SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) August 4, 1997
CAPITAL TRUST
(Exact Name of Registrant as Specified in its Charter)
California 1-8063 94-6181186
- -------------------------------------------------------------------------------
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification
incorporation) No.)
605 Third Avenue, 26th Floor
New York, NY 10016
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 655-0220
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
628340.2
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
Item 2 is hereby amended and restated as follows:
On August 4, 1997, the Registrant originated and funded in part a $35
million short-term second mortgage loan facility (the "Mortgage Facility") with
a trust, the sole beneficiary of which is the World Trade Center Chicago L.L.C.
The Registrant funded $19 million of the loan facility at closing, and
subsequently, on August 19, 1997, entered into a pari passu participation
agreement pursuant to which it assigned 42.9% (or $15 million) of the loan
obligation to Bank of America. As a result of the participation agreement, the
Registrant's maximum obligation under the Mortgage Facility is $20 million.
The Mortgage Facility proceeds are to be used primarily to fund tenant
improvements, leasing commissions and capital expenditures primarily in
connection with the ongoing conversion of the space from apparel showroom use to
office use. The Mortgage Facility is secured by a second mortgage on The Chicago
Apparel Center located in Chicago, Illinois. The second mortgage is subordinate
to an existing mortgage of approximately $27.4 million. The Mortgage Facility is
further secured by two mortgages aggregating $9.6 million on development sites
located in close proximity to the property.
The Chicago Apparel Center, which was constructed in 1977, is a 1.1
million rentable square foot 13-story office/showroom building, which also
includes a 526-room Holiday Inn hotel, subject to a long-term air rights lease,
above the property's south tower. The property is currently approximately 79%
occupied.
The Mortgage Facility has a term of two years which may be extended by
the borrower (upon payment of an extension fee) for an additional year and bears
interest at a specified rate above LIBOR. The Mortgage Facility is
non-amortizing during the initial term and, if extended, is subject to
contingent amortization based on the property's cash flow during any such
extension term.
In assessing the property underlying the Mortgage Facility, the
Registrant considered several material factors, including, but not limited to,
those described below.
With respect to sources of revenue, the Registrant considered: the
property's occupancy rate of approximately 79% as compared to the overall
sub-market occupancy rate of approximately 87%; the property's average annual
rental rate of approximately $17.00 per occupied square foot as compared to
competitive office rental rates in the sub-market ranging from $18.00 to $24.00
per square foot; the principal businesses, occupations and professions which
operate at the property, including office tenants such as Ameritech Illinois,
the Chicago Transit Authority, the Illinois Institute of Art at Chicago,
21st Century Cable, SportsChannel and showroom and exhibition tenants primarily
involved in the apparel industry including segments such a womenswear,
accessories, bridal, childwear and menswear; the stability afforded by the
property's long-term credit-oriented office tenants, five of whom occupy
approximately 40% of the property with an average lease
<PAGE>
expiration date beyond ten years (including Ameritech Illinois which occupies
21% of the property with a lease expiration date no earlier than 2007 and a base
rental rate which compares favorably to the marketplace); and the retention rate
of the property's showroom tenants and their long-standing tenancy at the
property.
With respect to factors relating to expenses, the Registrant
considered: the utility rates at the property for electricity, chilled water and
water and sewer which were considered at market levels; the ad valorem taxes at
the property which compared favorably to tax rates for comparable properties;
maintenance and operating expenses which were in line for similar properties
which are operated and maintained in a professional manner; and the significant
amount of recent capital expenditures at the property with respect to
tenant-related costs and base building expenditures, including heating,
ventilation and air cooling system upgrades, elevator and escalator upgrades and
exterior work.
After reasonable inquiry, the Registrant is not aware of any material
factors relating to the property underlying the Mortgage Facility that would
cause the reported financial information herein not to be indicative of future
operating results.
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements of Operating Property Underlying
Mortgage Loan
The following audited financial statements of Apparel Center
Owners, Ltd., the operating property underlying the mortgage
loan reported in Item 2 of the Registrant's Current Report on
Form 8-K as filed with the Securities and Exchange Commission
on August 19, 1997, are included herein as required by the
instructions to Form 8-K.
Index to Financial Statements
<TABLE>
<S> <C>
Report of Independent Public Accountants..................................................... F-1
Statement of Revenues and Certain Operating Expenses for the
Year Ended December 31, 1996 and the Six Month Period
Ended June 30, 1997 (unaudited)..................................................... F-2
Notes to Statement of Revenues and Certain Operating
Expenses................................................................................... F-3
</TABLE>
628340.2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAPITAL TRUST
(Registrant)
Date: September 2, 1997 By: /s/ John R. Klopp
-------------------------------
Name: John R. Klopp
Title: Chief Executive Officer
628340.2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Apparel Center Owners, Ltd.:
We have audited the accompanying statement of revenue and certain operating
expenses (described in Note 2) of APPAREL CENTER OWNERS, LTD. for the year ended
December 31, 1996. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for the
purpose of complying with Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in the Form 8-K of Capital Trust and is not
intended to be a complete presentation of the Partnership's revenue and certain
expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain operating expenses of Apparel
Center Owners, Ltd. for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 25, 1997
F-1
628340.2
<PAGE>
APPAREL CENTER OWNERS, LTD.
(an Illinois limited partnership)
STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 1996
and the Six Month Period Ended June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Six Month
Period Ended
June 30, 1997
Year Ended (Unaudited
December 31, 1996 See Note 9)
<S> <C> <C>
REVENUES:
Rentals, net $14,637,559 $8,353,781
Parking revenues 1,505,861 -
Interest income 54,785 32,848
Total operating revenues $16,198,205 $8,386,629
---------------- ----------------------
CERTAIN OPERATING EXPENSES:
Operating $ 3,482,995 $1,457,993
Real estate taxes (Note 6) 2,609,105 1,010,877
Utilities 1,792,334 868,865
Marketing 1,619,524 726,426
Administrative 1,610,496 574,122
Management fees (Note 5) 276,015 121,962
Total certain expenses $11,390,469 $ 4,760,245
---------------- ----------------------
REVENUE IN EXCESS OF CERTAIN
OPERATING EXPENSES $ 4,807,736 $ 3,626,384
================ ======================
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
628340.2
<PAGE>
APPAREL CENTER OWNERS, LTD.
(an Illinois limited partnership)
NOTES TO STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 1996
and the Six Month Period Ended June 30, 1997 (Unaudited)
1. ORGANIZATION
Apparel Center Owners, Ltd. ("ACOL"), an Illinois limited partnership,
holds title to the building known as The Apparel Center, which contains
showrooms, the ExpoCenter, offices and retail space, and an adjacent
parking facility. Mart Holdings Group ("MHG"), an Illinois general
partnership, is the managing general partner of ACOL. Joseph P. Kennedy
Enterprises, Inc. (III.) ("JPK-(III.)") serves as the managing general
partner of MHG.
A breakdown of the occupied space as of December 31, 1996, and June 30,
1997 is as follows:
Percent Square
Footage
Apparel 50%
Office/Retail 50
100%
2. BASIS OF PRESENTATION
The statement of revenue and certain operating expenses for the year
ended December 31, 1996 and the six month period ended June 30, 1997
(unaudited) relates to the operations of the Apparel Center Owners,
Ltd. The accompanying financial statement excludes certain expenses,
such as interest, depreciation and amortization, professional fees and
other costs not directly related to the operations of the Partnership,
in accordance with Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission. Management is not aware of any material factors
relating to the Partnership which would cause the reported financial
information not to be necessarily indicative of future operating
results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Reporting-The financial statement is presented on the
accrual basis of accounting.
b. Rental Revenue-Rentals from tenants with scheduled rent
increases and rent abatements are recognized as revenue on a
straight-line basis over the respective lease term.
F-3
628340.2
<PAGE>
c. Use of Estimates-The 0preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
4. HOTEL LEASE
ACOL entered into a lease with a hotel operator whereby the operator,
at its own expense, constructed a hotel atop The Apparel Center. The
lease, which has a term of 65 years commencing January, 1977, provides
for an annual base rental of $159,600, additional rent payable based on
hotel revenue, as defined, and an allocation of certain real estate
taxes, rehabilitation and maintenance costs.
5. TRANSACTIONS WITH AFFILIATES
Certain owners of ACOL are owners of Merchandise Mart Owners, Ltd.
("MMOL"). In addition, Joseph P. Kennedy Enterprises, Inc. (Delaware)
("JPK-(Del.)"), which is affiliated with the owners of ACOL, owns
Merchandise Mart Properties, Inc. ("MMPI"). As a convenience, certain
amounts are disbursed or collected by one entity on behalf of another.
a. ACOL reimburses MMPI for certain payroll-related expenses
incurred on behalf of ACOL.
b. ACOL paid MMPI management fees of $276,015 and $121,962 during
1996 and the six months ended June 30, 1997. Fees are
calculated using various percentages of gross revenues as
adjusted for uncollectible accounts and as summarized below:
Applicable
Type of Revenue Percentage
Apparel 3.0%
Office, retail, exposition and hotel 1.5%
6. REAL ESTATE TAXES
During 1996, ACOL paid its 1995 real estate tax bill amounting to
$2,759,400. The actual tax bill was less than the December 31, 1995,
accrual by $138,064.
F-4
628340.2
<PAGE>
7. FUTURE MINIMUM RENTALS UNDER TENANT LEASES
ACOL leases showroom, office and retail space under noncancellable
operating leases with terms ranging from 1 to 15 years. Future minimum
rentals to be received as of December 31, 1996, are summarized as
follows:
Year ending December 31
1997 $10,033,000
1998 9,016,000
1999 7,622,000
2000 6,206,000
2001 5,645,000
---------
Future years 25,418,000
----------
Total future minimum rentals $63,940,000
Two tenants in the building have future minimum lease payments in
excess of 71% of the total future minimum rentals. Management does not
believe this represents a credit risk.
8. PROPERTY DAMAGE INSURANCE
Property damage insurance for ACOL and MMOL is written on a combined,
agreed amount basis. The combined, agreed amount exceeds the
replacement value of the Apparel Center. However, based on management's
evaluation, the combined replacement value of the ACOL and MMOL
structures and other personal property exceeds the insured coverage.
9. SUBSEQUENT EVENT
As of January 1, 1997, all of the assets and liabilities of Apparel
Center Owners, Ltd. were distributed to two new limited liability
companies, World Trade Center Chicago, L.L.C. and Wolf Point, L.L.C.
The former received the Apparel Center, its related assets, liabilities
and capital accounts, while the latter received the development
property, known as Wolf Point, and its related assets (including the
adjacent parking facility), liabilities and capital accounts. The
ownership of these two entities is the same as ACOL.
Accordingly, the accompanying unaudited statement of revenues and
certain operating expenses for the six month period ended June 30, 1997
represents the results of operations of the World Trade Center Chicago,
L.L.C.
F-5
628340.2
