Homestead Village Investment Summary
- ---------------------------------------------------------------------------------------------- 1996 --------------------------------------------------- Q1 Q2 Q3 YTD - ---------------------------------------------------------------------------------------------- Operating Properties - ---------------------------------------------------------------------------------------------- Properties 23 26 28 28 Units 3,159 3,594 3,884 3,884 Total Investment $92,239,706 $108,728,523 $119,675,985 $119,675,985 Cost Per Unit $ 29,199 $30,253 $30,813 $30,813 Development Properties ---------------------------------------------------------------------------------------- Starts During Period Properties 1 4 5 10 Units 141 538 675 1,354 Total Investment $ 4,962,698 $ 24,747,820 $ 29,881,582 $ 59,592,100 Cost Per Unit $35,196 $ 46,000 $ 44,269 $44,012 Completions During Period Properties 3 3 2 8 Units 391 435 290 1,116 Total Investment $12,592,076 $ 16,364,703 $ 10,922,098 $ 39,878,877 Cost Per Unit $32,205 $ 37,620 $ 37,662 $35,734 Stabilizations During Period Properties 1 3 4 8 Units 137 459 524 1,120 Total Investment $ 4,057,442 $ 14,862,385 $ 18,233,716 $ 37,153,543 Cost Per Unit $29,616 $ 32,380 $ 34,797 $ 33,173 Under Construction at Quarter End Properties 7 8 11 11 Units 1,000 1,103 1,488 1,488 Total Investment $37,508,983 $ 45,892,100 $ 64,851,584 $ 64,851,584 Cost Per Unit $37,509 $ 41,607 $43,583 $ 43,583 Investment To Date At Quarter End $25,081,596 $ 23,663,860 $ 30,914,112 $ 30,914,112 Development Expenditures During Period $ 7,979,574 $ 9,765,091 $ 8,483,484 $ 26,228,149
DEFINITIONS - ----------- Total Investment: For operating properties, this equals the total investment to date plus planned capital expenditures. For development properties, this equals the total expected investment at completion. Stabilizations During Period: Completed development properties achieving 93% occupancy at stabilized rental rates. Under Construction at Quarter End: Development properties on which construction has commenced, but all units have not been completed and accepted. Development Expenditures During Period: Incremental costs expended on projects under construction during the period. Supplemental Information Page 8b SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Pro Forma Funds From Operations Relating To Homestead Village Spin-Off (in thousands except per share amounts) The following pro forma statements of funds from operations assume the spin-off of PTR's Homestead Village extended-stay lodging assets to a newly formed company, Homestead Village Incorporated, based on the methodology discussed on page 9b under "Explanation of Homestead Village Spin-Off Pro Forma Methodology".
For the Three Months Ended March 31, For the Three Months Ended June 30, --------------------------------------- ----------------------------------------- Pro Forma Statements of 1996 1995 1996 1995 Funds From Operations: -------------------- ------------------ -------------------- ------------------ Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma =================== ================== ==================== ================== Revenues: Rental income $75,809 $68,944 $53,517 $51,350 $79,491 $71,459 $65,719 $62,702 Homestead convertible mortgages interest income -- 826 -- -- -- 1,203 -- -- Other Interest Income 547 544 555 552 452 448 719 715 ------------------ ----------------- ------------------- ----------------- $76,356 $70,314 $54,072 $51,902 $79,943 $73,110 $66,438 $63,417 ------------------ ----------------- ------------------- ----------------- Expenses: Rental Expenses including real estate taxes $30,297 $26,693 $21,682 $21,108 $31,455 $27,715 $25,933 $25,082 Interest 6,520 7,261 6,006 6,743 7,257 8,016 5,123 5,895 General and Administrative, including REIT management fee 5,831 5,194 4,171 3,799 5,954 5,148 5,377 4,887 Other 170 144 129 119 224 206 73 71 ------------------ ----------------- ------------------- ----------------- $42,818 $39,292 $31,988 $31,769 $44,890 $41,085 $36,506 $35,935 ------------------ ----------------- ------------------- ----------------- Less: Preferred share dividends $6,388 $6,388 $4,025 $4,025 $6,386 $6,388 $5,023 $5,023 Funds From Operations Attributable to Common Shares $27,150 $24,634 $18,059 $16,108 $28,667 $25,637 $24,909 $22,459 ================== ================= =================== ================= Per Common Share Amounts $0.38 $0.34 $0.35 $0.31 $0.40 $0.35 $0.35 $0.31 ================== ================= =================== ================= For the Three Months Ended September 30, For the Nine Months Ended September 30, --------------------------------------- ----------------------------------------- 1996 1995 1996 1995 -------------------- ------------------ -------------------- ------------------- Actual Pro Forma Actual Pro Forma Actual Pro Forma Actual Pro Forma =================== ================== ==================== =================== Revenues: Rental income $84,802 $76,352 $70,176 $65,920 $240,102 $216,755 $189,412 $179,972 Homestead convertible mortgages -- -- interest income 1,668 96 -- 3,697 -- 96 Other Interest Income 590 592 610 511 1,589 1,584 1,884 1,778 ------------------ ----------------- -------------------- ------------------ $85,392 $78,612 $70,786 $66,527 $241,691 $222,036 $191,296 $181,846 ------------------ ----------------- -------------------- ------------------ Expenses: Rental Expenses including real estate taxes $34,793 $30,977 $28,459 $27,322 $96,545 $85,385 $76,074 $73,512 Interest 8,624 9,687 3,271 3,956 22,401 24,964 14,400 16,594 General and Administrative, including REIT management fee 6,130 5,177 5,709 5,141 17,915 15,519 15,257 13,827 Other 189 175 433 334 583 525 635 524 ------------------ ----------------- -------------------- ------------------ $49,736 $46,016 $37,872 $36,753 $137,444 $126,393 $106,366 $104,457 ------------------ ----------------- -------------------- ------------------ Less: Preferred share dividends $6,182 $6,182 $6,387 $6,387 $18,956 $18,958 $15,435 $15,435 Funds From Operations Attributable to Common Shares $29,474 $26,414 $26,527 $23,387 $85,291 $76,685 $69,495 $61,954 ================== ================= ==================== ================== Per Common Share Amounts $0.41 $0.36 $0.37 $0.32 $1.18 $1.06 $1.06 $0.96 ================== ================= ==================== ==================
Supplemental Information Page 9a SECURITY CAPITAL PACIFIC TRUST Third Quarter 1996 Other Information Relating To Homestead Village Spin-Off (Information in thousands of dollars) The following pro forma financial position information assumes the spin-off of PTR's Homestead Village extended-stay lodging assets to a newly formed company, Homestead Village Incorporated ("Homestead"), based on the methodology discussed below under "Explanation Of Homestead Village Spin-Off Pro Forma Methodology."
September 30, -------------------------------------------- 1996 1995 December 31, 1995 --------------------- --------------------- --------------------- Pro Forma Financial Position: Actual Pro Forma Actual Pro Forma Actual Pro Forma --------------------- --------------------- --------------------- Assets: Real estate $2,257,560 $2,093,894 $1,744,343 $1,650,484 $1,855,866 $1,747,407 Homestead convertible mortgage notes - $ 75,410 - $ 8,858 - $ 23,458 Total Assets $2,222,999 $2,137,071 $1,723,962 $1,637,409 $1,840,999 $1,755,492 Liabilities and Shareholders' Equity: Total liabilities 906,607 908,368 424,458 429,782 565,331 569,201 Total shareholders' equity 1,316,392 1,228,702 1,299,504 1,207,626 1,275,668 1,186,291 Total Liabilities and Shareholders' Equity $2,222,999 $2,137,071 $1,723,962 $1,637,409 $1,840,999 $1,755,492
Explanation Of Homestead Village Spin-Off Pro Forma Methodology: The PTR pro forma funds from operations statements presented on page 9a and the PTR pro forma financial position information presented above assumes the following: * The exchange of PTR's Homestead Village extended-stay lodging assets ("Homestead Assets") to a newly formed company, Homestead, for Homestead common shares and warrants, occurred as of January 1, 1995; * The receipt of convertible mortgage notes ("Notes") thereafter as additional Homestead Assets were developed and; * The distribution of Homestead common shares and warrants received by PTR to PTR's shareholders. * The historical operating revenues and expenses associated with Homestead Assets have been excluded (assumed to be owned by Homestead) effective January 1, 1995. * Historical interest costs capitalized on the Homestead Assets during the respective periods were reflected as PTR interest expense for pro forma purposes. * PTR received Homestead common shares in exchange for its funding of the Homestead Assets first, and then Notes in exchange for the balance of its funding over the respective time periods. The unaudited pro forma information is not necessarily indicative of what PTR's actual funds from operations or financial position would have been for the respective periods presented had the subject transaction been completed as of the dates indicated above. 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. Homestead Village Convertible Mortgage Notes Information: PTR will receive interest income from Homestead Notes (defined above) bearing a stated interest rate of 9% per annum on the face amount of the Notes. As the Notes will be issued at a discount from the face amount, the effective interest rate on the amounts funded is 10.7%. Interest income included in the calculation of funds from operations is based on this effective interest rate. PTR's earnings attributable to common shares (per GAAP) will include interest income from the Notes at an effective interest rate of 12.42%. The effective interest rate incorporates the amortization of financing costs paid by Homestead to PTR in the form of warrants issued by Homestead and the conversion feature of the Notes. The warrant component of these financing costs was paid by Homestead in exchange for PTR's commitment to fund up to $129 million in mortgage loans to develop the properties contributed by PTR to Homestead. The 12.42% effective interest rate is not included in the calculation of PTR's FFO. FFO is calculated using the 10.7% effective interest rate described above. Supplemental Information Page 9b -----END PRIVACY-ENHANCED MESSAGE-----