<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended
SEPTEMBER 30, 1994
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange act of 1934 [No Fee Required]
For the transition period from ____________________________________
Commission File number 0-9097
THE PEREGRINE REAL ESTATE TRUST
(FORMERLY COMMONWEALTH EQUITY TRUST)
(Exact Name of Registrant as Specified on its Charter)
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA
- ------------------------------- 94-2255677
(State or other jurisdiction of -------------------
incorporation or organization) (I.R.S. Employer
Identification No.)
1300 ETHAN WAY, SUITE 200, SACRAMENTO, CALIFORNIA 95825
- ------------------------------------------------- ----------
(Address of principal executive office) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (916) 929-8244
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Title of Each Class
Common Shares of Beneficial Interest
$1.00 par value ("Common Shares")
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Sequential Page: 01 of 68
Exhibit Index: Sequential page 70
<PAGE> 2
Indicate by check mark whether if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
/ /
MARKET VALUE
There is no active trading market for Common Shares.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
------ ------
OUTSTANDING SHARES
As of September 30, 1994, there were 25,093,000 outstanding Common Shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE> 3
THE PEREGRINE REAL ESTATE TRUST,
(FORMERLY COMMONWEALTH EQUITY TRUST)
PART I
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the Registrant 50
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial
Owners and Management 53
Item 13. Certain Relationships and Related Transactions 55
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 56 - 70
</TABLE>
i.
<PAGE> 4
PART I
Item 1. Business
(a) Current Developments
Plan of Reorganization Confirmed. On June 9, 1994, The Peregrine Real
Estate Trust, formerly Commonwealth Equity Trust ("Trust"), a lender group for
which Pacific Mutual Life Insurance Company acted as agent ("PacMutual
Lenders"), the Official Committee of Holders of Equity Interests ("Equity
Holders Committee") and the Official Committee of Creditors Holding Unsecured
Claims ("Creditors Committee") (collectively, the "Proponents") filed with the
Court the Third Amended Plan of Reorganization, which was subsequently modified
by the First, Second, Third and Fourth Set of Plan Modifications, filed on July
13, 1994, July 20, 1994, July 29, 1994 and August 2, 1994, respectively. The
Third Amended Plan of Reorganization as modified ("Plan") was confirmed in all
respects on August 8, 1994.
The Effective Date of the Plan (the date on which the Trust emerged
from bankruptcy) was October 7, 1994. The Trust is under the jurisdiction of
the U.S. Bankruptcy Court until entry of a final decree, which is expected to
be approximately one year from the Effective Date.
The Plan provided for, inter alia: (a) the restructuring of virtually
all of the Trust's secured and unsecured debt; (b) the reduction in the number
of Common Shares held by current shareholders from approximately 25,100,000
(old) shares to approximately 2,334,000 (new) shares (effectively a reverse
stock split); and the issuance of approximately 2,550,000 new Common Shares, as
well as a new class of Preferred Shares, of the Trust to the PacMutual Lenders.
From the Effective Date, the PacMutual Lenders own a majority of the new Common
Shares and all of the new Preferred Shares. The PacMutual Lenders also
received Restructured Secured Notes in the aggregate original principal amount
of $40,000,000.
The Plan also required that the Trust obtain a $10,000,000 working
capital line of credit ("Credit Facility") to which the PacMutual Lenders
agreed to subordinate. The Credit Facility, which is secured by certain of the
Trust's real property, was obtained prior to the Effective Date.
Capital Structure
The Trust's obligation of approximately $80,000,000 to the PacMutual
Lenders was satisfied in the Plan by the issuance to the PacMutual Lenders of
the following securities:
(a) Restructured Notes Payable in the amount of $40,000,000 which
bear interest at 8.5% per annum and which are due on October
1, 2000. Interest is payable in kind
1
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through September 30, 1996, by means of Interest Deferral
Notes issued quarterly; thereafter, interest is payable
monthly in cash.
Interest Deferral Notes accrue interest at 8.5% per annum,
from the date of issuance. Interest payments both on
principal and the interest accrued through September 30, 1996,
shall be payable monthly, in cash, commencing on November 1,
1996.
Restructured Notes Payable and Interest Deferral Notes
(collectively Notes) are collateralized, generally, by all
interests of the Trust in real and personal property and are
subordinated only to certain liens which are specified in the
Plan. The Notes contain certain covenants and restrictions
and provide for the prepayment of principal in the amount of
80% of the net proceeds from the sale of the collateral for
the Notes and from other specified sources.
(b) Preferred Stock in the face amount of $22,500,000 which
carries a dividend of 10% per annum. Dividends are payable in
kind through October 1, 1998, by means of additional shares of
Preferred Stock issued quarterly; thereafter, dividends are
payable quarterly in cash. The Preferred Stock automatically
converts into Common Stock pursuant to an established formula
if any dividend payment is not made in full when due. If all
dividends were paid in kind through October 1, 1998, no other
Common Stock were issued and the Preferred Stock were
converted to Common on October 1, 1998, the PacMutual Lenders
would, on account of that conversion, acquire 77% of the total
Common Stock outstanding after the conversion, bringing their
total holdings to 89%.
The Preferred Stock is redeemable in cash on October 1, 2000,
but, under certain circumstances, may be redeemed earlier.
(c) Common Stock equal to approximately 52% of the total
outstanding Common Stock.
New Credit Facility
Pursuant to the Plan, a Credit Facility in the maximum amount of
$10,000,000 was arranged. The Credit Facility is collateralized by a first
lien on certain of the Trust's properties, is a revolving facility and bears
interest at 2.25% over the prime rate defined in the Agreement. The Credit
Facility matures on October 7, 1997.
Chapter 11 Proceedings Leading to the Plan. On August 2, 1993, the
Trust filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code, which case was heard in the United States Bankruptcy Court for
the Eastern District of California, Sacramento Division, as In re Commonwealth
Equity Trust Case No. 93-26727-C-11. The proximate cause of the Trust's filing
a petition for reorganization was its falling out of compliance with a
restructuring agreement entered into on July 17, 1992 with the PacMutual
Lenders.
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The Trust was unable to meet payment dates on the PacMutual Lenders'
restructured debt. The PacMutual Lenders noticed the Trust's default, but
attempted to negotiate a further restructuring and resolve claims by the Trust
against the PacMutual Lenders. Finally on August 2, 1993, the Trust filed its
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
In September 1993, the United States Trustee ("UST") appointed an Equity
Holders Committee and a Creditors Committee. Both the Equity Holders Committee
and the Creditors Committee have undertaken significant involvement in many
aspects of the Chapter 11 case, including evaluation of the Trust's business
operations and reorganization options.
Continuing negotiations resulted in the Proponents filing the Third
Amended Plan of Reorganization with the Court, as described above.
(b) General
The Trust was formed as a real estate investment trust ("REIT") on July
31, 1973 for the primary purpose of acquiring, owning and financing real
property and mortgage investments. The Trust invested primarily in
income-producing real property and in loans secured by mortgages on real
property. Most of the investments in mortgage loans were in connection with
the disposition of the Trust's real properties. In addition, the Trust also
acquired unimproved real property with little current income for the purpose of
constructing buildings or other improvements thereon or for capital
appreciation.
The Trust is currently not a qualified REIT under the Internal Revenue
Code ("Code"). (In 1977, the Trust elected to be and was taxed as a REIT
through the year ended September 30, 1992. Under the Code, a qualified REIT is
relieved, in part, of federal income taxes on ordinary income and capital gains
distributed to shareholders. State tax benefits may also accrue to a qualified
REIT.) Its qualified REIT status was terminated as of the beginning of its
fiscal year ended September 30, 1993. The circumstances of that termination
were such that it is unlikely that the Trust will be eligible to re-elect to be
taxed as a REIT prior to its taxable year ended September 30, 1998.
The Trust has operated pursuant to a Declaration of Trust through
October 6, 1994, and a Restated Declaration of Trust from October 7, 1994
forward. Pursuant to the Plan, a new Board of Trustees was designated as of
the Effective Date. Both Declarations give the Board of Trustees the power to
borrow money on the Trust's behalf; to make loans to other persons; to invest
in the securities of other issuers under certain circumstances; to make
investments in property; to purchase outstanding shares of the Trust for such
consideration as they deem advisable; to issue an annual report to
shareholders; to issue debt securities; to allocate investments between direct
and indirect ownership; and to exercise other powers in connection with the
Trust's operation. Pursuant to both Declarations, the Trustees make decisions
regarding the Trust's investment and sales activities without the prior
approval of shareholders.
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During the last three fiscal years, the following sources have
contributed to the Trust's total income:
<TABLE>
<CAPTION>
Percent of Total Fiscal Years Ended September 30,
Income From 1994 1993 1992
---------------- ----- ----- -----
<S> <C> <C> <C>
Rental income 91.0% 125.9% 86.2%
Interest income 7.0% 10.5% 12.1%
Gains (losses) from foreclosure or sale of rental
properties and partnership interests 2.0% (36.4%) 1.7%
</TABLE>
The Declaration of Trust permits the Trust to leverage its investments;
that is, the Trust may finance or refinance its properties by borrowings. The
Trust is 95% leveraged at September 30, 1994.
(c) Management of the Trust's Investments
Pursuant to the Plan, new Trustees were designated as of the Effective
Date. In accordance with the Restated Declaration of Trust, new management was
appointed as of the Effective Date. The executive officers of the Trust are as
follows: John McMahan, Chairman of the Board; Frank A. Morrow, who had been
the interim CEO, President and CEO; Arnold E. Brown, Chief Financial Officer
and Secretary.
In October 1993, pursuant to a consensual agreement with the United
States Trustee ("UST"), the Trust became self-administered. Previously,
administrative services were provided to the Trust by B & B Property
Investment, Development and Management Company, Inc., who was its external
advisor.
On June 15, 1994, United Property Management Services, Inc. ("UPSI") was
approved by the Court as property manager for most of the Trust's commercial
property assets. UPSI manages under an agreement that runs for automatic
consecutive month to month terms, but is terminable by either the Trust or UPSI
upon 30 days notice.
The Trust has approximately 440 employees, all but 13 of whom are
employed at the hotel properties. The Trust is self-administered by the 13
non-hotel employees. Employee relations are generally good, with the exception
of a union organizing dispute with respect to housekeeping, bar, restaurant and
banquet employees at the Walnut Creek Holiday Inn hotel.
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<PAGE> 8
(d) Other Information
During its last three fiscal years, the Trust has been involved in only
one industry segment: the acquisition, operation and holding for investment of
income producing real properties, the making of loans secured by real property
and improvements in connection with those activities. Revenues, net income and
assets concerning this industry segment are set forth in the Trust's financial
statements.
The rules and regulations adopted by various agencies of federal, state
or local government relating to environmental controls in the development and
operation of real property may operate to reduce the number of available
investment opportunities or may adversely affect existing properties. While
the Trust does not believe that environmental controls have had a material
impact on its activities to date, there can be no assurance that the Trust will
not be adversely affected in the future.
The Trust does not engage in research and development activities nor is
it involved in any foreign operations. The Trust does not derive income from
foreign sources.
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ITEM 2: PROPERTIES
The following table sets forth certain information relating to properties owned
by the Trust at September 30, 1994. All of the properties are suitable for the
purpose for which they are designed and are being used.
<TABLE>
<CAPTION>
Date of Ownership Square Total
Direct Equity Investments Acquisition Percentage Feet Cost (1) Encumbrances(2)
------------------------- ----------- ---------- ------ -------- ---------------
<S> <C> <C> <C> <C> <C>
OFFICE BUILDINGS:
Milpitas, Milpitas, California 1/85 100% 42,913 $10,719,000 -
Timberlake, Sacramento, California 12/86 100% 22,023 2,322,000 529,000
16th and K Streets, Sacramento, California 8/87 100% 40,346 5,391,000 -
425 University Avenue, Sacramento, California 11/85 100% 34,384 5,330,000 2,948,000
Town Center Garden Office Park, Long Beach, California 12/87 100% 92,236 16,058,000 -
11135 Trade Center Drive, Rancho Cordova, California 5/88 100% 143,220 5,809,000 -
11167 Trade Center Drive, Rancho Cordova, California 5/88 100% 57,810 1,597,000 -
Hurley Ethan Office Park I, Sacramento, California 4/88 100% 37,509 4,264,000 1,196,000
System Integrators Buildings, Sacramento, California 5/88 100% 90,000 8,284,000 4,608,000
Hurley Ethan Office Park II, Sacramento, California 6/88 100% 41,497 5,332,000 2,225,000
Parkway Center, El Dorado Hills, California 1/88 100% 45,396 1,525,000 -
Redfield Commerce Center, Scottsdale, Arizona 5/88 76% 27,900 1,505,000 -
----------- ----------
Total office buildings 68,136,000 11,506,000
----------- ----------
COMMERCIAL BUILDINGS:
One Sunrise Park, Rancho Cordova, California 8/83 100% 44,219 3,462,000 -
Burbank Mini-Warehouse, Santa Rosa, California 4/85 100% 72,200 2,571,000 -
Regency Plaza, Sacramento, California 5/85 100% 142,150 14,450,000 8,869,000
Villa Del Sol, Fullerton, California 5/85 100% 35,111 4,108,000 -
University Village, Sacramento, California 12/86 100% 83,033 10,277,000 7,732,000
TGIF Sunrise Hills, Citrus Heights, California 1/87 100% 8,500 1,885,000 -
Fulton Square, Sacramento, California 5/91 76% 35,493 3,613,000 340,000
Totem Square, Kirkland, Washington 11/90 47% 126,623 9,092,000 4,391,000
Downtown Mini Storage, Sacramento, California 3/88 100% 44,825 2,017,000 -
515 S. Fair Oaks Avenue, Pasadena, California 7/88 76% 83,000 5,745,000 -
Sunrise Hills, Citrus Heights, California 1/89 100% 83,944 7,576,000 4,336,000
Sierra Oaks, Roseville, California 1/89 100% 60,064 8,624,000 4,976,000
Mallory Service Building, Walnut Creek, California 10/88 100% 21,752 2,483,000 -
----------- ----------
Total commercial buildings 75,903,000 30,644,000
----------- ----------
</TABLE>
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ITEM 2: PROPERTIES (continued)
<TABLE>
<CAPTION>
Date of Ownership Square Total
Direct Equity Investments Acquisition Percentage Feet Cost (1) Encumbrances(2)
----------- ---------- ------ -------- ---------------
<S> <C> <C> <C> <C> <C>
LAND:
Florin Perkins, Sacramento, California 6/91 100% 3,457,181 6,228,000 -
Parthenia, Northridge, California 9/92 100% 75,000 2,025,000 -
------------- ----------
Total land 8,253,000 -
------------- ----------
HOTELS:
Redding Holiday Inn, Redding, California 7/85 100% 111,310 7,344,000 1,569,000
Chico Holiday Inn, Chico, California 9/86 100% 87,000 10,994,000 -
Sacramento Holiday Inn, Sacramento, California 9/86 100% 139,800 22,471,000 -
Walnut Creek Holiday Inn, Walnut Creek, California 3/85 100% 78,470 13,867,000 -
Casa Grande Motor Inn, Arroyo Grande, California 9/92 76% 64,200 6,472,000 3,104,000
------------ ----------
Total hotels 61,148,000 4,673,000
------------ ----------
$213,440,000 46,823,000
============ ==========
</TABLE>
(1) Total cost before any reduction for valuation allowance related to
investments and accumulated depreciation.
(2) All of the above properties are pledged as collateral, subject to existing
liens, for the restructured debt.
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Item 3. Legal Proceedings
The shareholder lawsuits and other material litigation to which the
Trust was a party prior to and during the bankruptcy proceedings were resolved
and settled in connection with the Plan of Reorganization. Certain disputed
claims and claims for administrative expenses remain pending before the
Bankruptcy Court. The resolution of these claims is not expected to have an
adverse material effect on the financial condition of the Trust. The Trust is
also party to ordinary routine litigation incidental to its business, none of
which is deemed to be material.
Item 4. Submission of Matters to a Vote of Security Holders
No annual meeting of the Trust's shareholders was held during 1994 due
to the Company's bankruptcy status. All shareholders received the Plan of
Reorganization and the Disclosure Statement related thereto. No matters other
than the approval of the Plan of Reorganization were put to a vote of the
shareholders.
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Part II
Item 5. Market for the Registrant's Common Equity and Related Security
Holder Matters
(a) General
Under the Declaration of Trust, which was in effect from the Trust's
inception through September 30, 1994, the Trust had one class of authorized and
outstanding equity consisting of common shares of beneficial interest, par
value $1.00 per share.
As addressed in Item 1, above, the Restated Declaration of Trust creates
two classes of stock, preferred and common, with the characteristics described
in that Item.
There is no established market for the Trust's shares.
(b) Distributions
Because of the Trust's financial difficulties, it has made no
distributions during its years ended September 30, 1994, 1993 and 1992. The
most recent distribution was $.20 per share on October 17, 1990. The Trust is
substantially restricted from and does not anticipate making any distributions
to common shareholders in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
(Thousands Omitted)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Operating results:
Revenues (1) $ 32,170 $ 19,585 $ 31,925 $ 34,831 $ 39,020
Net (loss) income (2) (23,000) (71,997) (56,718) (35,300) (10,746)
Per Share of Beneficial
Interest:
Net (loss) income $ (0.92) $ (2.87) $ (2.26) $ (1.40) $ (0.42)
Distributions None None None 0.20 0.83
Financial Positition:
Total assets $140,186 $169,213 $280,010 $334,652 $369,951
Short term notes payable -- -- -- -- 37,000
Long-term obligations 122,963 140,173 180,171 179,141 (3) 134,842
</TABLE>
(1) Includes net gains (losses) from sales of rental properties, note
receivable and partnership interests of $688, ($7,130), $539, $203 and
$616 for the years 1994, 1993, 1992, 1991 and 1990, respectively.
(2) Includes valuation losses of $3,413, $53,089, $48,130, $28,298 and
$7,408 for 1994, 1993, 1992, 1991 and 1990, respectively. See note 7
of the Notes to Consolidated Financial Statements for further
discussion.
(3) Includes $29,000 of short-term notes payable to bank in 1991 which had
been renegotiated in 1992 as secured long-term debt.
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Capital Resources and Liquidity. During the coming year, the Trust
anticipates that its primary sources of funds will be operating income and the
Credit Facility. The Trust believes that these resources will be adequate for
its anticipated needs. Pursuant to the agreements with respect to the
Restructured Notes Payable and the Credit Facility ("Agreements"), the Trust is
generally not permitted to incur or assume additional indebtedness other than
trade payables and certain lease expenses without the consent of the PacMutual
Lenders and the lender providing the Credit Facility. Under the Agreements,
the Trust is able to incur or assume additional debt other than that specified
above only if certain conditions are satisfied. However, it is unlikely that
the Trust will be able to satisfy those specified conditions within the coming
year.
Results of Operations
1994 v. 1993
The dominant factor affecting the Trust's operations for 1994 was its
status for the entire year as a debtor-in-possession under Chapter 11. The
Trust had filed its petition under Chapter 11 on August 2, 1993; accordingly,
it was under Chapter 11 protection for only two months of fiscal 1993.
Approximately 33% ($7,714,000) of this year's net loss of $23,000,000
was attributable to reorganization expenses, primarily professional fees, and
approximately 15% ($3,413,000) of the net loss was attributable to valuation
losses. The remainder emanated from the Trust's operations.
The largest valuation loss recorded against real property was $2,536,000
against the System Integrators property in Sacramento, California. Valuation
losses of $579,000 were recorded against notes receivable collateralized by
real property located in Corona, California.
For the year, total revenue (excluding reorganization items) increased
by approximately 20% due primarily to increased expenses from direct operation
of the hotels for the entire year (the hotels were directly operated by the
Trust for approximately two months in 1993), netted against decreased revenue
due to the foreclosure of the Pacific Palisades and Howe and Cottage
properties.
For the year, total expenses (excluding reorganization items) increased
by approximately 13% due primarily to increased expenses from direct operation
of the hotels for the entire year, netted against decreased property
management, interest and depreciation expenses.
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1993 vs. 1992
Results of operations for 1993 were affected principally by the
continuing downturn in the general economy, as reflected in the commercial real
estate market, throughout California and Arizona and especially in southern
California.
Approximately 74% of the year's net loss was effected by the total
valuation loss of $53,089,000, as applied to the Trust's real properties, notes
receivable and partnership interests. The provision for valuation loss
reflects recent independent appraisals and management's estimates of net
realizable value on the Trust's real properties, notes receivable secured by
real properties and partnership interests compared with book value. Factors
considered include increased capitalization rates, decreased rental rates and
decreased occupancy rates for many of the Trust's properties.
The largest valuation losses recorded against real properties aggregated
$25,183,000 on the following properties: Redding Park Holiday Inn (Redding,
CA), Pacific Palisades Office Building (Pacific Palisades, CA), Sacramento
Holiday Inn (Sacramento, CA), Chico Holiday Inn (Chico, CA), Town Center Garden
Office Park (Long Beach, CA), Trade Center A (Rancho Cordova, CA), Florin
Perkins land (Sacramento, CA), Parthenia land (Northridge, CA) and Casa Grande
Motor Inn (Arroyo Grande, CA).
The largest valuation loss recorded against notes receivable
collateralized by real properties was $2,400,000 on a note secured by
Southcoast Commerce (Fountain Valley, CA).
Total valuation losses of $12,472,000 were recorded against the Trust's
partnership interest in CR Properties and Placer Ranch Partners. CR
Properties, which interest has been written down to zero, is a limited partner
in Sacramento Renaissance, a limited partnership, which owns the Renaissance
Tower office building (Sacramento, CA). The independent appraisal has
determined that the value of the property does not exceed the related debts.
Placer Ranch Partners' indirectly owned land has been written down to its value
as agricultural land, as development of the property is not ascertained at this
point.
Gain or loss will be recorded in the future to the extent that amounts
realized from the sale of these assets differ from the appraised or estimated
net realizable values. In the event economic conditions for real estate
continue to decline, additional valuation losses will be recognized. Losses
and gains are realized only on the sale of the underlying assets.
From August 2, 1993 through September 30, 1993, the Trust operated as
debtor-in-possession and incurred net reorganization expenses of $679,000. For
the year, total revenues (excluding reorganized revenue items, which equaled
$27,000 or 0.1% of prior year's revenue) decreased by 14.9%. Rental revenues
declined by $2,862,000 (10.4%), and interest income declined by $1,809,000
(46.7%).
Total expenses (excluding reorganization expense items, which equaled
$706,000 or 1.6% of prior year's expenses) decreased by $3,772,000 (8.7%) from
1992 to 1993.
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Loss on foreclosure or sale of investments totaled $7,130,000 and
reflects net loss derived from the sale of Pavilions, 20 Bicentennial Drive,
Denny's, Florin/Perkins, Dunlap, Northern, Park West, Sizzler, West Southern,
Corona and six notes receivable and the foreclosure of Howe Avenue & Cottage
Way, Arbor Plaza, Huntington and Hookston Square.
1992 vs. 1991
Results of operations for 1992 were affected principally by the
continuing downturn in the general economy, as reflected in the commercial real
estate market, throughout California and Arizona and especially in Southern
California.
Although the net loss during the year was attributable in part to
decreased revenues, as discussed below, the bulk of the net loss results from
$48,130,000 in valuation losses relating to the Trust's real properties, notes
receivable and partnership interests. The provision for valuation loss
reflects recent independent appraisals and management's estimates of net
realizable value on the Trust's real properties, notes receivable secured by
real properties and partnership interests compared with book value. Factors
considered include increased capitalization rates, decreased rental rates and
decreased occupancy rates for many of the Trust's real properties. The most
extreme valuation reserves were recorded against real properties and notes
receivable collateralized by real properties located in southern California and
Arizona including Town Center, Villa Del Sol, Imperial Canyon and Southcoast
Commerce Center, which together accounted for $14,138,000 of total valuation
writedowns. Properties located in Sacramento were not immune from the
continuing impact of the economy on commercial real estate. A provision from
valuation loss of $4,957,000 was made against the Trust's investment in CR
Properties (formerly CET/RJB), a limited partner in Sacramento Renaissance,
owner of the Renaissance Towers property, reflecting substantial loans for
tenant improvements and other leasing and marketing expenses made to Sacramento
Renaissance by its general partner which must be repaid before returns are paid
to the Trust. A valuation allowance of $1,910,000 was recorded as to the
Florin Perkins lots reflecting the decrease in the value of raw land and
reduced prospects for development over the medium term. Writedowns on thirteen
additional properties located in the Sacramento area accounted for $7,592,000
of the allowance.
In addition to valuation reserves, total revenues decreased $3,242,000
(9.4%) in 1992 as compared with 1991. While aggregate interest income remained
relatively unchanged, rental revenues decreased $3,329,000 (10.8%) reflecting
sale of four properties during 1992 and disposition of an additional property
by voluntary foreclosure. In addition, the Trust experienced a substantial
decrease in aggregate rental revenue of $708,000 at Imperial Canyon, Arbor
Plaza and 515 S. Fair Oaks Avenue, all properties located in southern
California as a result of greater vacancy and lower lease renewal rates. The
Trust's rental income relating to its hotel properties also reflected a
$1,200,000 decrease as a result of partial closures and reduced occupancy
during renovations required by the franchisor. Notwithstanding the foregoing,
several Trust properties showed increased revenues during 1992 including Totem
Square, with increased revenues of $300,000 and higher occupancy rates, the
Fulton Square, a property acquired in 1991 which accounted for $375,000 in
increased rental income.
13
<PAGE> 17
Total expenses increased by $828,000 (2%) from 1991 to 1992. While
property management and depreciation and amortization expense decreased by
$179,000 (10.4%) and $1,527,000 (15.2%), respectively, reflecting property
dispositions during the year, general and administrative expenses showed an
increase of $2,817,000 (90.4%). The increase resulted principally from (i)
$1,000,000 in professional services (including lender legal fees, appraisal
costs and accounting fees) related to restructuring of the Trust's debt with
its Senior Lenders and (ii) $1,100,000 in legal fees and costs arising from the
shareholder litigation described in Item 3 of this report and in fees incurred
by the Trust in the restructuring of debt with the Senior Lenders. The
increase in general and administrative expense also reflects fees for
consultants to the Independent Trustees.
Net gain on sale of rental properties totalling $539,000 reflects net
gain derived from the sale of F Street Professional Building, 190 Otis, 1227
Chester Avenue and Fountain View Office Plaza.
Impact of Inflation. The effect of inflation on the Trust's operations
and properties is varied. Revenues have not recently been affected by
inflation as highly competitive market conditions have prevented increases in
rental rates for most of the Trust's properties and, in some cases, have caused
rental rates to decrease. Although operating expenses are impacted by
inflation, inflation related increases in operating expenses have not been
material during the past year.
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Index Page
- ----- ----
<S> <C>
Consolidated Financial Statements
Reports of Independent Accountants 16 - 18
Consolidated Balance Sheets 19
Consolidated Statements of Operations 20
Consolidated Statements of Changes in Shareholders' Equity (Deficit) Accounts 21
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 23 - 49
Schedule IX - Short-Term Borrowings 58
Schedule X - Supplementary Income Statement Information 59
Schedule XI - Real Estate and Accumulated Depreciation 60 - 64
Schedule XII - Mortgage Loans on Real Estate 65 - 67
</TABLE>
14
<PAGE> 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
Not applicable.
15
<PAGE> 19
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees
The Peregrine Real Estate Trust
We have audited the consolidated balance sheets of The Peregrine Real Estate
Trust and Affiliates, formerly Commonwealth Equity Trust and Affiliates (Trust)
as of September 30, 1994 and 1993 and the related consolidated statements of
operations, changes in shareholders' equity (deficit) accounts and cash flows
for the years then ended. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedules as
listed in the accompanying index for the years ended September 30, 1994 and
1993. These consolidated financial statements and financial statement
schedules are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedules based on our audits. The consolidated
financial statements and financial statement schedules of the Trust for the
year ended September 30, 1992 , were audited by other auditors, whose report
dated February 5, 1993, on those statements and schedules included an
explanatory paragraph that described substantial doubt about the Trust's
ability to continue as a going concern, which is discussed in Note 14 to those
financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Peregrine Real Estate Trust and Affiliates, formerly Commonwealth Equity Trust
and Affiliates, at September 30, 1994 and 1993, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules for the years ended September 30, 1994
and 1993, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects, the information set forth
therein.
16
<PAGE> 20
As discussed in Note 1 to the consolidated financial statements, the Trust
changed its method of accounting for income taxes as of the beginning of the
fiscal year ended September 30, 1994.
We have also examined the pro forma adjustments reflecting the emergence of the
Trust from Chapter 11 bankruptcy reorganization described in Note 1 and the
application of those adjustments to the historical amounts in the accompanying
pro forma consolidated balance sheet of the Trust as of September 30, 1994.
Such pro forma adjustments are based upon management's assumptions described in
Note 1. Our examination was made in accordance with standards established by
the American Institute of Certified Public Accountants and, accordingly,
included such procedures as we considered necessary in the circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the consolidated balance sheet might have been had the
emergence of the Trust from Chapter 11 bankruptcy reorganization occurred on
September 30, 1994. However, the pro forma consolidated balance sheet is not
necessarily indicative of the financial position that would have been attained
had the above-mentioned emergence of the Trust from Chapter 11 bankruptcy
actually occurred on September 30, 1994.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
emergence of the Trust from Chapter 11 bankruptcy described in Note 1, the
related pro forma adjustments give appropriate effect to those assumptions, and
the pro forma consolidated column reflects the proper application of those
adjustments to the historical consolidated balance sheet as of September 30,
1994.
/s/ Coopers & Lybrand L.L.P.
Sacramento, California
December 9, 1994
17
<PAGE> 21
[KPMG PEAT MARWICK LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
Commonwealth Equity Trust:
We have audited the accompanying consolidated statements of loss, changes in
shareholders' equity, and cash flows of Commonwealth Equity Trust and
affiliates for the year ended September 30, 1992. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedules for the year ended September 30, 1992 as listed
in the accompanying index. These consolidated financial statements and
financial statement schedules are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
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 statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Commonwealth Equity Trust and affiliates for the year ended September 30,
1992, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Trust will continue as a going concern. As discussed in Note 14 to
the financial statements, the Trust's recurring losses, noncompliance with
certain loan covenants and significant loan repayments due in fiscal 1993 on
its long-term notes payable, raise substantial doubt about the Trust's ability
to continue as a going concern. Management's plans in regards to these matters
are also described in Note 14. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
February 5, 1993
18
<PAGE> 22
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
CONSOLIDATED BALANCE SHEETS
September 30
<TABLE>
<CAPTION>
Pro Forma 1994
ASSETS 1994 Adjustments Pro Forma 1993
---- ----------- --------- ----
<S> <C> <C> <C> <C>
Investments:
Rental properties, less accumulated depreciation of $31,746,000 and
$31,708,000 in 1994 and 1993, respectively, and valuation allowance
of $71,257,000 and $78,659,000 in 1994 and 1993, respectively $110,437,000 $3,371,000 $113,808,000 $133,030,000
Partnership interests, net of valuation allowance of
$17,429,000 in 1994 and 1993 4,000,000 -- 4,000,000 4,000,000
Notes receivable, net of valuation allowance of $6,592,000 and
$6,964,000 in 1994 and 1993, respectively, and unaccreted discount
of $523,000 and $1,466,000 in 1994 and 1993, respectively 16,462,000 -- 16,462,000 19,262,000
------------ ------------ ------------
130,899,000 134,270,000 156,292,000
Cash 6,069,000 -- 6,069,000 6,994,000
Restricted cash 111,000 -- 111,000 111,000
Rents and accrued interest receivable, net of valuation allowance
of $2,555,000 and $2,478,000 in 1994 and 1993, respectively 1,605,000 -- 1,605,000 1,179,000
Other assets 1,998,000 -- 1,998,000 4,637,000
------------ ------------ ------------
Total assets $140,682,000 $144,053,000 $169,213,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities not subject to compromise:
Long-term notes payable, collateralized by deeds
of trust on rental properties $ 8,776,000 $ 39,756,000 $ 48,532,000 $ 15,874,000
Notes payable to Lender Group -- 40,000,000 40,000,000 --
Accounts payable and accrued expenses 15,005,000 1,507,000 16,512,000 3,526,000
------------- ------------ -------------
23,781,000 105,044,000 19,400,000
Liabilities subject to compromise (Note 13) 123,340,000 (123,340,000) 133,065,000
------------- ------------- ------------ -------------
147,121,000 105,044,000 152,465.000
------------- ------------ -------------
Minority interests 6,760,000 6,760,000 6,947,000
------------- ------------ -------------
Redeemable preferred stock, 25,000,000 shares authorized;
11,250,000 shares issued and outstanding; net of unaccreted
discount of $2,193,000 at 1994 (Pro Forma); (Liquidation
preference of $22,500,000) -- 20,307,000 20,307,000 --
Shares of beneficial interest, par value $1 a share; unlimited
authorization, 25,093,000 shares outstanding in 1994, 4,884,000,
in 1994 (Pro Forma) and 25,093,000 in 1993. (Note 1) 25,093,000 (13,151,000) 11,942,000 25,093,000
Additional paid-in capital 219,848,000 (219,848,000) -- 219,848,000
Accumulated deficit (258,140,000) 258,140,000 -- (235,140,000)
Commitments and contingencies (Notes 4 and 12)
Total liabilities and shareholders' equity $ 140,682,000 $144,053,000 $ 169,213,000
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 23
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended September 30
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rent $ 14,687,000 $ 21,523,000 $ 27,512,000
Interest 2,298,000 2,065,000 3,874,000
Hotel 15,185,000 3,127,000 --
------------ ------------ ------------
32,170,000 26,715,000 31,386,000
------------ ------------ ------------
Expenses:
Operating expenses 8,577,000 9,752,000 10,005,000
Hotel operating expenses 14,327,000 2,647,000 --
Property management 530,000 1,386,000 1,535,000
Depreciation and amortization 4,878,000 6,115,000 8,551,000
Interest 13,181,000 14,846,000 17,352,000
General and administrative 3,389,000 4,860,000 5,935,000
------------ ------------ ------------
44,882,000 39,606,000 43,378,000
------------ ------------ ------------
(Loss) before reorganization items, gain (loss) on
foreclosure or sale of investments, valuation losses
and minority interests (12,712,000) (12,891,000) (11,992,000)
Reorganization items (Note 14): (7,714,000) (679,000) --
------------ ------------ ------------
(Loss) before gain (loss) on foreclosure or sale of
investments, valuation losses
and minority interests (20,426,000) (13,570,000) (11,992,000)
Gain (loss) on foreclosure or sale of investments, net 688,000 (7,130,000) 539,000
------------ ------------ ------------
Loss before valuation losses,
and minority interests (19,738,000) (20,700,000) (11,453,000)
Valuation losses (Note 7) ( 3,413,000) (53,089,000) (48,130,000)
------------ ------------ ------------
(Loss) income before minority interests (23,151,000) (73,789,000) (59,583,000)
Minority interests 151,000 1,792,000 2,865,000
------------ ------------ ------------
Net loss $(23,000,000) $(71,997,000) $(56,718,000)
============ ============ ============
Net loss per share of beneficial interest (Note 1) $( .92) $(2.87) $(2.26)
====== ====== ======
</TABLE>
See Note 1 for Pro Forma information.
See accompanying notes to consolidated financial statements.
20
<PAGE> 24
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DEFICIT) ACCOUNTS
for the years ended September 30, 1992, 1993 and 1994
<TABLE>
<CAPTION>
Shares of Additional
Beneficial Interest Paid-In Accumulated
Number Amount Capital Deficit
------ ------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at
September 30, 1991 25,097,000 $25,097,000 $219,887,000 $(106,425,000)
Liquidation of
shares (4,000) (4,000) (39,000) --
Net loss -- -- -- (56,718,000)
---------- ----------- ------------ -------------
Balance at
September 30, 1992 25,093,000 25,093,000 219,848,000 (163,143,000)
Net loss -- -- -- (71,997,000)
---------- ----------- ------------ -------------
Balance at
September 30, 1993 25,093,000 25,093,000 219,848,000 (235,140,000)
Net loss -- -- -- (23,000,000)
---------- ----------- ------------ -------------
Balance at
September 30, 1994 25,093,000 $25,093,000 $219,848,000 $(258,140,000)
========== =========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 25
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(23,000,000) $(71,997,000) $(56,718,000)
------------ ------------ ------------
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,878,000 6,115,000 8,551,000
Accretion of discount on notes receivable (284,000) (303,000) --
(Gain) loss on foreclosure or sale of investments, net (688,000) 7,130,000 (539,000)
Minority interest in net loss (151,000) (1,792,000) (2,865,000)
Valuation losses 3,413,000 53,089,000 48,130,000
Changes in other assets and liabilities,
net of acquisition effects of affiliates:
(Increase) decrease in rents and accrued interest receivable (541,000) 1,052,000 (516,000)
(Increase) decrease in other assets 1,978,000 (539,000) (1,151,000)
Increase in accounts payable and accrued expenses 12,000,000 3,430,000 5,955,000
------------ ------------ ------------
Total adjustments 20,605,000 68,182,000 57,565,000
------------ ------------ ------------
Net cash (used in) provided by operating activities (2,395,000) (3,815,000) 847,000
------------ ------------ ------------
Cash flows from investing activities:
Purchases of and improvements to rental properties (1,493,000) (3,887,000) (3,594,000)
Proceeds from sale of rental properties 441,000 3,021,000 1,604,000
Proceeds from sales of and collections on notes receivable 2,970,000 16,958,000 1,271,000
------------ ------------ ------------
Net cash provided by (used in) investing activities 1,918,000 16,092,000 (719,000)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on long-term notes payable (253,000) (6,643,000) (1,066,000)
Distributions paid to minority interests (195,000) (531,000) (387,000)
Redemption of shares -- -- (43,000)
Proceeds from issuance of long-term notes payable -- -- 181,000
Reduction of restricted cash -- 473,000 --
------------ ------------ ------------
Net cash used by financing activities (448,000) (6,701,000) (1,315,000)
------------ ------------ ------------
Net (decrease) increase in cash (925,000) 5,576,000 (1,187,000)
Cash, beginning of year 6,994,000 1,418,000 2,605,000
------------ ------------ ------------
Cash, end of year $ 6,069,000 $ 6,994,000 $ 1,418,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 26
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings:
Organization
The Peregrine Real Estate Trust, formerly Commonwealth Equity Trust
(Trust) was organized under the laws of the State of California pursuant
to a Declaration of Trust dated July 31, 1973 and reorganized under a
Restated Declaration of Trust dated October 7, 1994. Pursuant to the
Plan, a new Board of Trustees was designated as of the Effective Date,
October 7, 1994. The Restated Declaration of Trust, dated October 7,
1994, gave effect to the reorganization of the Trust under Chapter 11 of
the United States Bankruptcy Code. The financial statements at
September 30, 1994 and 1993 do not give effect to the reorganization.
The Pro Forma balance sheet at September 30, 1994 as described below
gives effect to the reorganization. Commencing September 1, 1993, the
Trust became self-administered.
Principles of Consolidation
For the years ended September 30, 1992 and 1993, the consolidated
financial statements include the accounts of the Trust and its
majority-owned affiliates: 3604 Fair Oaks Boulevard (3604) and
California Real Estate Investment Trust (CalREIT). Majority-owned
affiliates consist of a general partnership and a real estate investment
trust engaged in real estate activities in which the Trust owns a
greater than 50% interest. Neither of the Trust's majority owned
affiliates, 3604 or CalREIT, filed for protection under Chapter 11.
However, 3604 was under a court appointed receiver and was subsequently
liquidated. At September 30, 1994, only the accounts of the Trust and
CalREIT are included.
Plan of Reorganization Under Chapter 11 Proceedings
On August 2, 1993, the Trust filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code, which case was heard in
the United States Bankruptcy Court for the Eastern District of
California, Sacramento Division, as In re Commonwealth Equity Trust Case
No. 93-26727-C-11. The proximate cause of the Trust's filing a petition
for reorganization was its falling out of compliance with a
restructuring agreement entered into on July 17, 1992 with a lender
group for which Pacific Mutual Life Insurance Company acted as agent
(PacMutual Lenders or Lender Group).
23
<PAGE> 27
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Summary of Significant Accounting Policies and Chapter
11 Proceedings, continued:
The Trust was unable to meet payment dates on the PacMutual Lenders'
restructured debt. The PacMutual Lenders noticed the Trust's default,
but attempted to negotiate a further restructuring and resolve claims by
the Trust against the PacMutual Lenders. Finally on August 2, 1993, the
Trust filed its petition for reorganization under Chapter 11 of the
United States Bankruptcy Code.
In September 1993, the United States Trustee (UST) appointed an Official
Committee of Holders of Equity Interests (Equity Holders Committee) and
an Official Committee of Creditors Holding Unsecured Claims (Creditors
Committee). Both the Equity Holders Committee and the Creditors
Committee have undertaken significant involvement in many aspects of the
Chapter 11 case, including evaluation of the Trust's business operations
and reorganization options.
On June 9, 1994, the Trust, the PacMutual Lenders, the Equity Holders
Committee and the Creditors Committee (collectively, Proponents) filed
with the Court the Third Amended Plan of Reorganization, which was
subsequently modified by the First, Second, Third and Fourth Set of Plan
Modifications, filed on July 13, 1994, July 20, 1994, July 29, 1994 and
August 2, 1994, respectively. The Third Amended Plan of Reorganization
as modified (Plan) was confirmed in all respects on August 8, 1994.
The Effective Date of the Plan (the date on which the Trust emerged from
bankruptcy) was October 7, 1994. The Trust is under the jurisdiction of
the United States Bankruptcy Court until entry of a final decree, which
is expected to be approximately one year from the Effective Date.
The Plan provided for, inter alia: (a) the restructuring of virtually
all of the Trust's secured and unsecured debt; (b) the reduction in the
number of Common Shares held by current shareholders from approximately
25,100,000 (old) shares to 2,334,000 (new) shares (effectively a reverse
stock split); and the issuance of 2,550,000 new Common Shares, as well
as a new class of Preferred Shares, of the Trust to the PacMutual
Lenders. The authorized number of new common shares is 50,000,000.
From the Effective Date, the PacMutual Lenders own a majority of the new
Common Shares and all of the new Preferred Shares. The PacMutual
Lenders also received Restructured Secured Notes in the aggregate
original principal amount of $40,000,000.
24
<PAGE> 28
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued:
The Plan provides for the reservation of 80,000 new Common shares for
options for certain trustees.
The Plan also required that the Trust obtain a $10,000,000 working
capital line of credit (Credit Facility) to which the PacMutual Lenders
agreed to subordinate. The Credit Facility, which is collateralized by
certain of the Trust's real property, was obtained prior to the
Effective Date.
Capital Structure
The Trust's obligation of approximately $80,000,000 to the PacMutual
Lenders was satisfied in the Plan by the issuance to the PacMutual
Lenders of the following securities:
(a) Restructured Notes Payable in the amount of $40,000,000 which
bear interest at 8.5% per annum and which are due on October
1, 2000. Interest is payable in kind through September 30,
1996, by means of Interest Deferral Notes issued quarterly;
thereafter, interest is payable monthly in cash.
Interest Deferral Notes accrue interest at 8.5% per annum,
from the date of issuance. Interest payments both on
principal and the interest accrued through September 30, 1996,
shall be payable monthly, in cash, commencing on November 1,
1996.
Restructured Notes Payable and Interest Deferral Notes
(collectively Notes) are collateralized, generally, by all
interests of the Trust in real and personal property and are
subordinated only to certain liens which are specified in the
Plan. The Notes contain certain covenants and restrictions
and provide for the prepayment of principal in the amount of
80% of the net proceeds from the sale of the collateral for
the Notes and from other specified sources.
(b) Preferred Stock in the face amount of $22,500,000 which
carries a dividend of 10% per annum. Dividends are payable in
kind through October 1, 1998, by means of additional shares of
Preferred Stock issued quarterly; thereafter, dividends are
payable quarterly in cash. The Preferred Stock automatically
converts into Common Stock pursuant to an established formula
if any dividend payment is not made in full when due. If all
dividends were paid in kind through October 1, 1998, no other
Common Stock were issued and the Preferred Stock were
converted to Common on
25
<PAGE> 29
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued:
October 1, 1998, the PacMutual Lenders would, on account of
that conversion, acquire 77% of the total Common Stock
outstanding after the conversion, bringing their total
holdings to 89%.
The Preferred Stock is redeemable in cash on October 1, 2000,
but in certain circumstances, may be redeemed earlier.
(c) Common Stock equal to approximately 52% of the total
outstanding Common Stock.
New Credit Facility
Pursuant to the Plan a Credit Facility in the maximum amount of
$10,000,000 was arranged. The Credit Facility is collateralized by a
first lien on certain of the Trust's properties, is a revolving facility
and bears interest at 2.25% over the prime rate defined in the
Agreement. The Credit Facility matures on October 7, 1997. Subsequent
to September 30, 1994, approximately $3,000,000 was drawn on the new
Credit Facility.
Fresh Start Accounting
In accounting for the effects of the reorganization, the Trust has
implemented Statement of Position 90-7 (SOP 90-7), "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code." Fresh start
accounting as defined by SOP 90-7 is applicable because
pre-reorganization shareholders will receive less than 50% of the
Trust's new Common Shares and the reorganization value of the assets of
the reorganized Trust is less than the total of all post-petition
liabilities and allowed claims.
Under the principles of fresh start accounting, all of the Trust's
assets and liabilities are restated to reflect their reorganization
value, which approximates fair value at the date of the reorganization.
The Pro Forma balance sheet as of September 30, 1994, shows the effect
of the reorganization as if it had been effective on that date instead
of October 7, 1994, the actual Effective Date. As a result of the
implementation of fresh start accounting, the balance sheet of the
Trust, after consummation of the Plan, is not comparable to the Trust's
balance sheets for prior periods.
26
<PAGE> 30
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued:
The reorganization value of the Trust's assets is primarily the
estimated fair value of the Trust's property and interest in CalREIT.
The aggregate property value was reached through the use of an eleven
year cash flow analysis discounted at rates generally ranging from 12%
to 15% and assuming a ten year holding period. The discounted cash flow
analysis also includes an estimate of terminal value, which was
determined using the discounted value of estimated net operating income
of each of the respective properties beginning in the year following the
holding period. This analysis relies on estimates of future property
performance, and the various market factors including the supply, demand
and price of competing product. Estimates were also made as to property
lease-up, required capital expenditures, and similar matters. All of
these estimates may vary from the actual future occurrences.
The interest in CalREIT was valued based on an income capitalization
approach, without any control premium being attributed to the Trust's
majority ownership position in CalREIT. The income capitalization
approach was also used to value the assets underlying the notes
receivable, to determine the value of each note.
Pro Forma Financial Information
The Pro Forma information shows the effect of the reorganization of the
Trust on its balance sheet as of September 30, 1994, as if the Plan had
been effective on that date instead of October 7, 1994, which was the
actual Effective Date of the Plan.
Adjustments made to arrive at the Pro Forma balances reflect the
adjustment of assets to reorganization value (which approximates fair
value), the restructuring of the PacMutual Lender debt and certain other
debt adjustments as described above and pursuant to the requirements of
the Plan. The preferred stock has been recorded at a discount to its
face amount based on an imputed rate of return of 12%.
A Pro Forma statement of operations is not presented as there is only
one adjustment which affects revenue and expenses. Such adjustment is
forgiveness of debt, as a result of the reorganization, of $15,561,000.
Pro Forma loss before extraordinary item and net loss for the year ended
September 30, 1994, would have been $23,000,000 and $7,439,000,
respectively (per share of ($4.71) and ($1.30), respectively). Shares
outstanding used in this calculation were 4,884,000.
27
<PAGE> 31
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued:
Rental Properties
At September 30, 1994 (Pro Forma), rental properties are recorded at
reorganization value. At September 30, 1994 and 1993, rental properties
are carried at cost, net of accumulated depreciation and less a
valuation allowance for possible investment losses. The Trust's
valuation allowance for possible investment losses represents the excess
of the carrying value of individual properties over their appraised or
estimated net realizable value.
The additions to the valuation allowance for possible investment losses
are recorded after consideration of various external factors,
particularly overbuilt real estate markets resulting in declining lease
rates, which adversely affect real estate. A gain or loss will be
recorded to the extent that the amounts ultimately realized from
property sales differ from those currently estimated. In the event
economic conditions for real estate continue to decline, additional
valuation losses may be recognized.
The allowance for depreciation and amortization has been calculated
under the straight-line method, based upon the estimated useful lives of
the properties which lives range from 30 to 40 years. Expenditures for
maintenance, repairs and betterments which do not materially prolong the
normal useful life of an asset are charged to operations as incurred.
Real estate acquired by cancellation of indebtedness or foreclosure is
recorded at fair market value at the date of acquisition, but not in
excess of the unpaid balance of the related loan plus costs of securing
title to and possession of the property.
Partnership Interests
Partnership investments of 20% to 50% are accounted for by the equity
method. Under this method, the investments are recorded at initial cost
and increased for partnership income and decreased for partnership
losses and distributions.
During the year ended September 30, 1990, the Trust entered into Placer
Ranch Partners, a limited partnership in which the Trust owns a 31%
interest. CR Properties, formerly CET/RJB, is a general partnership, in
which the Trust owns a 50% interest.
28
<PAGE> 32
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Summary of Significant Account Policies and Chapter 11
Proceedings, continued:
Income Taxes
In 1977, the Trust elected to be and was taxed as a real estate
investment trust (REIT) through the year ended September 30, 1992. A
REIT is not taxed on that portion of its taxable income which is
distributed to shareholders, provided that at least 95% of its real
estate investment trust taxable income is distributed, and subject to
certain other requirements.
During the year ended September 30, 1993, the Trust did not qualify to
be taxed as a REIT. The termination of its REIT status is effective as
of October 1, 1992. Furthermore, the circumstances of that termination
were such that the Trust will not be eligible to re-elect to be taxed as
a REIT prior to its taxable year ended September 30, 1998.
In February 1992, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 109 (SFAS 109)
"Accounting for Income Taxes." SFAS 109 requires the use of the
liability method of accounting for income taxes. Deferred taxes are
recorded based on the differences between financial statement and income
tax bases of assets and liabilities and available loss or credit
carryforwards. A "Valuation Allowance" is recorded against deferred tax
assets unless it is more likely than not that the asset will be realized
in the future.
Effective October 1, 1993, the Trust adopted SFAS 109. There was no
cumulative effect as of October 1, 1993, of the accounting change, nor
did the adoption of SFAS 109 have any effect on the results of
operations for the year ended September 30, 1994.
Cash
The Trust invests its cash and restricted cash in demand deposits with
banks with strong credit ratings. Cash in excess of federally insured
amounts was $7,233,000 and $4,951,000 as of September 30, 1994 and 1993,
respectively. The Trust has not experienced any losses on these
deposits.
29
<PAGE> 33
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued:
Sales of Real Estate
The Trust complies with the provisions of Statement of Financial
Accounting Standards No. 66 (SFAS 66), "Accounting for Sales of Real
Estate." Accordingly, the recognition of gains on certain transactions
are deferred until such transactions have complied with the criteria for
full profit recognition under the Statement.
Fair Value of Financial Instruments
In 1993, the Trust adopted Statement of Financial Accounting Standards
No. 107 (SFAS No. 107), "Disclosure About Fair Value of Financial
Instruments." This statement requires disclosure of the fair value of
all financial instruments, both assets and liabilities recognized and
not recognized in the balance sheet. The adoption of SFAS No. 107
resulted only in additional disclosure requirements and had no effect on
the Trust's financial position or results of operations.
Net Loss Per Share
Net loss per share of beneficial interest has been computed based on the
weighted-average number of shares outstanding during the year of,
25,093,000 in 1994 and 1993 and 25,095,000 in 1992. Per share amounts
have not been restated for periods prior to the Effective Date of the
reorganization, as the Trust becomes a new entity for accounting
purposes as of the Effective Date.
Reclassifications
Certain reclassifications have been made in the presentation of the 1993
financial statements to conform to the 1994 and 1994 (Pro Forma)
presentation.
2. Related-Party Transactions:
Until September 1, 1993, administrative services were provided to the
Trust by B&B Property Investment, Development and Management Company,
Inc. (B&B). B&B's compensation consisted of 5% of the gross proceeds
from the sale of shares of beneficial interest, as well as a
reimbursement of certain expenses incurred in performing services for
the Trust. B&B
30
<PAGE> 34
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Related-Party Transactions, continued:
earned real estate commissions in connection with purchases and sales of
Trust properties handled by B&B, as well as leasing commissions. The
agreement also provided that B&B reimburse the Trust for any promotional
or annual expenses which exceed the statutory allowable limits
established by the State of California.
Until September 1, 1993, property management responsibilities of the
Trust were assigned to B&B Property Investments, Inc. (B&B Property), a
wholly-owned subsidiary of B&B. The compensation for property
management services was negotiated by B&B Property and the Trustees for
each property when acquired.
Compensation, leasing commissions and expense reimbursements to B&B and
B&B Property were $591,000, $2,826,000 and $2,867,000 for the years
ended September 30, 1994, 1993 and 1992, respectively. The commissions
paid are included in other assets and amortized over the term of the
leases, typically five years.
The Trust entered into certain leasing transactions with North Main
Street Company (North Main), a company owned by the President and
Chairman of the Board of the Trust's former advisor, B & B. Until July
20, 1993, when the Trust terminated its lease arrangement with North
Main, North Main leased the Trust's hotels under triple net leases,
which leases generated revenue to the Trust of $1,854,000 during the
year ended September 30, 1993. Generally such leases provided for
payment of the greater of a minimum rent or specified percentages of
preestablished revenue categories as stated in each hotel's lease.
At September 30, 1994 and 1993, the Trust has amounts due to CalREIT
aggregating $623,000 and $597,000 respectively. Such amounts bear
interest at 10% and are due on demand, without collateral, and are
eliminated in consolidation.
During the year ended September 30, 1993, the Trust paid fees of
$93,000, primarily for consulting, to a company owned by one of the
former Trustees.
The Trust provides and charges a fee for management services for its
majority owned affiliate, CalREIT. Such fees are eliminated in
consolidation.
31
<PAGE> 35
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Restricted Cash:
At September 30, 1994 and 1993, cash of $111,000 is restricted under the
terms of the agreement with Sun Life Insurance Company of America in
connection with their purchase of senior participation interests in
notes receivable. Subsequent to September 30, 1994, this cash became
unrestricted.
4. Rental Properties:
At September 30, 1994 (Pro Forma), 1994 and 1993, the Trust's rental
property portfolio at reorganization value or cost included office
buildings, $29,962,000, $68,136,000 and $86,931,000; commercial
buildings, $59,262,000, $75,903,000 and $83,426,000; hotels,
$30,226,000, $61,148,000 and $64,787,000, and land, $2,170,000,
$8,253,000 and $8,253,000, respectively. The Pro Forma amounts reflect
the netting of accumulated depreciation and valuation allowances against
cost.
Under fresh start accounting, all rental properties are recorded at
reorganization value, which is likely to be different than tax basis.
Noncancellable operating leases at September 30, 1994, provide for
minimum rental income during each of the next five years of $8,266,000,
$6,936,000, $5,321,000, $3,627,000 and $2,248,000, respectively, and
$6,097,000 thereafter. Certain of the leases increase periodically
based on changes in the Consumer Price Index.
Rental properties with an aggregate carrying value of $6,400,000, at
September 30, 1994 are subject to purchase options exercisable on the
part of the lessees.
5. Partnership Interests:
As discussed in Note 1, the Trust is a partner in Placer Ranch Partners,
a limited partnership in which the Trust owns a 31% limited partnership
interest. No income has been recognized in the Trust's financial
statements for 1994, 1993 and 1992 related to the Placer Ranch Partners
partnership as payment of such income is contingent upon the future sale
of land.
32
<PAGE> 36
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Partnership Interests, continued:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Investment in Placer Ranch Partners,
Limited Partnership, at the Trust's
financial accounting basis,
net of valuation
allowance of $9,701,000 in 1994 and 1993 $4,000,000 $4,000,000
========== ==========
</TABLE>
The Trust is also a partner in CR Properties, a general partnership, in
which the Trust owns a 50% interest. CR Properties is a limited partner
in a partnership which owns an office building in Sacramento,
California. No portion of the CR Properties partnership loss has been
recognized in the Trust's financial statements for 1994, 1993 and 1992
as the partnership agreement specifies that net losses shall be
allocated 100% to the other partner. As CR Properties has a limited
partnership interest, it has no contingent liability with respect to the
office building debt.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Investment in CR Properties general
partnership, net of valuation
allowance of $7,728,000 in 1994 and 1993 $ -- $ --
==== ====
</TABLE>
6. Notes Receivable:
In order to facilitate sales of real estate, the Trust has accepted
partial payment in the form of notes receivable collateralized by deeds
of trust. Additionally, the Trust has invested in a variety of loans
collateralized by deeds of trust. As of September 30, 1994 and 1993,
the Trust had long-term notes receivable, collateralized by deeds of
trust, of (before valuation allowance and unaccreted discount)
$23,577,000 and $27,692,000, respectively. Generally the notes are
collateralized by real estate properties in California.
33
<PAGE> 37
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Notes Receivable, continued:
The notes are to be repaid from the cash flow of the property or
proceeds from the sale or refinancing of the property. At September 30,
1994, $4,316,000 of such notes were delinquent. Contractually scheduled
principal collections over the next five years, excluding delinquent
notes, are as follows:
<TABLE>
<S> <C>
1995 $ 27,000
1996 29,000
1997 1,293,000
1998 803,000
1999 39,000
Thereafter 17,070,000
-----------
$19,261,000
===========
</TABLE>
The notes bear interest at rates ranging from 8% to 16% as of September
30, 1994. For the year ended September 30, 1994, the overall effective
rate was approximately 8%.
During the year ended September 30, 1990, the Trust sold $13,753,000 in
senior participation interests in certain notes receivable to Sun Life
Insurance Company of America, a Maryland corporation (Sun Life). The
participation agreement specified that upon default of any note
receivable covered by the agreement, Sun Life would have had priority in
any proceeds before the Trust. Total participation outstanding at
September 30, 1994 and 1993, was $__ and $1,194,000, respectively. This
agreement was terminated during the year ended September 30, 1994.
7. Valuation Allowances:
In connection with preparing its plan of reorganization, as described in
Note 1, the Trust reviewed its real estate investments. Based on that
review, the Trust provided for valuation allowances as set forth below.
Adverse economic factors, particularly overbuilt real estate markets
resulting in declining lease renewal rates, were the primary causes of
these valuation losses. If such adverse economic factors continue,
additional valuation loss provisions may be required.
34
<PAGE> 38
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Valuation Allowances:
Analysis of changes in the allowance for possible losses on real estate
investments, partnership interests, notes receivable, and rents and
interest receivable for years ended September 30, 1994, 1993 and 1992
follow:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Rental Properties
Allowance for valuation losses on
rental property investments:
Beginning balance $ 78,659,000 $ 66,195,000 $34,117,000
Provision for valuation losses 2,834,000 37,386,000 34,575,000
Amounts charged against allowance
for valuation losses (10,236,000) (24,922,000) (2,497,000)
------------ ------------ -----------
Ending balance $ 71,257,000 $ 78,659,000 $66,195,000
============ ============ ===========
Partnership Interests
Allowance for valuation losses on 1994 1993 1992
partnership interests: ---- ---- ----
Beginning balance $ 17,429,000 $ 4,957,000 $ --
Provision for valuation losses -- 12,472,000 4,957,000
------------ ------------ -----------
Ending balance $ 17,429,000 $ 17,429,000 $ 4,957,000
============ ============ ===========
Notes Receivable
Allowance for valuation losses and unaccreted
discounts on notes receivable:
Beginning balance $ 8,430,000 $ 6,609,000 $ --
Provision for valuation losses 579,000 2,971,000 8,269,000
Discounts on notes and other, net -- 921,000 --
Amounts charged against allowance
for valuation losses (1,894,000) (2,071,000) (1,660,000)
------------ ------------ -----------
Ending balance $ 7,115,000 $ 8,430,000 $ 6,609,000
============ ============ ===========
</TABLE>
35
<PAGE> 39
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Valuation Allowances, continued:
Rents and Interest Receivable
<TABLE>
<S> <C> <C> <C>
Allowance for bad debt losses on 1994 1993 1992
---- ---- ----
rents and interest receivable:
Beginning balance $ 2,478,000 $1,948,000 $1,948,000
Provision for losses 2,554,000 906,000 --
Amounts charged against allowance
for losses (2,477,000) (376,000) --
----------- ---------- ----------
Ending balance $ 2,555,000 $2,478,000 $1,948,000
=========== ========== ==========
</TABLE>
In addition, the Trust has established an allowance for valuation losses
on other assets in the amount of $590,000 at September 30, 1994 and
1993, and $329,000 at September 30, 1992.
8. Long-Term Notes Payable:
As of September 30, 1994 (Pro Forma), 1994 and 1993, the Trust had
long-term notes payable (Notes), most of which were collateralized by
deeds of trust on rental properties. Per the Reorganization Plan, these
notes are due in installments extending to the year 2017 with interest
rates ranging from 6.3% to 10.75% Contractually scheduled principal
payments during each of the next five years with respect to the
Reorganization Plan plus amounts related to CalREIT are $3,398,000,
$4,394,000, $461,000, $3,559,000 and $567,000, respectively, and
$36,153,000 thereafter.
As of September 30, 1994 and 1993, the Notes were subject to compromise.
Under the Plan of Reorganization, the principal amount of the Notes
remained undiminished, and in some cases increased by accrued interest
and professional fees. Moreover, the terms of the Notes were altered,
in some cases materially.
As of September 30, 1994 and 1993, the Trust was in default under the
Notes, due to, among other factors, its filing a petition under Chapter
11 (see Note 1).
Long-term notes payable, mostly collateralized by deeds of trust on
rental properties, in the amount of $8,776,000 and $15,874,000 at
September 30, 1994 and 1993, respectively, are collateralized by CalREIT
properties and, therefore, are not subject to compromise.
36
<PAGE> 40
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Long-Term Notes Payable:
During Chapter 11 proceedings, interest expense has generally been
recorded at contractually stated amounts.
9. Principal and Deferred Interest Notes:
In July 1992, the Trust had restructured debt with the PacMutual Lenders
which had a balance of $72,600,000 at September 30, 1993. Substantially
all of the Trust's assets, subject to previously existing liens, were
pledged as collateral for that restructured debt. As of September 30,
1994 and 1993, the Trust was in default under the debt restructuring
agreement due to, among other factors, its filing a petition under
Chapter 11 (see Note 1).
10. Distributions:
No cash distributions were made to holders of shares of beneficial
interest for the fiscal years ended September 30, 1994, 1993 and 1992.
37
<PAGE> 41
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Statements of Cash Flows Supplemental Information:
In connection with the purchase of property and improvements, the Trust
entered into various noncash transactions as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Property cost $ -- $ 7,225,000
Other additions 1,493,000 4,267,000 5,129,000
---------- ---------- -----------
Total additions 1,493,000 4,267,000 12,354,000
---------- ---------- -----------
Debt incurred by the Trust -- -- 3,060,000
Other liabilities incurred
by the Trust -- 305,000 1,476,000
Notes receivable applied
to purchase -- -- 5,440,000
Valuation loss on in-substance
foreclosures -- -- (1,565,000)
Other assets applied to purchase -- 75,000 349,000
---------- ---------- -----------
Total deductions -- 380,000 8,760,000
---------- ---------- -----------
Cash used $1,493,000 $3,887,000 $ 3,594,000
========== ========== ===========
</TABLE>
The property cost additions of $7,225,000 during 1992 resulted from
recognition of in-substance foreclosures on two properties securing
notes receivable and related interest aggregating $8,790,000, resulting
in a valuation loss of $1,565,000.
38
<PAGE> 42
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Statements of Cash Flows Supplemental Information, continued:
In connection with the sale of property, the Trust entered into various
noncash transactions as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Sales price $ 6,363,000 $16,653,000 $13,406,000
Notes receivable -- 9,600,000 7,112,000
Notes payable assumed by buyer and
other liabilities applied to sales
price 5,922,000 4,032,000 4,690,000
----------- ----------- -----------
Cash received $ 441,000 $ 3,021,000 $ 1,604,000
=========== =========== ===========
Cost of property sold $12,293,000 $23,764,000 $16,649,000
=========== =========== ===========
</TABLE>
One property which collateralized notes payable of $8,793,000 was
foreclosed upon during the year ended September 30, 1994, causing a gain
of $873,000 to be recorded.
Four properties which collateralized notes payable in the aggregate
amount of $29,845,000 were foreclosed upon during the year ended
September 30, 1993, causing a net loss of $4,783,000 to be recorded.
During the year ended September 30, 1993, the Trust sold six notes
receivable for net proceeds of $11,538,000, reduced by other costs
(including delinquent taxes, fees and closing costs) of $1,297,000,
producing net cash proceeds to the Trust of $10,241,000, resulting in a
loss of $662,000. Two of the six notes were treated differently than
the other four. The Trust sold a partial interest in those notes for
$4,968,000 in cash (resulting in a loss of $204,000). The Trust's
retained interest in those two notes amounts to $3,047,000 and is
noninterest bearing. A discount of $1,189,000 was recorded on the
Trust's portion of the notes as of September 30, 1992, using an imputed
interest rate of 15%. The agreement provides for the purchaser to
receive interest of 18%, representing all interest on the total balance
of such notes. This note was prepaid at a discount during the year
ended September 30, 1994.
Interest paid on the Trust's outstanding debt for the years ended
September 30, 1994, 1993, and 1992, was $6,386,000, $12,579,000 and
$16,762,000, respectively.
39
<PAGE> 43
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Commitments and Contingencies:
Leases
The Trust is obligated under land leases to the year 2033. The minimum
annual payment, which payment remains unaffected by the Trust's
bankruptcy, under the leases for each of the next five years are
$121,000, $104,000, $104,000, $104,000, $104,000, respectively, and
$3,220,000 thereafter.
Litigation
At the time the Trust filed its Chapter 11 petition in August 1993 and
at September 30, 1994, it was party to a number of lawsuits. Most
involved ordinary disputes common in the real property management
business, and amounts immaterial to the Trust's overall financial
situation.
Other lawsuits, all of which have been resolved, involved the following
matters:
- Claims filed by the PacMutual Lenders, Senior Mortgage Holders and
other Claim Holders. These claims were settled in the Chapter 11
proceedings described in Note 1.
- Litigation filed in 1991 naming the individual Trustees of the
Trust and B & B, among others, as defendants, and the Trust as a
nominal defendant. It sought, among other things, a declaration
that the Trust's management agreement with B & B was invalid and
imposition of a constructive trust on and recovery of $7,195,000 by
B&B in 1989. Subsequent to September 30, 1994, this case was
settled, and the Trust received a settlement of approximately
$900,000.
- A complaint filed by approximately 130 former Trust shareholders in
1993 naming the Trust, current and former Trustees, B & B and its
shareholders and various current and former professional advisors
and consultants to the Trust as defendants. The complaint alleged
breach of fiduciary duty, violation of federal and state securities
laws, violation of civil RICO, fraud, negligent misrepresentation,
negligence and civil conspiracy. Subsequently, the action was
dismissed with prejudice.
- A complaint was filed in April 1994 by the franchisor of most of
the Trust's hotels, alleging trademark infringement and unfair
business practices. Following extensive negotiations, the parties
entered into a settlement agreement approved by the Bankruptcy
Court which involved ongoing licensing arrangements for the hotels.
40
<PAGE> 44
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust,0 Debtor-in-Possesion, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Commitments and Contingencies, continued:
Other
In accordance with bankruptcy proceedings, claims are filed with the
Court by specified dates. At September 30, 1994, the Trust recorded its
best estimate of its ultimate liability for those claims, including
pending professional fees related to the bankruptcy proceedings.
13. Liabilities Subject to Compromise:
At September 30, 1994 and 1993, the Trust has $123,340,000 and
$133,065,000, respectively, of liabilities which are subject to
compromise in Chapter 11 proceedings as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Long-term notes payable, collateralized by
deeds of trust on real property $ 38,987,000 $ 49,099,000
Senior secured notes payable 72,600,000 72,600,000
Other unsecured notes payable 2,600,000 2,600,000
Pre-petition accounts payable and
accrued expenses 9,153,000 8,766,000
------------ ------------
$123,340,000 $133,065,000
============ ============
</TABLE>
14. Reorganization Items:
Reorganization items are calculated from August 2, 1993, the date on
which the Trust filed its petition for reorganization, and consist of
the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Interest earned on accumulated cash $ 38,000 $ 27,000
Professional fees (7,752,000) (706,000)
----------- ---------
Net reorganization items $(7,714,000) $(679,000)
=========== =========
</TABLE>
41
<PAGE> 45
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Fair Value of Financial Instruments:
SFAS 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Trust.
The estimated fair value of the Trust's financial instruments
including cash, notes receivable, rents and other receivables and
notes payable, at September 30, 1994, is approximately the same as
their carrying amounts.
16. CalREIT Board of Trustees:
Effective April 14, 1994, CalREIT elected a new Board of Trustees, all
of whom were key management personnel of the Trust. Subsequently, the
Board was changed and now includes one outside Trustee, who is also a
Trustee of the Trust. CalREIT also terminated certain management and
advisory agreements with B & B and B & B Property. Certain disputes
with B & B and B & B Property in connection with that termination were
settled in May 1994 for immaterial amounts.
42
<PAGE> 46
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Income Taxes:
The income tax effect of temporary differences between financial and
income tax reporting that gives rise to a significant portion of the
deferred income tax assets under the provision of SFAS 109, is as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
NOL carryforward $ 26,712,000 $ 18,085,000
Fixed assets 29,881,000 31,558,000
Investments 12,647,000 12,314,000
Notes receivable 1,165,000 909,000
Capital loss carryforward 937,000 1,034,000
Other 484,000 476,000
------------ ------------
71,826,000 64,376,000
Less valuation allowance (Note 1) (71,826,000) (64,376,000)
------------ ------------
Net $ -- $ --
============ ============
</TABLE>
At September 30, 1994, the Trust had tax net operating loss
carryforwards (NOL) which may be applied against future taxable income
and which expire as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending
September 30 Federal California
------------------ ------- ----------
<S> <C> <C>
2004 $ 370,000 $ 5,000
2005 4,834,000 2,592,000
2006 4,685,000 2,538,000
2007 8,948,000 4,128,000
2008 30,012,000 24,045,000
2009 23,282,000 11,572,000
----------- -----------
$72,131,000 $44,880,000
=========== ===========
</TABLE>
As required by SOP 90-7, any future benefit realized from NOL's which
arose before the Effective Date of the Plan will be reported as a
direct addition to paid-in capital.
The Trust's alternative minimum tax operating loss carryforwards are
substantially the same as its NOL at September 30, 1994.
43
<PAGE> 47
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Income Taxes, continued:
Pursuant to the Plan, debt in the amount of $15,561,000 was forgiven.
Under applicable tax law, this amount will reduce the amount of the NOL
available for future carryover.
In addition, the Plan resulted in an ownership change under the Internal
Revenue Code. Because of the ownership change, the NOL amounts and/or
extent of allowable usage could be changed as defined in the Internal
Revenue Code The Trust has yet to determine which available methods
under the Code will yield the most beneficial result. It is, however,
anticipated that the change in ownership will result in a substantial
reduction/limitation on the NOL available in future years.
As stated in Note 1, during the year ended September 30, 1993, the Trust
failed to qualify under the Internal Revenue Code to be taxed as a REIT.
The lack of a need for a provision for income taxes has been calculated
for 1993, according to the precepts of Accounting Principles Board
Opinion No. 11, "Accounting for Income Taxes."
44
<PAGE> 48
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Condensed Financial Statements of Commonwealth Equity Trust (CET) Only:
As is required disclosure under the precepts of SOP 90-7, condensed
financial statements as of and for the years ended September 30, 1994
and 1993, for CET only are as follows:
Commonwealth Equity Trust
(Debtor-in-Possession)
Condensed Balance Sheets
September 30
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Investments:
Rental properties, net $ 91,823,000 $107,413,000
Investment in CalREIT 21,196,000 22,483,000
Other investments 6,449,000 9,300,000
------------ ------------
119,468,000 139,196,000
Cash 2,833,000 3,213,000
Other assets 2,612,000 3,950,000
------------ ------------
Total assets $124,913,000 $146,359,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Liabilities subject to compromise $ 123,340,000 $ 133,065,000
Due to CalREIT, subject to compromise 623,000 597,000
Post petition accounts payable and accrued expenses 14,149,000 2,896,000
------------- -------------
Total liabilities 138,112,000 136,558,000
------------- -------------
Shareholders' equity (deficit):
Shares of beneficial interest 25,093,000 25,093,000
Additional paid-in capital 219,848,000 219,848,000
Accumulated deficit (258,140,000) (235,140,000)
------------- -------------
Total shareholders' equity (deficit) (13,199,000) 9,801,000
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 124,913,000 $ 146,359,000
============= =============
</TABLE>
45
<PAGE> 49
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Condensed Financial Statements of Commonwealth Equity Trust (CET) Only,
continued:
Commonwealth Equity Trust
(Debtor-in-Possession)
Condensed Statements of Operations
for the years ended September 30
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Revenues:
Operating revenues $ 25,542,000 $ 20,075,000
Interest 611,000 991,000
Allocable loss from CalREIT and 3604 (558,000) (5,482,000)
------------ ------------
Total revenue 25,595,000 15,584,000
------------ ------------
Expenses:
Operating expenses (including hotel and
property management) 19,727,000 11,285,000
Depreciation and amortization 4,223,000 5,024,000
Interest 11,948,000 13,184,000
General and administrative 2,679,000 4,153,000
------------ ------------
Total expenses 38,577,000 33,646,000
------------ ------------
(Loss) before reorganization items, gain (loss) on
foreclosure or sale of investments and valuation losses (12,982,000) (18,062,000)
Reorganization items (7,714,000) (679,000)
------------ ------------
(Loss) before gain (loss) on foreclosure
or sale of investments and valuation losses (20,696,000) (18,741,000)
Gain (loss) on foreclosure or sale of investments, net 918,000 (7,478,000)
------------ ------------
Loss before valuation losses (19,778,000) (26,219,000)
Valuation losses 3,222,000 45,778,000
------------ ------------
Net loss $(23,000,000) $(71,997,000)
============ ============
</TABLE>
46
<PAGE> 50
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Condensed Financial Statements of Commonwealth Equity Trust (CET) Only,
continued:
Commonwealth Equity Trust
(Debtor-in-Possession)
Condensed Statements of Cash Flows
for the years ended September 30
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(23,000,000) $(71,997,000)
------------ ------------
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 4,223,000 5,024,000
Valuation losses 3,222,000 45,778,000
Accretion of note discount (244,000) (287,000)
Allocable loss from CalREIT and 3604 558,000 5,482,000
(Gain) loss on foreclosure or sale of investments, net (918,000) 7,478,000
Changes in other assets and liabilities, net 12,994,000 4,690,000
------------ ------------
Total adjustments 19,835,000 68,165,000
------------ ------------
Net cash used by operating activities (3,165,000) (3,832,000)
------------ ------------
Cash flows from investing activities:
Purchases of and improvements to
rental properties (807,000) (2,778,000)
Distributions from CalREIT, net 696,000 1,868,000
Proceeds from sales of and collections
on notes receivable 2,515,000 11,499,000
Proceeds from sales of rental properties 541,000 1,756,000
------------ ------------
Net cash provided by investing activities 2,945,000 12,345,000
------------ ------------
Cash flows from financial activities:
Principal payments on long-term notes payable (160,000) (6,577,000)
------------ ------------
Net cash used by financing activities (160,000) (6,577,000)
------------ ------------
Net (decrease) increase in cash (380,000) 1,936,000
Cash, beginning of year 3,213,000 1,277,000
------------ ------------
Cash, end of year $ 2,833,000 $ 3,213,000
============ ============
</TABLE>
47
<PAGE> 51
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonwealth Equity Trust, Debtor-in-Possession, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Selected Quarterly Financial Data (Unaudited):
<TABLE>
<CAPTION>
Quarter Ended
----------- -------------------------------------------
December 31 March 31 June 30 September 30
----------- -------- ------- ------------
1994
----
<S> <C> <C> <C> <C>
Revenues $ 8,581,000 $ 7,747,000 $ 8,090,000 $ 7,752,000
=========== =========== =========== ============
Reorganization items $ (492,000) $ (936,000) $(2,067,000) $ (4,219,000)
=========== =========== =========== ============
Gain (loss) on fore-
closure or sale of
investments, net $ -- $ (215,000) $ 175,000 $ 728,000
=========== =========== =========== ============
Net loss $(3,806,000) $(3,692,000) $(4,058,000) $(11,444,000)(1)
=========== =========== =========== ============
Net loss per share $ (.15) $ (.15) $ (.16) $ (0.46)
=========== =========== =========== ============
1993
----
Revenues $ 6,535,000 $ 6,526,000 $ 6,086,000 $ 7,568,000
=========== =========== =========== ============
Reorganization items -- -- -- $ (679,000)
============
Gain (loss) on fore-
closure or sale of
investments, net $ 465,000 $ (303,000) $ (154,000) $ (7,138,000)
=========== =========== =========== ============
Net loss $(2,908,000) $(3,958,000) $(2,602,000) $(62,529,000)(2)
=========== =========== =========== ============
Net loss per share $ (.12) $ (.16) $ (.10) $ (2.49)
=========== =========== =========== ============
1992
----
Revenues $ 8,292,000 $ 7,541,000 $ 7,481,000 $ 8,072,000
=========== =========== =========== ============
Gain (loss) on sale
of rental properties $ 921,000 $ -- $ 44,000 $ (426,000)
=========== =========== =========== ============
Net (loss) $(1,422,000) $(3,537,000) $(3,452,000) $(48,307,000)(3)
=========== =========== =========== ============
Net (loss) per share $ (.06) $ (.14) $ (.14) $ (1.92)
=========== =========== =========== ============
</TABLE>
(1) Includes $3,413,000 in valuation losses.
(2) Includes $53,089,000 in valuation losses.
(3) Includes $48,130,000 in valuation losses.
48
<PAGE> 52
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
(formerly Commonealth Equity Trust, Debtor-in-Posession, and Affiliates)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Historical Funds from Operations and Funds Available for Distribution:
Equity REIT analysts generally consider Funds From Operations (FFO) an
appropriate measure of performance in comparing the results of
operations of REITs. FFO is defined by the National Association of
Real Estate Investment Trusts as net income computed in accordance
with generally accepted accounting principles before gains and losses
on sales of property and from debt restructuring plus depreciation and
amortization. Funds Available for Distribution ("FAD") is defined as
FFO less capital expenditures funded by operations and loan
amortization. The Company believes that in order to facilitate a
clear understanding of the historical operating results of the
Company, FFO and FAD should be examined in conjunction with net income
(loss) as presented in this report. FFO and FAD should not be
considered as an alternative to net income as an indication of the
Company's performance or to cash flow as a measure of liquidity.
Funds From (used in) Operations and Funds Available for Distribution
for the years ended September 30, 1994 and 1993 are summarized as
follows:
Calculation of Funds From Operations and Funds Available for
Distribution (Dollars in thousands, except per share)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net loss before reorganization items, gain (loss)
on foreclosure or sale of investments, valuation
losses and minority interest $(12,216) $(12,891)
Minority interest 151 1,792
Depreciation and amortization 4,878 6,115
-------- --------
Funds From (used in) Operations (7,187) (4,984)
Capital Improvements (1,493) (3,887)
Loan principal payments (253) (6,643)
-------- --------
Funds Available for Distribution $ -- $ --
======== ========
Funds From (used in) Operations per share $ (0.29) $ (0.20)
======== ========
Funds Available for Distribution per share $ -- $ --
======== ========
Weighted average shares outstanding 25,093,000 25,093,000
</TABLE>
49
<PAGE> 53
PART III
Item 10. Directors and Officers of the Registrant
Pursuant to the Plan, on the Effective Date the Reorganized Board consisted of
five persons, all of whose terms commenced on the Effective Date and will
expire on the date of the 1996 annual meeting of shareholders. The Trustees
are listed below:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
E. Lawrence Hill 43 Trustee
John McMahan 57 Chairman of the Board of Trustees
Frank A. Morrow 55 President, CEO and Trustee
John F. Salmon 49 Trustee
Kenneth T. Seeger 45 Trustee
</TABLE>
There are no arrangements or understandings between any trustee and any other
person pursuant to which the trustee was or is to be selected as a trustee
except as specified in the Plan. There are no family relationships among any of
the Trustees.
The principal occupations and affiliations of the Trustees are as follows:
John McMahan, Chairman of the Board. Mr. McMahan is President of John McMahan
Associates, Inc., a San Francisco-based real estate consulting firm founded in
1973. Mr. McMahan has also served as the Chief Executive Officer of
Mellon/McMahan Real Estate Advisors, Inc. which grew into one of the country's
largest real estate investment advisors. He is a faculty member at the Haas
Graduate School of Business at the University of California at Berkeley. Mr.
McMahan has published many articles on real estate investment and has been
active in several national real estate organizations including the National
Association of Real Estate Investment Trusts. Mr. McMahan graduated from the
University of Southern California and received an MBA degree in 1961 from the
Harvard Graduate School of Business. He serves on the boards of BRE
Properties, Inc. and Mellon Participating Mortgage Trust, Inc. as well as the
National Association of Real Estate Investment Managers.
Frank A. Morrow, President and Chief Executive Officer. Mr. Morrow has been
active in the real estate industry for over 25 years. As an independent
advisor and business consultant, he has worked for several real estate
companies as a turnaround specialist and workout expert. Other assignments
have included due diligence investigations, stepping in as senior management in
times of crisis, and multi-site real estate portfolio management. Mr. Morrow
has had considerable experience in the acquisition, financing, leasing,
management and sale of single as well as multiple assets. For a number of
years, he served as the Managing Director of Real Estate for Stanford
University and as
50
<PAGE> 54
Senior Vice President for the Boise Cascade Urban Development Corporation.
Prior to his business career, Mr. Morrow served nine years in the U.S. Navy as
an aviator and test pilot. He graduated from the U.S. Naval Academy and in
1971, received an MBA degree from Stanford University. He serves on the board
of directors of Landsing Pacific Fund.
E. Lawrence Hill, Jr., Trustee. Mr. Hill is the founder and President of
Hickey & Hill, Inc., a 10-year old turnaround and workout specialty firm based
in the San Francisco bay area. Mr. Hill's firm has worked with a variety of
clients including high-technology, banking and real estate companies requiring
near and/or long term rescue. His real estate clients have included hotel,
mixed-use light industrial, residential and retail property owners. Successful
turnarounds managed by his company have used various restructuring,
recapitalization and reorganization strategies. Prior to founding his own
company, Mr. Hill was a Vice President with the Bank of California in its
Workout and Restructuring Department. For over five years, he managed
approximately one third of the bank's non-performing assets implementing
appropriate hold/sell plans for each property. Mr. Hill received a BS degree
and an MS degree in engineering from Stanford University in 1974. He serves on
the board of directors of Orchid Paper Products, Inc.
John F. Salmon, Trustee. Mr. Salmon recently returned to his San
Francisco-based commercial real estate consulting practice after serving in
Sacramento for five years as Director of the Governor's Office of Asset
Management of the State of California. While in that position, he established
procedures for reviewing the state's sizable real estate holdings, developed
real property operating and disposition proposals for the Administration and
the Legislature, redirected the state's office leasing policies and counseled
state government agencies on institutional facility and asset management
strategies. Prior to joining the Governor's Office, Mr. Salmon was the Vice
President, Property Development and Sales of Santa Fe Pacific Realty
Corporation (now Catellus Development Corporation) in San Francisco. There he
managed the land planning, building development and property disposition
activities of the company's three million acre, 18-state real estate portfolio.
Mr. Salmon graduated from the University of Notre Dame in 1967 with a BBA
degree in Accounting and received a JD degree from the University of Illinois
in 1971.
Kenneth T. Seeger, Trustee. Mr. Seeger is a Principal in The Presidio Group, a
real estate asset management, consulting and development company based in the
San Francisco Bay Area. Until November 1993, Mr. Seeger was responsible for
all finance and acquisition activities for Southwest Diversified/Coscan
Partners, a major Irvine-based development company. Real estate development
projects have included both residential and commercial properties throughout
California and in Arizona. Prior to that, Mr. Seeger was a Senior Vice
President with The Fox Group of Companies where he was responsible for all
project financing. He also has had considerable experience in risk management,
income-property operations and new business development. Mr. Seeger graduated
from the Wharton School at the University of Pennsylvania in 1972. He is a
full member of the Urban Land Institute, is on the Pacific Rim Urban Planning
and Development Council and has served on the Advisory Board of the School of
Real Estate at the University of California at Berkeley.
51
<PAGE> 55
Mr. Morrow serves as Chief Executive Officer pursuant to a Services and
Confidentiality Agreement ("Agreement") between the Trust and FAMA Management,
Inc., ("FAMA") a California corporation owned by Mr. Morrow, which provides his
services to the Trust in exchange for compensation of $300,000 per year. The
Agreement commences on October 1, 1994 and continues for one year thereafter,
unless earlier terminated by the Board of Trustees. The Agreement provides,
generally, that should the Board terminate Mr. Morrow as CEO during the initial
year of the Agreement, FAMA is to be paid $300,000 on account of that early
termination. The term of the Agreement may be mutually extended for an
additional one year period on the same general terms.
Item 11. Executive Compensation
The following table lists the cash compensation of the Trustees and the
officers of the Trust for the fiscal year ended September 30, 1994:
<TABLE>
<CAPTION>
Name of individual or
number of persons in Capacities in Cash
group which served compensation
--------------------- ------------- ------------
<S> <C> <C>
Former Trustees Trustees $262,177 (1)
as a group (five people) (1)
Frank A. Morrow CEO $195,000 (2)
</TABLE>
Trustees and Officer
Each Trustee is paid $5,000 per quarter and $1,000 for each Trustees'
meeting attended.
(1) Includes compensation of $106,177 paid to Howard Cohn, a Trustee, as an
employee of the Trust.
(2) Includes contingent compensation of $65,000 payable to Mr. Morrow which
was payable only upon the Trust's emerging from bankruptcy, which it did
on the Effective Date. Subsequent to the Effective Date, Mr. Morrow
serves pursuant to a contract that provides annual compensation of
$300,000.
52
<PAGE> 56
Item 12. Security Ownership of Certain Beneficial Owners and Management
Listed below are those shareholders known to the Trust as of December
15, 1994 to be the beneficial owner or the member of a group which is the
beneficial owner of more than five percent of the Trust's shares of beneficial
interest, after the reorganization (4,884,000 shares total).
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Title of Class Beneficial Owner of Beneficial Ownership Class
- -------------- ------------------- ----------------------- ----------
<S> <C> <C> <C>
Preferred Shares The Prudential Insurance
Company of America
Four Gateway Center
100 Mulberry Center
Newark, NJ 07102-4069 1,872,503 16.6%
PRUCO Life Insurance Company
c/o Prudential Specialized Financial Group
Four Gateway Center
100 Mulberry Street
Newark, NJ 07102-4069 1,123,502 10.0%
Pacific Mutual Life Insurance Company
c/o Ronn Cornelius
700 Newport Center Drive
Newport Beach, CA 92660 2,996,005 26.6%
Orix USA Corp.
c/o Denise L. Getty
600 Wilshire Boulvard, Suite 1460
Los Angeles, CA 90017 449,401 4.0%
Weyerhauser Company Master
Retirement Trust* 432,773 3.8%
TCW Special Credits Fund IV* 1,394,490 12.4%
TCW Special Credits Plus Fund* 1,490,663 13.3%
TCW Special Credits Trust IV* 1,202,147 10.7%
TCW Special Credits Fund IVA* 288,516 2.6%
*Address:
Salkeld & Company
c/o Bankers Trust Company
16 Wall Street, M/S 4042
New York, NY 10015
</TABLE>
53
<PAGE> 57
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Title of Class Beneficial Owner of Beneficial Ownership Class
- -------------- ------------------- ----------------------- ----------
<S> <C> <C> <C>
Shares of The Prudential Insurance
Beneficial Interest Company of America
Four Gateway Center
100 Mulberry Center
Newark, NJ 07102-4069 424,434 8.7%
PRUCO Life Insurance Company
c/o Prudential Specialized Financial Group
Four Gateway Center
100 Mulberry Street
Newark, NJ 07102-4069 254,660 5.2%
Pacific Mutual Life Insurance Company
c/o Ronn Cornelius
700 Newport Center Drive
Newport Beach, CA 92660 679,095 13.9%
Orix USA Corp.
c/o Denise L. Getty
600 Wilshire Boulvard, Suite 1460
Los Angeles, CA 90017 101,864 2.1%
Weyerhauser Company Master
Retirement Trust* 98,095 2.0%
TCW Special Credits Fund IV* 316,884 6.5%
TCW Special Credits Plus Fund* 337,884 6.9%
TCW Special Credits Trust IV* 272,487 5.6%
TCW Special Credits Fund IVA* 65,397 1.3%
*Address:
c/o Cede & Company
Box 20
New York, NY 10001
E. Lawrence Hill, Jr. 6,667** *
John McMahan 6,667** *
John F. Salmon 6,667** *
Kenneth T. Seeger 6,667** *
</TABLE>
No other officers or Trustees beneficially own any shares.
* Does not exceed one percent of outstanding shares.
** Shares have been reserved for option.
54
<PAGE> 58
Item 13. Certain Relationships and Related Transactions
The Trust owns 76% of the shares of the California Real Estate
Investment Trust ("CalREIT") and Messrs. McMahan, Morrow and Brown, Chairman
and Trustee; President, CEO and Trustee; and Chief Financial Officer and
Secretary, respectively, of the Trust, are the only Trustees of CalREIT. Both
the Trust and CalREIT are self-administered. The Trust and CalREIT share
offices, and certain of the officers and employees of the Trust also perform
services for CalREIT, for which they are not separately compensated.
Therefore, the Trust is to receive reimbursement from CalREIT approximating its
allocable share of the cost of providing these services.
55
<PAGE> 59
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form
8-K
<TABLE>
<CAPTION>
(a) (1) Financial Statements Page
- -------- -------------------- ----
<S> <C>
Included in Part II of this report:
Reports of Independent Accountants 16 - 18
Consolidated Balance Sheets at September 30, 1994 and 1993 19
Consolidated Statements of Operations, Years Ended
September 30, 1994, 1993 and 1992 20
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) Accounts, Years Ended September 30, 1994, 1993 and 1992 21
Consolidated Statements of Cash Flows, Years Ended
September 30, 1994, 1993 and 1992 22
Notes to Consolidated Financial Statements 23 - 49
</TABLE>
<TABLE>
<CAPTION>
(a) (2) Consolidated Financial Statement Schedules and Exhibits Filed
- -------- -------------------------------------------------------------
<S> <C> <C> <C>
Schedule IX - Short Term Borrowings 58
Schedule X - Supplementary Income Statement Information 59
Schedule XI - Real Estate and Accumulated Depreciation 60 - 64
Schedule XII - Mortgage Loans on Real Estate 65 - 67
</TABLE>
The statements and schedules referred to above should be read in
conjunction with the financial statements with notes thereto included in Part
II of this Form 10-K. Schedules not included in this item have been omitted
because they are not applicable or because the required information is
presented in the consolidated financial statements or notes thereto.
56
<PAGE> 60
(b) Report on Form 8-K
The Trust filed one report on Form 8-K during the quarter ended
September 30, 1994 as follows:
<TABLE>
<CAPTION>
Financial
Date of Report Item Reported Statements Filed
-------------- ------------- ----------------
<S> <C> <C>
August 8, 1994 Confirmation of Plan of Reorganization No
</TABLE>
(c) Exhibits
All exhibits are incorporated by reference.
57
<PAGE> 61
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE IX - SHORT-TERM BORROWINGS
Years ended September 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Weighted Maximum Average Weighted
Category Balance Average Amount Amount Average
Of End of Interest Outstanding Outstanding Interest Rate
Year Borrowing Year*** Rate During Year During Year* During Year**
---- --------- ------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1994 Bank $ 0 -- $ 0 $ 0 --
Borrowings
1993 Bank $ 0 -- $ 0 $ 0 --
Borrowings
1992 Bank $ 0 8.00% $29,000,000 $29,000,000 8.40%
Borrowings
</TABLE>
* Average borrowings were computed by dividing the borrowed
amounts, which were weighted on the basis of the number of days
outstanding, by 259 days for 1992.
** The weighted average interest rate during the year was determined
by dividing total interest expense related to short-term
borrowings by average borrowings outstanding during the year.
*** As a result of the July 17, 1992 debt restructuring agreement,
the note payable to bank is current and included as part of the
principal and deferred interest notes.
58
<PAGE> 62
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Charged to Costs and Expenses
Item Ended September 30,
---- -----------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Real estate taxes $2,138,000 3,080,000 2,757,000
Repairs and maintenance 1,312,000 1,721,000 1,519,000
</TABLE>
59
<PAGE> 63
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994 Page 1 Part A
<TABLE>
<CAPTION>
Column A Column B Column C
-------- -------- --------
....Initial Cost to Trust....
Buildings,
Improvements
and Personal
Description Encumbrances Land Property
----------- ------------ ---- ------------
<S> <C> <C> <C>
OFFICE BUILDINGS:
Milpitas, Milpitas, California $ - 2,957,000 4,475,000
Timberlake, Sacramento, California 529,000 Leased 1,908,000
16th and K Streets, Sacramento, California - 550,000 4,586,000
425 University Avenue, Sacramento, California 2,948,000 800,000 3,218,000
Town Center Garden Office Park, Long Beach, California - 3,805,000 11,414,000
11135 Trade Center Drive, Rancho Cordova, California - 1,238,000 4,390,000
11167 Trade Center Drive, Rancho Cordova, California - 586,000 956,000
Hurley Ethan Office Park I, Sacramento, California 1,196,000 650,000 2,277,000
System Integrators Buildings, Sacramento, California 4,608,000 1,532,000 6,532,000
Hurley Ethan Office Park II, Sacramento, California 2,225,000 1,631,000 3,166,000
Parkway Center, El Dorado Hills, California - 233,000 1,224,000
Redfield Commerce Center, Scottsdale, Arizona - 580,000 823,000
----------- ---------- ----------
Total office buildings 11,506,000 14,562,000 44,969,000
----------- ---------- ----------
COMMERCIAL BUILDINGS:
One Sunrise Park, Rancho Cordova, California - 536,000 2,314,000
Burbank Mini-Warehouse, Santa Rosa, California - 692,000 1,814,000
Regency Plaza, Sacramento, California 8,869,000 4,200,000 8,134,000
Villa Del Sol, Fullerton, California - 1,904,000 1,436,000
University Village, Sacramento, California 7,732,000 939,000 7,918,000
TGIF Sunrise Hills, Citrus Heights, California - 458,000 1,374,000
Fulton Square, Sacramento, California 340,000 Leased 3,536,000
Totem Square, Kirkland, Washington 4,391,000 3,175,000 5,793,000
Downtown Mini Storage, Sacramento, California - Leased 1,951,000
515 S. Fair Oaks Avenue, Pasadena, California - 1,410,000 4,305,000
Sunrise Hills, Citrus Heights, California 4,336,000 2,746,000 4,294,000
Sierra Oaks, Roseville, California 4,976,000 2,109,000 6,003,000
Mallory Service Building, Walnut Creek, California - 2,005,000 415,000
----------- ---------- ----------
Total commercial buildings 30,644,000 20,174,000 49,287,000
----------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Column A Column D
-------- --------
Cost Capitalization Subsequent
........to Acquisition........
Description Improvements Carrying Cost
----------- ------------ -------------
<S> <C> <C>
OFFICE BUILDINGS:
Milpitas, Milpitas, California 3,287,000 -
Timberlake, Sacramento, California 359,000 55,000
16th and K Streets, Sacramento, California 121,000 134,000
425 University Avenue, Sacramento, California 1,188,000 124,000
Town Center Garden Office Park, Long Beach, California 443,000 396,000
11135 Trade Center Drive, Rancho Cordova, California 35,000 146,000
11167 Trade Center Drive, Rancho Cordova, California 15,000 40,000
Hurley Ethan Office Park I, Sacramento, California 1,237,000 100,000
System Integrators Buildings, Sacramento, California 12,000 208,000
Hurley Ethan Office Park II, Sacramento, California 411,000 124,000
Parkway Center, El Dorado Hills, California 30,000 38,000
Redfield Commerce Center, Scottsdale, Arizona 102,000 -
--------- ---------
Total office buildings 7,240,000 1,365,000
--------- ---------
COMMERCIAL BUILDINGS:
One Sunrise Park, Rancho Cordova, California 532,000 80,000
Burbank Mini-Warehouse, Santa Rosa, California - 65,000
Regency Plaza, Sacramento, California 1,778,000 338,000
Villa Del Sol, Fullerton, California 669,000 99,000
University Village, Sacramento, California 1,176,000 244,000
TGIF Sunrise Hills, Citrus Heights, California 6,000 47,000
Fulton Square, Sacramento, California 77,000 -
Totem Square, Kirkland, Washington 124,000 -
Downtown Mini Storage, Sacramento, California 16,000 50,000
515 S. Fair Oaks Avenue, Pasadena, California 30,000 -
Sunrise Hills, Citrus Heights, California 354,000 182,000
Sierra Oaks, Roseville, California 299,000 213,000
Mallory Service Building, Walnut Creek, California - 63,000
--------- ---------
Total commercial buildings 5,061,000 1,381,000
--------- ---------
(Continued)
</TABLE>
60
<PAGE> 64
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994 Page 2 Part A
<TABLE>
<CAPTION>
Column A Column B Column C
-------- -------- --------
...Initial Cost to Trust...
Buildings,
Improvements
and Personal
Description Encumbrances Land Property
----------- ------------ ---- ------------
<S> <C> <C> <C>
LAND:
Florin Perkins, Sacramento, California - 4,752,000 -
Parthenia, Northridge, California - 2,025,000 -
----------- ---------- -----------
Total land - 6,777,000 -
HOTELS:
Redding Holiday Inn, Redding, California 1,569,000 1,838,000 3,241,000
Chico Holiday Inn, Chico, California - 636,000 7,390,000
Sacramento Holiday Inn, Sacramento, California - 4,251,000 13,618,000
Walnut Creek Holiday Inn, Walnut Creek, California - 3,750,000 8,800,000
Casa Grande Motor Inn, Aroyo Grande, California 3,104,000 1,289,000 3,911,000
----------- ---------- -----------
Total hotels 4,673,000 11,764,000 36,960,000
----------- ---------- -----------
Total Investment in Real Estate $46,823,000 53,277,000 131,216,000
=========== ========== ===========
PARTNERSHIPS:
CR Properties, Sacramento, California $ 0 0 0
Placer Ranch, Rocklin, California 0 0 0
----------- ---------- -----------
Total Investment in Partnerships $ 0 0 0
=========== ========== ===========
Total Investment in Real Estate and Partnerships $46,823,000 53,277,000 131,216,000
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column A Column D
-------- --------
Cost Capitalization Subsequent
........to Acquisition........
Description Improvements Carrying Cost
----------- ------------ -------------
<S> <C> <C>
LAND:
Florin Perkins, Sacramento, California 1,476,000 -
Parthenia, Northridge, California - -
----------- ----------
Total land 1,476,000 -
----------- ----------
HOTELS:
Redding Holiday Inn, Redding, California 2,102,000 163,000
Chico Holiday Inn, Chico, California 2,734,000 234,000
Sacramento Holiday Inn, Sacramento, California 4,091,000 511,000
Walnut Creek Holiday Inn, Walnut Creek, California 973,000 344,000
Casa Grande Motor Inn, Aroyo Grande, California 1,272,000 -
----------- ----------
Total hotels 11,172,000 1,252,000
----------- ----------
Total Investment in Real Estate $24,949,000 3,998,000
=========== ==========
PARTNERSHIPS:
CR Properties, Sacramento, California 0 7,728,000
Placer Ranch, Rocklin, California $ 0 13,701,000
----------- ----------
Total Investment in Partnerships $ 0 21,429,000
----------- ----------
Total Investment in Real Estate and Partnerships $24,949,000 25,427,000
=========== ==========
</TABLE>
(1) The reduction in basis resulted from a judgment against the original seller
of the property.
(2) Represents total cost of assets after valuation allowance.
(3) The Trust establishes allowances for possible investment losses which
represent the excess of the carrying value of individual properties over
their appraised or estimated net realizable value. Adverse economic
factors, particularly overbuilt real estate resulting in declining lease
renewal rates, were the primary causes of valuation allowances.
61
<PAGE> 65
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994 Page 1 Part B
<TABLE>
<CAPTION>
Column A Column E
-------- --------
Gross Amount at Which
......................Carried at Close of Period...................
Valuation
Buildings and Write
Description Land Improvements Down (3) Total (2)
----------- ---- ------------- --------- ---------
<S> <C> <C> <C> <C>
OFFICE BUILDINGS:
Milpitas, Milpitas, California $ 2,957,000 7,762,000 5,923,000 4,796,000
Timberlake, Sacramento, California Leased 2,322,000 942,000 1,380,000
16th and K Streets, Sacramento, California 550,000 4,841,000 1,336,000 4,055,000
425 University Avenue, Sacramento, California 800,000 4,530,000 1,458,000 3,872,000
Town Center Garden Office Park, Long Beach, California 3,805,000 12,253,000 9,222,000 6,836,000
11135 Trade Center Drive, Rancho Cordova, California 1,238,000 4,571,000 2,745,000 3,064,000
11167 Trade Center Drive, Rancho Cordova, California 586,000 1,011,000 447,000 1,150,000
Hurley Ethan Office Park I, Sacramento, California 650,000 3,614,000 1,381,000 2,883,000
System Integrators Buildings, Sacramento, California 1,532,000 6,752,000 3,026,000 5,258,000
Hurley Ethan Office Park II, Sacramento, California 1,631,000 3,701,000 2,354,000 2,978,000
Parkway Center, El Dorado Hills, California 233,000 1,292,000 - 1,525,000
Redfield Commerce Center, Scottsdale, Arizona 580,000 925,000 542,000 963,000
----------- ---------- ---------- ----------
Total office buildings 14,562,000 53,574,000 29,376,000 38,760,000
----------- ---------- ---------- ----------
COMMERCIAL BUILDINGS:
One Sunrise Park, Rancho Cordova, California 536,000 2,926,000 894,000 2,568,000
Burbank Mini-Warehouse, Santa Rosa, California 692,000 1,879,000 666,000 1,905,000
Regency Plaza, Sacramento, California 4,200,000 10,250,000 - 14,450,000
Villa Del Sol, Fullerton, California 1,904,000 2,204,000 3,075,000 1,033,000
University Village, Sacramento, California 939,000 9,338,000 574,000 9,703,000
TGIF Sunrise Hills, Citrus Heights, California 458,000 1,427,000 27,000 1,858,000
Fulton Square, Sacramento, California Leased 3,613,000 - 3,613,000
Totem Square, Kirkland, Washington 3,175,000 5,917,000 1,422,000 7,670,000
Downtown Mini Storage, Sacramento, California Leased 2,017,000 342,000 1,675,000
515 S. Fair Oaks Avenue, Pasadena, California 1,410,000 4,335,000 860,000 4,885,000
Sunrise Hills, Citrus Heights, California 2,746,000 4,830,000 1,079,000 6,497,000
Sierra Oaks, Roseville, California 2,109,000 6,515,000 792,000 7,832,000
Mallory Service Building, Walnut Creek, California 2,005,000 478,000 1,366,000 1,117,000
----------- ---------- ---------- ----------
Total commercial buildings 20,174,000 55,729,000 11,097,000 64,806,000
----------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
-------- -------- -------- --------
Life on Which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Description Depreciation Construction Acquired Computed
----------- ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
OFFICE BUILDINGS:
Milpitas, Milpitas, California $ 1,595,000 1986 1/85 40 Years
Timberlake, Sacramento, California 468,000 1973 12/86 40 Years
16th and K Streets, Sacramento, California 973,000 1987 8/87 40 Years
425 University Avenue, Sacramento, California 1,014,000 1977 11/85 40 Years
Town Center Garden Office Park, Long Beach, Califor 2,385,000 1983 12/87 40 Years
11135 Trade Center Drive, Rancho Cordova, Californi 856,000 1984 5/88 40 Years
11167 Trade Center Drive, Rancho Cordova, Californi 194,000 1984 5/88 40 Years
Hurley Ethan Office Park I, Sacramento, California 616,000 1978 4/88 40 Years
System Integrators Buildings, Sacramento, Californi 1,258,000 1984 5/88 40 Years
Hurley Ethan Office Park II, Sacramento, California 644,000 1981 6/88 40 Years
Parkway Center, El Dorado Hills, California 254,000 1985 1/88 40 Years
Redfield Commerce Center, Scottsdale, Arizona 253,000 1983 5/88 30 Years
-----------
Total office buildings 10,510,000
-----------
COMMERCIAL BUILDINGS:
One Sunrise Park, Rancho Cordova, California 872,000 1982 8/83 35 Years
Burbank Mini-Warehouse, Santa Rosa, California 495,000 1984 4/85 40 Years
Regency Plaza, Sacramento, California 2,355,000 1986 5/85 40 Years
Villa Del Sol, Fullerton, California 525,000 1955 5/85 40 Years
University Village, Sacramento, California 1,911,000 1975 12/86 40 Years
TGIF Sunrise Hills, Citrus Heights, California 312,000 1984 1/87 40 Years
Fulton Square, Sacramento, California 344,000 1980 5/91 40 Years
Totem Square, Kirkland, Washington 551,000 1981 11/90 40 Years
Downtown Mini Storage, Sacramento, California 372,000 1980 3/88 40 Years
515 S. Fair Oaks Avenue, Pasadena, California 668,000 1915/1988 7/88 40 Years
Sunrise Hills, Citrus Heights, California 819,000 1981 1/89 40 Years
Sierra Oaks, Roseville, California 1,109,000 1989 1/89 40 Years
Mallory Service Building, Walnut Creek, California 125,000 1970 10/88 40 Years
-----------
Total commercial buildings 10,458,000
-----------
(Continued)
</TABLE>
<PAGE> 66
- --------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994 Page 2 Part B
<TABLE>
<CAPTION>
Column A Column E
-------- --------
Gross Amount at Which
.......................Carried at Close of Period.................
Valuation
Buildings and Write
Description Land Improvements Down (3) Total (2)
----------- ---- ------------- --------- ---------
<S> <C> <C> <C> <C>
LAND:
Florin Perkins, Sacramento, California 4,752,000 1,476,000 4,058,000 2,170,000
Parthenia, Northridge, California 2,025,000 - 2,025,000 0
----------- ----------- ---------- -----------
Total land 6,777,000 1,476,000 6,083,000 2,170,000
----------- ----------- ---------- -----------
HOTELS:
Redding Holiday Inn, Redding, California 1,838,000 5,506,000 2,601,000 4,743,000
Chico Holiday Inn, Chico, California 636,000 10,358,000 2,208,000 8,786,000
Sacramento Holiday Inn, Sacramento, California 4,251,000 18,220,000 8,597,000 13,874,000
Walnut Creek Holiday Inn, Walnut Creek, California 3,750,000 10,117,000 8,325,000 5,542,000
Casa Grande Motor Inn, Aroyo Grande, California 1,289,000 5,183,000 2,970,000 3,502,000
----------- ----------- ---------- -----------
Total hotels 11,764,000 49,384,000 24,701,000 36,447,000
----------- ----------- ---------- -----------
Total Investment in Real Estate $53,277,000 160,163,000 71,257,000 142,183,000
=========== =========== ========== ===========
PARTNERSHIPS:
CR Properties, Sacramento, California $ 0 0 7,728,000 0
Placer Ranch, Rocklin, California 0 0 9,701,000 4,000,000
----------- ----------- ---------- -----------
Total Investment in Partnerships $ 0 0 17,429,000 4,000,000
----------- ----------- ---------- -----------
Total Investment in Real Estate and Partnerships $53,277,000 160,163,000 88,686,000 146,183,000
=========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
-------- -------- -------- --------
Life on Which
Depreciation in
Latest Income
Accumulated Date of Date Statement is
Description Depreciation Construction Acquired Computed
----------- ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C>
LAND:
Florin Perkins, Sacramento, California - n/a 6/91 n/a
Parthenia, Northridge, California - n/a 9/92 n/a
----------
Total land -
----------
HOTELS:
Redding Holiday Inn, Redding, California 1,485,000 1968/1971 7/85 40 Years
Chico Holiday Inn, Chico, California 2,374,000 1972/1979 9/86 40 Years
Sacramento Holiday Inn, Sacramento, California 4,340,000 1978 9/86 40 Years
Walnut Creek Holiday Inn, Walnut Creek, California 2,377,000 1987 3/85 40 Years
Casa Grande Motor Inn, Aroyo Grande, California 202,000 1984 9/92 40 Years
----------
Total hotels 10,778,000
----------
Total Investment in Real Estate 31,746,000
==========
PARTNERSHIPS:
CR Properties, Sacramento, California 0
Placer Ranch, Rocklin, California 0
----------
Total Investment in Partnerships 0
==========
Total Investment in Real Estate and Partnerships 31,746,000
==========
</TABLE>
63
<PAGE> 67
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
Reconciliation of total real estate carrying values for the three years ended
September 30, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
ASSET RECONCILIATION:
Balance, beginning of year $164,738,000 259,060,000 295,433,000
Additions:
In substance foreclosures on properties - 7,225,000
Improvements 1,493,000 4,267,000 5,129,000
Deductions:
Real estate sold (10,628,000) (35,217,000) (16,649,000)
In-substance foreclosures (10,586,000) (50,908,000) -
Valuation losses (2,834,000) (12,464,000) (32,078,000)
------------ ----------- -----------
Balance, end of year $142,183,000 164,738,000 259,060,000
============ =========== ===========
ACCUMULATED DEPRECIATION
RECONCILIATION:
Balance, beginning of year $ 31,708,000 37,019,000 31,423,000
Additions:
Depreciation 4,703,000 5,686,000 7,744,000
Deductions:
Accumulated depreciation on
real estate sold (2,062,000) (4,324,000) (2,148,000)
Accumulated depreciation on
in-substance foreclosures (2,603,000) (6,673,000) -
------------ ----------- -----------
Balance, end of year $ 31,746,000 31,708,000 37,019,000
============ =========== ===========
</TABLE>
64
<PAGE> 68
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Notes Receivable Collateralized
by Deeds of Trust)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- -------- -------- --------
Final
Interest Maturity
Description Rate Date Periodic Payment Terms
----------- -------- -------- ----------------------
<S> <C> <C> <C>
FIRST DEEDS OF TRUST:
Commercial Building, Corona,
California 10.50% 1995 Monthly interest only payments
Retail Building, Tempe,
Arizona 9.25% 2017 Monthly principal and interest
payments of $9,249
Office Building, Phoenix,
Arizona 8.00% 1996 Monthly interest only payments
Office/Commercial Building,
Phoenix, Arizona 8.00% 2000 Monthly 50% interest only paym
SECOND DEEDS OF TRUST:
Commercial Building, Pacheco,
California 9.25% 1998 Monthly interest only payments
Commercial Office Building,
San Francisco, California 10.50% 1996 Monthly interest only payments
Office Building, Corona
California 11.00% 1993 Monthly interest only payments
Office/retail complex, Fountain
Valley, California 10.00% 1998 Monthly interest only payments
Office/warehouse complex, 10.00% -
Sunnyvale, California 16.00% 1989 Monthly interest only payments
</TABLE>
<TABLE>
<CAPTION>
Column A Column E Column F Column G Column H
-------- -------- -------- -------- --------
Valuation Carrying Principal Amount of
Face Amount Write Amount of Loans Subject to
Prior of Notes Down or Notes Delinquent Principal
Description Liens Receivable Discounts (2) Receivable (1) or Interest
----------- ----- ----------- ------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
FIRST DEEDS OF TRUST:
Commercial Building, Corona,
California N/A $1,684,000 303,000 $1,381,000 $1,684,000
Retail Building, Tempe,
Arizona
N/A 942,000 942,000 None
Office Building, Phoenix,
Arizona N/A 861,000 168,000 693,000 None
Office/Commercial Building,
Phoenix, Arizona N/A 8,882,000 504,000 8,378,000 None
SECOND DEEDS OF TRUST:
Commercial Building, Pacheco,
California 2,171,000 768,000 768,000 None
Commercial Office Building,
San Francisco, California 3,400,000 475,000 475,000 75,000
Office Building, Corona
California 1,368,000 275,000 275,000 0 275,000
Office/retail complex, Fountain
Valley, California 8,915,000 6,454,000 5,634,000 820,000 None
Office/warehouse complex,
Sunnyvale, California 845,000 2,071,000 2,071,000 2,071,000
</TABLE>
65
<PAGE> 69
THE PEREGRINE REAL ESTATE TRUST, FORMERLY
COMMONWEALTH EQUITY TRUST AND AFFILIATES
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Notes Receivable Collateralized
by Deeds of Trust)
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- -------- -------- --------
Final
Interest Maturity
Description Rate Date Periodic Payment Terms
----------- -------- -------- ----------------------
<S> <C> <C> <C>
SECOND DEEDS OF TRUST (CONTINUED):
Retail Building, Sacramento,
California 11.00% 1994 Monthly interest only payments
Commercial Building, Tempe
Arizona 8.00% 2000 Monthly 50% interest only payments
Commercial Building, Westminster, Monthly principal and interest
California 9.50% 1998 payments of $5,000
Column E Column F Column G Column H
-------- -------- ------------------------------- --------------------
Valuation Carrying Principal Amount of
Face Amount Write Amount of Loans Subject to
Prior of Notes Down or Notes Delinquent Principal
Description Liens Receivable Discounts (2) Receivable (1) or Interest
-------------- ----- ----------- ------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
SECOND DEEDS OF TRUST (CONTINUED):
Retail Building, Sacramento,
California 1,525,000 211,000 211,000 0 211,000
Commercial Building, Tempe
Arizona 960,000 360,000 20,000 340,000 None
Commercial Building, Westminster,
California 5,750,000 594,000 594,000 None
----------- ----------- ---------- -----------
$24,934,000 $23,577,000 $7,115,000 $16,462,000
=========== =========== ========== ===========
</TABLE>
(1) Represents carrying amount of notes after valuation allowance.
(2) The Trust establishes allowances for possible investment losses which
represent the excess of the face amount of the note over the appraised or
estimated net realizable value of the property securing the note. In
addition, discounts on the Trust's remaining interest in note sold has
been recognized to reflect a market rate of interest. Such write downs
in no way limit the obligation of the borrower to comply with the terms
of the note.
66
<PAGE> 70
THE PEREGRINE REAL ESTATE TRUST, FORMERLY COMMONWEALTH EQUITY TRUST AND
AFFILIATES
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
A summary of activity for note receivable collateralized by deeds of trust for
the years ended September 30, 1994, 19 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $19,262,000 31,740,000 36,553,000
Additions:
New loans - 9,600,000 7,112,000
Accretion of discount on
notes receivable 284,000 303,000 -
Additions for gain on sale of
notes receivable 181,000 - -
Additions from reclass of deferred gain 628,000 - -
Additions to notes receivable from
capitalization of accrued interest
on note modification - 54,000 1,490,000
Deductions:
Sales and collections of principal (2,970,000) (16,958,000) (1,271,000)
Deductions for loss on sale of
notes receivable - (935,000) -
Deductions from note receivable
on in substance foreclosure (344,000) - (5,440,000)
Deductions from loss on prepayment
of notes receivable - - (95,000)
Deductions from valuation losses
and discounts on notes receivable (579,000) (4,542,000) (6,609,000)
----------- --------- ---------
Balance, end of year $16,462,000 19,262,000 31,740,000
=========== ========== ==========
</TABLE>
67
<PAGE> 71
Signatures
Pursuant to the requirements of Section 13 or Section 15(d) 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.
THE PEREGRINE REAL ESTATE TRUST
(formerly Commonwealth Equity Trust)
12/21/94 /s/ Frank A. Morrow
------------------ -------------------------------------
Date Frank A. Morrow
President and Chief Executive Officer
12/21/94 /s/ Arnold E. Brown
------------------ -------------------------------------
Date Arnold E. Brown
Chief Financial Officer
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.
12/21/94 /s/ John McMahan
------------------ -------------------------------------
Date John McMahan
Chairman of the Board
12/21/94 /s/ E. Lawrence Hill, Jr.
------------------ -------------------------------------
Date E. Lawrence Hill, Jr.
Trustee
12/21/94 /s/ Frank A. Morrow
------------------ -------------------------------------
Date Frank A. Morrow
Trustee
12/21/94 /s/ John F. Salmon
------------------ -------------------------------------
Date John F. Salmon
Trustee
12/21/94 /s/ Kenneth T. Seeger
------------------ -------------------------------------
Date Kenneth T. Seeger
Trustee
<PAGE> 72
Exhibit Index
Letter of Consent dated December 20, 1994 from KPMG Peat Marwick
to the Board of Trustees, Commonwealth Equity Trust, filed as
Exhibit A to the Trust's Form 10-K
69
<PAGE> 1
[KPMG PEAT MARWICK LETTERHEAD]
December 20, 1994
The Board of Directors
Commonwealth Equity Trust
We consent to use of our report dated February 5, 1993 in the Form 10-K filing
for the year ended September 30, 1994.
Our report dated February 5, 1993, contains an explanatory paragraph that
states the Trust's recurring losses, noncompliance with certain loan covenants
and significant loan repayments due in fiscal 1993 on its long-term notes
payable, raise substantial doubt about the Trust's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
TRUST'S CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1994 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 6,069
<SECURITIES> 0
<RECEIVABLES> 18,067
<ALLOWANCES> 2,555
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 31,746
<TOTAL-ASSETS> 140,682
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 244,941
0
0
<OTHER-SE> (258,140)
<TOTAL-LIABILITY-AND-EQUITY> 140,682
<SALES> 0
<TOTAL-REVENUES> 32,170
<CGS> 0
<TOTAL-COSTS> 22,904
<OTHER-EXPENSES> 21,978
<LOSS-PROVISION> 2,554
<INTEREST-EXPENSE> 13,181
<INCOME-PRETAX> (23,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,000)
<EPS-PRIMARY> (.92)
<EPS-DILUTED> 0
</TABLE>
