<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the Transition period from ________________________
Commission File Number 0-9097
THE PEREGRINE REAL ESTATE TRUST
(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
Exhibit Index: Page
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Indicate by check mark 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.
[ X ]
MARKET VALUE
There is no active trading market for the Trust's Common 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 March 31, 1996, there were 4,881,055 outstanding Common Shares of
Beneficial Interest.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Trust's Proxy Statement for the 1996 Annual Meeting of
Shareholders to be filed within 120 days after the end of registrant's fiscal
year ended December 31, 1995 (the "Proxy Statement") are incorporated by
reference into Part III of this report.
<PAGE> 3
- -------------------------------------------------------------------------------
THE PEREGRINE REAL ESTATE TRUST
===============================================================================
<TABLE>
<CAPTION>
PART I PAGE
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<S> <C> <C>
Item 1. Business 1-7
Item 2. Properties 8-9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
- ---------------------------------------------------------------------------------------------------------
PART II
- ---------------------------------------------------------------------------------------------------------
Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-21
Item 8. Financial Statements and Supplementary Data 22-56
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 22
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PART III
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Item 10. Trustees and Executive Officers of the Registrant 57
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain Beneficial Owners and Management 57
Item 13. Certain Relationships and Related Transactions 57
- ---------------------------------------------------------------------------------------------------------
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 58
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</TABLE>
(i)
<PAGE> 4
PART I
Item 1. Business
(a) Introduction
The Peregrine Real Estate Trust (the "Trust" or "Peregrine") is a
California business trust headquartered in Sacramento, California. As of
December 31, 1995, the Trust's assets included twenty-two commercial properties
located primarily in the Sacramento area; four parcels of land located in the
Sacramento area; five hotel properties located throughout California; and twelve
mortgage notes secured by real property. This group of assets includes those
represented by the Trust's 76% ownership interest in the California Real Estate
Investment Trust ("CalREIT").
The Peregrine Real Estate Trust emerged from bankruptcy under a Plan of
Reorganization in October 1994. As such, 1995 represents Peregrine's first full
year of operations since the application of "fresh start" accounting upon the
Trust's emergence from bankruptcy on October 7, 1994.
(b) Background
Chapter 11 Proceedings. On August 2, 1993, Commonwealth Equity Trust ("CET")
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.
Plan of Reorganization. On June 9, 1994, The Peregrine Real Estate Trust,
formerly Commonwealth Equity Trust; a lender group including the Prudential
Insurance Company of America, the Pacific Mutual Life Insurance Company, Orix
USA Corp. and TCW ( the "Senior Lender Group"); the Official Committee of
Holders of Equity Interests; and the Official Committee of Creditors Holding
Unsecured Claims filed with the Bankruptcy Court the Third Amended Plan of
Reorganization (the "Plan") which was confirmed as modified 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, an event expected to occur
in 1996.
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) CET shares to approximately 2,334,000 (new)
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Peregrine shares (effectively a reverse stock split); and the issuance of
approximately 2,550,000 new Shares of Beneficial Interest plus a new class of
Redeemable Convertible Preferred Shares of the Trust to the Senior Lender Group.
As of the Effective Date, the Senior Lender Group became the owner of a majority
of the new Shares of Beneficial Interest and all of the new Redeemable
Convertible Preferred Shares. The Senior Lender Group 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 (the "Line of Credit" or "Credit Facility") to which the
Senior Lender Group agreed to subordinate. The Line of Credit, 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
Senior Lender Group was satisfied in the Plan by the issuance to the Senior
Lender Group of the following securities:
(i) 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.
The Interest Deferral Notes accrue interest at 8.5% per annum from the
date of issuance. Interest payments, both on principal and the deferred
interest, accrue through September 30, 1996 and are payable monthly in cash
commencing on November 1, 1996.
Restructured Notes Payable and Interest Deferral Notes (collectively
the "Notes" or "Senior Debt") 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 including the prepayment of principal in the amount of 80% of any
net proceeds the Trust receives from the sale of the collateral for the Notes
and from other specified sources.
(ii) Redeemable Convertible Preferred Stock (the "Preferred Shares" or
"Preferred Stock") in the face amount of $22,500,000 represented by 11,250,000
preferred shares which carry a dividend of 10% per annum. Dividends are payable
in kind through October 1, 1998, by means of additional shares of Preferred
Stock issued quarterly; thereafter, dividends are payable quarterly in cash. The
Preferred Stock automatically converts into 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 and no
additional Shares of Beneficial Interest were issued, and the Redeemable
Convertible Preferred Stock converted to Shares of Beneficial Interest on
October 1, 1998, the Senior Lender Group would, as a result of that conversion,
acquire 77% of the total number of Shares of Beneficial Interest outstanding,
thereby bringing its total holdings to approximately 89%.
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The Redeemable Convertible Preferred Stock is redeemable in cash on
October 1, 2000, however it may be redeemed earlier under certain circumstances
including the sale of all or substantially all the assets of Peregrine.
(iii) Shares of Beneficial Interest (the "Common Shares" or "Common Stock")
equal to approximately 52% of the total outstanding Common Stock represented by
2,550,001 shares. Subsequently, pursuant to the Plan, old CET shares that
remained unexchanged as of October 7, 1995, were converted to new Peregrine
shares and redistributed among Peregrine shareholders-of-record at year end. As
a result, as of March 31, 1996, the Senior Lender Group owned directly or
indirectly 2,560,582 Common Shares.
Line of Credit. Pursuant to the Plan, a Line of Credit in the maximum amount of
$10,000,000 was arranged. The Line of Credit is collateralized by a first lien
on certain of the Trust's properties. It is a revolving line and bears interest
at 2.25% over the prime rate defined in the Agreement. The Line of Credit
matures on October 7, 1997.
Organization. Peregrine is governed by a Restated Declaration of Trust dated
October 7, 1994. The Restated Declaration of Trust gives the Board of Trustees
the power to borrow money on behalf of the Trust; 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 operations. The Trustees can also make decisions regarding
investment and sales activities without the prior approval of shareholders.
CET's status as a qualified REIT was terminated as of the beginning of
its fiscal year ended September 30, 1993. Unless Peregrine 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.
Transition Period. For purposes of this report, the Transition Period is defined
as the Period from October 7, 1994, the Effective Date of the Plan, through
December 31, 1994.
(c) Business of Peregrine in 1995
Overview. During 1995, Peregrine owned and operated a portfolio of investments
that included real property, mortgage notes, and a 76% interest in CalREIT. See
Item 2 of this report for information regarding the Trust's properties.
Property Portfolio. During 1995, Peregrine sold the following properties:
Woodland Medical Building in Milpitas, California; unimproved acreage in
Northridge, California; and one of two buildings formerly occupied by Systems
Integrators Inc. in Sacramento, California. Subsequently, during the first
quarter of 1996, the Sierra Oaks Shopping Center in Sacramento was approved for
sale and CalREIT completed its sale of the Redfield Commerce Center in
Scottsdale, Arizona. Also, during the first quarter, CalREIT transferred
ownership of its Casa Grande Motor Inn in
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Arroyo Grande, California to the lender. Despite significant improvements in
operations under a third-party hotel management company, the Casa Grande Motor
Inn's current and projected financial performance was insufficient to cover its
debt service requirements. CalREIT suspended debt service payments and contacted
the lender on the property with a proposal to renegotiate the debt structure.
This proposal was rejected and in February of 1996, the Casa Grande Motor Inn
was returned to the lender through foreclosure.
At the end of 1995, Peregrine directly-owned four hotels in California
and eighteen commercial properties, located primarily in Sacramento. The
commercial property portfolio included six light industrial properties, two
mini-storage facilities, five suburban office buildings, and five shopping
centers encompassing approximately 1,079,000 net rentable square feet in total.
CalREIT, at the end of 1995, directly owned one hotel property and four
commercial properties encompassing in total approximately 272,000 net rentable
square feet.
At the beginning of 1995, after recently emerging from bankruptcy, the
majority of the Trust's properties were in poor physical and operating
condition. During 1995, efforts were made to collect delinquent rents, evict
non-paying tenants, control property expenses and to complete repairs and
deferred maintenance. A contract was executed with United Property Services,
Inc. ("UPSI"), a professional property management and leasing firm, to provide
property and asset management services for the Trust's retail, office and light
industrial properties. The weighted average occupancy for the Trust's commercial
property portfolio at the end of 1995 was approximately 76%.
In 1995, the Trust signed contracts with three hotel management
companies to operate its four directly-owned hotels located in Chico,
Sacramento, Redding and Walnut Creek, California. These hotel management
companies currently employ and oversee all staffing, operations and union
negotiations at the hotels which have an aggregate 715 guestrooms. In late 1995,
the Park Terrace Inn was closed for renovation work. The weighted average
occupancy for the Trust's three other Holiday Inns, which were open and
operating throughout 1995, was 65% at the end of 1995.
The Sacramento metropolitan area, where the majority of the Trust's
properties are located, continued to experience increasingly soft market
conditions in 1995. Occupancy levels and achievable rental rates are expected to
further decline as the area experiences the adverse impact of ongoing federal
and state reductions in spending and employment as well as defense industry
cutbacks. The announced closing of McClellan Air Force Base in particular had a
negative effect on the Sacramento economy as the community reacted to one of the
nation's largest employers down sizing.
At December 31, 1995, the book value for the Trust's commercial and
hotel property portfolio was $94,500,000 of which $77,285,000 was represented by
Peregrine's directly-owned properties and $17,215,000 by CalREIT's five
properties. On that date, these properties were encumbered by $41,790,000 of
indebtedness (other then the Senior Lender Group debt and the Credit Facility).
4
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Mortgage Note Portfolio. At the beginning of 1995, the Trust had twelve notes
(including seven held by CalREIT) in its mortgage note portfolio. As of year
end, three notes had been retired and one added (at the time of the sale of the
Woodland Medical Building). The majority of the Trust's notes originated from
property dispositions prior to 1995 and represent first and second mortgages
collateralized by real property located on the West Coast. At the end of 1995,
the book value of the Trust's twelve mortgage note portfolio totaled
$14,627,000, of which $4,125,000 was represented by Peregrine's note portfolio
and $10,502,000 by the seven notes held by CalREIT. At such time, $1,200,000
(net of valuation allowance of $180,000) due Peregrine was delinquent, and
$1,575,000 (net of valuation allowance of $496,000) due CalREIT was delinquent.
CalREIT. Peregrine owns 6,959,593 or 76% of the outstanding 9,156,970 shares of
CalREIT. At year end, CalREIT was 25% leveraged, reflecting outstanding mortgage
debt obligations of $8,335,000. CalREIT has approximately 1,960
shareholders-of-record; its shares are traded on the New York Stock Exchange and
the Pacific Stock Exchange under the symbol CT. As of year-end 1995, the book
value of CalREIT's assets totaled $33,532,000, of which approximately
$25,484,000 reflects Peregrine's ownership interest in the assets on an
unconsolidated basis. During 1995, CalREIT shares traded between $1.24 and
$1.50, up to 54% below the book value of $2.72 per share on December 31, 1995.
During 1995, CalREIT began to monetize its assets in order to
facilitate its corporate strategy. As described above, by the end of the first
quarter 1996, CalREIT had disposed of its hotel and sold one light industrial
property. Monetization of a substantial portion of CalREIT's assets is expected
to be completed by the third quarter of 1996.
1995 Financial Overview. Total revenues for the Trust in 1995 were $27,077,000
and total expenses $32,365,000. The net loss for the Trust in 1995 was
($14,733,000) or ($3.02) per share.
The Trust ended the year with $5,079,000 in cash, of which $4,778,000
was held by CalREIT and $301,000 by Peregrine. In addition, funds available to
the Trust through its Line of Credit totaled $4,474,000 at December 31, 1995.
As of December 31, 1995, the Trust's tax loss carryforward totaled
approximately $72,796,000 for federal and $31,888,000 for California.
At year end, the Trust was 95% leveraged reflecting outstanding
long-term debt and Redeemable Convertible Preferred Stock obligations totaling
$115,064,000. In 1995, the Trust paid $4,472,000 in interest on its long-term
first mortgage notes. Total debt obligation on these notes at December 31, 1995
was $42,703,000. In addition, throughout the year, in accordance with the Plan
of Reorganization, the Trust serviced the Notes held by the Senior Lender Group
through payments in-kind, i.e. additional Notes, totaling $3,596,000. At year
end, the total obligation on the Notes held by the Senior Lender Group was
$43,441,000.
In accordance with the Plan, dividends on the Senior Lender Group's
Redeemable Convertible Preferred Stock were paid in-kind throughout 1995. During
the year, dividends of
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$2,425,000 were paid in-kind through the issuance of an additional 1,212,000
Preferred Shares, bringing the total number of Preferred Shares held by the
Senior Lender Group to 12,728,000 as of December 31, 1995.
A more detailed discussion of the Trust's financial performance,
results of operations and alternative going-forward operating strategies is
included in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(d) Management of the Trust's Investments
Peregrine is a self-administered real estate trust. The interim Chief
Executive Officer of the Trust is John McMahan, Chairman of the Board of
Trustees, replacing Frank A. Morrow who was replaced as Chief Executive Officer
of Peregrine on January 18, 1996, and who subsequently resigned as a Trustee of
Peregrine on February 1, 1996. Mr. Morrow continues to serve as the Chairman of
the Board of Trustees and Chief Executive Officer of CalREIT. Arnold Brown,
Peregrine's former Chief Financial Officer, whose contract was not renewed in
September 1995, also continues to serve as a Trustee of CalREIT.
All management services are provided by employees of the Trust,
professional property management companies or independent contractors. As of
December 31, 1995, the Trust had ten employees. Management services for CalREIT
are additionally provided by the employees of Peregrine. The Trust receives a
reimbursement of costs pursuant to a cost-allocation agreement for providing
these services. As discussed above, during 1995, agreements were signed with
three unaffiliated hotel management companies to provide professional hotel
management services at the Trust's hotel properties. UPSI continued to manage
the Trust's commercial properties.
(e) Executive Officers of the Registrant
The Executive Officers of The Peregrine Real Estate Trust are listed
below:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
John McMahan 58 Chairman of the Board and Interim CEO
John F. Salmon 50 Trustee and Secretary
</TABLE>
The principal business experience and affiliations of the Executive Officers are
as follows:
John McMahan, Chairman of the Board and Interim Chief Executive Officer. Mr.
McMahan is President of The McMahan Group, a San Francisco-based real estate
management consulting firm founded in 1994. 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
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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 California Real
Estate Investment Trust and BRE Properties, Inc., and has served as a past
chairman of the National Association of Real Estate Investment Managers.
John F. Salmon, Trustee and Secretary. Mr. Salmon is a San Francisco-based
commercial real estate consultant. Beginning in 1989, he served 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.
(f) Uninsured Losses from Seismic Activity
All of the Trust's properties are located in areas that are subject to
earthquake activity. The Trust's insurance policies for these properties cover
losses from fires after an earthquake, but they do not cover damage directly
caused by earthquakes or other seismic activity. The Trust has not obtained
earthquake insurance for these properties because it has been unavailable from
insurers. In the event that uninsured losses resulting from earthquake or other
seismic activity should occur, the Trust could lose its capital invested in the
affected property, as well as the anticipated future revenues from such property
and would continue to be obligated on any mortgage indebtedness or other
obligations related to the property. Any such loss could materially and
adversely affect the business of Peregrine and its financial condition and
results of operations.
(g) Potential Environmental Risks
Investments in real property create a potential for environmental
liability on the part of the owner of, or any mortgage lender on, such real
property. If hazardous substances are discovered on or emanating from any of the
company's properties, the owner or operator of the property (including the
company) may be held strictly liable for all costs and liabilities relating to
such hazardous substances. The Trust currently carries no insurance for
environmental liabilities.
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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, 1995. 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>
SHOPPING CENTERS:
Regency Plaza, Sacramento, California 5/85 100% 141,965 $12,354,000 $ 8,869,000
University Village, Sacramento, California 12/86 100% 82,882 8,077,000 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 3,618,000 --
*Totem Square, Kirkland, Washington 11/90 47% 125,793 9,400,000 4,334,000
Sunrise Hills, Citrus Heights, California 1/89 100% 81,499 6,005,000 4,336,000
Sierra Oaks, Roseville, California 1/89 100% 60,064 6,913,000 4,976,000
----------- -----------
Total Shopping Centers 47,947,000 30,247,000
----------- -----------
OFFICE BUILDINGS:
Timberlake, Sacramento, California 12/86 100% 21,708 1,061,000 484,000
16th and K Streets, Sacramento, California 8/87 100% 39,753 3,236,000 --
Town Center Garden Office Park, Long Beach, California 12/87 100% 92,681 4,795,000 --
Hurley Ethan Office Park I, Sacramento, California 4/88 100% 36,612 2,479,000 1,322,000
System Integrators Buildings, Sacramento, California 5/88 100% 45,000 1,968,000 2,380,000
Hurley Ethan Office Park II, Sacramento, California 6/88 100% 39,027 2,535,000 2,408,000
One Sunrise Park, Rancho Cordova, California 8/83 100% 43,056 1,979,000 --
----------- -----------
Total Office Buildings 18,053,000 6,594,000
----------- -----------
INDUSTRIAL BUILDINGS:
11135 Trade Center Drive, Rancho Cordova, California 5/88 100% 144,332 2,868,000 --
11167 Trade Center Drive, Rancho Cordova, California 5/88 100% 57,650 1,001,000 --
Parkway Center, El Dorado Hills, California 1/88 100% 45,332 1,530,000 --
*Redfield Commerce Center, Scottsdale, Arizona 5/88 76% 27,910 1,573,000 --
*515 S. Fair Oaks Avenue, Pasadena, California 7/88 76% 83,106 5,745,000 --
Mallory Service Building, Walnut Creek, California 10/88 100% 21,752 1,010,000 --
----------- -----------
Total Industrial Buildings 13,727,000 --
----------- -----------
</TABLE>
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ITEM 2: PROPERTIES (continued)
<TABLE>
<CAPTION>
Date of Ownership Square Total
Direct Equity Investments Acquisition Percentage Feet Cost (1) Encumbrances (2)
------------------------- ----------- ---------- ---- -------- ----------------
<S> <C> <C> <C> <C> <C>
MINI-STORAGES:
Burbank Mini-Warehouse, Santa Rosa, California 4/85 100% 72,200 1,517,000 --
Downtown Mini Storage, Sacramento, California 3/88 100% 44,825 1,371,000 --
------------ ------------
Total Mini-Storages 2,888,000 --
------------ ------------
LAND:
Florin Perkins, Sacramento, California 6/91 100% 368,480 182,000 --
------------ ------------
Total Land 182,000 --
------------ ------------
HOTELS:
Park Terrace Inn, Redding, California 7/85 100% 111,310 3,558,000 1,860,000
Chico Holiday Inn, Chico, California 9/86 100% 87,000 6,951,000 --
Sacramento Holiday Inn, Sacramento, California 9/86 100% 139,800 10,201,000 --
Walnut Creek Holiday Inn, Walnut Creek, California 3/85 100% 78,470 3,480,000 --
*Casa Grande Motor Inn, Arroyo Grande, California (3) 9/92 76% 64,200 6,477,000 3,089,000
------------ ------------
Total Hotels 30,667,000 4,949,000
------------ ------------
$113,464,000 41,790,000
============ ============
</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.
(3) Property was returned to the lender due to foreclosure in February 1996.
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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; however, claims against the Trust
for payment of approximately $4,500,000 in fees for professional services
rendered during the bankruptcy proceedings remain pending before the Bankruptcy
Court. In March 1996, certain claimants submitted a motion with the Court
requesting that the Trust be required to reserve and segregate money for the
payment of such fees. As of the date of this report, this motion is still
pending. Resolution of the claims for professional fees, expected in 1996, could
have an 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during 1995.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Security Holder
Matters
Market
The Trust's Common stock has traded on the Over-The-Counter Bulletin Board
market system under the symbol PGRNS since the Trust emerged from bankruptcy and
the issuance of new Peregrine certificates was completed. There was no active
trading market for the Trust's shares during the first quarter of 1995. The
following table sets forth the high and low closing quotations for the stock
during the past three quarters as reported by One Source Information Services
Inc. The prices do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
First Quarter N/A N/A
Second Quarter $ 1.50 $ 1.00
Third Quarter 1.00 0.625
Fourth Quarter 0.625 0.125
</TABLE>
Holders
As of March 31, 1996, there were approximately 17,800 shareholders-of-record of
the Trust's Common Stock.
Dividends
The Trust made no cash distributions in 1995.
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Item 6. Selected Financial Data
The following represents selected financial data for The Peregrine Real Estate
Trust for the year ended December 31, 1995, the Transition Period and the years
ended September 30, 1994, 1993, and 1992. The data should be read in conjunction
with other financial statements and related notes included elsewhere herein.
Numbers below are shown in the thousands except for per share data.
<TABLE>
<CAPTION>
Commonwealth Equity Trust
----------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, Transition September 30, September 30, September 30,
1995 Period 1994 1993 1992
---- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating results:
Revenue(1) $ 26,893 $ 6,806 $ 32,858 $ 19,585 $ 31,925
Net Loss(2) (14,733) (1,338) (23,000) (71,997) (56,718)
Per share of beneficial interest:
Net Loss $ (3.02) $ (0.27) $ (0.92) $ (2.87) $ (2.26)
Financial Position:
Total Assets $ 121,793 $ 142,121 $ 140,186 $ 169,213 $ 280,010
Long-term Obligations 91,670 93,615 122,963 140,173 180,171
</TABLE>
(1) Includes net (losses) gains from foreclosure or sale of investments of
($184), $12, $688, ($7,130) and $539 for the year ended December 31, 1995, the
Transition Period, and the years ended September 30, 1994, 1993, and 1992,
respectively.
(2) Includes valuation losses of $9,526, $119, $3,413, $53,089 and $48,130 for
the year ended December 31, 1995, the Transition Period, and the years ended
September 30, 1994, 1993 and 1992, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes appearing elsewhere in the Form 10-K. The Trust
adopted "fresh start" accounting rules as of the beginning of the Transition
Period (October 7 through December 31, 1994). Results during 1995 and the
Transition Period serve as benchmark data for all future comparisons but are not
comparable to prior periods. In addition, unless otherwise noted,
12
<PAGE> 16
operating and financial results are reported for Peregrine and its subsidiary
CalREIT on a consolidated basis.
Overview
During the twelve months ended December 31, 1995, management of the Trust
concentrated on improving property operations while simultaneously exploring
alternative operating strategies for the future. In the near term, the immediate
priority has been to meet the Trust's present and medium term debt obligations.
To accomplish this objective, emphasis has been placed on maximizing the income
stream from the properties by stabilizing the rent rolls and through disposition
of certain assets.
Management of the Trust also continues to explore alternative longer term
strategies to maximize shareholder value, including analysis of current and
expected property valuations, regional and industry market trends and potential
long-term growth opportunities in single and multi-tenant buildings, retail
centers and hotel properties. In addition, during the past year, the Trust has
continued to analyze operating, disposition and other strategies relating to its
76% ownership interest in California Real Estate Investment Trust. This
assessment of long-term strategies, which is expected to continue through 1996,
includes alternatives relating to the Trust's $43,441,000 in long-term secured
debt to the Senior Lender Group, as well as $42,703,000 in first mortgage debt
which requires servicing. The note to the Senior Lender Group will accrue
interest in kind through September 1996 and will require cash interest payments
of approximately $4,000,000 per year commencing October 1996. In addition,
$25,457,000 at face value in Redeemable Convertible Preferred Stock also held by
the Senior Lender Group will accrue dividends in kind through September 1998 and
will require cash dividends payments of approximately $3,300,000 per year
commencing in October 1998.
The Trust believes that the following factors have adversely affected, and in
the future could adversely affect, the Trust's financial condition, results of
operation and liquidity:
- - The capital structure of the Trust resulting from the confirmed Plan of
Reorganization, including approximately $86,000,000 in senior and first
mortgage debt and approximately $25,500,000 at face value of Preferred
Stock at December 31, 1995, plus the associated present and future debt
service and dividend obligations;
- - The estimated $6,500,000 to $7,000,000 in capital improvements required to
renovate and refurbish the Trust's hotel properties in accordance with
Holiday Inn franchise standards; and up to $4,500,000 in fees for
professional services being asserted against the Trust in connection with
the Bankruptcy Court proceedings;
- - The Trust's general and administrative expenses, including the costs
associated with its 17,800 shareholder base and the impact of expenses
resulting from the Trust's ongoing evaluation of its business strategies
and asset valuation;
13
<PAGE> 17
- - The limited sources and amount of funds currently available to the Trust
from operations, its revolving Line of Credit and from property
dispositions after payment of associated indebtedness; and the inability of
the Trust to raise capital from third parties in light of, among other
things, its debt and capital structure, operating history and contingent
liabilities as discussed above; and
- - The overall lack of synergy and investment quality of the Trust's real
estate portfolio, the present and expected softness in the Sacramento or
other California markets where most of the properties are located, and the
related declines in lease up and lease rates which adversely affect real
estate values.
For additional information regarding certain of the Trust's financial
commitments and contingencies, see Note 11 to the Consolidated Financial
Statements. Management does not believe that such commitments and contingencies
raise substantial doubt at this time regarding the Trust's ability to continue
as a going concern.
Liquidity and Capital Resources
The Trust's unrestricted cash totaled $5,079,000 on December 31, 1995, down from
$5,366,000 at December 1994; of this amount, $301,000 was held by Peregrine and
$4,778,000 by CalREIT. In 1995, the Trust's principal source of funds was from
operating income and the revolving Line of Credit in the maximum amount of
$10,000,000; at December 31, 1995, $4,474,000 remained available through the
Line of Credit. No dividends were paid by CalREIT in 1995, while in 1994,
Peregrine received $695,000 in dividends as a result of its 76% ownership of
CalREIT.
Debt service paid on the Trust's first mortgage notes totaled $4,902,000 in 1995
and $3,907,000 will be due in 1996, assuming the extension of CalREIT's Totem
Square note to April 1997. During the same period, the Trust satisified
$3,596,000 in interest due on its Notes to the Senior Lender Group through the
issuance of additional notes; in 1996 this interest is required to be paid
monthly in cash beginning in October, a total of $1,006,000 in the coming year
and approximately $4,000,000 per year thereafter. In addition to these cash
commitments, claims of approximately $4,500,000 in fees for professional
services have been asserted against the Trust in connection with the bankruptcy
proceedings, which claims are expected to be resolved by the Bankruptcy Court in
1996. At December 31, 1995, $3,000,000 had been accrued as an expense in the
Trust's financial statements with respect to this contingency. The Trust has
also estimated that capital expenditures of approximately $6,500,000 to
$7,000,000 will be required during 1996 to redevelop and refurbish its hotel
properties in accordance with Holiday Inn franchise requirements and in order to
maintain a competitive lodging product. At December 31, 1995, the Trust's
long-term cash commitments included the maturity of the Line of Credit in
October 1997, cash dividend payments of approximately $3,300,000 per year on the
Preferred Stock commencing in October 1998, and repayment of principal and
interest on the Senior Debt in October 2000.
The Trust anticipates it will be able to meet its debt service obligations
through the next twelve months. However, the Trust has not yet obtained
committed sources for the $6,500,000 to $7,000,000 in capital improvements for
its hotel properties or for the payment of claims for
14
<PAGE> 18
professional fees in excess of the amount accrued in the Trust's financial
statements. In order to meet these requirements, the Trust is considering
numerous alternatives, including asset dispositions, restructuring and debt
financing alternatives. Without capital improvements, the hotel properties will
not be competitive and will lose their Holiday Inn licenses and the resulting
decline in occupancy levels and room rental rates would have a material adverse
impact on the Trust's overall financial performance. The Trust is exploring
financing alternatives with banks, savings and loan institutions and other
traditional lenders. Through GIAC, Holiday Inn's own corporate financing arm,
the Trust applied for a portion of the redevelopment funds it requires. The
Trust also approached several mortgage bankers seeking alternative sources of
funding and has also explored joint-venturing the redevelopment of its hotels
with prospective joint-venture partners including the hotel management companies
now managing the hotels. To date, none of these efforts have proven fruitful.
The Trust may also apply for an increase in its Line of Credit, although the
amount likely to be approved would only fund a portion of the improvements
required at the hotels. Approval of the Senior Lender Group is expected to be a
condition to obtain financing for the redevelopment of the hotels and there is
no assurance such approval, if requested, will be granted.
15
<PAGE> 19
Funds From (Used In) Operations. 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
year ended December 31, 1995, the Transition Period and the year ended September
30, 1994 are summarized as follows:
Calculation of Funds From (Used In) Operations
and Funds Available for Distribution
(Dollars in thousands)
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
Year Ended Year Ended
December 31, Transition September 30,
1995 Period 1994
---- ------ ----
<S> <C> <C> <C>
Loss before (loss) gain on foreclosure
or sale of investments, valuation
losses, extraordinary item and
minority interest $ (6,288) $ (1,242) $(20,426)
Depreciation and amortization 3,763 831 4,878
-------- -------- --------
Funds Used in Operations (2,525) (411) (15,548)
Capital Improvements (2,353) (181) (1,493)
Loan principal payments (1,454) (72) (253)
-------- -------- --------
Funds Available for Distribution $ -- $ -- $ --
======== ======== ========
</TABLE>
16
<PAGE> 20
Results of Operations
Commercial Property Occupancy. At December 31, 1995 and 1994, overall weighted
average occupancy levels for the Trust's properties, by type of property, is
shown below:
<TABLE>
<CAPTION>
Occupancy at December 31,
Property Type 1995 1994
------------- ---- ----
<S> <C> <C>
Shopping Centers 81% 85%
Office Buildings 65% 78%
Industrial Buildings 80% 79%
Mini Storage Facilities 93% 90%
</TABLE>
Note: The weighted average occupancy is calculated by multiplying the occupancy
by its square footage and dividing by the total square footage in the portfolio.
The overall weighted average for the Trust's entire commercial property
portfolio (including four CalREIT properties) as of December 31, 1995 was 78%
compared to 82% at the end of 1994.
The decline in occupancy at the Trust's office properties in 1995 is partially
attributable to the vacating of two 45,000 square foot buildings in Sacramento
by System Integrators. Systems Integrators, Inc. operated under the protection
of Chapter 11 during 1995. It rejected its leases with the Trust and vacated the
space and ceased paying rent effective May 31, 1995. Under the original lease,
the space produced gross rents of approximately $75,000 per month, while
property operating expenses were approximately $3,300 per month. During the
year, the Trust and the first mortgage lender agreed to modify the notes secured
by the property to provide that one-half of the interest accruing under them
from June 1, 1995 through June 30, 1996 is deferred until July 1, 1996, at which
time it will be added to the principal. The deferred interest will be
non-recourse to the Trust. The Trust sold one of the buildings in the fourth
quarter of 1995 and is attempting to re-lease the remaining space.
A major tenant in the Regency Plaza Shopping Center in Sacramento metropolitan
area is experiencing operating difficulties and has ceased to pay rent. The
tenant occupies 29,650 square feet of space or 21% of the net leasable space at
the shopping center and generated approximately $216,000 or 14% of the shopping
center's annual rental revenue. Another major tenant, occupying 14,255 square
feet of space, or 10% of the net leasable space at the shopping center, ceased
paying rent in March 1996. This tenant generated approximately $145,401 or 12%
of the shopping center's annual revenue. The Trust has initiated eviction
proceedings and is seeking new tenants.
A major tenant at the Hurley-Ethan I suburban office property has been acquired
by another firm and has given notice that it will be vacating 5,800 square feet,
approximately 16% of the net leasable space at the property. This tenant
generated approximately $99,528 in annual rental revenue or 26% of the
property's total revenue in 1995.
17
<PAGE> 21
As described earlier in Item 1 of this report, the Trust expects in the coming
months a continuing decline in occupancy levels at its commercial properties as
a result of increasingly soft market conditions in the Sacramento metropolitan
area.
Hotel Occupancy. Overall weighted average occupancy for Peregrine's four
directly-owned hotels was 55% at year-end 1995 versus 50% at year-end 1994.
<TABLE>
<CAPTION>
Occupancy
1995 1994
---- ----
<S> <C> <C>
Holiday Inn Chico 61% 46%
Holiday Inn Sacramento 65% 65%
Holiday Inn Walnut Creek 71% 65%
Holiday Inn Redding 20% 18%
</TABLE>
Note: The Holiday Inn Redding or Park Terrace Inn's room division was closed in
October 1995 when redevelopment work at the property commenced. Without
consideration of the Redding hotel, the average weighted occupancy for the
Trust's directly-owned hotel portfolio was 65% in 1995.
Dispositions. During 1995, Peregrine sold the Woodland Medical Building in
Milpitas, California, one office building in Sacramento, plus parcels of land in
Northridge, California. The net loss recognized from the sale of these
properties was ($30,000). A contract for sale of Sierra Oaks Shopping Center was
approved in the first quarter of 1996. The Trust is proceeding with its plans to
market for sale those properties that produce negative cash flow or are expected
to in the near future. Also during the first quarter of 1996, the Trust received
offers to purchase University Village Shopping Center in Sacramento which are
under consideration.
CalREIT. During 1995, CalREIT's four commercial properties were readied for sale
as part of its corporate strategy to reposition the company. Leasing, capital
and tenant improvement expenditures were approved as they related to their
impact on potential sale prices. As of the end of 1995, Redfield Commerce Center
was in escrow and the other three commercial properties were listed with real
estate brokerage firms. In the first quarter of 1996, a contract for the sale of
the Bekins Storage Facility was approved by the CalREIT Board of Trustees. Also
during that time period, certain CalREIT mortgage notes were packaged for sale,
with disposition expected to be completed in the second quarter 1996. Because of
the Casa Grande Motor Inn's limited financial potential and inability to service
its debt, CalREIT transferred ownership of the property back to the lender in
February 1996.
18
<PAGE> 22
Revenue
Total revenue in 1995 was $27,077,000 of which $12,816,000 or 47% was generated
by the hotel properties; $12,495,000 or 46% by the commercial properties; and
$1,766,000 or 7% from interest on the Trust's mortgage note portfolio and other
sources.
In 1995, rental rates for the Trust's portfolio of commercial properties as a
whole remained flat reflecting the impact of a softening economic environment in
Sacramento. The average daily rent at the Trust's hotel properties dropped by 8%
during 1995, primarily the result of closing down guestrooms at the Holiday Inn
in Redding to begin renovation of the property. Without the consideration of the
Holiday Inn at Redding, the aggregate average daily room rate dropped by 2%
during 1995 to $59.72.
Expenses
Total expenses for the Trust in 1995 were $32,365,000. Of that amount,
$10,964,000 or 34% were attributable to hotel operating expenses; $8,524,000 or
26% to interest expense; $4,286,000 or 13% to commercial property operating
expenses; $4,194,000 or 13% to general and administrative expenses; $3,763,000
or 12% to depreciation and amortization expense; and $634,000 or 2% to property
management expenses.
Real Estate Expense. The largest expense categories, 61% of total Trust expenses
during 1995, are real estate related and include all hotel and commercial
property operating and property management expenses.
Interest Expense. Of the $8,524,000 in interest expensed in 1995, $3,596,000 was
on the Senior Debt, $4,410,000 on first mortgage notes, and $518,000 on the Line
of Credit.
General and Administrative Expenses. Management estimates that approximately
$1,400,000, or 33% of the total general and administrative expense, is
attributable to the cost of being a publicly-owned company. In 1995, the Trust
completed the share and certificate exchange program required by the Plan of
Reorganization, whereby old CET shares were exchanged for new Peregrine shares.
As of March 31, 1996, the Trust had approximately 17,800 shareholders-of-record,
77% of whom held 200 or less shares. The implementation of this program required
a one-time expense. Many of the administrative costs to service the Trust's
large shareholder base and to meet public company regulatory requirements are
fixed costs. As a result, the Trust expects its general and administrative
expenses to continue to be disproportionately high compared to the size of its
asset base.
19
<PAGE> 23
Net (Loss)
The Trust's net loss, loss on foreclosure or sale of investments and valuation
loss for the year ended December 31, 1995, the Transition Period and the year
ended September 30, 1994, were as follows:
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
For the Year Ended For the Year Ended
December 31, Transition September 30,
1995 Period 1994
---- ------ ----
<S> <C> <C> <C>
Net loss $(14,733,000) $ (1,338,000) $(23,000,000)
Per share $ (3.02) $ (0.27) $ (0.92)
(Loss) gain on foreclosure
or sale of investments $ (184,000) $ 12,000 $ 688,000
Valuation loss $ (9,526,000) $ (119,000) $ (3,413,000)
</TABLE>
Loss on Foreclosure or Sale of Investments
In 1995, the Trust recorded net losses on the foreclosure or sale of investments
of ($184,000), primarily the result of the sale of the Woodland Medical Office
Building, and several parcels of land, plus the retirement or foreclosure on
certain notes.
Valuation Losses
At the end of 1995 the Trust reported total valuation losses of $9,526,000. The
Trust reduced the carrying value of a number of its directly-owned assets by a
total $6,245,000 to the lower of cost or fair value. The Holiday Inn at Chico
was written down by $3,452,000 to approximately $3,000,000 as a result of market
conditions and the new supply of rooms that entered the market. The Park Terrace
Inn in Redding was written down by $871,000 to approximately $2,500,000
primarily because of its current physical condition as compared to comparable
size properties in Redding. Sierra Oaks Shopping Center was written down
$989,000 to approximately $5,740,000, its net sales price upon entering escrow
in March of 1996. The carrying value of Regency Shopping Center was reduced by
$218,000 to approximately $11,800,000 due to the bankruptcy of its major tenant;
and the Timberlake Medical Office Building by $194,000 to approximately $820,000
because of poor leasing prospects combined with the high cost of tenant
improvements for medical offices. The Bank of Commerce Office Building and Town
Center Garden Office Park were written down in value by $189,000 and $152,000,
respectively, to bring their carrying values to approximately $1,700,000 and
$4,500,000, respectively, more in line with those of market. The value of the
mortgage note held by Java Investments was reduced by $180,000 to approximately
$1,200,000 as a result of the decrease in the underlying value of the property
collateralizing the note.
Seven of the thirteen assets of California Real Estate Investment Trust were
reduced in value at year-end 1995 by a total $3,281,000 to the lower of cost or
fair value less costs to sell. Fulton Square Shopping Center's carrying value
was reduced by $875,000 to approximately $2,208,000 as
20
<PAGE> 24
the result of a 16% drop in occupancy to 68% from 1993. Bekins Storage Facility
was written down $160,000 to approximately $3,103,000, its expected net sales
price in March 1996. The four mortgage notes being packaged for sale in April of
1996 were reduced in value by $1,992,000 to their estimated package net sale
price expected to be achieved during the second quarter of 1996. Of the
remaining three mortgage notes, Southcoast Commerce Center was written down by
$254,000 to $121,000 based on a reduction of value in the underlying real estate
venture.
If adverse economic conditions continue to impact the Trust's property
operations, particularly in the Sacramento market area; or if the Trust's hotel
properties do not complete their refurbishing programs, more valuation losses
are anticipated.
Extraordinary Item
The Trust benefited from a forgiveness of $598,000 in debt in settlements in
conjunction with the bankruptcy.
Dividends
The Trust made no cash distributions during 1995. In addition, the Trust is
substantially restricted from and does not anticipate making any cash
distributions to shareholders in the foreseeable future.
21
<PAGE> 25
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Index Page
<S> <C>
Consolidated Financial Statements
Report of Independent Accountants 23-24
Consolidated Balance Sheets 25
Consolidated Statements of Operations 26
Consolidated Statements of Changes in Shareholders' Equity (Deficit) Accounts 27-28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30-56
Schedule III - Real Estate and Accumulated Depreciation 59-63
Schedule IV - Mortgage Loans on Real Estate 64-66
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
22
<PAGE> 26
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees
The Peregrine Real Estate Trust
We have audited the consolidated balance sheets of The Peregrine Real Estate
Trust and Affiliates (Trust) as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in shareholders' equity
(deficit) accounts and cash flows for the year ended December 31, 1995, the
transition period ended December 31, 1994, and the year ended September 30,
1994. In connection with our audits 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
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 the periods ended October 7, 1994 and prior. Accordingly,
the consolidated financial statements for periods beginning after October 7,
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 or reorganization.
<PAGE> 27
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, 1995 and 1994, and
the consolidated results of their operations and their cash flows for the year
ended December 31, 1995, the transition period ended December 31, 1994, and the
year ended September 30, 1994, 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.
The accompanying consolidated financial statements and financial statement
schedules have been prepared assuming that The Peregrine Real Estate Trust (the
Parent) will continue as a going concern. As discussed in the last section of
Note 11 to the consolidated financial statements, the Parent has reported
continuing losses since emergence from bankruptcy and must obtain funding for
professional fees, hotel improvements, and interest payable to the Senior
Lender Group. Additionally, the note payable to the Senior Lender Group could
be accelerated, as well as substantially all other debt, due to noncompliance
with the annual filing requirement for its financial statements to the Senior
Lender Group. These matters and any future action by the Bankruptcy Court
raise substantial doubt about the Parent's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 11. The consolidated financial statements and financial statement
schedules do not include any adjustments that might result from the outcome of
these uncertainties.
COOPERS & LYBRAND L.L.P.
Sacramento, California
April 4, 1996
<PAGE> 28
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Investments
Rental properties, less accumulated depreciation of $6,001,000 and $2,812,000
in 1995 and 1994, respectively, and valuation allowance
of $12,963,000 and $5,863,000 in 1995 and 1994, respectively $ 94,500,000 $ 111,767,000
Partnership interests 4,000,000 4,000,000
Notes receivable, net of valuation allowance and deferred gains
of $9,466,000 and $7,317,000 in 1995 and 1994, respectively 14,627,000 16,914,000
------------- -------------
113,127,000 132,681,000
Cash 5,079,000 5,366,000
Restricted cash 185,000 317,000
Rents and accrued interest receivable, net of valuation allowance
of $1,040,000 and $285,000 in 1995 and 1994, respectively 1,354,000 1,323,000
Other assets, net of valuation allowance of $310,000 in
1995 and 1994 2,048,000 2,434,000
------------- -------------
Total assets $ 121,793,000 $ 142,121,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Long-term notes payable, collateralized by deeds
of trust on rental properties $ 42,703,000 $ 48,277,000
Notes payable to Senior Lender Group 43,441,000 40,869,000
Credit Facility 5,526,000 4,469,000
Accounts payable and accrued expenses 6,673,000 9,673,000
------------- -------------
Total liabilities 98,343,000 103,288,000
------------- -------------
Minority interests 5,858,000 6,525,000
------------- -------------
Redeemable convertible preferred stock, 25,000,000
shares authorized; 12,728,000 and 11,516,000 shares issued and outstanding in
1995 and 1994, respectively; net of unaccreted discount of $2,063,000 and
$2,169,000 in 1995 and 1994 respectively; liquidation preference of
$25,457,000 and $23,032,000 in 1995 and 1994, respectively 23,394,000 20,863,000
Shares of beneficial interest, 50,000,000 shares
authorized; 4,881,000 and 4,884,000 shares outstanding
in 1995 and 1994, respectively 13,356,000 13,339,000
Accumulated deficit (19,158,000) (1,894,000)
Commitments and contingencies (Note 11) ------------- -------------
Total liabilities and shareholders' equity $ 121,793,000 $ 142,121,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 29
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
----------
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
Year Ended Year Ended
December 31, Transition September 30,
1995 Period 1994
---- ------ ----
<S> <C> <C> <C>
Revenues:
Rent $ 12,495,000 $ 3,230,000 $ 14,687,000
Interest 1,766,000 338,000 2,298,000
Hotel 12,816,000 3,226,000 15,185,000
------------ ------------ ------------
27,077,000 6,794,000 32,170,000
------------ ------------ ------------
Expenses:
Operating expenses 4,286,000 1,572,000 8,577,000
Hotel operating expenses 10,964,000 2,728,000 14,327,000
Property management 634,000 92,000 530,000
Depreciation and amortization 3,763,000 831,000 4,878,000
Interest 8,524,000 1,897,000 13,181,000
General and administrative 4,194,000 916,000 3,389,000
------------ ------------ ------------
32,365,000 8,036,000 44,882,000
------------ ------------ ------------
(Loss) before reorganization items,
(loss) gain on foreclosure or sale of investments,
valuation losses, extraordinary item
and minority interest (5,288,000) (1,242,000) (12,712,000)
Reorganization items (1,000,000) -- (7,714,000)
------------ ------------ ------------
(Loss) before (loss) gain on foreclosure or sale of
investments, valuation losses,
extraordinary item and minority interest (6,288,000) (1,242,000) (20,426,000)
(Loss) gain on foreclosure or sale of investments, net (184,000) 12,000 688,000
------------ ------------ ------------
(Loss) before valuation losses,
extraordinary item and minority interest (6,472,000) (1,230,000) (19,738,000)
Valuation losses (9,526,000) (119,000) (3,413,000)
------------ ------------ ------------
(Loss) before extraordinary item
and minority interest (15,998,000) (1,349,000) (23,151,000)
Extraordinary item 598,000 -- --
------------ ------------ ------------
(Loss) before minority interest (15,400,000) (1,349,000) (23,151,000)
Minority interest 667,000 11,000 151,000
------------ ------------ ------------
Net loss $(14,733,000) $ (1,338,000) $(23,000,000)
============ ============ ============
Loss per share of beneficial interest $ (3.02) $ (0.27) $ (0.92)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 30
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DEFICIT) ACCOUNTS
PERIOD FROM OCTOBER 1, 1993 TO OCTOBER 7, 1994
<TABLE>
<CAPTION>
Redeemable Convertible Shares of Beneficial Interest
Preferred Stock Pre-Reorganization
Number Amount Number Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at October 1, 1993* -- -- 25,093,000 $ 25,093,000
Net Loss -- -- -- --
---------------------------------------------------------------
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 -- --
---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares of Beneficial Interest Additional Accumulated Accumulated
Post-Reorganization Paid-in Deficit Deficit
Number Amount Capital Pre-Reorganization Post-Reorganization
------ ------ ------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1993* -- -- $ 219,848,000 $(235,140,000) --
Net Loss -- -- -- (23,000,000) --
---------------------------------------------------------------------------------------
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 -- -- --
---------------------------------------------------------------------------------------
</TABLE>
* Commonwealth Equity Trust (Debtor-In-Possession)
27
<PAGE> 31
THE PEREGRINE REAL ESTATE TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DEFICIT) ACCOUNTS (Continued)
PERIOD FROM OCTOBER 7, 1994 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Redeemable Convertible Shares of Beneficial Interest Shares of Beneficial Interest
Preferred Stock Pre-Reorganization Post-Reorganization
Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 7, 1994 11,250,000 $ 20,307,000 -- -- 4,884,000 $13,339,000
Net loss for the period October 7
through December 31, 1994 -- -- -- -- -- --
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) -- -- -- --
Accretion of discount on
Redeemable Convertible Preferred Stock -- 68,000 -- -- -- --
---------------------------------------------------------------------------------------
Balance at December 31, 1994 11,516,000 20,863,000 -- -- 4,884,000 13,339,000
Net loss -- -- -- -- -- --
Adjustments related to
buyout of old CET shares
and fractional rounding -- -- -- -- (3,000) 17,000
Issuance of dividend in kind on
Redeemable Convertible Preferred Stock 1,212,000 2,425,000 -- -- -- --
Discount on Redeemable Convertible
Preferred Stock dividend in kind -- (183,000) -- -- -- --
Accretion of discount on
Redeemable Convertible Preferred Stock -- 289,000 -- -- -- --
---------------------------------------------------------------------------------------
Balance at December 31, 1995 12,728,000 $ 23,394,000 -- -- 4,881,000 $13,356,000
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Additional Accumulated Accumulated
Paid-in Deficit Deficit
Capital Pre-Reorganization Post-Reorganization
------- ------------------ -------------------
<S> <C> <C> <C>
Balance at October 7, 1994 -- -- --
Net loss for the period October 7
through December 31, 1994 -- -- $ (1,338,000)
Issuance of dividend in kind on
Redeemable Convertible Preferred Stock -- -- (532,000)
Discount on Redeemable Convertible
Preferred Stock dividend in kind -- -- 44,000
Accretion of discount on
Redeemable Convertible Preferred Stock -- -- (68,000)
----------------------------------------------------
Balance at December 31, 1994 -- -- (1,894,000)
Net loss -- -- (14,733,000)
Adjustments related to
buyout of old CET shares
and fractional rounding -- -- --
Issuance of dividend in kind on
Redeemable Convertible Preferred Stock -- -- (2,425,000)
Discount on Redeemable Convertible
Preferred Stock dividend in kind -- -- 183,000
Accretion of discount on
Redeemable Convertible Preferred Stock -- -- (289,000)
----------------------------------------------------
Balance at December 31, 1995 -- -- $(19,158,000)
----------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 32
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
CONSOLIDATED STATEMENT OF CASH FLOWS
----------
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
------------
Year Ended Year Ended
December 31, Transition September 30,
1995 Period 1994
---- ------ ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(14,733,000) $(1,338,000) $(23,000,000)
------------ ----------- ------------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,763,000 831,000 4,878,000
Loss (gain) on foreclosure or
sale of investments, net 184,000 (12,000) (688,000)
Minority interest in net loss (667,000) (11,000) (151,000)
Extinguishment of debt (598,000) -- --
Accretion of discount on notes receivable -- -- (284,000)
Valuation losses 9,526,000 119,000 3,413,000
Changes in other assets and liabilities:
(Increase) decrease in rents and
accrued interest receivable (55,000) 58,000 (541,000)
(Increase) decrease in other assets (335,000) 640,000 1,978,000
Increase (decrease) in accounts
payable and accrued expenses 3,779,000 (4,854,000) 12,000,000
------------ ----------- ------------
Total adjustments 15,597,000 (3,229,000) 20,605,000
------------ ----------- ------------
Net cash provided by
(used in) operating activities 864,000 (4,567,000) (2,395,000)
------------ ----------- ------------
Cash flows from investing activities:
Net Proceeds from sale of investments 99,000 -- 441,000
Improvements to rental properties (2,353,000) (181,000) (1,493,000)
Principal collections on notes receivable 2,030,000 86,000 2,970,000
Increase in notes receivable -- (175,000) --
------------ ----------- ------------
Net cash (used in)
provided by investing activities (224,000) (270,000) 1,918,000
------------ ----------- ------------
Cash flows from financing activities:
Principal payments on long-term
notes payable (430,000) (72,000) (253,000)
Principal payments on notes payable
to Senior Lender Group (1,024,000) -- --
Borrowings on Credit Facility, net 395,000 4,410,000 --
Distributions paid to minority interests -- -- (195,000)
Decrease (increase) in restricted cash 132,000 (204,000) --
------------ ----------- ------------
Net cash (used in) provided by
financing activities (927,000) 4,134,000 (448,000)
------------ ----------- ------------
Net decrease in cash (287,000) (703,000) (925,000)
Cash, beginning of period 5,366,000 6,069,000 6,994,000
------------ ----------- ------------
Cash, end of period $ 5,079,000 $ 5,366,000 $ 6,069,000
============ ----------- ============
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 33
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 or Peregrine) 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.
At the end of 1995, the Trust owned five hotels, twenty-two commercial
properties and four parcels of land located in five market areas in the Western
United States. The Trust also owned a mortgage note portfolio comprised of
$24,093,000 in loans, with an aggregate book value of $14,627,000, bearing
interest at an overall effective rate of approximately 8%. The mortgage notes
are collateralized by mortgages on real property. Most of the investments in the
twelve loans were originated by the Trust in connection with the disposition of
Trust properties prior to 1995.
Change in Fiscal Year
Effective December 31, 1994 the Trust changed its fiscal year end from
September 30 to December 31. Accordingly, after filing its Form 10-K for the
year ended September 30, 1994, the Trust filed a Transition Report for the three
months ended December 31, 1994. The Transition Period, for the purposes of these
consolidated financial statements, is the period from October 7, 1994 through
December 31, 1994.
Principles of Consolidation
For the year ended December 31, 1995 and the Transition Period, 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. For the year ended September 30, 1994, the consolidated financial
statements include accounts of Commonwealth Equity Trust (Debtor-In-Possession)
and CalREIT.
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
30
<PAGE> 34
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Plan of Reorganization Under Chapter 11 Proceedings, continued
group for which Pacific Mutual Life Insurance Company acted as agent. CalREIT
did not file for protection under Chapter 11.
On June 9, 1994, the Trust, the lender group including Prudential
Insurance Company of America, Pacific Mutual Life Insurance Company, Orix USA
Corp. and Trust Company of the West for which Pacific Mutual Life Insurance
Company acted as agent (Senior Lender Group), the Official Committee of Holders
of Equity Interests (Equity Holders Committee) and the Official Committee of
Creditors Holding Unsecured Claims (Creditors Committee) (collectively,
Proponents) filed with the Court the Third Amended Plan of Reorganization which
was subsequently modified by the First, Second, Third and Fourth Set of Plan
Modifications, filed on July 13, 1994, July 20, 1994, July 29, 1994 and August
2, 1994, respectively. The Third Amended Plan of Reorganization as modified
(Plan) was confirmed in all respects on August 8, 1994.
The Effective Date of the Plan (the date on which the Trust emerged
from bankruptcy) was October 7, 1994. The Trust is under the jurisdiction of the
United States Bankruptcy Court until entry of a final decree which is expected
to occur in 1996.
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
Senior Lender Group. The authorized number of new Shares of Beneficial Interest
is 50,000,000. From the Effective Date, the Senior Lender Group owns a majority
of the new Shares of Beneficial Interest and all of the new Redeemable
Convertible Preferred Stock. The Senior Lender Group 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.
31
<PAGE> 35
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Plan of Reorganization Under Chapter 11 Proceedings, continued
The Plan also required that the Trust obtain a $10,000,000 working
capital line of credit (Credit Facility) to which the Senior Lender Group 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 Senior
Lender Group was satisfied in the Plan by the issuance to the Senior Lender
Group of the following securities:
(a) Restructured Notes Payable in the amount of $40,000,000 which bear interest
at 8.5% per annum and which are due on October 1, 2000. Interest is payable in
kind through September 30, 1996, by means of Interest Deferral Notes issued
quarterly; thereafter, interest is payable monthly in cash.
Interest Deferral Notes accrue interest at 8.5% per annum, from the
date of issuance. Interest payments both on principal and the interest accrued
through September 30, 1996 shall be payable monthly in cash commencing on
November 1, 1996.
Restructured Notes Payable and Interest Deferral Notes (collectively,
Notes) are collateralized generally by all interests of the Trust in real and
personal property and are subordinated only to certain liens which are specified
in the Plan. The Notes contain certain covenants and restrictions and limit the
Trust's ability to incur additional indebtedness 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. In addition, there
are covenants related to events or conditions which could have or result in a
material adverse effect as defined in the applicable agreement.
(b) Redeemable Convertible Preferred Stock in the original 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
32
<PAGE> 36
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Capital Structure, continued
were converted to Shares of Beneficial Interest on October 1, 1998, the Senior
Lender Group would, on account of that conversion, acquire 77% of the total
Shares of Beneficial Interest outstanding after the conversion, bringing their
total holdings to approximately 89% of the outstanding shares.
The Redeemable Convertible Preferred Stock is redeemable in cash (total
redemption amount of $25,457,000 at December 31, 1995) 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 of $25,457,000, 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.
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, 1995). The Credit Facility matures on October 7, 1997. At December
31, 1995 and 1994, $5,526,000 and $4,469,000, respectively, 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. In
addition, there are covenants for the Credit Facility related to material
impairments of collateral, as defined, and involuntary bankruptcy.
33
<PAGE> 37
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Debt Covenant Waivers
The Trust's covenants related to the Notes Payable to the Senior Lender
Group, the Credit Facility and certain long-term notes payable require
submission of audited financial statements within 90 days of fiscal year end.
Waivers were obtained from a majority of these lenders extending the
due date to April 5, 1996 or beyond. For those lenders who did not waive the
reporting requirement, financial statements will be delivered subsequent to the
due date.
Fresh Start Accounting
In accounting for the effects of the reorganization, the Trust
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 was 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 were restated to reflect their reorganization value which
approximated fair value at the date of the reorganization, October 7, 1994.
As a result of the implementation of fresh start accounting, the
statements of operations of the Trust after the consummation of the Plan are not
comparable to the Trust's statements of operations for prior periods.
The reorganization value of the Trust's assets was 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 included 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 relied 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 in the near term from the actual future occurrences.
34
<PAGE> 38
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Fresh Start Accounting, 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, 1995, rental properties are recorded at reorganization
value net of accumulated depreciation since the Effective Date and less a
valuation allowance for possible investment losses, 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 represents the excess of the carrying
value of individual properties over their appraised or estimated fair value
(less estimated selling costs if held for sale).
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 in the near term.
The allowance for depreciation and amortization has been calculated
under the straight-line method based upon the estimated useful lives of the
properties. CalREIT assets 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.
35
<PAGE> 39
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Partnership Interests
Partnership investments of 20% to 50% are accounted for by the equity
method. Under this method, the investments are recorded at initial cost and
increased for partnership income and decreased for partnership losses and
distributions.
During the year ended September 30, 1990, the Trust entered into Placer
Ranch Partners, a limited partnership in which the Trust owns a 31% interest. CR
Properties, formerly CET/RJB, is a general partnership in which the Trust owns a
50% interest.
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.
36
<PAGE> 40
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
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 $5,500,000 and $5,180,000 as of December 31, 1995 and 1994,
respectively. The Trust has not experienced any losses on these deposits.
Sales of Real Estate
The Trust complies with the provisions of Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" (SFAS 66).
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.
Interest Income Recognition
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.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
In 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," (SFAS 121) was issued. SFAS 121 requires that companies review
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the carrying amount of the asset exceeds the fair
value of the asset, the company must recognize an impairment loss. After an
impairment is recognized, the reduced carrying amount of the asset shall be
accounted for as its new cost.
37
<PAGE> 41
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization, Summary of Significant Accounting Policies and Chapter 11
Proceedings, continued
Impairment of Long-Lived Assets, continued
For a depreciable asset, the new cost shall be depreciated over the asset's
remaining useful life. Long-lived assets to be disposed of shall be reported at
the lower of carrying amount or fair value less cost to sell. SFAS 121 is
effective for financial statements for fiscal years beginning after December 31,
1995. The Trust has elected to implement SFAS 121 in 1996 and expects that the
pronouncement will have no material effect on financial position or results of
operations.
Stock-Based Compensation
In 1995, Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation," (SFAS 123) was issued. SFAS 123
requires either recognition or disclosure of a hypothetical charge for stock
options. SFAS 123 also establishes a fair value as the measurement basis for
transactions in which an entity acquires goods or services from nonemployees in
exchange for equity instruments. This statement is effective for transactions
entered into after December 15, 1995. The Trust does not intend to record this
hypothetical charge for stock options, but will instead provide the required
disclosure beginning in 1996.
Net Loss Per Share
Net loss per share of beneficial interest has been computed based on
the weighted-average number of shares outstanding during the year ended December
31, 1995, the Transition Period and the year ended September 30, 1994, of
4,883,000, 4,884,000 and 25,093,000, respectively. For purposes of determining
average number of shares outstanding and net loss per share for the Transition
Period, October 1, 1994, is treated as the Effective Date. Shares of Beneficial
Interest equivalents are anti-dilutive for the year ended December 31, 1995, the
Transition Period and the year ended September 30, 1994.
Reclassifications
Certain reclassifications have been made in the presentation of the
Transition Period and September 30, 1994 financial statements to conform to the
1995 presentation.
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
38
<PAGE> 42
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
2. Related-Party Transactions, continued
agreement based on each Trust's respective asset values (real property and notes
receivable). During 1995 reimbursable costs charged by the Trust to CalREIT
approximated $435,000. 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, 1995, the Trust had amounts due
from CalREIT aggregating $45,000 and at December 31, 1994, the Trust had amounts
due to CalREIT aggregating $202,000.
Compensation, leasing commissions and expense reimbursements to B&B
Property Investment, Development and Management Company, Inc. (B&B) and B&B
Property Investments, Inc. (B&B Property) were $591,000 for the year ended
September 30, 1994. B&B provided administrative services and B&B Property
provided property management services to the Trust until September 1, 1993. The
commissions paid are included in other assets and amortized over the term of the
leases, typically five years.
3. Restricted Cash
At December 31, 1995, cash of $185,000 is restricted pending final
settlement of property taxes owed to the county relating to the sale of the
Woodland Medical Office Building in Milpitas, California. At December 31, 1994,
cash of $317,000 was restricted under the Terms 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.
These Sacramento County property taxes were paid in full during 1995.
4. Rental Properties
At December 31, 1995 and 1994, the Trust's rental property portfolio at
reorganization value or cost included shopping centers, $47,947,000 and
$47,379,000; office buildings, $18,053,000 and $25,765,000; industrial
buildings, $13,727,000 and $12,862,000; mini-storages, $2,888,000 and
$2,807,000; land, $182,000 and $1,397,000; and hotels, $30,667,000 and
$30,232,000.
Under fresh start accounting, all Peregrine rental properties were
adjusted at the Effective Date to reorganization value which is different than
tax basis.
Noncancellable operating leases at December 31, 1995, provide for
minimum rental income during each of the next five years of $9,071,000,
$7,688,000, $6,291,000, $4,946,000 and
39
<PAGE> 43
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
4. Rental Properties, continued
$3,221,000, respectively, and $9,859,000 thereafter. Certain of the leases
increase periodically based on changes in the Consumer Price Index.
One rental property with a carrying value of $3,104,000, at December 31,
1995 is subject to a purchase option exercisable in 1997 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, 1995.
The Casa Grande Motor Inn, with a carrying value of $3,182,000 at
December 31, 1995, was returned to the lender through foreclosure proceedings in
February 1996. No significant gain or loss was recorded on the foreclosure of
that hotel.
At December 31, 1995, Sierra Oaks Shopping Center and University Village
Shopping Center (two of the Trust's directly-owned properties) and CalREIT's
directly owned properties with total carrying values of $13,534,000 and
$17,215,000, respectively, were classified as held for sale.
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 year ended December 31, 1995, the Transition Period or the
year ended September 30, 1994 related to the Placer Ranch Partners partnership,
as payment of such income is contingent upon the future sale of land.
<TABLE>
<S> <C>
Investment in Placer Ranch Partners, Limited
Partnership, at the Trust's reorganization value $4,000,000
=========
</TABLE>
Subsequent to December 31, 1995, the Put/Call Option of the Placer
Ranch Partnership Agreement was exercised by the General Partner. Per the
agreement, the General Partner or the Limited Partner (Peregrine) may at any
time, give written notice to the other Partner of its intent to exercise such
option and purchase all, but not less than all, of the Partner's interest in the
Partnership. Peregrine can sell its interest to the General Partner at a price
equal to the value of the interest as determined by the General Partner.
Peregrine also has the option to offer to purchase the General Partner's
interest at that value. Peregrine has forty-five days after delivery of the
Offering Notice to respond to the General Partner. As of April 4, 1996,
Peregrine has not determined whether it will sell its interest to the General
Partner or offer to purchase the General Partner's interest in the partnership.
If Peregrine sells its interest to the General Partner at the currently named
price, it will result in a loss in the first quarter of 1996 of up to
$1,400,000.
40
<PAGE> 44
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. Partnership Interests, continued
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 year ended December 31, 1995, the Transition Period
and the year ended September 30, 1994 as the partnership agreement specifies
that net losses shall be allocated 100% to the other partner. As CR Properties
has a limited partnership interest, it has no contingent liability with respect
to the office building debt.
<TABLE>
<S> <C>
Investment in CR Properties general partnership, at the
Trust's reorganization value $ --
================
</TABLE>
6. Notes Receivable
In order to facilitate sales of real estate, the Trust has accepted
partial payment in the form of notes receivable collateralized by deeds of
trust. As of December 31, 1995 and 1994, the Trust had long-term notes
receivable collateralized by deeds of trust (before valuation allowances and
deferred gains) of $24,093,000 and $24,231,000, respectively. 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, 1995, two
notes totaling $3,451,000 were delinquent, against which the Trust had recorded
an allowance of $676,000. Interest income recognized by the Trust on these
delinquent notes was $245,000, $47,000 and $239,000 and cash received on the
notes was $245,000, $47,000 and $209,000 for the year ended December 31, 1995,
the Transition Period and the year ended September 30, 1994, respectively.
Contractually scheduled principal collections over the next five years,
excluding delinquent notes, are as follows:
<TABLE>
<S> <C>
1996 $ 1,312,000
1997 56,000
1998 737,000
1999 40,000
2000 44,000
Thereafter 18,453,000
--------------
$ 20,642,000
==============
</TABLE>
The notes bear interest at rates ranging from 7.63% to 16% as of
December 31, 1995. For 1995, the overall effective rate was approximately 8%.
41
<PAGE> 45
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
6. Notes Receivable, continued
At December 31, 1995, all notes receivable directly owned by CalREIT
with a carrying value of $10,502,000, were classified as held for sale.
7. Valuation Allowances
Based on a review of its investments, the Trust has provided for
valuation allowances as set forth below. Adverse economic factors, particularly
over-built 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 in the near term.
Analysis of changes in the allowance for possible losses on real estate
investments, partnership interests, notes receivable and rents and interest
receivable for the year ended December 31, 1995, the Transition Period and the
year ended September 30, 1994 follow.
Under fresh start accounting, all separately stated valuation
allowances as of the Effective Date were eliminated. The Trust's assets and
liabilities were restated to reflect their reorganization value which
approximated fair value at the date of reorganization, October 7, 1994.
Therefore, in the "Transition Period" column below, the beginning balances in
each of the categories reflect the then cumulative valuation allowances on
rental properties, the then cumulative valuation allowances and deferred gains
on notes receivable and the then cumulative allowance for bad debt losses on
rents and interest receivable for CalREIT only.
42
<PAGE> 46
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
7. Valuation Allowances, continued
The detail is set forth below:
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
Year Ended Year Ended
December 31, Transition September 30
1995 Period 1994
---- ------ ----
<S> <C> <C> <C>
Rental Properties
- -----------------
Allowance for valuation losses on
rental property investments:
Beginning balance $ 5,863,000 $ 71,257,000 $ 78,659,000
Fresh start adjustment -- (65,463,000) --
----------- ------------ ------------
Adjusted balance 5,863,000 5,794,000 78,659,000
Provision for valuation losses 7,100,000 69,000 2,834,000
Amounts charged against
allowance for valuation losses -- -- (10,236,000)
----------- ------------ ------------
Ending balance $12,963,000 $ 5,863,000 $ 71,257,000
=========== ============ ============
</TABLE>
43
<PAGE> 47
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
7. Valuation Allowances, continued
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
Year Ended Year Ended
December 31, Transition September 30
Partnership Interests 1995 Period 1994
- --------------------- ---- ------ ----
<S> <C> <C> <C>
Allowance for valuation losses on
partnership interests:
Beginning balance $ -- $ 17,429,000 $ 17,429,000
Fresh start adjustment -- (17,429,000) $ --
----------- ------------ ------------
Adjusted balance -- -- 17,429,000
Provision for valuation losses -- -- --
----------- ------------ ------------
Ending balance $ -- $ -- $ 17,429,000
=========== ============ ============
Notes Receivable
- ----------------
Allowance for valuation losses,
unaccreted discounts and
deferred gains on notes
receivable:
Beginning Balance $ 7,317,000 $ 7,773,000 $ 8,430,000
Fresh start adjustment -- (579,000) --
----------- ------------ ------------
Adjusted balance 7,317,000 7,194,000 8,430,000
Provision for valuation losses 2,426,000 -- 579,000
Deferral of Gains -- 135,000 --
Recognition of deferred gains (66,000) (12,000) --
Accretion of discount -- -- (284,000)
Amounts charged against
allowance for valuation
losses (211,000) -- (952,000)
----------- ------------ ------------
Ending balance $ 9,466,000 $ 7,317,000 $ 7,773,000
=========== ============ ============
Rents and Interest Receivable
- -----------------------------
Allowance for bad debt losses on
rents and interest receivable:
Beginning balance $ 285,000 $ 2,555,000 $ 2,478,000
Fresh start adjustment -- (2,434,000) --
----------- ------------ ------------
Adjusted balance 285,000 121,000 2,478,000
Provision for losses 1,391,000 198,000 2,554,000
Amounts charged against
allowance for losses (636,000) (34,000) (2,477,000)
----------- ------------ ------------
Ending balance $ 1,040,000 $ 285,000 $ 2,555,000
=========== ============ ============
</TABLE>
44
<PAGE> 48
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
7. Valuation Allowances, continued
In addition, the Trust has established an allowance for valuation
losses on other assets in the amount of $310,000 at December 31, 1995 and 1994.
8. Long-Term Notes Payable
At December 31, 1995 and 1994, the Trust had long-term notes payable,
other than notes payable to the Senior Lender Group and the Credit Facility,
(Notes) most of which were collateralized by deeds of trust on rental
properties, which properties have an aggregate net book value of $52,468,000 and
$63,346,000, respectively. Per the Reorganization Plan, these notes are due in
installments extending to the year 2012 with interest rates ranging from 8% to
10.75%. At December 31, 1995, $3,089,000 of such notes were delinquent and
related to the Casa Grande Motor Inn note which was satisfied through
foreclosure in February 1996. Contractually scheduled principal payments during
each of the next five years with respect to the Reorganization Plan and amounts
related to CalREIT, excluding delinquent notes are $4,455,000, $477,000,
$523,000, $574,000, $2,385,000, respectively, and $31,200,000 thereafter. The
note on the Totem Square Shopping Center of $4,294,000 was originally scheduled
to mature on April 1, 1996. The Trust has received an extension from the lender
to May 1, 1996, under the same terms and conditions as the existing agreement
and anticipates signing an extension to April 1997.
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 for the fiscal year ended December 31, 1995, the Transition Period or
the fiscal year ended September 30, 1994.
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 shareholders in the foreseeable future.
45
<PAGE> 49
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
10. Statements of Cash Flows Supplemental Information
In connection with the sale of investments, the Trust entered into
various non-cash transactions as follows:
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
Year Ended Year Ended
December 31, Transition September 30,
1995 Period 1994
---- ------ ----
<S> <C> <C> <C>
Sales price less selling costs $ 5,174,000 $ 3,101,000 $ 6,363,000
Notes receivable (2,240,000) (1,144,000) --
Notes payable assumed by buyer
and other liabilities applied to
sales price (2,835,000) (1,957,000) (5,922,000)
----------- ----------- ------------
Net cash received $ 99,000 $ -- $ 441,000
=========== =========== ============
Carrying value
of property sold $ 5,158,000 $ 3,025,000 $ 12,293,000
=========== =========== ============
</TABLE>
One property which collateralized notes payable of $2,764,000 was
foreclosed upon during the year ended December 31, 1995, causing a loss of
$73,000.
Sixteen parcels of land located in Sacramento with a carrying value of
$1,215,000 were returned to the bond holder in lieu of foreclosure during the
year ended December 31, 1995. No gain or loss was recorded on this transaction.
One property which collateralized notes payable of $8,793,000 was
foreclosed upon during the year ended September 30, 1994, causing a gain of
$873,000.
Additionally, on December 31, September 30, June 30, and March 31, 1995
and December 31, 1994, the Trust issued Interest Deferral Notes at 8.5% per
annum in the principal amount of $931,000, $913,000, $885,000, $867,000, and
$869,000, respectively, 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 $634,000, $618,000, $597,000, $576,000 and
46
<PAGE> 50
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
10. Statements of Cash Flows Supplemental Information, continued
$532,000, respectively, as payment in kind for the dividend then due on the
outstanding Redeemable Convertible Preferred Stock.
During 1995, the outstanding balance on the Credit Facility was
increased by $662,000 for interest and expenses incurred during the year.
Interest paid on the Trust's outstanding debt for the year ended
December 31, 1995, the Transition Period and the year ended September 30, 1994
was $4,472,000, $2,206,000 and $6,386,000, respectively.
11. Commitments and Contingencies
Unused Credit Facility
At December 31, 1995 and 1994, approximately $4,474,000 and $5,531,000,
respectively 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. For each of
the next five years the minimum annual payment under the leases is $104,000, and
$2,943,000 thereafter. Total ground lease expense was $97,000, $30,000, and
$124,000 respectively, during the year ended December 31, 1995, the Transition
Period and the year ended September 30, 1994.
Litigation
At December 31, 1994, the Trust 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 Senior Lender Group, Senior Mortgage Holders
and other Claim Holders. These claims were settled in the
Chapter 11 proceedings described in Note 1.
47
<PAGE> 51
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
11. Commitments and Contingencies, continued
Litigation, 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 was filed in April 1994 by the franchiser 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.
Financial Status of The Peregrine Real Estate Trust (The Parent)
The following matters raise substantial doubt about the Parent's
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
Subsequent to its emergence from bankruptcy on October 7, 1994, The
Peregrine Real Estate Trust (the Parent) has incurred cumulative losses through
December 31, 1995 of approximately $16,000,000.
The Parent has not complied with the provision of its Senior Lender
Group loan agreement to file its annual financial statements within 90 days of
year end. The Parent is seeking to obtain a waiver from each of the members of
the Senior Lender Group to extend the filing requirements for five days, but
there is no assurance such waivers will be obtained. Under the terms of the loan
agreement, the noncompliance with the filing requirement could cause
acceleration of the note payable to the Senior Lender Group as well as
substantially all other debt. To date the Senior Lenders have not indicated that
they will accelerate the debt as a result of such noncompliance.
At December 31, 1995, the Parent has potential cash commitments for
fees to professional service firms in the approximate amount of $4,500,000
(before the potential addition of interest by the Bankruptcy Court) and
estimates that capital expenditures of approximately $6,500,000 to $7,000,000
will be required during 1996 to develop and refurbish its hotel properties in
accordance
48
<PAGE> 52
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
11. Commitments and Contingencies, continued
with Holiday Inn franchise requirements to maintain a competitive lodging
product. Additionally, the Company will be required to begin paying interest in
cash to its Senior Lender Group in October 1996. Payments in 1996 are estimated
to be $1,000,000.
Management of the Parent has developed a plan to meet these near term
obligations, which includes the following:
- The Parent anticipates selling various properties and other
assets that, after payment of 80% of the proceeds of sale to the
Senior Lender Group, would produce cash to assist in meeting its
obligations, in addition to cash flow generated from normal
operations.
- The Parent may draw additional amounts available under its
current line of credit to assist in meeting its obligations.
- The Parent is also negotiating to refinance the existing debt on
its hotel properties, which would provide additional borrowings
to meet the capital improvement requirements for these hotel
properties, as noted above. This refinancing would be subject to
the approval of the Senior Lender Group.
- The Parent is currently negotiating with the professional
service firms regarding the ultimate payment to be made and the
terms. If an agreement is reached, the Parent and the settling
firms will submit a joint statement recommending payment amount
and terms to the Bankruptcy Court in order for the Court to hear
the matter on April 18, 1996. In addition, it is possible that
the Bankruptcy Court could award interest on such past due
amounts. The Company has evaluated its accrual with regard to
such professional fees and has increased the accrual to
$3,000,000.
The Parent will remain under the jurisdiction of the Bankruptcy Court
until a final decree is entered, which is expected to occur in 1996 after the
matter related to professional fees is resolved. The Office of the U.S. Trustee
filed a status report with the Bankruptcy Court in March 1996. The Parent
subsequently filed a response to the status report. A status conference was held
by the Bankruptcy Court on March 20, 1996. No request for relief is currently
pending.
49
<PAGE> 53
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
12. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1995
- ----
Revenues $ 6,853,000 $ 7,269,000 $ 6,618,000 $ 6,337,000
================= ============ =================== ============
Reorganization items $ -- $ -- $ -- $ (1,000,000)
================= ============ =================== ============
(Loss) gain on foreclosure or
sale of investments, net $ (7,000) $ (499,000) $ -- $ 322,000
================= ============ =================== ============
Net loss $ (761,000) $ (1,327,000) $ (1,296,000) $(11,349,000)(1)
================= ============ =================== ============
Net loss per share $ (0.16) $ (0.27) $ (0.27) $ (2.32)
================= ============ =================== ============
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------
December 31 March 31 June 30 September 30
----------- -------- ------- ------------
<S> <C> <C> <C> <C>
1994
- ----
Revenues $ 8,581,000 $ 7,747,000 $ 8,090,000 $ 7,752,000
=================== ================= ================ ============
Reorganization items $ (492,000) $ (936,000) $ (2,067,000) $ (4,219,000)
=================== ================= ================ ============
(Loss) gain on foreclosure or
sale of investments, net $ -- $ (215,000) $ 175,000 $ 728,000
=================== ================= ================ ============
Net loss $ (3,806,000) $ (3,692,000) $ (4,058,000) $(11,444,000)(2)
=================== ================= ================ ============
Net loss per share $ (0.15) $ (0.15) $ (0.16) $ (0.46)
=================== ================= ================ ============
</TABLE>
(1) Includes $9,526,000 of valuation losses.
(2) Includes $3,413,000 of valuation losses.
50
<PAGE> 54
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. Fair Value of Financial Instruments
In 1994, the Trust adopted Statement of Financial Accounting Standards
No. 107, "Disclosure About Fair Value of Financial Instruments" (SFAS 107). 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, 1995 is approximately the same as their carrying amounts. It is not
practicable to determine the fair value of the Trust's Redeemable Convertible
Preferred Stock totaling $23,394,000 at carrying value as of December 31, 1995,
due to the unusual nature of the instrument.
14. Stock Option Plan
During the Transition Period, the Trust adopted a stock option 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, 1995 and 1994, options for the
purchase of 53,336 and 26,668 shares, respectively, were outstanding under the
plan, all of which were exercisable.
Under the terms of the stock option 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, on a fully diluted basis. 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, October 7, 1994, or
(2) two dollars. The option price granted under the Plan was 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 to purchase 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
51
<PAGE> 55
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
14. Stock Option Plan, continued
anniversaries of the grant date of the Initial Option. No options were exercised
during 1995 or during the Transition Period.
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. No such plan has been adopted.
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>
1995 1994
---- ----
<S> <C> <C>
NOL carryforward $ 26,760,000 $ 26,813,000
Fixed assets 20,254,000 21,688,000
Investments 18,429,000 17,661,000
Notes receivable 248,000 232,000
Capital loss carryforward 6,067,000 3,962,000
Other 832,000 918,000
------------ ------------
72,590,000 71,274,000
Less valuation allowance (Note 1) (72,590,000) (71,274,000)
------------ ------------
Net $ -- $ --
============ ============
</TABLE>
52
<PAGE> 56
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
At December 31, 1995, 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>
1996 655,000 313,000
1997 655,000 313,000
1998 655,000 313,000
1999 655,000 313,000
2000 655,000 11,348,000
2002 -- 11,092,000
2003 -- 8,196,000
2006 5,874,000 --
2007 30,012,000 --
2008 16,387,000 --
2010 17,248,000 --
------------ ------------
$ 72,796,000 $ 31,888,000
============ ============
</TABLE>
As required by SOP 90-7, any future benefit realized from NOL's which
arose before the Effective Date of the Plan will be reported as a direct
addition to paid-in capital.
The Trust's alternative minimum tax operating loss carryforwards are
substantially the same as its NOL at December 31, 1995.
At the time of the prior change in ownership, when the Trust emerged
from bankruptcy, it elected to be governed by tax provisions permitting the
unlimited future use of NOL carryforwards. Under these same tax provisions, the
amount of the NOL carryforward was reduced by $12,963,000 at the time of this
election. If another ownership change, as defined by the Internal Revenue Code,
occurs within two years after the ownership change of October 7, 1994, all NOL
carryforwards as of the date of the second ownership change will be eliminated.
53
<PAGE> 57
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) $ --
Due to CalREIT, subject to compromise 623,000 (121,000) -- (502,000) --
------------- ------------ ------------- ------------- ------------
Total liabilities subject to compromise 123,963,000 (74,523,000) -- (49,440,000) --
------------- ------------ ------------- ------------- ------------
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>
54
<PAGE> 58
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.
55
<PAGE> 59
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
18. Reorganization Items
Reorganization items are calculated from August 2, 1993, the date on
which the Trust filed its petition for reorganization, and consist of the
following:
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
For the Year Ended
September 30,
1994
----
<S> <C>
Interest earned on accumulated cash $ 38,000
Professional fees (7,752,000)
--------------
Net reorganization items $ (7,714,000)
==============
</TABLE>
The prior accrual for professional fees during reorganization was
increased by $1,000,000 in 1995.
56
<PAGE> 60
PART III
Item 10. Trustees and Executive Officers of the Registrant
(a) Executive Officers. See "Executive Officers of the
Registrant" in Part I of this report.
(b) Trustees. The information required by this Item is
hereby incorporated by reference to the Trust's Proxy
Statement under the heading "Election of Trustees" and
the caption "Compliance with Section 16(a) of the
Securities and Exchange Act of 1934" filed with the
Securities and Exchange Commission.
Item 11. Executive Compensation
The information required by this Item is hereby incorporated
herein by reference to the Proxy Statement under the captions
"Compensation of Trustees" and "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is hereby incorporated
herein by reference to the Proxy Statement under the heading
"Certain Beneficial Owners."
Item 13. Certain Relationships and Related Transactions
The information required by this Item is hereby incorporated
by reference to the Proxy Statement under the heading "Certain
Relationships and Related Transactions."
57
<PAGE> 61
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) (1) Financial Statements Page
- -------- -------------------- ----
<S> <C>
Included in Part II of this report:
Report of Independent Accountants 23-24
Consolidated Balance Sheets at December 31, 1995 and 1994 25
Consolidated Statements of Operations 26
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) Accounts 27-28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30-56
(a) (2) Consolidated Financial Statement Schedules and Exhibits Filed
- -------- -------------------------------------------------------------
Schedule III Real Estate and Accumulated Depreciation 59-63
Schedule IV Mortgage Loans on Real Estate 64-66
</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.
(b) Reports on Form 8-K
(c) Exhibits
58
<PAGE> 62
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995 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>
SHOPPING CENTERS:
Regency Plaza, Sacramento, California $ 8,869,000 4,200,000 7,056,000 1,098,000 --
University Village, Sacramento, California 7,732,000 877,000 6,142,000 1,058,000 --
TGIF Sunrise Hills, Citrus Heights, California -- 450,000 1,125,000 5,000 --
*Fulton Square, Sacramento, California -- Leased 3,536,000 82,000 --
*Totem Square, Kirkland, Washington 4,334,000 3,175,000 5,793,000 432,000 --
Sunrise Hills, Citrus Heights, California 4,336,000 2,316,000 3,192,000 497,000 --
Sierra Oaks, Roseville, California 4,976,000 1,892,000 4,746,000 275,000 --
----------- ---------- ---------- --------- ------
Total Shopping Centers 30,247,000 12,910,000 31,590,000 3,447,000 --
----------- ---------- ---------- --------- ------
OFFICE BUILDINGS:
Timberlake, Sacramento, California 484,000 Leased 804,000 257,000 --
16th and K Streets, Sacramento, California -- 388,000 2,677,000 171,000 --
Town Center Garden Office Park, Long Beach, California -- 1,293,000 3,313,000 189,000 --
One Sunrise Park, Rancho Cordova, California -- 356,000 1,092,000 531,000 --
Hurley Ethan Office Park I, Sacramento, California 1,322,000 410,000 1,237,000 832,000 --
System Integrators Buildings, Sacramento, California 2,380,000 427,000 1,530,000 11,000 --
Hurley Ethan Office Park II, Sacramento, California 2,408,000 827,000 1,391,000 317,000 --
----------- ---------- ---------- --------- ------
Total Office Buildings 6,594,000 3,701,000 12,044,000 2,308,000 --
----------- ---------- ---------- --------- ------
INDUSTRIAL BUILDINGS:
11135 Trade Center Drive, Rancho Cordova, California -- 567,000 1,739,000 562,000 --
11167 Trade Center Drive, Rancho Cordova, California -- 402,000 567,000 32,000 --
*Redfield Commerce Center, Scottsdale, Arizona -- 580,000 823,000 170,000 --
*515 S. Fair Oaks Avenue, Pasadena, California -- 1,410,000 4,305,000 30,000 --
Parkway Center, El Dorado Hills, California -- 233,000 1,048,000 249,000 --
Mallory Service Building, Walnut Creek, California -- 852,000 154,000 4,000 --
---------- ---------- --------- ------
Total Industrial Buildings $ -- 4,044,000 8,636,000 1,047,000 --
---------- ---------- ---------- --------- ------
</TABLE>
(Continued)
59
<PAGE> 63
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995 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>
MINI-STORAGES:
Burbank Mini-Warehouse, Santa Rosa, California $ -- 475,000 980,000 62,000 --
Downtown Mini Storage, Sacramento, California -- Leased 1,340,000 31,000 --
----------- ---------- ---------- ---------- ---------
Total Mini-Storages -- 475,000 2,320,000 93,000 --
----------- ---------- ---------- ---------- ---------
LAND:
Florin Perkins, Sacramento, California -- 182,000 -- -- --
----------- ---------- ---------- ---------- ---------
Total Land -- 182,000 -- -- --
----------- ---------- ---------- ---------- ---------
HOTELS:
Park Terrace Inn, Redding, California 1,860,000 1,047,000 1,167,000 1,344,000 --
Chico Holiday Inn, Chico, California -- 480,000 4,337,000 2,134,000 --
Sacramento Holiday Inn, Sacramento, California -- 2,297,000 5,719,000 2,185,000 --
Walnut Creek Holiday Inn, Walnut Creek, California -- 1,099,000 1,812,000 569,000 --
*Casa Grande Motor Inn, Aroyo Grande, California 3,089,000 1,289,000 3,911,000 1,277,000 --
----------- ---------- ---------- ---------- ---------
Total Hotels 4,949,000 6,212,000 16,946,000 7,509,000 --
----------- ---------- ---------- ---------- ---------
Total Investment in Real Estate $41,790,000 27,524,000 71,536,000 14,404,000 --
=========== ========== ========== ========== =========
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 $41,790,000 27,524,000 71,536,000 14,404,000 4,000,000
=========== ========== ========== ========== =========
</TABLE>
60
<PAGE> 64
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995 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>
SHOPPING CENTERS:
Regency Plaza, Sacramento, California $ 4,200,000 8,154,000 218,000 12,136,000
University Village, Sacramento, California 877,000 7,200,000 - 8,077,000
TGIF Sunrise Hills, Citrus Heights, California 450,000 1,130,000 - 1,580,000
*Fulton Square, Sacramento, California Leased 3,618,000 944,000 2,674,000
*Totem Square, Kirkland, Washington 3,175,000 6,225,000 604,000 8,796,000
Sunrise Hills, Citrus Heights, California 2,316,000 3,689,000 - 6,005,000
Sierra Oaks, Roseville, California 1,892,000 5,021,000 989,000 5,924,000
------------ ---------- --------- ----------
Total Shopping Centers 12,910,000 35,037,000 2,755,000 45,192,000
------------ ---------- --------- ----------
OFFICE BUILDINGS:
Timberlake, Sacramento, California Leased 1,061,000 194,000 867,000
16th and K Streets, Sacramento, California 388,000 2,848,000 - 3,236,000
Town Center Garden Office Park, Long Beach, California 1,293,000 3,502,000 152,000 4,643,000
One Sunrise Park, Rancho Cordova, California 356,000 1,623,000 189,000 1,790,000
Hurley Ethan Office Park I, Sacramento, California 410,000 2,069,000 - 2,479,000
System Integrators Buildings, Sacramento, California 427,000 1,541,000 - 1,968,000
Hurley Ethan Office Park II, Sacramento, California 827,000 1,708,000 - 2,535,000
------------ ---------- --------- ----------
Total office buildings 3,701,000 14,352,000 535,000 17,518,000
------------ ---------- --------- ----------
COMMERCIAL BUILDINGS:
11135 Trade Center Drive, Rancho Cordova, California 567,000 2,301,000 - 2,868,000
11167 Trade Center Drive, Rancho Cordova, California 402,000 599,000 - 1,001,000
*Redfield Commerce Center, Scottsdale, Arizona 580,000 993,000 542,000 1,031,000
*515 S. Fair Oaks Avenue, Pasadena, California 1,410,000 4,335,000 1,838,000 3,907,000
Parkway Center, El Dorado Hills, California 233,000 1,297,000 - 1,530,000
Mallory Service Building, Walnut Creek, California 852,000 158,000 - 1,010,000
------------ ---------- --------- ----------
Total commercial buildings $ 4,044,000 9,683,000 2,380,000 11,347,000
------------ ---------- --------- ----------
</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>
SHOPPING CENTERS:
Regency Plaza, Sacramento, California 335,000 1986 5/85 31 Years
University Village, Sacramento, California 283,000 1975 12/86 32 Years
TGIF Sunrise Hills, Citrus Heights, California 44,000 1984 1/87 32 Years
*Fulton Square, Sacramento, California 467,000 1980 5/91 40 Years
*Totem Square, Kirkland, Washington 797,000 1981 11/90 40 Years
Sunrise Hills, Citrus Heights, California 129,000 1981 1/89 34 Years
Sierra Oaks, Roseville, California 184,000 1989 1/89 34 Years
---------
Total Shopping Centers 2,239,000
---------
OFFICE BUILDINGS:
Timberlake, Sacramento, California 46,000 1973 12/86 32 Years
16th and K Streets, Sacramento, California 110,000 1987 8/87 33 Years
Town Center Garden Office Park, Long Beach, California 143,000 1983 12/87 33 Years
One Sunrise Park, Rancho Cordova, California 91,000 1982 8/83 24 Years
Hurley Ethan Office Park I, Sacramento, California 80,000 1978 4/88 34 Years
System Integrators Buildings, Sacramento, California 59,000 1984 5/88 34 Years
Hurley Ethan Office Park II, Sacramento, California 89,000 1981 6/88 34 Years
---------
Total office buildings 618,000
---------
COMMERCIAL BUILDINGS:
11135 Trade Center Drive, Rancho Cordova, California 153,000 1984 5/88 34 Years
11167 Trade Center Drive, Rancho Cordova, California 22,000 1984 5/88 34 Years
*Redfield Commerce Center, Scottsdale, Arizona 308,000 1983 5/88 34 Years
*515 S. Fair Oaks Avenue, Pasadena, California 803,000 1915/1988 7/88 40 Years
Parkway Center, El Dorado Hills, California 47,000 1985 1/88 33 Years
Mallory Service Building, Walnut Creek, California 6,000 1970 10/88 34 Years
---------
Total commercial buildings 1,339,000
---------
</TABLE>
(Continued)
61
<PAGE> 65
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995 Page 2 Part B
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Column A Column E
- ---------------------------------------------------- -------------------------------------------------------
Gross Amount at Which
Carried at Close of Period
----------------------------
Valuation
Buildings and Write
Description Land Improvements Down (3) Total (2)
----------- ---- ------------ -------- ---------
<S> <C> <C> <C> <C>
Burbank Mini-Warehouse, Santa Rosa, California $ 475,000 1,042,000 -- 1,517,000
Downtown Mini Storage, Sacramento, California Leased 1,371,000 -- 1,371,000
----------- ---------- ---------- -----------
475,000 2,413,000 -- 2,888,000
----------- ---------- ---------- -----------
LAND:
Florin Perkins, Sacramento, California 182,000 -- -- 182,000
----------- ---------- ---------- -----------
Total land 182,000 0 0 182,000
----------- ---------- ---------- -----------
HOTELS:
Park Terrace Inn, Redding, California 1,047,000 2,511,000 871,000 2,687,000
Chico Holiday Inn, Chico, California 480,000 6,471,000 3,452,000 3,499,000
Sacramento Holiday Inn, Sacramento, California 2,297,000 7,904,000 -- 10,201,000
Walnut Creek Holiday Inn, Walnut Creek, California 1,099,000 2,381,000 -- 3,480,000
*Casa Grande Motor Inn, Aroyo Grande, California 1,289,000 5,188,000 2,970,000 3,507,000
----------- ---------- ---------- -----------
Total hotels 6,212,000 24,455,000 7,293,000 23,374,000
----------- ---------- ---------- -----------
Total Investment in Real Estate $27,524,000 85,940,000 12,963,000 100,501,000
=========== ========== ========== ===========
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 $27,524,000 85,940,000 12,963,000 104,501,000
=========== ========== ========== ===========
</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>
Burbank Mini-Warehouse, Santa Rosa, California 40,000 1984 4/85 30 Years
Downtown Mini Storage, Sacramento, California 52,000 1980 3/88 33 Years
---------
92,000
---------
LAND:
Florin Perkins, Sacramento, California -- n/a 6/91 n/a
---------
Total land --
---------
HOTELS:
Park Terrace Inn, Redding, California 186,000 1968/1971 7/85 31 Years
Chico Holiday Inn, Chico, California 499,000 1972/1979 9/86 32 Years
Sacramento Holiday Inn, Sacramento, California 511,000 1978 9/86 32 Years
Walnut Creek Holiday Inn, Walnut Creek, California 192,000 1987 3/85 33 Years
*Casa Grande Motor Inn, Aroyo Grande, California 325,000 1984 9/92 40 Years
---------
Total hotels 1,713,000
---------
Total Investment in Real Estate 6,001,000
=========
PARTNERSHIPS:
CR Properties, Sacramento, California --
Placer Ranch, Rocklin, California --
---------
Total Investment in Partnerships --
=========
Total Investment in Real Estate and Partnerships 6,001,000
=========
</TABLE>
(1) The reduction in basis resulted from a judgment against the original seller
of the property.
(2) Represents total cost of assets after valuation allowance.
(3) The Trust establishes allowances for possible investment losses which
represent the excess of the carrying value of individual properties over
their estimated fair 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.
(4) Property was returned to the lender due to foreclosure in February 1996.
* Denotes properties owned by Cal REIT.
62
<PAGE> 66
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
Reconciliation of total real estate carrying values for the year ended December
31, 1995, the Transition Period, and the year ended September 30, 1994 are as
follows:
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
-------------
Year Ended Year Ended
December 31, Transition September 30,
1995 Period 1994
---- ------ ----
<S> <C> <C> <C>
ASSET RECONCILIATION:
Balance, beginning of period $ 114,579,000 $ 142,183,000 $ 164,738,000
Fresh Start Adjustment -- (24,691,000) --
------------- ------------- -------------
Adjusted beginning balance 114,579,000 117,492,000 164,738,000
Additions:
Improvements 2,465,000 181,000 1,493,000
Deductions:
Real estate sold (6,476,000) (3,025,000) (10,628,000)
Insubstance foreclosure (2,967,000) -- (10,586,000)
Valuation losses (7,100,000) (69,000) (2,834,000)
------------- ------------- -------------
Balance, end of period $ 100,501,000 $ 114,579,000 $ 142,183,000
============= ============= =============
ACCUMULATED DEPRECIATION
RECONCILIATION:
Balance, beginning of period $ 2,812,000 $ 31,746,000 $ 31,708,000
Fresh start adjustment -- (29,728,000) --
------------- ------------- -------------
Adjusted beginning balance 2,812,000 2,018,000 31,708,000
Additions:
Depreciation 3,292,000 807,000 4,703,000
Deductions:
Accumulated depreciation on
real estate sold (103,000) (13,000) (2,062,000)
Accumulated depreciation on
insubstance foreclosures -- -- (2,603,000)
------------- ------------- -------------
Balance, end of period $ 6,001,000 $ 2,812,000 $ 31,746,000
============= ============= =============
</TABLE>
63
<PAGE> 67
THE PEREGRINE REAL ESTATE TRUST AND AFFILIATES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
(Notes Receivable Collateralized by Deeds of Trust)
DECEMBER 31, 1995
<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 9.50% 2012 Monthly principal and interest
payments of $9,249 N/A
Office/Retail Building, Fullerton
California 9.50% 2004 Monthly principal and interest
payments of $3,713 N/A
Medical Building, Milpitas, 8.50%-
California 11.50% 2005 Monthly interest only payments N/A
SECOND DEEDS OF TRUST:
*Commercial Building, Pacheco,
California 9.25% 1998 Monthly interest only payments 2,145,000
Commercial Office Building,
San Francisco, California 11.50% 1996 Monthly interest only payments 2,660,000
Industrial Building, Corona
California 11.00% 1993 Monthly interest only payments 1,293,000
</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 $1,380,000 180,000 $1,200,000 $1,380,000
*Office Building, Phoenix,
Arizona 861,000 254,000 607,000 None
*Office/Commercial Building,
Phoenix, Arizona 8,248,000 2,084,000 6,164,000 None
*Retail Building, Tempe
Arizona
913,000 913,000 None
Office/Retail Building, Fullerton
California
421,000 135,000 286,000 None
Medical Building, Milpitas,
California 2,240,000 2,240,000 None
SECOND DEEDS OF TRUST:
*Commercial Building, Pacheco,
California 746,000 190,000 556,000 None
Commercial Office Building,
San Francisco, California 399,000 399,000 None
Industrial Building, Corona
California 0 0 None
</TABLE>
64
<PAGE> 68
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>
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 6,611,000
*Office/Warehouse Complex, 10.00% to
Sunnyvale, California 16.00% 1989 Monthly interest only payments 845,000
*Commercial Building, Tempe
Arizona 8.00% 2000 Monthly 4% interest only payments 913,000
--------------
$14,467,000
==============
</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>
SECOND DEEDS OF TRUST (CONTINUED):
*Office/Retail Complex, Fountain
Valley, California 6,454,000 5,888,000 566,000 None
*Office/Warehouse Complex,
Sunnyvale, California 2,071,000 496,000 1,575,000 2,071,000
*Commercial Building, Tempe
Arizona 360,000 239,000 121,000 None
--------------------------------------------
$24,093,000 $9,466,000 $14,627,000
============================================
</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 estimated fair
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.
65
<PAGE> 69
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 year ended December 31, 1995, the Transition Period, and the year ended
September 30, 1994 are as follows:
<TABLE>
<CAPTION>
Commonwealth
Equity Trust
-------------
Year Ended Year Ended
December 31, Transistion September 30,
1995 Period 1994
---- ------ ----
<S> <C> <C> <C>
Balance, beginning of period $ 16,914,000 $ 15,804,000 $ 19,232,000
Additions:
New loans 2,240,000 1,319,000 --
Recognition of deferred gain 66,000 12,000 --
Accretion of discount -- -- 284,000
Gain on sale of notes receivable -- -- 181,000
Deductions:
Collections on principal (2,030,000) (86,000) (2,970,000)
Deductions from note receivable
on in substance foreclosure -- -- (344,000)
Deductions from loss on prepayment
on notes receivable (137,000) -- --
Deductions from valuation losses
and deferred gains on notes receivable (2,426,000) (135,000) (579,000)
------------ ------------ ------------
Balance, end of period $ 14,627,000 $ 16,914,000 $ 15,804,000
============ ============ ============
</TABLE>
66
<PAGE> 70
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
March 31, 1996 s/ John McMahan
-------------- ---------------------------------
Date John McMahan
Chairman of the Board and
Interim Chief Executive 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.
March 31, 1996 /s/ John McMahan
-------------- ---------------------------------
Date John McMahan
Chairman of the Board
March 31, 1996 /s/ E. Lawrence Hill, Jr.
-------------- ---------------------------------
Date E. Lawrence Hill, Jr.
Trustee
March 31, 1996 /s/ John F. Salmon
-------------- ---------------------------------
Date John F. Salmon
Trustee
March 31, 1996 /s/ Kenneth T. Seeger
-------------- ---------------------------------
Date Kenneth T. Seeger
Trustee
67
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1000
<CASH> 5,264
<SECURITIES> 0
<RECEIVABLES> 28,845
<ALLOWANCES> (23,779)
<INVENTORY> 0
<CURRENT-ASSETS> 10,330
<PP&E> 117,464
<DEPRECIATION> (6,001)
<TOTAL-ASSETS> 121,793
<CURRENT-LIABILITIES> 12,531
<BONDS> 91,670
23,394
0
<COMMON> 13,356
<OTHER-SE> (19,158)
<TOTAL-LIABILITY-AND-EQUITY> 121,793
<SALES> 0
<TOTAL-REVENUES> 27,560
<CGS> 0
<TOTAL-COSTS> 15,884
<OTHER-EXPENSES> 8,957
<LOSS-PROVISION> 9,526
<INTEREST-EXPENSE> 8,524
<INCOME-PRETAX> (15,331)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 598
<CHANGES> 0
<NET-INCOME> (14,733)
<EPS-PRIMARY> (3.02)
<EPS-DILUTED> (3.02)
</TABLE>
