SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission File Number 1-6613
VALUE PROPERTY TRUST
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 23-1862664
- ------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
120 Albany Street, 8th Floor
New Brunswick, New Jersey 08901-2163
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 296-3080
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ].
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
Number of Common Shares Outstanding at February 10, 1998: 11,226,310
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES
INDEX
Part I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1997 (Unaudited)
and September 30, 1997
Consolidated Statements of Operations for the Three
Months Ended December 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 1997 and 1996 (Unaudited)
Consolidated Statement of Shareholders' Equity for the Three
Months Ended December 31, 1997 (Unaudited)
Notes to the Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II: OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, September 30,
1997 1997
-------- --------
(Unaudited)
ASSETS
<S> <C> <C>
Assets Held for Sale:
Investment in partnerships .............................. $ 5,959 $ 5,869
Real estate owned ....................................... 21,802 22,001
-------- --------
Total Assets Held for Sale ........................ 27,761 27,870
-------- --------
Assets Held for Investment:
Mortgage loans .......................................... 6,745 6,805
Real estate owned ....................................... 37,680 37,934
-------- --------
Total Assets Held for Investment .................. 44,425 44,739
-------- --------
Total Invested Assets ............................. 72,186 72,609
Cash and cash equivalents .................................. 66,433 81,409
Restricted cash ............................................ 703 1,673
Interest receivable and other assets ....................... 3,520 3,391
-------- --------
Total Assets ...................................... $142,842 $159,082
======== ========
LIABILITIES
Senior secured notes (due 1999) ............................ $ -- $ 18,222
Accounts payable and accrued expenses ...................... 1,038 1,245
Interest payable ........................................... -- 103
-------- --------
Total Liabilities ................................. 1,038 19,570
-------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value: 3,500,000 shares authorized,
none issued ............................................. -- --
Common shares, $1 par value: 20,000,000 shares authorized,
11,226,310 and 11,226,310 shares issued and outstanding . 11,226 11,226
Additional paid-in capital ................................. 88,848 88,848
Accumulated earnings ....................................... 41,730 39,438
-------- --------
Total Shareholders' Equity ........................ 141,804 139,512
-------- --------
Total Liabilities and Shareholders' Equity ........ $142,842 $159,082
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Data)
Three Months Ended
December 31,
1997 1996
-------- -------
<S> <C> <C>
Revenue:
Rental properties:
Rental income ........................... $ 3,809 $ 5,924
Operating expense reimbursements ........ 424 845
Interest and fee income on mortgage loans ... 162 21
Interest on short-term investments .......... 966 519
------- -------
Total Revenue ........................... 5,361 7,309
------- -------
Expenses:
Interest .................................... 638 1,381
Rental properties:
Operating ............................... 1,616 2,484
Depreciation and amortization ........... 402 529
Other operating expenses .................... 505 736
------- -------
Total Expenses .......................... 3,161 5,130
------- -------
Income before gain on sale of real estate ...... 2,200 2,179
Gain on sale of real estate .................... 92 1,795
------- -------
Net income ..................................... $ 2,292 $ 3,974
======= =======
Per share:
Basic and diluted:
Income before gain on sale of real estate ... $ .19 $ .19
Gain on sale of real estate ................. .01 .16
------- -------
Net income .................................. $ .20 $ .35
======= =======
Weighted average number of common
shares outstanding
Basic ................................... 11,226 11,226
======= =======
Diluted ................................. 11,514 11,331
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Three Months Ended
December 31,
-------------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 2,292 $ 3,974
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization on real estate 402 529
Increase in receivables and other assets ... (129) (298)
Gain on sale of real estate ................ (92) (1,795)
Decrease in payables and accrued expenses .. (207) (107)
Decrease in interest payable ............... (103) (26)
-------- --------
Total adjustments ................................... (129) (1,697)
-------- --------
Net cash provided by operating activities ................ 2,163 2,277
-------- --------
Cash flows from investing activities:
Investment in real estate:
Real estate ..................................... (270) (1,188)
Partnerships .................................... (99) (284)
Principal repayments on mortgage loans .............. 60 12
Proceeds from the sale of real estate ............... 422 4,280
-------- --------
Net cash provided by investing activities ................ 113 2,820
-------- --------
Cash flows from financing activities:
Prepayment of senior secured notes (due 1999) ....... (18,222) (8,394)
Decrease in restricted cash ......................... 970 8,774
-------- --------
Net cash used in financing activities .................... (17,252) 380
-------- --------
Net increase in cash and cash equivalents ................ (14,976) 5,477
Cash and cash equivalents at beginning of period ......... 81,409 29,501
-------- --------
Cash and cash equivalents at end of period ............... $ 66,433 $ 34,978
======== ========
Supplemental schedule of non-cash investment and
financing activities:
Interest paid ....................................... $ 221 $ 1,009
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(Amounts In Thousands)
For the Three Months Ended December 31, 1997
Additional Total
Common Shares Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1997 11,226 $ 11,226 $ 88,848 $ 39,438 $139,512
Net income .................. -- -- -- 2,292 2,292
-------- -------- -------- -------- --------
Balance at December 31, 1997 11,226 $ 11,226 $ 88,848 $ 41,730 $141,804
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of only normal
recurring accruals considered necessary for a fair presentation have been
included. Operating results for the three-month periods ended December 31, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 1998. These financial statements should be read
in conjunction with the Trust's September 30, 1997 audited financial statements
and notes thereto included in the Trust's Annual Report on Form 10-K.
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.
A special meeting of the Trust will be held on February 20, 1998 at 120
Albany Street, 2nd Floor, New Brunswick, New Jersey 08901 at 10:00 A.M. (local
time) for shareholder of record on December 22, 1997. At the Trust's special
meeting, holder's of the trust's shares will consider and vote upon (i) a
proposal to approve the merger of Wellsford with and into the Trust pursuant to
the merger agreement; and (ii) a proposal to amend the Trust's Declaration of
Trust, to be effective immediately prior to and conditional upon the
consummation of the merger, so as to eliminate the ownership restrictions
contained in the Declaration of Trust in order to allow the merger to be
consummated.
NOTE 2. SUMMARY OF 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.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
In July 1997, the Trust contacted the Internal Revenue Service (the
"IRS") regarding interpretative advice concerning a technical provision of the
REIT requirement of the Internal Revenue Code and, based upon such
interpretative advice, potential violations of such provision during fiscal 1994
and 1995. The Trust sought the IRS's interpretation of the technical provision
of the REIT requirement and its concurrence that, if any technical violations
were deemed to have occurred, such violations would not affect the Trust's REIT
status. On December 30, 1997 the Trust entered into a closing agreement with the
IRS which stated, among other things, that although the Trust failed to satisfy
the relevant technical provision of the REIT requirement, such failure was not
willful and the Trust is entitled to elect REIT status for fiscal 1996.
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
The Trust applies 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.
NET INCOME PER SHARE
Basic net income per share is computed using the actual weighted
average common shares outstanding during the period. Diluted net income per
share is computed using the actual weighted average common shares outstanding
during the period, plus the weighted average number of net shares that would be
issued upon the exercise of dilutive options assuming the proceeds used to
repurchase share pursuant to the treasury stock method. The computation of
diluted net income per share does not assume conversion of options that would
have an antidilutive effect on net income per share.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DEPRECIATION AND AMORTIZATION
The Trust segregates 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents and restricted cash include short-term
investments (high grade commercial paper, bank CDS and US Treasury and Agency
Securities) with original maturities not exceeding a term greater than 90 days.
INVESTMENT IN PARTNERSHIP
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.
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 were
applied against the carrying value of long lived assets held for investment.
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. On November 3, 1997, the Trust utilized a portion of
available cash on hand and the net proceeds from the sale on an encumbered
building 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.
Accordingly, the remaining unamortized deferred costs were recorded as a charge
to interest expense.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
4 "Borrowings"). The differential to be paid or received is recognized in the
period incurred and included in interest expense.
NOTE 3. MORTGAGE LOANS AND INVESTMENTS IN REAL ESTATE
The following table summarizes the Trust's investments in real estate
owned at December 31, 1997.
<TABLE>
<CAPTION>
Type of
Real Estate Number Carrying Accumulated Book
Property of Properties Amount Depreciation Value
-------- ------------- ------ ------------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Held for Sale:
Real Estate Owned ........ 5 $21,875 $ (73) $21,802
Investment in Partnerships 1 5,995 (36) 5,959
------- ------- ------- -------
Total .................... 6 $27,870 $ (109) $27,761
======= ======= ======= =======
Real Estate Held for Investment:
Real Estate Owned ........ 15 $40,523 $(2,843) $37,680
------- ------- ------- -------
Total .................... 15 $40,523 $(2,843) $37,680
======= ======= ======= =======
</TABLE>
NOTE 4. BORROWINGS
SENIOR SECURED NOTES
During the first quarter of fiscal 1998, the Trust sold one of the six
remaining buildings owned in an industrial park which was encumbered under the
terms of the New Indenture. On November 3, 1997, the Trust utilized a portion of
available cash on hand and the net proceeds from this sale 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.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. SHARE OPTION PLAN
1995 SHARE OPTION PLAN
All the outstanding options of 1995 Share Option Plan (the "1995 Plan")
will fully vest and be cancelled upon the consummation of the definitive merger
agreement with Wellsford, which is anticipated to be completed in the second
quarter of fiscal 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net income for the three months ended December 31, 1997 was $2.3
million, or $0.20 per diluted share, compared to $4.0 million, or $0.35 per
diluted share, for the three months ended December 31, 1996. Income before gain
on sale of real estate was unchanged at $2.2 million, or $0.19 per diluted
share, for the three months ended December 31, 1997 compared to the same period
last year.
Rental income was $3.8 million for the three months ended December 31,
1997 compared to $5.9 million for the three months ended December 31, 1996. In
addition to rental income, the Trust received reimbursement of certain operating
expenses totaling $0.4 million and $0.8 million for the three months ended
December 31, 1997 and 1996, respectively. The decrease in rental income and
reimbursement of certain operating expenses is the result of real estate
property sales that occurred during fiscal 1997. At December 31, 1997 the Trust
owned 21 real estate properties compared to 30 at December 31, 1996. During
fiscal 1997, the Trust sold ten real estate properties and three of nine
buildings owned by the Trust in an industrial park. During the first quarter of
fiscal 1998, the Trust sold one of the remaining six buildings in an industrial
park. Occupancy levels decreased to 86.1% at December 31, 1997 compared to 87.6%
at December 31, 1996. Occupancy levels, adjusted for real estate property sales,
increased to 86.1% at December 31, 1997 compared to 84.9% at December 31, 1996.
Interest and fee income on mortgage loans increased to $162,000 for the
three months ended December 31, 1997 compared to $21,000 the same period last
year. During the fourth quarter of fiscal 1997, the Trust provided commercial
mortgage financing in the amount of $6.2 million in conjunction with the sale
one real estate property. The Trust's remaining residential mortgage loan
portfolio is currently less than $0.6 million.
Interest on short-term investments was $1.0 million for the three
months ended December 31, 1997 compared to $0.5 million for the three months
ended December 31, 1996. As a result of continued property sales, the amount of
short term investments held by the Trust grew over the prior period.
Interest expense decreased to $0.6 million for the three months ended
December 31, 1997 compared to $1.4 million for the three months ended December
31, 1996. Included in interest expense for fiscal 1998 and fiscal 1997 is the
amortization of deferred costs incurred in obtaining the Floating Rate Notes
which are amortized over the term of the debt agreement. The Trust has continued
to reduce the Floating Rate Notes through prepayments required under the New
Indenture from the sale of encumbered real estate properties and four of nine
buildings owned by the Trust in an industrial park. On November 3, 1997, the
Trust utilized a portion of available cash on hand and the net proceeds from the
sale on an encumbered building 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.
Operating expenses on rental properties was $1.6 million for the three
months ended December 31, 1997 compared to $2.5 million for the three months
ended December 31, 1996. The decrease in operating expenses on rental properties
is the result of continued real estate property sales that occurred during
fiscal 1997 and cost containment measures. At December 31, 1997 the Trust owned
<PAGE>
21 real estate properties compared to 30 at December 31, 1996. During fiscal
1997, the Trust sold ten real estate properties and three of nine buildings
owned by the Trust in an industrial park. During the first quarter of fiscal
1998, the Trust sold one of the remaining six buildings in an industrial park.
Occupancy levels decreased to 86.1% at December 31, 1997 compared to 87.6% at
December 31, 1996. Occupancy levels, adjusted for real estate property sales,
increased to 86.1% at December 31, 1997 compared to 84.9% at December 31, 1996.
Depreciation and amortization on rental properties decreased slightly
to $0.4 million for the three months ended December 31, 1998 compared to $0.5
million for the three months ended December 31, 1996. 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.
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 1997, the Trust reclassified six real estate properties with a carrying
value of $35.7 million to Assets Held for Sale from Assets Held for Investment
and no longer depreciates these assets.
Other operating expenses were $0.5 million for the three months ended
December 31, 1997 compared to $0.7 million for the three months ended December
31, 1996. The reduction was primarily a result of reduced legal fees associated
with a lawsuit, which was settled in September 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Trust expects to fund capital expenditures from available funds
from operations and cash on hand, however, no assurance can be given that this
expectation will be achieved. 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 national
economy, particularly as those changes may relate to real estate markets in
which the Trust operates. Certain factors that might cause such a difference
include the following: risks and uncertainties inherent to general and local
real estate conditions; the supply and demand for the types of rental properties
which the Trust operates; interest rate levels; non-payment of rent by tenants
or that operating costs may be greater than anticipated.
Taxable income required to be distributed in order for the Trust to
maintain its REIT status will be less than income reported for financial
reporting 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.
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>
A special meeting of the Trust will be held on February 20, 1998 at 120
Albany Street, 2nd Floor, New Brunswick, New Jersey 08901 at 10:00 A.M. (local
time) for shareholder of record on December 22, 1997. At the Trust's special
meeting, holder's of the trust's shares will consider and vote upon (i) a
proposal to approve the merger of Wellsford with and into the Trust pursuant to
the merger agreement; and (ii) a proposal to amend the Trust's Declaration of
Trust, to be effective immediately prior to and conditional upon the
consummation of the merger, so as to eliminate the ownership restrictions
contained in the Declaration of Trust in order to allow the merger to be
consummated.
On November 3, 1997, the Trust utilized a portion of available cash on
hand and the net proceeds from the sale on an encumbered building 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. At the time the prepayment,
the Trust was in compliance with the New Indenture.
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 first quartet of fiscal 1998, the Trust received $0.4 million in
net proceeds from the sale of one of the remaining six buildings owned by the
Trust in an industrial park.
For the three months ended December 31, 1997, cash provided by
operating activities increased to $2.2 million compared to $2.3 million for the
three months ended December 31, 1996. The increase in cash provided by operating
activities was primarily attributable to a reduced number of real estate
properties offset by lower interest payments in connection with the senior
indebtedness. The outstanding balance on the Senior Secured Notes was repaid in
full on November 3, 1997 and was $54.8 million at December 31, 1996.
Cash provided by investing activities was $0.1 million for the three
months ended December 31, 1997 compared to $2.8 million for the three months
ended December 31, 1996. The decrease in cash provided by investing activities
was primarily attributable to the decrease in real estate sales activity to $0.4
million for the three months ended December 31, 1997 compared to $4.3 million
for the three months ended December 31, 1996.
Cash used in financing activities increased to $17.3 million for the
three months ended December 31, 1997 compared to $0.4 million for the three
months ended December 31, 1996. During the first quarter of fiscal 1998, the
Trust used $18.2 million to prepay the Floating Rate Notes, in full. Restricted
cash decreased to $1.0 million for the three months ended December 31, 1997
compared to a decrease of $8.8 million for the three months ended December 31,
1996.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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.
A special meeting of the Trust will be held on February 20, 1998 at 120
Albany Street, 2nd Floor, New Brunswick, New Jersey 08901 at 10:00 A.M. (local
time) for shareholder of record on December 22, 1997. At the Trust's special
meeting, holder's of the trust's shares will consider and vote upon (i) a
proposal to approve the merger of Wellsford with and into the Trust pursuant to
the merger agreement; and (ii) a proposal to amend the Trust's Declaration of
Trust, to be effective immediately prior to and conditional upon the
consummation of the merger, so as to eliminate the ownership restrictions
contained in the Declaration of Trust in order to allow the merger to be
consummated.
THIS FORM 10-Q 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 2.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Value Property Trust
/s/George R. Zoffinger
----------------------
George R. Zoffinger
President, Chief Executive Officer and Trustee
(Principal Executive Officer)
/s/Robert T. English
--------------------
Robert T. English
Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
DATE: February 17, 1998
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