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 January 31, 1994
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: 1-7003
PROPERTY CAPITAL TRUST
(Exact name of registrant as specified in its charter)
Massachusetts 04-2452367
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
(zip code)
Registrant's telephone number, including area code:
(617) 451-2400
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 at least the past 90 days.
Yes X No .
Number of shares of Common Shares outstanding as of January 31, 1994: 9,030,585
<PAGE>
1
PROPERTY CAPITAL TRUST
INDEX
Page
Part I. Financial Information Number
Consolidated Balance Sheet - January 31, 1994 (unaudited)
and July 31, 1993 2
Consolidated Statement of Operations -
Three and Six Months Ended January 31, 1994 and 1993 (unaudited) 3
Consolidated Statement of Cash Flows -
Six Months Ended January 31, 1994 and 1993 (unaudited) 4
Consolidated Statement of Shareholders' Equity -
Six Months Ended January 31, 1994 and 1993 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II. Other Information 11
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2
<TABLE>
Property Capital Trust
Consolidated Balance Sheet
<CAPTION>
January 31, July 31,
1994 1993
______________________________________________________________________________________________________________________
(Unaudited)
<S> <C> <C>
Assets
Real Estate Investments
Owned Properties (net of accumulated depreciation) $133,686,000 $129,153,000
Structured Transactions 63,986,000 67,475,000
____________ ____________
197,672,000 196,628,000
Less: Provision for possible investment losses (18,129,000) (20,129,000)
____________ ____________
179,543,000 176,499,000
Cash 448,000 324,000
Interest and rents receivable
Owned Properties 1,492,000 1,673,000
Structured Transactions 1,294,000 965,000
Other assets 757,000 623,000
____________ ____________
$183,534,000 $180,084,000
____________ ____________
____________ ____________
Liabilities and Shareholders' Equity
Liabilities
Accounts payable and accrued expenses $2,662,000 $2,894,000
Accrued interest 635,000 564,000
Bank note payable 20,600,000 16,530,000
Non-recourse mortgage notes payable 36,365,000 36,593,000
9 3/4% Convertible Subordinated Debentures 2,546,000 2,546,000
10% Convertible Subordinated Debentures 30,823,000 30,823,000
____________ ____________
93,631,000 89,950,000
____________ ____________
Shareholders' Equity
Common Shares (without par value, unlimited
shares authorized, 9,030,585 issued and outstanding at
January 31, 1994) 106,060,000 106,052,000
Accumulated deficit (16,157,000) (15,918,000)
____________ ____________
Total Shareholders' Equity 89,903,000 90,134,000
____________ ____________
$183,534,000 $180,084,000
____________ ____________
____________ ____________
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3
</TABLE>
<TABLE>
Property Capital Trust
Consolidated Statement of Operations
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
__________________________________ _________________________________
1994 1993 1994 1993
________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Revenues
Owned Properties $3,919,000 $2,847,000 $7,631,000 $5,412,000
Structured Transactions
Base income 1,269,000 1,522,000 2,645,000 3,091,000
Overage income 532,000 371,000 1,088,000 839,000
__________ _________ __________ __________
5,720,000 4,740,000 11,364,000 9,342,000
Advisory fee income 67,000 74,000 147,000 142,000
Interest income 3,000 2,000 5,000 5,000
__________ _________ __________ __________
5,790,000 4,816,000 11,516,000 9,489,000
Expenses
Expenses on Owned Properties 1,870,000 1,451,000 3,803,000 3,011,000
Interest 1,568,000 1,265,000 3,135,000 2,501,000
Depreciation 1,126,000 850,000 2,164,000 1,644,000
General and administrative expenses 619,000 526,000 1,119,000 1,023,000
Professional fees 116,000 287,000 288,000 443,000
Trustees' fees and expenses 45,000 51,000 82,000 101,000
__________ _________ __________ __________
5,344,000 4,430,000 10,591,000 8,723,000
__________ _________ __________ __________
Income before Gain (Loss) on
Real Estate Investments 446,000 386,000 925,000 766,000
Gain (Loss) on Real Estate Investments
Gain on Sale of Real Estate Investments 100,000 - 100,000 7,700,000
Provision for Possible Investment Losses - (10,000,000) - (10,000,000)
__________ _________ __________ __________
100,000 (10,000,000) 100,000 (2,300,000)
__________ _________ __________ __________
Net Income (Loss) $546,000 ($9,614,000) $1,025,000 ($1,534,000)
__________ _________ __________ __________
__________ _________ __________ __________
Net Income (Loss) per Share
Income before Gain (Loss) on
Real Estate Investments $0.05 $0.04 $0.10 $0.08
__________ _________ __________ __________
Gain (Loss) on Real Estate Investments
Gain on Sale of Real Estate Investments 0.01 - 0.01 0.85
Provision for Possible Investment Losses - (1.11) - (1.11)
__________ _________ __________ __________
0.01 (1.11) 0.01 (0.26)
__________ _________ __________ __________
Net Income (Loss) per Share $0.06 ($1.07) $0.11 ($0.18)
__________ _________ __________ __________
__________ _________ __________ __________
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4
</TABLE>
<TABLE>
Property Capital Trust
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended January 31,
______________________________________________
1994 1993
___________________________________________________________________________________________________________________________
<S> <C> <C>
Operating Activities
Net Income (Loss) $1,025,000 ($1,534,000)
Adjustments to Net Income (Loss)
Gain on sale of real estate investments (100,000) (7,700,000)
Increase in provision for possible investment losses - 10,000,000
Depreciation and amortization 2,200,000 1,665,000
Changes in assets and liabilities
Increase in interest and rents receivable (148,000) (80,000)
Increase in other assets, net (170,000) (545,000)
(Decrease) Increase in accounts payable,
accrued expenses and accrued interest (161,000) 1,075,000
______________ ____________
Net Cash Provided by Operating Activities 2,646,000 2,881,000
______________ ____________
Investing Activities
Owned Properties
Additions (6,697,000) (5,273,000)
Structured Transactions
Dispositions 1,589,000 9,632,000
Additions - (544,000)
______________ ____________
Net Cash (Used in) Provided by Investing Activities (5,108,000) 3,815,000
______________ ____________
Financing Activities
Proceeds from (repayment of) bank note payable 4,070,000 (11,110,000)
Cash dividends paid (1,264,000) (1,174,000)
Amortization of non-recourse mortgage notes payable (228,000) (118,000)
Proceeds from exercise of stock options 8,000 -
Increase in non-recourse mortgage notes payable - 6,000,000
______________ ____________
Net Cash Provided by (Used in) Financing Activities 2,586,000 (6,402,000)
______________ ____________
Net Increase in Cash 124,000 294,000
Cash at Beginning of Period 324,000 207,000
______________ ____________
Cash at End of Period $448,000 $501,000
______________ ____________
______________ ____________
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5
</TABLE>
<TABLE>
Property Capital Trust
Consolidated Statement of Shareholders' Equity
(Unaudited)
<CAPTION>
Six Months Ended
January 31,
______________________________________________
1994 1993
_________________________________________________________________________________________________________________________
<S> <C> <C>
Common Shares
Balance at beginning of period $106,052,000 $106,052,000
Stock options exercised 8,000 -
______________ _______________
Balance at end of period 106,060,000 106,052,000
______________ _______________
Accumulated Deficit
Balance at beginning of period (15,918,000) (12,850,000)
Net income (loss) 1,025,000 (1,534,000)
Cash dividends paid (1,264,000) (1,174,000)
______________ _______________
Balance at end of period (16,157,000) (15,558,000)
______________ _______________
Total Shareholders' Equity $89,903,000 $90,494,000
______________ _______________
______________ _______________
Number of Common Shares
Common Shares issued and outstanding
at beginning of period 9,028,585 9,028,585
Stock options exercised 2,000 -
______________ _______________
Common Shares issued and outstanding
at end of period 9,030,585 9,028,585
______________ _______________
______________ _______________
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6
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Six Months Ended January 31, 1994
1.Business
In the opinion of management of Property Capital Trust (the "Trust"), the
accompanying unaudited consolidated financial statements contain all
adjustments necessary to present fairly the Trust's financial position as
of January 31, 1994 and the results of its operations and its cash flows for
the six months ended January 31, 1994 and 1993.
The information contained in these interim financial statements should be read
in conjunction with the Trust's 1993 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on October 20, 1993.
2.Real Estate Investments
During the quarter ended January 31, 1994 the Trust wrote down its $7,500,000
investment in 6110 Executive Boulevard by $2,000,000 to $5,500,000. This loss
was fully provided for by the provision for possible investment losses at July
31, 1993.
3.Gain (Loss) on Real Estate Investments
During the second quarter of fiscal 1994, the Trust sold its land investment in
the Brown County Inn for $600,000 which produced a gain of $100,000, and its
$1,000,000 leasehold mortgage on the property was prepaid at par.
4.Stock Option Plan
In January 1994, options to purchase 68,850 shares were granted at $6.38 per
share. All such options vest over a five year period from the date of grant
and are subject to termination under certain circumstances.
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7
ITEM 1. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
The Trust's debt at January 31, 1994 was $90,334,000 as compared to
$86,492,000 at July 31, 1993, and was composed of $33,369,000 of long-term,
fixed-rate, convertible debentures with an average interest cost of 9.98%,
$36,365,000 of non-recourse mortgage notes payable with an average interest
cost of 8.64% and $20,600,000 of short-term bank borrowings bearing interest
at the bank's prime rate plus 1/4% (the prime rate was 6.0% at January 31,
1994). The Trust's debt to equity ratio increased to 1.00x at January 31,
1994 from .96x at July 31, 1993. The increase was primarily due to
additional borrowings under the Trust's bank line to fund the redevelopment
of the Loehmann's Fashion Island shopping center.
The Trust's bank note payable, which is due and payable on demand, represents
borrowings under a $35,000,000 revolving line of credit. The interest rate
on the bank line is at the bank's prime rate plus 1/4% on borrowings up to
$23,250,000. To the extent borrowings under the line exceed $23,250,000, the
interest rate on any such excess borrowings will be at the bank's prime rate
plus 1-1/2% and any borrowings in excess of $23,250,000 will be secured by
a second lien on Loehmann's Fashion Island. During the remainder of fiscal
1994 the Trust expects to use the bank line to fund the remaining
redevelopment costs of Loehmann's Fashion Island of approximately $4,000,000
and to fund capital expenditures on other Owned Properties of approximately
$3,500,000. As described below, the Trust has entered into agreements to
sell its interest in the Eagle apartments and its investment in Village Oaks
apartments and currently intends to use the cash proceeds of approximately
$10,000,000 from such sales to reduce the current amount outstanding under
its bank line. However, there can be no assurance that such sales will be
consummated. Accordingly, the Trust may borrow in excess of $23,250,000
under its bank line during fiscal 1994.
The Trust's mortgage notes payable is expected to increase in the third
quarter of fiscal 1994 as a result of the Trust's acquisition of its
lessee's interest in 6110 Executive Boulevard, which is subject to a
$6,478,000 first mortgage, and the Trust's expected acquisition (through an
Investment Partnership) of its lessee's interest in the Houston apartments
investments, which are subject to non-recourse first mortgages aggregating
approximately $26,000,000 (both as more fully described below). These two
increases will be offset by a reduction in mortgage notes payable of
$5,930,000 if the sale of the Trust's Eagle apartments occurs.
Review of Real Estate Activity During the Quarter
Apartments
With regard to the Trust's $10,000,000 partnership investment in the Houston
apartments, on September 13, 1993, the Bankruptcy Court in Houston, Texas
confirmed a reorganization plan for the partnership's lessee/mortgagor, which
generally reduced the interest rates on and extended the terms of the first
mortgages encumbering the properties and required the resumption of payments
of interest and rent to the partnership on November 1, 1993 at a blended rate
of 7.3% (the payments commenced as scheduled). Subsequent to the end of the
second quarter the Trust directed its lessee to change the on-site management
at all of the properties. The lessee then exercised its right to sell its
interest in the properties to the Trust and its partners for approximately
$427,000, with the closing expected to occur on or about March 31, 1994. The
Trust anticipated that the lessee would exercise its right to sell its
interest to the partnership and believes that such transfer will be
beneficial to the Trust and its partners, as the partnership will have direct
control over the management, renovation and disposition of the properties.
With regard to the Trust's $1,000,000 investment in the Village Oaks
apartments in Westmont, Illinois, the Trust has granted its lessee an option
to purchase the Trust's investment for $3,500,000, to be exercised no later
than March 31, 1994. With regard to the Trust's $12,700,000 investment in
the Eagle apartments, which is owned subject to a first mortgage of $5,930,000,
the Trust has executed a purchase and sale agreement with a third party
<PAGE>
8
Review of Real Estate Activity During the Quarter (continued)
Apartments (continued)
for approximately $12,600,000 with the closing to occur no later than March
31, 1994. At this time it is not possible to determine whether either sale
will occur.
Shopping Centers
With regard to the redevelopment of Loehmann's Fashion Island, the Trust's
280,000 square foot shopping center located in Aventura, Florida, the project
is now 85% leased. The grand reopening of the center occurred in December
1993 and the shopping center's largest tenant, Publix, opened for business
in January 1994.
The Trust had previously reported on the potential sale of the Trust's land
under Crossroads Mall, located in Boulder, Colorado. The sale had been
contingent upon the completion of an initial public offering by an affiliate
of the Trust's lessee on or before February 15, 1994. The offering was not
completed by that date and, therefore, the sale did not occur.
With regard to the Trust's $500,000 mortgage loan investment in Rapids Mall,
located in Wisconsin Rapids, Wisconsin, in November 1993, the mortgagor
defaulted on its obligation to pay interest due the Trust. Subsequent to
the end of the second quarter all payments due the Trust were collected and
at the same time, the Trust granted the mortgagor an option to purchase the
Trust's investment for $350,000, expiring on May 31, 1994.
Office Buildings
With regard to the Trust's sole remaining office building structured
investment, 6110 Executive Boulevard in Rockville, Maryland, the Trust's
lessee elected to convey its interest in the property to the Trust effective
February 1, 1994, subject to a $6,478,000 non-recourse mortgage, with an
interest rate of 9 5/8%. At January 31, 1994 the Trust utilized a portion
of its previously established loss reserve to write down this $7,500,000
investment by $2,000,000 to $5,500,000.
On November 3, 1993 the Trust refinanced the first mortgage on the Park Place
office building located in Clayton, Missouri. The result of the refinancing
is a reduction on the annual effective interest expense from 8.25% to 5.65%,
or an annual savings to the Trust of approximately $220,000.
Hotels
With regard to the Trust's investment in the Brown County Inn, located in
Nashville, Indiana, the Trust, during the second quarter, sold its land
investment for $600,000, resulting in a gain of $100,000, and its $1,000,000
leasehold mortgage on the property was prepaid at par.
Results of Operations for the Three and Six Months ended January 31, 1994
versus the Three and Six Months ended January 31, 1993
Revenues
Revenues from Owned Properties (base rent plus expense reimbursements)
increased 38% and 41% for the three and six months ended January 31, 1994
as compared to the same periods in the prior year, primarily due to the
Trust's acquisition of its lessee's interest in One Park West (in March 1993)
and an increase in rental income from Loehmann's Fashion Island as new tenants
occupy the shopping center. This latest factor should cause revenues from
Owned Properties to increase further during the remainder of fiscal 1994.
Additionally, revenues from Owned Properties are expected to increase in the
third and fourth quarters of fiscal 1994 as compared to
<PAGE>
9
Results of Operations for the Three and Six Months ended January 31, 1994
versus the Three and Six Months ended January 31, 1993 (continued)
Revenues (continued)
the second quarter due to the Trust's expected acquisition of its lessees'
interests in 6110 Executive Boulevard and the Houston apartments in the third
quarter of fiscal 1994, offset in part by a decrease if Eagle apartments is
sold.
Base income from Structured Transactions decreased 17% and 14% for the three
and six months ended January 31, 1994 as compared to the same periods in the
prior year, primarily due to the conversion of One Park West to an Owned
Property (in March 1993). Base income from Structured Transactions is
expected to decrease in the third quarter of fiscal 1994 as compared to the
second quarter principally due to the anticipated conversion of 6110
Executive Boulevard and the Houston apartments to Owned Properties in the
third quarter of fiscal 1994, the sale of the Brown County Inn in January
1994 and the possible sale of Village Oaks in the third quarter.
Overage income increased 43% and 30% for the three and six months ended
January 31, 1994 as compared to the same periods in the prior year due to the
receipt of overage income from two apartment investments which did not pay
any overage income in the comparable periods last year and increased overage
from one of the hotel investments as compared to the comparable periods last
year.
Expenses
Expenses on Owned Properties increased 29% and 26% for the three and six
months ended January 31, 1994 as compared to the same periods in the prior
year. The increases were primarily due to the conversion of One Park West
to an Owned Property (in March 1993). Expenses on Owned Properties will
increase further in the third and fourth quarters of fiscal 1994 as compared
to the second quarter, principally due to the expected conversions of 6110
Executive Boulevard and the Houston apartments to Owned Properties, offset,
in part, by a decrease if Eagle apartments is sold.
Interest expense increased 24% and 25% for the three and six months ended
January 31, 1994 as compared to the same periods in the prior year. The
increase was primarily due to the interest expense incurred on the first
mortgage on the One Park West investment (acquired in March 1993) offset by
a reduction in the interest expense on the Park Place office building as a
result of the refinancing in November 1993. Interest expense is expected to
increase further in fiscal 1994 as compared to the second quarter, due
principally to the expensing of all interest related to Loehmann's Fashion
Island once the redevelopment is completed and the expected acquisition of
6110 Executive Boulevard and the Houston apartments which are both subject
to first mortgage financing, partially offset by a decrease if Eagle
apartments is sold.
Depreciation expense increased 32% for the three and six months ended January
31, 1994 as compared to the same periods in the prior year primarily due to
the acquisition of One Park West (in March 1993) and the increase in the
depreciation of Loehmann's Fashion Island as portions of the redeveloped
center are placed in service. Depreciation expense is expected to increase
further in fiscal 1994 as compared to the second quarter principally due to
the completion of the redevelopment of Loehmann's Fashion Island and the
expected acquisition of 6110 Executive Boulevard and the Houston apartments,
offset in part by a decrease if Eagle apartments is sold.
General and administrative expenses increased 18% and 9% for the three and
six months ended January 31, 1994 as compared to the same periods in the
prior year primarily due to year end compensation adjustments made in
December 1993. General and administrative expenses for the remaining two
fiscal quarters are each expected to be less than in the second quarter.
Professional fees decreased 60% and 35% for the three and six months ended
January 31, 1994 as compared to the same periods in the prior year due to the
completion of the bankruptcy proceedings with regard to the Houston
apartments investments. Professional fees are expected to remain stable for
the remainder of fiscal 1994.
<PAGE>
10
Results of Operations for the Three and Six Months ended January 31, 1994
versus the Three and Six Months ended January 31, 1993 (continued)
Gain on Sale of Real Estate Investments
During the second quarter the Trust sold its land investment in the Brown
County Inn, located in Nashville, Indiana, for $600,000, resulting in a gain
of $100,000.
Income before Gain (Loss) on Real Estate Investments
During the remainder of fiscal 1994, the Trust expects income before gain
(loss) on real estate investments to decrease due principally to an expected
increase in depreciation expense related to the anticipated conversions of
the Houston apartments and 6110 Executive Boulevard to Owned Properties.
Dividends
Dividends declared for the first and second quarters of fiscal 1994 and 1993
were $.07 each. The Trust pays dividends approximately 55 days following the
end of each fiscal quarter.
<PAGE>
11
Part II. Other Information
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Trust has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROPERTY CAPITAL TRUST
Registrant
March 16, 1994 \S\ ROBERT M. MELZER
Date Robert M. Melzer
President and Chief Executive Officer
(Principal Financial Officer)<PAGE>
December 16, 1993
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