As filed with the Securities and Exchange Commission on October 17, 1997
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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: 1-8063
California Real Estate Investment Trust
(Exact name of registrant as specified in its charter)
California 94-6181186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
131 Steuart Street, Suite 200, San Francisco, CA 94105
(Address of principal executive offices) (Zip Code)
(415) 905-0288
(Registrant's telephone number, including area code)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the close of the latest practical date.
Class Outstanding at March 31, 1997
Common Shares of Beneficial Interest
$1.00 par value ("Common Shares") 9,137,335
629215.3
<PAGE>
- -------------------------------------------------------------------------------
CALIFORNIA REAL ESTATE INVESTMENT TRUST
- -------------------------------------------------------------------------------
INDEX PAGE
Part I. Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 1
Consolidated Statements of Operations -
For the Three Months Ended
March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows -
For the Three Months Ended
March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
629215.3
<PAGE>
PART I. FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
Item 1. Financial Statements
- -------------------------------------------------------------------------------
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Investments, Generally Held for Sale:
Rental properties $ -- $ 8,585,000
Notes receivable, net of valuation allowances and deferred gains
of $6,127,000 at March 31, 1997 and December 31, 1996 2,658,000 1,576,000
Marketable securities available for sale 13,141.000 14,115,000
----------- ------------
15,799,000 24,276,000
Cash 8,330,000 4,698,000
Receivables, net of allowance of $1,126,000 and $1,001,000
at March 31, 1997 and December 31, 1996, respectively 687,000 707,000
Other assets 208,000 355,000
----------- ------------
Total Assets $ 25,024,000 $ 30,036,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term notes payable, collateralized by deeds of trust
on rental properties $ 880,000 $ 5,169,000
Accounts payable and accrued expenses 113,000 326,000
Other liabilities -- 70,000
----------- -----------
Total Liabilities 993,000 5,565,000
----------- -----------
Shareholders' Equity:
Shares of beneficial interest, par value $1 a share; unlimited
authorization, 9,137,000 shares outstanding at
March 31, 1997 and December 31, 1996 9,137,000 9,137,000
Additional paid-in capital 55,145,000 55,118,000
Unrealized holding income (loss) on marketable securities 19,000 (22,000)
Accumulated deficit (40,270,000) (39,762,000)
----------- -----------
Total Shareholders' Equity 24,031,000 24,471,000
----------- -----------
Total Liabilities and Shareholders' Equity $ 25,024,000 $ 30,036,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
629215.3
<PAGE>
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
Revenues:
Rent $ 236,000 $ 569,000
Interest 323,000 302,000
Other 54,000 --
-------- --------
613,000 871,000
------- --------
Expenses:
Operating expenses 123,000 148,000
Property management 14,000 27,000
Depreciation and amortization 21,000 5,000
Interest 99,000 137,000
General and administrative 432,000 413,000
------- --------
689,000 730,000
------- --------
Income (loss) before gain (loss) on
sale of investments (76,000) 141,000
Gain (loss) on sale of investments (432,000) 299,000
----------- --------
Net income (loss) $ (508,000) $ 440,000
=========== ========
Net income (loss) per share of
beneficial interest $ (0.06) $ 0.05
=========== ========
See accompanying notes to consolidated financial statements.
629215.3
<PAGE>
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (508,000) $ 440,000
----------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 21,000 5,000
Loss (gain) on sale of investments 432,000 (299,000)
Changes in assets and liabilities:
Decrease (increase) in receivables, net 20,000 (9,000)
(Increase) in other assets 147,000 (59,000)
(Decrease) increase in accounts payable
and accrued expenses (213,000) 258,000
(Decrease) increase in other liabilities (70,000) 2,000
----------- ----------
Total adjustments to net (loss) income 337,000 (102,000)
----------- ----------
Net cash (used) provided by operating activities (171,000) 338,000
----------- ----------
Cash flows from investing activities:
Proceeds from sale of investments 7,306,000 --
Improvements to rental properties (64,000) (45,000)
Principal collections on notes receivable 8,000 12,000
Principal collections on marketable securities 1,015,000 --
----------- ----------
Net cash provided by (used in) investing activities 8,265,000 (33,000)
----------- ----------
Cash flows from financing activities:
Principal payments on long-term notes payable (4,289,000) (23,000)
Additional paid-in capital 27,000 --
----------- ----------
Net cash used in financing activities (4,262,000) (23,000)
----------- ----------
Net increase in cash 3,832,000 282,000
Cash, beginning of period 4,698,000 4,778,000
----------- ----------
Cash, end of period $ 8,530,000 $ 5,060,000
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
629215.3
<PAGE>
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization and Basis of Presentation:
--------------------------------------
Organization
------------
California Real Estate Investment Trust (the "Trust" or "CalREIT") was
organized under the laws of the State of California pursuant to a
Declaration of Trust dated September 15, 1966.
The Trust became a partner of Totem Square, L. P. ("Totem"), a Washington
Limited Partnership in which the Trust owns a 59% interest, on November 30,
1990. The Trust also formed CalREIT Totem Square, Inc. ("Cal- CORP") to act
as general partner of Totem. Cal-CORP has a 1% interest in Totem, and Totem
Square Associates, an unrelated party, has the remaining 40%.
In 1994 the Trust operated as a subsidiary of The Peregrine Real Estate
Trust ("Peregrine"), which then held 76% of the Trust's outstanding Common
Shares. In April 1994, Peregrine replaced the CalREIT Board of Trustees
with a slate of its own Trustees. In 1995, the Board was expanded from
three to five Trustees, two of whom were independent. In 1996, the Board of
Trustees was comprised of two independent Trustees, one Trustee who
concurrently served on the Board of Trustees of Peregrine, a former officer
of the Trust, and the then Chief Executive Officer of the Trust.
On January 3, 1997, Peregrine sold its entire 76%-ownership interest in the
Trust to CalREIT Investors Limited Partnership ("CRIL"), an entity
controlled by Samuel Zell. Simultaneous with the closing of this
Transaction, the Board of Trustees was expanded to seven members; one
Trustee, who also served on the Peregrine Board of Trustees, resigned; and
three additional Trustees, nominated by CRIL, were appointed to the Board.
As of March 31, 1997, the Trust had sold its two remaining commercial
rental properties, Fulton Square Shopping Center and Totem Square in
Sacramento, California and in Kirkland, Washington, respectively. At the
end of the first quarter, the Trust owned a mortgage note portfolio of four
notes encompassing approximately $8,785,000 in loans with an aggregate book
value of approximately $2,658,000. These loans bear interest at an overall
effective rate of approximately 8%. They are collateralized by mortgages on
real property. Three of the investments in the four loans were originated
by the Trust in connection with the disposition of Trust properties prior
to 1996. The remaining note, in the face amount of approximately
$1,090,000, was made in conjunction with the sale of Fulton Square Shopping
Center in February 1997.
Additionally, as of March 31, 1997 the Trust had approximately $13,141,000
invested in liquid mortgage-backed securities.
629215.3
<PAGE>
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization and Basis of Presentation, continued:
--------------------------------------
Basis of Presentation
---------------------
The accompanying financial statements are unaudited; however, they have
been prepared in accordance with generally accepted accounting principles
for interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting solely of normal recurring matters)
necessary for a fair presentation of the financial statements for these
interim periods have been included. The results for the interim period
ended March 31, 1997, are not necessarily indicative of the results to be
obtained for the full fiscal year. These financial statements should be
read in conjunction with the December 31, 1996, audited financial
statements and notes thereto, included in the California Real Estate
Investment Trust Annual Report on Form 10-K. The accompanying unaudited
consolidated financial statements of California Real Estate Investment
Trust include the accounts of the Trust, Cal-CORP and Totem.
Stock-Based Compensation
------------------------
As of March 31, 1997 and December 31, 1996 there were no stock options
outstanding nor stock option plans in place.
2. Investments in Notes Receivable:
As of March 31, 1997 and December 31, 1996, the Trust had long-term notes
receivable, collateralized by deeds of trust (before valuation allowances
and deferred gains) of $8,785,000 and $7,703,000, respectively. The notes
are collateralized by real estate properties in California and Arizona. In
conjunction with the Trust's plan to monetize assets, its mortgage note
investments are classified for accounting purposes as "held for sale." The
notes bear interest at rates ranging from 7.63% to 9.5% as of March 31,
1997. For the quarter ended March 31, 1997 the overall effective rate was
approximately 8%.
629215.3
<PAGE>
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
3. Investments in Marketable Securities:
At March 31, 1997, the Trust had $13,141,000 invested in liquid
mortgage-backed securities classified as "available-for-sale."
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," (SFAS 115) issued in
May 1993 requires that at the date of acquisition and at each reporting
date, debt and equity securities be classified as "held-to-maturity,"
"trading," or "available for sale." Investments in debt securities in which
the Trust has the positive intent and ability to hold to maturity are
required to be classified as "held-to-maturity." "Held-to-maturity"
securities are required to be stated at cost and adjusted for amortization
of premiums and discounts to maturity in the consolidated balance sheet.
Investments in debt and equity securities that are not classified as
"held-to-maturity" and equity securities that have readily determinable
fair values are to be classified as "trading" or "available-for-sale" and
are measured at fair value in the consolidated balance sheet. Securities
that are bought and held principally for the purpose of selling them in the
near term are classified as "trading." Unrealized holding gains and losses
for "trading" securities are included in earnings.
Investments that are not classified as "held-to-maturity" or "trading"
securities are classified as "available-for-sale." Unrealized holding gains
and losses for "available-for-sale" securities are excluded from earnings
and reported as a separate component of shareholders' equity until
realized.
In accordance with SFAS 115, the Trust determines the appropriate
classification at the time of purchase and reevaluates such designation at
each balance sheet date.
629215.3
<PAGE>
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
3. Investments in Marketable Securities, continued:
------------------------------------
At March 31, 1997, the Trust's "available-for-sale" securities consisted of
the following:
<TABLE>
<CAPTION>
(In thousands)
Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Federal National Mortgage
Association, adjustable rate interest
currently at 7.842%, due April 1, 2024 $ 2,681 $ -- $ (17) $ 2,664
Federal Home Loan Mortgage
Corporation, adjustable rate interest
currently at 7.666%, due June 1, 2024 908 -- (3) 905
Federal National Mortgage
Association, adjustable rate interest
currently at 7.311%, due April 1, 2025 656 -- (5) 651
Federal National Mortgage
Association, adjustable rate interest
currently at 6.147%, due May 1, 2026 3,089 17 -- 3,106
Federal National Mortgage
Association, adjustable rate interest
currently at 6.156%, due June 1, 2026 5,788 27 -- 5,815
------- ------ ----- -------
$ 13,122 $ 44 $ (25) $ 13,141
======= ====== ===== =======
</TABLE>
The maturity dates above are not necessarily indicative of expected
maturities as principal is often prepaid on such instruments.
4. Long-Term Notes Payable:
The Trust has one note payable to John Alden Life Insurance Company with an
interest rate of 9.25% per annum. Principal and interest are payable
monthly until August 7, 2017 when the entire unpaid principal balance and
any unpaid interest are due.
629215.3
<PAGE>
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. Income Taxes:
The Trust has elected to be taxed as a real estate investment trust and as
such, is not taxed on that portion of its taxable income which is
distributed to shareholders, provided that at least 95% of its real estate
trust taxable income is distributed and that the Trust meets certain other
REIT requirements.
6. Related-Party Transactions:
Pursuant to an oral agreement with Peregrine, costs for certain general
administrative services, including executive services, accounting services,
treasury services, financial reporting and internal bookkeeping services,
shareholder relations, and directors and officers insurance were shared
with Peregrine. The shared costs were allocated to the Trust and Peregrine
based upon their respective asset values (real property and notes
receivable), subject to annual negotiation. At March 31, 1997 and December
31, 1996, the Trust had $9,000, and $31,000, respectively due to Peregrine
pursuant to the cost allocation arrangement. The cost allocation
arrangement between the Trust and Peregrine was terminated on January 7,
1997.
7. Statements of Cash Flows Supplemental Information:
In connection with the sale and foreclosure of properties, the Trust
entered into various non-cash transactions as follows:
For the Three Months Ended
March 31, March 31,
1997 1996
-------- --------
Sales price less selling costs $ 8,396,000 $ 1,033,000
Amount due from Buyer 1,090,000 (1,033,000)
---------- -----------
Net cash received $ 7,306,000 $ --
========== ===========
Cash paid for interest on the Trust's outstanding debt during the
three-month periods ended March 31, 1997 and 1996, was $99,000 and
$139,000, respectively.
629215.3
<PAGE>
CALIFORNIA REAL ESTATE INVESTMENT TRUST
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. Per Share Data:
--------------
Per share data is for the three-month periods ended March 31, 1997, and
March 31, 1996, based on the weighted average number of Common Shares
outstanding during each period. The weighted average number of shares used
in the computation was 9,137,000.
9. Gain (loss) on Sale of Investments:
----------------------------------
Components of the gain (loss) on the sale of investments for the three
months ended March 31, 1997, and March 31, 1996, were as follows:
For the
Three Months Ended
March 31,
1997 1996
---- ----
Sale of Redfield Commercial Center $ -- $ 299,000
Sale of Fulton Square Shopping Center (34,000) --
Sale of Totem Square (398,000) --
---------- ---------
$ (432,000) $ 299,000
========== =========
10. Changes in and Disagreements with Accountants on Accounting and Financial
---------------------------------------------------------------------------
Disclosure
----------
On April 14, 1997, the Board of Trustees adopted a resolution (i) not to
retain Coopers & Lybrand LLP ("C&L") as the Trust's auditors for the fiscal
year ending December 31, 1997 and (ii) to engage Ernst & Young LLP as the
Trust's independent auditors for the fiscal year ending December 31, 1997.
The reports of C&L on the Trust's consolidated financial statements as of
and for the two years ended December 31, 1996 and December 31, 1995 did not
contain an adverse opinion or a disclaimer opinion nor were they qualified
or modified as to uncertainty, audit scope or accounting principles.
During the Trust's two most recent fiscal years ended December 31, 1996,
there were no disagreements with C&L on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of C&L,
would have caused them to make reference thereto in their report(s) on the
Trust's financial statements for such fiscal year(s), nor were there any
"reportable events" within the meaning of Item 304(a)(1)(v) of Regulation
S-K promulgated under the Exchange Act.
629215.3
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
CALIFORNIA REAL ESTATE INVESTMENT TRUST
October 17, 1997 /s/ John R. Klopp
- ---------------- -----------------------
Date John R. Klopp
Chief Executive Officer
629215.3
<PAGE>
