UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarter Ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from to
COMMISSION FILE NUMBER 0-26215
PROPERTY CAPITAL TRUST, INC.
(exact name of Registrant as specified in its charter)
Maryland 04-2452367
- ------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
177 Milk St., Boston, Massachusetts 02109
- ----------------------------------- ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 451-2100
Former name, former address, and former fiscal year, if changed since last year.
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 1, 1999
_____________________ _______________________________
Common Stock, $.01 par value 479,226
1
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PROPERTY CAPITAL TRUST, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Combined Balance Sheets
September 30, 1999 (unaudited) and December 31, 1998 3
Combined Statements of Operations
Three Months and Nine Months ended September 30, 1999 and 1998
(unaudited) 4
Combined Statements of Cash Flows
Nine Months ended September 30, 1999 and 1998 (unaudited) 5
Notes to Combined Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of the Combined
Financial Condition and Results of Operations 8 - 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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2
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<TABLE>
PART I. FINANCIAL INFORMATION
PROPERTY CAPITAL TRUST, INC.
Combined Balance Sheets (Note 2)
September 30, 1999 (Unaudited) and December 31, 1998
<CAPTION>
September 30, 1999 DECEMBER 31, 1998
------------------ -----------------
Assets
<S> <C> <C>
Rental Property, at cost
Land $ 202,500 $ 202,500
Building & Fixtures 1,243,600 1,235,600
Tenant Improvements 402,114 402,114
--------------- ---------------
1,848,214 1,840,214
Less Accumulated Depreciation 851,034 827,866
--------------- ---------------
997,180 1,012,348
Cash and Cash Equivalents 222,650 153,094
Deferred Charges, Net of
Accumulated Amortization of
$33,715 in 1999 and 31,657
in 1998 54,857 28,313
Deferred Rent 278,700 313,538
--------------- ---------------
$ 1,553,387 $ 1,507,293
=============== ===============
Liabilities and Shareholders' Equity/Partners' Capital
Liabilities:
Mortgage Payable $ 994,384 $ -
Notes Payable 315,910 -
Accounts Payable
and Accrued Expenses 54,050 14,000
Tenant Security Deposits 11,453 11,453
--------------- ---------------
1,375,797 25,453
Limited Partners' Interest
in Operating Partnership 427,566 -
Shareholders' Equity/Partners'
Capital Common stock, $.01 par
value authorized 30,000,000
shares issued and outstanding
479,226 4,792 -
Additional paid in capital 995,208 -
Accumulated deficit (1,249,976) -
Partner's Capital - 1,481,840
--------------- ---------------
$ 1,553,387 $ 1,507,293
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
PROPERTY CAPITAL TRUST, INC.
Combined Statements of Operations (Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental Income $ 77,637 $ 81,640 $ 232,912 $ 232,915
Other Income 717 2,077 10,451 3,706
--------- --------- --------- ---------
78,354 83,717 243,363 236,621
--------- --------- --------- ---------
Expenses:
Transaction Costs 2,131 - 1,254,841 -
Administrative
and financial
expenses 8,325 3,827 17,428 16,899
Professional
services expenses 11,250 - 23,750 7,000
Interest expense 27,472 - 44,732 -
Depreciation &
Amortization 9,202 7,771 25,226 23,319
--------- --------- --------- ---------
58,380 11,598 1,365,977 47,218
--------- --------- --------- ---------
Income (loss) before
limited partners'
interest in operating
partnership income 19,974 72,119 (1,122,614) 189,403
Limited partners'
interest in operating
partnership income (36,636) - (127,362) -
--------- --------- --------- ---------
Net (Loss) Income $ (16,662) $ 72,119 $(1,249,976) $ 189,403
========= ========= =========== =========
Basic and diluted
earnings income
(loss) per share $ (.03) $ N/A $ (2.61) $ N/A
========= ========= =========== =========
Dividend per
common share $ - $ N/A $ - $ N/A
========= ========= =========== ==========
Weighted average
common shares
outstanding 479,226 N/A 479,226 N/A
========= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
PROPERTY CAPITAL TRUST, INC.
Combined Statements of Cash Flows (Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) Income ($ 1,249,976) $ 189,403
Limited partners' interest in
operating partnership income 127,362 -
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by
operating activities:
Depreciation and amortization 25,226 23,319
Decrease in deferred rent 34,838 10,835
Increase in accrued expense 40,050 23,688
-------------- --------------
Total Adjustments 227,476 57,842
-------------- --------------
Net cash (used in) provided by
operating activities (1,022,500) 247,245
-------------- --------------
Cash Flows From Investing Activities:
Purchase of furniture and fixtures (8,000) -
Increase in deferred charges (28,602) -
-------------- --------------
Net cash used in investing activities (36,602) -
-------------- --------------
Cash Flows From Financing Activities:
Proceeds from notes payable 561,352 -
Principal paid on notes payable (245,442) -
Issuance of common stock 1,000,000 -
Proceeds from mortgage payable 1,000,000 -
Principal paid on mortgage payable (5,616) -
Distributions to partners (1,181,636) (217,500)
--------------- --------------
Net cash provided by (used in)
financing activities 1,128,658 (217,500)
-------------- --------------
Net increase in cash 69,556 29,745
Cash, beginning of period 153,094 144,079
-------------- --------------
Cash, end of period $ 222,650 $ 173,824
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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PROPERTY CAPITAL TRUST, INC.
Notes to Combined Financial Statements
1. GENERAL
The interim combined financial statements presented have been prepared by
Property Capital Trust, Inc. ("PCT") without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at September 30, 1999, and the results
of operations for the three and nine-month periods ended September 30, 1999 and
1998, and cash flows for the nine-month periods ended September 30, 1999 and
1998. Interim results are not necessarily indicative of results for a full year.
The combined financial statements represent the activity of PCT and Property
Capital Trust Limited Partnership ("PCT L.P."), a Massachusetts limited
partnership of which PCT is the sole general partner.
The historical results of PCT have been restated to solely reflect the
results of Framingham York Associates Limited Partnership ("FYA") prior to May
28, 1999. FYA has been deemed "the accounting acquiror" in a transaction
described in Note 2.
The balance sheet presented as of December 31, 1998 has been derived from
the financial statements of FYA that have been audited by FYA's independent
certified public accountants. The combined financial statements and notes are
presented as permitted by Form 10-Q and do not contain certain information
included in the annual financial statements and notes of PCT. The combined
financial statements and notes included herein should be read in conjunction
with the financial statements and notes included in PCT's Current Report on Form
8-K/A, filed with the Securities and Exchange Commission on August 4, 1999,
relating to the agreement and plan of merger described in Note 2.
2. Acquisition and Basis of Accounting
On May 28, 1999, in accordance with the terms of the merger agreement
between Property Capital Trust ("Trust") and Maryland Property Capital Trust,
Inc. ("MPCT"), the Trust was merged with MPCT and the surviving entity changed
its name to Property Capital Trust, Inc. ("PCT"). At that time, each shareholder
of the Trust received one-sixtieth of a share of common stock of PCT for each
share they owned of the Trust. A total of 159,737 shares were issued to these
shareholders.
In addition, in connection with the above transaction, FYA contributed
$1,000,000 of cash to PCT in exchange for 319,489 shares of common stock, which
shares were then distributed to the existing partners of FYA, pro rata based on
their interests in FYA. FYA then merged with PCT L.P., changed its name to
Property Capital Trust Limited Partnership and became the operating partnership
of PCT.
FYA has been treated as the "accounting acquiror" as the partners of FYA
own the larger portion of the voting rights of PCT as a result of the above
transactions. Accordingly, the historical financial information of PCT has been
restated to solely reflect the results of FYA prior to May 28, 1999, the date on
which the partners of FYA acquired a majority interest in PCT. The costs
incurred in connection with the above transactions, in the amount of $1,254,841,
have been included in the statement of operations for the nine months ended
September 30, 1999.
6
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PROPERTY CAPITAL TRUST, INC.
Notes to Combined Financial Statements
(Continued)
3. Mortgage Payable
On April 29, 1999, PCT L.P., formerly FYA, financed a mortgage note payable
in the amount of $1,000,000. The note requires monthly principal and interest
installments of $7,881. The interest rate on the note is 8.13% through maturity
at May 1, 2004, at which time the remaining balance of $926,435 is due and
payable. The mortgage is collateralized by PCT L.P.'s property and an assignment
of all leases.
Principal payments to be made over the next five years are as follows:
2000 $13,032
2001 14,385
2002 15,617
2003 16,954
2004 932,327
--------
$992,315
4. Notes Payable
Officers, directors and affiliates of PCT funded $561,352 of costs related
to the transactions described in Note 2. On May 27, 1999, PCT L.P., formerly
FYA, executed unsecured, demand promissory notes, with interest accruing at the
prime rate for the entire outstanding balance. On July 6, 1999, a payment of
$250,352 representing principal and accrued interest was repaid. Interest
expense related to the notes is $6,773 and $10,945 for the three and nine months
ended September 30, 1999, respectively.
7
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PROPERTY CAPITAL TRUST, INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
This quarterly report contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The words "believe,"
"expect," "anticipate," "intend," "estimate" and other expressions which are
predictions of or indicate future events and trends and which do not relate to
historical matters identify forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties and other factors,
which may cause the actual results, performance or achievements of Property
Capital Trust, Inc. ("PCT") to differ materially from anticipated future
results, performance or achievements expressed or implied by such
forward-looking statements.
The future operating results and performance trends of PCT may be affected
by a number of factors, including, without limitation, the following: (i) real
estate investment considerations, such as the effect of economic and other
conditions in PCT's market area on cash flows and values, (ii) the need to renew
leases or relet space upon the expiration of the current lease and (iii) PCT's
ability to generate revenues sufficient to meet debt service payments and other
operating expenses that are not otherwise paid by the tenant. In addition to the
foregoing, PCT's actual future results could differ materially from those
projected in the forward-looking statements as a result of the factors listed
under the heading "Risk Factors" in PCT's Registration Statement on Form S-4 as
amended, and which was filed with the Securities and Exchange Commission on
November 20, 1998 and of changes in general economic conditions and changes in
the assumptions used in making such forward-looking statements.
Overview
In accordance with the agreement and plan of merger, dated June 18, 1998,
as amended, between Property Capital Trust ("Trust") and Maryland Property
Capital Trust, Inc. ("MPCT"), the Trust was merged with MPCT and the surviving
entity changed its name to Property Capital Trust, Inc. ("PCT"). At the
effective time of such merger, each shareholder of the Trust received
one-sixtieth of a share of common stock of PCT for each share they owned of the
Trust.
In addition, in connection with the above transaction, immediately
following the above merger, Framingham York Associates Limited Partnership
("FYA") contributed $1,000,000 in cash to PCT in exchange for 319,489 shares of
common stock of PCT, which shares were then distributed to the existing partners
of FYA, pro rata based on their percentage interests in FYA. FYA then merged
with Property Capital Trust Limited Partnership, a Massachusetts partnership,
and subsequently changed its name to Property Capital Trust Limited Partnership
("PCT L.P.") and became the operating partnership of PCT.
The combined financial statements include the activity of PCT and PCT L.P.
for the nine months ended September 30, 1999 and 1998.
8
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PROPERTY CAPITAL TRUST, INC.
PCT L.P., formerly FYA, was formed pursuant to the provisions of the
Uniform Limited Partnership Act of Massachusetts. Currently, PCT L.P. owns and
operates 17,250 square feet of laboratory and office space, which is situated on
1.1 acres of land, located at 51 New York Avenue in Framingham, Massachusetts.
Currently, Genzyme Corporation is the sole tenant of the property. The
lease, as amended, is for a term of twenty years that expires in September 2005.
Genzyme has two five-year options to extend the term of the lease. In addition,
the tenant is also responsible for direct payment of substantially all of the
operating expenses including maintenance, real estate taxes and insurance.
Results of Operations
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1998
Revenues
Rental income for the three months ended September 30, 1999 totaled $77,637
as compared to $81,640, for the corresponding period last year. Other income for
the three months ended September 30, 1999 and 1998 totaled $717 and $2,077
respectively. Other income consists of interest earned from working capital
reserves.
Expenses
Transaction costs for the three months ended September 30, 1999 totaled
$2,131. These include other costs related to the issuance of the common stock
certificates to FYA and the shareholders of the Trust. These costs were expensed
as of September 30, 1999.
Property operating expenses not paid directly by the tenant for the three
months ended September 30,1999 and 1998 totaled $24,757 and $3,827,respectively.
The $20,930 increase for the three months ended September 30, 1999 is related to
a $9,680 increase in miscellaneous administrative costs that includes a
directors and officers insurance policy and a $11,250 increase in professional
service fees. Due to the additional reporting and compliance requirements set
forth by the Securities and Exchange Commission, management anticipates an
increase in professional services for the year ended December 31, 1999.
Interest expense of $27,472 for the three months ended September 30, 1999
is primarily related to the monthly debt service payments made on the $1,000,000
loan totaling $20,699. Interest for the period also included $6,773 that was
incurred on the advances from the officers, directors and affiliates.
9
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PROPERTY CAPITAL TRUST, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues
Rental income for the nine months ended September 30, 1999 totaled
$232,912, as compared to $232,915 for the corresponding period last year. Other
income for the nine months ended September 30, 1999 and 1998 totaled $10,451 and
$3,706, respectively. Other income consists of interest earned from working
capital reserves. The $6,745 increase, for the nine month period ended September
30, 1999, is due from the interest earned on the $1,000,000 mortgage proceeds
that were invested until the costs of the transactions described above were
paid.
Expenses
Transaction costs for the nine month period ended September 30, 1999
totaled $1,254,841. These costs included, but were not limited to, legal,
accounting, printing, insurance and other costs related to the issuance of the
common stock certificates to FYA and the shareholders of the Trust. These costs
were expensed as of September 30, 1999.
Property operating expenses not paid directly by the tenant were $41,178
and $23,899 for the nine months ended September 30, 1999 and the corresponding
period last year, respectively. This $17,279 increase for the nine months ended
September 30, 1999 is related to the addition of a new directors and officers
insurance policy and the increase in professional service fees. Due to the
additional reporting and compliance requirements set forth by the Securities and
Exchange Commission, management anticipates a moderate increase in professional
service fees for the year ended December 31, 1999.
Interest expense of $44,732 for the nine months ended September 30, 1999 is
primarily related to the monthly debt service payment made on the $1,000,000
loan totaling $33,787. Interest for the period also includes $10,945 that was
incurred on the advances from the directors, officers and affiliates.
Inflation
The tenant is responsible for paying substantially all of the operating
costs, including the real estate taxes. PCT L.P. believes that this reduces the
risk of adverse effects of inflation on the business and operations.
Financial Condition, Liquidity and Capital Resources
In April of the current year PCT L.P., formerly FYA, financed a $1,000,000
mortgage. The note requires monthly principal and interest payments of $7,881.
The interest rate on the note is 8.13% through maturity on May 1, 2004, at which
time the remaining balance is due. The mortgage is collateralized by PCT L.P.'s
property and assignment of all leases.
10
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PROPERTY CAPITAL TRUST, INC.
In conjunction with the issuance of common stock the officers, directors
and affiliates funded $561,352 of transaction costs. In May of the current year
PCT L.P., formerly FYA, executed unsecured, demand promissory notes, with
interest accruing at the prime rate for the entire outstanding balance. In July,
a payment of $250,352 representing principal and accrued interest was made to
the holders of the note.
In accordance with the agreement and plan of merger approved by the Trust,
each shareholder of the Trust received one-sixtieth of a share of common stock
of PCT for each share they previously owned. A total of 159,737 shares were
issued to these shareholders at $0.01 par value. In addition, FYA contributed
$1,000,000 of cash to PCT in exchange for 319,489 shares of common stock at $.01
par value. Immediately thereafter, FYA distributed these shares to its partners
as described above.
Cash and cash equivalents were $222,650 at September 30, 1999 as compared
to $153,094 at December 31, 1998. Management has considered the liquidity needs
of PCT and the adequacy of expected liquidity sources to meet these needs. As
long as the tenant continues to pay the rent obligation to PCT L.P. and
substantially all of the operating costs, as provided for under the existing
lease agreement, management believes the level of working capital provided by
operating activities will be sufficient to pay the monthly debt service,
operating expenses not paid directly by the tenant, the minimum distributions
required to maintain PCT's REIT qualification under the Internal Revenue Code of
1986, as amended, and the quarterly distributions as required under the
partnership agreement of PCT L.P.
For the nine months ended September 30, 1999 cash distributed to the
partners of PCT L.P. totaled $181,636, as compared to $217,500 for the nine
months ended September 30, 1998. In addition PCT L.P. distributed the $1,000,000
of common stock of PCT to its partners in May 1999. In October of 1999, PCT L.P.
distributed an additional $36,636 to its limited partners.
Year 2000 Readiness Disclosure
The "Year 2000 Issue" has arisen because existing computer programs use
only the last two digits to refer to a year, rather than four digits. If not
corrected, many computer applications could fail or create erroneous results. As
required by recent guidance from the Securities and Exchange Commission, the
following disclosure provides more detail regarding PCT's assessment of the Year
2000 Issue.
PCT has reviewed its financial and computer systems, communications and
building operating systems and has followed the progress of its major vendors to
assess the potential risk of a Year 2000 problem. Based upon the research
compiled, management believes that there should be no significant problems in
dealing with the Year 2000 Issue. PCT's business is not substantially dependent
upon its data processing and software and hardware systems and thus, PCT does
not anticipate Year 2000 Issues to have any material adverse effect on its
operations. In addition, PCT does not anticipate that it shall incur more than
$10,000 of costs to address the Year 2000 Issue. As a contingency plan PCT has
purchased other Year 2000 compliant software that it can use if its main
financial systems are adversely impacted by the year 2000 problem. However,
there is no guarantee that any such efforts will be completely successful.
11
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PROPERTY CAPITAL TRUST, INC.
The preceding "Year 2000 Readiness Disclosure" contains various
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These
forward-looking statements represent PCT's beliefs or expectations regarding
future events. When used in the "Year 2000 Readiness Disclosure", the words
"believes," "expects," "estimates" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements include, without
limitation, PCT's expectations as to when it will complete the modification and
testing phases of its Year 2000 plan as well as its Year 2000 contingency plans,
its estimated cost of achieving Year 2000 readiness, and PCT's belief that its
internal systems will be year 2000 compliant in a timely manner. All
forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
Factors that may cause these differences include, but are not limited to, the
availability of qualified personnel and other information technology resources,
the ability to identify and remediate all date sensitive lines of computer code
or to replace embedded computer chips in affected systems or equipment, and the
actions of governmental agencies or other third parties with respect to Year
2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On August 4, 1999, PCT filed a current report on Form 8-K/A filing the
financial statements required as a result of the consummation of the merger of
the Trust with PCT and the other transactions related to such merger.
12
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PROPERTY CAPITAL TRUST, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 3rd day of November 1999.
PROPERTY CAPITAL TRUST, INC.
/S/ Bruce A. Beal
Bruce A. Beal
President
/S/ Michael A. Manzo
Michael A. Manzo
Treasurer
[Principal Financial Officer]
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 222,650
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,848,214
<DEPRECIATION> 851,034
<TOTAL-ASSETS> 1,553,387
<CURRENT-LIABILITIES> 65,503
<BONDS> 0
0
0
<COMMON> 4,792
<OTHER-SE> (254,768)
<TOTAL-LIABILITY-AND-EQUITY> 1,553,387
<SALES> 0
<TOTAL-REVENUES> 78,354
<CGS> 0
<TOTAL-COSTS> 30,908
<OTHER-EXPENSES> 36,636
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,472
<INCOME-PRETAX> (16,662)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,662)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
