PNP Pan Pacific Retail Properties

Pan Pacific Retail Properties, Inc. (NYSE:PNP), the largest neighborhood shopping center real estate investment trust (REIT) focused exclusively on the West Coast, today announced results for the third quarter ended September 30, 2005. All per share amounts are on a diluted basis. -0- *T -- 7.9% increase in total Funds From Operation (FFO) to $39.5 million for 3Q'05 vs. 3Q'04(1) -- 7.9% increase in FFO per share to $0.96 for 3Q'05 vs. 3Q'04(1) -- Net income of $24.8 million for 3Q'05 -- Earnings per share of $0.61 for 3Q'05 -- $60.0 million grocery-anchored shopping center acquisitions during 3Q'05 -- $30.4 million property disposition subsequent to 3Q'05 -- 97.0% portfolio occupancy rate at September 30, 2005 -- 3.9% increase in same-property net operating income for 3Q'05 vs. 3Q'04 -- 202 leases executed during 3Q'05, totaling 658,836 square feet -- 19.5% increase in base rent on same-store new and renewed leases for 3Q'05 -- 28.3% debt-to-total market capitalization ratio at September 30, 2005 -- 3.2 to 1.0 interest coverage ratio for 3Q'05 -- Credit rating upgraded to 'BBB+' by Standard & Poor's -- $100 million of 10-year unsecured senior notes issued -- $0.59 per share quarterly common cash dividend paid -- 61.6% FFO payout ratio for 3Q'05 (1) See the end of this press release for a reconciliation of GAAP net income to FFO. *T Stuart A. Tanz, President and Chief Executive Officer of Pan Pacific stated, "Following our exceptionally strong results in the first half of the year, our business continued to advance on all fronts during the third quarter. FFO per share increased by 7.9%, occupancy reached a new high for the year of 97.0%, same-property net operating income grew by 3.9% and we achieved a 19.5% increase in same-store releasing rents. We also continued to enhance our portfolio and market presence through our acquisition and disposition program. Year-to-date we have acquired $101.7 million of grocery-anchored shopping centers in our strategic West Coast markets, while disposing of $30.4 million of non-strategic property." Tanz further commented, "We continue to proactively manage our balance sheet, maintaining a well-laddered debt maturity schedule and limiting our floating-rate debt. During the third quarter we issued $100 million of 10-year, fixed-rate unsecured notes and used the proceeds to pay down our credit line. Based on our strong financial position, we received a rating upgrade from S&P to 'BBB+'. In summary, we are squarely on track to achieve our stated objectives for 2005 and are building good momentum as we head toward 2006." FINANCIAL RESULTS For the three months ended September 30, 2005 total Funds from Operations (FFO) increased 7.9% to $39.5 million, compared with FFO for the three months ended September 30, 2004 of $36.6 million. On a per share basis, FFO increased 7.9% to $0.96 for the three months ended September 30, 2005, compared to $0.89 for the three months ended September 30, 2004. A reconciliation of GAAP net income to FFO is provided at the end of this press release. Total revenue increased 6.3% to $78.2 million for the three months ended September 30, 2005 as compared to total revenue of $73.5 million for the three months ended September 30, 2004. For the three months ended September 30, 2005, income from continuing operations was $24.8 million, or $0.61 per share, as compared to $22.6 million, or $0.56 per share, during the third quarter of 2004, an 8.9% increase on a per share basis. Net income for the three months ended September 30, 2005 was $24.8 million. At September 30, 2005, the Company's total market capitalization was approximately $3.8 billion (based on the market closing price of Pan Pacific's common stock on September 30, 2005, assuming the conversion of operating subsidiary units to common stock, and total debt outstanding). At September 30, 2005, the Company had approximately $1.1 billion in debt outstanding, equating to a debt-to-total market capitalization ratio of 28.3%. The Company's debt was comprised of: $653.9 million of fixed-rate, senior unsecured notes with a weighted average interest rate of 6.3%, and a weighted average maturity of 6.6 years; $356.5 million of fixed-rate, mortgage debt with a weighted average interest rate of 7.4%, and a weighted average maturity of 3.6 years; $57.4 million of floating-rate debt outstanding under the Company's unsecured line of credit, which had a weighted average interest rate of 4.5% at September 30, 2005; and $6.0 million of floating-rate, property-level bonds bearing interest at a rate of 2.6% as of September 30, 2005. For the quarter ended September 30, 2005, the Company's interest coverage ratio was 3.2 to 1.0 (calculated as income from continuing and discontinued operations, excluding gain on sale, plus depreciation, amortization and interest expense, divided by interest expense). On August 16, 2005, the Board of Directors declared a regular quarterly cash dividend of $0.59 per share. The dividend was paid on September 15, 2005 to stockholders of record on August 26, 2005. Subsequent to the third quarter, the Board of Directors declared a regular quarterly cash dividend of $0.59 per share. The dividend is payable December 15, 2005 to stockholders of record on November 23, 2005. The quarterly cash dividends equate to $2.36 per share on an annualized basis. OPERATING RESULTS Leasing Activity At September 30, 2005, the Company's portfolio was 97.0% leased to 3,525 tenants. For the three months ended September 30, 2005, the Company executed 202 leases (new and renewed) for 658,836 square feet of gross leasable area, and achieved a 19.5% increase over prior rents on a same-store basis. Same Property Operating Results With respect to the properties owned and operated by the Company for the entirety of both the three months ended September 30, 2005 and 2004, same property net operating income increased 3.9%. -0- *T Same Property Operating Data (In thousands) Three Months Ended September 30, ------------------------------ 2005 2004 -------------- ------------- Total revenue $73,187 $71,844 Operating expenses 18,460 19,184 -------------- ------------- Operating income $54,727 $52,660 3.9% ============== ============= ========= *T ACQUISITION ACTIVITY During the third quarter the Company acquired the following two grocery-anchored neighborhood centers within the greater Seattle metropolitan region for a total investment of $60.0 million: Silverdale Plaza Silverdale Plaza is a 170,332-square-foot, grocery-anchored community shopping center. The property is currently 100% leased, anchored by Safeway Supermarket, Rite Aid Drugstore, Jo-Ann Fabrics & Crafts, and Staples. The property was acquired for $33.0 million. Jefferson Square Jefferson Square is a 146,829-square-foot, grocery-anchored community shopping center. The property is currently 98.4% leased, anchored by Safeway Supermarket and Bartell Drugstore. The property was acquired for $27.0 million. Year-to-date the Company has invested $101.7 million in acquiring five grocery-anchored shopping centers. The acquisitions were financed through a combination of the assumption of existing debt, aggregating $31.2 million, borrowings under the Company's $300 million unsecured line of credit and cash flow from operations. DISPOSITION ACTIVITY Subsequent to the third quarter, the Company sold Southern Palms Shopping Center located in Tempe, Arizona, for $30.4 million. The Company utilized the proceeds from this transaction, structured as a reverse 1031 exchange, to pay down outstanding borrowings on its unsecured line of credit. In connection with the disposition, the Company expects to record a gain of approximately $15 million in the fourth quarter of 2005. CAPITAL MARKETS ACTIVITY Credit Rating Upgrade In August 2005, Standard and Poor's Ratings Services upgraded the Company's senior unsecured debt rating to 'BBB+' with a stable outlook from a rating of 'BBB' with a stable outlook. Senior Notes Issued In August 2005, the Company issued $100 million aggregate principal amount of unsecured senior notes due September 2015. The notes bear interest at an annual fixed rate of 5.25%. The Company utilized the proceeds from the issuance to pay down outstanding borrowings under its unsecured line of credit. EARNINGS GUIDANCE The Company expects fourth quarter 2005 FFO per share to be in the range of $0.96 to $0.97. The Company has established full year 2006 FFO per share initial guidance of $3.97 to $4.01. This guidance is based on current expectations and is forward looking. -0- *T Q4'05 Year 2006 -------------- -------------- Expected earnings per share (diluted) $0.69 - $0.70 $2.89 - $2.93 Add: expected depreciation and amortization $0.26 $1.04 Add: expected operating subsidiary minority interests $0.01 $0.04 Expected FFO per share diluted $0.96 - $0.97 $3.97 - $4.01 *T 3RD QUARTER 2005 CONFERENCE CALL On Thursday, October 27, 2005, at 12:00 Noon Eastern Time, the Company will be hosting a conference call to discuss its third quarter results for 2005. The Company's remarks will be followed by a question and answer period, which will be limited to questions from analysts. Interested parties may participate in this conference call by dialing 877-407-9210. A taped replay of the call will be available through November 27, 2005 at 877-660-6853, pass code 286, confirmation 169132. A live web cast (listen-only mode) of the conference call will be available at www.pprp.com via a link to www.vcall.com. An online replay will also be available through November 27, 2005. ABOUT PAN PACIFIC RETAIL PROPERTIES Pan Pacific Retail Properties, Inc. is an equity real estate investment trust (REIT) traded on the New York Stock Exchange under the symbol PNP. The Company is the largest neighborhood shopping center REIT focused exclusively on the West Coast. Pan Pacific's portfolio currently totals 137 properties, encompassing approximately 22.3 million square feet of retail space. The portfolio is principally diversified across five distinct regions in the Western United States: Northern California, Southern California, Washington, Oregon and Nevada. Pan Pacific specializes in the acquisition, ownership and management of community and neighborhood shopping centers for everyday essentials. The Company's strategy is aimed at generating long-term stable cash flow through maintaining a diverse portfolio and tenant base, balanced with consistent growth through its acquisition and property management programs. Pan Pacific is headquartered in Vista (San Diego), California, and has regional offices located in Sacramento, California; Kent, Washington; Portland, Oregon; and Las Vegas, Nevada. Additional information on Pan Pacific is available on the Company's web site at www.pprp.com. (Note: Certain matters discussed within this press release, including, without limitation, our earnings guidance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect management's current views with respect to future events and financial performance. Forward-looking statements are subject to risks and uncertainties. Factors that could cause actual results to differ materially from expectations include market valuations of our stock, financial performance and operations of our shopping centers, real estate market conditions, execution of shopping center development programs, successful completion of renovations, completion of pending acquisitions and dispositions, including the completion of customary due diligence and closing conditions, the Company's ability to successfully integrate acquired assets, changes in the availability of additional acquisition and disposition opportunities, changes in local or national economic conditions, acts of terrorism or war and other risks detailed from time to time in reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2004.) -0- *T Consolidated Balance Sheets (In thousands) September 30, December 31, 2005 2004 ---------------- -------------- (unaudited) ASSETS: Properties, at cost: Land $ 572,972 $ 549,722 Buildings and improvements 1,553,348 1,482,118 Tenant improvements 66,338 60,472 ---------- ---------- 2,192,658 2,092,312 Less accumulated depreciation and amortization (230,427) (200,181) ---------- ---------- 1,962,231 1,892,131 Investments in unconsolidated entity 1,391 1,387 Cash and cash equivalents 5,693 2,411 Accounts receivable (net of allowance for doubtful accounts of $2,085 and $3,892, respectively) 8,835 11,853 Accrued rent receivable (net of allowance for doubtful accounts of $3,654 and $3,306, respectively) 28,222 25,936 Notes receivable 2,630 7,511 Deferred lease commissions (net of accumulated amortization of $9,511 and $7,808, respectively) 15,912 14,188 Prepaid expenses 21,072 19,835 Other assets 27,407 20,192 ---------- ---------- $2,073,393 $1,995,444 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Notes payable $ 362,470 $ 343,736 Line of credit payable 57,400 113,000 Senior notes 653,852 554,290 Accounts payable, accrued expenses and other liabilities 47,520 39,205 ---------- ---------- 1,121,242 1,050,231 Minority interests 29,659 30,079 ---------- ---------- Stockholders' equity: Preferred stock par value $.01 per share, 30,000,000 authorized shares, no shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively. - - Common stock par value $.01 per share, 100,000,000 authorized shares, 40,701,053 and 40,530,415 shares issued and outstanding, net of 1,190,999 treasury shares, at September 30, 2005 and December 31, 2004, respectively 407 405 Additional paid in capital 967,139 959,925 Deferred compensation (8,167) (7,093) Accumulated deficit (36,887) (38,103) ---------- ---------- 922,492 915,134 ---------- ---------- $2,073,393 $1,995,444 ========== ========== Consolidated Statements of Income (in thousands, except share data) Three Months Nine Months Ended Ended September 30, September 30, ----------------- ------------------ (unaudited) (unaudited) 2005 2004 2005 2004 ------- ------- -------- -------- REVENUE: Base rent $60,994 $56,192 $178,399 $163,066 Percentage rent 894 428 2,158 1,979 Recoveries from tenants 15,335 14,729 45,987 42,101 Income from unconsolidated entities 88 76 330 348 Other 871 2,100 4,024 5,146 78,182 73,525 230,898 212,640 ------- ------- -------- -------- EXPENSES: Property operating 10,869 11,133 31,432 30,127 Property taxes 6,152 6,058 18,811 17,592 Depreciation and amortization 14,406 13,359 42,161 35,092 Interest 17,779 16,023 51,499 46,412 General and administrative 3,436 2,954 11,354 9,713 Impairment loss - 642 - 642 Other 127 138 626 2,930 52,769 50,307 155,883 142,508 ------- ------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS AND DISCONTINUED OPERATIONS 25,413 23,218 75,015 70,132 Minority interests (615) (592) (1,803) (1,874) ------- ------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS 24,798 22,626 73,212 68,258 Discontinued operations - 8,401 - 9,607 ------- ------- -------- -------- NET INCOME $24,798 $31,027 $ 73,212 $ 77,865 ======= ======= ======== ======== Basic earnings per share: Income from continuing operations $ 0.61 $ 0.56 $ 1.81 $ 1.70 Discontinued operations $ - $ 0.21 $ - $ 0.24 Net income $ 0.61 $ 0.77 $ 1.81 $ 1.94 Diluted earnings per share: Income from continuing operations $ 0.61 $ 0.56 $ 1.80 $ 1.69 Discontinued operations $ - $ 0.20 $ - $ 0.23 Net income $ 0.61 $ 0.76 $ 1.80 $ 1.92 Calculation of Funds from Operations (unaudited) (in thousands, except share data) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004(a) 2005 2004(a) ----------- ----------- ----------- ----------- FUNDS FROM OPERATIONS: Net Income $ 24,798 $ 31,027 $ 73,212 $ 77,865 Plus depreciation and amortization expense 14,406 13,359 42,161 35,092 Plus depreciation on discontinued operations - - - 155 Plus depreciation on unconsolidated entities 61 60 206 179 Less corporate FF&E depreciation (included above) (101) (74) (279) (214) Less depreciation on minority interests (67) (66) (199) (197) Plus operating subsidiary minority interests 385 353 1,139 1,159 Less gain on sale of discontinued operations - (8,066) - (8,245) ----------- ----------- ----------- ----------- Funds From Operations $ 39,482 $ 36,593 $ 116,240 $ 105,794 =========== =========== =========== =========== Funds From Operations Per Share $ 0.96 $ 0.89 $ 2.82 $ 2.57 Diluted Weighted Average Shares Outstanding 41,259,887 41,104,025 41,233,527 41,092,274 (a) For comparative purposes, amounts shown are as originally reported. The impact of revising the amounts for Statement of Financial Accounting Standards No. 144 has been excluded here so that the periods can be compared without the effect of reclassifying operating results for assets sold in subsequent periods. Revised financial results, if applicable, can be found in the Company's most current Form 10-Q and Form 10-K for 2004 filed with the Securities and Exchange Commission. The White Paper on Funds from Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in April 2002 (the "White Paper") defines Funds from Operations as net income (computed in accordance with accounting principles generally accepted in the United States of America, "GAAP"), excluding gains (or losses) on sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We believe that Funds from Operations (FFO) is an important supplemental measure of operating performance for a real estate investment trust. Because the historical cost accounting convention used for real estate assets requires straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a real estate investment trust that uses historical cost accounting for depreciation could be less informative. The term FFO was designed by the real estate investment trust industry to address this issue. We compute Funds from Operations in accordance with standards established by the White Paper. Our computation of Funds from Operations may, however, differ from the methodology for calculating Funds from Operations used by other equity REITs and, therefore, may not be comparable to these other REITs. FFO does not represent cash generated from operating activities in accordance with GAAP, is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income. FFO, as defined by us, may not be comparable to similarly titled items reported by other real estate investment trusts that do not define it exactly as the NAREIT definition. *T