SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
Filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 22, 2004
PRENTISS PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
| MARYLAND | 1-14516 | 75-2661588 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission file number) | (I.R.S. Employer Identification Number) |
3890 West Northwest Hwy, Suite 400, Dallas, Texas 75220
(Address of principal executive offices)
(214) 654-0886
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01. Other Events.
On April 22, 2004, we completed the acquisition of a 1.3 million net rentable square foot class “AA” office building (“Cityplace Center”) and an adjacent land parcel located in Dallas, Texas. The Cityplace Center and the adjacent land parcel were purchased from an unrelated third party for approximately $124.0 million which was funded primarily with borrowings under our revolving credit facility.
On May 12, 2004, through our subsidiary Prentiss Office Investors, L.P., we completed the acquisition of a 69,000 net rentable square foot class “A” office building (“Bluffs Office Property”) located in San Diego, California. The Bluffs Office Property was purchased from an unrelated third party for approximately $17.7 million which was funded primarily with borrowings under our revolving credit facility.
On May 25, 2004, we completed the acquisition of a 306,000 net rentable square foot class “A” three building office complex (“Great America Parkway Office Properties”) and an adjacent land parcel located in Santa Clara, California. The Great America Parkway Office Properties and the adjacent land parcel were purchased from an unrelated third party for approximately $34.8 million which was funded primarily with borrowings under our revolving credit facility. The property was 100% vacant upon acquisition. Subsequent to the acquisition, we executed a lease with a third party, unrelated to the seller, for approximately 219,000 net rentable square feet, or approximately 72% of the property.
On October 8, 2004, we completed the acquisition of a 459,000 net rentable square foot class “A” office building (“2101 Webster Office Property”) located in Oakland, California. The 2101 Webster Office Property was purchased from an unrelated third party for approximately $67.3 million which was funded primarily with borrowings under our revolving credit facility.
On October 29, 2004, through our subsidiary Prentiss Office Investors, L.P., we completed the acquisition of a 198,000 net rentable square foot class “A” two building office complex (the “Lakeside Point Properties”) located in Waukegan, Illinois. The Lakeside Point Properties were purchased from an unrelated third party for approximately $32.7 million which was funded primarily with borrowings under our revolving credit facility.
The acquisitions of (i) the Cityplace Center; (ii) the Bluffs Office Property: (iii) the Great America Parkway Office Properties; (iv) the 2101 Webster Office Property; and (v) the Lakeside Point Properties do not individually constitute acquisitions of a significant amount of assets.
Pursuant to the requirements of Rule 3-14 of Regulation S-X, this Current Report on Form 8-K/A includes a Statement of Revenues and Certain Expenses for Prentiss Properties Trust for the nine months ended September 30, 2004 (unaudited) and for the year ended December 31, 2003, as well as pro forma financial data for Prentiss Properties Trust which includes certain of the acquisitions described above completed by us since January 1, 2004. Because changes will likely occur in occupancy, rents and expenses experienced by Prentiss Properties Trust and the acquired properties the historical financial statements and pro forma financial data presented should not be considered as a projection of future results.
FORWARD LOOKING STATEMENTS
THIS FORM 8-K/A CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND THE FEDERAL SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON PRENTISS PROPERTIES TRUST’S CURRENT BELIEFS AND EXPECTATIONS, BUT THEY ARE NOT GUARANTEED. A DETAILED DISCUSSION OF RISKS WHICH MAY IMPACT THESE FORWARD LOOKING STATEMENTS IS INCLUDED, UNDER THE CAPTION “RISK FACTORS,” IN OUR FORM 10-K, FILED ON MARCH 15, 2004. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.
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Item 9.01. Financial Statements, and Exhibits.
| (A) | Financial Statements |
Statements of revenues and certain expenses of Cityplace Center for the year ended December 31, 2003 and the three month period ended March 31, 2004 are presented as prescribed by Rule 3-14 of Regulation S-X.
Statements of revenues and certain expenses of the Lakeside Point Properties for the year ended December 31, 2003 and the nine month period ended September 30, 2004 are presented as prescribed by Rule 3-14 of Regulation S-X.
| (B) | Pro Forma Financial Information |
Prentiss Properties Trust Pro Forma Balance Sheet as of September 30, 2004 and Pro Forma Statements of Income for the year ended December 31, 2003 and nine month period ended September 30, 2004.
| (C) | Exhibits |
23.1 Consent of PricewaterhouseCoopers LLP Independent Registered Public Accounting Firm
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The following represents certain of the properties acquired by the Company during 2004:
| Page Number | ||
| Financial Statements: | ||
| Cityplace Center |
||
| 5 | ||
| 6 | ||
| 7 | ||
| Lakeside Point Properties |
||
| 9 | ||
| 10 | ||
| 11 | ||
| Pro Forma Financial Information (Unaudited): | ||
| Prentiss Properties Trust Pro Forma Consolidated Balance Sheet as of September 30, 2004 |
13 | |
| 15 | ||
| 17 | ||
| 19 | ||
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of
Prentiss Properties Trust:
We have audited the accompanying Statement of Revenues and Certain Expenses of Cityplace Center (the “Property”) for the year ended December 31, 2003. This Statement is the responsibility of Prentiss Properties Trust’s management. Our responsibility is to express an opinion on this Statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Statement. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in a current report on Form 8-K/A of Prentiss Properties Trust) as described in Note 1 and is not intended to be a complete presentation of the Property’s revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all material respects, the revenues and certain expenses described in Note 1 of the Property for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
December 22, 2004
Dallas, Texas
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Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2003 and
The Three Month Period Ended March 31, 2004
| Year Ended December 31, 2003 |
Three Month Period Ended March 31, 2004 (Unaudited) | |||||
| Revenues: |
||||||
| Rental income |
$ | 41,543,421 | $ | 10,476,981 | ||
| Other income |
40,291 | 10,221 | ||||
| Total revenues |
$ | 41,583,712 | $ | 10,487,202 | ||
| Expenses: |
||||||
| Maintenance and service contracts |
4,245,327 | 1,085,269 | ||||
| Utilities |
2,392,687 | 622,224 | ||||
| Management fees |
500,004 | 125,001 | ||||
| Administrative |
1,323,213 | 351,971 | ||||
| Property taxes |
3,315,085 | 864,501 | ||||
| Insurance |
660,000 | 68,715 | ||||
| Total expenses |
12,436,316 | 3,117,681 | ||||
| Revenues in excess of certain expenses |
$ | 29,147,396 | $ | 7,369,521 | ||
The accompanying notes are an integral part of these financial statements.
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Notes to the Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2003 and
The Three Month Period Ended March 31, 2004
| 1. | Basis of Presentation and Summary of Significant Accounting Policies |
On April 22, 2004, Prentiss Properties Trust, through its majority owned operating partnership, Prentiss Properties Acquisition Partners, L.P. (the “Partnership”), acquired Cityplace Center (the “Property”), a 42-story office building containing approximately 1.2 million square feet (unaudited) located on 8.0 acres (unaudited) located on Central Expressway and Haskell Street just north of downtown Dallas, Texas. Under the terms of the purchase agreement, 7-Eleven, Inc., the previous tenant and an affiliate of the previous owner, will enter into a lease for 504,351 square-feet of space for three years from the date of closing and continue to maintain its corporate headquarters at the building. Annual rent under the new lease will be approximately $10.3 million. 7-Eleven, Inc. may elect to extend the term of its lease an additional seven years by notifying Prentiss not later than eighteen months from the closing of the sale. The acquisition price for the building was $124.0 million with an obligation by the Partnership to fund an additional $14.5 million if 7-Eleven, Inc. exercises its extension option. The Statements of Revenues and Certain Expenses present the operations of the Property for the year ended December 31, 2003 and three month period ended March 31, 2004.
The accompanying statements have been prepared on the accrual basis of accounting. The statements have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in a current report on Form 8-K/A of Prentiss Properties Trust. The statements are not intended to be a complete presentation of the revenues and expenses of the Property for the year ended December 31, 2003 and three month period ended March 31, 2004 as certain expenses, primarily depreciation and amortization expense, interest expense, and other costs not directly related to the future operations of the Property have been excluded. The Partnership is not aware of any material factors related to the Property not otherwise disclosed that would cause the reported financial information not to be necessarily indicative of future operating results.
Revenue Recognition
The tenant lease is accounted for as an operating lease and accordingly, rental income is recognized on a straight-line basis over the term of the lease. Other income consists of recoveries of certain operating expenses, parking and other income. Additional rents from recoveries of certain operating expenses are recognized as revenues in the period the applicable costs are incurred.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions of the reported amounts of revenues and certain expenses during the reporting period. Actual results may differ from those estimates.
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Cityplace Center
Notes to the Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2003 and
The Three Month Period Ended March 31, 2004
| 2. | Leases |
7-Eleven, Inc. leases 100% of the Property’s net rentable feet from the owner under a master lease agreement that commenced December 21, 1991 and expires December 31, 2009. Accordingly, during the year ended December 31, 2003 and the three month period ended March 31, 2004, 100% of the Property’s rental revenue was from 7-Eleven, Inc.
The minimum future rentals of the tenant lease based on the noncancelable operating lease held as of December 31, 2003 are as follows:
| 2004 |
$ | 36,313,900 | |
| 2005 |
39,842,035 | ||
| 2006 |
39,842,035 | ||
| 2007 |
39,842,035 | ||
| 2008 |
39,842,035 | ||
| Thereafter |
39,842,035 | ||
| Total |
$ | 235,524,075 | |
As discussed in Note 1, concurrent with the Partnership’s acquisition of the Property, 7-Eleven, Inc. entered into a three year lease for 504,351 square feet of space (approximately 42% of total square feet) for approximate annual rent of $10.3 million. Under the previous master lease agreement, 7-Eleven, Inc. sublet approximately 42% of the Property’s total square feet to unrelated tenants as of April 22, 2004. Concurrent with the acquisition of the Property, the Partnership assumed the subleases from 7-Eleven, Inc.
| 3. | Related Parties |
7-Eleven, Inc. leases the Property from Cityplace Center East Corporation, an affiliate of 7-Eleven, Inc.
The management agreement provides for the payment of management fees to Cityplace Management Corporation, an affiliate of 7-Eleven, Inc. During the year ended December 31, 2003 and the three month period ended March 31, 2004, management fees for the Property were $500,004 and $125,001, respectively.
| 4. | Statement of Revenues and Certain Expenses for the Three Month Period Ended March 31, 2004. |
The statement of revenues and certain expenses for the three month period ended March 31, 2004 is unaudited. In the opinion of management of the Partnership, all significant adjustments necessary for a fair presentation of the statement for the interim period have been included. The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year for the operation of the Property.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of
Prentiss Properties Trust:
We have audited the accompanying Statement of Revenues and Certain Expenses of Lakeside Point Properties (the “Properties”) for the year ended December 31, 2003. This Statement is the responsibility of Prentiss Properties Trust’s management. Our responsibility is to express an opinion on this Statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Statement. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in a current report on Form 8-K/A of Prentiss Properties Trust) as described in Note 1 and is not intended to be a complete presentation of the Properties’ revenues and expenses.
In our opinion, the Statement referred to above presents fairly, in all material respects, the revenues and certain expenses described in Note 1 of the Properties for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
December 22, 2004
Dallas, Texas
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Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2003 and
The Nine Month Period Ended September 30, 2004
| Year Ended December 31, 2003 |
Nine Month Period Ended September 30, 2004 (Unaudited) | |||||
| Revenues: |
||||||
| Rental income |
$ | 2,619,920 | $ | 2,147,601 | ||
| Reimbursement and other income |
1,691,112 | 1,416,122 | ||||
| Total revenues |
$ | 4,311,032 | $ | 3,563,723 | ||
| Expenses: |
||||||
| Maintenance and service contracts |
620,987 | 507,482 | ||||
| Utilities |
324,793 | 254,895 | ||||
| Management fees |
139,535 | 118,286 | ||||
| Administrative |
144,936 | 114,646 | ||||
| Property taxes |
574,990 | 413,603 | ||||
| Insurance |
21,380 | 13,979 | ||||
| Total expenses |
1,826,621 | 1,422,891 | ||||
| Revenues in excess of certain expenses |
$ | 2,484,411 | $ | 2,140,832 | ||
The accompanying notes are an integral part of these financial statements.
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Notes to the Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2003 and
The Nine Month Period Ended September 30, 2004
| 1. | Basis of Presentation and Summary of Significant Accounting Policies |
On October 29, 2004, Prentiss Properties Trust, through Prentiss Office Investors, L.P., a subsidiary which is 51% owned by its majority owned operating partnership, Prentiss Properties Acquisition Partners, L.P. (the “Partnership”), acquired the Lakeside Point Properties (the “Properties”), consisting of two, three-story office buildings totaling approximately 198,000 square feet (unaudited) located on approximately 12.0 acres (unaudited) located in the Amhurst Lake Business Park approximately 45 miles north of downtown Chicago, Illinois. The acquisition price for the buildings was $32.7 million. The Statements of Revenues and Certain Expenses present the operations of the Properties for the year ended December 31, 2003 and the nine month period ended September 30, 2004.
The accompanying statements have been prepared on the accrual basis of accounting. The statements have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and for inclusion in a current report on Form 8-K/A of Prentiss Properties Trust. The statements are not intended to be a complete presentation of the revenues and expenses of the Properties for the year ended December 31, 2003 and the nine month period ended September 30, 2004 as insignificant lease termination fee income and certain expenses, primarily depreciation and amortization expense, interest expense, and other costs not directly related to the future operations of the Properties have been excluded. The Partnership is not aware of any material factors related to the Property not otherwise disclosed that would cause the reported financial information not to be necessarily indicative of future operating results.
Revenue Recognition
The tenant leases are accounted for as operating leases and accordingly, rental income is recognized on a straight-line basis over the term of the lease. Other income consists of recoveries of certain operating expenses, parking and other income. Additional rents from recoveries of certain operating expenses are recognized as revenues in the period the applicable costs are incurred.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions of the reported amounts of revenues and certain expenses during the reporting period. Actual results may differ from those estimates.
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Lakeside Point Properties
Notes to the Statements of Revenues and Certain Expenses
For the Year Ended December 31, 2003 and
The Nine Month Period Ended September 30, 2004
| 2. | Leases |
The minimum future rentals of the tenant lease based on the noncancelable operating lease held as of December 31, 2003 are as follows:
| 2004 |
$ | 2,973,576 | |
| 2005 |
2,779,691 | ||
| 2006 |
2,805,813 | ||
| 2007 |
2,889,360 | ||
| 2008 |
1,984,048 | ||
| Total |
$ | 13,432,488 | |
| 3. | Major Tenants |
Abbott Laboratories leases approximately 178,067 square feet, or 90% of the Properties’ net rentable feet, pursuant to leases with the owner that commenced on various dates between July 1991 and August of 1999 which leases expire on August 30, 2008. In March 2004, pursuant to a sublease agreement which expires February 27, 2005, Abbott Laboratories leased the remaining 19,909 net rentable square feet of the building.
| 4. | Statement of Revenues and Certain Expenses for the Nine Month Period Ended September 30, 2004. |
The statement of revenues and certain expenses for the nine month period ended September 30, 2004 is unaudited. In the opinion of management of the Partnership, all significant adjustments necessary for a fair presentation of the statement for the interim period have been included. The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year for the operation of the Properties.
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PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 2004
(unaudited)
(dollars in thousands)
The following unaudited pro forma consolidated balance sheet is presented as if the acquisitions that occurred subsequent to September 30, 2004 which included the acquisitions of (i) the 2101 Webster Office Property and (ii) the Lakeside Point Properties had been consummated on September 30, 2004. This pro forma consolidated balance sheet should be read in conjunction with our historical consolidated financial statements and notes thereto for the year ended December 31, 2003 included in our Form 10-K, filed on March 15, 2004, our historical consolidated financial statements and notes thereto for the nine months ended September 30, 2004 included in our Form 10-Q, filed on November 5, 2004, and the pro forma consolidated statements of income of the Company for the year ended December 31, 2003 and nine month period ended September 30, 2004 included elsewhere in this Form 8-K/A.
The pro forma consolidated balance sheet is not necessarily indicative of what the actual financial position would have been had the Company completed the transactions described above on September 30, 2004, nor does it purport to represent the future financial position of the Company.
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| (Unaudited) Prentiss Properties Trust September 30, |
(Unaudited) Adjustments |
(Unaudited) Prentiss Properties Trust ProForma |
||||||||||
| ASSETS | ||||||||||||
| Operating real estate: |
||||||||||||
| Land |
$ | 336,245 | $ | 7,366 | (A) | $ | 343,611 | |||||
| Buildings and improvements |
1,731,346 | 69,205 | (A) | 1,800,551 | ||||||||
| Less: accumulated depreciation |
(224,748 | ) | — | (224,748 | ) | |||||||
| 1,842,843 | 76,571 | 1,919,414 | ||||||||||
| Construction in progress |
18,085 | — | 18,085 | |||||||||
| Land held for development |
58,871 | — | 58,871 | |||||||||
| Deferred charges and other assets, net |
236,392 | 23,422 | (A) | 259,814 | ||||||||
| Notes receivable |
5,440 | — | 5,440 | |||||||||
| Accounts receivable, net |
54,841 | — | 54,841 | |||||||||
| Cash and cash equivalents |
6,956 | — | 6,956 | |||||||||
| Escrowed cash |
9,579 | — | 9,579 | |||||||||
| Investments in securities and insurance contracts |
2,928 | — | 2,928 | |||||||||
| Investments in unconsolidated joint ventures |
12,906 | — | 12,906 | |||||||||
| Interest rate hedges |
2,107 | — | 2,107 | |||||||||
| Total assets |
$ | 2,250,948 | $ | 99,993 | $ | 2,350,941 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Mortgages and notes payable |
$ | 1,115,534 | $ | 83,980 | (B) | $ | 1,199,514 | |||||
| Interest rate hedges |
6,775 | — | 6,775 | |||||||||
| Accounts payable and other liabilities |
93,255 | — | 93,255 | |||||||||
| Mandatorily redeemable preferred units |
— | — | — | |||||||||
| Distributions payable |
28,072 | — | 28,072 | |||||||||
| Total liabilities |
1,243,636 | 83,980 | 1,327,616 | |||||||||
| Minority interest in operating partnership |
26,790 | — | 26,790 | |||||||||
| Minority interest in real estate partnerships |
30,858 | 16,013 | (C) | 46,871 | ||||||||
| Commitments and contingencies |
||||||||||||
| Preferred shares |
100,000 | — | 100,000 | |||||||||
| Common shares |
481 | — | 481 | |||||||||
| Additional paid-in capital |
1,017,744 | — | 1,017,744 | |||||||||
| Common shares in treasury |
(82,505 | ) | — | (82,505 | ) | |||||||
| Unearned compensation |
(3,827 | ) | — | (3,827 | ) | |||||||
| Accumulated other comprehensive income |
(4,061 | ) | — | (4,061 | ) | |||||||
| Distributions in excess of earnings |
(78,168 | ) | — | (78,168 | ) | |||||||
| Total shareholders’ equity |
949,664 | — | 949,664 | |||||||||
| Total liabilities and shareholders’ equity |
$ | 2,250,948 | $ | 99,993 | $ | 2,350,941 | ||||||
The accompanying notes are an integral part of this financial statement.
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PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2003
(unaudited)
(dollars in thousands, except share and per share data)
The following unaudited pro forma consolidated statement of income is presented as if the acquisition of all of the properties acquired between January 1, 2004 and the filing date of this form 8-K/A (the “Acquired Properties”) had occurred on January 1, 2003.
This pro forma consolidated statement of income should be read in conjunction with our historical consolidated financial statements and notes thereto for the year ended December 31, 2003 included in our Form 10-K, filed on March 15, 2004 and the pro forma consolidated balance sheet at September 30, 2004 and the pro forma consolidated statement of income of the Company for the nine month period ended September 30, 2004 included elsewhere in this Form 8-K/A.
The pro forma consolidated statement of income is not necessarily indicative of what actual results would have been had the previously described transactions actually occurred as of January 1, 2003 nor does it purport to represent the operations of the Company for future periods.
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| (Unaudited) Prentiss Trust Year Ended Dec 31, |
(Unaudited) Acquired Properties (B) |
(Unaudited) Pro Forma Adjustments |
(Unaudited) Prentiss |
||||||||||||
| Revenues: |
|||||||||||||||
| Rental income |
$ | 339,541 | $ | 58,516 | $ |
(20,899 3,499 2,104 |
)(C) (D) (E) |
$ | 382,761 | ||||||
| Service business and other income |
16,816 | 42 | — | 16,858 | |||||||||||
| 356,357 | 58,558 | (15,296 | ) | 399,619 | |||||||||||
| Operating expenses: |
|||||||||||||||
| Property operating and maintenance |
88,305 | 15,326 | (1,122 | )(F) | 102,509 | ||||||||||
| Real estate taxes |
34,276 | 5,345 | — | 39,621 | |||||||||||
| General and administrative and personnel costs |
10,988 | — | — | 10,988 | |||||||||||
| Expenses of service business |
10,513 | — | — | 10,513 | |||||||||||
| Depreciation and amortization |
78,193 | — | 14,077 | (G) | 92,270 | ||||||||||
| 222,275 | 20,671 | 12,955 | 255,901 | ||||||||||||
| Other expenses: |
|||||||||||||||
| Interest expense |
69,814 | — | 7,240 | (H) | 77,054 | ||||||||||
| Amortization of deferred financing costs |
2,284 | — | — | 2,284 | |||||||||||
| 72,098 | — | 7,240 | 79,338 | ||||||||||||
| Income from continuing operations before minority interests equity in income of unconsolidated joint ventures and gain on sale of properties including land |
61,984 | 37,887 | (35,491 | ) | 64,380 | ||||||||||
| Minority interests |
(10,437 | ) | — | (191 | )(I) | (10,628 | ) | ||||||||
| Equity in income of unconsolidated joint ventures |
2,555 | — | — | 2,555 | |||||||||||
| Loss on investment in securities |
— | — | — | — | |||||||||||
| Gain on sale of properties including land |
9,435 | — | — | 9,435 | |||||||||||
| Income from continuing operations |
63,537 | 37,887 | (35,682 | ) | 65,742 | ||||||||||
| Preferred Dividends |
(8,452 | ) | — | — | (8,452 | ) | |||||||||
| Income applicable to common shareholders from continuing operations |
$ | 55,085 | $ | 37,887 | $ | (35,682 | ) | $ | 57,290 | ||||||
| Basic earnings per common share: |
|||||||||||||||
| Income from continuing operations applicable to common shareholders |
$ | 1.37 | $ | 1.43 | |||||||||||
| Weighted average number of common shares outstanding – basic |
40,068 | 40,068 | |||||||||||||
| Diluted earnings per common share: |
|||||||||||||||
| Income from continuing operations applicable to common shareholders |
$ | 1.37 | $ | 1.42 | |||||||||||
| Weighted average number of common shares and common share equivalents outstanding – diluted |
40,270 | 40,270 | |||||||||||||
The accompanying notes are an integral part of this financial statement.
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PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 2004
(unaudited)
(dollars in thousands, except share and per share data)
The following unaudited pro forma consolidated statement of income is presented as if the acquisition of all properties acquired between January 1, 2004 and the filing date of this Form 8-K/A (collectively, the “Acquired Properties”) had occurred on January 1, 2004.
This pro forma consolidated statement of income should be read in conjunction with our historical consolidated financial statements and notes thereto as filed in our Form 10-Q for the quarter ended September 30, 2004 and the pro forma consolidated balance sheet at September 30, 2004 and the pro forma consolidated statement of income of the Company for the year ended December 31, 2003 included elsewhere in this Form 8-K/A.
The pro forma consolidated statement of income is not necessarily indicative of what actual results would have been had the previously described transactions actually occurred as of January 1, 2004 nor does it purport to represent the operations of the Company for future periods.
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| (Unaudited) Prentiss Properties Trust Nine Months Ended Sept. 30, |
(Unaudited) Acquired Properties (B) |
(Unaudited) Pro Forma Adjustments |
(Unaudited) Prentiss Properties Trust ProForma Nine Months Ended Sept. 30, |
||||||||||||
| Revenues: |
|||||||||||||||
| Rental income |
$ | 265,123 | $ | 24,635 | $ |
(6,437 1,627 587 |
)(C) (D) (E) |
$ | 285,535 | ||||||
| Service business and other income |
9,632 | 17 | — | 9,649 | |||||||||||
| 274,755 | 24,652 | (4,223) | 295,184 | ||||||||||||
| Operating expenses: |
|||||||||||||||
| Property operating and maintenance |
66,675 | 7,773 | (657 | )(F) | 73,791 | ||||||||||
| Real estate taxes |
29,219 | 2,377 | — | 31,596 | |||||||||||
| General and administrative and personnel costs |
8,793 | — | — | 8,793 | |||||||||||
| Expenses of service business |
6,785 | — | — | 6,785 | |||||||||||
| Depreciation and amortization |
68,266 | — | 7,013 | (G) | 75,279 | ||||||||||
| 179,738 | 10,150 | 6,356 | 196,244 | ||||||||||||
| Other expenses: |
|||||||||||||||
| Interest expense |
50,604 | — | 3,410 | (H) | 54,014 | ||||||||||
| Amortization of deferred financing costs |
1,784 | — | — | 1,784 | |||||||||||
| 52,388 | — | 3,410 | 55,798 | ||||||||||||
| Income from continuing operations before minority interests equity in income of unconsolidated joint ventures, and gain on sale of properties including land |
42,629 | 14,502 | (13,989 | ) | 43,142 | ||||||||||
| Minority interests |
(2,504 | ) | — | (251 | )(I) | (2,755) | |||||||||
| Equity in income of unconsolidated joint ventures |
1,790 | — | — | 1,790 | |||||||||||
| Loss on investment in securities |
(420 | ) | — | — | (420) | ||||||||||
| Gain on sale of properties including land |
1,222 | — | — | 1,222 | |||||||||||
| Income from continuing operations |
42,717 | 14,502 | (14,240 | ) | 42,979 | ||||||||||
| Preferred Dividends |
(7,939 | ) | — | — | (7,939 | ) | |||||||||
| Income applicable to common shareholders from continuing operations |
$ | 34,778 | $ | 14,502 | $ | (14,240 | ) | $ | 35,040 | ||||||
| Basic earnings per common share: |
|||||||||||||||
| Income from continuing operations applicable to common shareholders |
$ | 0.79 | $ | 0.79 | |||||||||||
| Weighted average number of common shares outstanding – basic |
44,170 | 44,170 | |||||||||||||
| Diluted earnings per common share: |
|||||||||||||||
| Income from continuing operations applicable to common shareholders |
$ | 0.78 | $ | 0.79 | |||||||||||
| Weighted average number of common shares and common share equivalents outstanding – diluted |
44,358 | 44,358 | |||||||||||||
The accompanying notes are an integral part of this financial statement.
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NOTES TO PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
Prentiss Properties Trust is a real estate company organized as a Maryland Real Estate Investment Trust. The Company acquires, owns, manages, leases, develops, and builds primarily office properties throughout the United States.
The unaudited pro forma consolidated balance sheet is presented as if the acquisitions that occurred subsequent to September 30, 2004 which included the acquisitions of (i) the 2101 Webster Office Property and (ii) the Lakeside Point Properties had been consummated on September 30, 2004.
The unaudited pro forma consolidated statement of income for the year ended December 31, 2003 is presented as if the acquisition of all of the properties acquired between January 1, 2004 and the filing date of this form 8-K/A, had occurred on January 1, 2003.
The unaudited pro forma consolidated statement of income for the nine months ended September 30, 2004 is presented as if the acquisition of all properties acquired between January 1, 2004 and the filing date of this Form 8-K/A, had occurred on January 1, 2004.
| 1. | ADJUSTMENTS TO PRO FORMA CONSOLIDATING BALANCE SHEET |
| (A) | Reflects the acquisition of the 2101 Webster Office Property and the Lakeside Point Properties by the Company for $67.3 million and $32.7 million, respectively, subsequent to September 30, 2004. The Company allocated its purchase price to the assets and liabilities below and estimated the remaining useful lives of its tangible and intangible assets as follows: |
| Allocation |
Estimated Useful Lives | ||||||||||
| Description |
2101 Webster Office Property |
Lakeside Point Properties |
Total |
||||||||
| Land |
$ | 2,576 | $ | 4,790 | $ | 7,366 | — | ||||
| Building |
47,922 | 21,283 | 69,205 | 40 years | |||||||
| Above market leases, net |
2,080 | 156 | 2,236 | 4 –7 years | |||||||
| Tenant improvements, leasing commissions & legal fees |
6,118 | 3,634 | 9,752 | 4 –7 years | |||||||
| In-place leases/ customer relationships |
8,617 | 2,817 | 11,434 | 4 –7 years | |||||||
| $ | 67,313 | $ | 32,680 | $ | 99,993 | ||||||
The Company allocated the purchase price to the above tangible and identified intangible assets based on their fair values in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations.” For further explanation of how we allocate purchase price, refer to the accounting policy disclosures included in our consolidated financial statements and notes thereto for the year ended December 31, 2003 included in our Form 10-K, filed on March 15, 2004.
| (B) | Reflects the borrowings incurred to fund the acquisition of the properties acquired subsequent to September 30, 2004. |
| (C) | Reflects the contribution received from the minority interest holder for their 49% interest in the acquisition of the Lakeside Point Properties. |
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| 2. | ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2003 |
| (A) | Reflects the historical operations of the Company for the year ended December 31, 2003. |
| (B) | Reflects the combined historical revenues and certain expenses of the Acquired Properties for the year ended December 31, 2003, as follows. |
| Cityplace Center |
(Unaudited) Bluffs Office Property |
(Unaudited) Great America Parkway |
(Unaudited) 2101 Webster Office Property |
Lakeside Point Properties |
Total | ||||||||||||||
| Revenues: |
|||||||||||||||||||
| Rental income |
$ | 41,544 | $ | 822 | $ | — | $ | 11,841 | $ | 4,309 | $ | 58,516 | |||||||
| Service business and other income |
40 | — | — | — | 2 | 42 | |||||||||||||
| 41,584 | 822 | — | 11,841 | 4,311 | 58,558 | ||||||||||||||
| Operating expenses: |
|||||||||||||||||||
| Property operating and maintenance |
9,122 | 434 | 440 | 4,078 | 1,252 | 15,326 | |||||||||||||
| Real estate taxes |
3,315 | 147 | 380 | 928 | 575 | 5,345 | |||||||||||||
| General and administrative and personnel costs |
— | — | — | — | — | — | |||||||||||||
| Expense of service business |
— | — | — | — | — | — | |||||||||||||
| Depreciation and amortization |
— | — | — | — | — | — | |||||||||||||
| 12,437 | 581 | 820 | 5,006 | 1,827 | 20,671 | ||||||||||||||
| Revenues in excess of certain expenses |
$ | 29,147 | $ | 241 | $ | (820 | ) | $ | 6,835 | $ | 2,484 | $ | 37,887 | ||||||
| (C) | Reflects adjustments to revenue resulting from the new lease executed with 7-Eleven, Inc. upon acquisition of Cityplace Center. As discussed in Note 2 to the Cityplace Center statements of revenues and certain expenses, Cityplace Center was 100% leased by 7-Eleven, Inc. under a master lease agreement with the previous owner. 7-Eleven, Inc. sublet approximately 42% of the building’s net rentable feet. Concurrent with the acquisition of Cityplace, 7-Eleven, Inc. executed a three year lease for annual rental revenues of approximately $10.3 million and the Company assumed the subleases. The historical revenues of Cityplace Center reflect 100% occupancy under the master lease agreement. The proforma adjustment reduces revenue by $20.9 million. The reduction is primarily related to a lower rental rate achieved on the new lease compared to the master lease agreement which equates to a decrease of approximately $7.0 million, lower rental rates achieved on the sublease space compared to the master lease agreement resulting in a decrease of $7.3 million and a decrease due to the occupancy decline from 100% to approximately 84% which equated to $6.5 million. |
| (D) | The Great America Parkway Property was 100% vacant at the date of acquisition. This adjustment reflects the completion of a 10 ½ year lease for approximately 219,000 sf or 72% of the property. The lease was being negotiated concurrent with the acquisition. |
| (E) | Reflects the adjustment necessary to record rental income for in-place leases on a straight-line basis beginning January 1, 2003 and the amortization of the above and below market lease values from the Acquired Properties over the remaining noncancelable term of the leases ranging from 1 to 11 years. |
| (F) | Reflects adjustments to exclude historical property management fees as the Acquired Properties will be managed by an affiliate of the Company. |
| (G) | Reflects adjustments to reflect depreciation and amortization related to the Acquired Properties. Purchase price allocated to buildings and improvements is amortized over their estimated useful lives of 40 years. Purchase price allocated to other real estate assets is amortized over the estimated useful lives ranging from 1 to 11 years. |
| (H) | Reflects the additional interest costs for the year ended December 31, 2003 that would have been incurred by the Company had the properties been acquired on January 1, 2003. |
| (I) | Reflects the 49% minority interest in pro forma net income of the Bluffs Office Property and Lakeside Point Properties. |
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| 3. | ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF INCOME FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 |
| (A) | Reflects the historical operations of the Company for the nine month period ended September 30, 2004. |
| (B) | Reflects the combined historical revenues and certain expenses of the Acquired Properties for the nine month period ended September 30, 2004 and portion thereof prior to our acquisition as follows. |
| (Unaudited) Cityplace Center |
(Unaudited) Bluffs Office Property |
(Unaudited) Great America Parkway |
(Unaudited) 2101 Webster Office Property |
(Unaudited) Lakeside Point Properties |
Total | ||||||||||||||
| Revenues: |
|||||||||||||||||||
| Rental income |
$ | 12,895 | $ | 446 | $ | — | $ | 7,735 | $ | 3,559 | $ | 24,635 | |||||||
| Service business and other income |
12 | — | — | — | 5 | 17 | |||||||||||||
| 12,907 | 446 | — | 7,735 | 3,564 | 24,652 | ||||||||||||||
| Operating expenses: |
|||||||||||||||||||
| Property operating and maintenance |
2,873 | 205 | 106 | 3,579 | 1,010 | 7,773 | |||||||||||||
| Real estate taxes |
1,096 | 69 | 128 | 671 | 413 | 2,377 | |||||||||||||
| General and administrative and personnel costs |
— | — | — | — | — | — | |||||||||||||
| Expense of service business |
— | — | — | — | — | — | |||||||||||||
| Depreciation and amortization |
— | — | — | — | — | — | |||||||||||||
| 3,969 | 274 | 234 | 4,250 | 1,423 | 10,150 | ||||||||||||||
| Revenues in excess of certain expenses |
$ | 8,938 | $ | 172 | $ | (234 | ) | $ | 3,485 | $ | 2,141 | $ | 14,502 | ||||||
| (C) | Reflects adjustments to revenue resulting from the new lease executed with 7-Eleven, Inc. upon acquisition of Cityplace Center. As discussed in Note 2 to the Cityplace Center statement of revenues and certain expenses, Cityplace Center was 100% leased by 7-Eleven, Inc. under a master lease agreement with the previous owner. 7-Eleven, Inc. sublet approximately 42% of the building’s net rentable feet. Concurrent with the acquisition of Cityplace, 7-Eleven, Inc. executed a three year lease for annual rental revenues of approximately $10.3 million and the Company assumed the subleases. The historical revenues of Cityplace Center reflect 100% occupancy under the master lease agreement. |
| (D) | The Great America Parkway Property was 100% vacant at the date of acquisition. This adjustment reflects the completion of a 10 1/2 year lease for approximately 219,000 sf or 72% of the property. The lease was being negotiated concurrent with the acquisition. |
| (E) | Reflects the adjustment necessary to record rental income for in-place leases on a straight-line basis beginning January 1, 2004 and amortization of the above and below market lease values from the Acquired Properties over the remaining noncancelable term of the leases ranging from 1 to 11 years. |
| (F) | Reflects adjustments to exclude historical property management fees (through the dates of acquisition) as the Acquired Properties will be managed by an affiliate of the Company. |
| (G) | Reflects adjustments to reflect depreciation and amortization related to the Acquired Properties. Purchase price allocated to buildings and improvements is amortized over their estimated useful lives of 40 years. Purchase price allocated to other real estate assets is amortized over the estimated useful lives ranging from 1 to 11 years. |
| (H) | Reflects the additional interest costs for the nine month period ended September 30, 2004 that would have been incurred by the Company had the properties been acquired on January 1, 2004. |
| (I) | Reflects the 49% minority interest in pro forma net income of the Bluffs Office Property and Lakeside Point Properties. |
-21-
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 hereunto duly authorized.
| PRENTISS PROPERTIES TRUST | ||
| Date: December 23, 2004 | /s/ Scott W. Fordham | |
| Scott W. Fordham | ||
| Vice President and Chief Accounting Officer | ||
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