As filed with the Securities and Exchange Commission on March 13, 1998
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) December 29, 1997
CAPITAL TRUST
(Exact Name of Registrant as Specified in its Charter)
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California 1-8063 94-6181186
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(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification
incorporation) No.)
605 Third Avenue, 26th Floor
New York, NY 10016
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(Address of Principal Executive Offices) (Zip Code)
(212) 655-0220
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(Registrant's Telephone Number, Including Area Code)
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(Former name or former address, if changed since last report)
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ITEM 2. Acquisition or Disposition of Assets
Item 2 is hereby amended and restated as follows:
On December 29, 1997, the Registrant purchased a $25 million mezzanine
loan from Credit Suisse First Boston ("CSFB") (the "Mezzanine Loan") at a
premium of approximately 103%. The Mezzanine Loan is secured by a pledge of the
ownership interests in the entities that own the approximately 412,000 square
foot office and retail property located at 135 East 57th Street in New York, New
York (the "Property"). The Mezzanine Loan is additionally secured by a full
payment guaranty by the principals which own the Property in the event of
certain circumstances, including bankruptcy.
The purchase price was funded with a combination of existing cash and
financing through a repurchase obligation (the "REPO") with an affiliate of CSFB
which bears interest at a specified rate above LIBOR. The REPO has a one-year
term that may be extended by mutual agreement. Simultaneous with the purchase of
the Mezzanine Loan, the Registrant entered into the following agreements: (i) an
interest rate swap agreement (the "Swap") with a commercial bank pursuant to
which it will receive interest at LIBOR on the notional amount of the Swap in
exchange for fixed rate payments for approximately the first six years of the
Mezzanine Loan, and (ii) a forward interest rate cap agreement (the "Cap")
pursuant to which it will receive payments should LIBOR exceed a specified
threshold level on the notional amount of the Cap for approximately the final
four years of the Mezzanine Loan.
The Mezzanine Loan, which matures in September 2007, bears interest at
a fixed rate of interest for the first nine years of the term of the Mezzanine
Loan and bears interest at a specified rate over LIBOR for the last year of the
Mezzanine Loan. Prepayment of the Mezzanine Loan is permitted during the entire
loan period subject to yield maintenance during the first six years of the
Mezzanine Loan and without prepayment premium or penalty for the remainder of
the loan term.
In assessing the Property underlying the Mezzanine 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 98% as compared to the overall sub-market occupancy
rate of 91%; the Property's average annual rental rate of approximately $42 per
occupied square foot as compared to competitive office rental rates in the
sub-market ranging from $38 to $48 per square foot; and the principal business,
occupations, and professions of the tenants operating at the Property, including
tenants such as ING (U.S.) Financial Services Corporation, an office tenant,
which occupies approximately 33% of the Property (pursuant to leases with
expiration dates ranging from 1998 to 2004, base rental rates that compare
favorably to the market rates, and certain five-year renewal options), Daffy's,
a retail tenant, which occupies approximately 13% of the Property (pursuant to a
lease with an expiration date which is no earlier than 2011, a base rental rate
which compares favorably to the market rates, and two five-year renewal
options), and Boston Consulting Group, an office tenant, which occupies
approximately 12% of the Property (pursuant to a lease with an expiration date
which is no earlier than 2004, a base rental rate which compares favorably to
the market rent, and no extension options).
During the next five years, 14 leases representing approximately
157,000 square feet or approximately 38% of the Property will mature. These
leases represent approximately $6 million of gross revenue or 35% of the gross
annual rent of the Property.
With respect to factors relating to expenses, the Registrant
considered: the utility rates at the Property for electricity, steam, and water
and sewer which were comparable to utility rates for similar properties; the
taxes at the Property which were comparable to tax rates for similar properties;
maintenance and operating expenses which were in line with 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.
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After reasonable inquiry, the Registrant is not aware of any material
factors relating to the Property underlying the Mezzanine Loan that would cause
the reported financial information herein not to be indicative of future
operating results.
ITEM 7. Financial Statements, Supplemental Financial Information and
Exhibits.
(a) Financial Statements of the Property
Audited and unaudited financial statements of the Property
securing the Mezzanine Loan reported in Item 2 herein and in
the Registrant's Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on January 7, 1998, are
included herein in accordance with the instructions to Form
8-K as indicated in the following index to the financial
statements.
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Index to Financial Statements
Page
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Independent Auditors' Report..................................................................... F1
Statement of Revenues and Certain Expenses for the year ended December 31, 1996
and the nine months ended September 30, 1997 (unaudited).................................... F2
Notes to Statement of Revenues and Certain Expenses............................................... F3
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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: March 13, 1998 By: /s/ Edward L. Shugrue III
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Name: Edward L. Shugrue III
Title: Chief Financial Officer
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Independent Auditors' Report
The Board of Directors
135 East 57th Street:
We have audited the accompanying Statement of Revenues and Certain Expenses (the
Statement) of 135 East 57th Street (the Property) for the year ended December
31, 1996. The Statement is the responsibility of management. Our responsibility
is to express an opinion on the Statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the Statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall Statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement was prepared to comply with the requirements of rule
3-14 of Regulation S-X of the Securities and Exchange Commission and excludes
certain expenses, described in note 1, that would not be comparable to those
resulting from the proposed future operations of the Property. It is not
intended to be a complete presentation of the operations of the Property.
In our opinion, the Statement referred to above presents fairly, in all material
respects, the revenues and certain expenses, exclusive of expenses described in
note 1, of 135 East 57th Street for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
November 24, 1997
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135 EAST 57TH STREET
Statement of Revenues and Certain Expenses
Nine months ended September 30, 1997 (unaudited) and year ended December 31,
1996
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Nine months
ended September 30, December 31,
1997 1996
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(unaudited)
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Revenues:
Rental income $ 12,186,075 16,082,791
CAM income 1,833,107 2,499,408
Other 54,829 397,618
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14,074,011 18,979,817
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Certain expenses:
Real estate taxes 2,949,583 4,103,486
Maintenance and repairs 756,034 977,767
Salaries 625,087 842,808
Utilities 451,989 771,305
Ground rent 370,417 525,000
Administrative 519,228 97,411
Professional fees 107,059 239,467
Insurance 76,704 92,061
Advertising
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5,896,681 7,686,873
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Revenues in excess of certain expenses $ 8,177,330 11,292,944
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135 EAST 57TH STREET
Notes to Statement of Revenues and Certain Expenses
Year ended December 31, 1996
(1) Property Description and Accounting Presentation
The Statement of Revenues and Certain Expenses has been prepared in
accordance with Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission and relates to the operations of 135 East 57th
Street.
In accordance with Rule 3-14, expenses are presented exclusive of
depreciation, interest, management fees and income taxes as these
expenses would not be comparable to the proposed future operations of
the property.
Rental revenue is recognized on the accrual basis of accounting.
(2) Estimated Taxable Operating Results and Cash to be Made Available by
Operations(unaudited)
Pro forma cash available from operations and pro forma taxable income
for the twelve months ended September 30, 1997 are shown below. Pro
forma taxable operating results are derived by deducting depreciation.
Depreciation expense was estimated considering the cost basis of the
property, the appropriate income tax depreciation method, and a
forty-year depreciable life.
Revenues $ 18,094,109
Operating expenses 7,355,814
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Pro forma cash available from operations 10,738,295
Depreciation expense 4,194,887
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Pro forma taxable income $ 6,543,408
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