As filed with the Securities and Exchange Commission on November 14, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) November 7, 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, New York 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)
650264.3
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ITEM 2. Acquisition or Disposition of Assets
As of November 7, 1997, the Registrant originated and funded a $50.3
million second mortgage loan (the "Mortgage Loan") to 1325 Limited Partnership
(the "Borrower"). Proceeds from the Mortgage Loan were used to repay existing
debt secured by the commercial office tower located at 1325 Avenue of the
Americas in New York City (the "Property"). Simultaneous with the Mortgage
Loan funding, the Registrant entered into a pari passu participation agreement
pursuant to which it sold a 50% (or $25.15 million) participation interest in
the Mortgage Loan to EOP Operating Limited Partnership, whose general partner is
Equity Office Properties Trust, an affiliate of the Company. As a result of the
participation, the Registrant's maximum obligation under the Mortgage Loan is
$25.15 million.
The Mortgage Loan is secured by a second mortgage on the Property. In
addition, the Mortgage Loan is secured by various other collateral owned by a
principal of the Borrower as well as a limited personal guarantee of a principal
of the Borrower. Collection under the personal guarantee and the other
collateral is limited to $10.0 million. The Mortgage Loan is subordinate to a
first mortgage on the Property of approximately $185 million.
The Mortgage Loan has a term of two years, which may be extended by the
Borrower for an additional year, upon payment of an extension fee, and bears
interest at a specified rate above LIBOR, which such rate increases during the
extension period. Under certain circumstances, the Borrower may defer a portion
of the interest accrued on the Mortgage Loan during the initial two-year term
subject to a specified minimum rate. The Mortgage Loan is interest only during
the initial two-year term with excess cash flow after determined reserves going
towards amortization during the extension term.
The Property, which was completed in 1990, is a 34-story office building in
New York City containing approximately 750,000 square feet. Currently, the
Property is approximately 99% occupied.
In assessing the property underlying the Mortgage Loan, 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 99% as compared to the overall sub-market occupancy
rate of approximately 91%; the Property's average annual rental rate of
approximately $37.60 per occupied square foot as compared to competitive office
rental rates in the sub- market ranging from $38.00 to $46.00 per square foot;
the principal businesses, occupations, and professions of the tenants operating
at the Property, including office tenants such as Warner Brothers, which
occupies approximately 18% of the Property (with a lease expiration date which
is no earlier than 2010, a base rental rate which compares favorably to the
marketplace, and two five-year renewal options); and the stability afforded by
the Property's long-term credit-oriented office tenants, nine of whom occupy
approximately 65% of the Property with lease expiration dates beyond ten years.
With respect to factors relating to expenses, the Registrant considered:
the utility rates at the Property for electricity, steam, and water and sewer;
the taxes at the Property which were comparable to tax rates for similar
properties; maintenance and operating expenses which were in line for similar
properties which are operated and maintained in a professional manner; and the
relatively recent construction of the Property including significant
expenditures for tenant improvement installations.
After reasonable inquiry, the Registrant is not aware of any material
factors relating to the Property underlying the Mortgage Loan that would cause
the reported financial information herein not to be indicative of future
operating results.
650264.3
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ITEM 7. Financial Statements, Supplemental Financial Information and Exhibits
(a) Financial Statements of the Borrower
Audited and unaudited financial statements of 1325 Limited
Partnership, the Borrower reported in Item 2, are included herein
as indicated in the following index to the financial statements.
Index to Financial Statements
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Report of Independent Accountants..................................................................... F-1
Statements of Revenues and Certain Operating Expenses
of 1325 Limited Partnership for the Year Ended December 31, 1996 and the Nine
Months Ended September 30, 1997 (Unaudited)....................................................... F-2
Notes to Statements of Revenues and Certain Operating Expenses of 1325 Limited Partnership............ F-3
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650264.3
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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: November 13, 1997 By: /s/ John R. Klopp
Name: John R. Klopp
Title: Chief Executive Officer
650264.3
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Report of Independent Accountants
Partners
1325 Limited Partnership
New York, New York
We have audited the accompanying statement of revenue and certain operating
expenses (described in Note 2) of 1325 Limited Partnership (a Delaware Limited
Partnership) 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 operating 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 expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain operating expenses of 1325
Limited Partnership for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
Garden City, New York
March 21, 1997
Margolin, Winer & Evens LLP
F-1
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1325 LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997 (Unaudited)
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1997
1996 (Unaudited)
------------- -------------
Revenue (Notes 2 and 3):
Minimum rentals, net $ 24,254,098 $ 18,285,213
18,285,881
Expense reimbursements and escalations 5,427,262 4,253,213
------------ ------------
Total Revenue 29,681,360 22,539,094
------------ ------------
Certain Operating Expenses:
Operating 3,249,720 2,518,252
Real estate taxes (Note 4) 4,842,105 3,719,088
Utilities 601,352 453,335
Administrative 882,287 669,688
Management fees (Note 3) 285,072 245,736
------------ ------------
Total Certain Operating Expenses 9,860,536 7,606,099
------------ ------------
Revenue In Excess of Certain Operating Expenses $ 19,820,824 $ 14,932,995
------------ ------------
The accompanying notes are an integral part of these financial statements.
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F-2
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1325 LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
NOTES TO STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
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1. Formation and 1325 Limited Partnership (the Partnership) is a limited partnership formed
Business Activity under the laws of the State of Delaware on November 12, 1987 and is
authorized to conduct business in New York. The Partnership's purpose is to
develop, construct, finance, lease, own and operate a commercial office
building, consisting of approximately 750,000 square feet, known as 1325
Avenue of the Americas (the Building) on land owned by the Partnership (the
Property).
2. Summary of Basis of presentation - The statements of revenue and certain operating
Significant expenses for the year ended December 31, 1996 and the nine months ended
Accounting September 30, 1997 include gross operating revenue, exclusive of interest
Policies income, and direct operating expenses, exclusive of mortgage and other interest
expense, depreciation, amortization, non-recurring administrative expenses,
partnership expenses and federal, state and local income taxes, if any.
Amortization of lease incentive costs of $3,138,802 for the year ended
December 31, 1996 and $2,321,745 for the nine months ended September 30,
1997 is reflected as a reduction of rental income.
Use of estimates - The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Rental income - Minimum rentals are recognized on a straight-line basis over
the noncancelable term of the respective leases. Amounts recognized in excess
of amounts actually billed to tenants amounted to $4,624,000 for the year ended
December 31, 1996 and $549,544 for the nine months ended September 30,
1997. The leases generally provide for expense reimbursements and
escalations to be paid in monthly installments.
Income taxes - The Partnership is not subject to federal, state or local income
taxes and, accordingly, makes no provision for income taxes in its financial
statements. The Partnership's taxable income or loss is reportable by the
partners.
3. Related Party The Partnership is a party to an agreement with an affiliate whereby the affiliate
Transactions provides management services in the rental operations of the Partnership for a
fee based on a percentage of rent collected with a minimum of $150,000 per
year. Amounts charged to the Partnership related to this agreement were
$285,072 and $245,736 for the year ended December 31, 1996 and the nine
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F-3
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1325 LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
NOTES TO STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
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months-ended-September-30,-1997,-respectively.
The Partnership is also party to various agreements with affiliated companies to
provide leasing and construction management services. These fees are
capitalized as incurred.
Rental revenue from a tenant that owns a 9.3% limited partner's interest in the
Partnership was $7,419,887 and $5,404,808 for the year ended December 31,
1996 and the nine months ended September 30, 1997, respectively, and rental
revenue from an affiliate of a general partner was $566,261 and $422,326,
respectively.
4. Real Estate Taxes The Partnership qualified to receive the benefits of the Industrial and
Commercial Incentive Program provided by the City of New York whereby
certain decreasing amounts of the annual real property taxes through June 30,
1997 are deferred. Beginning in the tax year July 1, 1999, previously deferred
amounts are repayable over a ten year period in equal semi-annual installments
without interest. The discounted amounts of the deferred real property taxes
recorded for the year ended December 31, 1996 and the nine months ended
September 30, 1997 were $330,482 and $73,488, respectively. At December
31, 1996 and September 30, 1997, cumulative deferred real property taxes,
undiscounted, amount to $17,570,071 and $17,689,694, respectively. The
Partnership will recover a portion of the deferred real property taxes through
reimbursements from certain tenants during the above noted ten year period.
5. Rentals Under The following is a schedule of future minimum rental income as of
Operating Leases December 31, 1996 from noncancelable operating leases during the next five
years and thereafter (presented on a straight-line basis).
Years ending December 31,
1997 $ 27,190,501
1998 27,449,941
1999 26,688,476
2000 25,622,019
2001 24,962,602
Thereafter 203,794,337
Total future minimum rentals $335,707,876
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F-4
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1325 LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
NOTES TO STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
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Future minimum rentals related to the affiliate leases are included in the above
amounts.
6. Interim The statement of revenue and certain operating expenses for the nine months
Unaudited ended September 30, 1997 is unaudited. However, in the opinion of
Financial management, all adjustments, consisting of normal recurring adjustments,
Information necessary for a fair presentation of this financial statement for the interim
period have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year.
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F-5
