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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-K/A


(Amendment No. 1)


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES AND EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2001


Commission File Number: 001-13243





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PAN PACIFIC RETAIL PROPERTIES, INC.


(Exact Name
of Registrant as Specified in Its Charter)





Maryland

33-0752457(State of Incorporation)

(I.R.S. Employer Identification No.)1631-B South Melrose Drive, Vista, California

92083(Address of Principal Executive Offices)

(zip code)





Registrants telephone number, including area code: (760) 727-1002





Securities registered pursuant to Section 12(b) of the Act:





Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.01 par value

New York Stock Exchange





Securities registered pursuant to Section 12(g) of the Act: None





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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  x    No  ̈ .





Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.  ̈





The aggregate market value of the shares of common stock held by non-affiliates was approximately $999,392,000 based upon the closing price on the New York Stock
Exchange for such shares of $30.29 on March 18, 2002.





As of March 18, 2002, the number of shares of the
Registrants common stock outstanding was 33,277,564.








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DOCUMENTS INCORPORATED BY REFERENCE





Part III of this report on Form 10-K incorporates by reference information from our definitive proxy statement for our 2002 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the close of our fiscal year.





The following items are amended:





Item 6.    Selected
Consolidated Financial Data





Item 7.    Managements Discussion and
Analysis of Financial Condition and Results of Operations





Financial Pages







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PART II





ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA





The following table sets forth our selected financial data on a historical basis. The following data should be read in connection with managements discussion and analysis of financial condition and results of operations and the
consolidated financial statements and notes thereto located elsewhere in this report.





SELECTED CONSOLIDATED FINANCIAL
DATA (1)


(Amounts in thousands, except per share data)





Years Ended December 31,2001

2000

1999

1998

1997(revised) (2)

(revised) (2)

(revised) (2)

(revised) (2)STATEMENTS OF INCOME DATA:Total revenue

$
182,489

$
119,554

$
99,916

$
78,784

$
46,710Operating and general and administrative expenses


46,382


28,705


25,360


19,657


14,216Merger related expenses





3,204








Depreciation and amortization


28,980


20,224


17,371


14,273


8,928Interest expense


46,196


32,112


23,939


18,295


14,057Income from continuing operations (3)


62,539


33,190


32,088


26,298


9,356Discontinued operations


1,683


610


488


336


Income before extraordinary item


64,222


33,800


32,576


26,634


9,356Net income


64,222


33,800


32,576


26,634


8,313Per share data:Income from continuing operationsdiluted


1.92


1.46


1.51


1.34


Discontinued operationsdiluted


0.05


0.02


0.03


0.01


Income before extraordinary itemdiluted (4)


1.97


1.48


1.54


1.35


0.55Net incomediluted (4)


1.97


1.48


1.54


1.35


0.49Distributions declared


1.82


1.54


1.60


1.52


0.58As of December 31,2001

2000

1999

1998

1997BALANCE SHEET DATA:Properties, net

$
1,233,189

$
1,194,824

$
748,061

$
667,478

$
455,514Total assets


1,339,618


1,297,690


784,537


705,541


487,220Notes payable


229,135


233,911


228,490


144,024


108,316Line of credit and term loan payable


165,300


267,650


128,800


138,500


62,450Senior notes


273,800


124,850








Minority interests


20,748


41,754


23,347


17,318


1,521Stockholders equity


622,458


606,998


381,866


383,088


301,055





|(1) |  | The financial data as of the dates and for the periods prior to August 13, 1997 represents the combined financial data of predecessor entities prior to our
initial public offering.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Our consolidated statements of income and consolidated statements of cash flows have been revised from those originally reported for the years ended December
31, 2001, 2000, 1999 and 1998 to reflect separately the results of discontinued operations for properties that were sold during the nine months ended September 30, 2002. The revision had no impact on our consolidated balance sheets or statements of
stockholders equity. The revision had no impact on net income or net income per share of common stock for the years ended December 31, 2001, 2000, 1999 and 1998.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Income from continuing operations includes minority interests and gain on sale of real estate.
|--- |  | ----------------------------------------------------------------------------------------------




|(4) |  | The 1997 data is calculated as if the shares were outstanding for the entire year based on the diluted number of shares assumed to be outstanding.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM  7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF


OPERATIONS





Revision of Consolidated Statements of Income and Consolidated Statements of Cash Flows





Our consolidated statements of income and consolidated statements of cash flows have been revised from those originally reported for the years ended December 31, 2001, 2000 and 1999 to separately reflect the results of discontinued
operations for properties that were sold during the nine months ended September 30, 2002. The revision had no impact on our consolidated balance sheets or statements of stockholders equity. The revision had no impact on net income or net
income per share of common stock for the years ended December 31, 2001, 2000 and 1999. See the discussions of discontinued operations in the Results of Operations section below.





Cautionary Language





The discussions in
Managements Discussion and Analysis of Financial Condition and Results of Operations contain 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 conditions, execution of shopping center development programs, successful completion of renovations, completion of pending acquisitions, changes in the availability of
additional acquisitions, 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.





Critical Accounting Policies





The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, and the notes thereto, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial
statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable for our current circumstances;
however, actual results may differ from these estimates and assumptions under different future conditions.





We
believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require our most subjective judgments, form the basis for the accounting policies deemed to be
most critical. These critical accounting policies include our estimates of useful lives in calculating depreciation expense on our shopping center properties and the ultimate recoverability, or impairment, of each shopping center asset. If actual
useful lives are different from our estimates this could result in changes to the results of our operations. Future adverse changes in market conditions or poor operating results of our shopping center properties could result in losses or an
inability to recover the carrying value of the properties that may not be reflected in the properties current carrying value, thereby possibly requiring an impairment charge in the future.




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Overview





We receive income primarily from rental revenue from shopping center properties, including recoveries from tenants, offset by operating and overhead expenses. Primarily as a result of our acquisition program, including the
acquisition of Western Properties Trust described below, which included interests in 50 shopping centers, the financial data shows increases in total revenue and total expenses from period to period.





During the year ended December 31, 2001, eight non-strategic assets were sold. The cash proceeds were used toward the purchase of four
shopping center assets.





On November 13, 2000, we acquired Western Properties Trust, a California real estate
investment trust. The transaction was a stock for stock exchange whereby Western common shares and units were exchanged into newly issued common shares and operating subsidiary units, based upon a fixed exchange ratio of 0.62 of a share of our
common stock per Western share or operating subsidiary unit. As a result, we issued 10,754,776 shares of our common stock to holders of Western common shares. We are also currently obligated to issue 288,867 shares of our common stock upon the
exchange of operating subsidiary units held by limited partners of Pan Pacific (Kienows), L.P., formerly Western/Kienow, L.P., and Pan Pacific (Pinecreek), L.P., formerly Western/Pinecreek, L.P., or pay a cash amount, at our discretion. In
connection with this transaction, we assumed $135,000,000 of Westerns debt obligations.





We expect that the
more significant part of our growth in the next year or two will come from additional acquisitions, rent increases from re-leasing and re-tenanting initiatives of the assets acquired in the Western acquisition and the stabilization of other
properties acquired during 2001 and 2000.





Results of Operations





Comparison of the Year Ended December 31, 2001 to the Year Ended December 31, 2000.





Total revenue increased by $62,935,000, or 52.6%, to $182,489,000 for the year ended December 31, 2001, from $119,554,000 for the year ended December 31, 2000.





Rental revenue, which includes base rent and percentage rent, increased by $47,234,000, or 50.3%, to $141,215,000
for the year ended December 31, 2001, from $93,981,000 for the year ended December 31, 2000. The increase in rental revenue resulted principally from four property acquisitions in 2001, three property acquisitions in 2000 and the acquisition of
Western in November 2000.





Recoveries from tenants increased by $10,801,000, or 50.3%, to $32,288,000 for the year
ended December 31, 2001, from $21,487,000 for the year ended December 31, 2000. This increase resulted primarily from the 2001 and 2000 acquisitions including Western. Recoveries from tenants were 90.6% of property operating expenses and property
taxes for the year ended December 31, 2001 compared to 93.2% for the year ended December 31, 2000. The decrease in the recovery percentage from prior year was primarily the result of a decrease in average portfolio occupancy during 2001 as a result
of the Western acquisition. In addition, the language in the Western leases does not provide for as many costs to be recoverable from tenants as the language in the Pan Pacific leases.





Other income increased by $4,427,000, or 118.9%, to $8,149,000 for the year ended December 31, 2001, from $3,722,000 for the year ended December 31, 2000. The increase
resulted principally from approximately $3,674,000 of interest income on corporate notes receivable related to real estate activities that were acquired as part of the Western acquisition.





Property operating expenses increased by $7,796,000, or 55.1%, to $21,955,000 for the year ended December 31, 2001, from $14,159,000 for the year ended December 31, 2000.
The increase in property operating expenses was primarily attributable to the 2001 and 2000 acquisitions, including Western. Property taxes increased by $4,800,000, or 54.0%, to $13,685,000 from $8,885,000 for the year ended December 31, 2001,
compared to the year ended December 31, 2000. The increase in property taxes was also primarily the result of the 2001 and 2000 acquisitions including Western.




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Depreciation and amortization increased by $8,756,000, or 43.3%, to $28,980,000 for the year ended December 31, 2001,
from $20,224,000 for the year ended December 31, 2000. This was primarily due to the 2001 and 2000 acquisitions, including Western.





Interest expense increased by $14,084,000, or 43.9%, to $46,196,000 for the year ended December 31, 2001, from $32,112,000 for the year ended December 31, 2000, primarily as a result of the debt obligations assumed upon the
acquisition of Western and interest expense relating to funds drawn on our Revolving Credit Agreement to finance the seven other properties acquired during 2001 and 2000. Interest expense also increased as a result of our issuance of $150,000,000,
in aggregate principal amount, of senior notes in April 2001. The stated interest rate of 7.95% on the senior notes is higher than our cost to borrow funds under the Revolving Credit Agreement and Term Credit Agreement which were paid down with the
net proceeds of the notes offering. These increases were partially offset by a reduction in the LIBOR component of our borrowing cost under the Revolving Credit Agreement and Term Credit Agreement over the comparable period in the prior year.





General and administrative expenses increased by $4,063,000, or 79.6%, to $9,168,000 for the year ended December
31, 2001, from $5,105,000 for the year ended December 31, 2000. This increase resulted primarily from an increase in salaries and benefits and other related expenses resulting from the acquisition of Western as well as annual compensation increases
in the first quarter of 2001. As a percentage of total revenue, general and administrative expenses were 5.0% for the year ended December 31, 2001 and 4.3% for the year ended December 31, 2000.





Net gain on sale of real estate totaling $4,129,000 resulted from the sale of eight non-strategic assets during the year ended December 31, 2001.





Discontinued operations for the years ended December 31, 2001 and 2000 of $1,683,000 and $610,000 respectively, reflects the
operating results of the five non-strategic assets that were sold during the nine months ended September 30, 2002.





Comparison of the Year Ended December 31, 2000 to the Year Ended December 31, 1999.





Total
revenue increased by $19,638,000, or 19.7%, to $119,554,000 for the year ended December 31, 2000, from $99,916,000 for the year ended December 31, 1999.





Rental revenue increased by $14,448,000, or 18.2%, to $93,981,000 for the year ended December 31, 2000, from $79,533,000 for the year ended December 31, 1999. The increase in rental revenue resulted
principally from six property acquisitions in 1999, three property acquisitions in 2000 and the acquisition of Western in November 2000.





Recoveries from tenants increased by $3,736,000, or 21.0%, to $21,487,000 for the year ended December 31, 2000, from $17,751,000 for the year ended December 31, 1999. This increase resulted primarily from the 2000 and 1999
property acquisitions. Recoveries from tenants were 93.2% of property operating expenses and property taxes for the year ended December 31, 2000 compared to 89.7% of the same expenses for the same period in 1999. The increase in the recovery
percentage was primarily the result of enhanced lease recovery language during the renewal and re-leasing process.





Property operating expenses increased by $1,727,000, or 13.9%, to $14,159,000 for the year ended December 31, 2000, from $12,432,000 for the year ended December 31, 1999. The increase in property operating expenses was primarily
attributable to the 2000 and 1999 property acquisitions. Property taxes increased by $1,520,000, or 20.6%, to $8,885,000 from $7,365,000 for the year ended December 31, 2000, compared to the year ended December 31, 1999. The increase in property
taxes was also primarily the result of the 2000 and 1999 property acquisitions.





Depreciation and amortization
increased by $2,853,000, or 16.4%, to $20,224,000 for the year ended December 31, 2000, from $17,371,000 for the year ended December 31, 1999. This was primarily due to the 2000 and 1999 property acquisitions.





Interest expense increased by $8,173,000, or 34.1%, to $32,112,000 for the year ended December 31, 2000, from $23,939,000 for the year
ended December 31, 1999, primarily as a result of interest expense relating to amounts drawn on our Revolving Credit Agreement and Term Credit Agreement to finance the 2000 and 1999 property acquisitions, interest expense on the fixed-rate mortgage
assumed related to Rancho Las Palmas in the third quarter




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of 1999 and interest expense on the fixed-rate mortgage on Lakewood Village which was assumed as part of the Western acquisition in November
2000. Interest expense also increased as a result of an increase in the LIBOR component of the borrowing cost on our Revolving Credit Agreement over the comparable period in 1999.





General and administrative expenses decreased by $210,000, or 4.0%, to $5,105,000 for the year ended December 31, 2000, from $5,315,000 for the year ended December 31,
1999. This decrease was primarily attributable to one-time executive severance costs recorded in 1999 and an increase in internal capitalized leasing costs recorded in 2000, which offset related general and administrative expenses, offset by annual
compensation increases in 2000. As a percentage of total revenue, general and administrative expenses were 4.3% for the year ended December 31, 2000 and 5.3% for the year ended December 31, 1999.





Merger related expenses were incurred during 2000 in connection with the acquisition of Western. The Company incurred approximately $3,204,000 of these expenses which
are non-recurring.





Discontinued operations for the years ended December 31, 2000 and 1999 of $610,000 and
$488,000 respectively, reflects the operating results of the five non-strategic assets that were sold during the nine months ended September 30, 2002.





Funds from Operations





The White Paper on Funds from Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts (NAREIT) in March 1995 (the White Paper) defines Funds from Operations as net income (loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We consider Funds from
Operations an appropriate measure of performance of an equity REIT because it is predicated on cash flow analyses. 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. Funds from Operations should not be considered as an alternative to net income
(determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.





The following table presents our Funds from Operations:





For the years ended December 31,2001


2000


1999Net income

$
64,222,000


$
33,800,000


$
32,576,000Add:Depreciation and amortization


28,980,000



20,224,000



17,371,000Depreciation on discontinued operations


298,000



150,000



105,000Depreciation of unconsolidated partnerships


83,000



21,000



8,000Operating subsidiary minority interests


2,521,000



2,106,000



1,530,000Provision for loss on impairment






250,000



Less:Net gain on sale of real estate


(4,129,000
)






(400,000
)Depreciation of non-real estate corporate assets


(523,000
)


(428,000
)


(392,000
)Funds from Operations

$
91,452,000


$
56,123,000


$
50,798,000Weighted average number of shares of common stock outstanding (assuming dilution)


33,875,339



24,000,935



22,122,659




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Cash Flows





Comparison of the Year Ended December 31, 2001 to the Year Ended December 31, 2000.





Net cash provided by operating activities increased by $22,252,000 to $77,096,000 for the year ended December 31, 2001, as compared to $54,844,000 for the year ended
December 31, 2000. The increase was primarily the result of an increase in operating income due to property acquisitions including Western. This increase was offset by an increase in accrued interest to note receivable, an increase in other assets
and an increase in net gain on sale of real estate.





Net cash used in investing activities decreased by
$27,823,000 to $46,127,000 for the year ended December 31, 2001, as compared to $73,950,000 for the year ended December 31, 2000. The decrease was primarily the result of an increase in proceeds from sale of real estate, a decrease in costs
associated with the acquisition of Western and a decrease in other assets, offset by an increase in acquisitions of and additions to properties and an increase in notes receivable.





Net cash used in financing activities increased by $49,629,000 to $31,017,000 for the year ended December 31, 2001, as compared to net cash provided by financing activities
of $18,612,000 for the year ended December 31, 2000. The increase primarily resulted from a decrease in line of credit proceeds, an increase in repurchase of common shares and an increase in distributions paid, offset by an increase in issuance of
senior notes and issuance of common shares.





Comparison of the Year Ended December 31, 2000 to the Year
Ended December 31, 1999.





Net cash provided by operating activities increased by $9,017,000 to $54,844,000 for
the year ended December 31, 2000, as compared to $45,827,000 for the year ended December 31, 1999. The increase was primarily the result of an increase in operating income due to property acquisitions and an increase in accounts payable, accrued
expenses and other liabilities.





Net cash used in investing activities decreased by $3,675,000 to $73,950,000 for
the year ended December 31, 2000, as compared to $77,625,000 for the year ended December 31, 1999. The decrease was primarily the result of a reduction in acquisitions of and additions to operating properties and a decrease in proceeds from sale of
real estate, offset by an increase in other assets and cash expended on the acquisition of Western.





Net cash
provided by financing activities decreased by $10,657,000 to $18,612,000 for the year ended December 31, 2000, as compared to $29,269,000 for the year ended December 31, 1999. The decrease primarily resulted from an increase in line of credit
payments and a decrease in notes payable proceeds, offset by an increase in line of credit and term loan proceeds.





Liquidity and
Capital Resources





Our total market capitalization at December 31, 2001, was approximately $1,639,717,000,
based on the market closing price of our common stock at December 31, 2001 of $28.72 per share (assuming the conversion of 1,036,072 operating subsidiary units to common stock) and the debt outstanding of approximately $668,235,000 (exclusive of
accounts payable and accrued expenses). As a result, our debt to total market capitalization ratio was approximately 40.8% at December 31, 2001. Our Board of Directors adopted a policy of limiting our indebtedness to approximately 50% of our total
market capitalization. However, we may from time to time modify our debt policy in light of current economic or market conditions including but not limited to the relative costs of debt and equity capital, market conditions for debt and equity
securities and fluctuations in the market price of our common stock. Accordingly, we may increase or decrease our debt to market capitalization ratio beyond the limit described above.





In connection with our acquisition of Western in November 2000, we entered into a new financing arrangement including a $300,000,000 Revolving Credit Agreement and a
$100,000,000 Term Credit Agreement. The Revolving Credit Agreement matures in January 2004 and the Term Credit Agreement was scheduled to mature in November 2001. At December 31, 2001, we had $134,700,000 available under our Revolving Credit
Agreement and the Term Credit Agreement had been repaid in full. At our option, amounts borrowed under the Revolving Credit Agreement bear interest at either LIBOR plus 1.10% or a reference rate. At our option, amounts borrowed under the Term Credit
Agreement bore interest at either LIBOR plus 1.20% or a reference rate. The weighted average interest rate




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for short-term LIBOR contracts under the Revolving Credit Agreement at December 31, 2001 was 3.23%. We will continue to use the Revolving Credit
Agreement to take advantage of select acquisition opportunities as well as to provide funds for general corporate purposes. In April 2001, we issued $150,000,000 of 7.95% senior notes due April 15, 2011. The net proceeds were used to repay
borrowings under the Revolving Credit Agreement and the Term Credit Agreement.





All of our indebtedness is
reflected in our consolidated financial statements, and the notes thereto, appearing elsewhere in this report. We are not a party to any off-balance sheet financing arrangements. Our indebtedness outstanding at December 31, 2001 includes regularly
scheduled principal reductions, balloon payments and scheduled senior note redemptions as follows:





Year

Amount2002

$
4,323,0002003

$
4,605,0002004

$
232,683,0002005

$
11,818,0002006

$
58,927,0002007

$
76,545,0002008

$
26,873,0002009

$
47,779,0002010

$
48,364,0002011

$
150,320,0002012

$
5,836,000





The payments due in the year 2004 include the balance drawn on the
Revolving Credit Agreement at December 31, 2001 of $165,300,000. With regard to the payments noted above, it is likely that we will not have sufficient funds on hand to repay these amounts at maturity. Therefore, we expect to refinance this debt
either through additional debt financings secured by individual properties or groups of properties, by unsecured private or public debt offerings or by additional equity offerings.





We could enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate our interest rate risk on a related financial
instrument. We are not a party to any derivative financial instruments at December 31, 2001. Further, we do not enter into derivative or interest rate transactions for speculative or trading purposes nor do we enter into energy or commodity
contracts.





We have future obligations relating to leases for real estate and office equipment under operating
leases expiring at various dates through 2021. Rental expense was $770,000 and $892,000 for the years ended December 31, 2001 and 2000, respectively. Minimum rentals under noncancellable operating leases in effect at December 31, 2001 were as
follows:





2002

$
770,0002003


769,0002004


764,0002005


763,0002006


763,0002007 and subsequent


2,883,000$
6,712,000





We have entered into certain related party transactions with
executive officers and affiliates of the Company. We believe that all related party agreements were entered into at arms length. Information on these related party transactions can be found in our consolidated financial statements, and the notes
thereto, appearing elsewhere in this report.





We expect to make distributions from net cash provided by
operations. Operating cash flows in excess of amounts to be used for distributions will be invested primarily in short-term investments such as collateralized securities of the United States government or its agencies, high-grade commercial paper
and bank deposits or used to pay down outstanding balances on our Revolving Credit Agreement, if any.




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The following table provides recent historical distribution information:





Quarter Ended

Date Declared

Record Date

Date Paid

Distribution Per ShareMarch 31, 1999

February 10, 1999

March 17, 1999

April 16, 1999

$0.400June 30, 1999

June 15, 1999

June 28, 1999

July 16, 1999

$0.400September 30, 1999

September 9, 1999

September 24, 1999

October 22, 1999

$0.400December 31, 1999

December 9, 1999

December 22, 1999

January 21, 2000

$0.400March 31, 2000

February 9, 2000

March 17, 2000

April 14, 2000

$0.420June 30, 2000

June 13, 2000

June 26, 2000

July 21, 2000

$0.420September 30, 2000

September 15, 2000

September 25, 2000

October 20, 2000

$0.420December 31, 2000

October 30, 2000

November 3, 2000

November 15, 2000

$0.280
(1)March 31, 2001

January 30, 2001

February 16, 2001

March 15, 2001

$0.455June 30, 2001

May 16, 2001

May 25, 2001

June 15, 2001

$0.455September 30, 2001

August 14, 2001

August 31, 2001

September 14, 2001

$0.455December 31, 2001

November 13, 2001

November 30, 2001

December 14, 2001

$0.455





(1) During the fourth quarter of 2000 we distributed a special,
two-month dividend of $0.28 a share. This dividend was in connection with the Western acquisition, and was paid to our stockholders of record before the merger transaction was closed to address the two-month shift in timing for the payment of our
normal quarterly dividend in future periods.





We expect to meet our short-term liquidity requirements generally
through our current working capital and net cash provided by operations. We believe that our net cash provided by operations will be sufficient to allow us to make the distributions necessary to enable us to continue to qualify as a REIT. We also
believe that the foregoing sources of liquidity will be sufficient to fund our short-term liquidity needs for the foreseeable future.





We expect to meet our long-term liquidity requirements such as property acquisition and development, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through long-term secured
and unsecured indebtedness, the issuance of additional equity or debt securities and the use of net proceeds from the disposition of non-strategic assets. We also expect to use funds available under the Revolving Credit Agreement to finance
acquisition and development activities and capital improvements on an interim basis.





Inflation





Substantially all of our leases provide for the recovery of real estate taxes and operating expenses we incur. In addition, many of the
leases provide for fixed base rent increases or indexed escalations (based on the consumer price index or other measures) and percentage rent. We believe that inflationary increases in expenses will be substantially offset by expense reimbursements,
contractual rent increases and percentage rent.





The Revolving Credit Agreement bears interest at a variable rate,
which will be influenced by changes in short-term interest rates, and will be sensitive to inflation.





Controls and Procedures





Evaluation of Disclosure Controls and Procedure





We maintain disclosure controls and procedures (as defined in Securities Exchange Act 1934 Rules 13a-14(c) and 15d-14(c)) that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.





Within 90 days prior to the date of
this amended annual report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the




---

foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.





Changes in Internal Controls





There have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their
evaluation. There were no significant deficiencies or material weaknesses, and therefore no corrective actions were taken.




---




CERTIFICATIONS





I, Stuart A. Tanz, certify that:





1.    I have reviewed this
amendment to the annual report on Form 10-K/A of Pan Pacific Retail Properties, Inc. for the year ended December 31, 2001;





2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this annual report;





3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this annual report;





4.    The
registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation
Date); and





c)  presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants
other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and





b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and





6     The registrants other certifying officer and I have indicated in this annual report whether or not there
were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.





Date: November 11, 2002





/s/ Stuart A. Tanz


Stuart A. Tanz


Chairman, Chief Executive Officer


and President







---




I, Joseph B. Tyson, certify that:





1.    I have reviewed this amendment to the annual report on Form 10-K/A of Pan Pacific Retail Properties, Inc. for the year ended December 31, 2001;





2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;





3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;





4.    The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:





a)  designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the Evaluation Date); and





c)  presented in this
annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or
persons performing the equivalent function):





a)  all significant deficiencies in the design or
operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls;
and





b)  any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls; and





6.    The registrants other certifying
officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: November 11, 2002





/s/ Joseph B. Tyson


Joseph B.
Tyson, CPA


Executive Vice President, Chief Financial


Officer and Secretary







---

SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 11,
2002.





PAN PACIFIC RETAIL PROPERTIES, INC.By:

/s/    Stuart A. Tanz



By:

/s/    Joseph B. TysonStuart A. Tanz Director, Chairman, Chief
Executive Officer and President





Joseph B. Tyson, CPA Executive Vice
President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)





Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





Signature

Title

Date/s/    Mark J. Riedy

Director

November 11, 2002Mark J. Riedy/s/    Bernard M. Feldman

Director

November 11, 2002Bernard M. Feldman/s/    David P. Zimel

Director

November 11, 2002David P. Zimel/s/    Joseph P. Colmery

Director

November 11, 2002Joseph P. Colmery







---




INDEPENDENT AUDITORS REPORT





The Board of Directors


Pan Pacific Retail Properties, Inc.:





We have audited the accompanying consolidated balance sheets of Pan Pacific Retail Properties, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of income, stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2001. In connection with our audits of the consolidated financial statements, we also have audited the
accompanying financial statement schedule III. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.





We conducted our audits in accordance
with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pan Pacific Retail Properties, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.





KPMG LLP





San Diego, California


January 23, 2002, except as to Note 3


to the consolidated financial statements,


which is as of October 31, 2002







---

PAN PACIFIC RETAIL PROPERTIES, INC.


CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)





ASSETS:

December 31, 2001


December 31, 2000Properties, at cost:Land

$
349,694


$
350,604Buildings and improvements


946,188



887,353Tenant improvements


36,069



30,7621,331,951



1,268,719Less accumulated depreciation and amortization


(98,762
)


(73,895
)1,233,189



1,194,824Investments in unconsolidated partnerships


1,580



6,816Cash and cash equivalents


3,765



1,932Accounts receivable (net of allowance for doubtful accounts of $1,680 and $1,404, respectively)


8,006



7,107Accrued rent receivable (net of allowance for doubtful accounts of $1,928 and $1,588, respectively)


17,351



14,288Notes receivable


47,892



37,944Deferred lease commissions (including unamortized related party amounts of $4,279 and $2,978, respectively, and net of
accumulated amortization of $3,368 and $2,415, respectively)


6,352



4,836Prepaid expenses


10,305



9,133Other assets


11,178



20,810$
1,339,618


$
1,297,690LIABILITIES AND EQUITY:Notes payable

$
229,135


$
233,911Line of credit and term loan payable


165,300



267,650Senior notes


273,800



124,850Accounts payable, accrued expenses and other liabilities


28,177



22,527696,412



648,938Minority interests


20,748



41,754Stockholders equity:Common stock par value $.01 per share, 100,000,000 authorized shares, 32,789,913 and 32,074,368 shares issued and
outstanding, net of 1,000,000 and 0 treasury shares, at December 31, 2001 and 2000, respectively


328



321Paid in capital in excess of par value


714,615



705,265Accumulated deficit


(92,485
)


(98,588
)622,458



606,998$
1,339,618


$
1,297,690





See accompanying notes to consolidated financial statements.







---

PAN PACIFIC RETAIL PROPERTIES, INC.


CONSOLIDATED STATEMENTS OF INCOME


(In thousands, except share data)





For the Years Ended December 31,2001


2000


1999(revised)


(revised)


(revised)REVENUE:Base rent

$
138,520


$
93,236


$
78,777Percentage rent


2,695



745



756Recoveries from tenants


32,288



21,487



17,751Income from unconsolidated partnerships


837



364



341Other


8,149



3,722



2,291182,489



119,554



99,916EXPENSES:Property operating


21,955



14,159



12,432Property taxes


13,685



8,885



7,365Depreciation and amortization


28,980



20,224



17,371Interest


46,196



32,112



23,939General and administrative


9,168



5,105



5,315Merger related expenses






3,204



Other


1,574



556



248121,558



84,245



66,670INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS, GAIN ON SALE OF REAL ESTATE AND DISCONTINUED
OPERATIONS


60,931



35,309



33,246Minority interests


(2,521
)


(2,119
)


(1,558
)Gain on sale of real estate


4,129







400Discontinued operations


1,683



610



488NET INCOME

$
64,222


$
33,800


$
32,576Basic earnings per share:Income from continuing operations

$
1.96


$
1.46


$
1.51Discontinued operations

$
0.06


$
0.03


$
0.03Net income

$
2.02


$
1.49


$
1.54Diluted earnings per share:Income from continuing operations

$
1.92


$
1.46


$
1.52Discontinued operations

$
0.05


$
0.02


$
0.02Net income

$
1.97


$
1.48


$
1.54





See accompanying notes to consolidated financial statements.







---

PAN PACIFIC RETAIL PROPERTIES, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(In thousands, except share data)





Common stock


Paid in capital
in excess of par value


Accumulated deficit


TotalShares


AmountBalance at December 31, 1998

21,162,012


$
212


$
481,182


$
(98,306
)

$
383,088Issuance and vesting of restricted stock

90,500



1



130







131Net income













32,576



32,576Cash distributions paid and declared













(33,929
)


(33,929
)Balance at December 31, 1999

21,252,512



213



481,312



(99,659
)


381,866Vesting of restricted stock









1,615







1,615Stock issued in acquisition of Western

10,754,256



107



221,027







221,134Stock grant

6,000







120







120Stock issued on exercise of options

61,600



1



1,191







1,192Net income













33,800



33,800Cash distributions paid and declared













(32,729
)


(32,729
)Balance at December 31, 2000

32,074,368



321



705,265



(98,588
)


606,998Repurchase of common stock

(1,000,000
)


(10
)


(20,840
)






(20,850
)Conversion of operating subsidiary units to common stock

921,322



9



18,252







18,261Stock issued in acquisition of Western

520







11







11Issuance and vesting of restricted stock

217,800



2



920







922Stock issued on exercise of options

575,903



6



11,007







11,013Net income













64,222



64,222Cash distributions paid and declared













(58,119
)


(58,119
)Balance at December 31, 2001

32,789,913


$
328


$
714,615


$
(92,485
)

$
622,458





See accompanying notes to consolidated financial statements.







---

PAN PACIFIC RETAIL PROPERTIES, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)





For the Years Ended December 31,2001


2000


1999(revised)


(revised)


(revised)CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
64,222


$
33,800


$
32,576Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


28,980



20,224



17,371Amortization of prepaid financing costs


999



700



707Net gain on sale of real estate


(4,129
)






(400
)Income from unconsolidated partnerships


(837
)


(364
)


(341
)Income from discontinued operations


(1,683
)


(610
)


(488
)Minority interests


2,521



2,119



1,558Vesting of restricted stock


922



1,615



Stock grant






120



Changes in assets and liabilities, net of the effects of the acquisition of Western:Increase in accounts receivable


(899
)


(2,230
)


(337
)Increase in accrued rent receivable


(3,063
)


(1,897
)


(2,748
)Increase in accrued interest to note receivable


(3,057
)






Increase in deferred lease commissions


(2,735
)


(1,757
)


(1,785
)Increase in prepaid expenses


(358
)


(505
)


(732
)Increase in other assets


(9,046
)


(1,569
)


(948
)Increase in accounts payable, accrued expenses and other liabilities


5,259



5,198



1,394Net cash provided by operating activities


77,096



54,844



45,827CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions of and additions to properties


(63,717
)


(49,890
)


(81,173
)Proceeds from sale of real estate


36,423



198



12,915Increase (decrease) in construction accounts payable and accrued expenses


391



116



(2,573
)Distributions from unconsolidated partnerships


584



355



84Acquisition of Western


(1,952
)


(14,371
)


Acquisition of interest in unconsolidated partnership










(7,163
)Acquisition of minority interests


(2,252
)


(570
)


(204
)Increase in other assets






(13,339
)


(841
)Collections of notes receivable


3,678



6,224



1,599Increases in notes receivable


(19,282
)


(2,673
)


(269
)Net cash used in investing activities


(46,127
)


(73,950
)


(77,625
)CASH FLOWS FROM FINANCING ACTIVITIES:Line of credit proceeds


168,300



346,260



106,962Line of credit payments


(270,650
)


(279,910
)


(116,662
)Notes payable proceeds










91,300Notes payable payments


(4,776
)


(4,207
)


(14,949
)Prepaid financing costs


(1,700
)


(1,267
)


(2,719
)Issuance of senior notes, net


148,837







Repurchase of common shares


(20,850
)






Issuance of common shares


11,013



1,192



Distributions paid


(61,191
)


(43,456
)


(34,663
)Net cash (used in) provided by financing activities


(31,017
)


18,612



29,269DECREASE IN CASH AND CASH EQUIVALENTS


(48
)


(494
)


(2,529
)Cash from discontinued operations


1,881



737



547NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


1,833



243



(1,982
)CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR


1,932



1,689



3,671CASH AND CASH EQUIVALENTS AT END OF YEAR

$
3,765


$
1,932


$
1,689





(Continued)







---

PAN PACIFIC RETAIL PROPERTIES, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


(In thousands)





For the Years Ended December 31,2001

2000

1999(revised)

(revised)

(revised)SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest (net of amounts capitalized of $1,539, $202 and $231, respectively)

$
45,547

$
30,699

$
22,995SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Transfer from investment in unconsolidated partnerships to property

$


$


$
15,775Transfer of other assets to properties

$
20,107

$


$
Transfer of note receivable to property

$
11,113

$


$
Notes receivable issued upon sales of properties

$
2,400

$
1,801

$
1,962Conversion of operating subsidiary units to common stock

$
18,261

$


$
Stock issued in acquisition of Western

$
11

$
221,134

$
Assumption of senior notes and line of credit

$


$
197,350

$
Notes payable assumed upon acquisition of properties and Western

$


$
9,628

$
12,523Minority interest from acquisition of properties and Western

$


$
18,751

$
6,134Accrued liability for acquisition of partnership interests

$


$
126

$
Distributions payable

$


$


$
8,960Note payable assumed by buyer upon sale of property

$


$


$
4,408





See accompanying notes to consolidated financial statements.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







1.    Organization and basis of presentation





Pan Pacific Retail Properties, Inc. (together with its subsidiaries, the Company) is an equity real estate
investment trust (REIT) that owns, leases and manages neighborhood and community shopping centers. As of December 31, 2001, the Company owned a portfolio comprised of 108 properties located primarily in the Western region of the United
States. Commencing with its taxable year ended December 31, 1997, the Company believes it qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code.





Our consolidated statements of income and consolidated statements of cash flows have been revised from those originally reported for the years ended December 31, 2001, 2000
and 1999 to separately reflect the results of discontinued operations for properties that were sold during the nine months ended September 30, 2002. The revision had no impact on our consolidated balance sheets or statements of stockholders
equity. The revision had no impact on net income or net income per share of common stock for the years ended December 31, 2001, 2000 and 1999. See Note 3 to the consolidated financial statements.





In 1998 and 1999, the Company formed certain operating subsidiaries to acquire shopping center properties. The Company is the managing member and in exchange for the
properties which were contributed to the operating subsidiaries, units were issued to the non-managing members. These operating subsidiaries were primarily formed for tax planning purposes for the non-managing members who contributed the properties.
A non-managing member can seek redemption of the units after the first anniversary of the date of issuance. The Company, at its option, may redeem the units by either (i) issuing common stock at the rate of one share of common stock for each unit,
or (ii) paying cash to the non-managing member based on the average trading price of its common stock. Distributions are made to the non-managing members at a rate equal to the distribution being paid by the Company on a share of common stock. Net
income or loss is allocated to the non-managing members in an amount equal to the cumulative distributions earned by such members. All remaining net income or loss is allocated to the Company as the managing member. The following table summarizes
the activity for these operating subsidiaries as of December 31, 2001:





Operating subsidiary

Units originally issued

Units converted

Units outstandingPan Pacific (Portland), LLC

832,617

400,000

432,617Pan Pacific (Rancho Las Palmas), LLC

314,587

0

314,587





On November 13, 2000, the Company acquired Western Properties Trust
(Western), a real estate investment trust, at a cost of approximately $440,000,000. The transaction was a stock for stock exchange including assumption of debt whereby Western common shares and units were exchanged into newly issued
Company common shares and units, based upon a price of $20.5625 per share/unit issued and a 0.62 exchange ratio. As a result, the Company issued 10,754,776 common shares and 911,934 operating subsidiary units to Westerns equity holders. The
Company accounted for this transaction using the purchase method of accounting; accordingly, the Companys results of operations for the period from November 13, 2000 through December 31, 2000 include Western.




---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







1.    Organization and basis of presentation (continued)





In connection with the acquisition of Western, the Company has an investment in certain operating
partnerships. Pan Pacific (Kienows), L.P., formerly Western/Kienow, L.P., issued units convertible into shares of Company common stock or cash, at the Companys option. Distributions are made to the limited partners at a rate equal to the
distribution being paid by the Company on a share of common stock. Net income or loss is allocated to the limited partners in an amount equal to the cumulative distributions earned by such partners. All remaining net income or loss is allocated to
the Company as general partner. Pan Pacific (Pinecreek), L.P., formerly Western/Pinecreek, L.P., issued units convertible into shares of Company common stock or cash, at the Companys option. Distributions are made to the limited partners after
a 10% preferred return to the Company as general partner. Net income is allocated to the Company, as general partner, and to the limited partners in amounts equal to the cumulative distributions earned by such partners and thereafter based on their
ownership interests. Losses are allocated 99% to the Company as general partner and 1% to the limited partners. The following table summarizes the activity for these operating subsidiaries as of December 31, 2001:





Operating subsidiary

Units originally issued

Units converted

Units outstandingPan Pacific (Kienows), L.P.

857,065

623,067

233,998
(a)Pan Pacific (Pinecreek), L.P.

54,869

0

54,869





| | (a) |  | All remaining units were converted for $6,721,000 cash in January 2002.
| | --- |  | -----------------------------------------------------------------------




Unaudited pro forma information reflecting the acquisition of Western is presented in the following table. The amounts included therein assume that the acquisition had
taken place at the beginning of the year.





For the years ended December 31,2000

1999(Pro forma, unaudited)Total revenue

$
181,497

$
166,614Total expenses

$
120,151

$
108,749Net income

$
61,346

$
57,865Basic earnings per share

$
1.92

$
1.81Diluted earnings per share

$
1.89

$
1.81







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







2.    Summary of significant accounting policies and practices





|(a)    Principles |  | of consolidation
|----------------- |  | ----------------




The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated. The Company consolidated entities the
Company controls and recorded a minority interest for the portions not owned by the Company.





|(b) |  | Cash and cash equivalents
|--- |  | -------------------------




For purposes of reporting cash flows, highly liquid investments with an original maturity of three months or less are considered cash equivalents. Restricted cash totaled $252,000 and $331,000 at
December 31, 2001 and 2000, respectively.





|(c) |  | Income recognition
|--- |  | ------------------




Rental revenue is recognized on a straight-line basis over the terms of the leases, less an allowance for doubtful accounts relating to accounts receivable and accrued rent receivable for amounts deemed uncollectible and for
leases which may be terminated before the end of the contracted term. The Company considers tenant retention in determining an appropriate allowance to record. Percentage rent is recorded at the time tenants meet specified sales thresholds. The
Company receives reimbursement for real estate taxes and certain other operating expenses. Such reimbursements are generally recognized at the time the related expenses are incurred.





Bad debt expense, included in property operating expenses in the Companys financial statements, was $1,765,000, $441,000 and $702,000 for the years ended December 31,
2001, 2000 and 1999, respectively.





|(d) |  | Capitalization of costs
|--- |  | -----------------------




The Company capitalizes certain acquisition and development related costs to the carrying costs of the property acquired or developed. These costs are being depreciated over the estimated useful lives of the properties. The
capitalized costs associated with unsuccessful acquisitions are charged to expense when the acquisition is abandoned.





|(e) |  | Depreciation and amortization
|--- |  | -----------------------------




Depreciation on buildings and improvements is provided using a forty-year straight-line basis. Management believes forty years is an appropriate estimated useful life for buildings and improvements.
Tenant improvements and costs incurred in obtaining leases are depreciated on a straight-line basis over the lives of the respective leases.





Prepaid financing costs are amortized over the lives of the loans and the related amortization expense is included as a component of interest expense. Premiums and discounts on indebtedness are
amortized over the life of the related debt using the straight-line method, which approximates the effective interest method.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







2.    Summary of significant accounting policies and practices
(continued)





|(f) |  | Impairment of long-lived assets and long-lived assets to be disposed of
|--- |  | -----------------------------------------------------------------------




The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.





|(g) |  | Income taxes
|--- |  | ------------




As of April 16, 1997, the Company elected to be taxed as a REIT pursuant to the Internal Revenue Code, as amended. In general, a corporation that distributes at least 90% of its REIT taxable income to stockholders in any taxable year
and complies with certain other requirements (relating primarily to the nature of its assets and the sources of its revenue) is not subject to federal income taxation to the extent of the income which it distributes. Management believes that the
Company has qualified and intends for it to continue to qualify as a REIT in the future. As discussed more fully in Note 8, management also does not expect that the Company will pay income taxes on built-in gains on certain of its
assets. Based on these considerations, management does not believe that the Company will be liable for income taxes at the federal level or in most of the states in which it operates in future years.





|(h) |  | Credit and concentration risk
|--- |  | -----------------------------




The Company predominantly operates in one industry segment: real estate ownership, management and development. No single tenant accounts for 10% or more of rental revenue. Financial instruments which
potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and receivables. The Company places its temporary cash investments with financial institutions which the Company believes are of high
credit quality. Concentration of credit risk with respect to receivables is limited due to the large number of tenants comprising the Companys customer base, and their dispersion across many areas within the Western region of the United
States. At December 31, 2001 and 2000, the Company had no significant concentration of credit risk.





|(i) |  | Net income per share
|--- |  | --------------------




Basic earnings per share (EPS) is computed by dividing earnings available to common stockholders during the period by the weighted average number of common shares outstanding during each period. Diluted EPS is
computed by dividing the adjusted amount of earnings available to common stockholders during the period by the weighted average number of shares that would have been outstanding assuming the issuance of common shares for all dilutive potential
common shares outstanding during the reporting period, net of shares assumed to be repurchased using the treasury stock method.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







2.    Summary of significant accounting policies and practices
(continued)





The following is a reconciliation of the numerator and denominator for the calculation of basic
and diluted EPS (all net income is available to common stockholders for the periods presented):





For the years ended December 31,2001

2000

1999Income available to common stockholders:Basic

$
64,222

$
33,800

$
32,576Add-back income allocated to dilutive operating subsidiary units


1,864


585


1,530Diluted

$
66,086

$
34,385

$
34,106Weighted average shares:Basic


31,857,903


22,695,877


21,196,238Incremental shares from assumed:Exercise of dilutive stock options


294,006


35,765


8,478Conversion of dilutive operating subsidiary units


1,408,843


436,677


917,943Diluted


33,560,752


23,168,319


22,122,659





At December 31, 2001 and 2000, 0 and 310,167 stock options,
respectively, were excluded from the calculation of diluted weighted average shares because they were anti-dilutive. At December 31, 2001 and 2000, 314,587 and 832,617 operating subsidiary units were excluded from the calculation of diluted weighted
average shares because they were anti-dilutive.





|(j) |  | Stock plans
|--- |  | -----------




The Company accounts for its stock plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such,
compensation expense is recorded on the date of option grants only if the current market price of the underlying stock exceeds the exercise price. Compensation expense for restricted stock grants is determined on the grant date based on the market
price and is recognized over the vesting period. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the annual pro forma disclosures required by
SFAS No. 123.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







2.    Summary of significant accounting policies and practices
(continued)





|(k) |  | Use of estimates
|--- |  | ----------------




Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and
the reporting of revenue and expenses during the reporting period to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and reported amounts of revenue and
expenses that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.





Management considers those estimates and assumptions that are most important to the portrayal of the Companys financial condition and results of operations, in that they require managements
most subjective judgments, to form the basis for the accounting policies deemed to be most critical to the Company. These critical accounting policies include managements estimates of useful lives in calculating depreciation expense on its
shopping center properties and the ultimate recoverability (or impairment) of each shopping center asset. If the useful lives of buildings and improvements are different from 40 years, it could result in changes to the future results of operations
of the Company. Future adverse changes in market conditions or poor operating results of shopping center properties could result in losses or an inability to recover the carrying value of the properties that may not be reflected in the
properties current carrying value, thereby possibly requiring an impairment charge in the future.





|(l) |  | Reclassifications
|--- |  | -----------------




Certain reclassifications of 2000 and 1999 amounts have been made in order to conform to 2001 presentation.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







3.    Discontinued operations





In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144). In accordance with SFAS No. 144, we report each individual property as a component for determining discontinued operations. The operating results of five properties sold during the third quarter of 2002 were reported as income
from discontinued operations in 2002, and their respective 2001, 2000, and 1999 results of operations were reclassified to income from discontinued operations. The following is a summary of our income from discontinued operations for the years ended
December 31, 2001, 2000 and 1999:





For the years ended December 31,2001


2000


1999Revenue

$
2,376


$
939


$
746Property operating expenses


(395
)


(179
)


(153
)Depreciation and amortization expenses


(298
)


(150
)


(105
)Discontinued operations

$
1,683


$
610


$
488





The carrying values of the five properties sold (including the
related asset groups, as defined in SFAS 144) were as follows:





As of December 31,2001

2000Properties, net of accumulated depreciation and amortization

$
15,647

$
15,366Accounts receivable

$
197

$
62Accrued rent receivable

$
196

$
96Deferred lease commissions

$
66

$
42Prepaid expenses

$
66

$
65Accounts payable, accrued expenses and other liabilities

$
126

$
120





4.    Investments in unconsolidated partnerships





The accompanying consolidated financial statements include investments in partnerships in which the Company exerts significant
influence but does not own a controlling interest. At December 31, 2001, the Company owned a 50% general partner interest in North Coast Health Center. During December 2001, the Company sold its 30% undivided co-tenant interest in Serra Center. At
December 31, 2000, the Company owned a 50% general partner interest in North Coast Health Center and a 30% undivided co-tenant interest in Serra Center. These investments are reported using the equity method.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







5.    Indebtedness





|(a) |  | Notes payable
|--- |  | -------------




December 31,2001

2000Notes payable secured by properties consist of the following:Bank notes payable, secured by deeds of trust, bearing interest at 7.10% with monthly principal and interest payments of
$391, due in August 2009

$
54,545

$
55,333Bank notes payable, secured by a mortgage and deeds of trust, bearing interest at 8.17% with monthly principal and
interest payments of $404, due in January 2007


52,004


52,524Bank notes payable, secured by deeds of trust, bearing interest at 7.21% with monthly principal and interest payments of
$252, due in July 2006


33,680


34,254Bank note payable, secured by a deed of trust, bearing interest at 7.72% with monthly principal and interest payments of
$190, due in January 2010


26,080


26,331Bank note payable, secured by deeds of trust, bearing interest at 8.73% with monthly principal and interest payments of
$144, due in February 2007 (a)


16,448


16,704Bank note payable, secured by a deed of trust, bearing interest at 8.10% with monthly principal and interest payments of
$94, due in August 2007


12,230


12,367Bank note payable, secured by a deed of trust, bearing interest at 7.80% with monthly principal and interest payments of
$107, due in December 2005


9,779


10,280Bank note payable, secured by a deed of trust, bearing interest at 7.61% with monthly principal and interest payments of
$80, due in May 2004


9,357


9,591Bank note payable, secured by a deed of trust, bearing interest at 7.65% with monthly principal and interest payments of
$54, due in October 2012 (b)


7,327


7,413Bank note payable, secured by a deed of trust, bearing interest at 7.00% with monthly principal and interest payments of
$37, due in March 2004


4,334


4,411Bank note payable, secured by a deed of trust, bearing interest at 7.88% with monthly principal and interest payments of
$56, due in August 2008


1,988


3,136227,772


232,344Unamortized note payable premiums


1,363


1,567$
229,135

$
233,911





|(a) |  | Excludes unamortized note payable premium of $1,082 and $1,266 at December 31, 2001 and 2000, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------

|(b) |  | Excludes unamortized note payable premium of $281 and $301 at December 31, 2001 and 2000, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------



---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







5.    Indebtedness (continued)





Principal payments under these notes payable are due as follows:





2002

$
4,3232003


4,6052004


17,3832005


11,8182006


33,9272007 and subsequent


155,716$
227,772





|(b) |  | Line of credit and term loan payable
|--- |  | ------------------------------------




In November 2000, the Company entered into an unsecured $300,000,000 Revolving Credit Agreement which bears interest, at the Companys option, at either LIBOR plus 1.10% or a reference rate and
expires in January 2004. At December 31, 2001 and 2000, the amount drawn on this line of credit was $165,300,000 and $167,650,000, respectively, and the interest rate was 3.23% and 7.89%, respectively. The credit facility requires a quarterly fee of
0.20% per annum on the total aggregate commitment.





In November 2000, the Company also executed an unsecured
$100,000,000 Term Credit Agreement which bore interest, at the Companys option, at either LIBOR plus 1.20% or a reference rate and was to expire in November 2001 with a three month option to extend at the Companys discretion. At December
31, 2000, the full amount was drawn on this loan. The Company paid off the loan in full in July 2001.





|(c) |  | Senior notes
|--- |  | ------------




In April 2001, the Company issued $150,000,000 in aggregate principal amount of 7.95% senior notes due April 2011. The Company sold these notes at 99.225% of the principal amount. The Company used the net proceeds from the offering
to repay borrowings under its term loan and line of credit.





In November 2000, in connection with the acquisition
of Western, the Company assumed $49,952,000 of 7.88% senior notes due 2004, $24,977,000 of 7.10% senior notes due 2006, $24,958,000 of 7.20% senior notes due 2008 and $24,958,000 of 7.30% senior notes due 2010. The senior notes were assumed net of a
$155,000 discount which represents the amount of the principal reduction recorded by Western to achieve the required yield at pricing of the debt. The effective yields approximated fair value at the date of the merger.





6.    Financial instruments





The following methods and assumptions were used to estimate fair value of each class of financial instruments:





|(a) |  | Cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other liabilities
|--- |  | ----------------------------------------------------------------------------------------------------------------------------




The carrying amounts approximate fair values because of the short-term nature of these instruments.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







6.    Financial instruments (continued)





|(b) |  | Notes receivable
|--- |  | ----------------




The carrying amounts of notes receivable with balances of $859,000 and $2,486,000 at December 31, 2001 and 2000, respectively, approximate fair values because of the short-term nature of these instruments.





It was not practicable to estimate the fair value of notes receivable with balances of $41,784,000 and $32,999,000 at
December 31, 2001 and 2000, respectively, due to the uncertainty of the timing of repayment. One of the notes had a balance of $41,127,000 and $19,593,000 at December 31, 2001 and 2000, respectively. The note bears interest at 9.00% on the
first $26,500,000 and at 10.50% thereafter. The security interest in the related asset is considered to be in excess of the credit risk associated with the note balance. The principal balance on the note may be repaid earlier than its scheduled
maturity of 2007. In addition, the note agreement provides for 25% of the cash flow after debt service to be paid to the Company for seven years.





The fair value of notes receivable with balances of $5,249,000 and $2,459,000 at December 31, 2001 and 2000, respectively, approximates the carrying amounts based on market rates for the same or other
instruments with similar risk, security and remaining maturities.





|(c) |  | Notes payable, line of credit and senior notes payable
|--- |  | ------------------------------------------------------




The fair value of notes payable, line of credit and senior notes payable approximates the carrying amount based on the current rates offered for loans with similar risks
and maturities.





7.    Net gain on sale of real estate





The Company recorded a net gain on sale of real estate of $4,129,000 during the year ended December 31, 2001. The gain related to the sale of a non-core shopping
center, five single tenant assets, a 30% interest in a shopping center (Note 4) and four parcels of land. The total sales proceeds of $38,823,000 were received in cash and a note receivable.





The Company recorded a net gain on sale of real estate of $400,000 during the year ended December 31, 1999. The gain related to the sale of two shopping centers and one
single tenant asset. The total sales proceeds of $12,970,000 were received in cash and notes receivable.





8.    Stock plans





In August 1997, the Company established the 1997
Stock Option and Incentive Plan (the 1997 Plan) pursuant to which the Companys Board of Directors may grant stock, restricted stock awards and stock options to officers, directors and key employees. The 1997 Plan authorizes grants
of stock, restricted stock and options to purchase up to 1,620,000 shares of authorized but unissued common stock. In March 2000, the Company established the 2000 Stock Incentive Plan (the 2000 Plan) pursuant to which the Companys
Board of Directors may grant stock, restricted stock awards and stock options to officers, directors and key employees. The 2000 Plan authorizes grants of stock, restricted stock and options to purchase up to 489,971 shares of authorized but
unissued common stock. The 2000 Plan was approved by the Companys stockholders at the annual meeting held in May 2000. In November 2000, the number of shares available for grant pursuant to the 2000 Plan was increased to 1,786,695 shares upon
approval by the Companys stockholders in connection with the merger with Western. At December 31, 2001, there were 1,057,075 additional shares available for grant under the 1997 Plan and the 2000 Plan.




---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







8.    Stock plans (continued)





|(a) |  | Stock options
|--- |  | -------------




Stock options are granted with an exercise price equal to the stocks fair value at the date of grant. The stock options have seven-year terms and vest 33 1/3% per year over three years from the date of grant, except for the
options granted to the independent directors which vest 33 1/3% immediately, with the remainder vesting ratably over two years. In connection with the acquisition of Western, all issued and outstanding stock options became fully vested.





The per share weighted average fair value of stock options granted during 2001, 2000 and 1999 were $2.14, $1.71
and $1.64, respectively, on the dates of grant using the Black-Scholes option-pricing model using the following weighted average assumptions:





2001


2000


1999Expected distribution yield

7.80
%

8.30
%

8.50
%Risk-free interest rate

5.00
%

5.00
%

5.00
%Expected volatility

22.48
%

22.88
%

23.90
%Expected life (years)

6.8


5.9


6.5





The Company applies APB Opinion No. 25 in accounting for the 1997
Plan and 2000 Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Companys net income would have been reduced to the pro forma amounts indicated below:





2001

2000

1999As Reported

Pro Forma

As Reported

Pro Forma

As Reported

Pro FormaNet income

$
64,222

$
63,795

$
33,800

$
32,535

$
32,576

$
31,481Diluted earnings per share

$
1.97

$
1.96

$
1.48

$
1.43

$
1.54

$
1.49





Pro forma net income reflects options granted since adoption of the
1997 Plan and the 2000 Plan.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







8.    Stock plans (continued)





Stock option activity during the periods presented is as follows:





Number of Options


Weighted Average Exercise PriceBalance at December 31, 1998

1,215,167


$
20.2265Granted

283,000


$
17.6250Exercised




$
Forfeited

(17,000
)

$
20.0600Expired

(3,333
)

$
19.5000Balance at December 31, 1999

1,477,834


$
19.7750Granted

173,000


$
18.6250Exercised

(61,600
)

$
19.3478Forfeited

(15,333
)

$
19.4743Expired

(10,667
)

$
20.0192Balance at December 31, 2000

1,563,234


$
19.6605Granted

425,486


$
21.5500Exercised

(575,903
)

$
19.1051Forfeited

(7,000
)

$
21.5500Expired

(8,000
)

$
21.8901Balance at December 31, 2001

1,397,817


$
20.4240





At December 31, 2001, the range of exercise prices for outstanding
options was $17.625 to $22.1875 and the weighted average exercise price and weighted average remaining contractual life of outstanding options were $20.4240 and 4.1 years, respectively. The weighted average exercise price of exercisable outstanding
options was $19.9809. At December 31, 2001, 1,002,152 of the 1,397,817 outstanding options were exercisable.





|(b) |  | Restricted stock and stock grants
|--- |  | ---------------------------------




During 2001, the Company granted 212,000 shares of restricted stock to certain officers and key employees pursuant to the 1997 Plan and the 2000 Plan. The restricted shares vest over five years from
the date of grant. During 2001, the Company granted 5,000 shares of restricted stock to the independent directors of the Board pursuant to the 1997 Plan. The restricted shares vest over one year from the date of grant. During 2001, the Company
granted 800 shares of restricted stock to an independent director of the Board pursuant to the 1997 Plan. The restricted shares vest 33 1/3% immediately, with the remainder vesting ratably over two years. Compensation expense for the portion that
vested during 2001 has been recognized in general and administrative expenses. Compensation expense related to these grants to be recognized in future periods is $3,910,000 at December 31, 2001.





In November 2000, the Companys Board of Directors granted a total of 6,000 shares of stock to the independent directors of the Board. Expense related to this
grant has been recognized in merger related expenses. During 1999, the Company granted 90,500 shares of restricted stock to certain officers and key employees pursuant to the 1997 Plan. The restricted shares vest over five years from the date of
grant. Compensation expense, for the portion that vested during 1999 and 2000 prior to the acquisition of Western, has been recognized in general and administrative expenses. In connection with the acquisition of Western, the restricted shares
became fully vested and the remaining compensation expense of $1,305,000 has been recognized in merger related expenses.




---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







9.    Income taxes





As discussed in Note 2(g), the Company elected to be taxed as a REIT, effective April 16, 1997. Management believes that the Company
qualified and managements intent is to continue to qualify as a REIT and therefore does not expect the Company will be liable for income taxes at the federal level or in most states in future years. Accordingly, for the years ended December
31, 2001, 2000 and 1999, no provision was recorded for federal or substantially all state income taxes.





In
connection with its election to be taxed as a REIT, the Company also elected to be subject to the built-in gain rules. Under these rules, taxes may be payable at the time and to the extent that the net unrealized gains on the
Companys assets at the date of conversion to REIT status are recognized in taxable dispositions of such assets in the ten-year period following conversion. Such net unrealized gains were approximately $50,000,000 at December 31, 2001, 2000 and
1999. Management believes that the Company will not be required to make payments of income taxes on built-in gains during the ten-year period ending December 31, 2007. It is the intent and ability of the Company to defer asset dispositions to
periods when related gains will not be subject to the built-in gains income taxes or to use tax planning ideas available to defer recognition of the built-in gains. However, it may be necessary to recognize a liability for such income taxes in the
future if managements plans and intentions with respect to asset dispositions, or the related tax laws, change.





The following unaudited table reconciles the Companys book net income to REIT taxable income before dividends paid deduction:





For the years ended December 31,2001 Estimate


2000 Actual


1999 ActualBook net income

$
64,222


$
33,800


$
32,576Less: Differences between book and tax net income for REIT subsidiaries


(2,225
)


3,993



(2,261
)61,997



37,793



30,315Add: Book depreciation and amortization (a)


29,278



20,374



17,476Less: Tax depreciation and amortization


(26,145
)


(16,513
)


(14,667
)Less: Straight-line rent adjustments


(3,157
)


(1,898
)


(3,071
)Book/tax difference on gains/losses from capital transactions


(136
)


(81
)


(1,024
)Other book/tax differences, net


(925
)


1,504



(698
)Taxable ordinary income before adjustments


60,912



41,179



28,331Less: Other adjustments (b)


(7,478
)


(7,478
)


REIT taxable income before dividends paid deduction

$
53,434


$
33,701


$
28,331





|(a) |  | Includes depreciation of properties in discontinued operations (see Note 3).
|--- |  | ----------------------------------------------------------------------------




|(b) |  | Based on other adjustments permitted by the Internal Revenue Code.
|--- |  | ------------------------------------------------------------------






---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







9.    Income taxes (continued)





The Company pays distributions quarterly to the stockholders. The following presents the federal income tax characterization of
distributions paid or deemed to be paid to stockholders:





For the years ended December 31,2001


2000


1999Ordinary income

$
1.73

94.94
%

$
1.67

86.18
%

$
1.46

92.15
%Return of capital


0.09

5.06
%


0.27

13.82
%


0.12

7.85
%$
1.82

100.00
%

$
1.94

100.00
%

$
1.58

100.00
%





10.    Future lease revenue





Total future minimum lease receipts under noncancellable operating tenant leases in effect at December 31, 2001 are as follows:





2002

$
136,6932003


125,0392004


111,2932005


95,9722006


78,3822007 and subsequent


410,116$
957,495





11.    Related party transactions





(a)  On January 4, 2001, the Company purchased 1,000,000 shares of its common stock from Revenue Properties (U.S.), Inc., an affiliate of the
Company. The Company purchased the stock at a price of $20.85 per share and financed the transaction through a draw under its line of credit.





(b)  Distributions on common stock paid to Revenue Properties (U.S.), Inc., an affiliate of the Company, during 2001 and 2000 were $7,004,000 and $20,968,000, respectively.





(c)  The Company received $15,000, $85,000 and $150,000 for the years ended December 31, 2001, 2000 and 1999, respectively, which represent a
reimbursement of costs incurred by the Company in providing financial services to Revenue Properties (U.S.), Inc. These amounts are included as a reduction of general and administrative expenses.





(d)  The Company had notes receivable of $735,000 and $687,000 due from executive officers at December 31, 2001 and 2000, respectively. These
notes were part of the acquisition of Western and replaced notes previously held by officers of Western. These notes bore interest at 7.50% and were repaid in January 2002. In addition, the Company had notes receivable of $124,000 and $116,000 due
from executive officers at December 31, 2001 and 2000, respectively. These notes, which bear interest at 7.00%, are due on demand. In addition, during 2000 notes receivable of $297,000 were issued to executive officers. These notes bore interest at
7.00% and were forgiven in November 2000 as a result of the acquisition of Western and were a component of merger related expenses. The Company had notes receivable at December 31, 1999 of $260,000 due from executive officers. The notes bore
interest at 7.00% and were forgiven in 2000 as a component of annual compensation.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







12.    Employee benefit plan





All employees of the Company who meet certain minimum age and period of service requirements are eligible to participate in a Section
401(k) plan as defined by the Internal Revenue Code. The employee benefit plan, sponsored by the Company, allows eligible employees to defer up to 15% of their annual compensation. The amounts contributed by employees are immediately vested and
non-forfeitable. The Company, at managements discretion, may match employee contributions. The Companys cost for the years ended December 31, 2001, 2000 and 1999 was approximately $64,000, $58,000 and $23,000, respectively.





13.    Commitments and contingencies





(a)  The Company leases certain real estate and office equipment under operating leases expiring at various dates through 2021. Rental expense was $770,000, $892,000 and $769,000 for
the years ended December 31, 2001, 2000 and 1999, respectively. Minimum rentals under noncancellable operating leases in effect at December 31, 2001 were as follows:





2002

$
7702003


7692004


7642005


7632006


7632007 and subsequent


2,883$
6,712





(b)  In connection with the acquisition of Western, the Company was named
in a complaint alleging, among other things, that the merger terms between the Company and Western were unfair and violated fiduciary obligations to Westerns shareholders. Management believes, based in part upon discussions with legal counsel,
that these claims are without merit and intends to vigorously defend against this action; however, the outcome of any litigation is by its nature unpredictable and we therefore cannot assure that we will successfully defend this action.





(c)  Various claims and legal proceedings arise in the ordinary course of business. The ultimate amount of liability
from all claims and actions cannot be determined with certainty, but in the opinion of management, the ultimate liability from all pending and threatened legal claims will not materially affect the consolidated financial statements taken as a whole.





14.    Segment reporting





The Company predominantly operates in one industry segment - real estate ownership, management and development. As of December 31, 2001 and 2000, the Company owned 108 and
110 community shopping centers, respectively, primarily located in the Western United States (see Note 1). Management reviews operating and financial data for each property separately and independently from all other properties when making resource
allocation decisions and measuring performance. Therefore, the Company defines operating segments as individual properties with no segment representing more than 10% of the net operating income of the Company. No single tenant accounts for 10% or
more of rental revenue and none of the shopping centers are located in a foreign country.







---



PAN PACIFIC RETAIL PROPERTIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2001, 2000 and 1999


(Tabular amounts are in thousands, except option and share data)







15.    Quarterly financial data (unaudited)





The following summarizes the condensed quarterly financial information for the Company:





Quarters ended 2001December 31

September 30

June 30

March 31Revenue

$
48,642

$
46,633

$
48,596

$
45,123Expenses and minority interests


31,831


30,117


32,235


30,589Net income

$
16,811

$
16,516

$
16,361

$
14,534Basic earnings per share

$
0.52

$
0.52

$
0.52

$
0.46Diluted earnings per share

$
0.51

$
0.50

$
0.51

$
0.45Quarters ended 2000December 31

September 30

June 30

March 31Revenue

$
38,021

$
28,044

$
27,365

$
27,063Expenses and minority interests


29,669


19,320


18,951


18,753Net income

$
8,352

$
8,724

$
8,414

$
8,310Basic and diluted earnings per share

$
0.31

$
0.41

$
0.40

$
0.39







---

PAN PACIFIC RETAIL PROPERTIES, INC.


SCHEDULE III


PROPERTIES AND ACCUMULATED DEPRECIATION


December 31, 2001


(In thousands)





Encumbrances

Initial Costs

Costs Capitalized Subsequent to Acquisition

Total Costs

Accumulated Depreciation (2) (3)

Date of Acquis.(A) Constr.(C)Description


Land

Buildings and Improvements(2)

Improvements(2)

Carrying Costs

Land

Buildings and Improvements

Total (1) (2)
(3)PROPERTIES:Albany Plaza Albany, OR

$


$
1,525

$
4,638

$
1,191

$


$
1,525

$
5,829

$
7,354

$
461

1999
(A)Anderson Square Anderson, CA





827


2,480


76





827


2,556


3,383


81

2000
(A)Angels Camp Town Center Angels Camp, CA





1,153


3,485


23





1,153


3,508


4,661


100

2000
(A)Arlington Courtyard Riverside, CA





401


753


87





401


840


1,241


246

1994
(A)Auburn North Auburn, WA





2,275


8,053


1,616





2,275


9,669


11,944


836

1999
(A)Bear Creek Plaza Medford, OR





3,275


9,825


1,579





3,275


11,404


14,679


1,227

1998
(A)Blaine International Center Blaine, WA





1,951


5,255


13





1,951


5,268


7,219


149

2000
(A)Blossom Valley Turlock, CA





2,494


7,483


9





2,494


7,492


9,986


209

2000
(A)Brookhurst Anaheim, CA





6,152


14,364








6,152


14,364


20,516


90

2001
(A)Brookvale Center Fremont, CA





3,161


9,489


1,017





3,161


10,506


13,667


1,173

1997
(A)Cable Park Orangevale, CA





3,042


9,174


31





3,042


9,205


12,247


449

1999
(A)Canal Farms Las Brunos, CA





1,576


4,728


54





1,576


4,782


6,358


138

2000
(A)Canby Square Canby, OR





2,503


7,518


59





2,503


7,577


10,080


23

2001
(A)Canyon Ridge Plaza Kent, WA





2,457





8,638





2,904


8,191


11,095


1,390

1992 1995
(A) (C)Canyon Square Plaza Santa Clarita, CA





2,725


8,338


102





2,725


8,440


11,165


522

1999
(A)Caughlin Ranch Reno, NV





2,283


6,852


840





2,283


7,692


9,975


194

2000
(A)Centennial Plaza Hartford, CA





2,761


8,286


13





2,761


8,299


11,060


235

2000
(A)Century Center Modesto, CA





4,780


14,337


57





4,780


14,394


19,174


407

2000
(A)Cheyenne Commons Las Vegas, NV





8,540


26,810


3,280





8,540


30,090


38,630


5,071

1995
(A)Chico Crossroads Chico, CA





3,600


17,063


24





3,600


17,087


20,687


2,083

1997
(A)Chino Town Square Chino, CA


26,080


8,801


10,297


26,898





21,093


24,903


45,996


4,465

1992
(A)Claremont Village Everett, WA





2,319


6,987


234





2,319


7,221


9,540


835

1997
(A)Cobblestone Redding, CA





1,869


5,609


64





1,869


5,673


7,542


166

2000
(A)Commonwealth Square Folsom, CA





4,425


13,274


28





4,425


13,302


17,727


374

2000
(A)Country Club Center Rio Rancho, NM


3,166


566


2,514


917





566


3,431


3,997


1,199

1992
(A)Country Gables Granite Bay, CA





4,621


10,806


87





4,621


10,893


15,514


310

2000
(A)Creekside Center Hayward, CA





1,500


4,500


634





1,500


5,134


6,634


464

1998
(A)Currier Square Oroville, CA





1,591


4,771








1,591


4,771


6,362


135

2000
(A)





(Continued)




---




PAN PACIFIC RETAIL PROPERTIES, INC.


SCHEDULE III


PROPERTIES AND ACCUMULATED DEPRECIATION (Continued)


December 31, 2001


(In thousands)





Encumbrances

Initial Costs

Costs Capitalized Subsequent to Acquisition

Total Costs

Accumulated Depreciation (2) (3)

Date of Acquis.(A) Constr.(C)Description


Land

Buildings and Improvements(2)

Improvements(2)


Carrying Costs

Land

Buildings and Improvements

Total (1) (2) (3)PROPERTIES:Dodge Center Fallon, NV



422

1,267






422

1,267

1,689

36

2000
(A)Dublin Retail Center Dublin, CA



4,053

12,159

216




4,053

12,375

16,428

29

2000
(A)Eagle Station Carson City, NV



2,455

7,363

33




2,455

7,396

9,851

212

2000
(A)East Burnside Portland, OR



1,583

3,691

114




1,583

3,805

5,388

117

2000
(A)Eastridge Plaza Porterville, CA



1,170

3,513

4




1,170

3,517

4,687

98

2000
(A)Elko Junction Elko, NV



3,274

9,822

43




3,274

9,865

13,139

280

2000
(A)Elverta Crossing Sacramento, CA



3,080

9,236

107




3,080

9,343

12,423

270

2000
(A)Encinitas Marketplace Encinitas, CA



3,529

8,385

342




3,529

8,727

12,256

372

2000
(A)Fairmont Shopping Center Fairmont, CA



3,420

8,003

355




3,420

8,358

11,778

1,062

1997
(A)Fashion Faire San Leandro, CA



2,862

8,588

242




2,862

8,830

11,692

817

1998
(A)Foster Square Portland, OR



348

811

427




348

1,238

1,586

65

2000
(A)Garrison Square Vancouver, WA



1,487

4,466

36




1,487

4,502

5,989

27

2001
(A)Gateway Shopping Center Mill Creek, WA



3,937

12,044

33




3,937

12,077

16,014

201

2000
(A)Glenbrook Center Sacramento, CA



1,538

3,659

94




1,538

3,753

5,291

110

2000
(A)Glen Cove Center Vallejo, CA



1,925

5,775

58




1,925

5,833

7,758

471

1998
(A)Granary Square Valencia, CA



5,479

12,940

121




5,479

13,061

18,540

446

2000
(A)Green Valley Town & Country Henderson, NV



4,096

12,333

115




4,096

12,448

16,544

1,390

1997
(A)Heritage Park Suison City, CA



3,449

10,348

69




3,449

10,417

13,866

295

2000
(A)Heritage Place Tulare, CA



2,098

6,298

29




2,098

6,327

8,425

180

2000
(A)Hermiston Plaza Hermiston, OR



1,930

5,791

1,547




1,930

7,338

9,268

625

1998
(A)Hood River Center Hood River, OR



1,169

3,507

2,695




1,169

6,202

7,371

311

1998
(A)Kmart Center Sacramento, CA



1,130

3,392

121




1,130

3,513

4,643

109

2000
(A)Laguna 99 Plaza Elk Grove, CA



3,244

9,730

7




3,244

9,737

12,981

274

2000
(A)Laguna Village Sacramento, CA



3,226



15,986


1,644

3,448

17,408

20,856

3,219

1992 1996/97
(A) (C)Lakewood Shopping Center Lakewood, CA



2,363

7,125

65




2,363

7,190

9,553

852

1997
(A)Lakewood Village Windsor, CA

9,357

5,347

12,476

67




5,347

12,543

17,890

355

2000
(A)Laurentian Center Ontario, CA

4,334

2,767

6,445

(390
)



2,767

6,055

8,822

851

1994/96
(A)





(Continued)




---




PAN PACIFIC RETAIL PROPERTIES, INC.


SCHEDULE III


PROPERTIES AND ACCUMULATED DEPRECIATION (Continued)


December 31, 2001


(In thousands)





Encumbrances

Initial Costs

Costs Capitalized Subsequent to Acquisition

Total Costs

Accumulated Depreciation (2) (3)

Date of Acquis.(A) Constr.(C)Description


Land

Buildings and Improvements(2)

Improvements(2)


Carrying Costs

Land

Buildings and Improvements

Total (1) (2) (3)PROPERTIES:Manteca Marketplace Manteca, CA



3,904

11,713

620




3,904

12,333

16,237

1,293

1998
(A)Marina Village Huntington Beach, CA



3,531

10,933

247




3,531

11,180

14,711

779

1999
(A)Maysville Marketsquare Maysville, KY

5,181

3,454

2,001

3,731


79

3,299

5,966

9,265

1,470

1992 1993
(A) (C)Melrose Village Vista, CA

8,937

5,125

11,621

27




5,125

11,648

16,773

2,771

1999
(A)Memphis Retail Center Memphis, TN



1,204

3,780

(28
)



1,204

3,752

4,956

893

1992
(A)Menlo Park Portland, OR



3,056

7,231

1,050




3,056

8,281

11,337

224

2000
(A)Milwaukie Marketplace Milwaukie, OR



3,184

9,551

544




3,184

10,095

13,279

1,071

1998
(A)Mira Loma Shopping Center Reno, NV



1,925

5,775

289




1,925

6,064

7,989

507

1998
(A)Mission Ridge Plaza Manteca, CA



2,880

8,640

1




2,880

8,641

11,521

243

2000
(A)Monterey Plaza San Jose, CA

16,955

7,688

18,761

485




7,702

19,232

26,934

2,397

1997
(A)North Hills Reno, NV



2,500








2,500



2,500



2000
(A)Northridge Plaza Fair Oaks, CA



1,658

4,977

48




1,658

5,025

6,683

146

2000
(A)Olympia Square Olympia, WA

13,625

3,737

11,580

1,032




3,737

12,612

16,349

3,939

1992
(A)Olympia West Center Olympia, WA

1,988

2,736

8,295

142




2,736

8,437

11,173

957

1997
(A)Olympic Place Walnut Creek, CA



9,681

9,427






9,681

9,427

19,108



2000
(A)Oregon City Shopping Center Oregon City, OR

9,817

4,426

13,272

2,210




4,426

15,482

19,908

1,145

1998
(A)Oregon Trail Gresham, OR



3,593

10,779

3,387




3,593

14,166

17,759

1,284

1998
(A)Pacific Commons Shopping Center Spanaway, WA



3,419

10,256

88




3,419

10,344

13,763

915

1998
(A)Palmdale Center Palmdale, CA



1,150

3,454

244




1,150

3,698

4,848

398

1997
(A)Panther Lake Shopping Center Kent, WA



1,950

5,850

278




1,950

6,128

8,078

635

1998
(A)Park Place Vallejo, CA



4,020

9,381

2




4,020

9,383

13,403

263

2000
(A)Pine Creek Shopping Center Grass Valley, CA



5,000

15,000

153




5,000

15,153

20,153

440

2000
(A)Pioneer Plaza Springfield, OR



1,864

5,591

143




1,864

5,734

7,598

577

1998
(A)Plaza 580 Livermore, CA



4,010

12,031

52




4,010

12,083

16,093

338

2000
(A)Powell Valley Junction Gresham, OR



1,546

4,639

1,094




1,546

5,733

7,279

506

1998
(A)Powell Villa Portland, OR



850

2,553

2




850

2,555

3,405

15

2001
(A)Rainbow Promenade Las Vegas, NV

19,246

9,390

21,774

262




9,381

22,045

31,426

2,384

1997
(A)





(Continued)




---




PAN PACIFIC RETAIL PROPERTIES, INC.


SCHEDULE III


PROPERTIES AND ACCUMULATED DEPRECIATION (Continued)


December 31, 2001


(In thousands)





Encumbrances

Initial Costs

Costs Capitalized Subsequent to Acquisition

Total Costs

Accumulated Depreciation (2) (3)

Date of Acquis.(A) Constr.(C)Description


Land

Buildings and Improvements(2)

Improvements(2)

Carrying Costs

Land

Buildings and Improvements

Total (1) (2) (3)PROPERTIES:Raleigh Hills Raleigh Hills, OR



1,774

5,376

3



1,774

5,379

7,153

150

2000
(A)Raleys Fallon, NV



848

2,546





848

2,546

3,394

72

2000
(A)Raleys Shopping Center Yuba City, CA



2,107

6,321

4



2,107

6,325

8,432

178

2000
(A)Rancho Las Palmas Rancho Mirage, CA

12,230

5,025

15,235

836



5,025

16,071

21,096

893

1999
(A)Rockwood Plaza Gresham, OR



1,179

3,537

831



1,179

4,368

5,547

129

2000
(A)Sahara Pavilion North Las Vegas, NV

30,032

11,920

28,560

857



11,920

29,417

41,337

7,856

1992
(A)Sahara Pavilion South Las Vegas, NV



4,833

12,988

1,157



4,833

14,145

18,978

4,030

1992
(A)San Dimas Market Place San Dimas, CA

14,434

5,699

17,100

214



5,699

17,314

23,013

1,732

1998
(A)Sandy Marketplace Sandy, OR

4,558

2,046

6,064

448



2,046

6,512

8,558

532

1998
(A)Shops at Lincoln School Modesto, CA



1,672

5,067

4



1,672

5,071

6,743

285

1999
(A)Shute Park Plaza Hillsboro, OR



994

2,981

222



994

3,203

4,197

345

1998
(A)Sky Park Plaza Chico, CA



3,566

10,700

2



3,566

10,702

14,268

302

2000
(A)Southgate Center Milwaukie, OR

3,155

1,423

4,268

497



1,423

4,765

6,188

368

1998
(A)St. Johns Portland, OR



2,005

2,005

127



2,005

2,132

4,137

57

2000
(A)Sunset Mall Portland, OR

7,608

2,996

8,989

114



2,982

9,117

12,099

723

1998
(A)Sunset Square Bellingham, WA



6,100

18,647

2,393



6,100

21,040

27,140

6,093

1992
(A)Sycamore Plaza Anaheim, CA



1,856

5,601

59



1,856

5,660

7,516

193

2000
(A)Tacoma Central Tacoma, WA

9,779

5,314

16,288

439



5,314

16,727

22,041

1,763

1997
(A)Tacoma Shopping Center Portland, OR



838

1,955

3



838

1,958

2,796

55

2000
(A)Tanasbourne Village Hillsboro, OR

18,262

5,573

13,861

1,219



5,573

15,080

20,653

3,918

1992
(A)Tustin Heights Tustin, CA

10,391

3,675

10,776

465



3,675

11,241

14,916

1,203

1997
(A)Ukiah Crossroads Ukiah, CA



1,869

5,609





1,869

5,609

7,478

157

2000
(A)Victorian Walk Fresno, CA



1,676

5,025





1,676

5,025

6,701

142

2000
(A)Vineyard Village East Ontario, CA



649

2,716

137



649

2,853

3,502

625

1994
(A)West Town Winnemucca, NV



1,085

3,258





1,085

3,258

4,343

92

2000
(A)Westwood Village Shopping Center Redding, CA



1,131

3,393

441



1,131

3,834

4,965

458

1998
(A)Winterwood Pavilion Las Vegas, NV



4,573

13,015

1,736



4,573

14,751

19,324

4,507

1992
(A)





(Continued)




40




---




PAN PACIFIC RETAIL PROPERTIES, INC.


SCHEDULE III


PROPERTIES AND ACCUMULATED DEPRECIATION (Continued)


December 31, 2001


(In thousands)





Encumbrances

Initial Costs

Costs Capitalized Subsequent to Acquisition

Total Costs

Accumulated Depreciation (2) (3)

Date of Acquis.(A) Constr.(C)Description


Land

Buildings and Improvements(2)

Improvements(2)

Carrying Costs

Land

Buildings and Improvements

Total (1) (2)
(3)PROPERTIES:Yreka Junction Yreka, CA





2,436


7,304


7





2,436


7,311


9,747


208

2000
(A)$
229,135

$
336,897

$
894,906

$
98,425

$
1,723

$
349,694

$
982,257

$
1,331,951

$
98,762





Notes:





|(1) |  | The aggregate gross cost of the properties owned by Pan Pacific Retail Properties, Inc. for federal income tax purposes, approximated $1,274,376 as of December
31, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Net of write-offs of fully depreciated assets.
|--- |  | ----------------------------------------------




|(3) |  | The following table reconciles the historical cost and related accumulated depreciation and amortization of Pan Pacific Retail Properties, Inc. from January 1,
1999 through December 31, 2001:
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




For the years ended December 31,Cost of properties

2001


2000


1999Balance, beginning of year

$
1,268,719


$
805,086


$
709,522Additions (acquisition, improvements, etc.)


93,180



467,848



109,613Interest capitalized


1,539



202



231Deductions (write-off of tenant improvements, cost of real estate sold and provision for loss on
impairment)


(31,487
)


(4,417
)


(14,280
)Balance, end of year

$
1,331,951


$
1,268,719


$
805,086For the years ended December 31,Accumulated depreciation and amortization

2001


2000


1999Balance, beginning of year

$
73,895


$
57,025


$
42,044Additions (depreciation and amortization expense)


27,536



19,083



17,782Deductions (write-off of accumulated depreciation of tenant improvements and cost of real estate sold)


(2,669
)


(2,213
)


(2,801
)Balance, end of year

$
98,762


$
73,895


$
57,025





See accompanying independent auditors report.




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