<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JANUARY 31, 1995 COMMISSION FILE NO. 0-13804
THE CHICAGO DOCK AND CANAL TRUST
--------------------------------
(Exact name of registrant as specified in its charter)
ILLINOIS 36-2476640
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
455 EAST ILLINOIS STREET, SUITE 565
- -----------------------------------
CHICAGO, ILLINOIS 60611
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(Address of principal executive offices) (zip code)
(312) 467-1870
(Registrant's telephone number, including area code)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for the
past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON SHARES OF BENEFICIAL INTEREST - NO PAR VALUE PER SHARE, 5,783,800 SHARES
OUTSTANDING ON MARCH 17, 1995.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THE CHICAGO DOCK AND CANAL TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1995 1994
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(IN THOUSANDS)
<S> <C> <C>
INVESTMENT IN REAL ESTATE, at cost:
COMMERCIAL PROPERTIES $70,615 $91,771
LAND AND LAND IMPROVEMENTS
HELD FOR DEVELOPMENT 17,242 18,298
LAND SUBJECT TO HOTEL
GROUND LEASE 6,585 6,500
LESS:ACCUMULATED
DEPRECIATION AND AMORTIZATION (11,144) (13,540)
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NET INVESTMENT IN REAL ESTATE 83,298 103,029
----------- -----------
OTHER ASSETS:
CASH AND CASH EQUIVALENTS 1,816 487
----------- -----------
SHORT TERM INVESTMENTS, (APPROXIMATE
MARKET VALUE OF $6,466 AT JANUARY 31, 1995) 6,536 5,023
----------- -----------
SHORT TERM INVESTMENTS-RESTRICTED,
(APPROXIMATE MARKET VALUE OF $396
AT JANUARY 31, 1995) 396 1,000
----------- -----------
SECURITY DEPOSIT CASH 1,529 1,240
----------- -----------
RECEIVABLES:
TENANTS (INCLUDING $24,718 OF ACCRUED
BUT UNBILLED RENTS AT JANUARY 31, 1995) 31,780 26,942
LAND IMPROVEMENTS 1,388 0
INTEREST 74 85
OTHER 292 478
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33,534 27,505
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OTHER ASSETS, NET 1,538 1,872
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$128,647 $140,156
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</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
<PAGE>
THE CHICAGO DOCK AND CANAL TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
REAL ESTATE TAXES $12,219 $9,676
OTHER 1,558 2,359
CASH DIVIDENDS PAYABLE 58 58
MORTGAGE NOTES PAYABLE 30,885 44,121
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TOTAL LIABILITIES 44,720 56,214
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CONTINGENCY (NOTE 6)
SHAREHOLDERS' EQUITY:
COMMON SHARES OF BENEFICIAL INTEREST:
NO PAR VALUE, 20,000,000 AUTHORIZED,
5,944,200 ISSUED 3,101 3,101
----------- -----------
PREFERRED SHARES OF BENEFICIAL INTEREST:
NO PAR VALUE, 1,000,000 AUTHORIZED,
NONE ISSUED 0 0
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UNDISTRIBUTED INCOME BEFORE NET GAIN FROM
THE SALE OF REAL ESTATE PROPERTIES 8,899 9,022
UNDISTRIBUTED NET GAIN FROM THE SALE
OF REAL ESTATE PROPERTIES 72,546 72,438
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TOTAL UNDISTRIBUTED NET INCOME 81,445 81,460
----------- -----------
LESS:
TREASURY SHARES OF BENEFICIAL INTEREST,
AT COST-160,400 SHARES (619) (619)
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TOTAL SHAREHOLDERS' EQUITY 83,927 83,942
----------- -----------
$128,647 $140,156
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
<PAGE>
THE CHICAGO DOCK AND CANAL TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES:
REVENUE FROM RENTAL PROPERTY $3,894 $4,050 $11,895 $12,447
REAL ESTATE TAXES PAID BY LESSEES 1,659 674 5,205 3,445
------------ ------------ ------------ ------------
TOTAL REVENUES 5,553 4,724 17,100 15,892
------------ ------------ ------------ ------------
EXPENSES:
REAL ESTATE TAXES 761 769 2,354 2,301
REAL ESTATE TAXES PAID BY LESSEES 1,659 674 5,205 3,445
PROPERTY OPERATING EXPENSES 703 800 2,516 2,526
GENERAL AND ADMINISTRATIVE 520 450 1,370 1,397
DEPRECIATION AND AMORTIZATION 863 936 2,740 2,816
INTEREST EXPENSE 1,015 1,062 2,988 3,153
------------ ------------ ------------ ------------
TOTAL EXPENSES 5,521 4,691 17,173 15,638
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 32 33 (73) 254
INVESTMENT AND OTHER INCOME 101 81 265 238
EQUITY IN NET LOSS OF LCD PARTNERSHIP (119) (83) (372) (418)
GAIN (LOSS) FROM DISPOSITION OF
REAL ESTATE (1,729) 0 (1,729) 0
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (1,715) 31 (1,909) 74
EXTRAORDINARY ITEM:
GAIN FROM EXTINGUISHMENT OF DEBT 2,067 0 2,067 0
------------ ------------ ------------ ------------
NET INCOME $352 $31 $158 $74
============ ============ ============ ============
EARNINGS PER SHARE $0.06 $0.01 $0.03 $0.01
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
THE CHICAGO DOCK AND CANAL TRUST
AND SUBSIDIARIES NINE MONTHS NINE MONTHS
CONSOLIDATED STATEMENTS OF CASH FLOWS ENDED ENDED
(UNAUDITED) JANUARY 31, JANUARY 31,
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $158 $74
ADD (DEDUCT)-ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH FLOWS FROM OPERATING ACTIVITIES:
LOSS FROM DISPOSITION OF REAL ESTATE 1,729 0
GAIN FROM EXTINGUISHMENT OF DEBT (2,067) 0
DEPRECIATION AND AMORTIZATION 2,740 2,816
EFFECT OF AVERAGING RENTAL REVENUE (3,524) (3,524)
EQUITY IN NET LOSS OF LCD PARTNERSHIP 372 418
CHANGES IN RECEIVABLES (1,778) 173
CHANGES IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,316 972
DIFFERENCE BETWEEN CURRENT INTEREST PAYABLE AND CONTRACTUAL INTEREST 1,417 1,304
AMORTIZATION OF LOAN FEES 134 67
OTHER (7) (37)
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CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 2,490 2,263
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CASH FLOWS FROM INVESTING ACTIVITIES:
NET (ACQUISITION) OF SHORT-TERM INVESTMENTS (1,513) (1,355)
NET DISPOSITION OF SHORT-TERM INVESTMENTS-RESTRICTED 604 0
ADDITIONS TO INVESTMENTS IN REAL ESTATE (1,014) (535)
MUSIC AND DANCE THEATER LAND DISPOSITION 2,638 0
INFRASTRUCTURE RECEIVABLE: MUSIC AND DANCE THEATER (1,388) 0
OTHER (83) (188)
----------- -----------
CASH FLOWS (USED IN) INVESTING ACTIVITIES (756) (2,078)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
CASH DIVIDENDS DECLARED (174) (174)
PROCEEDS FROM MORTGAGE FINANCINGS 4,000 0
PAYMENT OF MORTGAGE LOAN FEES (169) 0
PRINCIPAL PAYMENTS ON MORTGAGE NOTES (4,062) (105)
----------- -----------
CASH FLOWS (USED IN) FINANCING ACTIVITIES (405) (279)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,329 (94)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 487 576
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,816 $482
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
<PAGE>
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1995 AND 1994
1. Summary of Significant Accounting Policies
The financial statements have been prepared in conformity with generally
accepted accounting principles and reporting practices. Significant accounting
policies are described below and reference is made to the Notes to Consolidated
Financial Statements in the Trust's Form 10-K filed with the Securities and
Exchange Commission on July 29, 1994.
The financial statements in this report have not been audited by
independent public accountants. In the opinion of management, all adjustments
necessary for the fair presentation of the financial position and the results of
operations for the interim periods have been made. The results for the three
and nine month periods are not necessarily indicative of the results for the
full year.
2. Subsidiaries and Joint Venture
CDCT Plaza Corporation:
CDCT Plaza Corporation (the "Plaza Corp.") was formed by the Trust as a
wholly owned subsidiary. The Plaza Corp. owns or controls the 400 stall parking
facility under and adjacent to Ogden Plaza. The Plaza Corp. owns the area under
Park Drive, adjacent to Ogden Plaza, has a lessee's interest in a long term
lease from the Chicago Park District in the area under Ogden Plaza, and has a
licensee's interest in the area under Columbus Drive, adjacent to Ogden Plaza,
from the City of Chicago. The license expires February 2002, subject to the
City of Chicago's right to cancel the license for the payment of a fee to the
Plaza Corp. The area subject to the license contains 100 parking stalls and is
separate from the main portion of the parking facility which contains 300
stalls. An independent contractor operates the 400 stall parking facility, with
the Plaza Corp. receiving a varying percentage of gross revenues. The Trust
consolidates the operations of the Plaza Corp. in these financial statements.
OMA Lansing Corporation:
OMA Lansing Corporation (the "Lansing Corp.") was formed by the Trust
during fiscal 1994 as a wholly owned subsidiary. Lansing Corp. owned One
Michigan Avenue, a 148,000 sq. ft. office building located in Lansing, Michigan
until December 16, 1994 when the Trust agreed to permit the sale by foreclosure
of the building to its lender, Pacific Mutual Life Insurance Company. The Trust
consolidates the operations of the Lansing Corp. in these financial statements.
CDCT Residence Corporation:
<PAGE>
CDCT Residence Corporation (the "Residence Corp.") is a wholly owned
subsidiary which was capitalized with land located at the southeast corner of
East North Water and New Streets, (the "High-Rise" site) in Cityfront Center.
The Trust consolidates the operations of the Residence Corp. in these financial
statements.
In August 1989, the Residence Corp. entered into a partnership, LCD
Partnership ("LCD"), with Daniel E. Levin ("Levin"). The Residence Corp.
contributed the High-Rise site which was valued at $6,602,000 and which had an
historic cost of $1,689,000. Levin contributed cash, building plans for the
High-Rise building and a note for $903,000 which matured and was paid in
September 1991. Levin's contribution was valued at $3,301,000. The Residence
Corp. is a two-thirds partner in LCD and Levin is a one-third partner. Major
decisions of LCD, however, require unanimous approval. Accordingly, the
Residence Corp. accounts for its investment in LCD under the equity method.
In August 1989, LCD entered into a joint venture, New Street Joint Venture
("NSJV"), with Northwestern Mutual Life Insurance Company ("Northwestern
Mutual"). LCD contributed the High-Rise site, the plans and other assets
related to the development of the building (excluding the $903,000 note from
Levin). LCD's capital account was credited with $9,000,000. Northwestern
Mutual contributed an equal amount of cash. Northwestern Mutual and LCD are
50/50 partners in NSJV, subject, however, to Northwestern Mutual's priority over
LCD in certain distributions of cash flow and proceeds from sale or refinancing.
LCD accounts for its investment in NSJV under the equity method. The NSJV
agreement provides for Northwestern Mutual to receive a priority return of
operating cash flow and the proceeds from sale or refinancing of the High-Rise.
Cash flow must increase significantly from its current level for LCD to receive
any cash distribution from NSJV after the payment of Northwestern's preferential
return.
Northwestern Mutual also loaned NSJV $36,700,000 on a non-recourse basis.
In addition, the NSJV Agreement calls for LCD and Northwestern Mutual to
contribute, if necessary, their prorata shares of shortfalls in operating and
capital requirements. The High-Rise building opened in July 1991 and contains
480 units.
As of September 30, 1994, total assets and liabilities of NSJV were
$47,924,000 and $38,549,000, respectively. For the three and nine months ended
September 30, 1994, NSJV recorded a net loss of $392,000 and $1,216,000,
respectively, including depreciation and amortization expense of $425,000 and
$1,275,000, respectively.
3. Investments in Real Estate
Land Subject to Hotel Ground Lease:
During fiscal 1989, the Trust entered into a 50 year ground lease (with
lessee options to extend the term 49 more years) with Tishman Realty Corporation
of Cook
<PAGE>
County ("Tishman Realty") for approximately 2.3 acres of land in Cityfront
Center in Chicago. Tishman Realty subsequently assigned the lease to Cityfront
Hotel Associates Limited Partnership ("Cityfront Hotel Associates"), the current
lessee. The site is currently improved with a 1,200 room convention hotel
called the Sheraton Chicago Hotel & Towers which opened in March 1992. The
lease provides for minimum annual rental payments which are fixed at $150,000
through calendar 1994, and for payments totaling $75,000 for the six-month
period January 1, 1995 through June 30, 1995. The payments increase to $900,000
for the six-month period July 1, 1995 through December 31, 1995, and to
$2,100,000 for calendar 1996. After 1996, the base rent increases annually by
the increase in the Consumer Price Index, but not less than 5% nor more than 10%
per year. In addition to the base rent, percentage rent is also payable
beginning July 1, 1995. Percentage rent equals the amount by which base rent is
exceeded by the product obtained by multiplying gross revenues from operations
by certain applicable percentages ranging from 2% - 5%.
The lessee also acquired an option to purchase the land. The earliest date
on which the land could be acquired pursuant to the option is July 1, 2003. The
purchase option provides that the land price will be the greater of (i) $40
million at January 1, 1999 escalating each year thereafter by the increase in
the Consumer Price Index, but not less than 5% nor more than 10% per year or
(ii) the highest annual ground rent payable during the thirty-six month period
preceding the closing date divided by the Applicable Capitalization Rate which
ranges from 7.2% - 7.5%. In addition, in the event the option is exercised
during the twelfth operating year beginning March 1, 2003, a supplemental amount
of $2.5 million will be added to the purchase price. If the option were
exercised at its earliest date, March 1, 2003, the minimum purchase price which
the Trust would receive is approximately $52 million.
The Trust currently recognizes the average minimum base rent as income,
taking into consideration the limitation imposed by the net realizable value of
the land as reflected in the purchase option price. The annual rental income
recognized on the lease is approximately $4,848,000. The cash rent currently
received is $150,000 per year.
Music and Dance Theater Site:
On December 30, 1994, the Chicago Music and Dance Theater, Inc. (the
"Theater") acquired from the Trust a parcel of land containing approximately
41,000 square feet, located in Cityfront Center which is planned to be the site
of a new 1,500 seat performing arts theater. The Trust received $1.25 million
in cash shortly after the closing. The contract also obligates the Theater to
construct a pedestrian concourse through the theater site. This concourse is an
obligation under the Planned Development Ordinance affecting the Trust's land at
Cityfront Center and will benefit not only the theater site but also the future
buildings planned for the site adjacent to the theater. The estimated cost of
this work is $1.5 million. The Theater is required to commence construction by
September 1, 1996, subject to force majeure delays.
<PAGE>
In computing the gain on the sale, total proceeds include the cash received
plus the value of the construction obligation assumed by the Theater which will
benefit the parcels other than the theater site.
The Trust, together with other businesses near the theater site, agreed to
provide the Theater with an annual operating subsidy for up to twenty years.
The Trust agreed to provide up to $50,000 in the first year of the theater's
operation. This amount increases annually, in years 2 through 10 by the
increase in the consumer price index, but no more than 5% over the prior year
amount. During years 11 through 14, the amount is the same as the year 10
amount. The amount declines during the 15th through 20th years. The amount of
the subsidy may be reduced based on the number of annual public performances at
the theater. The Trust agreed to provide the subsidy in light of the
anticipated increase in parking revenues at its Ogden Plaza parking garage from
the theater patrons. The garage is adjacent to the theater site and will be
connected to the theater at grade level providing direct access to the garage
from the theater.
One Michigan Avenue:
On December 16, 1994 the Trust agreed to permit the sale by foreclosure of
One Michigan Avenue, an office building in Lansing, Michigan to its lender,
Pacific Mutual Life Insurance Company, in full satisfaction of the note secured
by One Michigan Avenue. The Trust conducted extensive negotiations with the
lender including modifications to the note in March 1994 and again in August
1994 (the "August modification"), in an effort to restructure the loan.
However, the Trust concluded that the property's reasonably estimated future
value was insufficient to warrant the future capital investment required to
satisfy the terms of the August modification agreement to the loan. The loan
was non-recourse with respect to the Trust. Accordingly, the Trust's financial
exposure was limited to the loss of the building. The Trust recognized a net
loss of $1,265,000 on the transaction; of this, $3,332,000 was recorded as a
loss from disposition of real estate representing the difference between the
carrying value of the property and the fair market value of the property on the
date of the foreclosure. An extraordinary gain from the extinguishment of
indebtedness of $2,067,000 was also recorded during the third quarter of fiscal
1995, representing the difference between the principal amount of the note plus
accrued interest and the fair market value of the property on the date of the
foreclosure.
4. Mortgage Notes Payable
At January 31, 1995, mortgage notes payable consisted of three notes
secured by first mortgages on the Cityfront Place Mid-Rise, the rents from and
the land under the Kraft Building, and the rents from and the land under the
Sheraton Chicago Hotel & Towers. All three notes are non-recourse with respect
to the Trust.
On December 16, 1994, the Trust agreed to permit the sale by foreclosure of
<PAGE>
One Michigan Avenue, an office building in Lansing, Michigan to its lender,
Pacific Mutual Life Insurance Company, in full satisfaction of the note secured
by One Michigan Avenue. The One Michigan Avenue note, issued in August 1987,
modified in March 1994 (the "March modification") and further modified in August
1994 (the "August modification") had an interest rate of 10% and a carrying
value at December 15, 1994 of $14,590,000.
Due to the significant reduction in cash flow from One Michigan Avenue
after the IBM (the building's largest tenant) lease renewal took effect, the
Trust suspended regular debt service subsequent to the September 1, 1993
payment. Under the terms of the March modification agreement, the lender
received the cash flow from the property from September 1, 1993 to August 31,
1994, in place of regular debt service. Under the terms of the August
modification agreement, cash flow from the property also replaced regular debt
service to the lender from September 1, 1994 to December 15, 1994.
The Trust continued to accrue interest on the loan at the contractual rate
through the effective date of the March modification agreement. Subsequent to
the date of the March modification agreement and up until the date of the August
modification agreement, the Trust accrued interest at a rate which applied a
constant effective interest rate to the carrying amount of the note for each
period from the March modification date to the maturity of the note taking into
account the accrued interest to be forgiven under the March modification
agreement. This constant effective interest rate was approximately 5.5%. After
the August modification agreement was signed, the Trust continued to accrue
interest on the loan at the original contractual rate of 10%. At December 15,
1994, accrued interest on this note equaled $1,477,000.
This loan was non-recourse with respect to the Trust. Accordingly, the
Trust's financial exposure was limited to the loss of the property. The Trust
recognized a net loss of $1,265,000 during the third quarter of fiscal 1995 as a
result of the sale by foreclosure.
On December 23, 1994, the Trust entered into a revolving credit agreement
with First Bank, N.A. The agreement has a three year term and provides for a
maximum commitment by the lender of $20,000,000. The agreement is secured by
the Cityfront Place Mid-Rise. At January 31, 1995, the Trust had borrowed
$4,000,000 of the available credit and used the proceeds to retire the
$4,000,000 Cityfront Place Mid-Rise note issued February 25, 1992. Interest
only, based on LIBOR plus 135 basis points, is due monthly on the amount
advanced under the revolving credit agreement. The total interest rate at
January 31, 1995 was 8.07%. The carrying value of collateral pledged on this
revolving credit agreement at January 31, 1995 equaled $47,952,000.
The principal balance of the Kraft Building note issued in May 1987, was
$5,834,000 at January 31, 1995. It is due in April 2016, bears interest at an
annual
<PAGE>
rate of 9.5%, payable monthly, and is self-amortizing over its term. The
carrying value of collateral pledged on this note at January 31, 1995 equaled
$15,000.
At January 31, 1995, the principal balance of the note secured by the rents
from and the land under the Sheraton Chicago Hotel & Towers was $21,051,000.
The note is due January 1, 2005. The initial principal amount of the loan was
$14,367,000 and the interest rate is 10.25%. Amounts are payable monthly, but
through December 31, 1998, the debt service currently payable coincides with the
ground rent due under the Sheraton lease. The difference between current
interest payable and the contractual interest is added to principal. Starting
in 1999, debt service will be computed on a 30 year amortization schedule based
on the then current principal balance. The carrying value of collateral pledged
on this note at January 31, 1995 consisted of the basis in the land of
$5,690,000 and the amount of accrued but unbilled rent of $24,665,000.
5. Short-Term Investments - Restricted
During the fourth quarter of fiscal 1994, the Trust placed $1,000,000 into
an escrow account as part of the loan modification agreement (subsequently
amended) entered into with the lender of the loan secured by the property at One
Michigan Avenue. On December 16, 1994, the Trust agreed to permit the sale by
foreclosure of One Michigan Avenue to its lender, Pacific Mutual Life Insurance
Company and the funds in the escrow were returned to the Trust during the third
quarter of fiscal 1995.
As a requirement of the revolving credit agreement entered into by the
Trust on December 23, 1994 with First Bank, N.A., the Trust must make monthly
payments into an escrow account. This account funds the semi-annual real estate
tax payments due on the Cityfront Place Mid-Rise. At January 31, 1995, the
balance in this account equaled $396,000.
6. Environmental Remediation Costs
In June 1993, the U.S. Environmental Protection Agency (the "EPA")
conducted preliminary surface tests on a 2.8 acre site currently used as a
surface parking lot (the "Tested Site"). The Tested Site was examined because
thorium, a radioactive element, may have been used on the Tested Site earlier in
the century by a former tenant in a building which was demolished after the
expiry of the tenant's lease.
In January 1994, the Trust entered into a consent order with the EPA
regarding preliminary testing to be performed on the Tested Site. Initial on-
site tests were conducted pursuant to that order in May 1994 and laboratory
analysis was completed on the samples in June 1994. The results of the tests
indicated one concentrated area which appears to be contaminated by thorium, and
other scattered areas on the Tested Site with significantly lower levels of
contamination. The most
<PAGE>
contaminated area is within the footprint of the building previously occupied by
the former tenant.
The EPA has not made a ruling on whether current remediation will be
required nor the form or scope of such remediation. At the latest, the Tested
Site will be remediated when redevelopment occurs. The remediation will most
likely be in the form of excavation and disposal of the soil in specified
disposal areas. It is probable that the Trust will enter into a subsequent
consent order regarding remediation. The Trust's consultants have prepared cost
estimates to remediate the contaminated areas on the Tested Site which range
from $1 million to $5 million. That range of costs is estimated based on the
results of surface measurements and the analysis of samples gathered from nine
borings taken on the site. While these tests were made pursuant to the consent
order with the EPA, additional conditions may exist on the site which would be
discovered only upon excavation. Legal counsel has advised the Trust that it
may have potential claims for some or all of the remediation costs against prior
tenants on the Tested Site or may have coverage under its current or prior
insurance policies. The successor to the former tenant on the Tested Site has
agreed to share equally with the Trust the cost of tests pursuant to the consent
order, but has not agreed to any other costs or admitted any liability with
respect to the Tested Site.
<PAGE>
ITEM 2
THE CHICAGO DOCK AND CANAL TRUST AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
During the third quarter of fiscal 1995, the Trust completed the sale of a
parcel of land located in Cityfront Center to the Chicago Music and Dance
Theater, Inc. The site is scheduled to be improved with a new 1,500 seat
performing arts theater and an adjacent concourse for public pedestrian traffic.
The parcel contains approximately 41,000 square feet. The Trust recognized a
gain from disposition of real estate of approximately $1.6 million from this
transaction.
On December 16, 1994, the Trust agreed to permit the sale by foreclosure of
One Michigan Avenue, an office building in Lansing, Michigan to its lender,
Pacific Mutual Life Insurance Company, in full satisfaction of the note secured
by One Michigan Avenue. The One Michigan Avenue note, issued in August 1987,
modified in March 1994 (the "March modification") and further modified in August
1994 (the "August modification") was non-recourse with respect to the Trust.
Accordingly, the Trust's financial exposure was limited to the loss of the
property. The Trust concluded that the property's reasonably estimated future
value was insufficient to warrant the future capital investment required to
satisfy the terms of the August modification agreement to the loan. The Trust
recognized a net loss of $1,265,000 during the third quarter of fiscal 1995 as a
result of the sale by foreclosure.
Average billed occupancy for the quarter ended January 31, 1995 in the Mid-
Rise and High-Rise Buildings at Cityfront Place was 92% and 94%, respectively.
These percentages represent an increase of 2% for the Mid-Rise from the prior
quarter and a decrease of 2% for the High-Rise from the prior quarter.
At the Trust's two properties outside of Chicago, occupancy at Lincoln
Garden in Tampa, Florida and at Waterplace Park in Indianapolis, Indiana was 86%
and 88%, respectively, at January 31, 1995. These percentages reflect a decline
from the levels at the prior quarter end due, in each case, to a default by a
tenant on their lease. The Trust is actively pursuing prospective tenants in an
attempt to release these spaces as quickly and as profitably as possible. The
lease for a tenant occupying approximately a quarter of Waterplace Park expires
on March 31, 1995. The Trust is negotiating with several tenants, but no
definitive agreements have been reached.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JANUARY 31, 1995 VERSUS
NINE MONTHS ENDED JANUARY 31, 1994
<PAGE>
Revenues:
The decrease in revenue from rental property for the nine months ended
January 31, 1995 compared to the same period in the prior year is primarily due
to the disposition of One Michigan Avenue in December 1994. Furthermore,
revenues at One Michigan Avenue declined during the current nine month period
due to the decrease in occupancy and rental rate under the terms of IBM's new
lease at One Michigan Avenue. The prior lease expired September 30, 1993.
The increase in real estate taxes paid by lessees reflects an increase in
the estimated tax assessment on the Sheraton Chicago Hotel & Towers. Real
estate taxes paid by lessees are also reflected as an expense, and therefore, do
not affect net income.
Equity in Net Loss of LCD Partnership reflects the Trust's effective one-
third share of the operations of New Street Joint Venture ("NSJV"), the entity
which owns the Cityfront Place High-Rise. The loss for the nine months ended
January 31, 1995, reflects operations of the High-Rise from January 1, 1994,
through September 30, 1994, the first nine months of NSJV's fiscal year. The
loss for the current nine month period had no impact on Trust cash flows since
NSJV had positive income before depreciation and amortization expense and
because of the cash flow priority of LCD's partner in NSJV.
Expenses:
The decreases in depreciation expense and in interest expense during the
current nine month period compared to the same period in the prior year are due
to One Michigan Avenue. The Trust stopped accruing depreciation on One Michigan
Avenue, and interest on the One Michigan Avenue note on December 16, 1994, the
date of the sale by foreclosure of One Michigan Avenue. Accordingly, for the
current nine month period, the Trust has recorded only seven and a half months
of depreciation expense and interest expense related to One Michigan Avenue,
compared to nine months for the same period in the prior year.
Gain (Loss) From Disposition of Real Estate and Gain From
Extinguishment of Debt:
The Trust recognized a gain of $1,603,000 from the sale of a parcel of land
to the Chicago Music and Dance Theater, Inc. during the third quarter of fiscal
1995. Total proceeds from the sale equaled $2,638,000 which consisted of cash
received of $1,250,000 plus the value of the construction obligation of
$1,388,000 assumed by the Theater which will benefit the parcels other than the
theater site.
<PAGE>
During the third quarter of fiscal 1995, the Trust also recognized a net
loss of $1,265,000 as a result of the sale by foreclosure of One Michigan
Avenue. The net loss consisted of a loss from disposition of real estate of
$3,332,000 and an extraordinary gain from the extinguishment of debt of
$2,067,000. The loss from real estate represents the difference between the
carrying value of the property and the fair market value of the property on the
date of the foreclosure. The extraordinary gain represents the difference
between the principal amount of the note plus accrued interest and the fair
market value of the property on the date of the foreclosure.
Cash Flows:
During the third quarter of fiscal 1995, the Trust, in a non-cash
transaction eliminated the assets and liabilities related to One Michigan Avenue
as a result of the sale by foreclosure of the property.
OPERATING
Cash flows from operating activities increased by $227,000 in the first
nine months of fiscal 1995 compared to the same period in the prior year.
During the prior year period, the Trust paid interest on the One Michigan Avenue
note of $628,000. No interest was paid on this note during the current period,
although the Trust continued to record interest expense on this note. During
the prior period the Trust received $463,000 in refunds of prior year real
estates taxes. During the current period, the Trust received just $74,000 in
refunds of prior year real estate taxes.
INVESTING
Cash flows used in investing activities increased for the first nine months
of fiscal 1995 compared to the same period in fiscal 1994 due to the receipt of
$1,250,000 from the Music and Dance Theater site sale.
FINANCING
Cash flows used in financing activities increased for the nine months ended
January 31, 1995 compared to the same period in fiscal 1994 due to the payment
of mortgage loan fees in connection with the revolving credit agreement entered
into with First Bank, N.A. during December 1994.
FUNDS FROM OPERATIONS
The Board of Governors of the National Association of Real Estate
Investment Trusts has adopted a definition of "Funds From Operations" as
follows:
Funds From Operations means net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of properties, plus depreciation and
amortization,
<PAGE>
and after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis.
The table below calculates Funds From Operations for the three and nine
months ended January 31, 1995 and January 31, 1994 in accordance with the above
definition.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
January 31, January 31, January 31, January 31,
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Net Income $352 $31 $158 $74
Depreciation and Amortization, Including
the Trust's share of NSJV Depreciation
and Amortization 1,005 1,072 3,165 3,254
Loss From Disposition
of Real Estate 1,729 0 1,729 0
Gain From Extinguishment of Debt (2,067) 0 (2,067) 0
------- ------ ------- ------
Funds from Operations $1,019 $1,103 $2,985 $3,328
======= ====== ======= ======
</TABLE>
The above definition of Funds From Operations excludes certain material
non-cash items which are reported in income and expense of the Trust. Please
refer to the Consolidated Statements of Cash Flows for the computation of cash
flows from operating, investing and financing activities.
THREE MONTHS ENDED JANUARY 31, 1995 VERSUS
THREE MONTHS ENDED JANUARY 31, 1994
Revenues:
The decrease in revenue from rental property for the three months ended
January 31, 1995 compared to the same period in the prior year is primarily due
to the disposition of One Michigan Avenue in December 1994. Due to the sale by
foreclosure of One Michigan Avenue in December 1994, the Trust has recorded only
two months of revenues during the current quarter versus three months of
revenues during the same quarter last fiscal year.
The increase in real estate taxes paid by lessees reflects an increase in
the estimated tax assessment on the Sheraton Chicago Hotel & Towers. Real
estate taxes paid by lessees are also reflected as an expense, and therefore, do
not affect net income.
<PAGE>
Equity in Net Loss of LCD Partnership reflects the Trust's effective one-
third share of the operations of New Street Joint Venture ("NSJV") the entity
which owns the Cityfront Place High-Rise. The loss during the Trust's third
quarter, which ended January 31, 1995, reflects operations of the High-Rise from
July 1, 1994, through September 30, 1994, the third quarter of NSJV's fiscal
year. The current quarter loss had no impact on Trust cash flows since NSJV had
positive income before depreciation and amortization expense and because of the
cash flow priority of LCD's partner in NSJV.
Expenses:
The increase in general and administrative expense during the quarter ended
January 31, 1995 compared to the same quarter in the prior year reflects bonuses
of $65,000 paid to the executive officers of the Trust in conjunction with the
sale of a parcel of land located in Cityfront Center to the Chicago Music and
Dance Theater, Inc. The full amount of these bonuses is reflected in the
results for the current quarter.
The decreases in property operating expenses, depreciation expense and
interest expense during the three months ended January 31, 1995 compared to the
same period in the prior year are due to One Michigan Avenue. The Trust stopped
recording operating expenses and accruing depreciation on One Michigan Avenue,
and stopped accruing interest on the One Michigan Avenue note, on December 16,
1994, the date of the sale by foreclosure of One Michigan Avenue. Accordingly,
for the current quarter, the Trust has recorded only one and a half months of
property operating expense, depreciation expense and interest expense related to
One Michigan Avenue, compared to three months for the same period in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
The Trust has historically used non-recourse debt secured by individual
properties as the primary source of additional capital, when needed, to fund
acquisitions or development. It has also acquired income producing properties
in tax-deferred exchanges in which little or no debt was required. The Trust
currently has three income producing properties with no debt - Waterplace Park,
Lincoln Garden and the Ogden Plaza parking facility. In addition, during the
third quarter of fiscal 1995, the Trust entered into a three year $20,000,000
revolving credit agreement with First Bank, N.A. secured by the Mid-Rise
apartment building. At January 31, 1995, the Trust had borrowed $4,000,000 of
the available credit facility.
The Trust has occasionally sold properties. The most recent sale occurred
during the third quarter of fiscal 1995 when the Trust sold a parcel containing
approximately 41,000 square feet to the Chicago Music and Dance Theater, Inc.
The Trust received total proceeds of $2,638,000 from this sale, of which
$1,250,000 was in cash and $1,388,000 represents the assumption by the Theater
of the Trust's obligation to construct a pedestrian concourse adjacent to the
theater site. Prior to
<PAGE>
this, the most recent sale was the land under the Brick Venture apartment
building adjacent to North Pier at Cityfront Center. The Trust received
installment payments of $1.5 million in fiscal 1992 and $2.95 million in fiscal
1993 related to that sale.
In January 1994, the Trust entered into a consent order with the EPA
regarding preliminary testing to be performed on a 2.8 acre site in Cityfront
Center currently used as a parking lot (the "Tested Site"). Initial on-site
tests were conducted pursuant to the order in May 1994 and laboratory analysis
was completed on these samples in June 1994. The results of the tests indicated
one concentrated area which appears to be contaminated by thorium, and other
scattered areas on the Tested Site with significantly lower levels of
contamination. The most contaminated area is within the footprint of a building
which formerly stood on the Tested Site.
The EPA has not made a ruling on whether current remediation will be
required nor the form or scope of such remediation. At the latest, the Tested
Site will be remediated when redevelopment occurs. The remediation will most
likely be in the form of excavation and disposal of the soil in specified
disposal areas. It is probable that the Trust will enter into a subsequent
consent order regarding remediation. The Trust's consultants have prepared cost
estimates to remediate the contaminated areas on the Tested Site which range
from $1 million to $5 million. That range of costs is estimated based on the
results of surface measurements and the analysis of samples gathered from nine
borings taken on the site. While these tests were made pursuant to the consent
order with the EPA, additional conditions may exist on the site which would be
discovered only upon excavation. Legal counsel has advised the Trust that it
may have potential claims for some or all of the remediation costs against prior
tenants on the Tested Side or may have coverage under its current or prior
insurance policies. The successor to the former tenant on the Tested Site has
agreed to share equally with the Trust the cost of tests pursuant to the consent
order, but has not agreed to any other costs or admitted any liability with
respect to the Tested Site. The Trust may be required to remediate the Tested
Site prior to reimbursement from tenants or insurance, if any such reimbursement
is due. The Trust intends to use its current cash and short term investments or
its current credit facility, to incur additional debt or to sell assets to fund
the required remediation obligations.
The Trust will capitalize the cost of the remediation when it incurs the
obligation to perform such remediation. During the nine months ended January
31, 1995, the Trust capitalized $87,000 of testing and legal costs related to
the Tested Site.
In order to fully develop the land owned by the Trust in Chicago,
additional infrastructure expenditures will be required. These improvements are
necessary to fully redevelop the property in accordance with the Planned
Development Ordinance approved by the Chicago City Council on November 6, 1985.
The Trust completed Phase I infrastructure in fiscal 1988 using the
proceeds
<PAGE>
from borrowings secured by the Kraft Building and One Michigan Avenue. Total
Phase I expenditures amounted to approximately $10 million.
The Trust completed Phase II infrastructure in fiscal 1992 using the
proceeds from a borrowing secured by the rents from and land under the Sheraton
Chicago Hotel & Towers ground lease. All base rent received under the ground
lease is dedicated to debt service through calendar 1998. The balance of the
interest accruing during the period is added to principal (with the maximum
outstanding principal expected to be approximately $22.4 million at the end of
1998). Beginning in 1999, debt service remains constant (based on amortization
of principal and accrued interest over 30 years) through the loan's maturity on
January 1, 2005. This maturity coincides approximately with the earliest
closing date under the lessee's option to acquire the Trust's interest in the
land. The minimum purchase price under the option, assuming the earliest
possible exercise of the option, is approximately $52 million. The note will
have a principal balance of approximately $22 million at that time.
Phase III infrastructure consists primarily of the River Esplanade east of
McClurg Court, Du Sable Park (a 3 acre park east of Lake Shore Drive), the slip
promenade on the south bank of the Ogden Slip and upgrading of the remainder of
East North Water Street. The total current cost of the improvements is
estimated to be approximately $12 million. Improvements to Du Sable Park are
expected to be completed during calendar 1995 at a cost to the Trust of not less
than $600,000. The remainder of Phase III will be constructed as needed to
support additional development in the area. However, certain improvements are
required to be completed no later than the completion of 2,500 units of
residential development on the east portion of Cityfront Center. It is the
intention of the Trust to finance future infrastructure with cash on hand, its
current credit facility, general corporate indebtedness, borrowings secured by
its income producing properties and ground leases, asset sales or some
combination of these sources.
The New Street Joint Venture Agreement obligates LCD and Northwestern
Mutual to contribute, if necessary, their prorata shares of funds related to the
operation of the High-Rise building. As of January 31, 1995, LCD had funded
$335,000 as its share of additional capital contributions, all of which was
contributed prior to fiscal 1994. LCD currently holds approximately $790,000 in
short term investments. The Trust's two-thirds share of these short term
investments is not reflected on the Trust's balance sheet and is in addition to
the Trust's cash and short term investments. The New Street Joint Venture
agreement provides for Northwestern Mutual to receive a priority return of
operating cash flow and the proceeds from sale or refinancing of the High-Rise.
Cash flow must increase significantly from its current level for LCD to receive
any cash distributions from New Street Joint Venture after the payment of
Northwestern's preferential return.
On December 16, 1994 the Trust agreed to permit the sale by foreclosure of
One Michigan Avenue, an office building in Lansing, Michigan to its lender,
Pacific
<PAGE>
Mutual Life Insurance Company, in full satisfaction of the note secured by One
Michigan Avenue. The One Michigan Avenue note, issued in August 1987, modified
in March 1994 (the "March modification") and further modified in August 1994
(the "August modification") had an interest rate of 10% and carrying value at
December 15, 1994 of $14,590,000.
Due to the significant reduction in cash flow from One Michigan Avenue
after the IBM (the building's largest tenant) lease renewal took effect, the
Trust suspended regular debt service subsequent to the September 1, 1993
payment. Under the terms of the March modification agreement, the lender
received the cash flow from the property from September 1, 1993 to August 31,
1994, in place of regular debt service. Under the terms of the August
modification agreement, cash flow from the property also replaced regular debt
service to the lender from September 1, 1994 to December 15, 1994.
The Trust continued to accrue interest on the loan at the contractual rate
through the effective date of the March modification agreement. Subsequent to
the date of the March modification agreement and up until the date of the August
modification agreement, the Trust accrued interest at a rate which applied a
constant effective interest rate to the carrying amount of the note for each
period from the March modification date to the maturity of the note taking into
account the accrued interest to be forgiven under the March modification
agreement. This constant effective interest rate was approximately 5.5%. After
the August modification agreement was signed, the Trust continued to accrue
interest on the loan at the original contractual rate of 10%. At December 15,
1994 accrued interest on this note equaled $1,477,000.
This loan was non-recourse with respect to the Trust. Accordingly, the
Trust's financial exposure was limited to the loss of the property. The Trust
recognized a net loss of $1,265,000 during the third quarter of fiscal 1995 as a
result of the sale by foreclosure.
The Trust placed $1,000,000 into an escrow account to secure its
obligations under the loan modification agreement. After the sale by
foreclosure, the funds in escrow were returned to the Trust.
As a requirement of the revolving credit agreement entered into by the
Trust on December 23, 1994 with First Bank, N.A., the Trust must make monthly
payments into an escrow account. This account funds the semi-annual real estate
tax payments due on the Cityfront Place Mid-Rise. At January 31, 1995 the
balance in this account equaled $396,000.
At January 31, 1995, total interest bearing debt of the Trust equaled
$30,885,000. Of this amount, fixed rate debt equaled $26,885,000 and floating
rate debt equaled $4,000,000. Accordingly, of the Trust's debt at January 31,
1995, only 13.0% will be affected by changes in interest rates. The Trust's
floating rate debt can
<PAGE>
be prepaid without penalty at any time.
Management considers that the Trust's liquidity at January 31, 1995 is
adequate to meet its operating needs and commitments.
<PAGE>
PART II
Item 6(a) - Exhibits - None
Item 6(b) - Reports on Form 8-K
The Trust filed Form 8-K on December 16, 1994 reporting that on December
16, 1994 the Trust agreed to permit the sale by foreclosure of an office
building in Lansing, Michigan to its lender, Pacific Mutual Life Insurance
Company.
The Trust filed a Form 8 amending the above mentioned Form 8-K on January
30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHICAGO DOCK AND CANAL TRUST
/s/ DAVID R. TINKHAM
-----------------------------------------------
David R. Tinkham, Vice President
and Chief Accounting Officer
March 17, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 1,816
<SECURITIES> 8,461
<RECEIVABLES> 35,072
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,349
<PP&E> 94,442
<DEPRECIATION> (11,144)
<TOTAL-ASSETS> 128,647
<CURRENT-LIABILITIES> 13,835
<BONDS> 30,885
<COMMON> 3,101
0
0
<OTHER-SE> 80,826
<TOTAL-LIABILITY-AND-EQUITY> 128,647
<SALES> 15,264
<TOTAL-REVENUES> 15,264
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,988
<INCOME-PRETAX> (1,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,067
<CHANGES> 0
<NET-INCOME> 158
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
