SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission File Number 1-6613
VALUE PROPERTY TRUST
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 23-1862664
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
120 Albany Street, 8th Floor
New Brunswick, New Jersey 08901-2163
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 296-3080
<PAGE>
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
requirements for the past 90 days. Yes [ X ] No [ ].
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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 [ ]
Number of Common Shares Outstanding at February 1, 1996: 11,226,310
<PAGE>
VALUE PROPERTY TRUST
INDEX
<TABLE>
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Page
<S> <C>
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements ........................................... 2
Balance Sheet at December 31, 1995 and
September 30, 1995 (Unaudited) ............................ 2
Statement of Operations for the Three Months
Ended December 31, 1995 and 1994 (Unaudited) .............. 4
Statement of Cash Flows for the Three Months Ended
December 31, 1995 and 1994 (Unaudited) ................. 5
Statement of Shareholders' Equity for the Three
Months Ended December 31, 1995 (Unaudited) ................ 6
Notes to the Financial Statements .............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 12
Part II: OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 14
Item 5. Other Information .............................................. 14
Signatures ..................................................... 16
</TABLE>
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<PAGE>
VALUE PROPERTY TRUST FORM 10Q
Part I: Financial Information
Item 1. Financial Statements:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET - (Unaudited)
(In Thousands)
- -----------------------------------------------------------------------------------------------
December 31, September 30,
1995 1995
------------ -------------
<S> <C> <C>
ASSETS
Assets Held for Sale:
Mortgage loans .......................................... $ 47,303 $ 21,966
Investments in partnerships ............................. 5,268 5,220
Real estate owned ....................................... 42,835 42,059
Notes Receivable ........................................ 333 --
-------- --------
95,739 69,245
-------- --------
Assets Held for Investment:
Mortgage loans .......................................... 3,023 35,013
Investments in partnerships ............................. 20,565 20,648
Real estate owned ....................................... 86,620 81,581
Notes receivable ........................................ -- 633
-------- --------
110,208 137,875
-------- --------
Total Invested Assets ...................................... 205,947 207,120
Cash and cash equivalents .................................. 17,689 9,977
Restricted cash ............................................ 2,455 6,791
Interest receivable and other assets ....................... 6,435 8,441
-------- --------
$232,526 $232,329
======== ========
(Continued)
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<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
BALANCE SHEET - (Unaudited)
(In Thousands)
(Continued)
- -----------------------------------------------------------------------------------------------
December 31, September 30,
1995 1995
------------ -------------
<S> <C> <C>
LIABILITIES
Senior secured notes (due 2002) ............................ $109,975 $109,975
Mortgage payable ........................................... 13,953 17,535
Accounts payable and accrued expenses ...................... 3,960 4,745
Interest payable ........................................... 3,127 --
-------- --------
131,015 132,255
-------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value: 3,500,000 shares authorized,
none issued ............................................. -- --
Common shares, $1 par value: 20,000,000 shares authorized,
11,226,310 and 11,226,215 shares issued and outstanding . 11,226 11,226
Additional paid-in capital ................................. 88,848 88,848
Retained earnings .......................................... 1,437 --
-------- --------
Total shareholders' equity ........................ 101,511 100,074
-------- --------
Total liabilities and shareholders' equity ........ $232,526 $232,329
======== ========
See accompanying notes.
</TABLE>
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<PAGE>
VALUE PROPERTY TRUST FORM 10Q
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Data)
- ------------------------------------------------------------------------------------------------
Three Months Ended
December 31,
------------------------------
1995 1994
------------- -------------
(Post- | (Pre-
Confirmation) | Confirmation)
<S> <C> <C>
Income: |
Income on rental properties: |
Rental income ..................................... $ 6,560 | $ 5,692
Operating expense reimbursements .................. 843 | 577
Interest and fee income on mortgage loans ............... 1,679 | 2,878
Interest on short-term investments ...................... 305 | 822
Other ................................................... 8 | 33
-------- | --------
9,395 | 10,002
|
Expenses: |
Interest ................................................ 3,565 | 9,559
Expenses of rental properties: |
Depreciation and amortization ..................... 564 | 1,704
Operating ......................................... 3,076 | 2,670
Administrative .......................................... 753 | 1,153
-------- | --------
7,958 | 15,086
|
Income (loss) from operations before |
reorganization expenses .................................. 1,437 | (5,084)
Reorganization expenses .................................... -- | 370
-------- | --------
Net income (loss) .......................................... $ 1,437 | $ (5,454)
======== | ========
Per share: |
|
Net income ................................................. $ .13 | $ *
======== | ========
|
Weighted average number of common shares outstanding ....... 11,226 | 11,226
======== | ========
*Per share information is not meaningful due to Fresh Start Reporting.
See accompanying notes.
</TABLE>
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<PAGE>
VALUE PROPERTY TRUST FORM 10Q
<TABLE>
<CAPTION>
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STATEMENT OF CASH FLOWS (Unaudited)
(In Thousands)
- ------------------------------------------------------------------------------------------------------
Three Months Ended
December 31,
-------------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................... $ 1,437 $ (5,454)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deprecation and amortization on real estate ........... 564 1,704
Decrease in payables and accrued expenses ............. (785) (231)
Increase in interest payable .......................... 3,127 9,139
Decrease (increase) in receivables and other assets ... 2,006 (15)
-------- --------
Total adjustments ........................................... 4,912 10,597
-------- --------
Net cash provided by operating activities ........................ 6,349 5,143
-------- --------
Cash flows from investing activities:
Investment in real estate:
Real estate equities .................................... (1,445) (4,936)
Advances on mortgage loans .............................. (67) (79)
Partnerships ............................................ (49) (1,749)
Principal repayments on mortgage loans ...................... 100 1,362
Sale of real estate ......................................... 1,770 2,334
Repayments on notes receivable .............................. 300 45
-------- --------
Net cash provided by (used in) investing activities .............. 609 (3,023)
-------- --------
Cash flows from financing activities:
Decrease in mortgage payable ................................ (3,582) --
Decrease in restricted cash ................................. 4,336 --
-------- --------
Net cash provided by financing activities ........................ 754 --
-------- --------
Net increase in cash and cash equivalents ........................ 7,712 2,120
Cash and cash equivalents at beginning of period ................. 9,977 60,332
-------- --------
Cash and cash equivalents at end of period ....................... $ 17,689 $ 62,452
======== ========
Supplemental schedule of non-cash investment and
financing activities:
Charge offs against allowance for losses ................ $ -- $ 2,634
======== ========
Transfer of mortgage loans to real estate owned ......... $ 5,120 $ --
======== ========
Transfer of mortgage loans to investments
in partnerships ...................................... $ -- $ 15,443
======== ========
See accompanying notes.
</TABLE>
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<PAGE>
VALUE PROPERTY TRUST FORM 10Q
<TABLE>
<CAPTION>
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STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(In Thousands)
- -----------------------------------------------------------------------------------------------------------------------
For the Three Months Ended December 31, 1995
Additional Total
Common Shares Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 ....... 11,226 $ 11,226 $ 88,848 $ -- $100,074
Net income .......................... -- -- -- 1,437 1,437
------ -------- -------- -------- --------
Balance at December 31, 1995 ........ 11,226 $ 11,226 $ 88,848 $ 1,437 $101,511
====== ======== ======== ======== ========
See accompanying notes.
</TABLE>
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<PAGE>
VALUE PROPERTY TRUST FORM 10Q
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION
In connection with its emergence from the Chapter 11 proceeding (the
"1995 Restructuring"), the Trust implemented Fresh Start Reporting as
of September 30, 1995, as set forth in The American Institute of
Certified Public Accountants Statements of Position ("Statement of
Position") on Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code 90-7. Fresh Start Reporting was required because
(1) the reorganization value of the Trust's assets immediately before
the date of confirmation was less than the total of all post-petition
liabilities, (2) there was more than a 50% change in the ownership of
the Trust, and (3) there was a permanent and substantive loss of
control by existing shareholders. As a result, all assets and
liabilities were restated to reflect their respective reorganization
values or fair value. The December 31, 1995 income statement amounts
have been segregated by a black line in order to signify that the
fiscal 1996 income statement is that of a new reporting entity and has
been prepared on a basis not comparable to the pre-confirmation income
statement.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of only normal recurring
accruals, considered necessary for a fair presentation have been
included. Operating results for the three-month period ended December
31, 1995 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1996.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements - 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.
Income Taxes - The Trust is a real estate investment trust ("REIT")
that has elected to be taxed under Sections 856-860 of the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, no
provision has been made for income taxes in the financial statements.
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<PAGE>
The Trust estimates it has a net operating loss ("NOL") carryforward of
approximately $157 million for tax purposes at fiscal year end 1995.
Beginning with fiscal 1996, the NOL carryforward available to offset
taxable income for future years will be approximately $82 million after
the recognition for tax purposes of Cancellation of Indebtedness
("COD") income of approximately $75 million. The NOL carryforward will
be subject to Code Section 382 annual limitations on the use of the
NOL. The Trust estimates this annual limitation to be approximately $6
million with any portion of the Section 382 limitation not used in any
taxable year carried forward up to fifteen years.
The Trust entered into an amended and restated indenture (the "New
Indenture") with Wilmington Trust Company as trustee, relative to the
Trust's 11-1/8% Senior Secured Notes (the "Notes"). The New Indenture
restricts the payment of dividends, other than such declaration and
making of dividend payments that the Trust deems necessary to preserve
its status as a REIT, unless the consolidated net worth of the Trust at
the time of such payment and after giving effect thereto is at least
$50 million; provided, however, that the Trust shall in no event
declare or make any such dividend payment or other distribution if a
default under the New Indenture has occurred and is continuing. Under
the Code, the Trust must distribute 95% of its "REIT taxable income" to
its shareholders to continue to qualify as a REIT.
Rental Income - Rental income is recognized on a straight-line basis
over the applicable term of the lease.
Interest Income - Interest income on each loan is recorded as earned.
Interest income is not recognized if, in the opinion of the Trustees,
collection is doubtful. The Trust generally considers loans as
delinquent if payment of interest and/or principal, as required by the
terms of the note, is more than 60 days past due. Accrual of interest
income is generally terminated and foreclosure proceedings are started
if payment is more than 60 days past due.
Loan Fee Income - Loan fees are recorded as income using the "interest
method." Accordingly, loan fees are deferred when received and are
recorded as income over the term of the loan in relation to outstanding
loan balances.
Allowance for Losses - With the implementation of Fresh Start
Reporting, as of September 30, 1995, the allowance for loan losses was
reset to zero. Further provisions for losses on mortgage loans and
related investments in accordance with Statements of Position on
Accounting Practices of Real Estate Investment Trusts 75-2 ("SOP 75-2")
may be necessary if there is deterioration in real estate markets, or
there is a significant increase in the Trust's cost of capital.
Net Income Per Share - Net income per share is computed using the
weighted average common shares outstanding during the three months
ended December 31, 1995. Per share information is not disclosed for any
period ending prior to October 1, 1995 because such information is not
meaningful due to the implementation of Fresh Start Reporting on
September 30, 1995.
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<PAGE>
Depreciation and Amortization - Depreciation and amortization are
computed on the straight-line method over an estimated useful life of
40 years for buildings and three to five years for other property and
lease commissions. Real estate held for investment is depreciated on a
straight line method over the remaining life of the asset.
Cash and Cash Equivalents - Cash and cash equivalents and restricted
cash include short-term investments (high grade commercial paper) with
original maturities not exceeding a term greater than 90 days.
Restricted cash of $2,455,000 is restricted as to use under terms of a
termination pay plan, and various escrow and lease agreements.
Investments in Partnerships - Investments in partnerships represent the
Trust's investment in real estate partnerships. The Trust owns a
majority percentage interest in these partnerships and receives
substantially all the cash flow. The Trust accounts for these
partnerships in a similar manner as real estate investments.
Real Estate Owned - At September 30, 1995, real estate owned and held
for investment are carried at reorganization value and are depreciated
using the straight line method over their estimated useful lives.
At September 30, 1994, real estate owned and held for investment are
carried at the lower of cost or net realizable value and are
depreciated using the straight line method over their estimated useful
lives.
The estimated lives are as follows:
Buildings 40 years
Equipment 5 years
Tenant Improvement Term of related lease
Real estate owned and held for sale are carried at net realizable value
which approximate reorganization value. Such assets are not
depreciated.
NOTE 3. MORTGAGE LOANS AND INVESTMENTS IN REAL ESTATE
The Trust's mortgage loan portfolio consists of loans located
principally in California (58%) and Pennsylvania (24%) at December 31,
1995.
At December 31, 1995, the Trust had undisbursed commitments of $684,000
on partially funded mortgage loans.
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<PAGE>
The following table summarizes the Trust's investments in real estate
owned at December 31, 1995. At September 30, 1995, as a result of Fresh
Start Reporting, all assets and liabilities of the Trust were restated
to reflect their respective reorganization values or fair value. The
accumulated depreciation on real estate owned was reset to zero as a
result of Fresh Start Reporting.
<TABLE>
<CAPTION>
Type of Number Carrying Accumulated Book
Property of Properties Amount Depreciation Value
-------- ------------- -------- ------------ -----
<S> <C> <C> <C> <C>
Real Estate Owned 34 129,936 (481) 129,455
Investments in Partnerships 5 25,916 (83) 25,833
--- -------- -------- ---------
Total 39 155,852 (564) 155,288
=== ======== ======== ========
</TABLE>
NOTE 4. BORROWINGS
Mortgage Payable - The Trust has a mortgage loan of $13,953,000
outstanding at December 31, 1995. The contractual interest rate on this
loan at December 31, 1995 was 10.75% (Prime + 2%, floor of 8.5%) and
the loan matures in December 1996.
Senior Secured Notes - The Notes are secured obligations (secured by a
first priority lien on all of the Trust's collateral) governed by the
New Indenture between the Trust and Wilmington Trust Co., as Trustee,
dated as of the effective date of the Trust's reorganization (September
29, 1995). Interest on these Notes accrues at 11-1/8% per annum and is
payable semi-annually in arrears on each June 30 and December 31. The
Trust is not required to make mandatory redemption payments or sinking
fund payments other than with respect to Asset Sale Proceeds (as
defined in the New Indenture). If at any time the aggregate amount of
Asset Sale Proceeds exceeds $10 million, the Trust is required to make
an offer to all holders of Notes to purchase the maximum principal
amount of Notes that, together with accrued and unpaid interest
thereon, may be purchased with 80% of any such Asset Sale Proceeds or
100% of net cash proceeds of Indebtedness (as defined in the New
Indenture) incurred as permitted under the New Indenture. The Trust has
the option to redeem the Notes, in whole or in part, at 100% of the
principal amount plus accrued and unpaid interest. The New Indenture
includes affirmative covenants, negative covenants and financial
covenants.
Certain of these covenants pose restrictions on the Trust in the form
of: (1) required deposit of all Asset Sale Proceeds into a segregated
account; (2) limitation on investments; (3) required grant of a
collateral interest in any real estate or promissory notes, underlying
mortgage or underlying lease acquired through foreclosure or otherwise;
(4) restrictions on the ability to incur new debt and (5) payment of
dividends except those the Trust deems necessary to preserve its status
as a REIT subject to certain limitations as defined in the New
Indenture. At December 31, 1995 the Trust was in compliance with all
covenants under the New Indenture.
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<PAGE>
NOTE 5. SHARE OPTION PLAN
1995 Share Option Plan
On October 2, 1995, the Board of Trustees adopted a 1995 Share Option
Plan (the "1995 Plan") for trustees, officers, employees and other key
persons of the Trust, subject to the approval of the 1995 Plan by the
Trust's shareholders at the Trust's 1996 Annual Meeting of
Shareholders.
The 1995 Plan provides for the grant of options to purchase up to
870,000 Common Shares at not less than 100% of the fair market value of
the Common Shares, subject to adjustment for share splits, share
dividends and similar events. To the extent that awards under the 1995
Plan do not vest or otherwise revert to the Trust, the Common Shares
represented by such awards may be the subject of subsequent awards.
The 1995 Plan provides for the grant of incentive stock options
("Incentive Options") which qualify under Section 422 of the Code and
nonqualified stock options ("non-Qualified Options"). Holders of
options also receive dividend equivalent rights.
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<PAGE>
VALUE PROPERTY TRUST FORM 10Q
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following section includes a discussion and analysis of the results
of operation for the quarters ended December 31, 1995 and 1994. The
Trust has, for the past several years, reported significant net losses.
As a result of the 1995 Restructuring, past results should not be
indicative of future operating performance. Future results of
operations of the Trust will not be comparable to the historical
operating performance.
Results of Operations - Quarter Ended December 31, 1995 vs. Quarter
Ended December 31, 1994 - Net income for the quarter ended December 31,
1995 was $1,437,000 or $.13 per share compared to a net loss of
$5,454,000 for the quarter ended December 31, 1994. December 31, 1994
per share information is not meaningful due to Fresh Start Reporting.
Rental income increased $868,000 to $6,560,000 in the quarter December
31, 1995 from $5,692,000 for the quarter ended December 31, 1994. In
addition to rental income, the Trust received from tenants
reimbursement of certain operating expenses totaling $843,000 and
$577,000 for the quarters ended December 31, 1995 and 1994,
respectively. These increases were primarily due to the addition of
five properties foreclosed upon from December 31, 1994 and partially
offset by one property which was sold. The Trust owned 39 properties at
December 31, 1995 compared to 35 properties at December 31, 1994.
Interest and fee income on mortgage loans decreased $1,199,000 to
$1,679,000 for the quarter ended December 31, 1995 compared to
$2,878,000 for the quarter ended December 31, 1994. This decrease was
due primarily to approximately $49,800,000 in carrying value of
mortgage loans foreclosed upon during the year and approximately
$20,900,000 in mortgage loan repayments.
Interest on short-term investments was $305,000 in the first quarter of
1996 compared to $822,000 in the first quarter of 1995. The decline was
due to the reduction in cash balances as a result of the $25 million
advance towards the minimum payment made on April 11, 1995 required to
implement the 1995 Restructuring and an additional $46 million payment
made on September 29, 1995.
Interest expense decreased $5,994,000 to $3,565,000 for the current
quarter compared to $9,559,000 for the quarter ended December 31, 1994.
This decrease was due primarily to the cancellation of indebtedness
that occurred at the end of the fourth quarter of fiscal 1995.
Depreciation and amortization on rental properties decreased $1,140,000
to $564,000 for the quarter ended December 31, 1995 from $1,704,000 for
the quarter ended December 31, 1994, primarily as a result of Fresh
Start Reporting. Prior to Fresh Start Reporting, the Trust depreciated
all real estate investments. At September 30, 1995, the Trust
segregated the real estate portfolio into two categories: Held for Sale
and Held for Investment. The Trust depreciates the Held for Investment
category over the estimated useful lives of the assets.
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<PAGE>
Operating expenses on rental properties increased $406,000 to
$3,076,000 for the quarter ended December 31, 1995 from $2,670,000 for
the quarter ended December 31, 1994. This increase was primarily due to
the addition of real estate foreclosed upon during the year.
Administrative expenses decreased $400,000 to $753,000 for the quarter
ended December 31, 1995 compared to $1,153,000 for the quarter ended
December 31, 1994. This decrease was due to a reduction in staffing
levels and reduced insurance premiums.
The 1995 Restructuring was completed in the fourth quarter of fiscal
1995. Reorganization expenses related to the Chapter 11 filing and debt
restructuring expenses were $370,000 for the quarter ended December 31,
1994. These expenses reflect professional fees incurred by the
representatives of the creditors, shareholders and the Trust.
Liquidity and Capital Resources - Prior to its restructuring, the Trust
faced significant liquidity problems. The Trust did not generate
sufficient cash flow from normal operations and was not able to
liquidate mortgage loans and real estate investments in order to meet
scheduled amortization on its indebtedness. As a result of the 1995
Restructuring, the Trust should no longer have the liquidity problems
that it faced in the previous years. Cash flow from operating
activities should be sufficient to meet minimum debt service
requirements. In the near term, capital expenditure needs will be met
through liquidation of existing assets and the cash available at
December 31, 1995. However, the Trust's present liquidity, cash flow
from operating activities and ability to liquidate existing assets to
meet its obligation can be adversely impacted by a negative change in
the economy, particularly as those changes may relate to real estate
assets. The Trust may, in the future, seek to raise additional capital
through the issuance of equity securities and/or the incurring of
additional indebtedness for the purpose of meeting additional capital
expenditures or retiring or refinancing the Notes.
The New Indenture restricts the payment of dividends, other than
dividend payments that the Trust deems necessary to preserve its status
as a REIT, unless the Consolidated Net Worth (as defined in the New
Indenture) of the Trust is at least $50 million; provided, however,
that the Trust may not make any dividend payment if a Default or Event
of Default (as defined in the New Indenture) has occurred and is
continuing. Under the Code, the Trust must distribute 95% of its "REIT
taxable income" to its shareholders to continue to qualify as a REIT.
Taxable income required to be distributed will be less than taxable
income for financial reporting purposes under generally accepted
accounting principles due to differences related to depreciation,
utilization of NOL carryforward (subject to the Code Section 382
limitations) and timing differences related to bad debt deductions.
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<PAGE>
FORM 10Q Value Property Trust
PART II: Other Information
Item 1. Legal Proceedings
A third party has alleged the existence of a purchase contract with
respect to one of the Trust's properties which the Trust disputes. This
dispute has lead to litigation. However, the Trust believes that this
litigation, when resolved, will not have a material adverse effect on
the business, financial condition or results of operations of the
Trust.
Item 5. Other Information
1. Consistent with the Trust's plan to evaluate each of its assets and
to assess its mortgage loan portfolio, management has recently
completed a thorough review of the Trust's mortgage loan portfolio.
Following this review, the Trustees concluded that a bulk sale of the
mortgage loan portfolio would be the most efficient method to maximize
the overall return to shareholders.
The factors influencing the decision were: 1) a stable to slightly
declining interest rate environment; 2) the continuing moderate level
of inflation; 3) stable to slightly increasing real estate values in a
growing number of markets; and 4) the increased likelihood that a
number of existing borrowers may refinance their loans with other
lenders. These factors, taken together, provided the basis under which
management concluded that a bulk sale transaction would enhance the
overall value of the mortgage portfolio.
In light of the decision to conduct a bulk sale of approximately
$47,000,000 of mortgage loans, the Trust has engaged a broker with
extensive experience in coordinating, conducting and marketing these
transactions. Although significant interest is anticipated, there can
be no assurance that a sale will ultimately occur. If a bulk sale were
not to occur management will re-examine the mortgage loan portfolio
loan-by-loan relative to retention or sale on an individual basis.
Under either scenario, when the Asset Sale Proceeds from such mortgage
loan sales exceeds $10 million, the Trust is required under the New
Indenture to make an offer to purchase the Notes as described more
fully in the Notes to the Financial Statements - Note 4. Borrowings.
Any net proceeds available after such offer would be available to the
Trust, and could be used for one or more purposes, including without
limitation: 1) investment and general Trust purposes; 2) repayment of
existing debt; 3) an odd lot and/or share repurchase program; and 4)
cash distribution to shareholders.
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<PAGE>
2. At December 31, 1995 the Trust had borrowings consisting of a
mortgage payable in the amount of $13,953,000 and Notes in an aggregate
principal amount of $109,975,000. The interest rate on these borrowings
were Prime plus 2% and 11-1/8%, respectively, with maturity dates of
December 1996 and September 2002, respectively. It is the Trust's
intention, given existing market conditions and prevailing interest
rates, to explore the feasibility of refinancing all or a portion of
its existing debt. Indications of interest have been received from
numerous funding sources which lead the Trust to conclude that a
significant reduction in its overall funding cost can, under certain
conditions, be achieved. The Trust has received a letter of intent with
respect to a refinancing transaction. However, although there is a
general agreement in principal as to the terms and conditions of the
proposed refinancing, a number of important issues have not been
resolved. The proposed refinancing would be subject to numerous terms
and conditions not yet fully negotiated, including among other things
negotiation and execution of definitive documentation and completion of
satisfactory due diligence.
3. THE LIQUIDITY AND CAPITAL RESOURCES SECTION OF MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND THIS PART II MAY CONTAIN FORWARD-LOOKING STATEMENTS. IN
EACH CASE THERE MAY EXIST FACTORS WHICH COULD CAUSE ACTUAL RESULTS OR
EVENTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH STATEMENTS.
THESE FACTORS INCLUDE THOSE SET FORTH UNDER THE RELEVANT CAPTIONS IN
THE REFERENCED SECTIONS OF THE 10-Q.
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<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.
Value Property Trust
/s/George R. Zoffinger
- ---------------------------------------
George R. Zoffinger
President and Chief Executive Officer
(Principal Exexcutive Officer)
/s/Robert T. English
- ---------------------------------------
Robert T. English
Treasurer, Secretary and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
DATE: October 17, 1996
- 16 -
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0
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