PCE Pacific Office Properties Trust,

Pacific Office Properties Trust, Inc. (NYSE Amex: PCE), a West Coast office real estate investment trust (REIT), today announced its financial results for the three and nine month periods ended September 30, 2011.

Three Month Financial and Operating Results

The Company reported Funds from Operations (FFO) attributable to common stockholders for the quarter ended September 30, 2011 of $(2.7) million, or $(0.15) per diluted share.

During the three months ended September 30, 2011, the Company incurred $1.2 million of non-cash impairment charges related to the Company’s investments in two unconsolidated joint ventures. The charges were taken due to uncertainty surrounding debt maturing in the first quarter of 2012 that is secured by the properties owned by the joint ventures. FFO excluding these charges and other non-recurring items for the quarter ended September 30, 2011 was $(1.3) million, or $(0.07) per diluted share.

The Company reported Adjusted Funds from Operations (AFFO) attributable to common stockholders for the quarter ended September 30, 2011 of $(0.9) million, or $(0.05) per diluted share, compared to $0.8 million, or $0.05 per diluted share, for the quarter ended September 30, 2010.

The Company also reported a GAAP net loss attributable to common stockholders for the quarter ended September 30, 2011 of $(1.5) million, or $(0.39) per basic and diluted share, which includes the Company's portion of depreciation and amortization expense of $0.8 million. This compares to a GAAP net loss attributable to common stockholders of $(1.8) million, or $(0.46) per basic and diluted share, which included the Company's portion of depreciation and amortization expense of $1.2 million, for the quarter ended September 30, 2010.

Nine Month Financial and Operating Results

The Company reported Funds from Operations (FFO) attributable to common stockholders for the nine months ended September 30, 2011 of $(11.2) million, or $(0.62) per diluted share.

During the nine months ended September 30, 2011, the Company incurred residual acquisition and abandoned offering costs of $0.8 million. In addition, the Company incurred $11.5 million of non-cash impairment charges related to the contributions of the Pacific Business News Building and City Square properties into joint ventures. The loans secured by these properties were repaid at a discount and as such the Company recognized a $10.0 million gain on forgiveness of debt related to these loans. The Company also incurred an additional $3.3 million of non-cash impairment charges related to a consolidated property and $2.6 million of non-cash impairment charges related to unconsolidated joint ventures during the period. FFO excluding these non-recurring items for the nine months ended September 30, 2011 was $(2.8) million, or $(0.16) per diluted share.

The Company reported Adjusted Funds from Operations (AFFO) attributable to common stockholders for the nine months ended September 30, 2011 of $(0.7) million, or $(0.04) per diluted share, compared to $3.3 million, or $0.18 per diluted share, for the nine months ended September 30, 2010.

The Company also reported a GAAP net loss attributable to common stockholders for the nine months ended September 30, 2011 of $(5.6) million, or $(1.44) per basic and diluted share, which includes the Company's portion of depreciation and amortization expense of $2.8 million. This compares to a GAAP net loss attributable to common stockholders of $(4.1) million, or $(1.06) per basic and diluted share, which included the Company's portion of depreciation and amortization expense of $3.7 million, for the nine months ended September 30, 2010.

About Pacific Office Properties Trust, Inc.

Pacific Office Properties Trust, Inc. (www.pacificofficeproperties.com) is a self-administered and self-managed real estate investment trust that owns and operates primarily institutional-quality office properties principally in selected long-term growth markets in southern California and Hawaii. The Company’s strategy is to acquire, often in partnership with institutional co-investors, value-added office buildings whose potential can be maximized through improvements, repositioning and superior leasing and management.

Certain Information About Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe harbor provisions. Forward-looking statements are not historical information and are based on current expectations and involve risks and uncertainties. Without limiting the generality of the foregoing, words such as “should,” “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” “potential” or “continue,” or the negative or other variations thereof or comparable terminology, are intended to identify forward-looking statements. The risks and uncertainties inherent in such statements may cause actual future events or results to differ materially and adversely from those described in the forward-looking statements. Important factors that may cause a difference between projected and actual results for Pacific Office Properties Trust, Inc. are discussed in the Company’s filings from time to time with the SEC. Pacific Office Properties Trust, Inc. disclaims any obligation to revise or update any forward-looking statements that may be made from time to time by it or on its behalf.

                     

Pacific Office Properties Trust, Inc.

Consolidated Balance Sheets

(unaudited and in thousands, except share and per share data)

  September 30, 2011 December 31, 2010 ASSETS Investments in real estate, net $ 283,539 $ 353,137 Cash and cash equivalents 4,777 9,112 Restricted cash 4,545 9,851 Rents and other receivables, net 2,169 2,302 Deferred rents 4,803 6,332 Intangible assets, net 14,125 24,801 Acquired above-market leases, net 223 358 Other assets, net 3,628 5,141 Goodwill 48,549 48,549 Investments in unconsolidated joint ventures   6,406     8,802   Total Assets $ 372,764   $ 468,385     LIABILITIES AND EQUITY (DEFICIT) Mortgage and other loans, net $ 356,208 $ 420,126 Unsecured notes payable to related parties 21,104 21,104 Accounts payable and other liabilities 28,646 31,816 Acquired below-market leases, net   5,365     7,918   Total liabilities   411,323     480,964     Commitments and contingencies

 

Equity:

Preferred Stock, $0.0001 par value per share, 100,000,000 shares authorized, one share of Proportionate Voting Preferred Stock issued and outstanding at September 30, 2011 and December 31, 2010

- -

Senior Common Stock, $0.0001 par value per share (liquidation preference $10 per share, $24,108 and $24,179 as of September 30, 2011 and December 31, 2010, respectively) 40,000,000 shares authorized, 2,410,839 and 2,417,867 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

21,459 21,525

Listed Common Stock, $0.0001 par value per share, 599,999,900 shares authorized, 3,941,142 and 3,903,050 shares issued and outstanding at September 30, 2011 and December 31, 2010

185 185

Class B Common Stock, $0.0001 par value per share, 100 shares authorized, issued and outstanding at September 30, 2011 and December 31, 2010

- - Additional paid-in capital 110 50 Cumulative deficit   (156,175 )   (150,524 ) Total stockholders' equity (deficit) (134,421 ) (128,764 ) Non-controlling interests: Preferred unitholders in the Operating Partnership 127,268 127,268 Common unitholders in the Operating Partnership   (31,406 )   (11,083 ) Total equity (deficit)   (38,559 )   (12,579 ) Total liabilities and equity (deficit) $ 372,764   $ 468,385                            

Pacific Office Properties Trust, Inc.

Consolidated Statements of Operations

(unaudited and in thousands, except share and per share data)

  For the three months ended September 30, 2011 2010   Revenue: Rental $ 7,233 $ 10,876 Tenant reimbursements 5,166 5,324 Property management and other services 1,300 - Parking 1,633 2,025 Other   121     91   Total revenue   15,453     18,316     Expenses: Rental property operating 7,914 10,168 General and administrative 2,395 687 Depreciation and amortization 3,717 5,649 Interest 6,306 9,133 Acquisition costs   12     630   Total expenses   20,344     26,267    

Loss before equity in net earnings (loss) of unconsolidated joint ventures

(4,891 ) (7,951 )

Equity in net earnings (loss) of unconsolidated joint ventures

  (1,121 )   140   Net loss (6,012 ) (7,811 )   Net (income) loss attributable to non-controlling interests: Preferred unitholders in the Operating Partnership (568 ) (568 ) Common unitholders in the Operating Partnership   5,480     6,617   4,912 6,049 Dividends on Senior Common Stock   (437 )   (49 ) Net loss attributable to common stockholders $ (1,537 ) $ (1,811 )   Net loss per common share - basic and diluted $ (0.39 ) $ (0.46 )  

Weighted average number of common shares outstanding - basic and diluted

  3,941,242     3,903,150            

Pacific Office Properties Trust, Inc.

Consolidated Statements of Operations

(unaudited and in thousands, except share and per share data)

  For the nine months ended September 30, 2011                 2010   Revenue: Rental $ 25,837 $ 31,621 Tenant reimbursements 15,397 16,742 Property management and other services 3,533 - Parking 5,429 6,093 Other   1,013     267   Total revenue   51,209     54,723     Expenses: Rental property operating 25,852 29,885 General and administrative 8,029 2,091 Depreciation and amortization 12,801 17,178 Interest 20,035 22,580 Abandoned offering costs 420 - Acquisition costs 279 630 Impairment of long-lived assets   14,784     -   Total expenses   82,200     72,364    

Loss before gain on forgiveness of debt, equity in net earnings (loss) of unconsolidated joint ventures and non-operating income

(30,991 ) (17,641 ) Gain on forgiveness of debt 10,045 -

Equity in net earnings (loss) of unconsolidated joint ventures

(2,515 ) 184 Non-operating income   507     -   Net loss (22,954 ) (17,457 )   Net (income) loss attributable to non-controlling interests: Preferred unitholders in the Operating Partnership (1,704 ) (1,704 ) Common unitholders in the Operating Partnership   20,322     15,113   18,618 13,409 Dividends on Senior Common Stock   (1,312 )   (53 ) Net loss attributable to common stockholders $ (5,648 ) $ (4,101 )   Net loss per common share - basic and diluted $ (1.44 ) $ (1.06 )  

Weighted average number of common shares outstanding - basic and diluted

  3,918,080     3,869,991                      

Pacific Office Properties Trust, Inc.

Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)

(unaudited and in thousands, except share and per share data)

  For the three months For the nine months ended September 30, ended September 30, 2011       2010 2011       2010

Reconciliation of net loss to FFO(1):

Net loss attributable to common stockholders $ (1,537 ) $ (1,811 ) $ (5,648 ) $ (4,101 ) Add: Depreciation and amortization of real estate assets 3,717 5,649 12,801 17,178

Depreciation and amortization of real estate assets - unconsolidated joint ventures

598 607 1,924 1,949 Less: Distributions to preferred unitholders (568 ) (568 ) (1,704 ) (1,704 ) Net loss attributable to non-controlling interests   (4,912 )   (6,049 )   (18,618 )   (13,409 ) FFO attributable to common stockholders $ (2,702 ) $ (2,172 ) $ (11,245 ) $ (87 )   Reconciliation of FFO to FFO, excluding non-recurring items: FFO $ (2,702 ) $ (2,172 ) (11,245 ) (87 ) Add (deduct): Acquisition costs 12 630 279 630

Acquisition costs - unconsolidated joint ventures

18 - 70 - Abandoned offering costs - - 420 - Impairment of long-lived assets - - 14,784 -

Impairment of investments in unconsolidated joint ventures

1,185 - 2,543 -

Default interest and late penalties accrued on non-recourse loans in default

148 2,289 859 2,433 Non-operating income - - (507 ) - Gain on forgiveness of debt   -     -     (10,045 )   FFO, excluding non-recurring items $ (1,339 ) $ 747   $ (2,842 ) $ 2,976    

Reconciliation of FFO to AFFO(2):

FFO attributable to common stockholders $ (2,702 ) $ (2,172 ) $ (11,245 ) $ (87 ) Acquisition costs 12 630 279 630

Acquisition costs - unconsolidated joint ventures

18 - 70 - Abandoned offering costs - - 420 -

Default interest and late penalties accrued on non-recourse loans in default

148 2,289 859 2,433 Non-operating income - - (507 ) - Impairment of long-lived assets - - 14,784 -

Impairment of investments in unconsolidated joint ventures

1,185 - 2,543 - Gain on forgiveness of debt - - (10,045 ) -

Amortization of interest rate contracts, loan premiums and prepaid financings

234 330 918 1,026 Non-cash compensation expense - 50 60 150 Deferred interest expense on unsecured notes payable 463 432 1,352 1,261

Amortization of acquired above- and below-market leases

(158 ) (492 ) (934 ) (1,578 ) Straight-line rent adjustments, net 375 93 1,553 403

Recurring capital expenditures, tenant improvements and leasing commissions

  (439 )   (327 )   (808 )   (987 ) AFFO attributable to common stockholders $ (864 ) $ 833   $ (701 ) $ 3,251     FFO per share – diluted $ (0.15 ) $ (0.12 ) $ (0.62 ) $ (0.00 ) FFO, excluding non-recurring items - diluted $ (0.07 ) $ 0.04   $ (0.16 ) $ 0.16   AFFO per share – diluted $ (0.05 ) $ 0.05   $ (0.04 ) $ 0.18  

Weighted average number of common shares and common share equivalents outstanding - diluted(3)

  18,042,246     18,077,425     18,019,084     18,127,136          

Explanation of Notations

 

(1)

FFO is a widely recognized measure of REIT performance. The National Association of Real Estate Investment Trusts, or NAREIT, has provided a recommendation on how REITs should define FFO. NAREIT suggests that FFO be defined as net income (loss) attributable to stockholders (as computed in accordance with GAAP), excluding gains (or losses) from dispositions of property, extraordinary items, real estate-related depreciation and amortization (including capitalized leasing expenses, tenant allowances or improvements and excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. We calculate FFO in accordance with NAREIT guidelines. Management uses FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization, gains (or losses) from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, captures trends in occupancy, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.

  However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. Other equity REITs may not calculate FFO in accordance with the NAREIT definition and, accordingly, our FFO may not be comparable to such other equity REITs’ FFO. As a result, FFO should be considered only as a supplement to net income (loss) as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. FFO also should not be used as a supplement to or substitute for cash flow from operating activities (computed in accordance with GAAP).  

(2)

AFFO is a non-GAAP financial measure we believe is a useful supplemental measure of our performance. We compute AFFO by adding to FFO nonrecurring items, straight-line rent adjustments (straight-line ground rent expense minus straight-line rent revenue), the amortization of interest rate contracts, loan premium and prepaid financing costs, non-cash compensation expense, and interest expense deferred on unsecured notes and then subtracting from FFO the amortization of acquired above- and below-market leases and recurring capital expenditures, tenant improvements and leasing commissions. AFFO is not intended to represent cash flow for the period, and it only provides an additional perspective on our ability to fund cash needs and make distributions to shareholders by adjusting the effect of the non-cash items included in FFO, as well as recurring capital expenditures and leasing costs. We believe that net income or loss is the most directly comparable GAAP financial measure to AFFO. We also believe that AFFO provides useful information to the investment community about the Company’s financial position as compared to other REITs since AFFO is a widely reported measure used by other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not be comparable to other REITs.

 

(3)

The weighted average number of common shares and common share equivalents outstanding – diluted includes common unit limited partnership interests in our Operating Partnership.

  Our outstanding preferred unit interests in our Operating Partnership are convertible into common unit limited partnership interests in our Operating Partnership, but no earlier than the date an underwritten public equity offering of our common stock in an amount equal to or greater than $75 million is consummated, which is a contingent event as of September 30, 2011. These common unit interests will become exchangeable for shares of our Listed Common Stock one year after such conversion. Our outstanding preferred unit interests at September 30, 2011 represent 32,597,528 common share equivalents, on an as-if converted basis, and any impact related to these outstanding preferred unit interests have not been included in our calculation of diluted earnings per share or FFO per share, including our calculation of the weighted average number of common and common equivalent shares outstanding, in accordance with GAAP.  

Our Senior Common Stock may be exchanged, at the option of the holder, for shares of our Listed Common Stock after the fifth anniversary of the issuance of such shares of Senior Common Stock. The exchange ratio is to be calculated using a value for our Listed Common Stock based on the average of the trailing 30-day closing price of the Listed Common Stock on the date the shares are submitted for exchange, but in no event less than $1.00 per share, and a value of Senior Common Stock of $10.00 per share. Based on a 30-day average Listed Common Stock share price of $0.66 for the period ended September 30, 2011, the exchange ratio as of September 30, 2011, was 10.00. The weighted average number of Senior Common shares outstanding for the three months ended September 30, 2011 was 2,411,826, resulting in 24,118,260 of potentially dilutive common share equivalents outstanding for the three months ended September 30, 2011. The weighted average number of Senior Common shares outstanding for the nine months ended September 30, 2011 was 2,414,737, resulting in 24,147,370 of potentially dilutive common share equivalents outstanding for the nine months ended September 30, 2011. Based on a 30-day average Listed Common Stock share price of $4.82 for the period ended September 30, 2010, the exchange ratio as of September 30, 2010, was 2.07. The weighted average number of Senior Common shares outstanding for the three months ended September 30, 2010 was 275,483, resulting in 571,147 of potentially dilutive common share equivalents outstanding for the three months ended September 30, 2010. The weighted average number of Senior Common shares outstanding for the nine months ended September 30, 2010 was 99,309, resulting in 205,893 of potentially dilutive common share equivalents outstanding for the nine months ended September 30, 2010.

  Assuming the full conversion of our outstanding preferred unit interests and our Senior Common Stock, our FFO per share, on a fully diluted basis, would have been $(0.02) and our AFFO per share, on a fully diluted basis, would have been $0.00, for the three months ended September 30, 2011. Assuming the full conversion of our outstanding preferred unit interests and our Senior Common Stock, our FFO per share and AFFO per share, on a fully diluted basis, would have been $(0.03) and $0.03, respectively, for the three months ended September 30, 2010. Assuming the full conversion of our outstanding preferred unit interests and our Senior Common Stock, our FFO per share excluding non-recurring items would have been $0.00 for the three months ended September 30, 2011. Assuming the full conversion of our outstanding preferred unit interests and our Senior Common Stock, our FFO per share, on a fully diluted basis, would have been $(0.11) and our AFFO per share, on a fully diluted basis, would have been $0.03, for the nine months ended September 30, 2011. Assuming the full conversion of our outstanding preferred unit interests and our Senior Common Stock, our FFO per share and AFFO per share, on a fully diluted basis would have been $0.03 and $0.10, respectively, for the nine months ended September 30, 2010. Assuming the full conversion of our outstanding preferred unit interests and our Senior Common Stock, our FFO per share excluding non-recurring items would have been $0.00 for the nine months ended September 30, 2011.