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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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
incorporation or organization) identification number)
120 ALBANY STREET, 8TH FLOOR 08901
NEW BRUNSWICK, NEW JERSEY (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 732-296-3080
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------
Common Shares, par value $1.00 per share New York Stock Exchange
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 if the 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 the 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]
<PAGE>
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[ ]
The aggregate market value of the Common Shares held by non-affiliates
of the registrant at December 2, 1997, computed by reference to the closing sale
price of such shares as reported in the Consolidated Transaction Reporting
System, was $24,698,928. The number of Common Shares outstanding at December 2,
1997 was 11,226,310.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Value Property Trust (the "Trust") is a self administered real estate
investment trust (a "REIT") engaged in the business of managing its portfolio of
real estate investments. The Trust was organized in 1970 under the laws of the
State of Maryland as PNB Mortgage and Realty Investors. In 1984, the Trust
changed its name to Mortgage and Realty Trust. In October 1995, the Trust
changed its name to Value Property Trust. The Trust is organized under an
Amended and Restated Declaration of Trust dated September 29, 1995 and as
amended through October 26, 1995 (the "Amended and Restated Declaration of
Trust"), and conducts its business in such a fashion as to qualify as a REIT
under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Code").
As disclosed previously on Form 8-K filed on September 22, 1997 with
the Securities and Exchange Commission ("SEC"), the Trust entered into a
definitive agreement on September 18, 1997 to be acquired by Wellsford Real
Properties, Inc. ("Wellsford") in a merger transaction for cash and stock. The
proposed transaction, which will be accounted for by Wellsford as a purchase, is
subject to certain closing conditions and is expected to be completed in early
1998. Franklin Mutual Advisors, Inc., whose advisory clients currently hold
approximately 50% of the Trust's outstanding shares, has agreed to vote the
shares of the Trust over which it has voting power in favor of the proposed
transaction. The proposed transaction, if consummated, will result in a change
of control of the Trust.
As of September 30, 1997, the Trust had: (1) cash and cash equivalents
of $81.4 million; (2) restricted cash of $1.7 million which is restricted as to
use under terms of various escrow and lease agreements and the New Indenture
(See "Liquidity and Capital Resources" under Item 7); and (3) invested assets
consisting of eight mortgage investments (consisting of one commercial mortgage
loan and 111 residential mortgage loans) and 21 investments in real estate
owned. Based upon the amounts of the Trust's invested assets as of September 30,
1997, approximately 36.96% of the Trust's portfolio was invested in California,
20.91% in Pennsylvania and 17.95% in New England states. Nationally, 21.52% of
the amounts of its invested assets are in industrial or research and development
properties, 39.47% in office buildings, 26.57% in shopping centers, 11.67% in
apartments and 0.77% in other types of real estate properties.
On November 3, 1997, the Trust utilized a portion of available cash on
hand to retire its senior indebtedness in full. The face amount outstanding of
the Floating Rate Notes at the time of repayment was $18.2 million.
PREVIOUS CHAPTER 11 CASE AND 1991 PLAN OF REORGANIZATION
On April 12, 1990, the Trust filed a voluntary petition for
reorganization under Chapter 11 in the United States Bankruptcy Court for the
Central District of California (the "Bankruptcy Court"), commencing a bankruptcy
case, Bankruptcy Case No. LA 90-08976-SB (the "Prior Bankruptcy Case"). On
November 21, 1990, a Joint Plan of Reorganization (the "1991 Plan") proposed by
the Trust, the creditors' committee and the equity committee was filed with the
Bankruptcy Court pursuant to section 1121 of the Bankruptcy Code. The 1991 Plan
was confirmed by the Bankruptcy Court by an order entered February 27, 1991. The
Prior Bankruptcy Case was closed on November 4, 1994, pursuant to a final order
of the Bankruptcy Court.
<PAGE>
The 1991 Plan provided that the holders of outstanding indebtedness
were to receive payments in installments over a period ending on June 30, 1995,
with the right of the Trust to defer payment of certain amounts for up to
twenty-four months or until December 31, 1995, when all deferred payments would
be due. Interest was payable initially at Bank of America N.T. & S.A.'s
reference rate plus one percent, increasing by 0.25% every six months, with
interest on deferred amounts accruing at the adjusted rate plus two percent. The
1991 Plan also included certain financial, affirmative and negative covenants.
The forecast upon which the 1991 Plan was based assumed that the real estate
markets would begin to improve in fiscal 1992. However, the markets continued to
deteriorate materially. Despite these conditions, the Trust was able to make all
required interest payments and to exceed the required amortization payments
through December 31, 1991. These results were achieved through liquidating Trust
assets at substantial discounts from their acquisition cost. However, due to the
continued deterioration of the real estate markets, the Trust could not meet the
amortization payment at June 30, 1992, which required the Trust to reduce the
debt to $291,250,000, taking into account deferrals permitted under the 1991
Plan. This deterioration also precluded the Trust from maintaining compliance
with the financial covenants of the 1991 Plan. Thus, the Trust determined that
it was necessary to defer a portion of the principal payments on the outstanding
debt and limit certain future cash interest payments to allow sufficient time
for liquidity to return to the United States real estate market. Such deferral
was accomplished by an out-of-court modification to the 1991 Plan (the "1992
Restructuring").
THE 1992 RESTRUCTURING
Pursuant to the Trust's negotiations with the creditors' committee, on
June 15, 1992, the Trust commenced a solicitation of acceptances to certain
modifications (the "1992 Modifications") to the outstanding debt obligations of
the Trust and to a prepackaged plan of reorganization (the "Proposed 1992 Plan")
to effect the 1992 Modifications. The 1992 Modifications to the outstanding debt
obligations provided, among other things, for (i) an increased amount of
required principal payments that could be deferred (while retaining the final
payment date for deferred payments at December 31, 1995), (ii) an extension of
the permitted repayment period of such deferred amounts from 24 months to 30
months from the date a deferral is utilized, (iii) the establishment of a limit
on the maximum rate of interest to be paid in cash on a current basis at 9%
through June 30, 1994, with any excess being accrued and paid at December 31,
1995, (iv) changes in certain required financial covenants to reflect the
then-existing financial condition of the Trust and the then-existing real estate
market, (v) with the approval of the holders of 66-2/3% of the outstanding debt
obligations, the release of collateral for certain financings by the Trust, and
(vi) the payment of additional consideration to the holders of the outstanding
debt obligations equal to one percent of the principal amount of the outstanding
debt obligations, payable in four semi-annual installments commencing on the
date the 1992 Restructuring became effective. The Trust received 100% acceptance
of the 1992 Modifications and, on July 15, 1992, the Trust successfully
restructured its outstanding debt by issuance of new notes in accordance with
the proposed 1992 Modifications (the "Old Notes") and entered into an indenture
(the "Old Note Indenture") with Wilmington Trust Company, as trustee (the "Old
Note Trustee"), entered into a second amendment to the Trust's then outstanding
Collateral and Security Agreement dated as of February 21, 1991 (as amended, the
"Old Collateral Agreement") and amended the 1991 Plan (as amended pursuant to
the 1992 Restructuring, the "Prior Plan").
<PAGE>
RECENT CHAPTER 11 CASE AND 1995 PREPACKAGED PLAN OF REORGANIZATION
The financial projections upon which the 1992 Restructuring was based
assumed that the real estate markets would stop or slow their decline by 1993
with some improvement in 1994. Instead, after the effective date of the 1992
Restructuring, these markets failed to improve materially. The Trust's business
operations, including its ongoing efforts to refinance and sell property, did
not generate cash flow sufficient to service the Old Notes during the fiscal
years ended September 30, 1993 and 1994. Because its operating income had
declined due to the continued deterioration of the real estate markets, the
Trust was not able to meet its scheduled June 30, 1993 principal payment on the
Old Notes of $20,000,000, and subsequently the Trust also failed to make
additional principal payments, constituting events of default under the Old Note
Indenture. The Trust also failed to make interest payments on the Old Notes. In
addition, the Trust failed to meet certain ratios set forth in the financial
covenants of the Old Note Indenture which constituted additional events of
default under the Old Note Indenture.
Throughout the second and third quarters of fiscal 1994, the Trust's
management and advisors continued discussions with certain principal holders of
the Old Notes and their representatives to explore various alternatives for
restructuring the Old Notes. In March 1994, the principal holders requested that
the Trust agree to pay certain fees and expenses of legal counsel to the
principal holders. The Trust agreed, and in March 1994, the principal holders
retained counsel to advise them in the Trust's financial restructuring.
Thereafter, in June 1994, the principal holders requested and the Trust agreed
to pay certain fees and expenses of a new financial advisor to the principal
holders. The negotiations among the Trust, the various creditor constituencies
and other interested parties in the Trust's financial restructuring continued
into the fourth quarter of fiscal 1994.
On November 17, 1994, the Trust announced that it had reached a
non-binding agreement in principle with the Old Note holders to restructure the
indebtedness represented by the Old Notes (the "1995 Restructuring").
Under the 1995 Restructuring, the Trust and the Board of Trustees
recommended to the Old Note holders that the Trust utilize a "prepackaged plan"
of reorganization (the "Prepackaged Plan") governed by Chapter 11 title 11 of
the United States Bankruptcy Code, as amended (the "Bankruptcy Code"). The use
of the Prepackaged Plan allowed the Trust, the Board of Trustees and holders of
the Old Notes to agree in advance on the method and course of restructuring
prior to the filing of the bankruptcy petition in Chapter 11. To this end, the
Trust and certain holders who had acquired a significant portion of the Old
Notes entered into an agreement of understanding (the "Agreement of
Understanding") pursuant to which the Trust agreed to distribute to the holders
of the Old Notes $25.0 million in cash prior to the Prepackaged Plan's petition
date. Under this agreement, the principal holders (who held in excess of 80% of
the Old Notes), among other things, agreed to vote in favor of the Prepackaged
Plan when solicited. On April 11, 1995, the Trust paid $25.0 million pursuant to
the Agreement of Understanding, with such payment to be credited against the
cash payment of at least $50.0 million to be made to the holders of the Old
Notes pursuant to the Prepackaged Plan.
On July 12, 1995, the Trust mailed to each holder of Old Notes,
outstanding common shares, other secured claims and unsecured claims
(collectively, the "Holders") as of the close of business on July 7, 1995 (the
"Record Date"), a copy of the Disclosure Statement and Proxy Statement for the
Solicitation of Votes for the Prepackaged Plan of Reorganization (the
"Disclosure Statement").
<PAGE>
Pursuant to the Disclosure Statement, the solicitation of ballots in
favor of the Prepackaged Plan expired at midnight (New York time) on August 17,
1995. On August 18, 1995, the Trust filed a voluntary petition for
reorganization under Chapter 11 in the Bankruptcy Court commencing a bankruptcy
case, Bankruptcy Case No. LA 95-31101-SB. The Prepackaged Plan was confirmed by
the Bankruptcy Court by an order entered September 22, 1995. The Trust entered
into an amended and restated indenture (the "Prior Indenture") with Wilmington
Trust Company as trustee, an amended and restated collateral and security
agreement (the "Prior Security Agreement"), a pledge agreement (the "Prior
Pledge Agreement"), and a registration rights agreement (the "Registration
Rights Agreement"). The Prepackaged Plan became effective September 29, 1995
(the "Effective Date") and provided for, among other things, (i) a 1 for 33.33
reverse stock split of the outstanding common shares affecting the shareholders
of record as of September 29, 1995, and (ii) the issuance to holders of the
Trust's debt securities: (a) $110,000,000 principal amount of newly issued
11-1/8% Senior Secured Notes due 2002 (the "Prior Senior Notes"), (b)
$71,000,000 in cash and (c) approximately 10,889,430 new common shares, par
value $1.00 per share, representing, in the aggregate, approximately 97% of the
common shares outstanding after the Effective Date (all common shares
outstanding after the Effective Date hereinafter referred to as the "Common
Shares").
BUSINESS PLAN
After the emergence from bankruptcy on September 29, 1995, the Trust
determined that its strategic goals should focus on maximizing the Trust's
overall return to shareholders. The Trust conducted a thorough evaluation of its
real estate properties in order to determine the future direction of the Trust's
operations. The Trust refinanced its outstanding long-term indebtedness at a
substantially lower rate of interest and sold substantially all of its mortgage
loan portfolio. The Trust entered into an engagement letter with Merrill Lynch &
Co. on October 15, 1996 to advise the Board with respect to options in achieving
its strategic goals, including possible business combinations or bulk sales of
assets.
As a result of the property evaluations, the Trust focused its ongoing
operating activities in the California (primarily San Francisco and Los Angeles)
and Mid-Atlantic markets. Specifically, the Trust believed an opportunity
existed to enhance the value of its portfolio of retail, industrial and office
properties in these geographic regions through active management, improvement in
occupancy levels and market appreciation. Generally, real estate holdings
outside those geographic regions and property types that were not consistent
with the strategic plan were to be divested in an orderly manner.
Consistent with this policy, the Trust sold nineteen real estate
properties, three of nine buildings in an industrial park and a 7.6 acre parcel
of unimproved land from October 1, 1995 through September 30, 1997. During
fiscal 1996 and fiscal 1997, seven and six real estate properties, respectively,
were transferred from Held for Investment to Held for Sale. At September 30,
1997, the Trust owned 21 properties of which six are classified as Held for
Sale.
In March of fiscal 1996, the Trust completed the disposition of
substantially all of its mortgage loan portfolio. On April 30, 1996, the Trust
issued $67.4 million of Floating Rate Notes which were used with $56.5 million
of available cash on hand to prepay the Trust's Senior Secured Notes and
Mortgage Payable. The face amount outstanding of the Senior Secured Notes and
Mortgage Payable at the time of repayment was $110.0 million and $13.9 million,
respectively.
<PAGE>
Beginning in November 1996, Merrill Lynch contacted potential investors
regarding the possible acquisition of some or all of the assets of the Trust.
The Board of Trustees considered and discussed various alternative transactions
and concluded that none were likely to realize as much value for the
shareholders of the Trust as a business combination or the sale of substantially
all of the Trust's assets and most would take longer to be consummated. Among
the alternatives considered were the refinancing of the Trust's indebtedness and
the subsequent sale of the assets of the Trust during a period of 12 to 18
months together with a liquidation of the Trust.
On September 18, 1997 the Trust entered into a definitive agreement to
be acquired by Wellsford Real Properties, Inc. ("Wellsford") in a merger
transaction for cash and stock. The proposed transaction is subject to certain
closing conditions and is expected to be completed in early 1998. Pursuant to
the terms of the Merger Agreement, Wellsford will pay to the the Trust's
shareholders approximately $130 million in cash and issue an aggregate of 3.35
million shares of its common stock resulting in each Trust shareholder receiving
$11.58 in cash and 0.2984 common shares of Wellsford for each share of the
Trust.
COMPETITION, REGULATION, AND OTHER FACTORS
The success of the Trust depends upon, among other factors, general
economic conditions and trends, including real estate trends, interest rates,
government regulations and legislation, income tax laws and zoning laws.
The Trust's real estate investments are located in markets in which
they face significant competition. Many of the Trust's investments, particularly
the office buildings, are located in markets which have an over-supply of
available space, resulting in intense competition for tenants and low rents.
GOVERNMENT REGULATION
The Trust's properties are subject to various federal, state and local
regulatory requirements such as local building codes and other similar
regulations. The Trust believes that the properties are currently in substantial
compliance with all applicable regulatory requirements, although expenditures at
properties owned by the Trust may be required to comply with changes in these
laws. No material expenditures are contemplated at this time in order to comply
with any such laws or regulations.
The Trust believes that it is in compliance in all material respects
with all federal, state and local laws regarding hazardous or toxic substances.
To date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Trust.
The Trust has received a ground water monitoring permit from the New
Hampshire Department of Environmental Protection. The Trust believes the cost of
the monitoring program will not have a material adverse effect on the business,
financial condition or results of operations of the Trust.
OTHER INFORMATION
As of September 30, 1997, the Trust employed 12 people. The Trust also
has engaged 11 independent property management firms to manage 17 of its
properties. The Trust's current business constitutes a single business segment.
The Trust is not dependent upon a single tenant or a limited number of tenants.
The Trust's principal offices are currently located at 120 Albany
Street, 8th Floor, New Brunswick, New Jersey 08901 and 22120 Clarendon Street,
Suite 230, Woodland Hills, California 91367; the Trust's telephone numbers are
(732) 296-3080 and (818) 594-8586, respectively.
<PAGE>
FRESH START REPORTING
In connection with its emergence from Chapter 11 proceedings, the Trust
implemented Fresh Start Reporting as provided in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("Fresh Start Reporting"). As a result, as of September 30, 1995 all assets were
recorded at reorganization value and all liabilities were recorded to reflect
their fair value. For additional information on this reporting method, see Notes
to the Consolidated Financial Statements - Note 1 "Basis of Financial
Information and Plan of Reorganization."
ITEM 2. PROPERTIES.
INVESTED ASSETS
Although the Trust has continued to fund previously existing investment
commitments and to fund limited tenant improvements and similar investments
necessary to retain or obtain tenants, the Trust has not made any new
investments in loans or properties since its Prior Bankruptcy Case filing,
except for one occasion in fiscal 1997. In July 1997, The Trust made a $6.2
million loan to facilitate the sale of a retail property located in California.
The Trust continues to actively manage its investment portfolio.
Loans are guaranteed by a first or junior mortgage on residential
properties and the one commercial mortgage is guaranteed by a shopping center.
Loans made by the Trust were secured by mortgages on income-producing
properties, including office buildings, shopping centers, industrial projects,
apartments and condominium projects. When the Trust made investments, it abided
by various restrictions consisting principally of loan-to-value ratios,
investment ranges and percentage of total assets invested in loans to a single
borrower.
The Trust has 29 assets under management consisting of eight mortgage
investments (consisting of one commercial mortgage loan and 111 residential
mortgage loans) and 21 real estate investments. At September 30, 1997, the Trust
has classified these assets as follows:
<TABLE>
<CAPTION>
INVESTED ASSETS
------------------------
Number Carrying Value Percent
------ --------------- -------
(dollars in thousands)
<S> <C> <C> <C>
Assets Held for Sale:
Investments in partnerships .......... 1 $ 5,869 8.1%
Real estate investments .............. 5 22,001 30.3%
----- -------- -----
6 27,870 38.4%
----- -------- -----
Assets Held for Investment:
Mortgage loans ....................... 8 6,805 9.4%
Real estate investments .............. 15 37,934 52.2%
----- -------- -----
23 44,739 61.6%
----- -------- -----
Total Invested Assets .................. 29 $ 72,609 100.0%
===== ======== =====
</TABLE>
<PAGE>
The Trust's invested assets are primarily located in major metropolitan
areas throughout the United States. As of September 30, 1997, the Trust held
investments in mortgage loans, investments in real estate and other interests in
real properties located in eleven states.
The location, general character and occupancy information with respect
to the Trust's invested assets at September 30, 1997 are set forth in the
schedules contained on the following pages.
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
REAL ESTATE INVESTMENTS
SEPTEMBER 30, 1997
DATE OCCUPANCY
ASSET NAME CITY ST ACQUIRED OWNERSHIP TOTAL SQ. FT. @ 9/30/97
---------- ---- -- -------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Villa del Cresta Florissant MO Feb-92 100% 333,038 SF 91.80%
---------
TOTAL APARTMENTS 333,038 SF 91.80%
--------- ------
Bay City Holdings* Santa Monica CA Jan-95 85% 114,375 SF 100.00%
Moreno Valley Moreno Valley CA Nov-92 100% 251,090 SF 100.00%
Oaktree Industrial Park San Dimas CA Oct-95 100% 27,095 SF 86.19%
Chino Business Park Chino CA Oct-95 100% 64,496 SF 64.36%
900 Bldg. Minneapolis MN Sep-93 100% 216,000 SF 75.57%
---------
TOTAL INDUSTRIAL 673,056 SF 88.19%
--------- ------
Stadium Towers Anaheim CA Aug-88 100% 64,574 SF 91.99%
Nash El Segundo CA Jan-94 100% 45,851 SF 86.64%
Clarewood Woodland Hills CA May-92 100% 38,568 SF 93.67%
Summer Street Boston MA Jan-90 100% 67,216 SF 100.00%
Turnpike Canton MA Jan-91 100% 43,157 SF 100.00%
Burtonsville Commerce Burtonsville MD Mar-95 100% 91,274 SF 99.63%
Keewaydin Salem NH Aug-92 100% 125,230 SF 53.69%
Hoes Lane Piscataway NJ Aug-91 100% 37,238 SF 86.94%
Two Executive Campus Cherry Hill NJ Oct-92 100% 102,310 SF 72.20%
Chestnut Street Philadelphia PA Jan-91 100% 49,953 SF 83.31%
Pinebrook I King of Prussia PA May-87 100% 57,835 SF 100.00%
Pinebrook II King of Prussia PA May-87 100% 58,521 SF 96.90%
Six Sentry Parkway Blue Bell PA Jun-94 100% 89,781 SF 98.70%
---------
TOTAL OFFICE 871,508 SF 86.61%
--------- -----
Berdon Plaza Fairhaven MA Apr-91 100% 113,482 SF 91.61%
Bradford Plaza West Chester PA Aug-95 100% 123,881 SF 88.19%
---------
TOTAL RETAIL 237,363 SF 89.83%
--------- ------
TOTAL PORTFOLIO 2,114,965 SF 88.29%
========= ======
</TABLE>
*The Trust has a partnership interest in this property.
See Notes to the Consolidated Financial Statements - Note 5 "Borrowings" for a
discussion of encumbrances on real estate properties.
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
GEOGRAPHIC DISTRIBUTION OF INVESTED ASSETS
SEPTEMBER 30, 1997
State Apartments Industrial Office Retail
- ----- ---------- ---------- ------ ------
<S> <C> <C> <C> <C>
California $ -- $ 13,381,123 $ 7,176,637 $ 6,241,816
Delaware -- -- -- --
Georgia -- -- -- --
Maryland -- -- 3,865,623 --
Massachusetts -- -- 2,796,317 7,638,819
Minnesota -- 2,243,444 -- --
Missouri 8,474,206 -- -- --
New Hampshire -- -- 2,596,116 --
New Jersey -- -- 2,448,773 --
Pennsylvania -- -- 9,772,980 5,410,459
Virginia -- -- -- --
----------- ------------ ----------- -----------
Totals $ 8,474,206 $ 15,624,567 $28,656,446 $19,291,094
=========== ============ =========== ===========
Percentage 11.67% 21.52% 39.47% 26.57%
=========== ============ =========== ===========
<CAPTION>
Residential
State Mortgages Totals Percentage
- ----- --------- ------ ----------
<S> <C> <C> <C>
California $ 33,430 $ 26,833,006 36.96%
Delaware 63,214 63,214 0.09%
Georgia 31,317 31,317 0.04%
Maryland 356,489 4,222,112 5.81%
Massachusetts -- 10,435,136 14.37%
Minnesota -- 2,243,444 3.09%
Missouri -- 8,474,206 11.67%
New Hampshire -- 2,596,116 3.58%
New Jersey -- 2,448,773 3.37%
Pennsylvania -- 15,183,439 20.91%
Virginia 79,082 79,082 0.11%
-------- ------------ -----
Totals $563,532 $ 72,609,845
======== ============
Percentage 0.77% 100.00%
======= ======
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
A discussion of events surrounding the Trust's Prior Bankruptcy Case
and an explanation of the material terms of the Trust's reorganization under the
Joint Plan of Reorganization confirmed by the Bankruptcy Court by an order
entered February 27, 1991 are set forth in the section entitled "Previous
Chapter 11 Case and 1991 Plan of Reorganization." The Prior Bankruptcy Case was
closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.
A discussion of events surrounding the Trust's 1995 prepackaged
bankruptcy filing and an explanation of the material terms of the Trust's
reorganization under the Prepackaged Plan which became effective September 29,
1995 (the "Prepackaged Plan") are set forth in the section entitled "Recent
Chapter 11 Case and 1995 Prepackaged Plan of Reorganization." Notwithstanding
the confirmation of the Trust's Prepackaged Plan as of September 29, 1995, the
Bankruptcy Court continued to have jurisdiction among other things, to resolve
disputes that may arise under the Prepackaged Plan.
Neither the Trust nor any of its properties are presently subject to
any material litigation nor, to the Trust's knowledge, is any material
litigation threatened against the Trust or any of its properties, other than
routine litigation arising in the ordinary course of business and which is
expected to be covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS.
(a) MARKET INFORMATION
The Trust's Common Shares are listed for trading on the New York Stock
Exchange ("NYSE") under the symbol "VLP". No dividends have been declared by the
Trust in the past two years. The following table shows the high and low sales
prices of the Trust's Common Shares as reported by the NYSE during each fiscal
quarter for the past two years.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1997
First Quarter $11-7/8 $11
Second Quarter $13-3/8 $11-3/8
Third Quarter $13-1/4 $12
Fourth Quarter $15-7/8 $12-3/4
1996
First Quarter $11 $10
Second Quarter $13 $10-1/2
Third Quarter $12-5/8 $12-1/8
Fourth Quarter $12-5/8 $11-3/4
</TABLE>
<PAGE>
The Trust has net operating losses ("NOLs") from fiscal 1992 through
1996 that can be carried forward for tax purposes. Beginning in fiscal 1998,
NOLs available to offset taxable income in future years will be approximately
$107 million. The NOLs attributable to each year can be carried forward up to
fifteen years from the year the loss was generated. The use of NOLs in any
taxable year (together with any recognized losses that are economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation under Section 382 of the Code. The Trust estimates that this annual
limitation is currently approximately $6 million.
(b) HOLDERS OF COMMON SHARES
There were approximately 3,800 record holders of the Trust's Common
Shares at September 30, 1997.
(c) DIVIDENDS
The Trust did not declare or pay any dividends during either the fiscal
year ended September 30, 1997 or the fiscal year ended September 30, 1996.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(dollars in thousands, except for per share data)
Post-Confirmation Pre-Confirmation
----------------------------- ----------------------------------------
Year Ended September 30, Years Ended September 30,
----------------------------- ----------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenue $ 26,736 $ 35,066 | $ 39,464 $ 36,277 $ 38,342
Interest and other operating expenses 17,415 25,746 | 52,120 47,668 43,967
Depreciation and amortization 1,717 2,347 | 7,306 5,839 5,500
Provision for losses -- -- | 3,000 2,000 37,000
-------- -------- | -------- -------- --------
Income (loss) from operations, before |
reorganization items, gain on sale of |
real estate and extraordinary items 7,604 6,973 | (22,962) (19,230) (48,125)
|
Reorganization items |
Professional fees and other |
expenses, net -- -- | 5,778 2,360 5,844
Write down of invested assets |
to reorganization value -- -- | 66,597 -- --
-------- -------- | -------- -------- --------
Income (loss) before gain on sale of |
real estate and extraordinary item 7,604 6,973 | (95,337) (21,590) (53,969)
Gain on sale of real estate 24,861 -- | -- --
-------- -------- | -------- -------- --------
|
Income (loss) before extraordinary item 32,465 6,973 | (95,337) (21,590) (53,969)
Extraordinary item - gain on |
extinguishment of debt -- -- | 75,304 -- --
-------- -------- | -------- -------- --------
Net income (loss) $ 32,465 $ 6,973 | $(20,033) $(21,590) $(53,969)
======== ======== | ======== ======== ========
Per share: * |
Income from operations before |
reorganization items, gain on sale of |
real estate and extraordinary items * $ 0.68 $ 0.62 |
Gain on sale of real estate * $ 2.21 $ -- |
-------- -------- |
Net income * $ 2.89 $ 0.62 |
======== ======== |
OTHER DATA |
Funds from Operations (a): |
Net income (loss) $ 32,465 $ 6,973 | $(20,033) $(21,590) $(53,969)
Depreciation and amortization 1,717 2,347 | 7,306 5,839 5,500
Reorganization expenses -- -- | 72,375 2,360 5,844
Gain on sale of real estate (24,861) -- | -- -- --
Extraordinary item-gain on |
the extinguishment of debt -- -- | (75,304) -- --
-------- -------- | -------- -------- --------
Total $ 9,321 $ 9,320 | $(15,656) $(13,391) $(42,625)
======== ======== | ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Post-Confirmation Pre-Confirmation
-------------------------------------------- ----------------------------
September 30, September 30, September 30, September 30, September 30,
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA |
Invested assets $ 72,609 $125,735 $207,120 | $309,973 $347,526
Total assets $159,082 $172,411 $232,329 | $364,740 $353,874
Allowance for losses $ -- $ -- $ -- | $ 13,430 $ 11,808
Senior notes (due 1999) $ 18,222 $ 63,226 $ -- | $ -- $ --
Senior notes (due 2002) $ -- $ -- $109,975 | $ -- $ --
Senior notes (due 1995) $ -- $ -- $ -- | $290,000 $290,000
Mortgage payable $ -- $ -- $ 17,535 | $ 17,593 $ 17,572
Shareholders' equity $139,512 $107,047 $100,074 | $ 20,033 $ 41,623
</TABLE>
* Net income (loss) per share for all pre-confirmation periods is not
presented because this information is not meaningful as a result of the
Reorganization and the adoption of "Fresh Start Reporting". See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
(a) The definition of Funds From Operations ("FFO") was clarified in the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT")
White Paper, adopted by the NAREIT Board of Governors on March 3, 1995, as
net income (computed in accordance with generally accepted accounting
principles ("GAAP")), excluding gains (or losses) from debt restructuring
and sales of property, plus depreciation and amortization (in each case
only on real estate related assets), less preferred dividends, and after
adjustments for uncolsolidated partnerships and joint ventures. The Trust's
FFO is not comparable to FFO reported by other real estate investment
trusts (REITs) that do not define FFO using the current NAREIT definition
or that interpret the current NAREIT definition differently than the Trust.
The Trust believes that to facilitate a clear understanding of the
historical operating results of the Trust, FFO should be examined in
conjunction with income as presented in the Consolidated Statements of
Operations. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of the Trust's
financial performance, or cash flows from operating activity (determined in
accordance with GAAP) as a measure of the Trust's liquidity, nor is it
indicative of funds available to fund the Trust's cash needs, including its
ability to make distributions.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT DISCUSSION
Value Property Trust is a Maryland REIT engaged in the business of
managing its portfolio of real estate investments. On October 26, 1995, the
Trust's name was changed from Mortgage and Realty Trust to Value Property Trust.
On September 29, 1995, the Trust's Prepackaged Plan of Reorganization was
declared effective by the United States Bankruptcy Court for the Central
District of California.
Under the Prepackaged Plan, holders of the Trust's $290,000,000
principal amount of Old Notes received: (i) $110,000,000 principal amount of
newly issued Senior Notes; (ii) $71,000,000 in cash; and (iii) approximately
10,889,430 new Common Shares representing in the aggregate approximately 97% of
the Common Shares outstanding after the Effective Date. In connection with the
Prepackaged Plan, the Trust effected a 1 for 33.33 reverse stock split of its
outstanding Common Shares.
In connection with its emergence from Chapter 11 proceedings, the Trust
implemented Fresh Start Reporting as of September 30, 1995. 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 appropriate value or fair value. The post-confirmation
financial statements and schedules amounts have been segregated by a black line
in order to signify that the financial statements and schedules are that of a
new reporting entity and have been prepared on a basis which is not comparable
to the pre-confirmation financial statements and schedules (See Notes to the
Consolidated Financial Statements - Note 1 "Basis of Financial Information and
Plan of Reorganization" for additional information concerning Fresh Start
Reporting).
The following section includes a discussion and analysis of the results
of operations for the years ended September 30, 1997, 1996 and 1995 and should
be read in conjunction with the consolidated financial statements and the notes
thereto. The Trust has, for the past several years prior to fiscal 1996,
reported significant net losses. As a result of the 1995 Restructuring, past
results should not be deemed indicative of future operating performance. Future
results of operations of the Trust will not be comparable to the historical
operating performance.
RESULTS OF OPERATIONS
The Trust's net income for fiscal 1997 was $32.5 million, or $2.89 per
share, compared to $7.0 million, or $0.62 per share, for fiscal 1996 and a net
loss of $20.0 million for fiscal 1995. The 1995 loss included: (1)
reorganization items of $5.8 million which included professional fees of $6.2
million and interest income of $0.4 million; (2) an adjustment that reduced
invested assets by $66.6 million as a result of the adoption of Fresh Start
Reporting; and (3) an extraordinary item of $75.3 million reflecting the gain on
extinguishment of debt. The Trust's income from operations, before
reorganization items, gain on sale of real estate and extraordinary item for
fiscal 1997 was $7.6 million, or $0.68 per share, compared to $7.0 million, or
$0.62 per share, for fiscal 1996 and the loss of $23.0 million for fiscal 1995.
<PAGE>
Rental income was $20.5 million for fiscal 1997 compared to $26.9
million for fiscal 1996 and $24.6 million for fiscal 1995. In addition to rental
income, the Trust received reimbursement of certain operating expenses totaling
$3.0 million, $3.6 million and $2.3 million for fiscal 1997, 1996 and 1995,
respectively. Rental income and reimbursement of certain operating expenses
decreased in fiscal 1997 compared to fiscal 1996 as a result of a reduced number
of owned properties. At September 30, 1997, the Trust owned 21 real estate
properties compared to 31 and 38 at September 30, 1996 and 1995, respectively.
Rental income and reimbursement of certain operating expenses for fiscal 1997
adjusted for sales increased to $14.4 million and $1.6 million, respectively
from $13.9 million and $1.5 million, respectively for fiscal 1996. The increases
in rental income and reimbursed expenses on rental properties for fiscal 1996
from fiscal 1995 were the result of continued foreclosure on real estate
properties and improvement in occupancy levels. In the first month of fiscal
1996, two properties were added as a result of foreclosures. Nine properties
were sold during fiscal 1996, of which eight occurred during the last two
quarters. Two of the eight property sales occurred during the last month of
fiscal 1996. As a result of the timing of the foreclosures and the property
sales, the Trust recorded operations on real estate properties for a longer time
period on a greater number of properties during fiscal 1996 than fiscal 1995.
During fiscal 1997, the Trust sold ten real estate properties and three of nine
buildings owned by the Trust in an industrial park. Occupancy levels increased
to 88.3% at September 30, 1997 compared to 87.5% and 81.1% at September 30, 1996
and 1995, respectively. Occupancy levels, adjusted for sales increased to 88.3%
at September 30, 1997 compared to 84.8% at September 30, 1996.
Interest and fee income on mortgage loans was $0.2 million for fiscal
1997 compared to $2.9 million in fiscal 1996 and $9.4 million in fiscal 1995. In
March 1996, the Trust completed the disposition of substantially all of its
mortgage loan portfolio. The Trust received $55.5 million in net cash proceeds
through a series of transactions which included loan repayments and a bulk sale
of certain mortgage loans. As a result, interest income earned on the mortgage
loan portfolio is substantially less than that recorded in prior years. During
the fourth quarter of fiscal 1997, the Trust provided mortgage financing of $6.2
million to facilitate the sale of a real estate property.
Interest on short-term investments was $3.1 million for fiscal 1997
compared to $1.7 million and $3.1 million for fiscal years 1996 and 1995,
respectively. The increase in fiscal 1997 compared to fiscal 1996 is due to an
increase in available cash balances as a result of property sales. The decrease
in fiscal 1996 compared to fiscal 1995 is due to the reduction in cash balances
as a result of a $25.0 million payment made on April 11, 1995 and an additional
$46.0 million payment made on September 29, 1995 to the Old Note Holders in
conjunction with the 1995 Restructuring. Prior to these payments, the Trust was
continuing to accumulate cash and since September 30, 1993, had not made
payments of interest or principal on its indebtedness. Available cash averaged
$60.9 million for fiscal 1997 compared to $28.9 million and $57.6 million in
fiscal years 1996 and 1995, respectively. At September 30, 1997, cash and cash
equivalents, including restricted cash, were $83.1 million compared to $41.7
million at September 30, 1996.
Interest expense for fiscal 1997 totaled $4.6 million compared to $10.5
million and $35.9 million for fiscal years 1996 and 1995, respectively. During
the first quarter of fiscal 1997, the Trust used $7.0 million from the net
proceeds from the sale of two encumbered properties sold in September of fiscal
1996, and $1.4 million from the net proceeds from the sale of an encumbered
<PAGE>
property sold in October of fiscal 1997 to prepay the Trust's senior
indebtedness. During the remainder of fiscal 1997, the Trust used $36.6 million
from the fiscal 1997 net proceeds from the sale of six encumbered properties and
three of nine encumbered buildings in an industrial park, to prepay the Trust's
senior indebtedness. The Trust's average borrowing cost for fiscal 1997 was
10.8% compared to 10.6% and 13.3% for fiscal years 1996 and 1995, respectively.
Included in interest expense is the amortization of deferred costs incurred in
obtaining debt financing which are amortized over the term of the debt
agreement.
Operating expenses on rental properties decreased to $9.0 million in
fiscal 1997 from $12.1 million for fiscal 1996 and from $11.7 million for fiscal
1995. At September 30, 1997 the Trust owned 21 real estate properties compared
to 31 and 38 at September 30, 1996 and 1995, respectively. In the first month of
fiscal 1996, two properties were added as a result of foreclosures. Nine
properties were sold during fiscal 1996, of which eight occurred during the last
two quarters. Two of the eight property sales occurred during the last month of
fiscal 1996. The decrease in operating expenses on rental properties is the
result of fiscal 1997 and fiscal 1996 property sales. During fiscal 1997, ten
properties and three of nine buildings in an industrial park were sold, of which
seven properties were sold during the second and third quarters of fiscal 1997.
During fiscal 1996 the Trust sold nine real estate properties, eight of which
occurred during the last two quarter of fiscal 1996. Therefore the Trust
recorded operations for a longer period of time on a greater number of
properties in fiscal 1996 than fiscal 1997. Operating expenses on rental
properties, adjusted for sales decreased slightly to $6.4 million in fiscal 1997
from $6.8 million for fiscal 1996 as a result of lower repairs and maintenance
expenses. The increase in expenses on rental properties in fiscal 1996 from
fiscal 1995 are the result of continued foreclosure of real estate properties
and improvement in occupancy levels. Occupancy levels increased to 88.3% at
September 30, 1997 compared to 87.5% and 81.1% at September 30, 1996 and 1995,
respectively. Occupancy levels, adjusted for sales increased to 88.3% at
September 30, 1997 compared to 84.8% at September 30, 1996.
Depreciation and amortization on rental properties for fiscal 1997 was
$1.7 million compared to $2.3 million and $7.3 million for fiscal 1996 and 1995,
respectively. The decrease is a result of (1) $12.6 million applied against the
carrying values of assets Held For Investment at September 30, 1996, and (2)
properties transferred to Held For Sale. During fiscal 1996, the Trust reduced
the carrying values of long lived assets by $12.6 million as a result of the
adoption of Fresh Start Reporting on September 30, 1995. All gains and losses
for a period of one year after such adoption are applied against the carrying
values of long lived assets held for investment. During fiscal 1997, the Trust
reclassified six properties totaling $35.7 million to Held for Sale from Held
for Investment. The Trust depreciates the Held for Investment category over the
estimated useful lives of the assets. The Held for Sale category is not
depreciated. During fiscal 1996, the Trust reclassified seven properties
totaling $18.7 million to Held for Sale from Held for Investment. The decrease
in fiscal 1996 compared to fiscal 1995 was primarily a result of the adoption 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.
Additionally, all assets and liabilities of the Trust were restated to reflect
their respective reorganization value or fair value.
<PAGE>
Other operating expenses were $3.1 million for fiscal 1997 compared to
$3.2 million and $4.5 million for fiscal years 1996 and 1995, respectively. The
fiscal 1996 decrease from fiscal 1995 was a result of reduced staffing,
insurance premiums, occupancy costs, Trustee fees and expenses, and office and
computer expense. Partially offsetting the decline was an increase in
professional fees which includes legal fees and accounting fees.
Liquidation settlement expense for fiscal 1997, represents the
negotiated settlement of a suit filed against the Trust. A third party alleged
the existence of a purchase contract with respect to one of the Trust's
properties which the Trust disputed. This dispute led to litigation. However,
the Trust believed that this litigation, when resolved, would not have a
material adverse effect on the business, financial condition or results of
operations of the Trust. The Trust negotiated and paid $743,000 to settle the
suit. The Trust also paid $8,000 to settle a lawsuit that occurred from the bulk
sale of the mortgage loan portfolio in March of fiscal 1996.
The Trust did not provide for a provision for losses in fiscal 1997 or
fiscal 1996. The provision for losses was $3.0 million in fiscal 1995. With the
implementation of Fresh Start Reporting, as of September 30, 1995, the allowance
for losses was reset to zero. Further provisions for losses on mortgage loans
and related investments may be necessary if there is deterioration in real
estate markets, or there is a significant increase in the Trust's cost of
capital.
The Trust, in fiscal 1995, recorded a $75.3 million extraordinary
item-gain on extinguishment of debt against interest and principal due of $331.4
million on the Old Notes.
As a result of implementing Fresh Start Reporting on September 30,
1995, the Trust wrote down its real estate investments by $66.6 million to
reorganization value. In addition, net reorganization expenses incurred by the
Trust were $5.8 million in fiscal 1995. These expenses reflected professional
fees incurred by the representatives of the creditors, shareholders and the
Trust. The 1995 Restructuring was completed in the fourth quarter of fiscal
1995.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its 1995 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, cash flow from operating activities has been sufficient to
meet minimum debt service requirements and commitments for capital expenditures.
The Trust expects to continue to fund capital expenditures from available funds
from operations and cash on hand. However, the Trust's present liquidity, cash
flow from operating activities and ability to liquidate existing assets to meet
its obligations can be adversely impacted by a negative change in the economy,
particularly as those changes may relate to real estate assets.
Taxable income required to be distributed in order for the Trust to
maintain its REIT status will be less than income reported for financial
statement purposes under generally accepted accounting principles due to
differences related to depreciation, use of NOLs (subject to the Code Section
382 limitations) and timing differences related to bad debt deductions.
<PAGE>
On March 28, 1996, the Trust entered into a financing agreement which
provided for the issuance of $67.4 million of Floating Rate Notes, which
issuance occurred on April 30, 1996. The Floating Rate Notes bear interest at 30
day LIBOR + 1.375 percent, payable monthly, and have a stated maturity date of
May 1, 1999.
The proceeds received from the issuance of the Floating Rate Notes,
together with approximately $56.5 million of cash on hand, were used to prepay
the Trust's Senior Secured Notes and Mortgage Payable. The face amount
outstanding of the Senior Secured Notes and the Mortgage Payable at the time of
repayment was $110.0 million and $13.9 million, respectively. The Senior Secured
Notes and Mortgage Payable were repaid in full on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate
protection agreement (the "Cap") that serves to cap the floating interest
component of the Floating Rate Notes at eight percent. The Trust paid a one-time
fee of $377,000 to the counterparty to the Cap.
The New Indenture generally requires that, on a monthly basis, the
Trust deposit into a Trapped Funds Account maintained by the New Indenture
Trustee all Cash Flow and Asset Sale Proceeds. Cash Flow from the Trapped Funds
Account will be distributed by the New Indenture Trustee to pay the New
Indenture Trustee's expenses, pay all accrued but unpaid interest on the
Floating Rate Notes and maintain a Debt Service Reserve Account before any funds
are released to the Trust. In the event of a sale of, or certain casualty or
indemnification events with respect to, any of the properties mortgaged under
the terms of the debt instruments, the proceeds therefrom will be used to retire
up to 125% of a portion of the Floating Rate Notes that has been allocated to
such property before any funds are released to the Trust. The New Indenture
includes affirmative covenants and negative covenants. At September 30, 1997,
the Trust was in compliance with the New Indenture.
On November 3, 1997, the Trust utilized a portion of available cash on
hand to retire its senior indebtedness in full. The face amount outstanding of
the Floating Rate Notes at the time of repayment was $18.2 million.
During fiscal 1997, the Trust reclassified six properties totaling
$35.7 million to Real Estate Owned Held for Sale from Real Estate Owned Held for
Investment. During fiscal 1997, the Trust received $80.1 million in net cash
proceeds from the sale of ten real estate properties, three of nine buildings in
an industrial park and a 7.6 acre parcel of unimproved land with a carrying
value of $61.9 million classified as Real Estate Owned Held for Sale.
During fiscal 1996, the Trust reclassified seven properties totaling
$18.7 million to Real Estate Owned Held for Sale from Real Estate Owned Held for
Investment. During fiscal 1996, the Trust received $26.6 million in net proceeds
from the sale of nine properties with a carrying value of $19.2 million
classified as Real Estate Owned Held for Sale.
The Trust's cash flow is derived from operating, investing and
financing activities. Cash flow provided from operating activities increased to
$10.6 million in fiscal 1997 compared to an increase of $9.4 million in fiscal
1996. In 1995, cash flow provided from operating activities decreased
substantially as a result of a $32.6 million reduction in interest payable.
<PAGE>
Cash provided by investing activities decreased to $75.7 million in
fiscal 1997 compared to $79.8 million in fiscal 1996 and increased substantially
compared to $12.1 million in fiscal 1995 Real estate sales activity increased in
fiscal 1997 to $86.4 million from $27.1 million and $3.3 million in fiscal 1996
and 1995, respectively. In fiscal 1996, the Trust completed the disposition of
substantially all of its mortgage loan portfolio through a series of
transactions which contributed $55.5 million of the $79.8 million in cash
provided by investing activities. Repayments on mortgage loans declined in
fiscal 1997 to $115,000 from $332,000 and $22.7 million in fiscal 1996 and 1995,
respectively. Prior to the 1995 Restructuring, the Trust had offered discounts
on the repayment of mortgage loans and had sold real estate properties in an
effort to generate cash to meet principal and interest payments on the Old
Notes.
Cash used in financing activities decreased to $34.5 million in fiscal
1997 compared to a decrease of $69.7 million and $8.5 million in fiscal 1996 and
1995, respectively. The fiscal 1997 decrease from fiscal 1996 is a result of the
reduction in indebtedness repayments. During fiscal 1996, the Trust used the
proceeds from the issuance of new Floating Rate Notes along with approximately
$56.5 million to repay its indebtedness of $123.9 million. The fiscal 1996
increase from fiscal 1995 was primarily due to the repayment of $114.1 million
and $17.5 million on its indebtedness and Mortgage Payable, respectively, offset
by the issuance of $67.4 million in Floating Rate Notes.
Cash and cash equivalents increased to $81.4 million in fiscal 1997
from $29.5 million and $10.0 million in fiscal 1996 and 1995, respectively as a
result of increased property sales. In fiscal 1996, cash and cash equivalents
increased to $29.5 million as a result of refinancing the Trust's indebtedness,
the disposition of substantially all of the mortgage loan portfolio and the sale
of real estate properties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data are as set forth in the
"Index to Financial Statements."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive Officers of the Registrant
The names and ages of all executive officers of the Trust and principal
occupation and business experience during at least the last five years for each
are set forth below:
<TABLE>
<CAPTION>
Name Age Position(1)
- ----- --- -----------
<S> <C> <C>
George R. Zoffinger 49 President, Chief Executive Officer and Trustee
Paul I. McArthur 45 Executive Vice President
Robert T. English 42 Secretary, Treasurer and Chief Financial Officer
- --------------------
</TABLE>
<PAGE>
(1) The officers of the Trust serve a one-year term of office and are
elected to their positions each year by the Trustees at the annual
organization meeting of Trustees which normally immediately follows the
Annual Meeting of the Shareholders.
Mr. Zoffinger has held the position of President, Chief Executive
Officer, and Trustee since September, 1995. For information about Mr.
Zoffinger's professional background, see "Trustees of the Registrant."
Mr. McArthur became the Executive Vice President of the Trust in
January 1996. From 1995 to 1996, he served as Vice President of Corporate Real
Estate Services for Bushman Jackson-Cross. From 1985 to 1994, Mr. McArthur
served DKM Properties Corp., a privately held real estate management and
development firm in various capacities, including as Vice President of
Development and Senior Vice President of Operations.
Mr. English became the Secretary, Treasurer and Chief Financial Officer
of the Trust in January 1996. Prior to January 1996, Mr. English was Senior Vice
President and Chief Financial Officer of Garden State Bancshares. From 1982
until 1994, Mr. English served Constellation Bancorp and Constellation Bank in
various capacities, including as Senior Vice President and Comptroller from 1988
to 1994.
Trustees of the Registrant
The following table and biographical descriptions set forth certain
information with respect to the seven Trustees based on information furnished to
the Trust by each Trustee. There is no family relationship between any Trustee
or executive officer of the Trust.
<TABLE>
<CAPTION>
Positions
Name, Age and Year With the
First Became Trustee Trust Principal Occupation and Other Directorships(1)
- --------------------- --------- -------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey A. Altman Chairman, Chairman of the Board of Trustees of the Trust since October 1995. Senior Vice
31 years Trustee President of Franklin Mutual Advisers, Inc. and Vice President of Franklin Mutual
September, 1995 Series Fund Inc. since November 1, 1996. Vice President of Mutual Series Fund Inc.
from May 1995 to October 1996. Analyst with Heine Securities Corp. from August 1988
to October 1996. Director of Resurgence Properties Inc.
Martin Bernstein Trustee A private investor who has been managing family funds since 1988. Prior to this
60 years period, Mr. Bernstein served as a founding General Partner of Halcyon Investments and
September, 1995 Alan B. Slifka & Co. (investments). Mr. Bernstein also currently serves on the Board
of Directors of Astro Communications and MBO Properties, Inc.
Richard S. Frary Trustee The founding partner and majority shareholder of Tallwood Associates, Inc., a
50 years private merchant banking firm specializing in corporate restructurings and real
September, 1995 estate, and has served in that capacity since March 1990. Co-founder in 1993 and a
member of the Board of Directors of Brookwood Financial Co. Inc., a real estate
syndication company. Mr. Frary currently serves on the Board of Directors of
Washington Homes, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Positions
Name, Age and Year With the
First Became Trustee Trust Principal Occupation and Other Directorships(1)
- --------------------- --------- -------------------------------------------------------------------------------------
<S> <C> <C>
Richard B. Jennings Trustee Currently the President of Realty Capital International Inc., a real estate
54 years investment banking firm, and has served in that capacity since March 1991. Mr.
September, 1995 Jennings has also been President of Jennings Securities Corporation since July 1995.
Mr. Jennings currently serves on the Board of Directors of MBO Properties, Inc.
John B. Levy Trustee Currently the President of John B. Levy & Company, Inc., a real estate investment
50 years banking firm based in Richmond, Virginia, and has served in that capacity since June
September, 1995 1995. Mr. Levy was an Executive Vice President of Republic Realty Mortgage
Corporation from 1993 to June 1995. Prior to 1993, Mr. Levy acted as Senior
Vice President of NationsBanc Mortgage Corporation, and was charged with lender
relations, production of new income property loans and management of the
production offices.
Carl A. Mayer, Jr. Trustee A real estate investment banker who founded The Mayer Group in 1990, an advisor group
60 years offering consulting and marketing expertise and services to real estate investment
September, 1995 companies who are seeking investment capital from the pension fund community. Mr.
Mayer continues to serve as a principal of The Mayer Group. From August 1995 to
the present, Mr. Mayer has sesrved as Chairman of Mayer-Bialer and Associates, Inc.
George R. Zoffinger President, President, Chief Executive Officer and Trustee of the Trust since October 1995.
49 years Chief Executive Served as the Chairman of CoreStates New Jersey National Bank from April 1994 to
September, 1995 Officer, and December 1996 and a member of the Board of Directors of Corestates Bank, N.A. from
Trustee April 1994 to April 1997. From December 1991 to April 1994, Mr. Zoffinger served
as President and Chief Executive Officer of Constellation Bancorp and Constellation
Bank. He has served on the Board of Directors of the Multicare Companies, Inc. from
April 1995 until October, 1997 and as a member of the Board of Directors of New
Jersey Resources, Inc. since May 1996.
</TABLE>
- ------------------
(1) Included are only directorships in companies with a class of equity
securities registered pursuant to Section 12 or subject to the
requirements of Section 15(d) of the Securities Exchange Act of 1934
and in financial institutions and insurance companies.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Trust's executive
officers and Trustees, and persons who own more than 10% of a registered class
of the Trust's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC") and the New
York Stock Exchange (the "NYSE"). Officers, Trustees and greater than 10%
shareholders are required by SEC regulation to furnish the Trust with copies for
all Section 16(a) forms they file. To the Trust's knowledge, based solely on
review of the copies of such reports furnished to the Trust and written
representations that no other reports were required during the fiscal year ended
September 30, 1997, all Section 16(a) filing requirements applicable to its
executive officers, Trustees and greater than 10% beneficial owners were
satisfied.
<PAGE>
ITEM 11. TRUSTEE AND EXECUTIVE COMPENSATION.
During the fiscal years ended September 30, 1997 and September 30,
1996, the Trustees received as compensation for their services as Trustees $750
for any Trustee or committee meeting attended in person or conducted by
telephone conference except that no additional compensation was paid for
attendance at any additional Trustee or committee meeting held on the same day
as any Trustee or committee meeting. Non-local Trustees were reimbursed for
hotel, airfare and automobile expenses. In lieu of an annual retainer, each of
the non-officer Trustees was granted options in October of fiscal 1996 to
purchase 35,000 Trust Shares under the 1995 Share Option Plan.
Employment Agreement
The Trust entered into an Employment Agreement (the "Employment
Agreement") with George R. Zoffinger on September 29, 1995. The original term of
the Employment Agreement is three years and is automatically renewed for
additional one-year periods unless otherwise terminated by the Trust or Mr.
Zoffinger. Pursuant to the Employment Agreement, Mr. Zoffinger serves as the
President and Chief Executive Officer of the Trust, and he receives an annual
base salary at a rate of $200,000 ("Base Salary") per year. The Employment
Agreement provides that the Base Salary may be increased, but not decreased, at
the discretion of the Compensation and Nominating Committee of the Board of
Trustees. In addition, Mr. Zoffinger is eligible for compensation in the form of
bonuses under the Trust's Performance Incentive Bonus Plan and option grants
under the 1995 Share Option Plan.
Mr. Zoffinger has agreed to devote substantially all of his business
time and efforts to the business and affairs of the Trust. The Employment
Agreement includes a non-competition provision which provides that during the
term of employment Mr. Zoffinger is prohibited, without written consent of the
Board of Trustees, from investing in any property or any business venture which
competes, directly or indirectly, with the Trust or which investment would
require Mr. Zoffinger's active involvement in such business or venture or would
materially impair his ability to perform fully his obligations under the
Employment Agreement. If Mr. Zoffinger terminates his employment without cause,
as defined in the Employment Agreement, he must continue to comply with the
non-competition provision until the first anniversary of such termination date.
If the employment of Mr. Zoffinger is terminated by the Trust without
cause or by Mr. Zoffinger upon occurrence of certain events such as a material
breach of the Employment Agreement by the Trust, Mr. Zoffinger will be entitled
to continue to receive the Base Salary at the same rate for six (6) months.
Additionally, any unexercised vested options will remain exercisable only to the
extent provided in the applicable share option plan and option agreement.
The consummation of the proposed transaction with Wellsford will cause
the occurrence of a certain event under the employment agreement. Mr. Zoffinger
would continue to receive his base salary at the same rate for six months.
<PAGE>
Executive Compensation
Summary Compensation. The following table shows for the fiscal years
ended September 30, 1997, 1996, 1995, the annual compensation paid by the Trust
to the Chief Executive Officer and the four other most highly compensated
executive officers of the Trust who earned more than $100,000 during fiscal 1997
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation(1) Awards Payouts
--------------------------------- -------------------- -------
Other Annual Restricted Options/ All Other
Fiscal Salary Bonus Compensation Shares SARs(3) LTIP Compensation
Name and Principal Position Year ($)(2) ($) ($) ($) (#) Payouts ($)
- ---------------------------- ------ ------ ----- ------------ ---------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George R. Zoffinger, 1997 $200,000 $50,000 - - - - $4,080(4)
President and Chief 1996 $200,000 $50,000 - - 244,000 - $7,080(5)
Executive Officer 1995(6) - - - - - - -
Paul I. McArthur, Executive 1997 $130,000 $59,459 - - - - $3,842(7)
Vice President 1996 $97,500 $53,545 - - 100,000 - $3,842(8)
1995 - - - - - - -
Robert T. English, Secretary, 1997 $111,904 $15,000 - - - - $3,728(9)
Treasurer and Chief 1996 $96,918 $15,000 - - 25,000 - $6,195(10)
Financial Officer 1995 - - - - - - -
</TABLE>
- -----------------
(1) In the fiscal year ended September 30, 1997 and September 30, 1996, the
Trust provided certain personal benefits to its executive officers. The
amount of such benefits to each of the Named Executive Officers did not
exceed the lesser of $50,000 or 10% of salary and bonus for such fiscal
year.
(2) Includes salary deferrals and employee contributions under the Trust's
401(k) plan.
(3) These options were granted under the 1995 Share Option Plan, as
described in the Report of the Compensation and Nominating Committee.
(4) $1,080 of this amount represents the full dollar value of insurance
premiums paid by the Trust during fiscal 1997 on behalf of Mr.
Zoffinger with respect to term life insurance. $3,000 of this amount
represents matching contributions made by the Trust on Mr. Zoffinger's
behalf under the Trust's 401(k) plan.
(5) $1,080 of this amount represents the full dollar value of insurance
premiums paid by the Trust during fiscal 1996 on behalf of Mr.
Zoffinger with respect to term life insurance. $6,000 of this amount
represents matching contributions made by the Trust on Mr. Zoffinger's
behalf under the Trust's 401(k) plan.
<PAGE>
(6) Between April 24, 1995 and September 29, 1995, the Trust paid a monthly
consulting fee of $17,667 to GRZ, Inc. for the consulting services of
George R. Zoffinger. Mr. Zoffinger became the President and Chief
Executive Officer of the Trust on September 29, 1995, but he received
no salary in fiscal 1995.
(7) $842 of this amount represents the full dollar value of insurance
premiums paid by the Trust during fiscal 1997 on behalf of Mr. McArthur
with respect to term life insurance. $3,000 of this amount represents
matching contributions made by the Trust on Mr. McArthur's behalf under
the Trust's 401(k) plan.
(8) $842 of this amount represents the full dollar value of insurance
premiums paid by the Trust during fiscal 1996 on behalf of Mr. McArthur
with respect to term life insurance. $3,000 of this amount represents
matching contributions made by the Trust on Mr. McArthur's behalf under
the Trust's 401(k) plan.
(9) $728 of this amount represents the full dollar value of insurance
premiums paid by the Trust during fiscal 1997 on behalf of Mr. English
with respect to term life insurance. $3,000 of this amount represents
matching contributions made by the Trust on Mr. English's behalf under
the Trust's 401(k) plan.
(10) $695 of this amount represents the full dollar value of insurance
premiums paid by the Trust during fiscal 1996 on behalf of Mr. English
with respect to term life insurance. $5,500 of this amount represents
matching contributions made by the Trust on Mr. English's behalf under
the Trust's 401(k) plan.
Option Exercises and Holdings
The following table sets forth certain information concerning exercises
of stock options during fiscal 1996 by each of the Named Executive Officers and
the number and value of options held by each of the Named Executive Officers on
September 30, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Value of
Securities Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Number of Fiscal YE Fiscal YE (1)
Shares ---------------------- -------------------
Acquired on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
------------ -------- ---------------------- -------------------
<S> <C> <C> <C> <C>
George R. Zoffinger -0- -0- 81,333 / 162,667 $447,831 / $955,669
Paul I. McArthur -0- -0- 33,333 / 66,667 $174,998 / $350,002
Robert T. English -0- -0- 8,333 / 16,667 $48,956 / $ 97,919
- --------------------
</TABLE>
(1) Based on the fair market value of the Shares on September 30, 1997,
$15.875 per share, less the option exercise price.
<PAGE>
Board of Trustees
The Trust is managed by a seven member Board of Trustees, a majority of
whom are independent of the Trust's management. The Board of Trustees held nine
meetings during fiscal 1997. Each of the Trustees attended at least 75% of the
total number of meetings of the Board of Trustees and of the committees of the
Trust of which he was a member.
The Board of Trustees has appointed an Audit Committee and a
Compensation and Nominating Committee. Descriptions of the Audit Committee and
the Compensation and Nominating Committee follow.
Audit Committee
The Audit Committee, which currently consists of Messrs. Jennings
(Chairman), Bernstein and Mayer, makes recommendations concerning the engagement
of independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, approves professional
services provided by the independent public accountants, reviews the
independence of the independent public accountants, considers the range of audit
and non-audit fees and reviews the adequacy of the Trust's internal accounting
controls. The Audit Committee met one time in fiscal 1997.
Compensation and Nominating Committee
The Compensation and Nominating Committee, which currently consists of
Messrs. Bernstein, Chairman, Frary and Levy makes recommendations and exercises
all powers of the Board of Trustees in connection with certain compensation
matters, including incentive compensation and benefit plans. The Compensation
and Nominating Committee administers, and has authority to grant awards under,
the 1995 Share Option Plan to the employee Trustees and management of the Trust
and its subsidiaries and other key employees. The Compensation and Nominating
Committee is also responsible for recommending to the shareholders and the Board
of Trustees individuals to serve as Trustees and officers of the Trust. The
Compensation and Nominating Committee met three times in fiscal 1997.
Recommendations from shareholders for nominees for election as Trustees may be
directed to Mr. Martin Bernstein, Chairman of the Compensation and Nominating
Committee, Value Property Trust, 120 Albany Street, 8th Floor, New Brunswick,
New Jersey 08901.
1995 Stock Option Plan
Reference is made to the information contained in Note 7 of the Notes
to the Consolidated Financial Statements which is incorporated herein by
reference.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners
The table below sets forth information concerning the only persons,
entities or groups which the Trust believes are the beneficial owners of five
percent or more of the outstanding shares of the Trust's Shares as of October
30, 1997.
<TABLE>
<CAPTION>
Name and Address of Amount and nature of
Beneficial Owner Beneficial Ownership Percent of Class
- -------------------- -------------------- ----------------
<S> <C> <C>
Franklin Mutual Advisers, Inc.(1) 5,631,827 50.05%
51 JFK Parkway
Short Hills, New Jersey 07078
Intermarket Corporation 2,788,827 24.84%
667 Madison Avenue
20th Floor
New York, New York 10021
Angelo Gordon & Co., L.P. 1,215,232 10.82%
245 Park Avenue
New York, New York 10167
Strome Susskind & Co. 562,138 5.01%
1250 Fourth Street
Santa Monica, California 90401
- ----------------
</TABLE>
<PAGE>
(1) Franklin Mutual Advisers, Inc. ("FMAI"), is an investment adviser
registered under the Investment Advisers Act of 1940. One or more of
FMAI's advisory clients are the beneficial owners of 5,631,827 shares
of the Trust's common stock. Includes 25,000 of the Trust's common
stock beneficially owned by Franklin's advisory clients pursuant to an
agreement between Mr. Altman and FMAI. Pursuant to investment advisory
agreements with its advisory clients, FMAI has sole investment
discretion and voting authority with respect to such securities. FMAI
has no interest in dividends or proceeds from the sale of such
securities and disclaims beneficial ownership of all the securities
owned by FMAI's advisory clients.
Security Ownership of Management
The following table sets forth information as of October 30, 1997, with
respect to the beneficial ownership of Shares by each Named Executive Officer
and Trustee of the Trust and by all Trustees and executive officers as a group.
The information set forth below is based upon filings with the Securities and
Exchange Commission, the Trust's Share records, and information obtained by the
Trust from the persons named below. As of October 30, 1997, one individual
Trustee or officer had beneficial ownership of 1% or more of the outstanding
Shares and all Trustees and executive officers as a group beneficially owned
3.64% of the outstanding Shares.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner(1) Beneficial Ownership of Class
- ---------------------------- -------------------- --------
<S> <C> <C>
Jeffrey A. Altman 25,000(2) *
Martin Bernstein 53,162(3) *
Robert T. English 16,666 *
Richard S. Frary 43,775 *
Richard B. Jennings 25,000 *
John B. Levy 29,206(4) *
Carl A. Mayer, Jr. 25,000 *
Paul I. McArthur 33,333 *
George R. Zoffinger 171,109 1.50%
Trustees and executive officers
as a group (9 persons) 422,251 3.64%
- -----------------
</TABLE>
* Less than one percent.
(1) The address of all Named Executive Officers is in care of the Trust.
(2) Beneficial ownership of 25,000 of the Common Shares reported as
beneficially owned by Mr. Altman are beneficially owned by Franklin
Mutual Advisers, Inc.'s advisory clients pursuant to an agreement
between Mr. Altman and Franklin Mutual Advisers, Inc.
(3) Includes 18,775 Common Shares owned by Evelyn Bernstein, Mr.
Bernstein's wife. Mr. Bernstein disclaims beneficial ownership of such
Shares.
(4) Includes 4,206 Common Shares owned by Judith Brown Levy, Mr. Levy's
wife. Mr. Levy disclaims beneficial ownership of such Shares.
<PAGE>
Change of Control
On September 18, 1997, the Trust entered into a definitive agreement to
be acquired by Wellsford Real Properties, Inc. ("Wellsford") in a merger
transaction for cash and stock. The proposed transaction, which will be
accounted for by Wellsford as a purchase, is subject to certain closing
conditions and is expected to be completed in early 1998. Franklin Mutual
Advisors, Inc., whose advisory clients currently hold approximately 50% of the
Trust's outstanding shares, has agreed to vote the shares of the Trust over
which it has voting power in favor of the proposed transaction. The proposed
transaction, if consummated, will result in a change of control of the Trust.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information contained in Note 14 of the Notes
to the Consolidated Financial Statements which is incorporated herein by
reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed as a Part of the Report.
The following documents are filed as part of this report.
1. Financial Statements. The financial statements of the Trust are set
forth in the "INDEX TO FINANCIAL STATEMENTS".
2. Financial Statement Schedules. See 3(d) below.
3. Exhibits.
(a) Exhibits are as set forth in the "INDEX TO EXHIBITS".
(b) REPORTS ON FORM 8-K.
The Trust filed a Current Report on Form 8-K dated June 24,
1997 under Item 2 and Item 7 of Form 8-K regarding the Trust's
disposition of three real estate properties during the prior
quarter.
The Trust filed a Current Report on Form 8-K dated July 11,
1997 under Item 2 and Item 7 of Form 8-K regarding the Trust's
disposition of two real estate properties during the current
quarter and the mortgage financing provided in one of the
transactions.
The Trust filed a Current Report on Form 8-K dated September
18, 1997 under Item 5 and Item 7 of Form 8-K regarding the
Trust's entering into a definitive merger agreement to be
acquired by Wellsford Real Properties, Inc. in a merger
transaction for cash and stock valued at approximately $169
million.
(c) EXHIBITS, INCLUDING THOSE INCORPORATED BY REFERENCE. Exhibits are
set forth in the "INDEX TO EXHIBITS". Where so indicated by footnote in
the index, exhibits which were previously filed are incorporated by
reference. For exhibits incorporated by reference, the location of the
exhibit in the previous filing is indicated in parentheses. Copies of
the exhibits are available to shareholders upon payment of $0.25 per
page fee to cover the Trust's expenses in furnishing the exhibits. For
copies contact: Value Property Trust, 120 Albany Street, 8th floor, New
Brunswick, New Jersey 08901.
(d) Financial Statement Schedules, except those indicated in the "INDEX
TO FINANCIAL STATEMENTS", have been omitted because the required
information is included in the financial statements or notes thereto,
or the amounts are not significant.
OTHER INFORMATION
THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1993 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE TRUST'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE SET FORTH IN FORWARD-LOOKING STATEMENTS. THOSE FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE THOSE SET FORTH UNDER "LIQUIDITY AND CAPITAL
RESOURCES" SECTION OF ITEM 7.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
VALUE PROPERTY TRUST
By: /s/ George R. Zoffinger
--------------------------
George R. Zoffinger
President and Chief
Executive Officer
Date: December 15, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Each person in so signing also makes constitutes and appoints George R.
Zoffinger, President and Chief Executive Officer of Value Property Trust, and
each of them, his true and lawful attorney-in-fact, in his name, place and stead
to execute and cause to be filed with the Securities and Exchange Commission any
and all amendments to this report.
/s/ Jeffrey A. Altman Chairman and Trustee December 15, 1997
- --------------------------
Jeffrey A. Altman
/s/ George R. Zoffinger President, Chief Executive December 15, 1997
- -------------------------- Officer and Trustee
George R. Zoffinger (Principal Executive Officer)
/s/ Robert T. English Secretary, Treasurer and December 15, 1997
- -------------------------- Chief Financial Officer
Robert T. English (Principal Financial and
Accounting Officer)
/s/ Martin Bernstein Trustee December 15, 1997
- --------------------------
Martin Bernstein
/s/ Richard S. Frary Trustee December 15, 1997
- --------------------------
Richard S. Frary
/s/ Richard B. Jennings Trustee December 15, 1997
- --------------------------
Richard B. Jennings
/s/ John B. Levy Trustee December 15, 1997
- --------------------------
John B. Levy
/s/ Carl A. Mayer, Jr. Trustee December 15, 1997
- --------------------------
Carl A. Mayer, Jr.
<PAGE>
VALUE PROPERTY TRUST
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Financial Statements
Consolidated Statements of Operations
(Years ended September 30, 1997, 1996 and 1995)
Consolidated Balance Sheets
(September 30, 1997 and 1996)
Consolidated Statements of Cash Flows
(Years ended September 30, 1997, 1996 and 1995)
Consolidated Statements of Shareholders' Equity
(Years ended September 30, 1997, 1996 and 1995)
Notes to the Consolidated Financial Statements
Financial Statements Schedules
Schedule III -- Real Estate Accumulated
Depreciation and Amortization (September 30, 1997)
Schedule XII -- Mortgage Loans on Real Estate
(September 30, 1997)
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders of
Value Property Trust:
We have audited the accompanying consolidated balance sheets of Value Property
Trust as of September 30, 1997 and 1996, and the related consolidated statements
of operations, shareholders' equity and cash flows for the years then ended and
related financial statement schedules. These financial statements and financial
statement schedules are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. The financial statements and
financial statement schedules of Value Property Trust as of September 30, 1995,
and for the year then ended, were audited by other auditors whose report dated
November 10, 1995, included an emphasis of matter paragraph which described the
reorganiation and the implementation of Fresh Start Reporting as discussed in
Note 1 to the financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Value
Property Trust as of September 30, 1997 and 1996, and the consolidated results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
related 1997 and 1996 financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material aspects, the information required to be included
therein.
/s/COOPERS & LYBRAND L.L.P.
---------------------------
COOPERS & LYBRAND L.L.P.
New York, New York
November 28, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Trustees and Shareholders
Value Property Trust
We have audited the balance sheets of Value Property Trust (formerly
Mortgage and Realty Trust) at September 30, 1995 and 1994 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in the financial statements, on September 22,
1995, the Bankruptcy Court confirmed the Trust's plan of reorganization which
was consummated on September 29, 1995 permitting the Trust to emerge from
proceedings under the Bankruptcy Code. The Trust implemented the guidance as to
the accounting for entities emerging from Chapter 11 set forth in Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("Fresh Start Reporting") as of September 30, 1995. Due to the
reorganization and the implementation of Fresh Start Reporting, assets were
recorded at reorganization value, liabilities were recorded at fair values and
outstanding obligations were discharged primarily in exchange for cash, new
indebtedness and equity. As a result, the balance sheet at September 30, 1995
reflects a new basis of accounting and, accordingly, is not comparable to
balance sheets prior to that date.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Value Property
Trust, at September 30, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1995,
in conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
- --------------------
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 10, 1995
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30
(dollars in thousands except per share)
POST- PRE-
CONFIRMATION CONFIRMATION
----------------------------------- ------------
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Revenue: |
Rental properties: |
Rental income $ 20,486 $ 26,925 | $ 24,608
Operating expense reimbursement 2,975 3,557 | 2,286
Interest and fee income on mortgage loans 202 2,853 | 9,353
Interest on short-term investments 3,064 1,713 | 3,086
Other 9 18 | 131
-------- -------- | --------
Total Revenue 26,736 35,066 | 39,464
-------- -------- | --------
Expenses: |
Interest 4,640 10,489 | 35,900
Rental properties: |
Operating 8,971 12,084 | 11,702
Depreciation and amortization 1,717 2,347 | 7,306
Other operating expenses 3,053 3,173 | 4,518
Litigation settlement 751 -- | --
Provision for losses on mortgage loans and related investments -- -- | 3,000
-------- -------- | --------
Total Expenses 19,132 28,093 | 62,426
-------- -------- | --------
Income (loss) from operations before reorganization items, |
and gain on sale of real estate and extraordinary item 7,604 6,973 | (22,962)
-------- -------- | --------
Reorganization items: |
Professional fees and other -- -- | 6,219
Interest income -- -- | (441)
Write down of invested assets to reorganization value -- -- | 66,597
-------- -------- | --------
Total reorganization items -- -- | 72,375
-------- -------- | --------
Income (loss) before gain on sale of real estate and |
extraordinary item 7,604 6,973 | (95,337)
-------- -------- | --------
Gain on sale of real estate 24,861 -- | --
-------- -------- | --------
Income (loss) from operations before extraordinary item 32,465 6,973 | (95,337)
Extraordinary item-gain on extinguishment of debt -- -- | 75,304
-------- -------- | --------
Net income (loss) $ 32,465 $ 6,973 | $(20,033)
======== ======== | ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30
(dollars in thousands except per share)
(continued)
POST- PRE-
CONFIRMATION CONFIRMATION
----------------------------------- ------------
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Per share: |
Income from operations before reorganization items, |
gain on sale of real estate and extraordinary item * $ 0.68 $ 0.62 |
Gain on sale of real estate * $ 2.21 $ 0.00 |
-------- -------- |
Net income * $ 2.89 $ 0.62 |
======== ======== |
|
Weighted average number of common shares outstanding 11,226 11,226 | 11,226
</TABLE>
* Net income (loss) per share for the pre-confirmation period is not
presented because this information is not meaningful as a result of the
Reorganization and the adoption of "Fresh Start Reporting". See Item 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30
(dollars in thousands)
1997 1996
-------- --------
ASSETS
<S> <C> <C>
Assets Held For Sale:
Investment in partnerships ............................ $ 5,869 $ 10,219
Real estate owned ..................................... 22,001 38,171
-------- --------
Total Assets Held For Sale 27,870 48,390
-------- --------
Assets Held For Investment:
Mortgage loans ........................................ 6,805 663
Investment in partnerships ............................ -- 13,486
Real estate owned ..................................... 37,934 63,196
-------- --------
Total Assets Held For Investment 44,739 77,345
-------- --------
Total Invested Assets ...................................... 72,609 125,735
Cash and cash equivalents .................................. 81,409 29,501
Restricted cash ............................................ 1,673 12,213
Interest receivable and other assets ....................... 3,391 4,962
-------- --------
Total Assets ............................................... $159,082 $172,411
======== ========
LIABILITIES
Senior Secured Notes (Due 1999) ............................ $ 18,222 $ 63,226
Accounts payable and accrued expenses ...................... 1,245 1,804
Interest payable ........................................... 103 334
-------- --------
Total Liabilities .......................................... 19,570 65,364
-------- --------
Commitments and contingencies
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30
(dollars in thousands)
(continued)
1997 1996
-------- --------
<S> <C> <C>
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 in fiscal 1997 and fiscal 1996 shares issued
and outstanding........................................... 11,226 11,226
Additional paid-in capital ................................. 88,848 88,848
Accumulated earnings ....................................... 39,438 6,973
-------- --------
Total Shareholders' Equity ................................. 139,512 107,047
-------- --------
Total Liabilities and Shareholders' Equity ................. $159,082 $172,411
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30
(dollars in thousands)
POST- PRE-
CONFIRMATION CONFIRMATION
---------------------------- ------------
1997 1996 1995
------------ --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities: |
Net income (loss) ........................................................... $ 32,465 $ 6,973 | $ (20,033)
Adjustments to reconcile net income (loss) to net cash |
provided by (used in) operating activities: |
Write down of invested assets to reorganization value .................... -- -- | 66,597
Extraordinary item-gain on extinguishment of debt ........................ -- -- | (75,304)
Depreciation and amortization on real estate ............................. 1,717 2,347 | 7,306
Provision for losses ..................................................... -- -- | 3,000
(Decrease) increase in accounts payable and accrued expenses ................ (559) (2,942) | 199
(Decrease) increase in interest payable ..................................... (231) 334 | (32,568)
Decrease (increase) in receivables and other assets ......................... 2,095 2,675 | (576)
Net change in interest reserves, deferred income ............................ -- -- | (162)
Recoveries of charge-offs to allowance for losses ........................... -- -- | 631
Gain on sale of real estate.................................................. (24,861) -- | --
--------- --------- | ---------
Total adjustments ............................................................ (21,839) 2,414 | (30,877)
--------- --------- | ---------
Net cash provided by (used in) operating activities .......................... 10,626 9,387 | (50,910)
--------- --------- | ---------
Cash flows from investing activities: |
Investment in real estate: |
Real estate owned ........................................................ (3,716) (4,550) | (11,283)
Advances on mortgage loans ............................................... (6,257) (73) | (733)
Partnerships ............................................................. (813) (344) | (2,211)
Principal repayments on mortgage loan receivables ........................... 115 332 | 22,711
Proceeds from the sale of real estate ....................................... 86,417 27,093 | 3,350
Proceeds from the sale of mortgage loans and notes receivable ............... -- 57,047 | --
Repayments on notes receivable .............................................. -- 338 | 217
--------- --------- | ---------
Net cash provided by investing activities .................................... 75,746 79,843 | 12,051
--------- --------- | ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30
(dollars in thousands)
(continued)
POST- PRE-
CONFIRMATION CONFIRMATION
---------------------------- ------------
1997 1996 1995
------------ --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities: |
Payment of mortgage payable ................................................. -- (17,535) | (58)
Principal payment of senior secured notes (due 2002) ........................ -- (109,975) | (4,647)
Principal payment of senior secured notes (due 1999) ........................ (45,004) (4,153) | --
Borrowing of senior notes (due 1999) ........................................ -- 67,379 | --
Decrease (increase) in restricted cash ...................................... 10,540 (5,422) | (3,808)
--------- --------- | ---------
Net cash used in financing activities ........................................ (34,464) (69,706) | (8,513)
--------- --------- | ---------
Net increase (decrease) in cash and cash equivalents ......................... 51,908 19,524 | (47,372)
Cash and cash equivalent at beginning of period .............................. 29,501 9,977 | 57,349
--------- --------- | ---------
Cash and cash equivalent at end of period .................................... $ 81,409 $ 29,501 | $ 9,977
--------- --------- | ---------
|
Supplemental schedule of non-cash investing activities: |
Charge-offs against allowance for losses ................................... $ -- $ -- | $ 5,515
Transfer of mortgage loans to real estate owned ............................ $ -- $ 5,120 | $ 10,900
|
Interest Paid ................................................................ $ 3,230 $ 9,972 | $ --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(Dollars in thousands except number of shares)
ADDITIONAL ACCUMULATED TOTAL
COMMON SHARES PAID-IN (DEFICIT) SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 11,226 11,226 182,375 (173,568) 20,033
Net loss -- -- -- (20,033) (20,033)
Reverse stock split (10,889) (10,889) (268,905) -- (279,794)
Issuance of Common Stock 10,889 10,889 175,378 -- 186,267
Adjustment to restate
accumulated deficit to zero -- -- -- 193,601 193,601
------ -------- -------- -------- --------
- -------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 11,226 11,226 88,848 0 100,074
------ -------- -------- -------- --------
Net income -- -- -- 6,973 6,973
------ -------- -------- -------- --------
Balance at September 30, 1996 11,226 $ 11,226 $ 88,848 $ 6,973 $107,047
Net income -- -- -- 32,465 32,465
------ -------- -------- -------- --------
Balance at September 30, 1997 11,226 $ 11,226 $ 88,848 $ 39,438 $139,512
====== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION
On September 29, 1995, the Trust's Prepackaged Plan of Reorganization
was declared effective by the United States Bankruptcy Court for the Central
District of California.
Under the Prepackaged Plan, holders of the Trust's $290,000,000
principal amount of Senior Secured Uncertificated Notes due 1995 received (i)
$110,000,000 principal amount of newly issued 11-1/8% Senior Secured Notes due
2002, (ii) $71,000,000 ($25,000,000 paid in April 1995) in cash and (iii)
approximately 10,889,430 newly issued Common Shares representing, in the
aggregate, approximately 97% of the Common Shares outstanding after the
effective date. In connection with the Prepackaged Plan, the Trust effected a 1
for 33.33 reverse stock split of all outstanding Common Shares.
In connection with its emergence from the Chapter 11 proceeding, the
Trust implemented Fresh Start Reporting as of September 30, 1995, as set forth
in Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code." The Trust adopted Fresh Start Reporting because (i)
the holders of existing voting shares immediately before filing and confirmation
of the Prepackaged Plan received less than 50% of the voting shares of the new
entity and (ii) the reorganization value immediately before the date of
confirmation was less than the total of all post-petition liabilities and
allowed claims, as shown below:
($ in 000)
---------
Total post-petition liabilities and allowed claims ........... $ 351,833
Reorganization value ......................................... (278,354)
---------
Excess of liabilities over reorganization value .............. $ 73,479
=========
The post-confirmation financial statements and schedules amounts have
been segregated by a black line in order to signify that the financial
statements and schedules are that of a new reporting entity and have been
prepared on a basis which is not comparable to the pre-confirmation financial
statements and schedules.
The Trust based the reorganization value of assets on the mid-point of
the range of values prepared by independent specialists in the field of real
estate valuation. The valuation of its real estate investments was prepared as
of March 31, 1995 and was adjusted to September 30, 1995 for various accounts
such as cash and cash equivalents, accounts receivable and accounts payable.
The Trust's liabilities were stated at their fair value. The difference
between reorganization value of the assets and the fair value of the liabilities
was recorded as an adjustment to shareholders' equity with the accumulated
deficit restated to zero.
The real estate valuation analysis reflected the selection of 26 assets
which represented 81% of the Trust's book value at March 31, 1995. The selection
was divided between east coast and west coast assets and generally represented
the highest dollar values in the portfolio.
<PAGE>
The analysis factored in, among other things, (i) the most recent
property cash flow projections for the properties selected, (ii) where
applicable, the most recent operating rent roll and other financial information
relative to the assets selected, (iii) the most recent third party, independent
appraisals, where applicable and available, (iv) discussions with the respective
asset managers to determine loan status, property characteristics, current
occupancy, existing market rental rates, new leases, current payoff discussions
and asset sales, and (v) a review of limited market information for the
properties.
The valuation of the asset portfolio assumed continued operation of the
portfolio for several years. Sales and pay-offs of certain assets occurred
throughout the analysis period (six years) and no additional investments were
made. Property cash flows, loan payments and pay-offs, and reversion amounts
(based on normalized capital expenditures in the reversion year) were discounted
to present value at 12 percent per year. Amounts do not include extraordinary
expenses for reorganization or litigation.
The going concern value was reduced by other operating expenses that
would be incurred over a six year period. The present value of expenses was
calculated by applying a capitalization rate of 10 percent to Year 6 stabilized
other expenses and discounting both the capitalized, stabilized Year 6 expenses
and the annual expenses at 12 percent. The net present value of operating
expenses was $27.3 million.
The effect of the Fresh Start Reporting on the Trust's historical cost
balance sheet at September 30, 1995 is as follows:
<TABLE>
<CAPTION>
PRE- REORGANIZATION FRESH START POST-
CONFIRMATION ADJUSTMENTS ADJUSTMENTS CONFIRMATION
------------ ----------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS Assets held for sale:
Mortgage loans $ 30,225 ($ 8,259) (E) $ 21,966
Investments in partnerships 6,478 (1,258) (E) 5,220
Real estate owned 50,406 (8,347) (E) 42,059
-------- -------- --------- --------
87,109 0 (17,864) (E) 69,245
-------- -------- --------- --------
Assets held for investment:
Mortgage loans 46,721 (11,708) (E) 35,013
Investments in partnerships 26,249 (5,601) (E) 20,648
Notes receivable 700 (67) (E) 633
Real estate owned 124,484 (42,903) (E) 81,581
-------- -------- --------- --------
198,154 0 (60,279) (E) 137,875
-------- -------- --------- --------
285,263 0 (78,143) (E) 207,120
Less: allowance for losses (11,546) 11,546 (E) 0
-------- -------- --------- --------
273,717 0 (66,597) (E) 207,120
Cash and cash equivalents 56,002 (46,025) (A) 9,977
Restricted cash 6,791 6,791
Interest receivable and other assets 8,441 8,441
-------- -------- --------- --------
Total Assets $344,951 ($46,025) ($66,597) $232,329
-------- -------- --------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRE- REORGANIZATION FRESH START POST-
CONFIRMATION ADJUSTMENTS ADJUSTMENTS CONFIRMATION
------------ ----------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
LIABILITIES
Senior Notes Due 1995 $290,000 ($290,000) (B) $ 0
Senior Notes Due 2002 0 109,975 (B) 109,975
Mortgage payable 17,535 17,535
Interest payable 41,378 (41,378) (B) 0
Accounts payable and other 2,920 1,825 (C) 4,745
-------- -------- --------- --------
Total Liabilities 351,833 (219,578) 0 132,255
-------- -------- --------- --------
SHAREHOLDERS' EQUITY
Common Stock at par 11,226 11,226
Additional paid in capital 182,375 175,378 (D) (268,905) (F) 88,848
Accumulated deficit (200,483) (1,825) (C) 202,308 (F) 0
-------- -------- --------- --------
Total Shareholders' Equity (6,882) 173,553 (66,597) 100,074
-------- -------- --------- --------
Total Liabilities and
Shareholders' Equity $344,951 $(46,025) $ (66,597) $232,329
======== ======== ========= ========
</TABLE>
ADJUSTMENTS TO REFLECT REORGANIZATION
(A) Reflects a $46,025 payment to creditors made at implementation of the
plan.
(B) Reflects the cancellation of the Senior Secured Notes due 1995 in the
face amount of $290,000 and the related interest payable on these notes
of $41,378 and the recording of the new Senior Notes due 2002 in the
face amount of $109,975.
(C) Reflects the cost of the termination pay plan (See Note 9) ($1,325) and
the cost associated with the restructuring ($500).
(D) Reflects the conversion of amounts previously owed under the Senior
Secured Notes due 1995 converted to a 97% interest in the common shares
of the reorganized Trust as follows:
($ in 000)
---------
Face amount of Senior Notes due 1995 ......................... $ 290,000
Interest payable ............................................. 41,378
---------
Total amount payable to creditors ............................ 331,378
Less: Senior Notes due 2002 .................................. (109,975)
Less: Cash payment to creditors .............................. (46,025)
---------
Amount previously due creditors converted to equity .......... $ 175,378
=========
<PAGE>
The following unaudited table reflects the ownership (as between
holders of Outstanding Common Shares and holders of Outstanding Notes) of the
Trust's Common Shares before and after consummation of the 1995 Restructuring.
<TABLE>
<CAPTION>
COMMON SHARES BEFORE COMMON SHARES AFTER COMMON
REVERSE STOCK SPLIT REVERSE STOCK SPLIT BUT SHARES AFTER
OR CONSUMMATION BEFORE CONSUMMATION OF CONSUMMATION
OF THE RESTRUCTURING THE RESTRUCTURING OF THE RESTRUCTURING
------------------------------ ----------------------------- -------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES COMMON SHARES SHARES COMMON SHARES SHARES COMMON SHARES
--------- ------------- --------- ------------- --------- ---------------
(in 000)
<S> <C> <C> <C> <C> <C> <C>
Holders of Outstanding
Notes 0 0 0 0 10,889 97%
Holders of Outstanding
Common Shares 11,226 100% 337 100% 337 3%
</TABLE>
ADJUSTMENT TO REFLECT FRESH START ACCOUNTING
(E) Reflects adjustment made to carrying value of loans and owned real
estate to adjust to reorganization values.
(F) Reflects an adjustment of the accumulated deficit to zero as a result
of the restructure and the adjustment of additional paid in capital as
follows:
($ in 000)
---------
Adjust accumulated deficit to reset to zero ................. $(202,308)
Adjustment to carrying value of invested assets ............. (66,597)
---------
$(268,905)
=========
The following unaudited Pro Forma Statement of Operations is presented
as if the Prepackaged Plan of Reorganization and implementation of Fresh Start
Reporting had occurred as of October 1, 1994. Such pro forma information is
based upon the historical financial statements of Value Property Trust. In
management's opinion all adjustments necessary to reflect the effects of those
transactions have been made. The following unaudited Pro Forma Statement of
Operations is not necessarily indicative of what the actual results of
operations of the Trust would have been assuming such transaction had occurred
as of October 1, 1994, nor does it purport to represent the results of
operations for future periods.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
Year Ended September 30, 1995
(Unaudited)
(dollars in thousands except per share)
PRO FORMA
1995 ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Income of rental properties:
Rental income ................................................... $ 24,608 $ -- $ 24,608
Operating expense reimbursements ................................ 2,286 -- 2,286
Interest and fee income on mortgage loans ............................ 9,353 -- 9,353
Interest on short-term investments ................................... 3,086 (2,586) (G) 500
Other ................................................................ 131 -- 131
-------- -------- --------
39,464 (2,586) 36,878
-------- -------- --------
Expenses:
Interest ............................................................. 35,900 (21,780) (H) 14,120
Expenses of rental properties:
Depreciation and amortization ................................... 7,306 (2,390) (J) 4,916
Operating ....................................................... 11,702 -- 11,702
Other operating expenses ............................................. 4,518 -- 4,518
Provision for losses on mortgage loans and related investments ....... 3,000 (3,000) (I) --
-------- -------- --------
62,426 (27,170) 35,256
-------- -------- --------
Income (loss) from operations before
reorganization items, and extraordinary item .................... (22,962) 24,584 1,622
Reorganization items:
Professional fees and other ..................................... (6,219) 6,219 (K) --
Interest income ................................................. 441 (441) (K) --
Write down of invested assets to
reorganization value ............................................ (66,597) 66,597 (K) --
-------- -------- --------
Total reorganization items ........................................... (72,375) 72,375 --
-------- -------- --------
Income (loss) before extraordinary item .............................. (95,337) 96,959 1,622
-------- -------- --------
Extraordinary item-gain on extinguishment of debt .................... 75,304 (75,304) (L) --
-------- -------- --------
Net income (loss) .................................................... $(20,033) $ 21,655 $ 1,622
======== ======== ========
Weighted average number of common shares outstanding ................. 11,226 11,226
Net income per share ................................................. * $ .14
</TABLE>
Net income (loss) per share is not presented because this information
is not meaningful as a result of the Reorganization and the adoption of
"Fresh Start Reporting". See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<PAGE>
Notes To Unaudited Pro Forma Statement of Operations
Pro Forma Adjustments
(G) Reflects an adjustment to investment income to reflect an average cash
position of approximately $10.0 million at an average investment rate
of 5.0% for fiscal 1995.
(H) Reflects the reversal of interest expense related to the Outstanding
Notes ($34.0 million) which were cancelled and the addition of interest
expense for the New Senior Notes ($12.2 million) which bear interest at
a fixed rate of 11.125%.
(I) Reflects the reversal of the $3.0 million provision for losses which
would be eliminated as a result of the adjustment of invested assets to
reorganization value.
(J) Reflects an adjustment to depreciation and amortization resulting from
the reduced basis in owned real estate as a result of the adjustment of
invested assets to reorganization value.
(K) Reflects the reversal of reorganization expenses based upon the
assumption that the Restructuring was completed and no non-recurring
expenses related to the Restructuring were incurred.
(L) Reflects the reversal of gain on extinguishment of debt based upon the
assumption that the Restructuring was completed October 1, 1994.
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. The most significant of these estimates relate to the carrying
value of the assets held for sale and the estimated useful lives of assets held
for investment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accounts of the Trust and its wholly owned subsidiaries are
consolidated in the accompanying financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
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, the Trust does not pay Federal income tax on
income as long as income distributed to shareholders is at least equal to 95% of
real estate investment trust taxable income, and pays no Federal income tax on
capital gains distributed to shareholders.
<PAGE>
In July 1997, the Trust contacted the Internal Revenue Service (the
"IRS") regarding interpretative advice concerning a technical provision of the
REIT requirements of the Internal Revenue Code and, based upon such interpretive
advice, potential violations of such provision during fiscal 1994 and 1995. The
Trust does not believe that any such potential violations would have a material
adverse effect on the Trust. However, the Trust has sought the IRS'
interpretation of the technical provision of the REIT requirements and its
concurrence that, if any technical violations were deemed to have occurred, such
violations would not affect the Trust's REIT status. The Trust believes that if
its status as a REIT was terminated, potential corporate taxes for prior periods
would not be material due to the net operating losses available in prior
periods. Moreover, there should be no material adverse tax consequences to
shareholders during such prior periods since no distributions were made to
shareholders during such periods. The effect of a termination of REIT status in
current and future periods would be based upon a number of factors; because the
Trust is unable to predict the occurrence or magnitude of such factors; it is
unable to predict the effect of a termination of REIT status on the Trust or its
shareholders for such periods.
For the fiscal years ended September 30, 1996 and 1995, there were
significant differences between taxable net loss and net income (loss) as
reported in the financial statements. The differences were related to the
recognition of bad debt deductions and accounting for reorganization costs and
Fresh Start Reporting. For financial accounting purposes, these items are
expensed currently, while for tax purposes some portion of these items are
deferred to future periods or may not be deductible. In addition, the Fresh
Start Reporting discussed in Note 1 is not recognized for tax purposes, and will
result in future years financial reporting and tax basis differences.
The Trust has approximately $107 million in net operating losses (the
"NOLs") for tax purposes attributable to losses generated in fiscal years 1992
through 1996. The NOLs attributable to each year can be carried forward up to
fifteen years from the year the loss was generated. The use of NOLs in any
taxable year (together with any recognized losses that are economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation under Section 382 of the Code. The Trust estimates that this annual
limitation is approximately $6 million.
INTEREST INCOME
Interest income on each loan is recorded as earned. Interest income is
not recognized if, in the opinion of the management, 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.
ALLOWANCE FOR LOSSES
Prior to the implementation of Fresh Start Reporting, the allowance for
losses on mortgage loans and related investments was determined in accordance
with The American Institute of Certified Public Accountants Statement of
Position on Accounting Practices of Real Estate Investment Trusts 75-2 ("SOP
75-2"), as amended. This statement required adjustment of the carrying value of
<PAGE>
mortgage loans to the lower of their carrying value or estimated net realizable
value. Estimated net realizable value was the estimated selling price of a
property offered for sale in the open market allowing a reasonable time to find
a buyer, reduced by the estimated cost to complete and hold the property
(including the estimated cost of capital), net of estimated cash income. With
the implementation of Fresh Start Reporting, as of September 30, 1995, the
allowance for losses was reset to zero.
Effective October 1, 1995, the Trust adopted the Financial Accounting
Standards Board SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan", which requires that impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Adoption of this
statement did not have a significant impact on the Trust's financial position or
results of operations.
NET INCOME PER SHARE
Net income per share is computed using the weighted average common
shares outstanding during the period. Net loss per share for all
pre-confirmation periods is not presented because this information is not
meaningful as a result of the Reorganization and the implementation of "Fresh
Start Reporting". See Note 1.
DEPRECIATION AND AMORTIZATION
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 value or fair value. The accumulated depreciation on real estate
owned was reset to zero as a result of the adoption of Fresh Start Reporting. 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; 40
years for buildings, three to five years for other property and over the term of
the related lease for lease commissions and tenant improvements. The Held for
Sale category is not depreciated. During fiscal 1997, the Trust reclassified six
properties totaling $35.7 million to real estate held for sale from real estate
held for investment and no longer depreciates these assets. During fiscal 1996,
the Trust reclassified seven properties totaling $18.7 million to real estate
held for sale from real estate held for investment and no longer depreciates
these assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents and restricted cash include short-term
investments (high grade commercial paper, bank CDs and US Treasury Securities)
with original maturities not exceeding a term greater than 90 days.
INVESTMENT IN PARTNERSHIPS
The investment in partnership represents the Trust's investment in a
real estate partnership. The Trust owns a majority percentage interest in the
partnership and receives substantially all of the cash flow. The Trust accounts
for the partnership in a similar manner as real estate investments.
<PAGE>
REAL ESTATE OWNED
Real estate and leasehold improvements are stated at cost. In
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of," the Trust records impairment writedowns on long-lived assets, when events
and circumstances indicate that the assets might be impaired and the estimated
undiscounted cash flows to be generated by those assets are less than the
carrying amounts of those assets. No such impairment losses have been recognized
in these financial statements.
As of September 30, 1995, the Trust's invested assets were adjusted to
reorganization value which became the new historical cost basis. Subsequently,
real estate held for investment is carried at historical cost less depreciation.
Real estate held for sale is carried at the lower of cost or net realizable
value. In conjunction with the adoption of Fresh Start Reporting on September
30, 1995, all gains or losses for a period of one year after such adoption are
applied against the carrying value of long lived assets held for investment.
Through September 30, 1996, the Trust has reduced the carrying values of assets
Held for Investment by $12.6 million as a result of the net gains on both the
disposition of substantially all of its mortgage loan portfolio in March 1996
and the sale of nine properties classified as real estate held for sale. At
September 30, 1997, the Trust owned 21 properties of which six are classified as
Held for Sale. The fiscal 1997 revenue and net operating income from these six
properties were $5.8 million and $3.4 million, respectively.
DEFERRED COSTS
Included in other assets are costs incurred in obtaining debt financing
which are deferred and amortized over the term of the related debt agreement.
Amortization expense is included in interest expense in the accompanying
statement of operations for fiscal 1997 and fiscal 1996. Net deferred financing
costs included in other assets in the accompanying balance sheet amounted to
$0.5 million and $2.2 million at September 30, 1997 and September 30, 1996,
respectively.
REVENUE RECOGNITION
The Trust recognizes base rental revenue for financial statement
purposes as earned over the term of the lease.
INTEREST RATE SWAP AGREEMENT
The Trust is a party to an interest rate protection agreement (the
"Cap") used to hedge its interest rate exposure on floating rate debt (See Note
5 "Borrowings"). The differential to be paid or received is recognized in the
period incurred and included in interest expense.
<PAGE>
3. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE AND PARTNERSHIPS
The following table summarizes the Trust's mortgage loan portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------------------- --------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF UNDERLYING SECURITY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- --------------------------- ----------- ------ ----------- ------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Residential/Condominium* 7 $ 563 7 $ 663
Retail Buildings 1 6,242 - --
---- ------- ---- ------
Total 8 $ 6,805 7 $ 663
==== ======= ==== ======
- ----------------
</TABLE>
*Includes 111 residential mortgage loans on 7 mortgage investments at September
30, 1997 and 117 residential mortgage loans on 7 mortgage investments at
September 30, 1996.
During the fourth quarter of fiscal 1997, the Trust provided mortgage
financing in the amount of $6.2 million in conjunction with the sale one real
estate property.
During the second quarter of fiscal 1996, the Trust completed the
disposition of substantially all of its mortgage loan portfolio. The Trust
received $55.5 million in net cash proceeds through a series of transactions
which included loan repayments and a bulk sale of certain mortgage loans. The
carrying value of the mortgage loans involved in these transactions totaled
$50.5 million. Early in fiscal 1996, the Trust foreclosed on the two non-earning
loans totaling $5.1 million and has obtained title to the related properties.
During fiscal 1995 loans totaling $38,834,000 were extended beyond their
original contractual maturity dates. In addition, seven loans totaling
$26,101,000 had interest rate reductions due to financial difficulties of the
borrower. Loan terms are extended or modified in the normal course of business
due to financial difficulties of the borrower.
At September 30, 1997 and 1996, mortgage loans outstanding consisted
solely of fixed rate loans of $6.8 million and $0.7 million. At September 30,
1997, the mortgage loan portfolio had interest rates ranging from 6.75% to 9.50%
with maturities ranging from June 2000 to June 2009. At September 30, 1996, the
mortgage loan portfolio had interest rates ranging from 6.20% to 9.50% with
maturities ranging from June 2000 to June 2009.
<PAGE>
The following table summarizes the Trust's real estate owned, net of
accumulated depreciation of $2.5 million at September 30, 1997 and $1.9 million
at September 30, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------------------- ----------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- ---------------- ----------- -------- ----------- ----------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Apartments 1 $ 8,474 2 $ 16,166
Office Buildings 13 28,657 14 34,004
Industrial Buildings 4 9,755 6 14,892
Retail Buildings 2 13,049 4 36,305
---- -------- ---- --------
Total 20 $ 59,935 26 $101,367
==== ======== ==== ========
</TABLE>
The following table summarizes the Trust's investment in partnerships,
net of accumulated depreciation of $26,000 at September 30, 1997 and $311,000 at
September 30, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------------------- ----------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- ---------------- ----------- -------- ----------- ----------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Industrial Buildings 1 $ 5,869 3 $ 13,658
Retail Buildings - -- 2 10,047
---- -------- ---- --------
Total 1 $ 5,869 5 $ 23,705
==== ======== ==== ========
</TABLE>
The Trust may be liable for environmental problems on sold properties.
At September 30, 1997, the Trust was not aware of any environmental problems on
sold properties.
<PAGE>
4. ALLOWANCE FOR LOSSES
The change in the allowance for losses for the year ended September 30,
1995 is as follows:
<TABLE>
<CAPTION>
1995
-------
(dollars in thousands)
<S> <C>
Balance at beginning of year .................... $13,430
Provisions charged to expense ................... 3,000
-------
16,430
Less charges against allowance, net of
recoveries or reorganization adjustments ...... 16,430
-------
Balance at end of year .......................... $ --
=======
</TABLE>
For the years ended September 30, 1997 and 1996, the Trust did not
provide for an allowance for losses.
The Trust adjusted the balance of allowance for losses at September 30,
1995 as part of "Fresh Start Reporting" (See Note 1).
5. BORROWINGS
MORTGAGE PAYABLE
On April 30, 1996, the Trust prepaid the mortgage loan of $13.9 million
(the "Mortgage Payable"). See discussion below with respect to the Trust's
prepayment of the Prior Notes.
SENIOR SECURED NOTES
The Holders of the Prior Notes had a first priority lien on all of the
Trust's collateral. The Prior Notes were governed by the Prior 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 the Prior Notes
accrued at 11-1/8% per annum and was payable semi-annually in arrears on each
June 30 and December 31. The Prior Indenture included affirmative covenants,
negative covenants and financial covenants.
On March 28, 1996, the Trust entered into a financing agreement which
provided for the issuance of $67.4 million of new Floating Rate Notes (the
"Floating Rate Notes"), which issuance occurred on April 30, 1996. The Floating
Rate Notes bear interest at 30 day LIBOR + 1.375 percent, payable monthly, and
have a stated maturity date of May 1, 1999.
The proceeds received from the Floating Rate Notes, together with
approximately $56.5 million of cash on hand, were used to prepay the Trust's
Prior Notes and Mortgage Payable. The face amount outstanding of the Prior Notes
and the Mortgage Payable at the time of repayment was $110.0 million and $13.9
million, respectively. The Prior Notes and Mortgage Payable were repaid in full
on April 30, 1996.
<PAGE>
Effective April 30, 1996, the Trust entered into an interest rate
protection agreement (the "Cap") that serves to cap the floating interest
component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of
$377,000 to the counterparty to the Cap.
The indenture relative to the Floating Rate Notes (the "New Indenture")
generally requires that, on a monthly basis, the Trust deposit into a Trapped
Funds Account, as defined, maintained by the indenture trustee (the "New
Indenture Trustee") for the Floating Rate Notes all Cash Flow and Asset Sale
Proceeds (each as defined in the New Indenture). Cash Flow from the Trapped
Funds Account will be distributed to pay the New Indenture Trustee's expenses,
pay all accrued but unpaid interest on the Floating Rate Notes and to maintain a
Debt Service Reserve Account before any funds are released to the Trust. In the
event of a sale of, or certain casualty, or indemnification events with respect
to any of the remaining fifteen properties of the original twenty-four
properties mortgaged under the terms of the Floating Rate Notes (underlying
collateralized carrying value of $44.7 million at September 30, 1997), the
proceeds therefrom will be used to retire up to 125% of a portion of the
allocated debt of such property before any funds are released to the Trust. The
New Indenture includes affirmative covenants and negative covenants. At
September 30, 1996, the Trust was in compliance with the New Indenture.
During fiscal 1997, the Trust sold ten real estate properties, three of
the nine buildings owned in an industrial park and a 7.6 acre parcel of
unimproved land. Six of the real estate properties and the three of the nine
buildings sold in fiscal 1997 were encumbered under the terms of the New
Indenture. The Trust used a portion of the net proceeds from the sale of the
encumbered properties to prepay a portion of the Floating Rate Notes, as
required under the terms of the New Indenture. During the first quarter of
fiscal 1997, the Trust used $7.0 million from the net proceeds from the sale of
two encumbered properties sold in September of fiscal 1996, and $1.4 million
from the net proceeds from the sale of an encumbered property sold in October of
fiscal 1997 to prepay the Trust's senior indebtedness. During the remainder of
fiscal 1997, the Trust used $36.6 million from the fiscal 1997 net proceeds from
the sale of six encumbered properties and three of nine encumbered buildings in
an industrial park, to prepay the Trust's senior indebtedness.
On November 3, 1997, the Trust utilized a portion of available cash on
hand to retire its senior indebtedness in full. The face amount outstanding of
the Floating Rate Notes at the time of repayment was $18.2 million.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board Statement No. 107 - Disclosure
of Fair Value of Financial Statements ("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.
The carrying value of cash and cash equivalents approximates their fair
value because of the liquidity and short-term maturities of these instruments.
The carrying value and fair value of off-balance sheet derivative
financial instruments used to manage the interest rate sensitivity of the
Floating Rate Notes were $199,000 and $2,000 at September 30, 1997,
respectively.
<PAGE>
Although the off-balance sheet derivative financial instrument does not
expose the Trust to credit risk equal to the notional amount of $67.4 million,
the Trust is exposed to credit risk equal to the extent of the fair value gain
of an off-balance sheet derivative financial instrument should the counterparty
fail to perform. The Trust minimized such credit risk by dealing only with a
high quality counterparty. In addition, the Trust's policy is to require that
the CAP be governed by an International Swaps and Derivatives Association Master
Agreement. Bilateral collateral arrangements are in place for the all dealer
counterparty.
The carrying value of the Floating Rate Notes at September 30, 1996
approximates their fair value because of the floating rate of these instruments.
7. SHARE OPTION PLAN
1984 SHARE OPTION PLAN
As part of the Plan of Reorganization, the 1984 Share Option Plan was
terminated and 348,500 common stock options were canceled.
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. On February 15, 1996, the Trust's shareholders approved the
adoption of the 1995 Plan 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
non-qualified stock options ("Non-Qualified Options"). Holders of options also
receive dividend equivalent rights. Under the 1995 Plan, 894,000 shares were
granted with a price ranging from $10.00 to $12.25 per share and 55,000 shares
were forfeited at a price of $10.00 per share during fiscal 1996. During fiscal
1997, no shares were issued or forfeited. The weighted average exercise price is
$10.13 per share. The options vest equally over a three year period starting one
year from the date of grant. The options expire four years from the date of
grant.
The Trust accounts for the 1995 Plan using APB Opinion 25, accordingly,
no compensation costs have been recognized for the 1995 Plan. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-price model. The expected volatility and risk-free interest rate weighted
average assumptions for the 1995 Plan grants were 25.0% and 5.625%,
respectively.
<PAGE>
The Trust has elected the disclosures only requirements of SFAS No.
123, "Accounting for Stock-Based Compensation". Accordingly, no compensation
cost has been recognized for the Stock Incentive Plan. Had compensation cost for
the Trust's Stock Incentive Plan been determined based on the fair value at the
grant date for awards in fiscal 1997 consistent with the provisions of SFAS
No.123, the effect on the Trust's earnings and earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended September 30,
(Dollars in thousands, except per share)
Post-Confirmation Pre- Confirmation
------------------- -----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Earnings (loss) - as reported $32,465 $6,673 ($20,033)
Net Earnings (loss) - pro forma $31,651 $5,859 ($20,033)
Earnings (loss) per share as reported $ 2.89 $ 0.62 -*
Earnings (loss) per share - pro forma $ 2.78 $ 0.52 -*
</TABLE>
* Net earnings (loss) per share for the pre-confirmation period is not
presented because this information is not meaningful as a result of the
Reorganization and the adoption of "Fresh Start Reporting".
All the outstanding options of 1995 Plan will fully vest and be
cancelled upon the consummation of the definitive merger agreement with
Wellsford in early 1998. Under the merger agreement the options under the 1995
Plan will be cancelled for the aggregate payment to the optionee holders for
approximately $4.7 million, which will be treated as compensation at the time of
closing.
8. BENEFIT PLANS
PENSION PLANS
Effective September 30, 1989, the Trustees adopted an Employees'
Retirement Plan. On December 16, 1992, the Trustees amended and restated the
Employees' Retirement Plan effective January 1, 1992 (as amended on July 20,
1994, and effective January 1, 1994 and as may be further amended, the
"Retirement Plan"). In November 1995, the Trustees amended the Retirement Plan
effective January 1, 1996 to switch from the Pension Benefit Guaranty
Corporation ("PBGC") interest rate used for valuing lump sum distributions to
the new General Agreement on Tariffs and Trade interest rate and mortality table
for valuing lump sum distributions. In July 1996, the Trustees voted to
terminate the pension plan effective July 1, 1996.
All employees as of the termination date of the plan were eligible to
participate in the Retirement Plan provided that they were at least 21 years of
age and had been employed for twelve consecutive months, during which period the
employee completed at least 1000 hours of service. Under the Retirement Plan,
each eligible employee after completing five years of vesting service become
100% vested and entitled to a retirement pension.
<PAGE>
The Trust has submitted the required applications to the PBGC to
formally terminate the plan. There were 15 former employees who received final
payouts under the plan in fiscal 1996. There were four current employees and one
former employee that were due benefits under the plan as of July 1, 1996. Upon
the formal termination of the plan, the Trust distributed the remaining benefits
to the remaining eligible employees.
SAVINGS AND INVESTMENT PLAN
The Trust also maintains a 401(k) profit sharing plan and trust.
Employer contributions are limited to 6% of participant's compensation, with a
maximum per year of $3,000 per participant. Profit sharing expense was $32,000,
$49,000 and $72,000 for years ended September 30, 1997, 1996 and 1995,
respectively.
INCENTIVE PLAN
During fiscal 1996, the Board of Trustees adopted the Performance
Incentive Bonus Plan (the "Bonus Plan"). All of the Trust's executive officers
and employees are eligible for an annual cash bonus under the Bonus Plan. In
determining the amount of annual cash bonuses, if any, to be paid, the
Compensation Committee, at the end of the fiscal year, reviews the performance
of the Trust to the performance measurement targeted by the Bonus Plan to
promote the long-term strategic growth of the Trust. The amount awarded under
the Bonus Plan for fiscal 1997 and fiscal 1996 were $217,000 and $215,500,
respectively.
The maximum potential payout under the Performance Incentive Bonus
Plan, which is at the discretion of the Board of Trustees, is $3.1 million. Any
award under the Bonus Plan as a result of the definitive merger agreement with
Wellsford will be determined and paid immediately prior to the closing of the
proposed transaction.
EMPLOYMENT AGREEMENT
The Trust entered into an Employment Agreement (the "Employment
Agreement") with George R. Zoffinger on September 29, 1995. The original term of
the Employment Agreement is three years and is automatically renewed for
additional one-year periods unless otherwise terminated by the Trust or Mr.
Zoffinger. In addition, Mr. Zoffinger is eligible for compensation in the form
of bonuses under the Trust's Performance Incentive Bonus Plan and option grants
under the 1995 Share Option Plan. Mr. Zoffinger has agreed to devote
substantially all of his business time and efforts to the business and affairs
of the Trust.
If the employment of Mr. Zoffinger is terminated by the Trust without
cause or by Mr. Zoffinger upon occurrence of certain events such as a material
breach of the Employment Agreement by the Trust, Mr. Zoffinger will be entitled
to continue to receive the Base Salary at the same rate for six (6) months.
Additionally, any unexercised vested options will remain exercisable only to the
extent provided in the applicable share option plan and option agreement.
The consummation of the proposed transaction with Wellsford will cause
the occurrence of a certain event under the employment agreement. Mr. Zoffinger
would continue to receive his base salary at the same rate for six months.
<PAGE>
9. EMPLOYEE TERMINATION PLAN
A termination pay plan was established to cover termination of
employment without cause during the period that the Old Notes, as defined, were
outstanding. Employees were entitled to compensation ranging from a minimum of
twelve weeks to a maximum of eighteen months pay. In addition, certain health
benefits would continue to be paid by the Trust over a period of time equal to
the employee's severance period. At September 30, 1995, the Trust accrued the
$1.3 million cost of the Termination Pay Plan. After the fiscal year end, the
majority of existing employees were terminated and the Trust commenced payments
to those employees. The Trust has liquidated the termination plan by payments to
those employees terminated and the repayment of the Old Notes on April 30, 1996.
10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The quarterly results of operations for fiscal 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1997
Total revenue $ 7,309 $ 7,179 $ 6,743 $ 5,505
Interest expense $ 1,382 $ 1,391 $ 1,389 $ 478
Net income $ 3,974 $ 8,223 $ 13,716 $ 6,552
======== ======== ======== ========
Net income per share $ 0.35 $ 0.74 $ 1.22 $ 0.58
======== ======== ======== ========
FISCAL 1996
Total revenue $ 9,395 $ 9,438 $ 8,462 $ 7,771
Interest expense $ 3,565 $ 3,420 $ 2,064 $ 1,440
Net income $ 1,437 $ 1,450 $ 2,016 $ 2,070
======== ======== ======== ========
Net income per share $ 0.13 $ 0.13 $ 0.18 $ 0.18
======== ======== ======== ========
</TABLE>
11. ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" and SFAS No. 129, "Disclosure of Information about Capital
Structure." SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"). It will require the Trust to
present both basic and diluted EPS amounts from income for continuing operations
and net income on the face of the income statement. The statement will be
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. SFAS No. 129 requires disclosure about capital
structure that had been included in a number of separate statements and opinions
of authoritative accounting literature. SFAS 129 is effective for financial
statements issued for periods ending after December 15, 1997.
<PAGE>
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". The statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective for financial statements issued
for periods beginning after December 15, 1997.
The Trust is currently evaluating the above statements and believes
that their adoption will not have a significant impact on the disclosures in the
financial statements of the Trust.
12. LEGAL PROCEEDINGS
A discussion of events surrounding the Trust's Prior Bankruptcy Case
and an explanation of the material terms of the Trust's reorganization under the
Joint Plan of Reorganization confirmed by the Bankruptcy Court by an order
entered February 27, 1991 are set forth in the section entitled "Previous
Chapter 11 Case and 1991 Plan of Reorganization." The Prior Bankruptcy Case was
closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.
A discussion of events surrounding the Trust's 1995 prepackaged
bankruptcy filing and an explanation of the material terms of the Trust's
reorganization under the Prepackaged Plan which became effective September 29,
1995 (the "Prepackaged Plan") are set forth in the section entitled "Recent
Chapter 11 Case and 1995 Prepackaged Plan of Reorganization." Notwithstanding
the confirmation of the Trust's Prepackaged Plan as of September 29, 1995, the
Bankruptcy Court continued to have jurisdiction among other things, to resolve
disputes that may arise under the Prepackaged Plan.
Neither the Trust nor any of its properties are presently subject to
any material litigation nor, to the Trust's knowledge, is any material
litigation threatened against the Trust or any of its properties, other than
routine litigation arising in the ordinary course of business and which is
expected to be covered by liability insurance.
13. LEASING ARRANGEMENTS
For real estate held for investment future minimum rentals to be
received under existing non-cancelable operating leases as of September 30, 1997
are as follows:
Amount
Year (dollars in thousands)
------ ----------------------
1998 $ 8,893
1999 7,738
2000 5,538
2001 4,172
2002 2,507
thereafter 5,506
--------
Total $ 34,354
========
<PAGE>
14. RELATED PARTY TRANSACTIONS
The Trust is subleasing a portion of the 8th floor of 120 Albany Street
from the New Brunswick Development Authority, a not-for-profit 501(c)(3)
corporation for the benefit of the City of New Brunswick of which George R.
Zoffinger, C.E.O., President and Trustee of the Trust, is Chairman of the Board
of Trustees. The sublease covers 4000 square feet at an annual rental rate of
$75,000. The sublease is in effect until December 31, 1997, at which point the
Trust has the option to renew at the same rate for another year. The Trust has
three more subsequent options to renew the sublease at the current rental rate
in December 1997, 1998 and 1999.
15. SIGNIFICANT EVENTS.
As disclosed previously on Form 8-K filed on September 22, 1997 with
the Securities and Exchange Commission ("SEC"), the Trust entered into a
definitive agreement on September 18, 1997 to be acquired by Wellsford Real
Properties, Inc. ("Wellsford") in a merger transaction for cash and stock. The
proposed transaction, which will be accounted for by Wellsford as a purchase, is
subject to certain closing conditions and is expected to be completed in early
1998. Franklin Mutual Advisors, Inc., whose advisory clients currently hold
approximately 50% of the Trust's outstanding shares, has agreed to vote the
shares of the Trust over which it has voting power in favor of the proposed
transaction. The proposed transaction, if consummated, will result in a change
of control of the Trust.
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE III
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1997
(Dollars in thousands)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Apartments:
Junipers of Yarmouth
Yarmouth, ME .............................. 0 1,530 6,120 0 199 0
Villa Del Cresta
Florissant, MO ............................ 6,868 1,640 6,568 0 266 0
Industrial:
Parkway Business Center
Richmond, CA .............................. 0 430 1,730 0 87 (302)
Moreno Valley
Moreno Valley, CA ......................... 2,490 950 3,820 0 1 (655)
Oaktree Industrial Park
San Dimas, CA ............................. 976 0 0 345 1,458 (235)
Chino Business Park
Chino, CA ................................. 1,353 0 0 670 2,829 0
Avenue Hall Executive Center
Valencia, CA .............................. 0 450 1,800 0 145 0
900 Building
Minneapolis, MN ........................... 1,508 410 1,630 0 204 0
Office:
Stadium Towers
Anaheim, CA ............................... 1,842 700 2,810 0 482 (534)
615 Nash Street
El Segundo, CA ............................ 1,325 470 1,870 0 276 (340)
Clarewood
Woodland Hills, CA ........................ 1,124 400 1,580 0 362 (298)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE III
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1997
(Dollars in thousands)
(Continued)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Office:
(continued)
268 Summer Street
Boston, MA ................................ 823 330 1,327 0 229 (228)
250 Turnpike Street
Canton, MA ................................ 721 290 1,150 0 73 (198)
Burtonsville Commerce Center
Burtonsville, MD .......................... 2,745 920 3,670 0 101 (634)
Keewaydin Drive
Salem, NH ................................. 1,339 610 2,450 0 114 (429)
501 Hoes Lane
Piscataway, NJ ............................ 551 180 715 0 238 (136)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE III
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1997
(Dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Apartments:
Junipers of Yarmouth
Yarmouth, ME ......................... 0 0 0 0 1971 (b)
Villa Del Cresta
Florissant, MO ....................... 1,640 6,834 8,474 0 1967/1974 (b)
Industrial:
Parkway Business Center
Richmond, CA ......................... 0 0 0 0 1986 3-40 years
Moreno Valley
Moreno Valley, CA .................... 950 3,166 4,116 175 1993 3-40 years
Oaktree Industrial Park
San Dimas, CA ........................ 345 1,223 1,568 86 1985 3-40 years
Chino Business Park
Chino, CA ............................ 405 1,712 2,117 28 1992 (b)
Avenue Hall Executive Center
Valencia, CA ......................... 0 0 0 0 1988 (b)
900 Building
Minneapolis, MN ...................... 410 1,834 2,244 1 1910 (b)
Office:
Stadium Towers
Anaheim, CA .......................... 700 2,758 3,458 238 1984 3-40 years
615 Nash Street
El Segundo, CA ....................... 470 1,806 2,276 166 1987 3-40 years
Clarewood
Woodland Hills, CA ................... 400 1,644 2,044 197 1980 3-40 years
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE III
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1997
(Dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Office:
(continued)
268 Summer Street
Boston, MA ........................... 330 1,328 1,658 121 1897 3-40 years
250 Turnpike Street
Canton, MA ........................... 290 1,025 1,315 56 1980 3-40 years
Burtonsville Commerce Center
Burtonsville, MD ..................... 920 3,137 4,057 191 1989 3-40 years
Keewaydin Drive
Salem, NH ............................ 610 2,135 2,745 149 1973 3-40 years
501 Hoes Lane
Piscataway, NJ ....................... 180 817 997 104 1987 3-40 years
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE III
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1997
(Dollars in thousands)
(Continued)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
Office:
(continued)
<S> <C> <C> <C> <C> <C> <C>
Two Executive Campus
Cherry Hill, NJ ...................... 894 240 939 0 413 0
Riverside Centre
Portland, OR ......................... 0 1,170 4,680 0 557 0
Pinebrook II
King of Prussia, PA .................. 0 0 1,790 0 161 (251)
421 Chestnut Street
Philadelphia, PA ..................... 0 500 2,020 0 140 (347)
Pinebrook I
King of Prussia, PA .................. 0 0 1,629 0 168 (232)
Six Sentry Parkway
Blue Bell, PA ........................ 0 920 3,670 0 990 (680)
Retail:
Gateway Plaza (Paseo)
Fremont, CA .......................... 0 4,320 17,280 300 516 (3,042)
Arcade Square
Sacramento, CA ....................... 0 1,120 4,460 0 563 (828)
Berdon Plaza
Fairhaven, MA ........................ 4,157 1,350 5,403 0 891 0
Bradford Plaza
West Chester, PA ..................... 0 1,330 5,081 0 187 (917)
-------- -------- -------- -------- -------- --------
Total Real Estate Owned .................. $ 28,716 $ 20,260 $ 84,192 $ 1,315 $ 11,650 $(10,286)
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE III
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1997
(Dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Office:
(continued)
Two Executive Campus
Cherry Hill, NJ ...................... 240 1,352 1,592 36 1970 (b)
Riverside Centre
Portland, OR ......................... 0 0 0 0 1945 (b)
Pinebrook II
King of Prussia, PA .................. 0 1,700 1,700 116 1983 3-40 years
421 Chestnut Street
Philadelphia, PA ..................... 500 1,813 2,313 116 1857 3-40 years
Pinebrook I
King of Prussia, PA .................. 0 1,565 1,565 119 1981 3-40 years
Six Sentry Parkway
Blue Bell, PA ........................ 920 3,980 4,900 354 1990 3-40 years
Retail:
Gateway Plaza (Paseo)
Fremont, CA .......................... 0 0 0 0 1969 3-40 years
Arcade Square
Sacramento, CA ....................... 0 0 0 0 1955 3-40 years
Berdon Plaza
Fairhaven, MA ........................ 1,350 6,294 7,644 5 1968 (b)
Bradford Plaza
West Chester, PA ..................... 1,330 4,351 5,681 271 1990 3-40 years
-------- -------- -------- --------
Total Real Estate Owned .................. $ 11,990 $ 50,474 $ 62,464 (c,d) $ 2,529
======== ======== ======== ========
</TABLE>
<PAGE>
VALUE PROPERTY TRUST
SCHEDULE III
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1997
(Dollars in thousands)
NOTES:
(a) The encumbrances of Senior Notes due 1999 are collateralized by a first
priority Lien on 15 of the Trust's assets, including personal property
and real property held by the Trust or any subsidiary.
(b) See Note 2 "Significant Accounting Policies" to the consolidated
financial statements.
(c) Cost for federal income tax purposes is approximately $96,000.
(d) The changes in carrying amounts during the year ended September 30,
1997 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at September 30, 1996................. $103,299
Additions during the year:
Improvements .............................. 3,443
Deductions during the year:
Sale of real estate ....................... 44,278
--------
Balance at September 30, 1997 ................ $ 62,464
========
</TABLE>
The changes in carrying amounts during the year ended September 30,
1996 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance at September 30, 1995 ................ $123,640
Reclassification from foreclosure property ... 5,120
Additions during year:
Improvements .............................. 4,551
Deductions during year:
Sale of real estate ....................... $ 19,726
Adjustments for deferred gains ............ 10,286 30,012
-------- --------
Balance at September 30, 1996 ................ $103,299
========
</TABLE>
<PAGE>
The changes in carrying amounts during the year ended September 30,
1995 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance at September 30, 1994 ................ $ 66,880
Reclassification from foreclosure
property and mortgage loans ............... 109,565
Additions during year:
Improvements .............................. 11,283
Deductions during year:
Sale of real estate ....................... $ 3,350
Charge off against allowance for losses ... 2,881
Adjustments for fresh start reporting ..... 57,857 64,088
-------- --------
Balance at September 30, 1995 ................ $123,640
========
</TABLE>
<PAGE>
VALUE PROPERTY TRUST
SCHEDULE III
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1997
(Dollars in thousands)
The change in accumulated depreciation and amortization during the year
ended September 30, 1997 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at September 30, 1996 ........................... $1,932
Additions during year:
Charge to income ..................................... 1,601
Deductions during year:
Adjustment for sold properties ....................... 1,004
------
Balance at September 30, 1997 ........................... $2,529
======
</TABLE>
The change in accumulated depreciation and amortization during the year
ended September 30, 1996 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at September 30, 1995 ........................... $ --
Additions during year:
Charge to income ..................................... 2,035
Deductions during year:
Adjustment for sold properties ....................... 103
------
Balance at September 30, 1996 ........................... $1,932
======
</TABLE>
The change in accumulated depreciation and amortization during the year
ended September 30, 1995 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at September 30, 1994 ............................. $10,023
Reclassification from foreclosure property ................ 8,264
Additions during year:
Charge to income ....................................... 6,608
Deductions during year:
Adjustment for fresh start reporting ................... 24,895
-------
Balance at September 30, 1995 ............................. $ --
=======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1997
(Dollars in thousands)
PRINCIPAL
AMOUNT OF
LOANS SUBJECT
NUMBER CONTRACTUAL TO DELINQUENT
OF INTEREST FINAL AMOUNT OF PRINCIPAL
TYPE OF LOANS LOANS RATE MATURITY DATE MORTGAGES OR INTEREST
- ------------- ------ -------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS HELD FOR INVESTMENT:
Residential/Condominiums (a) 111 6.75%-9.50% June 2000-June 2009 904 --
Commercial Mortgage 1 9.00% July 1998 6,242
------ ------
Total contractual amount of mortgage loans 7,146 $ --
====== ======
Adjust contractual amount to
reorganization value of mortgage loans (234)
Adjust contractual amount to reallocate
unrealized gain on sale (107)
------
Carrying value of mortgage loans and
investments $ 6,805 (b)(c)
=======
</TABLE>
<PAGE>
VALUE PROPERTY TRUST
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1997
(Dollars in thousands)
NOTES:
(a) Consists of 111 residential mortgage loans on 7 mortgage investments.
(b) The aggregate cost for federal income tax purposes is $7,146.
(c) The change in carrying value of mortgage loans during the year ended
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at September 30, 1996 ......................... $ 663
New commercial mortgage loan .......................... 6,257
--------
6,920
Collections of principal .............................. (115)
--------
Balance at September 30, 1997 ......................... $ 6,805
========
</TABLE>
The change in carrying value of mortgage loans during the year ended
September 30, 1995 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at September 30, 1995 ......................... $ 56,979
Advances on mortgage loans ............................ 100
--------
57,079
Collections of principal .............................. (51,188)
Transfer to real estate ............................... (5,120)
Adjustment for unrealized gains ....................... (108)
--------
Balance at September 30, 1996 ......................... $ 663
========
</TABLE>
<PAGE>
The change in carrying value of mortgage loans during the year ended
September 30, 1995 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at September 30, 1994 ......................... $ 69,322
Reclassification from in-substance foreclosure ........ 29,441
Advances on mortgage loans ............................ 733
Net change in interest reserves ....................... 162
--------
99,658
Collections of principal .............................. (22,711)
Adjustment for fresh start accounting ................. (19,968)
--------
Balance at September 30, 1995 ......................... $ 56,979
========
</TABLE>
<PAGE>
VALUE PROPERTY TRUST
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1(a) Amended and Restated Declaration of Trust dated September 29, 1995 (1)
(Exhibit 3.1).
3.1(b) October 26, 1995 Amendment to Amended and Restated Declaration of Trust
dated September 29, 1995. (2)
3.2 By-Laws, as amended through June 20, 1984 (3) (Exhibit 3.3).
4.1(a) Form of Certificate for Common Shares (2).
4.1(b) Indenture dated as of April 30, 1996 among certain subsidiaries of
Value Property Trust and LaSalle National Bank, as trustee, governing
the Floating Rate Senior Notes due 1999 (4).
4.2(a) Joint Plan of Reorganization Proposed by Debtor, Creditors' Committee
and Equity Security Holders Committee (5) (Exhibit 10.11).
4.2(b) Modification to Joint Plan of Reorganization Proposed by Debtor,
Creditors' Committee and Equity Security Holders Committee (6) (Exhibit
2).
4.2(c) Amendment No. 1 and Consent to Plan of Reorganization dated as of
September 30, 1991 (7) (Exhibit 4.4(c)).
4.2(d) Amendment No. 2 to Plan of Reorganization, dated as of July 15, 1992
(8) (Exhibit 4.2(d)).
4.2(e) Prepackaged Plan of Reorganization as confirmed by the Bankruptcy Court
of the Central District of California (1) (Exhibit 2.1).
4.2(f) Form of Mortgage, Assignment of Rents and Leases and Security Agreement
between certain subsidiaries of Value Property Trust and LaSalle
National Bank, as trustee and mortgagee (4).
4.3(a) Indenture dated as of July 15, 1992 between Mortgage and Realty Trust
(predecessor to Value Property Trust) and Wilmington Trust Company, as
trustee, governing the registrant's Senior Secured Uncertificated Notes
due 1995 (8) (Exhibit 4.3).
4.3(b) Indenture dated as of September 29, 1995 between Mortgage and Realty
Trust (predecessor to Value Property Trust) and Wilmington Trust
Company, as trustee, governing the registrants 11-1/8% Senior Secured
Notes due 2002. (1) (Exhibit 4.1).
4.3(c) Amended and Restated Collateral and Security Agreement between Mortgage
and Realty Trust (predecessor to Value Property Trust), its
Subsidiaries, its Lenders and Wilmington Trust Company and William J.
Wade as Collateral Agent, dated as of September 29, 1995 (1) (Exhibit
4.2).
<PAGE>
4.3(d) Letter of Agreement between Mortgage and Realty Trust (predecessor to
Value Property Trust) and Wilmington Trust Company and William J. Wade
as Collateral Agent, dated as of September 29, 1995 (1) (Exhibit 4.3).
4.3(e) Pledge Agreement between Mortgage and Realty Trust (predecessor to
Value Property Trust) and Wilmington Trust Company as Collateral Agent,
dated as of September 29, 1995 (1) (Exhibit 4.5).
4.3(f) Form of Security Agreement between certain subsidiaries of Value
Property Trust and LaSalle National Bank, as trustee (4).
10.1(a) 1984 Share Option Plan (9) (Exhibit 19.1).
10.1(b) Interest Rate Swap Agreement among certain subsidiaries of Value
Property Trust and Merrill Lynch Derivatives Products AG dated April
24, 1996, and effective April 30, 1996 (4).
10.2 Form of Incentive Stock Option Agreement under the 1984 Share Option
Plan (10) (Exhibit 10.9).
10.3 Form of Non-Qualified Stock Option Agreement under the 1984 Share
Option Plan (3) (Exhibit 10.19).
10.4 Amended and Restated Savings Incentive Plan effective January 1, 1992
(8) (Exhibit 10.7).
10.5 Amended and Restated Employees' Retirement Plan effective January 1,
1992 (8) (Exhibit 10.8).
10.6 Pension Plan for Trustees dated October 1, 1989 (11) (Exhibit 10.13).
10.7 Employee' Retention Plan dated October 17, 1990 as amended January 16,
1991 and March 10, 1991 (12) (Exhibit 19.1).
10.8 Resolutions of Amendment to Amended and Restated Employees' Retirement
Plan (13) (Exhibit 10.8).
10.9 Registration Rights Agreement between Mutual Series Fund Inc.,
Intermarket Corporation, Angelo, Gordon & Co., L.P., Emerald Partners,
Strome-Susskind & Co. and Mortgage and Realty Trust (predecessor to
Value Property Trust), dated September 29, 1995 (1) (Exhibit 10.1)
November 28, 1995 Amendment to Registration.
10.10 Rights Agreement dated September 29, 1995 (2).
10.11 Employment contract dated September 29, 1995 between the Trust and Mr.
Zoffinger. (18)
10.12 Agreement and Plan of Merger among Value Property Trust, Wellsford Real
Properties, Inc. and Wellsford Capital Corporation dated September 18,
1997. (19)
10.13 1995 Share Option Plan (20)
16 Change in certifying accountants (15).
20.1 Press Release (16) (Exhibit 20.1).
20.2 Term Sheet (16) (Exhibit 20.2).
<PAGE>
21 Subsidiaries (13) (Exhibit 21).
22 Press Release (17).
23.1(*) Consent of Ernst & Young LLP dated December 15, 1997.
23.2(*) Consent of Coopers & Lybrand L.L.P. dated December 15, 1997.
27(*) Financial Data Schedule.
- ---------------
(1) Filed on October 13, 1995 as an exhibit to the Current Report on Form
8-K (No. 1-6613) and incorporated herein by reference.
(2) Filed on December 29, 1995 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(3) Filed on December 6, 1984 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(4) Filed on August 14, 1996 as an exhibit to the Quarterly Report on Form
10-Q (No. 1-6613) and incorporated herein by reference.
(5) Filed on December 28, 1990 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(6) Filed on March 14, 1991 as an exhibit to the Current Report on Form 8-K
(No. 1-6613) and incorporated herein by reference.
(7) Filed on December 27, 1991 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(8) Filed on December 22, 1992 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(9) Filed on August 13, 1987 as an exhibit to the Quarterly Report on Form
10-Q (No. 1-6613) and incorporated herein by reference.
(10) Filed on December 29, 1987 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(11) Filed on December 21, 1989 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(12) Filed on May 14, 1991 as an exhibit to the Quarterly Report on Form
10-Q (No. 1-6613) and incorporated herein by reference.
(13) Filed on December 29, 1994 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(14) Filed on December 12, 1995 as an Exhibit to the 1995 Proxy Statement
for fiscal year ended September 30, 1995.
(15) Filed on April 16, 1996 as an exhibit to the Current Report on Form 8-K
(No. 1-6613) and incorporated herein by reference.
(16) Filed on November 28, 1994 as an exhibit to the Current Report on Form
8-K (No. 1-6613) and incorporated herein by reference.
(17) Filed on February 26, 1996 as an exhibit to the Current Report on Form
8-K (No. 1-6613) and incorporated herein by reference.
(18) Filed on December 27, 1996 as an exhibit to the Annual Report on Form
10-K (No. 1-6613) and incorporated herein by reference.
(19) Filed on September 22, 1997 as an exhibit to the Current Report on Form
8-K (No. 1-6613) and incorporated herein by reference.
(20) Filed on February 7, 1997 on Form S-8 (No. 1-6613) and incorporated
herein by reference.
(*) Exhibit filed with this Form 10-K.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 83,082
<SECURITIES> 0
<RECEIVABLES> 3,376
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 86,457
<PP&E> 34
<DEPRECIATION> 19
<TOTAL-ASSETS> 159,082
<CURRENT-LIABILITIES> 1,348
<BONDS> 18,222
0
0
<COMMON> 11,226
<OTHER-SE> 128,286
<TOTAL-LIABILITY-AND-EQUITY> 159,082
<SALES> 0
<TOTAL-REVENUES> 26,736
<CGS> 0
<TOTAL-COSTS> 10,688
<OTHER-EXPENSES> 3,804
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,640
<INCOME-PRETAX> 7,604
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,604
<DISCONTINUED> 0
<EXTRAORDINARY> 24,861
<CHANGES> 0
<NET-INCOME> 32,465
<EPS-PRIMARY> 2.89
<EPS-DILUTED> 2.89
</TABLE>
