10-Q 1 qpdc.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number 333-34835-01 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP ---------------------------------------------- (Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No [X] [ ] PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP FORM 10-Q INDEX

2 Certain matters discussed under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk" and elsewhere in this Quarterly Report on Form 10-Q may constitute forward-looking statements and as such may involve known and unknown risks, uncertainties and assumptions. Actual future performance, achievements and results of Price Development Company, Limited Partnership (the "Operating Partnership") may differ materially from those expressed or implied by such forward-looking statements as a result of such known and unknown risks, uncertainties, assumptions and other factors. Representative examples of these factors include, without limitation, general industry and economic conditions, interest rate trends, cost of capital and capital requirements, availability of real estate properties, competition from other companies and venues for the sale/distribution of goods and services, shifts in customer demands, tenant bankruptcies, governmental and public policy changes and the continued availability of financing in the amounts and on the terms necessary to support the future business of the Operating Partnership. Readers are cautioned that the Operating Partnership's actual results could differ materially from those set forth in such forward-looking statements. PART I ITEM 1. FINANCIAL STATEMENTS The information furnished in the accompanying financial statements listed in the index on page 2 of this Quarterly Report on Form 10-Q reflects only normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the aforementioned financial statements for the interim periods. The aforementioned financial statements should be read in conjunction with the notes to the financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations and the Operating Partnership's Quarterly Report on Form 10-Q for the three months ended March 31, 2001 and the six months ended June 30, 2001 and the Operating Partnership's Annual Report on Form 10-K/A for the year ended December 31, 2000, including the financial statements and notes thereto. 3 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)

See accompanying notes to consolidated financial statements. 4 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT AMOUNTS) FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 2001 2000 2001 2000 ----------- ------------ ------------ ------------ REVENUES Minimum Rents $ 26,637 $ 26,038 $ 77,690 $ 75,525 Percentage and Overage Rents 222 376 1,317 1,128 Recoveries from Tenants 8,115 8,174 24,112 23,367 Interest 117 238 412 554 Other 189 374 773 1,779 ----------- ------------ ------------ ------------ 35,280 35,200 104,304 102,353 ----------- ------------ ------------ ------------ EXPENSES Operating and Maintenance 6,170 6,484 17,405 17,840 Real Estate Taxes and Insurance 3,764 3,580 11,274 10,883 Advertising and Promotions 163 179 521 537 General and Administrative 1,551 1,699 5,062 4,876 Depreciation 7,150 7,188 21,309 19,734 Amortization of Deferred Financing Costs 379 424 1,122 1,231 Amortization of Deferred Leasing Costs 155 211 550 569 Interest 6,926 7,861 22,362 22,952 ----------- ------------ ------------ ------------ 26,258 27,626 79,605 78,622 ----------- ------------ ------------ ------------ 9,022 7,574 24,699 23,731 Minority Interest in (Income) Loss of Consolidated Partnerships (85) 144 (53) 290 Gain on Sales of Real Estate -- 373 872 2,002 ----------- ------------ ------------ ------------ Income Before Extraordinary Item 8,937 8,091 25,518 26,023 Extraordinary Item - Loss on Early Extinguishment of Debt -- (98) -- (98) ----------- ------------ ------------ ------------ Net Income 8,937 7,993 25,518 25,925 Preferred Unit Distributio (2,580) (2,579) (7,739) (7,505) ----------- ------------ ------------ ------------ Net Income Available to Common Unitholders $ 6,357 $ 5,414 $ 17,779 $ 18,420 =========== ============ ============ ============ Basic Earning Per Partnership Unit Income Income Before Extraordinary Item $ 0.32 $ 0.28 $ 0.89 $ 0.93 Extraordinary Item -- (0.01) -- (0.01) ----------- ------------ ------------ ------------ Net Income $ 0.32 $ 0.27 $ 0.89 $ 0.92 =========== ============ ============ ============ Diluted Earnings Per Partnership Unit Income $ 0.32 $ 0.28 $ 0.89 $ 0.93 Income Before Extraordinary Item Extraordinary Item -- (0.01) -- (0.01) ----------- ------------ ------------ ------------ Net Income $ 0.32 $ 0.27 $ 0.89 $ 0.92 =========== ============ ============ ============ Basic Weighted Average Number of Partnership Units Outstanding 19,977 19,855 19,912 19,961 Dilutive Effect of Stock Options 87 17 54 9 ----------- ------------ ------------ ------------ Diluted Weighted Average Number of Partnership Units Outstanding 20,064 19,872 19,966 19,970 =========== ============ ============ ============

See accompanying notes to consolidated financial statements. 5 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)

See accompanying notes to consolidated financial statements. 6 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) 1. BUSINESS SUMMARY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Price Development Company, Limited Partnership (the "Operating Partnership") is primarily engaged in the business of owning, leasing, managing, operating, developing and redeveloping regional malls, community centers and other commercial properties in Utah, Idaho, Colorado, Arizona, Nevada, New Mexico and Wyoming, as well as in Oregon, Washington and California. The tenant base includes primarily national, regional and retail chains and local retail companies. Consequently, the credit risk is concentrated in the retail industry. JP Realty, Inc., a Maryland corporation (the "Company"), is the sole general partner of the Operating Partnership. The Company conducts all of its business operations through, and holds a controlling interest in, the Operating Partnership. Since there are no material differences between the Company and the Operating Partnership they will be collectively referred to as the "Company" unless the context requires otherwise. The accompanying consolidated financial statements include the accounts of the Operating Partnership and all controlled affiliates. All significant intercompany balances and transactions have been eliminated in the consolidated presentation. The interim financial data for the three months and nine months ended September 30, 2001 and 2000 is unaudited; however, in the opinion of the Company, the interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain amounts in the 2000 financial statements have been reclassified to conform to the 2001 presentation. Net income of the Operating Partnership is allocated first to its preferred unitholders as described in Note 4 and then to its common unitholders based upon their pro rata share of unit ownership. The Operating Partnership's income allocated to its common unitholders was based upon the weighted average number of common units outstanding as follows:

Deferred charges consist principally of financing fees and leasing commissions paid to third parties. These costs are amortized on a straight- line basis and are recorded in the consolidated statement of operations in amortization of deferred financing costs and amortization of deferred leasing costs, which amounts, for deferred financing costs, approximate those amortized using the effective interest method, over the terms of the respective agreements. 2. BORROWINGS

7 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) 2. BORROWINGS (CONTINUED) On January 22, 2001, the Operating Partnership through Boise Mall, LLC, an indirectly wholly-owned subsidiary, obtained a first mortgage on Boise Towne Square from The Chase Manhattan Bank in the amount of $79,000 with a ten-year term. The payment is based on a thirty-year amortization schedule with a balloon payment of $68,315 on February 10, 2011, bearing interest at a fixed 6.64% per annum. The Operating Partnership used the proceeds to pay off $61,223 of notes, secured by real estate, with an interest rate of 6.37% and reduced amounts outstanding under the Operating Partnership's credit facility. The properties unencumbered by this transaction include Cottonwood Mall in Holladay, Utah, North Plains Mall in Clovis, New Mexico and Three Rivers Mall in Kelso, Washington. On June 28, 2001, Provo Mall Development Company Ltd., a consolidated partnership of which the Operating Partnership is the general partners, exercised its right to extend its $50,000 construction loan facility. The balance outstanding as of September 30, 2001 was $44,085. The extension is for a two year period maturing July 1, 2003. On July 31, 2001, Spokane Mall Development Company, Ltd. Partnership, a consolidated partnership of which the Operating Partnership is the general partner, obtained a new loan facility from a group of banks led by Bank One Arizona, NA. The new loan facility totals $47,300, of which $41,600 was drawn at closing and used to pay-off and terminate the maturing $50,000 Spokane Valley Mall construction loan, which had a balance of $41,600. The new loan facility is for two years, maturing on July 31, 2003, with an interest rate of LIBOR plus 150 basis points. 3. SCHEDULE OF MATURITIES OF BORROWINGS The following summarizes the scheduled maturities of borrowings at September 30, 2001:

4. PARTNERS' CAPITAL The following table summarizes changes in partners' capital since December 31, 2000:

8 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) 4. PARTNERS' CAPITAL (CONTINUED) In April 1999, the Operating Partnership issued 510,000 Series A 8.75% cumulative redeemable preferred units of limited partner interests (the "Series A Preferred Units") in exchange for a gross contribution of $12,750. Each Series A Preferred Unit represents a limited partner interest with a liquidation value of twenty-five dollars per unit. The Operating Partnership used the proceeds, less applicable transaction costs of $405, for the repayment of borrowings outstanding under its prior credit facility. The Series A Preferred Units, which may be redeemed for cash at the option of the Operating Partnership on or after April 23, 2004, have no stated maturity or mandatory redemption and are not convertible into any other securities of the Operating Partnership. The Series A Preferred Units are exchangeable at the option of the preferred unitholder at a rate of one Series A Preferred Unit for one share of the Company's Series A 8.75% cumulative redeemable preferred stock beginning April 23, 2009, or earlier under certain circumstances. In the event that shares of Series A preferred stock are issued in exchange for Series A Preferred Units, the Operating Partnership will issue an equivalent number of Series A Preferred Units to the Company. Any shares of Series A preferred stock issued in exchange for Series A Preferred Units will have the same rights, terms and conditions with respect to redemption as the Series A Preferred Units and will not be convertible into any other securities of the Company. The income allocated and distributions paid to the holder of the Series A Preferred Units are based upon the rate of 8.75% on the $12,750 or $837 for the nine months ended September 30, 2001 and 2000. On July 28, 1999, the Operating Partnership issued 3.8 million Series B 8.95% cumulative redeemable preferred units of limited partner interest (the "Series B Preferred Units") in exchange for a gross contribution of $95,000. Each Series B Preferred Unit represents a limited partner interest with a liquidation value of twenty-five dollars per unit. The Operating Partnership used the proceeds, less applicable transaction costs of $2,774, to repay $90,000 in borrowings under its prior credit facility and increase operating cash. The Series B Preferred Units, which may be redeemed for cash at the option of the Operating Partnership on or after July 28, 2004, have no stated maturity or mandatory redemption and are not convertible into any other securities of the Operating Partnership. The Series B Preferred Units are exchangeable at the option of the preferred unitholder at a rate of one Series B Preferred Unit for one share of the Company's Series B 8.95% cumulative redeemable preferred stock beginning July 28, 2009, or earlier under certain circumstances. In the event that shares of Series B preferred stock are issued in exchange for Series B Preferred Units, the Operating Partnership will issue an equivalent number of Series B Preferred Units to the Company. Any shares of Series B preferred stock issued in exchange for Series B Preferred Units will have the same rights, terms and conditions with respect to redemption as the Series B Preferred Units and will not be convertible into any other securities of the Company. The income allocated to holders of the Series B Preferred Units are based upon the rate of 8.95% on the $95,000 or $6,377 for the nine months ended September 30, 2001 and 2000. Distributions are paid on the last day of the quarter providing that day is a business day. If the payment day falls on a non-business day, the payment is due on the following business day, except that payment for the fourth quarter distributions must be made in December. Since September 30, 2001 was a Sunday, the payment of $2,126 was made on October 1, 2001. Distributions paid for the nine months ended September 30, 2001 and 2000 were $4,251 and $6,377, respectively. On May 1, 2000, the Operating Partnership issued 320,000 Series C 8.75% cumulative redeemable preferred units of limited partner interest (the "Series C Preferred Units"), with a liquidation value of twenty-five dollars per unit, in exchange for a gross contribution of $8,000. The Operating Partnership used the proceeds, less applicable transaction costs and expenses of $244, to pay down the borrowings under its prior credit facility. The Series C Preferred Units, which may be redeemed for cash at the option of the Operating Partnership on or after May 1, 2005, have no stated maturity or mandatory redemption and are not convertible into any other securities of the Operating Partnership. The Series C Preferred Units are exchangeable at the option of the preferred unitholder at a rate of one Series C Preferred Unit for one share of the Company's Series C 8.75% cumulative redeemable preferred stock beginning May 1, 2010, or earlier under certain circumstances. In the event that shares of Series C preferred stock are issued in exchange for Series C Preferred Units, the Operating Partnership will issue an equivalent number of Series C Preferred Units to the Company. Any shares of Series C preferred stock issued in exchange for Series C Preferred Units will have the same rights, terms and conditions with respect to redemption as the Series C Preferred Units and will not be convertible into any other securities of the Company. The income allocated and distribution paid to the holder of Series C Preferred Units are based upon the rate of 8.75% on the 8,000 or $525 and $350 for the nine months ended September 30, 2001 and 2000, respectively. 9 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) 4. PARTNERS' CAPITAL (CONTINUED) On February 20, 2001, the operation partnership issued 2,500 units of limited partner interest to New Mexico I Partners in connection with its purchase of land and building at Animas Valley Mall from New Mexico I Partners. The value of the units issued on February 20, 2001 was $47. Company stock options exercised during the second quarter of 2001 were 118,811 shares. The Operating Partnership issued an equivalent number of common units to the Company for approximately $2,135 in cash which it used to increase its operating cash. Net income of the Operating Partnership is allocated first to its preferred unitholders as described above and then to its common unitholders based upon their pro rata share of unit ownership. The Operating Partnership's income allocated to its common unitholders was based upon the weighted average number of common units outstanding as follows:

The consolidated partnerships' minority interests in income or loss are calculated by multiplying the percentage of each such partnership owned by its respective minority partners by the total income or loss of such partnership, unless the cumulative losses exceed the limited partners' investment. Such excess losses previously attributable to the limited partners will be recognized by the Operating Partnership. Future income attributable to the limited partners will be recognized by the Operating Partnership to the extent of these losses. 5. SEGMENT INFORMATION In 1998, the Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." The following information presents the Operating Partnership's three reportable segments: (1) regional malls, (2) community centers and (3) commercial properties in conformity with SAS No. 131. The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies" in the Operating Partnership's Annual Report on Form 10-K/A for the year ended December 31, 2000. Segment data includes total revenues and property, net operating income (revenues less operating and maintenance expense and real estate taxes and insurance expense ("Property NOI")). The Operating Partnership evaluates the performance of its segments and allocates resources to them based on Property NOI. The regional mall segment consists of 18 regional malls in eight states containing approximately 10,430,000 square feet of total gross leasable area ("GLA") and which range in size from approximately 301,000 to 1,172,000 square feet of total GLA. The community center segment consists of 25 properties in seven states containing approximately 3,390,000 square feet of total GLA and one freestanding retail property containing approximately 2,000 square feet of GLA. The commercial properties include six mixed-use commercial/business properties with 38 commercial buildings containing approximately 1,354,000 square feet of GLA which are located primarily in the Salt Lake City, Utah area. 10 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) 5. SEGMENT INFORMATION (CONTINUED) The table below presents information about the Operating Partnership's reportable segments for the quarters ended September 30:

-------------------- (1) Property operating expenses consist of operating, maintenance, real estate taxes and insurance as listed in the condensed consolidated statement of operations. (2) Total revenues minus property operating expenses. (3) Unallocated expenses consist of general and administrative, depreciation, amortization of deferred financing costs, amortization of deferred leasing costs and interest as listed in the condensed consolidated statement of operations. (4) Unallocated minority interest includes minority interest in income of consolidated partnerships as listed in the consolidated statement of operations. (5) Unallocated other includes gain on sales of real estate and extraordinary item-loss on early extinguishment of debt as listed in the consolidated statement of operations. (6) Unallocated other total assets include cash, corporate offices, miscellaneous real estate and deferred financing costs. 6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Unitholders of Operating Partnership elected to convert 125 of OP Units having a recorded value of $1 into an equal number of shares of Common Stock during the nine months ended September 30, 2000. There were no such conversions in the nine months ended September 30, 2001.

11 PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) 6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED) On February 20, 2001, the operation partnership issued 2,500 units of limited partner interest to New Mexico I Partners in connection with its purchase of land and building at Animas Valley Mall from New Mexico I Partners. The value of the units issued on February 20, 2001 was $47. 7. SUBSEQUENT EVENTS On October 12, 2001 the operating partnership paid off a loan which matured November 30, 2001 for $1,243. The loan had a stated interest rate of 9.38% per annum. The operating partnership used operating cash to terminate this debt early. In October 2001, Spokane Mall Development Company, Ltd. Partnership, a consolidated partnership of which the Operating Partnership is the general partner, opened Spokane Valley Mall Plaza, a new community center development in Spokane, Washington. This property is next to the Spokane Valley Mall and it contains approximately 132,000 square feet of gross leasable area and is 100% occupied. On November 5, 2001, the Operating Partnership sold Fry's Plaza, a community center in Glendale, Arizona for approximately $7,450. This property had approximately 119,000 square feet of gross leasable area. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto appearing elsewhere herein. JP Realty, Inc. is a fully integrated, self-administered and self-managed REIT primarily engaged in the ownership, leasing, management, operation, development, redevelopment and acquisition of retail properties in Utah, Idaho, Colorado, Arizona, Nevada, New Mexico and Wyoming, as well as in Oregon, Washington and California. JP Realty, Inc. conducts all of its business operations through, and holds a controlling interest in the Operating Partnership. The Operating Partnership's existing portfolio consists of 50 properties, in three operating segments, including 18 enclosed regional malls, 25 community centers together with one free-standing retail property and six mixed-use commercial properties. JP Realty, Inc., together with the Operating Partnership and its other subsidiaries, shall be referred to herein as (the "Company"). RESULTS OF OPERATIONS COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE MONTHS ENDED SEPTEMBER 30, 2000 REVENUES Total revenues increased 1.9%, or $1,951,000, for the nine months ended September 30, 2001. Of the $1,951,000 increase, $1,597,000 was the result of increased revenues at the regional malls, $653,000 was the result of increased revenues at the community centers and $41,000 was the result of decreased revenues at the commercial properties. A decrease of $258,000 was not allocated to a particular property segment. MINIMUM RENTS Minimum rents increased 2.9%, or $2,165,000, for the nine months ended September 30, 2001. Minimum rents increased by $1,600,000 at the regional malls primarily due to the September 2000 completion of the expansion at the NorthTown Mall, the August 2000 addition of Dillard's as an anchor tenant to the North Plains Mall and overall growth throughout the regional mall portfolio. Minimum rents increased by $593,000 at the community centers primarily due to overall growth throughout the community center portfolio and $265,000 from lease termination settlements. Minimum rents at the commercial properties decreased by $28,000. PERCENTAGE AND OVERAGE RENTS Percentage and overage rents increased 16.8%, or $189,000, for the nine months ended September 30, 2001. Percentage and overage rents increased by $194,000 at the regional malls and decreased by $5,000 at the community centers. RECOVERIES FROM TENANTS Recoveries from tenants increased 3.2%, or $745,000, for the nine months ended September 30, 2001. Recoveries from tenants increased by $702,000 at the regional malls, $56,000 at the community centers and decreased by $13,000 at the commercial properties. INTEREST AND OTHER REVENUES Interest and other revenues decreased 49.2%, or $1,148,000, for the nine months ended September 30, 2001. Interest decreased $142,000 and other revenues decreased $1,006,000. The decrease in other revenues is primarily due to $729,000 received in 2000 from a local governmental redevelopment agency as payment for a prior year incentive to build in its community, along with a decrease in the amount of such incentives for the nine months ended September 30, 2001 compared to the same period of the prior year. 13 EXPENSES Total expenses increased 1.3%, or $983,000, for the nine months ended September 30, 2001. Property operating expenses (operating and maintenance; real estate taxes and insurance; and advertising and promotions) decreased by $60,000, general and administrative expenses increased by $186,000, depreciation and amortization increased by $1,447,000 and interest decreased by $590,000. PROPERTY OPERATING EXPENSES Property operating expenses (operating and maintenance; real estate taxes and insurance; and advertising and promotions) increased by $94,000 at the regional malls, decreased by $76,000 at the community centers and decreased by $78,000 at the commercial properties. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased $186,000 for the nine months ended September 30, 2001. The increase is primarily related to increased insurance expense related to the Company's health insurance plan which, in 2000, was lower due to the receipt of certain reinsurance proceeds. Higher legal and professional costs also contributed to this increase. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased $1,447,000 for the nine months ended September 30, 2001. This increase is attributable to higher depreciation expense from newly developed GLA and tenant improvements off set by the effect of reducing asset lives on tenant improvements. In 2001, the effect of reducing asset lives on tenant improvements was $895,000 compared to $1,286,000 in 2000. INTEREST EXPENSE/CAPITALIZED INTEREST Interest expense decreased $590,000 for the nine months ended September 30, 2001. The decrease in interest expense is the result of lower interest rates on the Company's variable rate debt. Interest capitalized on projects under development was $414,000 in 2001 compared to $1,245,000 in 2000. MINORITY INTEREST IN (INCOME) LOSS OF CONSOLIDATED PARTNERSHIPS Losses attributable to minority interest decreased $343,000 to $53,000 income in 2001 compared to $290,000 loss in 2000. This is mainly due to a consolidated partnership where cumulative losses now exceed the limited partners' investment in such consolidated partnership and such losses previously attributable to its limited partners are now recognized by the Company. GAIN ON SALES OF REAL ESTATE Gain on sales of real estate decreased $1,130,000 due to a sale of an out parcel with a gain of $872,000 in 2001 compared to the gain on sales of real estate of $2,002,000 in 2000. COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 TO THREE MONTHS ENDED SEPTEMBER 30, 2000 REVENUES Total revenues increased 0.2%, or $80,000, for the three months ended September 30, 2001. Of the $80,000 increase, $312,000 was the result of increased revenues at the regional malls, $1,000 was the result of decreased revenues at the community centers and $52,000 was the result of decreased revenues at the commercial properties. A decrease of $179,000 was not allocated to a particular property segment. 14 MINIMUM RENTS Minimum rents increased 2.3%, or $599,000, for the three months ended September 30, 2001. Minimum rents increased by $459,000 at the regional malls primarily due to the September 2000 completion of the expansion at the NorthTown mall and overall growth throughout the regional mall portfolio. Minimum rents increased by $144,000 at the community centers. Minimum rents at the commercial properties decreased by $4,000. PERCENTAGE AND OVERAGE RENTS Percentage and overage rents decreased 41.0%, or $154,000, for the three months ended September 30, 2001. Percentage and overage rents decreased by $157,000 at the regional malls and increased $3,000 at the community centers. RECOVERIES FROM TENANTS Recoveries from tenants decreased 0.7%, or $59,000, for the three months ended September 30, 2001. Recoveries from tenants deceased by $62,000 at the regional malls, increased $19,000 at the community centers and decreased by $16,000 at the commercial properties. INTEREST AND OTHER REVENUES Interest and other revenues decreased 50%, or $306,000, for the three months ended September 30, 2001. Interest decreased $121,000 and other revenues decreased $185,000. The decrease in other revenues is primarily the result of a decrease in the amount of revenues due from a local governmental redevelopment agency for the three months ended September 30, 2001 compared to the same period in 2000. EXPENSES Total expenses decreased 5.0%, or $1,368,000, for the three months ended September 30, 2001. Property operating expenses (operating and maintenance; real estate taxes and insurance; and advertising and promotions) decreased by $146,000 general and administrative expenses decreased by $148,000 depreciation and amortization decreased by $139,000 and interest decreased by $935,000. PROPERTY OPERATING EXPENSES Property operating expenses (operating and maintenance; real estate taxes and insurance; and advertising and promotions) decreased by $91,000 at the regional malls, decreased by $11,000 at the community centers and decreased by $44,000 at the commercial properties. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses decreased $148,000 for the three months ended September 30, 2001. The decrease is primarily related to decreased payroll costs and computer services. DEPRECIATION AND AMORTIZATION Depreciation and amortization decreased $139,000 for the three months ended September 30, 2001. This decrease is attributable to higher depreciation expense from newly developed GLA and tenant improvements, offset by the difference in the reduction in asset lives on certain tenant improvements in 2001 verses 2000. In 2001, the effect of reducing asset lives on tenant improvements was $338,000 compared to $1,033,000 in 2000. 15 INTEREST EXPENSE/CAPITALIZED INTEREST Interest expense decreased $935,000 for the three months ended September 30, 2001. The decrease in interest expense is the result of lower interest rates on the Company's variable rate debt. Interest capitalized on projects under development was $215,000 in 2001 compared to $445,000 in 2000. MINORITY INTEREST IN (INCOME) LOSS OF CONSOLIDATED PARTNERSHIPS Losses attributable to minority interest decreased $229,000 to $85,000 income in 2001 compared to $144,000 loss in 2000. This is mainly due to a consolidated partnership where cumulative losses now exceed the limited partners' investment in such consolidated partnership and such losses previously attributable to its limited partners are now recognized by the Company. GAIN ON SALES OF REAL ESTATE Gain on sales of real estate decreased $373,000 due to sales of property in 2000 and no sales in 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's principal uses of its liquidity and capital resources have historically been for distributions, property acquisitions, property development, expansion and renovation programs and debt repayment. To maintain its qualification as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), the Company is required to distribute to its stockholders at least 90% of its "Real Estate Investment Trust Taxable Income," as defined in the Code. For the quarter ended September 30, 2001, the Company declared a dividend of $.495 per share payable October 16, 2001 to the stockholders of record as of October 4, 2001. The Company's principal source of liquidity is its cash flow from operations generated from its real estate investments. As of September 30, 2001, the Company's cash and restricted cash amounted to approximately $12.2 million. In addition to its cash and restricted cash, unused capacity under the Operating Partnership's credit facility at September 30, 2001 totaled $86.5 million. The Company expects to meet its short-term liquidity requirements, including distributions, recurring capital expenditures related to maintenance and improvement of existing properties, through undistributed funds from operations, cash balances and advances under the Operating Partnership's credit facility. The Company's principal long-term liquidity requirements will be the repayment of principal on its outstanding secured and unsecured indebtedness. At September 30, 2001, the Company's total outstanding indebtedness was approximately $464.2 million. Such indebtedness included: (i) the Provo Towne Centre construction loan of approximately $44.1 million which was due in July 2001 and was extended, at the option of the Company, for an additional two years; (ii) the Spokane Valley Mall construction loan of $41.6 million which was due August 1, 2001 and was replaced with a new loan in the same amount maturing July 31, 2003; (iii) the Operating Partnership's credit facility with a balance of $113.5 million maturing July 2003; (iv) the $100 million senior notes with a principal payable of $25 million per year beginning March 2005; (v) the $81.8 million, 6.68% first mortgage on NorthTown Mall which requires a balloon payment of approximately $73.0 million in September 2008; and (vi) the $78.5 million, 6.64% first mortgage on Boise Towne Square which requires a balloon payment of approximately $68.4 million in February 2011. Quarterly distributions to the preferred unitholders of approximately $278,900, $2,125,600 and $175,000 are due to the holders of the Series A, Series B and Series C Preferred Units, respectively, on the last day of each March, June, September and December of each year. If the last day of each payment period falls on a non-business day, payment is due on the immediately preceding business day for Series A and C and the following business day for Series B, except that payment for the Series B fourth quarter distributions must be made in December. The Company is currently involved in expansion and renovation projects at several of its properties, which are expected to be financed with the Operating Partnership's credit facility. The Company is also contemplating additional development projects and acquisitions as a means to expand its portfolio. The Company does not expect to generate sufficient funds from operations to meet such long-term needs and intends to finance these costs primarily through advances under the Operating 16 Partnership's credit facility together with equity and debt offerings, individual property financing and selective asset sales. The availability of such financing will influence the Company's decision to proceed with, and the pace of, its development and acquisition activities. On September 2, 1997, the Company and the Operating Partnership filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission for the purpose of registering common stock, preferred stock, depositary shares, common stock warrants, debt securities and guarantees. This registration statement, when combined with the Company's unused portion of its previous shelf registration, would allow for up to $400 million of securities to be offered by the Company and the Operating Partnership. On March 11, 1998, pursuant to this registration statement, the Operating Partnership issued $100 million of ten-year senior unsecured notes bearing annual interest at a rate of 7.29%. The Operating Partnership had entered into an interest rate protection agreement in anticipation of issuing these notes and received $270,000 as a result of terminating this agreement making the effective rate of interest on these notes 7.26%. Interest payments are due semi-annually on March 11th and September 11th of each year. Principal payments of $25 million are due annually beginning March 2005. The proceeds were used to partially repay outstanding borrowings under the Operating Partnership's prior credit facility. At September 30, 2001, the Company and the Operating Partnership had an aggregate of $300 million in registered securities available under its effective shelf registration statement. The Company intends to fund its distribution, development, expansion, renovation, acquisition and debt repayment activities from the Operating Partnership's credit facility, from other debt and equity financings, including public financing and from selective asset sales. The Company's ratio of debt- to-total market capitalization was approximately 45% at September 30, 2001. Net cash provided by operating activities for the nine months ended September 30, 2001 was $51,248,000 versus $51,208,000 for the corresponding period of 2000. Net income adjusted for non-cash items accounted for a $1,383,000 increase, while changes in operating assets and liabilities accounted for a $1,343,000 decrease. Net cash used in investing activities for the nine months ended September 30, 2001 was $23,996,000. It primarily reflects real estate asset investments of $22,006,000, an increase in restricted cash of $3,780,000 and proceeds from the sale of real estate of $1,790,000. Net cash used in financing activities for the nine months ended September 30, 2001 was $25,294,000. Cash was generated from the issuance of Common Stock upon the exercise of outstanding stock options in the amount of $2,135,000 and from borrowings of $132,973,000, which were used to repay outstanding borrowings in the amount of $133,285,000 and for distributions to preferred unitholders in the amount of $5,613,000 to minority interests in the amount of $350,000, to common stockholders in the amount of $16,077,000 and to common unitholders in the amount of $3,602,000 along with the payment of $1,475,000 for deferred financing costs. The Financial Accounting Standards Board issued SFAS No. 141, BUSINESS COMBINATIONS ("SFAS 141"). SFAS 141 requires that the purchase method of accounting be used for all business combinations for which the date of acquisition is after June 30, 2001. SFAS 141 also establishes specific criteria for the recognition of intangible assets. The Company does not expect the adoption of this standard to have a significant impact on its financial statements. The Financial Accounting Standards Board issued SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("SFAS 142"). SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of this standard to have a significant impact on its financial statements. The Financial Accounting Standards Board issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS ("SFAS 143"). SFAS 143 requires that an entity shall recognize the fair value of a liability for an asset retirement obligation in the period in which a reasonable estimate of fair value can be made. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. The Company does not expect the adoption of this standard to have a significant impact on its financial statements. The Financial Accounting Standards Board issued SFAS No.144, ACCOUNTING FOR IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS 144"). SFAS 144 supersedes SFAS 121 and requires that one accounting model be used 17 for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with early adoption permitted. The Company does not expect the adoption of this standard to have a significant impact on its financial statements. The statements contained in this Quarterly Report of Form 10-Q that are not purely historical fact are forward looking statements, including statements regarding the Company's expectations, budgets, estimates and contemplations. Actual future performance, achievements and results of Price Development Company Limited Partnership may differ materially from those expressed or implied by such forward-looking statements as a result of such known and unknown risks, uncertainties, assumptions and other factors. Representative examples of these factors include, without limitation, general industry and economic conditions, interest rate trends, cost of capital and capital requirements, availability of real estate properties, competition from other companies and venues for the sale/distribution of goods and services, shifts in customer demands, tenant bankruptcies, governmental and public policy changes and the continued availability of financing in the amounts and on the terms necessary to support the future business of the Company. Readers are cautioned that the Company's actual results could differ materially from those set forth in such forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The Operating Partnership's exposure to market risk is limited to fluctuations in the general level of interest rates on its current and future fixed and variable rate debt obligations. The Operating Partnership is vulnerable to significant fluctuations in interest rates on its variable rate debt, on any future repricing or refinancing of its fixed rate debt and on future debt. The Operating Partnership uses long-term and medium-term debt as a source of capital. At September 30, 2001, the Operating Partnership had approximately $264,965,000 of outstanding fixed rate debt, consisting of $100,000,000 in unsecured senior notes and $164,965,000 in mortgages and notes secured by real estate. The various fixed rate debt instruments mature starting in the year 2001 through 2095. The weighted average rate of interest on the fixed rate debt was approximately 6.87% for the period ended September 30, 2001. When debt instruments of this type mature, the Operating Partnership typically refinances such debt at the then-existing market interest rates which may be more or less than the interest rates on the maturing debt. Changes in general market interest rates will effect the fair value of the Operating Partnership's fixed rate debt (i.e. as the interest rates increase the fair value of the debt decreases and as interest rates decrease the fair value of the debt increases) but will not have an effect on the interest rate, interest expense or cash flow of such debt. In addition, the Operating Partnership may attempt to reduce interest rate risk associated with a forecasted issuance of new fixed rate debt by entering into interest rate protection agreements. In addition to the October 12, 2001 Sears-Eastbay loan pay off of $1,243,000, $465,000 of scheduled principal amortization payments are due in 2001. The Operating Partnership's credit facility and existing construction loans have variable interest rates and any fluctuation in interest rates could increase or decrease the Operating Partnership's interest expense. The credit facility borrowings are primarily transacted utilizing a variable interest rate tied to LIBOR, which as of September 30, 2001 was equal to LIBOR plus 110 basis points. The interest rate on the construction loan and loan facility as of September 30, 2001 was equal to LIBOR plus 150 basis points. The LIBOR rate used is at the Operating Partnership's option and is based upon the 30, 60 or 90 day LIBOR rate. A change in the LIBOR rate will effect the Operating Partnership's interest expense and cash flow. At September 30, 2001, the Operating Partnership had approximately $199,185,000 in outstanding variable rate debt. The weighted average rate of interest on the variable interest rate debt was approximately 5.97% for the period ended September 30, 2001. If the interest rate for the Operating Partnership's variable rate debt increased or decreased by 1%, the Operating Partnership's subsequent annual interest rate expense on its then outstanding variable rate debt would increase or decrease, as the case may be, by approximately $1,992,000. Due to the uncertainty of fluctuations in interest rates and the specific actions that might be taken by the Operating Partnership to mitigate the impact of such fluctuations and their possible effects, the foregoing sensitivity analysis assumes no changes in the Operating Partnership's financial and credit structure. 18 PART II ITEM 1. LEGAL PROCEEDINGS ----------------- The Operating Partnership is not aware of any pending or threatened litigation at this time that will have a material adverse effect on the Operating Partnership or any of its properties. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ----------------------------------------- Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Not applicable. ITEM 5. OTHER INFORMATION ----------------- Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits 19

20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PRICE DEVELOPMENT CO LP 10-Q