<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
[ ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[Fee Required]
For the fiscal year ended _______________________
[X] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[No Fee Required]
For the Transition period from October 1, 1994 to December 31, 1994
------------------------------------
Commission File Number 0-9097
THE PEREGRINE REAL ESTATE TRUST
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2255677
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 ETHAN WAY, SUITE 200, SACRAMENTO, CALIFORNIA 95825
------------------------------------------------- -----
(Address of principal executive office) (Zip Code)
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
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days.
Yes X No
--- ---
Sequential Page: 01 of 53
Exhibit Index: Page 44
<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 Shares of Beneficial Interest.
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 December 31, 1994, there were 4,884,138 outstanding Shares of Beneficial
Interest.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None.
<PAGE> 3
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THE PEREGRINE REAL ESTATE TRUST
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PART I PAGE
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Item 1. Business 1 - 4
Item 2. Properties 5 - 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
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PART II
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Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
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PART III
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Item 10. Directors and Executive Officers of the Registrant 37 - 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners
and Management 40 - 41
Item 13. Certain Relationships and Related Transactions 42
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PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 43
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i.
<PAGE> 4
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PART I
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Item 1. Business
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(a) Current Developments
Plan of Reorganization Confirmed. On June 9, 1994, The Peregrine Real Estate
Trust, formerly Commonwealth Equity Trust ("Trust"), a lender group including
the Prudential Insurance Company of America, the Pacific Mutual Life Insurance
Company, Orix USA Corp. and TCW 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") 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 Shares of
Beneficial Interest 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 Shares of
Beneficial Interest, as well as a new class of Redeemable Convertible Preferred
Stock, of the Trust to the PacMutual Lenders as set forth in Item 12. From the
Effective Date, the PacMutual Lenders own a majority of the new Shares of
Beneficial Interest and all of the new Redeemable Convertible Preferred Stock.
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:
1
<PAGE> 5
(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) Redeemable Convertible 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 Redeemable Convertible
Preferred Stock issued quarterly; thereafter, dividends are payable quarterly in
cash. The Redeemable Convertible Preferred Stock automatically converts into
Shares of Beneficial Interest 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 Shares of Beneficial Interest were issued and the
Redeemable Convertible Preferred Stock were converted to Shares of Beneficial
Interest on October 1, 1998, the PacMutual Lenders would, on account of that
conversion, acquire 77% of the total Shares of Beneficial Interest outstanding
after the conversion, bringing their total holdings to 89%.
The Redeemable Convertible Preferred Stock is redeemable in cash on October 1,
2000, but, under certain circumstances, including the sale of all or
substantially all the assets of Peregrine, may be redeemed earlier.
(c) Shares of Beneficial Interest equal to approximately 52% of the total
outstanding Shares of Beneficial Interest.
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. It 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. The 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.
2
<PAGE> 6
(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
status as a qualified REIT was terminated as of the beginning of its fiscal year
ended September 30, 1993. Unless the Trust seeks and is granted a waiver from
the Internal Revenue Service, it may not obtain REIT status prior to its fifth
taxable year ended after September 30, 1993.
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.
During the Transition Period, (for purposes of this report, will be defined as
the period from October 7, 1994 through December 31, 1994) the following sources
have contributed to the Trust's total income:
<TABLE>
<CAPTION>
Percent of Total
Income From
----------------
<S> <C>
Rental income 95%
Interest income 4%
Gains on sale of investments 1%
</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
81% leveraged at December 31, 1994.
3
<PAGE> 7
(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.
On June 15, 1994, United Property 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.
At December 31, 1994, the Trust had approximately 440 employees, all but 13 of
whom were employed at the hotel properties. On January 15, 1995, an agreement
was signed with an unrelated hotel management company ("Manager") with respect
to the Chico Holiday Inn hotel. Under that agreement, the employees in that
hotel became employees of the Manager. Accordingly, the Trust currently has
approximately 325 employees, all but 15 of whom are employed at the hotel
properties. The Trust is self-administered by the 15 non-hotel employees. In
December 1992, Local 2850 won an election to organize and represent certain
employees at the Walnut Creek Holiday Inn hotel. As of this date, contract
negotiations are continuing.
(d) Other Information
During its last three fiscal years and the Transition Period, 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.
4
<PAGE> 8
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ITEM 2: PROPERTIES
--------------------------------------------------------------------------------
The following table sets forth certain information relating to properties owned
by Peregrine and Cal REIT at December 31, 1994. All of the properties are
suitable for the purpose for which they are designed and are being used.
(* Denotes Cal REIT properties)
<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 $ 3,213,000 -
Timberlake, Sacramento, California 12/86 100% 22,023 968,000 509,000
16th and K Streets, Sacramento, California 8/87 100% 40,346 3,200,000 -
425 University Avenue, Sacramento, California 11/85 100% 34,384 2,967,000 2,764,000
Town Center Garden Office Park, Long Beach, California 12/87 100% 92,236 4,748,000 -
11135 Trade Center Drive, Rancho Cordova, California 5/88 100% 143,220 2,320,000 -
11167 Trade Center Drive, Rancho Cordova, California 5/88 100% 57,810 979,000 -
Hurley Ethan Office Park I, Sacramento, California 4/88 100% 37,509 2,353,000 1,322,000
System Integrators Buildings, Sacramento, California 5/88 100% 90,000 4,016,000 4,760,000
Hurley Ethan Office Park II, Sacramento, California 6/88 100% 41,497 2,451,000 2,408,000
Parkway Center, El Dorado Hills, California 1/88 100% 45,396 1,303,000 -
*Redfield Commerce Center, Scottsdale, Arizona 5/88 76% 27,900 1,505,000 -
---------- ----------
Total office buildings 30,023,000 11,763,000
---------- ----------
COMMERCIAL BUILDINGS:
One Sunrise Park, Rancho Cordova, California 8/83 100% 44,219 1,849,000 -
Burbank Mini-Warehouse, Santa Rosa, California 4/85 100% 72,200 1,455,000 -
Regency Plaza, Sacramento, California 5/85 100% 142,150 12,344,000 8,869,000
University Village, Sacramento, California 12/86 100% 83,033 8,026,000 7,732,000
TGIF Sunrise Hills, Citrus Heights, California 1/87 100% 8,500 1,580,000 -
*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 4,365,000
Downtown Mini Storage, Sacramento, California 3/88 100% 44,825 1,352,000 -
*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 5,817,000 4,336,000
Sierra Oaks, Roseville, California 1/89 100% 60,064 6,907,000 4,976,000
Mallory Service Building, Walnut Creek, California 10/88 100% 21,752 1,010,000 -
---------- ----------
Total commercial buildings 58,790,000 30,618,000
---------- ----------
</TABLE>
5
<PAGE> 9
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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 1,397,000 -
Parthenia, Northridge, California 9/92 100% 75,000 0 -
----------- ----------
Total land 1,397,000 -
----------- ----------
HOTELS:
Park Terrace Inn, Redding, California 7/85 100% 111,310 3,468,000 1,860,000
Chico Holiday Inn, Chico, California 9/86 100% 87,000 6,761,000 -
Sacramento Holiday Inn, Sacramento, California 9/86 100% 139,800 10,102,000 -
Walnut Creek Holiday Inn, Walnut Creek, California 3/85 100% 78,470 3,449,000 -
*Casa Grande Motor Inn, Arroyo Grande, California 9/92 76% 64,200 6,452,000 3,100,000
----------- ----------
Total hotels 30,232,000 4,960,000
----------- ----------
$120,442,000 47,341,000
=========== ==========
</TABLE>
(1) Total cost, including reorganization values of Peregrine properties,
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.
6
<PAGE> 10
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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 a material adverse 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.
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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.
7
<PAGE> 11
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PART II
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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 October 6, 1994, the Trust had one class of authorized and outstanding
equity consisting of 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 the Transition Period. 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
------------------------------------------------------------------------------
The following represents selected financial data for The Peregrine Real Estate
Trust for the Transition Period ended December 31, 1994. The data should be read
in conjunction with other financial statements and related notes included
elsewhere herein.
<TABLE>
<CAPTION>
Transition Period Ended
December 31, 1994
-----------------------
(Amounts in thousands,
except per share data)
<S> <C>
Operating results:
Revenue $ 6,794
Net loss $ (1,338)
Per share of beneficial interest:
Net Loss $ (0.27)
Financial Position:
Total Assets $ 142,256
Long term obligations $ 93,556
</TABLE>
8
<PAGE> 12
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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. It is unlikely that the Trust will be able
to satisfy those specified conditions within the coming year.
Results of Operations. Because the Transition Period is not comparable to any
prior period due to fresh start accounting, no comparison has been made between
the Results of Operations for the Transition Period and any prior period.
Impact of Inflation. The effect of inflation on the Trust's operations and
properties is varied. During the Transition Period, revenues have not been
affected by inflation. Inflation related increases in operating expenses have
not been material during the Transition Period.
Significant Changes in the Economic Environment. Except for the Credit Facility,
the Trust's current debt is all at fixed rates. However, should the Trust desire
to increase its debt level or to raise equity in the future, an increase in
interest rates would make either debt or equity more costly.
9
<PAGE> 13
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Item 8. Financial Statements and Supplementary Data
------------------------------------------------------------------------------
Index Page
------------------------------------------------------------------------------
Consolidated Financial Statements
Report of Independent Accountants 11-12
Consolidated Balance Sheet 13
Consolidated Statement of Operations 14
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) Accounts 15
Consolidated Statement of Cash Flows 16
Notes to Consolidated Financial Statements 17 - 36
Schedule III - Real Estate and Accumulated Depreciation 45 - 49
Schedule IV - Mortgage Loans on Real Estate 50 - 52
--------------------------------------------------------------------------------
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
--------------------------------------------------------------------------------
Not applicable.
10
<PAGE> 14
[COOPERS & HYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Trustees
The Peregrine Real Estate Trust
We have audited the consolidated balance sheet of The Peregrine Real Estate
Trust and Affiliates (Trust) as of December 31, 1994, and the related
consolidated statements of operations, changes in shareholders' equity
(deficit) accounts and cash flows for the three months then ended. In
connection with our audit of the consolidated financial statements, we have
also audited the financial statement schedules 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial 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.
As discussed in Note 1, the Trust's plan of reorganization was confirmed on
August 8, 1994, and became effective on October 7, 1994. As described in Note
16, the Trust has implemented fresh start accounting as required by Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," as of October 7, 1994. The implementation of fresh start
accounting as a result of the Trust's emergence from Chapter 11 has materially
changed the amounts reported in the consolidated financial statements of the
Trust as of and for periods ending October 7, 1994 and prior. Accordingly,
the consolidated financial statements as of and for the three months ended
December 31, 1994, are not comparable to those of prior periods. As a result
of the reorganization and the implementation of fresh start accounting, assets
and liabilities have been recorded at fair values and certain obligations
related to the claims of creditors have been reduced or reclassified to reflect
their actual settlement amounts as determined by the plan of reorganization.
<PAGE> 15
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 at December 31, 1994, and the
consolidated results of their operations and their cash flows for the three
months then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects, the information set forth therein.
/s/ COOPERS & LYBRAND L.L.P.
Sacramento, California
March 3, 1995
<PAGE> 16
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
CONSOLIDATED BALANCE SHEET
December 31, 1994
------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments:
Rental properties, less accumulated depreciation
of $2,812,000 and valuation allowance
of $5,863,000 $111,767,000
Partnership interests 4,000,000
Notes receivable, net of valuation allowance
and deferred gains of $7,182,000 17,049,000
------------
132,816,000
Cash 5,366,000
Restricted cash 317,000
Rents and accrued interest receivable,
net of valuation allowance of $285,000 1,323,000
Other assets, net of valuation allowance of $310,000 2,434,000
------------
Total assets $142,256,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Long-term notes payable, collateralized by deeds
of trust on rental properties $ 48,277,000
Notes payable to Lender Group 40,869,000
Line of credit 4,410,000
Accounts payable and accrued expenses 9,867,000
------------
103,423,000
-----------
Minority interests 6,525,000
------------
Redeemable convertible preferred stock,
25,000,000 shares authorized; 11,516,000 shares
issued and outstanding; net of unaccreted discount
of $2,169,000; liquidation preference of $23,032,000 20,863,000
Shares of beneficial interest, 50,000,000 shares
authorized; 4,884,000 shares outstanding 13,339,000
Accumulated deficit (1,894,000)
Commitments and contingencies (Note 11) -----------
Total liabilities and shareholders' equity $142,256,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 17
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
CONSOLIDATED STATEMENT OF OPERATIONS
Transition Period ended December 31, 1994
----------
<TABLE>
<CAPTION>
Revenues:
<S> <C>
Rent $ 3,230,000
Interest 338,000
Hotel 3,226,000
---------
6,794,000
---------
Expenses:
Operating expenses 1,572,000
Hotel operating expenses 2,728,000
Property management 92,000
Depreciation and amortization 831,000
Interest 1,897,000
General and administrative 916,000
----------
8,036,000
----------
(Loss) before gain on sale
of investments, valuation losses
and minority interest (1,242,000)
Gain on sale of investments 12,000
----------
(Loss) before valuation losses
and minority interest (1,230,000)
Valuation losses (119,000)
----------
(Loss) before minority interest (1,349,000)
Minority interest 11,000
----------
Net loss $(1,338,000)
==========
Loss per share of beneficial interest $ (0.27)
=====
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 18
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DEFICIT) ACCOUNTS
Three Months ended December 31, 1994
<TABLE>
<CAPTION>
Redeemable Convertible Shares of Beneficial Interest
Preferred Stock Pre-Reorganization
Number Amount Number Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 -- -- 25,093,000 $ 25,093,000
Exchange of Pre-Reorganization Shares
of Beneficial Interest for Post-
Reorganization Shares of Beneficial
Interest -- -- (25,093,000) (25,093,000)
Issuance of Redeemable Convertible
Preferred Stock 11,250,000 $ 22,500,000 -- --
Discount on Redeemable Convertible Preferred Stock -- (2,193,000) -- --
Issuance of Post-Reorganization Shares
of Beneficial Interest -- -- -- --
Net income for the period October 1
through October 6, 1994 -- -- -- --
Fresh start adjustments -- -- -- --
------------------------------------------------------------
Balance at October 7, 1994 11,250,000 20,307,000 0 0
Net loss for the period October 7
through December 31, 1994 -- -- -- --
Accretion of discount on
Redeemable Convertible Preferred Stock -- 68,000 -- --
Issuance of dividend in kind on
Redeemable Convertible Preferred Stock 266,000 532,000 -- --
Discount on Redeemable Convertible Preferred Stock
dividend in kind -- (44,000) -- --
------------------------------------------------------------
Balance at December 31, 1994 11,516,000 $ 20,863,000 0 $ 0
------------------------------------------------------------
Accumulated
Shares of Beneficial Interest Additional Accumulated Deficit
Post-Reorganization Paid-in Deficit Post-
Number Amount Capital Pre-Reorganization Reorganization
------ ------ ------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 -- -- $ 219,848,000 ($258,140,000) --
Exchange of Pre-Reorganization Shares
of Beneficial Interest for Post-
Reorganization Shares of Beneficial
Interest 2,334,000 $ 6,376,000 18,479,000 -- --
Issuance of Redeemable Convertible
Preferred Stock -- -- -- -- --
Discount on Redeemable Convertible Preferred Stock -- -- -- -- --
Issuance of Post-Reorganization Shares
of Beneficial Interest 2,550,000 6,963,000 -- -- --
Net income for the period October 1
through October 6, 1994 -- -- -- 19,813,000 --
Fresh start adjustments -- -- (238,327,000) 238,327,000 --
--------------------------------------------------------------------------
Balance at October 7, 1994 4,884,000 13,339,000 0 0 0
Net loss for the period October 7
through December 31, 1994 -- -- -- -- ($ 1,338,000)
Accretion of discount on
Redeemable Convertible Preferred Stock -- -- -- -- (68,000)
Issuance of dividend in kind on
Redeemable Convertible Preferred Stock -- -- -- -- (532,000)
Discount on Redeemable Convertible Preferred Stock
dividend in kind -- -- -- -- 44,000
----------------------------------------------------------------------------
Balance at December 31, 1994 4,884,000 $ 13,339,000 $ 0 $ 0 ($ 1,894,000)
----------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 19
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
CONSOLIDATED STATEMENT OF CASH FLOWS
Transition Period ended December 31, 1994
----------
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $ (1,338,000)
------------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 831,000
(Gain) on sale of investments (12,000)
Minority interest in net loss (11,000)
Valuation losses 119,000
Changes in other assets and liabilities:
Decrease in rents and accrued interest receivable 58,000
Decrease in other assets 640,000
Decrease in accounts payable and accrued expenses (4,854,000)
------------
Total adjustments (3,229,000)
------------
Net cash used in operating activities (4,567,000)
------------
Cash flows from investing activities:
Improvements to rental properties (181,000)
Principal collections on notes receivable 86,000
Increase in notes receivable (175,000)
------------
Net cash used in investing activities (270,000)
------------
Cash flows from financing activities:
Principal payments on long-term notes payable (72,000)
Borrowings on line of credit 4,410,000
Increase in restricted cash (204,000)
------------
Net cash provided by financing activities 4,134,000
------------
Net decrease in cash (703,000)
Cash, beginning of period 6,069,000
------------
Cash, end of period $ 5,366,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 20
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
-----------------------------------------------------------------------
Proceedings:
-----------
Organization
------------
The Peregrine Real Estate 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, which gave effect to the reorganization of the Trust
under Chapter 11 of the United States Bankruptcy Code. Commencing
September 1, 1993, the Trust became self-administered.
Change in Fiscal Year
---------------------
Effective December 31, 1994, the Trust has changed its fiscal year end
from September 30 to December 31.
Principles of Consolidation
---------------------------
For the three months ended December 31, 1994, the consolidated
financial statements include the accounts of the Trust and its
majority-owned affiliate, California Real Estate Investment Trust
(CalREIT), a real estate investment trust in which the Trust owns a
greater than 50% interest. The Transition Period, for the purposes of
these consolidated financial statements, is the period from October 7,
1994 through December 31, 1994.
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). CalREIT did not file for
protection under Chapter 11.
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.
17
<PAGE> 21
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
-----------------------------------------------------------------------
Proceedings, continued:
-----------
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 Shares of Beneficial Interest 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
Shares of Beneficial Interest, as well as a new class of Redeemable
Convertible Preferred Stock, of the Trust to the PacMutual Lenders. The
authorized number of new Shares of Beneficial Interest is 50,000,000.
From the Effective Date, the PacMutual Lenders own a majority of the
new Shares of Beneficial Interest and all of the new Redeemable
Convertible Preferred Stock. The PacMutual Lenders also received
Restructured Secured Notes in the aggregate original principal amount
of $40,000,000.
The Plan provides for the reservation of 150,000 new Shares of
Beneficial Interest for options for trustees who are neither employees
nor management of the Trust. Eighty thousand of these shares have been
reserved for the current independent Trustees.
The Plan also provides that the Trust, at the discretion of the Board
of Trustees, may adopt a stock option plan under which management may
be granted options exercisable into a maximum of five percent of the
Shares of Beneficial Interest, on a fully diluted basis.
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:
18
<PAGE> 22
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
-----------------------------------------------------------------------
Proceedings, continued:
-----------
(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) Redeemable Convertible 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 Redeemable Convertible Preferred Stock issued quarterly; thereafter,
dividends are payable quarterly in cash. The Redeemable Convertible
Preferred Stock automatically converts into Shares of Beneficial
Interest 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 Shares of Beneficial Interest were issued and
the Redeemable Convertible Preferred Stock were converted to Shares of
Beneficial Interest on October 1, 1998, the PacMutual Lenders would, on
account of that conversion, acquire 77% of the total Shares of
Beneficial Interest outstanding after the conversion, bringing their
total holdings to 89%.
The Redeemable Convertible Preferred Stock is redeemable in cash (total
redemption amount of $23,032,000 at December 31, 1994) on October 1,
2000, but in certain circumstances, including the sale of all or
substantially all the assets of Peregrine, may be redeemed earlier.
The Redeemable Convertible Preferred Stock has been recorded at a
discount to its face amount, which face amount is $23,032,000, based on
an imputed rate of return of 12%.
(c) Shares of Beneficial Interest equal to approximately 52% of the
total outstanding Shares of Beneficial Interest.
19
<PAGE> 23
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
-----------------------------------------------------------------------
Proceedings, continued:
-----------
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 (totaling 10.75% at December 31, 1994). The Credit Facility
matures on October 7, 1997. At December 31, 1994, $4,410,000 was
outstanding on the new Credit Facility.
The Credit Facility contains a financial covenant, among other terms
customary to such facilities, which requires that the Trust maintains a
Tangible Net Worth of at least $8,000,000, measured on a fiscal
quarter-end basis.
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 received less than 50% of the Trust's
new Shares of Beneficial Interest and the reorganization value of the
assets of the reorganized Trust was 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 have been restated to reflect their
reorganization value which approximates fair value at the date of the
reorganization, October 7, 1994.
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.
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.
20
<PAGE> 24
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
-----------------------------------------------------------------------
Proceedings, continued:
-----------
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.
Rental Properties
-----------------
At December 31, 1994, rental properties are recorded at reorganization
value net of accumulated depreciation since the Effective Date, unless
they are CalREIT assets, in which case they are carried at cost, net of
accumulated depreciation and less a valuation allowance for possible
investment losses. The valuation allowance for possible investment
losses relates to CalREIT assets only and 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. CalREIT asset lives range from 30 to 40 years. As of
the Effective Date, new useful lives were estimated for all Peregrine
rental properties. These lives range from 24 to 34 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. Expenditures which prolong the useful life of an asset are
capitalized and depreciated.
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.
21
<PAGE> 25
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
-----------------------------------------------------------------------
Proceedings, continued:
-----------
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.
Other Assets
------------
The Trust amortizes leasing commissions on a straight-line basis over
the lives of the leases to which they relate. Financing costs are
amortized over the lives of the loans or other financial instruments to
which they relate.
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. The Trust may not be eligible to re-elect to be
taxed as a REIT prior to its fifth taxable year ended after September
30, 1993.
The Trust has 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.
Cash
----
The Trust invests its cash and restricted cash in demand deposits with
banks with strong credit ratings. Bank balances in excess of federally
insured amounts totaled $5,180,000 as of December 31, 1994. The Trust
has not experienced any losses on these deposits.
22
<PAGE> 26
THE PEREGRINE REAL ESTATE TRUST 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
-----------------------------------
The Trust has 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.
Income Recognition
------------------
In 1994, the Trust adopted Statement of Financial Accounting Standards
No. 118 (SFAS 118), "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." This statement requires disclosure
of the method of recognizing interest on impaired loans. The adoption
of SFAS 118 resulted only in additional disclosure requirements and had
no effect on the Trust's financial position or results of operations.
The Trust recognizes interest income on notes receivable when it is
estimated that the fair value of the collateral related to the note is
adequate.
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 Transition
Period of 4,884,000. For purposes of determining average number of
shares outstanding and net loss per share, October 1, 1994 is treated
as the Effective Date. Shares of Beneficial Interest equivalents are
anti-dilutive for the Transition Period ended December 31, 1994.
23
<PAGE> 27
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Related-Party Transactions:
--------------------------
The Trust and CalREIT are both self-administered. However, they share
certain costs, including personnel costs, for which CalREIT reimburses
the Trust pursuant to a cost allocation agreement based on each Trust's
respective asset values (real property and notes receivable) that is
negotiated annually. During the Transition Period, reimbursable costs
charged by the Trust to CalREIT approximated $300,000; $200,000 of
which relates to the period prior to October 7, 1994. Such
reimbursements are offset against the amount due to CalREIT and are
eliminated in consolidation.
At December 31,1994, the Trust had amounts due to CalREIT aggregating
$202,000. Such uncollateralized amounts are due on demand and are
eliminated in consolidation.
3. Restricted Cash:
---------------
At December 31, 1994, cash of $317,000 is restricted under the terms of
an Order of the U.S. Bankruptcy Court, Eastern District of California,
to be used for the payment of certain property taxes in accordance with
a schedule of payments agreed to by Sacramento County.
4. Rental Properties:
-----------------
At December 31, 1994, the Trust's rental property portfolio at
reorganization value or cost included office buildings, $30,023,000;
commercial buildings, $58,790,000; hotels, $30,232,000; and land,
$1,397,000.
Under fresh start accounting, all Peregrine rental properties are
recorded at reorganization value which is likely to be different than
tax basis.
Noncancellable operating leases at December 31, 1994, provide for
minimum rental income during each of the next five years of $8,525,000,
$6,497,000, $4,952,000, $3,425,000 and $2,814,000, respectively, and
$7,414,000 thereafter. Certain of the leases increase periodically
based on changes in the Consumer Price Index.
One rental property with a carrying value of $3,372,000, at December
31, 1994 is subject to a purchase option exercisable in 1996 on the
part of the lessee. Exercise price as determined by the related
agreement is greater than the carrying value of the property as of
December 31, 1994.
24
<PAGE> 28
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
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 the Transition Period related to the Placer
Ranch Partners partnership, as payment of such income is contingent
upon the future sale of land.
Investment in Placer Ranch Partners, Limited
Partnership, at the Trust's reorganization value $4,000,000
----------
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 the Transition
Period 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.
Investment in CR Properties general partnership, at the
Trust's reorganization value $ --
----------
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 December 31, 1994, the Trust
had long-term notes receivable collateralized by deeds of trust of
(before valuation allowances and deferred gains) $24,231,000. Generally
the notes are collateralized by real estate properties in California.
The notes are to be repaid from the cash flow of the property or
proceeds from the sale or refinancing of the property. At December 31,
1994, $3,662,000 of such notes were delinquent. Contractually scheduled
principal collections over the next five years, excluding delinquent
notes, are as follows:
25
<PAGE> 29
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
6. Notes Receivable, continued:
----------------
<TABLE>
<S> <C>
1995 $ 925,000
1996 435,000
1997 899,000
1998 1,378,000
1999 40,000
Thereafter 16,892,000
----------
$ 20,569,000
============
</TABLE>
The notes bear interest at rates ranging from 7.63% to 16% as of
December 31, 1994. For the Transition Period the overall effective rate
was approximately 8%.
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, which valuation
allowances related to Peregrine assets were eliminated pursuant to
fresh start accounting. 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.
Analysis of changes in the allowance for possible losses on real estate
investments, partnership interests, notes receivable and rents and
interest receivable for the Transition Period follow.
Under fresh start accounting, all separately stated valuation
allowances are eliminated. The Trust's assets and liabilities are
restated to reflect their reorganization value which approximates fair
value at the date of reorganization, October 7, 1994. Therefore, the
beginning balances in each of the categories below reflect the
cumulative valuation allowances on rental properties, the cumulative
valuation allowances and deferred gains on notes receivable and the
cumulative allowance for bad debt losses on rents and interest
receivable for CalREIT only. The causes for the changes in the
allowances are as follows:
- Rental Properties. One CalREIT property declined in value
-----------------
by $69,000.
- Notes Receivable. A gain previously deferred was partially
----------------
recognized, causing the cumulative allowance to
decline by $12,000.
26
<PAGE> 30
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
7. Valuation Allowances, continued:
--------------------
- Rents and Interest Receivable. Additional bad debts of
$198,000 were recorded, while $34,000 of debts previously
declared bad were recovered.
The detail is set forth below:
<TABLE>
<CAPTION>
<S> <C>
Rental Properties
-----------------
Allowance for valuation losses on rental property investments:
Beginning balance, after fresh start $ 5,794,000
Provision for valuation losses 69,000
----------
Ending balance $ 5,863,000
==========
Notes Receivable
----------------
Allowance for valuation losses and deferred gains on notes
receivable:
Beginning balance, after fresh start $ 7,194,000
Recognition of deferred gains (12,000)
----------
Ending balance $ 7,182,000
==========
Rents and Interest Receivable
-----------------------------
Allowance for bad debt losses on rents and interest
receivable:
Beginning balance, after fresh start $ 121,000
Provision for losses 198,000
Amounts charged against allowance for losses (34,000)
----------
Ending balance $ 285,000
==========
</TABLE>
In addition, the Trust has established an allowance for valuation
losses on other assets in the amount of $310,000 at December 31, 1994.
27
<PAGE> 31
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. Long-Term Notes Payable:
-----------------------
As of December 31, 1994, the Trust had long-term notes payable, other
than notes payable to the Lender Group and the Line of Credit, (Notes)
most of which were collateralized by deeds of trust on rental
properties, which properties have an aggregate net book value of
$63,346,000 at December 31, 1994. 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 and amounts related to CalREIT are $3,205,000,
$4,445,000, $520,000, $3,582,000 and $599,000, respectively, and
$35,926,000 thereafter.
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 to interest rates, due dates and periodic
payments.
9. Distributions:
-------------
No cash distributions were made to holders of shares of beneficial
interest during the Transition Period.
Under the terms of the agreement with respect to the Restructured Notes
Payable, the Trust is substantially restricted from and does not
anticipate making any distributions to common shareholders in the
foreseeable future.
10. Statements of Cash Flows Supplemental Information:
-------------------------------------------------
In connection with the sale of property, the Trust entered into various
noncash transactions as follows:
<TABLE>
<CAPTION>
<S> <C>
Sales price $ 3,101,000
Notes receivable (1,144,000)
Notes payable assumed by buyer and
other liabilities applied to sales price (1,957,000)
-----------
Cash received $ 0
===========
Reorganization value of property sold $ 3,025,000
===========
</TABLE>
28
<PAGE> 32
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
10. Statements of Cash Flows Supplemental Information, continued:
-------------------------------------------------
Additionally, on December 31, 1994, the Trust issued Interest Deferral
Notes at 8.5% per annum in the principal amount of $869,000, as payment
in kind for the interest then due on the Restructured Notes Payable and
issued Redeemable Convertible Preferred Stock in the face amount of
$532,000 as payment in kind for the dividend then due on the
outstanding Redeemable Convertible Preferred Stock.
Interest paid on the Trust's outstanding debt for the Transition Period
was $2,206,000.
11. Commitments and Contingencies:
-----------------------------
Unused Credit Facility
----------------------
At December 31, 1994, approximately $5,590,000 of the Credit Facility,
the maximum amount of which is $10,000,000, was unused.
Leases
------
The Trust is obligated under land leases to the year 2033. The minimum
annual payment under the leases for each of the next five years are
$121,000, $104,000, $104,000, $104,000, $104,000, respectively, and
$3,047,000 thereafter. Total ground lease expense was $30,000 during
the Transition Period ended December 31, 1994.
Litigation
----------
At the time the Trust filed its Chapter 11 petition in August 1993 and
at December 31, 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
condition.
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.
29
<PAGE> 33
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
11. Commitments and Contingencies, continued:
-----------------------------
- Litigation filed in 1991 named the individual Trustees of the
Trust and B & B Property Investment, Development and Management
Company, Inc. (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. In October 1994 (prior to the
Effective Date), 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.
Other
-----
In accordance with bankruptcy proceedings, claims are filed with the
Court by specified dates. At December 31, 1994, the Trust recorded its
best estimate of its ultimate liability for those claims including
pending professional fees related to the bankruptcy proceedings.
12. Selected Financial Data (Unaudited):
-----------------------------------
Selected unaudited financial data for the quarter ended December 31,
1993 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Revenue $ 8,581,000
Loss before reorganization items, gain on
foreclosure or sale of investments,
valuation losses and minority interest $(2,784,000)
Net loss $(3,806,000)(1)
Net loss per Share of Beneficial Interest $ (0.15)
</TABLE>
(1) Includes $688,000 in valuation losses.
30
<PAGE> 34
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. 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 December 31, 1994 is approximately the same as their carrying
amounts.
14. Stock Option Plans:
------------------
During the Transition Period, the Trust adopted a stock option plan
(the Plan) which provides the members of the Board of Trustees an
opportunity to purchase Shares of Beneficial Interest. The aggregate
number of Shares of Beneficial Interest which may be issued upon
exercise of all Options granted under the Plan shall not exceed
150,000. At December 31, 1994, 26,668 shares were outstanding under the
Plan, all of which were exercisable.
Under the terms of the Plan, options may be granted to members of the
Board of Trustees who are not full time employees or officers of the
Trust or any subsidiary of the Trust. The option price granted under
the plan shall be the greater of (1) the Fair Market Value of the
Shares of Beneficial Interest on the Effective Date, or (2) two dollars
per share. On the Effective Date, each participant was granted an
Initial Option to purchase 6,667 Shares of Beneficial Interest.
Thereafter, each participant whose commencement of services is after
the Effective Date shall be granted an Initial Option of 6,667 Shares
of Beneficial Interest as of the date of the participant's commencement
of service. Each participant shall also be granted additional options
to purchase 6,667 Shares of Beneficial Interest on each of the next two
anniversaries of the grant date of the Initial Option. No options were
exercised during the Transition Period.
31
<PAGE> 35
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
14. Stock Option Plans, continued:
------------------
The Plan of Reorganization provides that the Trust, at the discretion
of the Board of Trustees, may adopt a stock option plan under which
management may be granted options exercisable into a maximum of five
percent of the Shares of Beneficial Interest, on a fully diluted basis.
15. Income Taxes:
------------
The income tax effect of temporary differences between financial and
income tax reporting that give rise to a significant portion of the
deferred income tax assets under the provision of SFAS 109 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
NOL carryforward $ 26,813,000
Fixed assets 21,688,000
Investments 17,661,000
Notes receivable 232,000
Capital loss carryforward 3,962,000
Other 918,000
------------
71,274,000
Less valuation allowance (Note 1) (71,274,000)
-----------
Net $ --
===========
</TABLE>
At December 31, 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>
Year Federal California
---- ------- ----------
<S> <C> <C>
2003 $ 370,000 $ 5,000
2004 4,834,000 2,592,000
2005 4,685,000 2,538,000
2006 8,948,000 4,128,000
2007 30,012,000 24,045,000
2008 16,387,000 8,212,000
2009 5,650,000 2,666,000
----------- -----------
$70,886,000 $44,186,000
=========== ===========
</TABLE>
32
<PAGE> 36
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
15. Income Taxes, continued:
------------
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 December 31, 1994.
Pursuant to the Plan, debt in the amount of $14,395,000 was forgiven.
In addition, the Plan resulted in an ownership change under the
Internal Revenue Code. Because of the forgiveness of debt and 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
forgiveness of debt and the change in ownership may result in a
substantial reduction/limitation on the NOL available in future years.
33
<PAGE> 37
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
16. Fresh Start Balance Sheet of The Peregrine Real Estate Trust
------------------------------------------------------------
(Peregrine) Only:
----------------
The effect of the Plan of Reorganization on The Peregrine Real Estate
Trust's (formerly Commonwealth Equity Trust) balance sheet as of
October 7, 1994, is as follows:
<TABLE>
<CAPTION>
The Peregrine
Adjustments to Record Real Estate
Confirmation of Plan Trust's
---------------------------------------- Reorganized
Pre- Debt Exchange Fresh Balance Sheet,
Confirmation(1) Discharge(2) of Stock(3) Start(4) October 7, 1994
--------------- ------------ ----------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments:
Rental properties, net $ 91,823,000 -- -- $ 5,036,000 $ 96,859,000
Investment in CalREIT 21,196,000 -- -- -- 21,196,000
Other Investments 6,449,000 -- -- -- 6,449,000
----------- ----------- ------------ ----------- -----------
119,468,000 -- -- 5,036,000 124,504,000
Cash 2,833,000 -- -- -- 2,833,000
Other assets 2,612,000 -- -- 833,000 3,445,000
----------- ----------- ------------ ----------- -----------
Total assets $124,913,000 -- -- $ 5,869,000 $130,782,000
=========== =========== ============ =========== ===========
Liabilities and Shareholders'
----------------------------
Equity (Deficit):
---------------
Liabilities:
Liabilities subject to compromise:
Liabilities subject to compromise $123,340,000 $(74,402,000) $ -- $(48,938,000) $ 0
Due to CalREIT, subject to compromise 623,000 (121,000) -- (502,000) 0
----------- ----------- ------------ ----------- -----------
Total liabilities subject to compromise 123,963,000 (74,523,000) -- (49,440,000) 0
----------- ----------- ------------ ----------- -----------
Liabilities not subject to compromise:
Long-term notes payable, collateralized
by deeds of trust on rental properties -- -- -- 39,573,000 39,573,000
Notes payable to Lender Group -- 40,000,000 -- -- 40,000,000
Post petition accounts payable and
accrued expenses 14,149,000 (7,142,000) 238,000 10,318,000 17,563,000
----------- ----------- ------------ ----------- -----------
Total liabilities not subject to
compromise 14,149,000 32,858,000 238,000 49,891,000 97,136,000
----------- ----------- ------------ ----------- -----------
138,112,000 (41,665,000) 238,000 451,000 97,136,000
----------- ----------- ------------ ----------- -----------
Redeemable convertible preferred stock -- 20,307,000 -- -- 20,307,000
Shares of beneficial interest -
pre-reorganization 25,093,000 -- (25,093,000) -- --
Shares of beneficial interest -
post-reorganization -- 6,963,000 6,376,000 -- 13,339,000
Additional paid-in capital 219,848,000 -- 18,479,000 (238,327,000) --
Accumulated deficit (258,140,000) 14,395,000 -- 243,745,000 --
----------- ----------- ------------ ----------- -----------
Total liabilities and shareholders'
equity $124,913,000 $ 0 $ 0 $ 5,869,000 $130,782,000
=========== =========== ============ =========== ===========
</TABLE>
34
<PAGE> 38
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
16. Fresh Start Balance Sheet of The Peregrine Real Estate Trust
------------------------------------------------------------
(Peregrine) Only, continued:
----------------
(1) Amounts as reported as of September 30, 1994, the Trust's
previous fiscal year-end.
Operations from October 1, 1994 through October 6, 1994, prior
to the application of fresh start accounting and prior to the
Effective Date, are described in Note 17.
(2) Adjustments to record settlement amounts on pre-petition
Lender Group debt and unsecured liabilities, and resulting net
forgiveness of debt.
(3) Represents amounts exchanged with holders of
pre-reorganization Shares of Beneficial Interest.
(4) Adjustments of accounts to reorganization value, and
reclassifications of certain amounts from liabilities subject
to compromise to various post-reorganization uncompromised
liabilities.
17. Selected Pre-Reorganization Financial Data:
------------------------------------------
Selected financial data during the period from October 1, 1994 through
October 6, 1994, which was prior to the Effective Date and prior to
application of fresh start accounting, is as follows:
Loss before extraordinary item and minority interest was not
material and has been included in the Consolidated Statement
of Operations for the Transition Period ended December 31,
1994.
Extraordinary items amounted to $19,813,000, and included
$14,395,000 and $5,418,000 and related to accounting
adjustments for forgiveness of debt and fresh start
adjustments of accounts to reorganization value, respectively
($0.79 per pre-reorganization share).
Net income was $19,813,000 ($0.79 per pre-reorganization
share).
Cash flows were not material and have been included in the
Consolidated Statement of Cash Flows for the Transition Period
ended December 31, 1994.
35
<PAGE> 39
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. 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 Trust believes that in order to facilitate a clear understanding of
the historical operating results of the Trust, FFO and FAD should be
examined in conjunction with net loss as presented in this report. FFO
and FAD should not be considered as an alternative to net loss as an
indication of the Trust's performance or to cash flow as a measure of
liquidity.
Funds From (used in) Operations and Funds Available for Distribution
for the Transition Period are summarized as follows:
Calculation of Funds From Operations and Funds Available for
------------------------------------------------------------
Distribution
------------
(Dollars in thousands)
----------------------
<TABLE>
<S> <C>
Net loss before gain on sale
of investments, valuation
losses and minority interest $(1,242)
Minority interest 11
Depreciation and amortization 831
------
Funds Used in Operations (400)
Capital Improvements (181)
Loan principal payments (72)
------
Funds Available for Distribution $ --
======
</TABLE>
36
<PAGE> 40
------------------------------------------------------------------------------
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, Jr. 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 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
37
<PAGE> 41
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.
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 commenced 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,
38
<PAGE> 42
FAMA is to be paid an amount equal to his annual compensation 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 Transition Period ended December 31, 1994:
<TABLE>
<CAPTION>
Name of individual or Capacities in Cash
number of persons in group which served compensation
-------------------------- -------------- ------------
<S> <C> <C>
Current independent Trustees Trustees $28,000
as a group (four people)
Frank A. Morrow CEO $70,000(1)
Arnold E. Brown CFO $50,000(2)(3)
</TABLE>
Each independent Trustee is paid $5,000 per quarter and $1,000 for each
Trustees' meeting attended.
(1) Mr. Morrow's compensation for a full fiscal year is set pursuant to a
contract discussed in Item 10.
(2) Mr. Brown's compensation for a full fiscal year pursuant to a
contract is $150,000 plus a supplemental payment based upon
performance.
(3) In addition, Mr. Brown's wholly owned California corporation Brown
Partners Ltd. received a contingent payment of $50,000 during the
Transition Period for services rendered prior to the Transition
Period. Pursuant to a contract, receipt of that payment was
contingent upon the Trust's obtaining the Credit Facility.
The compensation of Messrs. Morrow and Brown is governed by their respective
employment agreements. The Trust's compensation committee is currently
considering the adoption of an incentive compensation plan.
39
<PAGE> 43
-------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
-------------------------------------------------------------------------------
Listed below are those shareholders known to the Trust as of March 1, 1995 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
Title of Class Beneficial Owner of Beneficial Ownership of Class
-------------- ------------------- ------------------------ --------
<S> <C> <C> <C>
Redeemable Convertible The Prudential Insurance
Preferred Shares Company of America
Four Gateway Center
100 Mulberry Center
Newark, NJ 07102-4069 1,916,715 16.6%
PRUCO Life Insurance Company
c/o Prudential Specialized Financial Group
Four Gateway Center
100 Mulberry Street
Newark, NJ 07102-4069 1,150,030 10.0%
Pacific Mutual Life Insurance Company
c/o Ronn Cornelius
700 Newport Center Drive
Newport Beach, CA 92660 3,066,744 26.6%
Orix USA Corp.
c/o Denise L. Getty
600 Wilshire Boulevard, Suite 1460
Los Angeles, CA 90017 460,012 4.0%
Weyerhauser Company Master
Retirement Trust* 442,991 3.8%
TCW Special Credits Fund IV* 1,427,415 12.4%
TCW Special Credits Plus Fund* 1,525,859 13.3%
TCW Special Credits Trust IV* 1,230,531 10.7%
TCW Special Credits Fund IVA* 295,328 2.6%
*Address:
Salkeld & Company
c/o Bankers Trust Company
16 Wall Street, M/S 4042
New York, NY 10015
</TABLE>
40
<PAGE> 44
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent
Title of Class Beneficial Owner of Beneficial Ownership of 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 Boulevard, Suite 1460
Los Angeles, CA 90017 101,864 2.1%
Weyerhauser Company Master
Retirement Trust* 98,095 2.0%
TCW Special Credits Fund IV* 316,084 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 under option.
41
<PAGE> 45
------------------------------------------------------------------------------
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. However, they share certain costs, including
personnel costs, for which CalREIT reimburses the Trust pursuant to a cost
allocation agreement based on each Trust's respective asset values (real
property and notes receivable).
42
<PAGE> 46
-------------------------------------------------------------------------------
PART IV
-------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) (1) Financial Statements Page
------- -------------------- ----
<S> <C> <C>
Included in Part II of this report:
Report of Independent Accountants 11 - 12
Consolidated Balance Sheet at December 31, 1994 13
Consolidated Statement of Operations, Transition Period
Ended December 31, 1994 14
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) Accounts, Three Month Period Ended December 31, 1994 15
Consolidated Statement of Cash Flows, Transition Period
Ended December 31, 1994 16
Notes to Consolidated Financial Statements 17 - 36
(a) (2) Consolidated Financial Statement Schedules and Exhibits Filed
-------- -------------------------------------------------------------
Schedule III Real Estate and Accumulated Depreciation 45 - 49
Schedule IV Mortgage Loans on Real Estate 50 - 52
</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.
43
<PAGE> 47
--------------------------------------------------------------------------------
(b) Reports on Form 8-K
--------------------------------------------------------------------------------
The Trust filed two reports on Form 8-K during the transition period ended
December 31, 1994 as follows:
<TABLE>
<CAPTION>
Financial
Date of Report Item Reported Statements Filed
-------------- ------------- ----------------
<S> <C> <C>
October 7, 1994 Emergence from bankruptcy and No
matters related thereto
December 21, 1994 Change in fiscal year No
</TABLE>
-------------------------------------------------------------------------------
(c) Exhibits
-------------------------------------------------------------------------------
All exhibits listed below were filed with Form 8-K dated October 7, 1994 and are
incorporated herein by reference:
Restated Declaration of Trust of the Peregrine Real Estate Trust
Bylaws of the Peregrine Real Estate Trust
Second Amended and Restated Note Agreement dated September 27, 1994, by
and among Commonwealth Equity Trust, the Noteholders named therein and
The Prudential Insurance Company of America as Agent for the
Noteholders
Loan and Security Agreement dated October 6, 1994, between Commonwealth
Equity Trust and Foothill Capital Corporation
Redeemable Convertible Preferred Stock Purchase Agreement dated as of
October 1, 1994, by and among the Peregrine Real Estate Trust, Pacific
Mutual Life Insurance Company, The Prudential Insurance Company of
America, PRUCO Life Insurance Company, Orix USA Corporation,
Weyerhauser Company Master Retirement Trust, TCW Special Credits Fund
IV, TCW Special Credits Plus Fund, TCW Special Credits Trust IV and TCW
Special Credits Trust IVA
Registration Rights Agreement dated as of October 1, 1994, by and among
The Peregrine Real Estate Trust, Pacific Mutual Life Insurance Company,
The Prudential Insurance Company of America, PRUCO Life Insurance
Company, Orix USA Corporation, Weyerhauser Company Master Retirement
Trust, TCW Special Credits Fund IV, TCW Special Credits Plus Fund, TCW
Special Credits Trust IV and TCW Special Credits Trust IVA
Services and Confidentiality Agreement dated October 1, 1994, between
Commonwealth Equity Trust and FAMA Management, Inc.
44
<PAGE> 48
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994 Page 1 Part A
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D
------------------------------------------------------- ------------ --------------------------- ----------------------
Cost Capitalization
Subsequent
..Initial Cost to Trust.. ..to Acquisition..
Buildings,
Improvements
and Personal
Description Encumbrances Land Property Improvements Carrying Cost
----------- ------------ ---- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
OFFICE BUILDINGS: -
Milpitas, Milpitas, California $ - 1,037,000 1,214,000 962,000 -
Timberlake, Sacramento, California 509,000 Leased 804,000 164,000 -
16th and K Streets, Sacramento, California - 388,000 2,677,000 135,000 -
425 University Avenue, Sacramento, California 2,764,000 536,000 1,708,000 723,000 -
Town Center Garden Office Park, Long Beach, California - 1,293,000 3,313,000 142,000 -
11135 Trade Center Drive, Rancho Cordova, California - 567,000 1,739,000 14,000 -
11167 Trade Center Drive, Rancho Cordova, California - 402,000 567,000 10,000 -
Hurley Ethan Office Park I, Sacramento, California 1,322,000 410,000 1,237,000 706,000 -
System Integrators Buildings, Sacramento, California 4,760,000 872,000 3,122,000 22,000 -
Hurley Ethan Office Park II, Sacramento, California 2,408,000 827,000 1,391,000 233,000 -
Parkway Center, El Dorado Hills, California - 233,000 1,048,000 22,000 -
*Redfield Commerce Center, Scottsdale, Arizona - 580,000 823,000 102,000
---------- ---------- ---------- --------- -------------
-
Total office buildings 11,763,000 7,145,000 19,643,000 3,235,000
---------- ---------- ---------- --------- -------------
COMMERCIAL BUILDINGS: -
-
One Sunrise Park, Rancho Cordova, California - 356,000 1,092,000 401,000 -
Burbank Mini-Warehouse, Santa Rosa, California - 475,000 980,000 - -
Regency Plaza, Sacramento, California 8,869,000 4,200,000 7,056,000 1,088,000 -
University Village, Sacramento, California 7,732,000 877,000 6,142,000 1,007,000 -
TGIF Sunrise Hills, Citrus Heights, California - 450,000 1,125,000 5,000 -
*Fulton Square, Sacramento, California 340,000 Leased 3,536,000 77,000 -
*Totem Square, Kirkland, Washington 4,365,000 3,175,000 5,793,000 124,000 -
Downtown Mini Storage, Sacramento, California - Leased 1,340,000 12,000 -
*515 S. Fair Oaks Avenue, Pasadena, California - 1,410,000 4,305,000 30,000 -
Sunrise Hills, Citrus Heights, California 4,336,000 2,316,000 3,192,000 309,000 -
Sierra Oaks, Roseville, California 4,976,000 1,892,000 4,746,000 269,000
Mallory Service Building, Walnut Creek, California - 852,000 154,000 4,000 -
---------- ---------- ---------- --------- -------------
Total commercial buildings 30,618,000 16,003,000 39,461,000 3,326,000 -
---------- ---------- ---------- --------- -------------
</TABLE>
45
(Continued)
<PAGE> 49
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994 Page 2 Part A
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D
------------------------------------------------------- ------------ --------------------------- ----------------------
Cost Capitalization
Subsequent
..Initial Cost to Trust.. ..to Acquisition..
Buildings,
Improvements
and Personal
Description Encumbrances Land Property Improvements Carrying Cost
----------- ------------ ---- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
LAND:
Florin Perkins, Sacramento, California - 1,397,000 - - -
Parthenia, Northridge, California - - - - -
---------- ---------- ---------- ---------- -------------
Total land - 1,397,000 - - -
---------- ---------- ---------- ---------- -------------
HOTELS:
Park Terrace Inn, Redding, California 1,860,000 1,047,000 1,167,000 1,254,000 -
Chico Holiday Inn, Chico, California - 480,000 4,337,000 1,944,000 -
Sacramento Holiday Inn, Sacramento, California - 2,297,000 5,719,000 2,086,000 -
Walnut Creek Holiday Inn, Walnut Creek, California - 1,099,000 1,812,000 538,000 -
*Casa Grande Motor Inn, Aroyo Grande, California 3,100,000 1,289,000 3,911,000 1,252,000 -
---------- ---------- ---------- ---------- -------------
Total hotels 4,960,000 6,212,000 16,946,000 7,074,000 -
---------- ---------- ---------- ---------- -------------
Total Investment in Real Estate $47,341,000 30,757,000 76,050,000 13,635,000 -
========== ========== ========== ========== =============
PARTNERSHIPS:
CR Properties, Sacramento, California $ - - - - -
Placer Ranch, Rocklin, California - - - - 4,000,000
---------- ---------- ---------- ---------- -------------
Total Investment in Partnerships - - - - 4,000,000
========== ========== ========== ========== =============
Total Investment in Real Estate and Partnerships $47,341,000 30,757,000 76,050,000 13,635,000 4,000,000
========== ========== ========== ========== =============
</TABLE>
46
<PAGE> 50
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 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 $ 1,037,000 2,176,000 - 3,213,000
Timberlake, Sacramento, California Leased 968,000 - 968,000
16th and K Streets, Sacramento, California 388,000 2,812,000 - 3,200,000
425 University Avenue, Sacramento, California 536,000 2,431,000 - 2,967,000
Town Center Garden Office Park, Long Beach, California 1,293,000 3,455,000 - 4,748,000
11135 Trade Center Drive, Rancho Cordova, California 567,000 1,753,000 - 2,320,000
11167 Trade Center Drive, Rancho Cordova, California 402,000 577,000 - 979,000
Hurley Ethan Office Park I, Sacramento, California 410,000 1,943,000 - 2,353,000
System Integrators Buildings, Sacramento, California 872,000 3,144,000 - 4,016,000
Hurley Ethan Office Park II, Sacramento, California 827,000 1,624,000 - 2,451,000
Parkway Center, El Dorado Hills, California 233,000 1,070,000 - 1,303,000
Redfield Commerce Center, Scottsdale, Arizona 580,000 925,000 542,000 963,000
----------- ---------- --------- ----------
Total office buildings 7,145,000 22,878,000 542,000 29,481,000
----------- ---------- --------- ----------
COMMERCIAL BUILDINGS:
One Sunrise Park, Rancho Cordova, California 356,000 1,493,000 - 1,849,000
Burbank Mini-Warehouse, Santa Rosa, California 475,000 980,000 - 1,455,000
Regency Plaza, Sacramento, California 4,200,000 8,144,000 - 12,344,000
University Village, Sacramento, California 877,000 7,149,000 - 8,026,000
TGIF Sunrise Hills, Citrus Heights, California 450,000 1,130,000 - 1,580,000
Fulton Square, Sacramento, California Leased 3,613,000 69,000 3,544,000
Totem Square, Kirkland, Washington 3,175,000 5,917,000 604,000 8,488,000
Downtown Mini Storage, Sacramento, California Leased 1,352,000 - 1,352,000
515 S. Fair Oaks Avenue, Pasadena, California 1,410,000 4,335,000 1,678,000 4,067,000
Sunrise Hills, Citrus Heights, California 2,316,000 3,501,000 - 5,817,000
Sierra Oaks, Roseville, California 1,892,000 5,015,000 - 6,907,000
Mallory Service Building, Walnut Creek, California 852,000 158,000 - 1,010,000
----------- ---------- --------- ----------
Total commercial buildings 16,003,000 42,787,000 2,351,000 56,439,000
----------- ---------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
Column A 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 18,000 1986 1/85 30 Years
Timberlake, Sacramento, California 8,000 1973 12/86 32 Years
16th and K Streets, Sacramento, California 22,000 1987 8/87 33 Years
425 University Avenue, Sacramento, California - 1977 11/85 34 Years
Town Center Garden Office Park, Long Beach, California 30,000 1983 12/87 33 Years
11135 Trade Center Drive, Rancho Cordova, California 13,000 1984 5/88 34 Years
11167 Trade Center Drive, Rancho Cordova, California 4,000 1984 5/88 34 Years
Hurley Ethan Office Park I, Sacramento, California 15,000 1978 4/88 34 Years
System Integrators Buildings, Sacramento, California 23,000 1984 5/88 34 Years
Hurley Ethan Office Park II, Sacramento, California 24,000 1981 6/88 34 Years
Parkway Center, El Dorado Hills, California 8,000 1985 1/88 33 Years
Redfield Commerce Center, Scottsdale, Arizona 265,000 1983 5/88 34 Years
---------
Total office buildings 430,000
---------
COMMERCIAL BUILDINGS:
One Sunrise Park, Rancho Cordova, California 15,000 1982 8/83 24 Years
Burbank Mini-Warehouse, Santa Rosa, California 8,000 1984 4/85 30 Years
Regency Plaza, Sacramento, California 67,000 1986 5/85 31 Years
University Village, Sacramento, California 56,000 1975 12/86 32 Years
TGIF Sunrise Hills, Citrus Heights, California 9,000 1984 1/87 32 Years
Fulton Square, Sacramento, California 369,000 1980 5/91 40 Years
Totem Square, Kirkland, Washington 588,000 1981 11/90 40 Years
Downtown Mini Storage, Sacramento, California 10,000 1980 3/88 33 Years
515 S. Fair Oaks Avenue, Pasadena, California 695,000 1915/1988 7/88 40 Years
Sunrise Hills, Citrus Heights, California 26,000 1981 1/89 34 Years
Sierra Oaks, Roseville, California 37,000 1989 1/89 34 Years
Mallory Service Building, Walnut Creek, California 1,000 1970 10/88 34 Years
---------
Total commercial buildings 1,881,000
---------
</TABLE>
47
(Continued)
<PAGE> 51
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994 Page 2 Part B
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column E Column F
---------------------------------------------------- -------------------------------------------------- ------------
Gross Amount at Which
.....Carried at Close of Period.....
Valuation
Buildings and Write Accumulated
Description Land Improvements Down (3) Total (2) Depreciation
----------- ---- ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
LAND:
Florin Perkins, Sacramento, California 1,397,000 - - 1,397,000 -
Parthenia, Northridge, California - - - 0 -
----------- ---------- --------- ----------- ------------
Total land 1,397,000 0 0 1,397,000 -
----------- ---------- --------- ----------- ------------
HOTELS:
Park Terrace Inn, Redding, California 1,047,000 2,421,000 - 3,468,000 36,000
Chico Holiday Inn, Chico, California 480,000 6,281,000 - 6,761,000 94,000
Sacramento Holiday Inn, Sacramento, California 2,297,000 7,805,000 - 10,102,000 98,000
Walnut Creek Holiday Inn, Walnut Creek, California 1,099,000 2,350,000 - 3,449,000 37,000
Casa Grande Motor Inn, Aroyo Grande, California 1,289,000 5,163,000 2,970,000 3,482,000 236,000
----------- ---------- --------- ----------- ------------
Total hotels 6,212,000 24,020,000 2,970,000 27,262,000 501,000
----------- ---------- --------- ----------- ------------
Total Investment in Real Estate $30,757,000 89,685,000 5,863,000 114,579,000 2,812,000
=========== ========== ========= =========== ============
PARTNERSHIPS:
CR Properties, Sacramento, California $ - - - - -
Placer Ranch, Rocklin, California - - - 4,000,000 -
----------- ---------- --------- ----------- ------------
Total Investment in Partnerships $ - - - 4,000,000 -
=========== ========== ========= =========== ============
Total Investment in Real Estate and Partnerships $30,757,000 89,685,000 5,863,000 118,579,000 2,812,000
=========== ========== ========= =========== ============
</TABLE>
<TABLE>
<CAPTION>
Column A Column G Column H Column I
---------------------------------------------------- ------------ -------- --------
Life on Which
Depreciation in
Latest Income
Date of Date Statement is
Description Construction Acquired Computed
----------- ------------ -------- ---------------
<S> <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:
Park Terrace Inn, Redding, California 1968/1971 7/85 31 Years
Chico Holiday Inn, Chico, California 1972/1979 9/86 32 Years
Sacramento Holiday Inn, Sacramento, California 1978 9/86 32 Years
Walnut Creek Holiday Inn, Walnut Creek, California 1987 3/85 33 Years
Casa Grande Motor Inn, Aroyo Grande, California 1984 9/92 40 Years
Total hotels
Total Investment in Real Estate
PARTNERSHIPS:
CR Properties, Sacramento, California
Placer Ranch, Rocklin, California
Total Investment in Partnerships
Total Investment in Real Estate and Partnerships
</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. Various external
factors, particularly the lack of credit available to purchasers of real
estate and overbuilt real estate markets have adversely affected real estate
and necessitated the allowance.
* Denotes properties owned by Cal REIT.
48
<PAGE> 52
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
--------------------------------------------------------------------------------
Reconciliation of total real estate carrying values for the Three Month Period
ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
<S> <C>
ASSET RECONCILIATION:
Balance, September 30, 1994 $142,183,000
Adjust assets to fair market value (24,691,000)
-----------
Balance, October 7, 1994 117,492,000
Additions:
Improvements 181,000
Deductions:
Real estate sold (3,025,000)
Valuation losses (69,000)
-----------
Balance, December 31, 1994 $114,579,000
===========
ACCUMULATED DEPRECIATION
RECONCILIATION:
Balance, September 30, 1994 $ 31,746,000
Adjust assets to fair market value (29,728,000)
-----------
Balance, October 7, 1994 2,018,000
Additions:
Depreciation 807,000
Deductions:
Accumulated depreciation on
real estate sold (13,000)
-----------
Balance, end of year $ 2,812,000
===========
</TABLE>
49
<PAGE> 53
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Notes Receivable Collateralized by
Deeds of Trust)
DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Final
Interest Maturity Prior
Description Rate Date Periodic Payment Terms Liens
-------------- -------- -------- --------------------------------- --------
<S> <C> <C> <C> <C>
FIRST DEEDS OF TRUST:
Commercial Building, Corona,
California 10.50% 1995 Monthly interest only payments N/A
*Office Building, Phoenix,
Arizona 8.00% 1996 Monthly interest only payments N/A
*Office/Commercial Building,
Phoenix, Arizona 8.00% 2000 Monthly 5% interest only payments N/A
*Retail Building, Tempe
Arizona 9.25% 2017 Monthly principal and interest
payments of $9,249 N/A
Commercial Building, Fullerton
California 9.50% 2004 Monthly principal and interest
payments of $3,713 N/A
Land, Sacramento, California 9.00% 1995 Monthly interest only payments N/A
SECOND DEEDS OF TRUST:
*Commercial Building, Pacheco,
California 9.25% 1998 Monthly interest only payments 2,171,000
Commercial Office Building,
San Francisco, California 10.50% 1996 Monthly interest only payments 3,400,000
Office Building, Corona
California 11.00% 1993 Monthly interest only payments 1,368,000
</TABLE>
<TABLE>
<CAPTION>
Column A Column F Column G Column H
-------- -------- -------- --------
Valuation Write Carrying Principal Amount of
Face Amount Downs and Amount of Loans Subject to
of Notes Deferred Notes Delinquent Principal
Description Receivable Gains (2) Receivable (1) or Interest
-------------- ---------- ---------- ------------ -------------------
<S> <C> <C> <C> <C>
FIRST DEEDS OF TRUST:
Commercial Building, Corona,
California $1,380,000 $1,380,000 $1,380,000
*Office Building, Phoenix,
Arizona 861,000 168,000 693,000 None
*Office/Commercial Building,
Phoenix, Arizona 8,882,000 930,000 7,952,000 None
*Retail Building, Tempe
Arizona
937,000 937,000 None
Commercial Building, Fullerton
California
425,000 425,000 None
Land, Sacramento, California 719,000 719,000 None
SECOND DEEDS OF TRUST:
*Commercial Building, Pacheco,
California 763,000 763,000 None
Commercial Office Building,
San Francisco, California 400,000 400,000 None
Office Building, Corona
California 0 0 None
</TABLE>
50
<PAGE> 54
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Notes Receivable Collateralized by
Deeds of Trust)
DECEMBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Final Face Amount
Interest Maturity Prior of Notes
Description Rate Date Periodic Payment Terms Liens Receivable
------------- --------- ---------- ---------------------------------- -------- -----------
<S> <C> <C> <C> <C> <C>
SECOND DEEDS OF TRUST (CONTINUED):
*Office/Retail Complex, Fountain 50% of excess cash flows applied to
Valley, California 7.63% 2014 interest and then principal 8,915,000 6,629,000
*Office/Warehouse Complex, 10.00%-
Sunnyvale, California 16.00% 1989 Monthly interest only payments 845,000 2,071,000
*Retail Building, Sacramento,
California 11.00% 1994 Monthly interest only payments 1,525,000 211,000
*Commercial Building, Tempe
Arizona 8.00% 2000 Monthly 4% interest only payments 960,000 360,000
Commercial Building, Westminster, Monthly principal and interest
California 9.50% 1998 payments of $5,000 5,750,000 593,000
----------- -----------
$24,934,000 $24,231,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column G Column H
---------------- ------------- ----------------------
Valuation Write Carrying Principal Amount of
Downs and Amount of Loans Subject to
Deferred Notes Delinquent Principal
Description Gains (2) Receivable (1) or Interest
------------- --------------- -------------- --------------------
<S> <C> <C> <C>
SECOND DEEDS OF TRUST (CONTINUED):
*Office/Retail Complex, Fountain
Valley, California 5,634,000 995,000 None
*Office/Warehouse Complex,
Sunnyvale, California 2,071,000 2,071,000
*Retail Building, Sacramento,
California 211,000 0 211,000
*Commercial Building, Tempe
Arizona 239,000 121,000 None
Commercial Building, Westminster,
California 593,000 None
---------- -----------
$7,182,000 $17,049,000
========== ===========
</TABLE>
(1) Represents carrying amount of notes after valuation allowance and deferred
gains.
(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 collateralizing the note. In
addition, deferred gains have been recorded against notes receivable when
required under SFAS 66 (Note 1). Such write downs in no way limit the
obligation of the borrower to comply with the terms of the note.
* Denotes mortgages owned by Cal REIT.
51
<PAGE> 55
--------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
--------------------------------------------------------------------------------
A summary of activity for note receivable collateralized by deeds of trust for
the Three Month Period ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, September 30, 1994 $15,804,000
Additions:
New loans 1,319,000
Recognition of deferred gain 12,000
Deductions:
Collections on principal (86,000)
-----------
Balance, December 31, 1994 $17,049,000
===========
</TABLE>
52
<PAGE> 56
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
3/31/95 /s/ FRANK A. MORROW
__________________ _______________________________________
Date Frank A. Morrow
President and Chief Executive Officer
3/31/95 /s/ ARNOLD E. BROWN
__________________ _______________________________________
Date Arnold E. Brown
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
3/31/95 /s/ JOHN MC MAHAN
__________________ _______________________________________
Date John McMahan
Chairman of the Board
3/31/95 /s/ E. LAWRENCE HILL, JR.
__________________ _______________________________________
Date E. Lawrence Hill, Jr.
Trustee
3/31/95 /s/ FRANK A. MORROW
__________________ _______________________________________
Date Frank A. Morrow
Trustee
3/31/95 /s/ JOHN F. SALMON
___________________ _______________________________________
Date John F. Salmon
Trustee
3/31/95 /s/ KENNETH T. SEEGER
___________________ _______________________________________
Date Kenneth T. Seeger
Trustee
53
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> OCT-1-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 5,682
<SECURITIES> 0
<RECEIVABLES> 28,583
<ALLOWANCES> (13,640)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 124,442
<DEPRECIATION> (2,812)
<TOTAL-ASSETS> 142,256
<CURRENT-LIABILITIES> 16,392
<BONDS> 93,556
<COMMON> 13,339
20,863
0
<OTHER-SE> (1,894)
<TOTAL-LIABILITY-AND-EQUITY> 142,256
<SALES> 0
<TOTAL-REVENUES> 6,817
<CGS> 0
<TOTAL-COSTS> 4,392
<OTHER-EXPENSES> 1,747
<LOSS-PROVISION> 119
<INTEREST-EXPENSE> 1,897
<INCOME-PRETAX> (1,242)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,338)
<EPS-PRIMARY> (0.27)<F1>
<EPS-DILUTED> (0.27)<F1>
<FN>
<F1>(1) SHARED BENEFICIAL INTEREST EQUIVALENTS WERE ANTI-DILUTIVE. THE FIGURES
PRESENTED ABOVE ARE SIMPLE EPS.
</FN>
</TABLE>
