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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-KSB/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 333-35063
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BARON CAPITAL TRUST (Name of Small Business Issuer as Specified in its Charter)
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Delaware 31-1574856
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(State or Other (I.R.S.
Jurisdiction of Employer
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Incorporation or Identification
Organization) No.)
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7826 COOPER ROAD CINCINNATI, OHIO 45242
(Address of Principal Executive Offices including Zip Code)
(513) 984-5001 (Issuer's Telephone Number, including Area Code)
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SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT: COMMON SHARES OF
BENEFICIAL INTEREST, NO PAR VALUE
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. X
The issuer's revenues for its most recent fiscal year were $396,884.
As of March 31, 1999 the aggregate market value of voting and non-voting equity
common stock held by non-affiliates (based on total shares outstanding reduced
by the number of shares held by trustees, officers, and other affiliates) of the
registrant was five million eight hundred thirty-eight thousand four hundred and
three dollars ($5,838,403) based on the actual cash paid for shares issued by
the four hundred and six (406) investors.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
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The purpose of this Form 10-KSB/A is to amend Items 1 and 2 of Form
10-KSB filed by Baron Capital Trust on April 15, 1999 with the Commission under
Commission File Number 333-35063.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Baron Capital Trust, a Delaware real estate investment trust, (the "Trust")
was formed on July 31, 1997. The Trust and its affiliate, Baron Capital
Properties, L.P. (the "Operating Partnership"), constitute an integrated real
estate company which has been organized to acquire equity interests in
residential apartment properties located in the United States and/or to provide
or acquire mortgage loans secured by such types of property. On May 15, 1998
pursuant to a registration statement on Form SB-2 the Trust commenced a public
offering of 2,500,000 common shares of beneficial interest at an offering price
of $10 per share ("Cash Offering"). The Cash Offering will terminate no later
than November 30, 1999. The net cash proceeds from the issuance of common shares
will be contributed by the Trust to the Operating Partnership for an equivalent
number of units of limited partnership in the Operating Partnership. As of March
31, 1999, the Trust had sold and/or issued to the public 583,840 common shares,
and the Trust intends to continue to sell common shares. The Trust, indirectly
through the Operating Partnership, intends to acquire, own, operate, manage and
improve residential apartment property interests for long-term ownership, and
thereby to seek to maximize current and long-term income and the value of its
assets. The Trust is the general partner of the Operating Partnership and holds
units of limited partnership interest as well.
The Managing Shareholder of the Trust is affiliated with a total of 56
partnerships or other real estate entities. The Operating Partnership has filed
a registration statement with the SEC to acquire 23 real estate partnerships,
each of which is affiliated with the Managing Shareholder of the Trust. (See
"Exchange Offering" below). These 23 real estate partnerships were selected
because each partnership is known to the Managing Shareholder of the Trust, and
each partnership owns income producing residential apartment property or other
qualified investment assets, which meet the investment objectives established by
the Board of the Trust. (See "Investment Objectives" below). The Operating
Partnership does not intend to acquire interests in properties only from
affiliates of the Managing Shareholder. Although the Exchange Offering will
involve 23 Exchange Partnerships, which are affiliates of the Managing
Shareholder, the Operating Partnership intends to acquire a significant number
of property interests from non-affiliates, depending on the amount of cash
raised in the Cash Offering.
The Trust made its first quarterly pro rata cash distribution to its
Shareholders in November 1998 for the third quarter of 1998. A second cash
distribution was made in March 1999 for the fourth quarter of 1998. The Trust
intends to make regular quarterly pro rata distributions to its Shareholders of
net income generated from investments in property interests, generally within 45
to 60 days after the end of each calendar quarter. The Trust intends to operate
as a REIT for federal income tax purposes, provided, however, that if its
Managing Shareholder determines, with the affirmative vote of a Majority of
Shareholders entitled to vote on such matter approving
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the Managing Shareholder's determination, that it is no longer in the best
interests of the Trust to continue to qualify as a REIT, the Managing
Shareholder may revoke or otherwise terminate the Trust's REIT election pursuant
to applicable federal tax law.
The Operating Partnership conducts all of the Trust's real estate operations
and holds all direct or indirect property interests acquired. The Operating
Partnership owns record title to properties or limited partnership interests or
other equity interests in limited partnerships and other entities which own
direct or indirect interests in properties. The Trust is the sole General
Partner of the Operating Partnership, and, in such capacity, the Trust controls
the activities of the Operating Partnership. The operations of the Trust will be
carried on through the Operating Partnership (and any other subsidiaries the
Trust may have in the future), among other reasons, in order to (i) enhance the
ability of the Trust to qualify and maintain its status as a REIT for federal
income tax purposes, and (ii) enable the Trust to indirectly acquire interests
in residential apartment properties in exchange transactions that involve the
exchange of Operating Partnership Units for limited partnership interests in
limited partnerships which directly or indirectly own such property interests,
and thereby provide the opportunity for deferral until a later date of any tax
liabilities that sellers of partnership interests otherwise would incur if they
received cash or Trust common shares in connection therewith. The Operating
Partnership will be responsible for, and pay when due, its share of all
administrative and operating expenses of properties in which it acquires an
interest.
The Trust's executive offices are located in Cincinnati, Ohio at 7826 Cooper
Road, Cincinnati, Ohio 45242. The Trust's main telephone number is
(513) 984-5001.
Brief Description of Properties
Through the Operating Partnership, the Trust invests in direct or indirect
ownership interests in multifamily apartment communities and manages affiliated
apartment properties. As of December 31, 1998, the Trust had an indirect
ownership interest in 4 apartment communities (consisting of an aggregate of 365
apartment units) in 2 states (individually a "Property" and collectively, the
"Properties"). Three of the Properties were constructed during the 1980s and are
comprised of one story garden style apartment buildings of modular construction.
One of the Properties is still under construction. As of March 31, 1999 that
Property had 98 units ready to rent and 70 units planned for completion by the
end of 1999. The Properties are located in urban and suburban and secondary
markets in Florida and Kentucky. During the period that the Properties were held
in 1998, the average economic occupancy of the Properties was 94.3% and the
average monthly rent collected per occupied unit was $463.
The table below indicates the geographic locations of the Properties in
which the Trust had an ownership interest at December 31, 1998:
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<TABLE>
<CAPTION>
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STATE SITES PROPERTIES UNITS
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<S> <C> <C> <C>
Florida 3 3 197
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Kentucky 1 1 168
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4 4 365
- - ---
- - ---
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</TABLE>
Exchange Offering
The Operating Partnership has filed a registration statement on Form S-4
with the Securities and Exchange Commission covering up to 2,500,000 units of
limited partnership interest ("Units") to be registered under the Securities Act
of 1933, as amended (the "Act") ("Exchange Offering").
It is proposed that these units would be exchanged for units of limited
partnership interest in 23 limited partnerships (the "Exchange Partnerships"),
which directly or indirectly own equity and/or mortgage interests in one or more
residential apartment properties. The Exchange Partnerships are managed by
corporate general partners (the "Corporate General Partners") which are
affiliated with one of the founders of the Operating Partnership, Gregory K.
McGrath, who is the sole stockholder and director of the Managing Shareholder of
the Trust. This registration statement has not yet become effective.
The number of Units being offered in exchange for the limited partnership
interests in the Exchange Partnerships will be based on appraisals prepared by
qualified and licensed independent appraisal firms for each underlying
residential apartment property. For purposes of the Exchange Offering, each Unit
has been arbitrarily assigned an initial value of $10, which corresponds to the
offering price of each Trust Common Share currently being offered to the public
pursuant to the Cash Offering. The value of each Unit and Common Share
outstanding will be substantially identical since Unit holders, including
recipients of Units in the Exchange Offering, will be entitled to exchange all
or a portion of their Units at any time and from time to time for an equivalent
number of Trust Common Shares, so long as the exchange would not cause the
exchanging party to own (taking into account certain ownership attribution
rules) in excess of 5% of the then outstanding shares in the Trust, subject to
the Trust's right to cash out any holder of Units who requests an exchange and
subject to certain other exceptions. To facilitate such exchanges of Units into
Common Shares, 2,500,000 Common Shares (in addition to the 2,500,000 Common
Shares being offered by the Trust in the Cash Offering) have been registered
under the Act.
As its initial investment targets in the Exchange Offering, the Operating
Partnership is offering to acquire equity and/or subordinated mortgage interests
in 26 properties (the "Exchange Properties") directly or indirectly owned by the
23 Exchange Partnerships. The Operating Partnership will acquire interests in a
particular property and/or mortgages by acquiring from limited partners their
units of limited partnership interest in the respective Exchange Partnership.
Each of the Exchange Partnerships directly or indirectly owns equity and/or
mortgage interests in one or more properties. Certain of the Exchange
Partnerships directly or indirectly own equity
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interests in 16 properties which consist of an aggregate of 1,012 residential
units (comprised of studio, one, two, three and four-bedroom units). Certain of
the Exchange Partnerships directly or indirectly own mortgage interests in 10
properties, which consist of an aggregate of 813 existing residential units
(studio and one and two bedroom units) and 168 units (two and three bedroom
units) under development. Of the Exchange Properties, 21 properties are located
in Florida, three properties in Ohio and one property each in Georgia and
Indiana.
Investment Objectives
The Trust and the Operating Partnership have been organized to acquire
equity interests in residential apartment properties located in the United
States and/or to provide or acquire mortgage loans secured by such types of
property. Such investments are expected to consist primarily of: (i) the direct
and indirect acquisition, ownership, operation, management, improvement and
disposition of equity interests in such types of properties and/or (ii) mortgage
loans which the Trust and the Operating Partnership provide or acquire which are
secured by mortgages on such types of properties. It is expected that the
proposed investments will(1) generate current cash flow for distribution to
Shareholders from rental payments from the rental of residential apartment units
which the Trust and the Operating Partnership may acquire and/or principal and
interest payments in respect of mortgage loans which the Trust and the Operating
Partnership may provide or acquire and (2), where applicable, provide the
opportunity for capital appreciation of residential apartment properties. The
Trust intends to pay regular quarterly distributions to the Shareholders.
Properties in which the Trust and the Operating Partnership acquire an interest
are expected to use the straight-line method of depreciation over 30 years.
The management of the Trust and the Operating Partnership has been involved
in the residential property business for over 10 years and has extensive
experience and presence in the residential property business which have enabled
it to form key alliances and working relationships with owners of residential
apartment properties and financial institutions.
The Trust and the Operating Partnership intend to acquire, own, operate,
manage, and improve residential apartment property interests for long-term
ownership, and thereby to seek to maximize current and long-term income and the
value of its assets. The strategy of the Trust and the Operating Partnership is
to pursue acquisitions of interests in properties that (i) are available at
prices below estimated replacement cost; (ii) may provide attractive returns
with significant potential growth in cash flow from property operations; (iii)
are strategically located, of high quality and competitive in their respective
markets; (iv) have been under-managed or are otherwise capable of improved
performance through intensive management and leasing that will result in
increased occupancy and rental revenues, and (v) provide anticipated total
returns that will increase distributions by the Trust and the Operating
Partnership and their overall market value. The Trust will make investments in
properties indirectly through the Operating Partnership in which it will hold
all of its real estate assets and conduct all real estate operations.
With respect to those properties which have been acquired by the Operating
Partnership, the Heatherwood, Crystal Court II, and Riverwalk partnerships were
acquired with the investment strategies of buying below estimated replacement
cost and having potential significant increases
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in cash flow. The properties are strategically located, of high quality and
competitive in their markets, and have been undermanaged. The Alexandria
partnership involves a new development which is expected to provide attractive
returns with significant potential growth in cash flow. The property is
strategically located, of high quality and is competitive in the market. Each of
these partnerships is expected to provide total returns that will increase Trust
distributions as well as overall market value.
The acquisition committee of the Operating Partnership investigated all
affiliated partnerships to determine which met its investment criteria. After
thorough review, only the 23 Exchange Partnerships involved in the Exchange
Offering met the required standards. The Operating Partnership has applied its
investment criteria to the pricing of all Exchange Partnerships. In each
circumstance the purchase price is below replacement cost, provides potential
attractive returns with significant upsides in cash flow, are all located
strategically within geographical boundaries in which The Operating Partnership
intends to operate, and are expected to be able to provide total returns that
will both increase distributions as well as overall market value of the
underlying properties.
The primary business objective of the Trust is to increase distributions to
Shareholders and to increase the value of the Trust's portfolio of properties in
which it acquires an interest. The Trust intends to achieve these objectives by:
(i) Acquiring interests in properties that are available at prices below
estimated replacement cost and capable of enhanced performance, both in terms of
cash flow and investment value, through application of the Trust's management
ability and strategic capital improvements;
(ii) Acquiring mortgage loans, including subordinated mortgage loans secured
by mortgages on existing residential apartment properties located in the United
States;
(iii) Increasing cash flow of the Trust's property interests through active
leasing, rent increases, improvements in tenant retention, expense controls,
effective property management, and regular maintenance and periodic renovations,
including additions to amenities;
(iv) Managing operating expenses through the use of affiliated leasing,
marketing, financing, accounting, legal, and data processing functions; and
(v) Emphasizing capital improvements to enhance the Trust's competitive
advantages in its markets.
The Trust and the Operating Partnership intend to provide or acquire
subordinated mortgage loans which provide for the payment of a fixed or
adjustable rate of interest plus, in certain cases, participation interest that
is payable out of available cash flow remaining after the payment of operating
expenses and debt service requirements and/or out of net proceeds from the sale
or refinancing of such property remaining after the payment of transaction
expenses and indebtedness secured by such property. The repayment of such loans
would be secured by a subordinated mortgage on the underlying property. The
Trust will not provide or acquire
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mortgage loans in respect of any property where the amount invested by the Trust
or the Operating Partnership plus the amount of any existing indebtedness in
respect of such property exceeds 80% of the property's estimated replacement
cost new unless substantial justification exists.
Results of Operations
The Trust commenced operations on February 3, 1998. Through its Operating
Partnership, it started acquiring interests in Properties including the total
limited partnership interests in Heatherwood I Apartments in June, 1998; Crystal
Court II Apartments in July 1998; and Riverwalk Apartments in September, 1998.
In July it acquired a limited partnership interest in 20 real estate
partnerships managed by affiliates of the managing Shareholder of the Trust. In
October, 1998 it acquired a 12.3 percent interest in Alexandria Apartments (see
ITEM 2 DESCRIPTION OF PROPERTIES). The table below summarizes the Results of
Operations for the partial year ended December 31, 1998.
<TABLE>
<CAPTION>
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Year Ended
December 31, 1998
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<S> <C>
Property Revenues $ 394,104
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Property Income (Loss) $ (211,911)
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Administrative $1,238,939
Expenses
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(net of Interest
Income)
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Net Loss $(1,450,850)
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Total Assets $7,731,515
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Shareholders Equity $2,834,092
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</TABLE>
Competition
The apartment industry is highly competitive and fragmented with numerous
owners and developers competing with the Trust on a national, regional and local
basis. Competition for residents of apartment communities is subject to the
conditions and pricing of individual units, local market conditions, the
location of the apartment community and other factors. In addition, other forms
of housing, including manufactured housing communities and single family homes
provide alternatives to potential residents.
The Trust's current Portfolio is diversified across 4 metropolitan areas
throughout Florida and Kentucky. The Trust's Properties tend to be located in
urban, suburban and secondary markets, where the Trust competes locally with
other apartment communities.
Environmental
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The Trust is subject to Federal, state, and local environmental regulations
that apply to the development of real property, including construction
activities, the ownership of real property, and the operation of multifamily
apartment communities.
The Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601, et seq. ("CERCLA"), and applicable state Superfund laws subject the
owner of real property to claims or liability for the costs of removal or
remediation of hazardous substances that are disposed of on real property in
amounts that require removal or remediation. Liability under CERCLA and
applicable state Superfund laws can be imposed on the owner of real property or
the operator of a facility without regard to fault or even knowledge of the
disposal of hazardous substances on the property or at the facility. The
presence of hazardous substances in amounts requiring response action or the
failure to undertake remediation where it is necessary may adversely affect an
owner's ability to sell real estate or borrow money using such real estate as
collateral. In addition to claims for cleanup costs, the presence of hazardous
substances on a property could result in a claim by a private party for personal
injury or a claim by an adjacent property owner for property damage.
The Trust, where required, intends to retain a qualified environmental
consultant to conduct an environmental investigation of each property that it
considers for investment. If there is any indication of contamination, sampling
of the property will be performed by the environmental consultant. The
environmental investigation report will be reviewed by the Trust and counsel
prior to purchase of an interest in any property.
Employees
The Trust and the Operating Partnership currently employ a total of 17
employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company has executive and administrative offices, financial operations
and a portion of property operations located in 120 and 4,800 square feet of
space in two buildings located at 7826 and 7809 Cooper Road, Cincinnati, Ohio
45242 respectively. The Company shares the space in 7826 Cooper Road with other
companies affiliated with the Managing Shareholder of the Trust. The space at
7809 Cooper Road was leased in May, 1998 from Grammas Development Company, an
unaffiliated entity, for a term of 5 years and one month. Management believes
that the lease terms are competitive with commercial lease rates in the
Cincinnati market.
Set forth below is a description of the Operating Partnership's acquisition
between June and December 1998 of beneficial ownership of 67-unit, 80-unit, and
50-unit residential apartment properties located in Orlando, Lakeland and New
Smyrna Beach, Florida, respectively, and a 12.3% interest in a 168-unit
residential apartment property located in Alexandria, Kentucky, and a limited
partnership interest in 20 real estate partnerships managed by affiliates of the
Managing Shareholder of the Trust. By acquiring the general and limited
partnership interests, the Operating Partnership avoided certain costs such as
first mortgage assumption fees and
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recordation of title fees. Also described below is a purchase agreement recently
entered into by the Trust under which the Trust, subject to certain conditions,
will acquire two residential apartment properties (totaling 652 units) under
development in Burlington and Louisville, Kentucky upon completion of
construction.
Heatherwood I Apartments
In June 1998, the Operating Partnership acquired the entire limited
partnership interest in Heatherwood Kissimmee, Ltd., a Florida limited
partnership (the "Heatherwood Partnership") which owns fee simple title to a
67-unit residential apartment property referred to as the Heatherwood Apartments
- - Phase I (the "Heatherwood Property") located at 1005 Airport Road in
Kissimmee, Florida 32741. On November 10, 1997 an affiliate of the Operating
Partnership, Baron Capital XLV, Inc., acquired the general partnership interest
in the Heatherwood Partnership. Set forth below is certain information
describing the property, first mortgage financing to which the property is
subject and the acquisition by the Operating Partnership of beneficial ownership
of the property.
The Heatherwood Property, completed in 1981, consists of 17 studio/one
bathroom units, 45 one bedroom/one bathroom units, and five two bedroom/one
bathroom units. The property is situated on approximately 2.26 acres and has
approximately 35,136 square feet of rentable area. The average unit size of the
studio, one bedroom and two bedroom units is approximately 288, 576 and 864
square feet, respectively. The average monthly rental rate as of November 1,
1998 for each type of unit was approximately $379, $439 and $539, respectively,
or $1.31, $.76 and $.62 per square foot, respectively. The average monthly
occupancy rates for 1994, 1995, 1996, 1997 and 1998 were approximately 91%, 88%,
93%, 97%, and 96% respectively. The average annual rental rate per unit for each
of the last five years has been $5,280 (1994), $5,424 (1995), $5,628 (1996),
$5,820 (1997) and $6,060 (1998).
The Operating Partnership acquired the entire limited partnership interest
in the Heatherwood Partnership from an unaffiliated third party, Rylex Capital,
L.L.C., a Florida limited liability company, for a purchase price of $830,000.
The purchase price was based on independent appraisal of the market value of the
property plus the value of any additional assets, less all liabilities, and was
approved by the Board of the Trust. The Heatherwood Property is subject to first
mortgage financing with a current principal balance of approximately $1,239,000.
The mortgage is held by GMAC Commercial Mortgage Corp. The maturity date of the
first mortgage loan is December 2004. Assuming no prepayments of principal, the
balance that will be due at maturity is approximately $1,083,553. The monthly
debt service payments are $8,847, or an annual amount of $106,164. The loan
bears a fixed interest rate of 7.625% and amortizes on a 30-year basis. The loan
is prepayable with a prepayment fee equal to 1% of the then outstanding
principal balance.
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There is no lease, option, or contract to purchase or sell the Heatherwood
Property. A renovation program has been in place since the date of acquisition.
This program includes both interior and exterior improvements at a cost of
approximately $2,500 per unit. The costs have been paid from maintenance
reserves established and maintained by the property on a monthly basis. The
property is in Florida and, as such, subject to the competitive nature of the
state. The demand for units is high between October and April and much lower for
the other months. This situation overrides any other competitive factor. The
Heatherwood Property is not located in an overbuilt area and demand is adequate.
The Heatherwood Property is adequately covered by insurance.
The Heatherwood Property is a residential community; there is no tenant who
occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Heatherwood Property. The property
leases units for period of no longer than one year. The federal tax depreciation
basis as of June 30, 1999 is $1,571,341. Depreciation is taken on a
straight-line basis over 30 years. The Heatherwood Property is taxed at 200
mills per $10,000 valuation, and the 1998 taxes due March 31, 1999 were
$22,787.05. Estimated taxes on proposed improvements are not material.
Crystal Court II Apartments
In July 1998, the Operating Partnership acquired the entire limited
partnership interest in Crystal Court Apartments II, Ltd., a Florida limited
partnership (the "Crystal Court Partnership") which owns fee simple title to an
80-unit residential apartment property referred to as Crystal Court Apartments -
Phase II (the "Crystal Court Property") located in Lakeland, Florida. On January
15, 1986 an affiliate of the operating partnership, Baron Capital LIX, Inc.,
acquired the general partnership interest in the Crystal Court Partnership. Set
forth below is certain information describing the property, first mortgage
financing to which the property is subject and the acquisition by the Operating
Partnership of beneficial ownership of the property.
The Crystal Court Property, completed in 1986, consists of 20 studio/one
bathroom units, 54 one bedroom/one bathroom units, and six two bedroom/one
bathroom units. The property is situated on approximately 6.8 acres and has
approximately 42,048 square feet of rentable area. The average unit size of the
studio, one bedroom and two bedroom units is approximately 288, 576 and 864
square feet, respectively. The average monthly rental rate as of November 1,
1998 for each type of unit is approximately $319, $369 and $455, respectively,
or $1.11, $.64 and $.53 per square foot, respectively. The average monthly
occupancy rates for 1994, 1995, 1996, 1997 and 1998 were approximately 91%, 91%,
90%, 95% and 91% respectively. The average annual rental rate per unit for
Crystal Court Property for each of the last five years has been $4,068 (1994),
$4,188 (1995), $4,356 (1996), $4,632 (1997) and $4,812 (1998).
The Operating Partnership acquired the entire limited partnership interest
in the Crystal Court Partnership from an unaffiliated third party, Rylex
Capital, L.L.C., a Florida limited liability company, for a purchase price of
approximately $704,000. The purchase price was based on an independent appraisal
of the market value of the property plus the value of any additional assets,
less all liabilities, and was approved by the Board of the Trust. The Crystal
Court Property is
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subject to first mortgage financing with a current principal balance of
approximately $1,494,000. The mortgage is held by GMAC Commercial Mortgage Corp.
The maturity date of the first mortgage loan is October 2004. Assuming no
prepayments of principal, the balance that will be due at maturity is
approximately $1,366,490. The monthly debt service payments are $10,446, or an
annual amount of $125,355. The loan bears a fixed interest rate of 7.5% and
amortizes on a 30-year basis. The loan is prepayable with a prepayment fee equal
to 1% of the then outstanding principal balance.
There is no lease, option, or contract to purchase or to sell the Crystal
Court Property. A renovation program has been in place since the original
acquisition. This program includes both interior and exterior improvements at a
cost of approximately $2,000 per unit. The costs have been paid from maintenance
reserves established and maintained by the property on a monthly basis. The
property is in Florida and, as such, subject to the competitive nature of the
state. The demand for units is high between October and April and much lower for
the other months. This situation overrides any other competitive factor. The
Crystal Court Property is not located in an overbuilt area and demand is
adequate. The Crystal Court Property is adequately covered by insurance.
The Crystal Court Property is a residential community; there is no tenant
who occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Crystal Court Property. The
property leases units for period of no longer than one year. The federal tax
depreciation basis as of June 30, 1999 is $1,657,232. Depreciation is taken on a
straight-line basis over 30 years. The Crystal Court Property is taxed at 21.4
mills per $1,000 valuation, and the 1998 taxes due March 31, 1999 were
$24,897.65. Estimated taxes on proposed improvements are not material.
Riverwalk Apartments
In September 1998, the Operating Partnership acquired the entire limited
partnership interest in Riverwalk Enterprises, Ltd., a Florida limited
partnership ("Riverwalk"), which owns fee simple title to a 50-unit residential
apartment property located at 47 Jacaranda Cay Court, New Smyrna Beach, Florida
32169 (the "Riverwalk Property"). Simultaneously, an affiliate of the Operating
Partnership, Riverwalk, LC, a Florida limited liability company, acquired the
general partnership interest in Riverwalk. Riverwalk, LC was organized for the
express purpose of acquiring such general partnership interest. Gregory K.
McGrath, the Chief Executive Officer of the Operating Partnership and the Trust,
is the manager of Riverwalk, LC. The Operating Partnership owns 99% of the
membership interests in Riverwalk, LC. The remaining 1% membership interest is
nominally held by the Managing Shareholder of the Trust, as agent for the
Operating Partnership.
The Riverwalk Property, completed in 1986, consists of 50 two bedroom units.
Forty-five units have two bathrooms and five have one bathroom. The property is
located directly on the intracoastal waterway and was originally built for
condominium sale. The Operating Partnership
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will operate the property as a rental community for the indefinite future.
Occupancy data for the years 1994 through 1997 for the Riverwalk Property is
unavailable. The occupancy rate in 1998 was 98%. The property has 51,024 square
feet of rentable space, or approximately 1,020 square feet per unit. The current
rent per square foot is approximately $.55. The average annual rental rate for
1998 was approximately $6,780 per unit.
The Operating Partnership acquired the Riverwalk limited partnership
interests from 12 unaffiliated individuals. Riverwalk, LC acquired the Riverwalk
general partnership interest for a purchase price of approximately $700,000 from
Riverwalk Enterprises, Inc., whose principal was Michael Green. Mr. Green is not
affiliated with the Trust or the Operating Partnership. The purchase price was
based on an independent appraisal of the property less all liabilities, and was
approved by the Board of the Trust. The sale was subject to a first mortgage of
approximately $1,330,000, held by TMG Life Insurance Company. The current
principal balance of the mortgage is approximately $1,323,000. The mortgage
matures in November 2004 and has a current interest rate of 8.75%. The holder of
the first mortgage has a right to adjust the rate in October 1999 for the
remaining five years of the loan, to a rate equal to 200 basis points above the
then current rate for five-year treasury notes. Assuming no prepayments of
principal, the balance that will be due at maturity is approximately $1,151,636.
The monthly debt service payments are $11,626, or an annual amount of $139,510.
Prepayment is permitted at any time, subject however to a yield maintenance
termination fee calculated in accordance with the terms of the loan.
There is no lease, option, or contract to purchase or to sell the Riverwalk
Property. A renovation program has been in place since the original acquisition.
This program includes both interior and exterior improvements at a cost of
approximately $500 per unit to date. The cost will increase per unit as more
renovations are completed. The costs have been paid from maintenance reserves
established and maintained by the property on a monthly basis. The property is
in Florida and, as such, subject to the competitive nature of the state. The
demand for units is high between October and April and much lower for the other
months. This situation overrides any other competitive factor. The Riverwalk
Property is not located in an overbuilt area and demand is adequate.
The Riverwalk Property is adequately covered by insurance.
The Riverwalk Property is a residential community; there is no tenant who
occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Riverwalk Property. The property
leases units for periods of no longer than one year. The federal tax
depreciation basis as of June 30, 1999 is $1,518.035. Depreciation is taken on a
straight-line basis over 30 years. Riverwalk is taxed at 24.95 mills per $1,000
valuation and the 1998 taxes due March 31, 1999 were $34,985.58. Estimated taxes
on proposed improvements are not material.
Alexandria Property
In October 1998, the Operating Partnership acquired an approximately 12.3%
limited partnership interest in Alexandria Development, L.P. (the "Alexandria
Partnership"), a Delaware limited partnership which is the owner and developer
of a 168-unit residential apartment
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property under construction in Alexandria, Kentucky (the "Alexandria Property").
98 of the 168 residential units (approximately 58%) have been completed as of
March 31, 1999 and are in the rent-up stage. As of November 1, 1998, 25 units
have been rented at an average annual rental rate of $8,244. The average monthly
occupancy rate for 1998 was 14%. The Operating Partnership paid $400,000 for the
acquired partnership interest and retains an option to acquire the remaining
limited partnership interests at the same price per percentage interest (for a
total price of approximately $3,250,000 for the entire limited partnership
interest). The agreement called for an installment sale with the Operating
Partnership to acquire limited partnership interests as buildings are completed.
The purchase price was based on an independent appraisal of the property less
all liabilities, and was approved by the Board of the Trust. The option is
exercisable as additional apartment buildings are completed and rented. An
affiliate of Mr. McGrath sold the partnership interest in the Alexandria
Partnership to the Operating Partnership and also serves as its managing general
partner. During the construction stage of the apartment property, the Operating
Partnership's limited partnership interest in the Alexandria Partnership is
entitled to an annual 12% preferential return which is senior to the other
limited partnership interests and the general partner's nominal 1% interest.
The Alexandria Property is a new development, and there is no renovation
program in place. The property has substantial technological advantages over its
competition in the area and is looking to maximize these advantages in the
future. Alexandria is not in an over-developed location. The Alexandria Property
is adequately covered by insurance. The Alexandria Property is a residential
community; there is no tenant who occupies 10% or more of the rentable square
footage. There is no business, occupation or profession taking place on the
Alexandria Property.
The property leases units for period of no longer than one year. The
property is still in construction and as such there are no assets to depreciate
on the partnership books. The construction company is paying land only taxes on
Alexandria.
Acquisition of Limited Partnership Interests
In July 1998, the Operating Partnership also was admitted as a limited
partner in 13 real estate limited partnerships managed by affiliates of the
Managing Shareholder of the Trust. The Operating Partnership acquired the
interests in consideration of a capital contribution ranging from approximately
$2,900 to $83,300 in each such partnership. The aggregate contribution made by
the Operating Partnership was approximately $341,000. The percentage interest
acquired by the Operating Partnership (less than 4% in each case) was calculated
at fair market value. In each instance, the Operating Partnership agreed that
its right to receive distributions from cash flow or from a capital event would
be subordinate to the right of the existing limited partners to receive any
preferred return described in the partnership agreement of the respective
partnership.
Contract to Purchase Two Additional Properties
In September 1998, the Trust entered in an agreement with three real estate
development companies to acquire two luxury residential apartment properties in
the development stage upon
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the completion of construction. The development companies (Brentwood at
Southgate, Ltd., Burlington Residential, Ltd. and The Shoppes at Burlington,
Ltd.) are controlled by Gregory K. McGrath, one of the founders of the Operating
Partnership. The properties are scheduled to have a total of 652 units,
comprised of studios and one, two and three bedroom/one or two bathroom
apartments. Construction of one of the properties, located in Louisville,
Kentucky, is expected to be completed prior to the end of 2000, and construction
of the other property, located in Burlington, Kentucky (part of the Cincinnati
metropolitan area), is expected to be completed by the end of 2001. The
aggregate purchase price for the two properties is in the range of approximately
$41,000,000 to $43,000,000. The closing of each acquisition, which is expected
to occur shortly following the completion of construction, is conditioned on,
among other things, the completion of the respective apartment property, the
availability of first mortgage financing and the Trust's raising the balance of
the funds necessary for the acquisition in its ongoing Cash Offering or
otherwise having funds available to make the acquisition.
In connection with the transaction and in exchange for certain benefits
described below, the Trust agreed to co-guarantee (along with Mr. McGrath), up
to 35% (or approximately $12,500,000) of the development portion of long-term
construction loans with an aggregate principal amount of up to $36,000,000 to be
provided by a bank to the development companies. As of December 31, 1998,
approximately $4,600,000 of such loans had been drawn down, resulting in
outstanding guarantees of approximately $1,600,000. Subject to the fulfillment
of certain closing and funding conditions, the construction loans will be made
to the development companies in connection with the development and construction
of two apartment properties and of an 111,000 square foot shopping center being
developed in Burlington, Kentucky. The interest rates on the construction loans
range from 7.36% to 7.52%. The Trust also agreed that, if the loans are not
repaid prior to the expiration of the guarantee, it will either buy out the
bank's position on the entire amount of the construction loans or arrange for a
third party to do so. The construction loans are expected to be replaced by a
long-term credit facility.
The Trust expects to receive significant benefits from the transaction in
addition to the acquisition of two large luxury apartment properties located in
attractive communities. First, in exchange for the guarantee of the development
portion of the construction loans, the Trust will receive a discount of
approximately $212,500 (representing a one-half of one percent reduction) on the
purchase price of the properties. The Trust and the development companies are
negotiating a further price reduction which would apply if the development
portion of the loans is not repaid prior to the expiration of the guarantee
period and the Trust is required to buy out or arrange for the buyout of the
lender's position on the loans.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BARON CAPITAL TRUST
August 19, 1999 By: /s/ Gregory K. McGrath
----------------------
Gregory K. McGrath
Chief Executive 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.
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<TABLE>
<CAPTION>
Signatures Title Date
- ----------------------- ------------------------------ ---------------
<S> <C> <C>
/s/ Gregory K. McGrath Chief Executive Officer August 19, 1999
- ---------------------- (Principal Executive Officer)
Gregory K. McGrath
/s/ Mark L. Wilson Interim Chief Financial Officer August 19, 1999
- ---------------------- (Principal Financial and
Mark L. Wilson Accounting Officer)
/s/ James H. Bownas Trustee August 19, 1999
- -------------------
James H. Bownas
/s/ Peter M. Dickson Trustee August 19, 1999
- --------------------
Peter M. Dickson
/s/ Gregory K. McGrath Corporate Trustee August 19, 1999
- ----------------------
Gregory K. McGrath
President, Chief Executive
Officer of Baron Capital
Properties, Inc.
</TABLE>
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