Pan Pacific (NYSE:PNP)
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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 year and fourth quarter ended December 31, 2005. All per share
amounts are on a diluted basis.
Fourth Quarter 2005 Highlights
-- 5.7% increase in total Funds From Operations (FFO) to $39.9
million vs. 4Q'04 (1)
-- 5.4% increase in per share FFO to $0.97 vs. 4Q'04 (1)
-- Net income of $38.1 million
-- Earnings per share of $0.93
-- $42.9 million grocery-anchored shopping center acquisition
-- $30.4 million in a non-strategic disposition
-- 7.9% increase in same-property net operating income vs. 4Q'04
-- 158 leases executed, totaling 798,900 square feet (record
leasing activity)
-- 18.8% increase in base rent on same-store new and renewed
leases
-- $0.59 per share quarterly common cash dividend paid
Year 2005 Highlights
-- 8.8% increase in total FFO to $156.2 million (1)
-- 8.6% increase in per share FFO to $3.79 (1)
-- Net income of $111.3 million
-- Earnings per share of $2.73
-- 97.1% portfolio occupancy rate at December 31, 2005
-- 691 leases executed, totaling 2,496,264 square feet (record
leasing activity)
-- 18.3% increase in base rent on same-store new and renewed
leases
-- $144.6 million in shopping center acquisitions
-- $30.4 million in a non-strategic disposition
-- Credit rating upgraded to 'BBB+' by Standard & Poor's
-- $100 million of 5.25%, 10-year unsecured senior notes issued
-- 28.3% debt to total market capitalization ratio at December
31, 2005
-- 3.3 to 1.0 interest coverage ratio for 2005
-- $2.36 per share in dividends paid (8.8% increase over
dividends paid in 2004)
-- 62.3% FFO payout ratio (1)
Highlights Subsequent to Year End 2005
-- 8.5% increase in quarterly common dividend to $0.64 per share
-- $10.1 million shopping center acquisition
(1) See the end of this press release for a reconciliation of GAAP
net income to FFO.
Stuart A. Tanz, President and Chief Executive Officer of Pan
Pacific stated, "2005 proved to be one of the strongest on record for
the company. We achieved 8.6% growth in FFO per share, exceeding our
original guidance established over a year ago. Our growth was driven
by our strong portfolio performance where we attained an occupancy
level of 97.1%, leased a record 2.5 million square feet, and achieved
double-digit growth in same-store re-leasing rents for the eighth
consecutive year. Our growth was also driven by our focused investment
strategy to acquire grocery-anchored shopping centers in established
metropolitan markets on the West Coast. This year we invested $144.6
million by acquiring six grocery-anchored neighborhood centers and
sold one non-strategic asset for $30.4 million." Mr. Tanz continued,
"With our conservative balance sheet, and strong financial position,
we are well positioned to continue generating solid growth. Looking
ahead, we expect to achieve an increase of approximately 5% in FFO per
share in 2006."
FINANCIAL RESULTS
For the three months ended December 31, 2005 total Funds from
Operations (FFO) increased 5.7% to $39.9 million, compared with FFO
for the three months ended December 31, 2004 of $37.8 million. On a
per share basis, FFO increased 5.4% to $0.97 for the three months
ended December 31, 2005 compared to $0.92 for the three months ended
December 31, 2004. A reconciliation of generally accepted accounting
principles (GAAP) net income to FFO is provided at the end of this
press release.
For the three months ended December 31, 2005, total revenue
increased 5.8% to $80.3 million as compared to total revenue of $75.9
million for the three months ended December 31, 2004, after adjusting
for discontinued operations in accordance with GAAP.
For the three months ended December 31, 2005 net income was $38.1
million or $0.93 per share, including $0.32 per share related to
discontinued operations and a $13.1 million gain on sale thereon,
compared with net income of $24.1 million or $0.59 per share for the
three months ended December 31, 2004.
For the year ended December 31, 2005, total FFO increased 8.8% to
$156.2 million, compared with FFO of $143.6 million for the year ended
December 31, 2004. On a per share basis, FFO increased 8.6% to $3.79
for the year ended December 31, 2005 compared to $3.49 for the year
ended December 31, 2004.
For the year ended December 31, 2005, total revenue increased 7.6%
to $308.4 million as compared to $286.7 million for 2004, after
adjusting for discontinued operations in accordance with GAAP.
For the year ended December 31, 2005, net income was $111.3
million or $2.73 per share, including $0.35 per share related to
discontinued operations and a $13.1 million gain on sale thereon,
compared with net income of $102.0 million or $2.52 per share,
including $0.26 as adjusted for discontinued operations and related
gains on sale in accordance with GAAP for the year ended December 31,
2004.
At December 31, 2005, the Company's total market capitalization
was approximately $3.9 billion (based on the market closing price of
Pan Pacific's common stock on December 31, 2005, assuming the
conversion of operating subsidiary units to common stock, and total
debt outstanding). At December 31, 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 6.3
years; $384.1 million of fixed-rate, mortgage debt with a weighted
average interest rate of 7.3%, and a weighted average maturity of 3.7
years; $44.5 million of floating-rate debt outstanding under the
Company's unsecured line of credit, which had a weighted average
interest rate of 5.1% at December 31, 2005; and $6.0 million of
floating-rate, property-level bonds bearing interest at a rate of 3.4%
as of December 31, 2005.
For both the year and three months ended December 31, 2005, the
Company's interest coverage ratio was 3.3 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 October 27, 2005, the Board of Directors declared a regular
quarterly cash dividend of $0.59 per share. The dividend was paid on
December 15, 2005 to stockholders of record on November 23, 2005, and
equated to a FFO payout ratio of 61.0% (calculated as dividends paid
per share divided by FFO per share). For the full year 2005, the
Company distributed dividends totaling $2.36 per share, representing
an 8.8% increase over total dividends per share distributed during
2004. The total dividends distributed in 2005 of $2.36 per share
equated to a FFO payout ratio of 62.3% for the year.
OPERATING RESULTS
Leasing Activity
At December 31, 2005, the Company's portfolio was 97.1% leased to
3,468 tenants.
For the three months ended December 31, 2005, the Company executed
158 leases (new and renewed) for a record 798,900 square feet of gross
leasable area, and achieved an 18.8% increase over prior rents on a
same-store basis.
For the year ended December 31, 2005, the Company executed 691
leases (new and renewed) for a record 2,496,264 square feet of gross
leasable area, and achieved an 18.3% 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 December 31, 2005 and
2004, same property net operating income increased 7.9%.
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*T
Same Property Operating Data
(In thousands)
Three Months Ended
December 31,
---------------------
2005 2004
------- -------
Total revenue $75,836 $73,549
Operating expenses 19,978 21,763
------- -------
Operating income $55,858 $51,786 7.9%
======= ======= ====
*T
INVESTMENT ACTIVITY
Acquisitions
During 2005, the Company acquired a total of six grocery-anchored
shopping centers, encompassing 780,388 square feet, for an aggregate
purchase price of $144.6 million, including the acquisition of
Renaissance West Shopping Center, during the fourth quarter, which
totaled $42.9 million.
Renaissance West
On December 21, 2005 the Company acquired Renaissance West
Shopping Center, a 168,600 square foot grocery-anchored community
shopping center located in Las Vegas, Nevada, in close proximity to
the Company's Sahara Pavilions shopping centers. Renaissance West is
currently 98.2% leased and is anchored by Food 4 Less Supermarket (a
division of Kroger). The property was financed through a combination
of the assumption of existing debt and borrowings under the Company's
$300 million unsecured line of credit.
DISPOSITION ACTIVITY
On October 19, 2005, the Company sold Southern Palms Shopping
Center located in Tempe, Arizona for $30.4 million. The Company
utilized the proceeds from this sale to close the previous acquisition
of Silverdale Shopping Center, which was structured as a reverse 1031
exchange. In connection with the disposition, the Company recorded a
gain of $13.1 million.
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.
SUBSEQUENT EVENTS
Dividend Increase
On February 8, 2006 the Board of Directors declared a quarterly
dividend of $0.64 per share, representing an 8.5% increase. The
dividend is payable March 15, 2006 to stockholders of record on
February 24, 2006. The increased quarterly dividend equates to $2.56
per share on an annualized basis. Since its initial public offering in
1997, the Company has increased its dividend each year for a total
increase of approximately 76.6%, equating to an average dividend
increase of approximately 8.5% per year.
Acquisition
On February 1, 2006 the Company acquired for $10.1 million Harbor
Towne Center, a 70,104 square foot grocery-anchored shopping center in
Oak Harbor, Washington, north of Seattle. Harbor Towne Center is
currently 100% leased and is anchored by Saar's Market. The property
was financed through a combination of borrowings under the Company's
$300 million unsecured line of credit and cash flow from operations.
EARNINGS GUIDANCE
The Company reaffirmed its previously disclosed 2006, full-year
FFO guidance range of $3.97 to $4.01 per diluted share (1). This
guidance is based on current expectations and is forward-looking.
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*T
Q1 '06 Year 2006
-------------- --------------
Expected earnings per diluted share $0.70 - $0.72 $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 diluted share $0.97 - $0.99 $3.97 - $4.01
(1) Based on an estimated 41,300,000 and 41,300,000 shares
outstanding, respectively.
*T
YEAR END, 4TH QUARTER 2006 CONFERENCE CALL
On Wednesday, February 8, 2006, at 12:00 Noon Eastern Time, the
Company will be hosting a conference call to discuss its year end and
fourth 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 March 8, 2006 at (877) 660-6853, pass code
286, confirmation 182943.
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 March 8, 2006.
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 139 properties, encompassing approximately
22.6 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 implementing 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.)
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*T
Consolidated Balance Sheets
(In thousands, except share data)
December 31, December 31,
2005 2004
--------------- ---------------
ASSETS:
Properties, at cost:
Land $ 574,048 $ 549,722
Buildings and improvements 1,581,489 1,482,118
Tenant improvements 66,702 60,472
-------------- --------------
2,222,239 2,092,312
Less accumulated depreciation
and amortization (240,086) (200,181)
-------------- --------------
1,982,153 1,892,131
Investments in unconsolidated
entity 1,379 1,387
Cash and cash equivalents 5,859 2,411
Accounts receivable (net of
allowance for doubtful accounts
of $2,121 and $3,892,
respectively) 10,813 11,853
Accrued rent receivable (net of
allowance for doubtful accounts
of $3,283 and $3,306,
respectively) 28,699 25,936
Notes receivable 3,046 7,511
Deferred lease commissions (net
of accumulated amortization of
$9,769 and $7,808, respectively) 15,526 14,188
Prepaid expenses 21,585 19,835
Other assets 29,704 20,192
-------------- --------------
$ 2,098,764 $ 1,995,444
============== ==============
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Notes payable $ 390,132 $ 343,736
Line of credit payable 44,500 113,000
Senior notes 653,908 554,290
Accounts payable, accrued
expenses and other liabilities 43,387 39,205
-------------- --------------
1,131,927 1,050,231
Minority interests 28,794 30,079
-------------- --------------
Stockholders' equity:
Preferred stock par value
$.01 per share, 30,000,000
authorized shares, no shares
issued and outstanding at
December 31, 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 December 31, 2005 and
December 31, 2004,
respectively 407 405
Additional paid in capital 967,139 959,925
Deferred compensation (6,695) (7,093)
Accumulated deficit (22,808) (38,103)
-------------- --------------
938,043 915,134
-------------- --------------
$ 2,098,764 $ 1,995,444
============== ==============
Consolidated Statements of Income
(in thousands, except share data)
Three Months Ended Years Ended
December 31, December 31,
--------------------- -------------------
(unaudited)
2005 2004 2005 2004
--------- --------- -------- --------
REVENUE:
Base rent $ 61,241 $ 55,953 $237,554 $217,726
Percentage rent 701 827 2,856 2,800
Recoveries from tenants 17,262 15,734 62,619 57,237
Income from unconsolidated
entities 88 90 418 438
Other 1,012 3,303 4,992 8,449
80,304 75,907 308,439 286,650
--------- --------- -------- --------
EXPENSES:
Property operating 11,604 11,944 42,331 41,430
Property taxes 6,993 6,826 25,481 24,011
Depreciation and
amortization 14,570 13,262 56,103 48,011
Interest 17,853 16,207 69,352 62,619
General and administrative 3,645 3,314 14,999 13,027
Impairment loss - - - 642
Other 305 61 931 2,991
54,970 51,614 209,197 192,731
--------- --------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE
MINORITY INTERESTS AND
DISCONTINUED OPERATIONS 25,334 24,293 99,242 93,919
Minority interests (601) (465) (2,404) (2,339)
--------- --------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE
DISCONTINUED OPERATIONS 24,733 23,828 96,838 91,580
Discontinued operations 13,360 295 14,467 10,409
--------- --------- -------- --------
NET INCOME $ 38,093 $ 24,123 $111,305 $101,989
========= ========= ======== ========
Basic earnings per share:
Income from continuing
operations $ 0.61 $ 0.59 $ 2.40 $ 2.28
Discontinued operations $ 0.33 $ 0.01 $ 0.35 $ 0.26
Net income $ 0.94 $ 0.60 $ 2.75 $ 2.54
Diluted earnings per
share:
Income from continuing
operations $ 0.61 $ 0.59 $ 2.38 $ 2.26
Discontinued operations $ 0.32 $ - $ 0.35 $ 0.26
Net income $ 0.93 $ 0.59 $ 2.73 $ 2.52
Calculation of Funds from Operations
(unaudited)
(in thousands, except share data)
Three Months Ended Years Ended
December 31, December 31,
2005 2004 (a) 2005 2004 (a)
----------- ------------ ----------- ------------
FUNDS FROM
OPERATIONS:
Net Income $ 38,093 $ 24,123 $ 111,305 $ 101,989
Plus
depreciation
and
amortization
expense 14,570 13,409 56,103 48,501
Plus
depreciation
on
discontinued
operations 107 - 734 155
Plus
depreciation
on
unconsolidated
entities 61 60 268 238
Less corporate
FF&E
depreciation
(included
above) (110) (82) (389) (296)
Less
depreciation
on minority
interests (67) (66) (266) (263)
Plus operating
subsidiary
minority
interests 371 354 1,510 1,513
Less gain on
sale of
discontinued
operations (13,087) - (13,087) (8,245)
----------- ----------- ----------- -----------
Funds From
Operations $ 39,938 $ 37,798 $ 156,178 $ 143,592
=========== =========== =========== ===========
Funds From
Operations Per
Share $ 0.97 $ 0.92 $ 3.79 $ 3.49
Diluted Weighted
Average Shares
Outstanding 41,280,850 41,173,394 41,260,465 41,134,773
(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.
*T
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 entitled
items reported by other real estate investment trusts that do not
define it exactly as the NAREIT definition.