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 October 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 October 31, 1994: 9,030,585
<PAGE>
PROPERTY CAPITAL TRUST
INDEX
Page
Part I. Financial Information Number
Consolidated Balance Sheet - October 31, 1994
and July 31, 1994 (unaudited) 1
Consolidated Statement of Income -
Three Months Ended October 31, 1994 and 1993 (unaudited) 2
Consolidated Statement of Cash Flows -
Three Months Ended October 31, 1994 and 1993 (unaudited) 3
Consolidated Statement of Shareholders' Equity -
Three Months Ended October 31, 1994 and 1993 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
Part II. Other Information
Item 2. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9-10
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
(Unaudited)
October 31, July 31,
1994 1994
- - --------------------------------------------------------------------------
Assets
Real Estate Investments
Owned Properties held directly by the Trust
(net of accumulated depreciation) $107,414,000 $105,295,000
Structured Transactions held directly
by the Trust 32,579,000 32,581,000
Investment Partnerships 51,903,000 51,998,000
----------- -----------
191,896,000 189,874,000
Allowance for possible investment losses (17,413,000) (17,413,000)
----------- -----------
174,483,000 172,461,000
Cash 994,000 720,000
Interest and rents receivable
Owned Properties held directly by the Trust 1,646,000 1,852,000
Structured Transactions held directly by
the Trust 252,000 259,000
Other assets 1,746,000 1,541,000
--------- ---------
$179,121,000 $176,833,000
============ ============
Liabilities and Shareholders' Equity
Liabilities
Accounts payable and accrued expenses $ 1,688,000 $ 2,940,000
Accrued interest 1,777,000 711,000
Bank note payable 7,700,000 5,000,000
Mortgage notes payable 42,989,000 43,110,000
9 3/4% Convertible Subordinated Debentures 2,546,000 2,546,000
10% Convertible Subordinated Debentures 30,823,000 30,823,000
----------- -----------
87,523,000 85,130,000
----------- -----------
Shareholders' Equity
Common Shares (without par value,
unlimited shares authorized, 9,030,585
issued and outstanding) 106,060,000 106,060,000
Accumulated deficit (14,462,000) (14,357,000)
----------- ----------
Total Shareholders' Equity 91,598,000 91,703,000
----------- -----------
$179,121,000 $176,833,000
============ ============
Page 1
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
October 31,
--------------------------------
1994 1993
----------- ------------
Revenues
Rents from Owned Properties held directly
by the Trust $4,498,000 $2,747,000
Structured Transactions held directly by
the Trust
Base income 663,000 1,020,000
Overage income 428,000 556,000
Income from unconsolidated Investment
Partnerships 280,000 456,000
---------- ----------
5,869,000 4,779,000
Advisory fee income 82,000 80,000
------- -------
5,951,000 4,859,000
---------- ---------
Expenses
Expenses on Owned Properties held
directly by the Trust 1,742,000 1,400,000
Interest 1,871,000 1,567,000
Depreciation 1,021,000 740,000
General and administrative expenses 513,000 464,000
Professional fees 51,000 172,000
Trustees' fees and expenses 45,000 37,000
--------- ---------
5,243,000 4,380,000
--------- ---------
Net Income $ 708,000 $ 479,000
========== ==========
Net Income per Share $0.08 $0.05
===== =====
Average Shares Outstanding 9,031,000 9,029,000
========= =========
Page 2
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
October 31,
------------------------
1994 1993
---------- -----------
Operating Activities
Net Income $ 708,000 $ 479,000
Adjustments to Net Income
Depreciation and amortization 1,069,000 752,000
Income from unconsolidated Investment Partnerships (280,000) (456,000)
Distributions of earnings from Investment
Partnerships 375,000 529,000
Changes in assets and liabilities
Decrease in interest and rents receivable 213,000 89,000
Increase in other assets, net (253,000) (590,000)
(Decrease) increase in accounts payable, accrued
expenses and accrued interest (186,000) 399,000
--------- -------
Net Cash Provided by Operating Activities 1,646,000 1,202,000
--------- ---------
Investing Activities
Owned Properties held directly by the Trust
Additions (3,140,000) (2,833,000)
Structured Transactions held directly by the Trust
Repayments 2,000 3,000
---------- ---------
Net Cash Used in Investing Activities (3,138,000) (2,830,000)
---------- ----------
Financing Activities
Proceeds from bank note payable, net 2,700,000 2,490,000
Cash dividends paid (813,000) (632,000)
Amortization of mortgage notes payable (121,000) (113,000)
--------- ---------
Net Cash Provided by Financing Activities 1,766,000 1,745,000
--------- ---------
Net Increase in Cash 274,000 117,000
Cash at Beginning of Period 720,000 324,000
-------- --------
Cash at End of Period $ 994,000 $ 441,000
======== ========
Page 3
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended
October 31,
-------------------------------------
1994 1993
- - -----------------------------------------------------------------------------
Common Shares
Balance at beginning and end of period $106,060,000 $106,052,000
Accumulated Deficit
Balance at beginning of period (14,357,000) (15,918,000)
Net income 708,000 479,000
Cash dividends paid (813,000) (632,000)
----------- -----------
Balance at end of period (14,462,000) (16,071,000)
----------- ----------
Total Shareholders' Equity $ 91,598,000 $ 89,981,000
============ ============
Number of Common Shares
Common Shares issued and outstanding
at beginning and end of period 9,030,585 9,028,585
========= =========
Page 4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation
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 October 31, 1994 and the results of its operations and its cash flows
for the three months ended October 31, 1994 and 1993.
Operating results for the quarter ended October 31, 1994 are not necessarily
indicative of the results that may be expected for the year ended July 31,
1995. The information contained in these financial statements should be
read in conjunction with the Trust's 1994 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on October 28, 1994.
2. Investment Partnerships
Certain of the Trust's investments have been made through partnerships, or
participation agreements, in which the Trust is the general partner or lead
lender and other institutional investors are limited partners or participants
(the "Investment Partnerships"). During the third quarter of fiscal 1994,
the Trust changed its method of accounting for its Investment Partnerships
to the equity method. Previously, the Trust consolidated its share of the
Investment Partnerships' results of operations and related assets and
liabilities. Although the change did not affect the Trust's net income
(loss) or shareholders' equity, prior period financial statements have been
restated to reflect the change as if it had occurred at the beginning of the
period. The change in accounting is to a preferable method based upon
generally accepted accounting principles and is more consistent with current
accounting practices in the real estate industry.
A Condensed Combined Summary of Operations for the unconsolidated Investment
Partnerships for the periods indicated follows:
Three Months Ended
October 31,
-------------------------
1994 1993
---------- ----------
Revenues
Rents from Owned Properties $5,055,000 $1,811,000
Structured Transactions
Base income 672,000 1,041,000
Overage income 108,000 -
Other income 17,000 6,000
--------- ---------
5,852,000 2,858,000
--------- ---------
Expenses
Owned Properties expenses 3,486,000 1,001,000
Depreciation 1,006,000 560,000
Interest 321,000 -
Other 371,000 101,000
--------- ---------
5,184,000 1,662,000
--------- ---------
Net Income $ 668,000 $1,196,000
========== ==========
Net Income
Trust's share of
combined net income $ 280,000 $ 456,000
Limited partners' share of
combined net income 388,000 740,000
---------- ----------
$ 668,000 $1,196,000
========== ==========
Page 5
<PAGE>
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
The Trust's debt at October 31, 1994 was $84,058,000 as compared to $81,479,000
at July 31, 1994. The Trust's debt to equity ratio increased to .92 at October
31, 1994 from .89 at July 31, 1994.
The Trust's bank note payable, which is due and payable on demand, represents
borrowings under a $20,000,000 revolving bank line of credit. The interest
rate on the bank line is at the bank's prime rate plus 1/4% (the prime rate
was 7.75% at October 31, 1994). The bank line was reduced in June 1994 from
$35,000,000 to $20,000,000 when the Trust refinanced the indebtedness on its
Loehmann's Fashion Island property with the same lender that provides the
Trust's bank line. The maximum amount which may be borrowed under the bank
line will be reduced further, on a dollar for dollar basis but not below
$15,000,000, as additional advances are made under the loan secured by the
Loehmann's Fashion Island property.
The Trust's bank note payable increased to $7,700,000 at October 31, 1994
from $5,000,000 at July 31, 1994 primarily due to borrowings used for tenant
allowances at Loehmann's Fashion Island. During the remainder of fiscal
1995, the Trust expects to use the bank line to fund capital expenditures
on Owned Properties held directly by the Trust aggregating approximately
$4,000,000, including approximately $1,850,000 at Loehmann's Fashion Island
(primarily for tenant allowances).
Funds from Operations
Funds from operations is considered by the REIT industry to be an appropriate
measure of performance of an equity REIT. Funds from operations is calculated
by the Trust consistent with the National Association of Real Estate
Investment Trusts' definition (funds from operations equals net income,
excluding gains (losses) from debt restructurings and sales of properties,
plus depreciation and amortization and after adjustment for unconsolidated
partnerships and joint ventures). Funds from operations should be considered
in conjunction with net income (loss) as presented in the Trust's unaudited
financial statements. Funds from operations does not represent cash provided
by operating activities in accordance with generally accepted accounting
principles and should not be considered as a substitute for net income as
a measure of results of operations or for cash provided by operating
activities as a measure of liquidity. Funds from operations was calculated
by the Trust as follows:
Three Months Ended October 31,
------------------------------------
1994 1993
- - ----------------------------------------------------------------------------
Net Income $ 708,000 $ 479,000
Depreciation on Owned Properties
held directly by the Trust 1,021,000 740,000
Trust's share of depreciation
on unconsolidated Investment
Partnerships 505,000 298,000
--------- --------
$2,234,000 $1,517,000
========== ==========
Management believes that with its cash provided by operating activities
retained after dividend distributions, borrowings under the existing bank
line and additional borrowings under the Loehmann's Fashion Island mortgage
for which it believes it will qualify, it will be able to meet its fiscal
1995 cash requirements for anticipated capital expenditures on Owned
Properties held directly by the Trust. The Trust currently expects that
these cash requirements will total approximately $4,000,000 during the
remainder of fiscal 1995.
Page 6
<PAGE>
ITEM 1. FINANCIAL CONDITION (continued)
Review of Significant Real Estate Activity for the Quarter
Apartments
The Trust, as general partner of PCA Canyon View Associates, an Investment
Partnership in which the Trust has invested approximately $3,400,000,
continues to negotiate with its lessee and the first mortgagee on Phase I
of this two-phase apartment project regarding a restructuring of the
investments. The first mortgagee had scheduled a foreclosure of Phase I
for December 5, 1994. In order to protect its investments, on December 2,
1994 the Investment Partnership filed for protection under Chapter
11 of the U.S. Bankruptcy Code. The Investment Partnership has not been
paid by its sublessee/mortgagor since June 1994. It is not possible at this
time to predict the outcome of these proceedings or the negotiations.
Management believes that adequate provision has been made in the Trust's
loss allowance for any loss that may be sustained on these investments. (See
"Item 2, Legal Proceedings.")
PCA Southwest Associates, L.P., an Investment Partnership that owns 3,000
apartment units in Houston, Texas, has offered one of its properties for
sale, Braes Hill, a 152-unit complex, and the Trust, as general partner,
is currently negotiating with a prospective purchaser. The Trust currently
anticipates that this property will be sold without incurring a loss.
Office Buildings
The Trust has also offered for sale 6110 Executive Boulevard, an Owned
Property held directly by the Trust. The Trust is in negotiation with a
potential purchaser. The Trust currently anticipates that the property
will be sold at current book value or higher.
Results of Operations for the three months ended October 31, 1994 versus
the three months ended October 31, 1993
Revenues
Rents from Owned Properties held directly by the Trust (base rent plus
expense reimbursements) increased 64% for the three months ended October
31, 1994 as compared to the same period in the prior year, primarily due
to $404,000 of non-recurring income related to the settlement of a
bankruptcy claim filed by the Trust against a former tenant at Loehmann's
Fashion Island, the Trust's acquisition of its lessee's interest in 6110
Executive Boulevard (converting the investment from a Structured Transaction
held directly by the Trust to an Owned Property held directly by the Trust
effective February 1994) and an increase in rental revenues from the
redeveloped Loehmann's Fashion Island as new tenants have taken occupancy.
This increase was offset in part by a decrease in rental revenue due to the
sale of Eagle apartments (March 1994).
Base income from Structured Transactions held directly by the Trust decreased
35% for the three months ended October 31, 1994 as compared to the same period
in the prior year, primarily due to the conversion of 6110 Executive Boulevard
to an Owned Property held directly by the Trust, the prepayment of the loan
and sale of the land underlying Brown County Inn (January 1994), the sale of
the land underlying Village Oaks apartments (March 1994) and the prepayment
of the Rapids Mall's loan (June 1994). This decrease was offset in part by
an increase in base income from the restructured Cincinnati Marriott Inn
investment (April 1994).
Overage income from Structured Transactions held directly by the Trust
decreased 23% for the three months ended October 31, 1994 as compared to the
same periods in the prior year primarily due to the receipt in the prior
year of overage income from two apartment investments which did not pay
overage income this year and the sales of the Village Oaks and Brown County
Inn investments.
The Trust's share of income from unconsolidated Investment Partnerships
decreased 39% for the three months ended October 31, 1994 as compared to
the same period in the prior year primarily due to the reduced net income
recorded by the Trust from PCA Southwest Associates L.P., the Partnership
which owns 3,000 apartment units in Texas. The apartments converted to
Owned Properties in March 1994 and since that date the Trust's share of
net income is reported net of depreciation expense. The decrease in income
from unconsolidated Investment Partnerships was also due to the cessation
of rent and interest payments from the sublessee/mortgagor of the Canyon
View apartment investments. (See "Item 2, Legal Proceedings," for a
discussion of the bankruptcy filing of the Investment Partnership that
holds the Canyon View investments.)
Page 7
<PAGE>
ITEM 1. FINANCIAL CONDITION (continued)
Expenses
Expenses on Owned Properties held directly by the Trust increased 24% for
the three months ended October 31, 1994 as compared to the same period in
the prior year primarily due to the acquisition of 6110 Executive Boulevard
and an increase in operating expenses at the redeveloped Loehmann's Fashion
Island.
Interest expense increased 19% for the three months ended October 31, 1994
as compared to the same period in the prior year due to the interest expense
incurred on the first mortgage on 6110 Executive Boulevard and the expensing
of interest related to Loehmann's Fashion Island (a portion of which had been
capitalized during the first quarter of fiscal 1994). These increases were
offset in part by a reduction in interest expense due to the sale of Eagle
apartments.
Depreciation expense increased 38% for the three months ended October 31,
1994 as compared to the same period in the prior year primarily due to the
acquisition of 6110 Executive Boulevard and the increase in depreciation on
the redeveloped Loehmann's Fashion Island, offset in part by the elimination
of depreciation on Eagle apartments, which was sold.
Dividends
The dividend declared for the first quarter of fiscal 1995 was $.09 per share
versus $.07 per share for the same period in the prior year.
PART II OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
In July 1994, the sublessee/mortgagor of two apartment projects in San Ramon,
California (known as "Canyon View I and Canyon View II" and containing 248
and 188 units, respectively) held by PCA Canyon View Associates Limited
Partnership (an Investment Partnership) failed to make the required payments
due the Investment Partnership and the ground lessor. In addition, in August
1994, the sublessee/mortgagor failed to make the required mortgage payment to
the first mortgagee of Phase I. The outstanding balance of the first mortgage
secured by Phase I was $12,000,000. The Investment Partnership's carrying
value of the properties was $14,374,000 at July 31, 1994, of which the
Trust's share was $3,422,000.
As a result of the defaults by the sublessee/mortgagor, on August 3, 1994 the
first mortgagee filed a foreclosure action in Superior Court of the State of
California, County of Contra Costa, seeking to take full title to Phase I, to
recover approximately $3,000,000 in insurance proceeds made available as a
result of certain construction defects in Phase I ($500,000 of which had
already been retained by the sublessee/mortgagor for, amongst other things,
attorneys' and engineers' fees) and to have a receiver appointed to operate
the property. On August 26, 1994, the Court appointed a receiver for Phase I.
In addition, on August 8, 1994 the Investment Partnership filed a foreclosure
action in Superior Court of the State of California, Contra Costa County,
seeking to obtain full title to both Phase I and Phase II, to recover the
construction defects insurance proceeds, to force the bank that had issued
$1,750,000 in letters of credit as further security to honor the Investment
Partnership's draw requests under those letters of credit and to have a
receiver appointed to operate Phase II. On August 31, 1994, the Court
appointed a receiver for Phase II. The nonjudicial foreclosure sale for
Phase I had been set by the first mortgagee for December 5, 1994. In order
to preserve the Investment Partnership's investments and stay the foreclosure
proceeding, on December 2, 1994 the Investment Partnership filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of California. Although
negotiations with the first mortgagee and the sublessee/mortgagor are
ongoing, at this time it is not possible to predict the outcome of these
legal actions.
Page 8
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Trust's 1994 Annual Meeting of Shareholders held on November 30, 1994,
the Trust's shareholders (i) elected seven Trustees to serve until the next
annual meeting of the Trust's shareholders, (ii) approved the Amended and
Restated Deferred Stock Plan for Non-Employee Trustees, (iii) approved the
Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees,
(iv) approved certain amendments to the Property Capital Trust 1992 Stock
Option Plan and (v) ratified the appointment of Ernst & Young LLP; for the
Trust's auditors for the year ended July 31, 1995. The votes on each of
these items follows:
1. Election of seven Trustees:
Number of Shares
----------------
For Withhold Authority
--------- ------------------
Walter M. Cabot 6,326,786 115,242
John A. Cervieri, Jr. 6,331,386 110,642
Graham O. Harrison 6,330,286 111,742
Walter F. Leinhardt 6,323,842 118,186
Edward H. Linde 6,326,942 115,086
Robert M. Melzer 6,333,686 108,342
Glen P. Strehle 6,345,842 96,186
2. Approval of the Amended and Restated Deferred Stock Plan for Non-Employee
Trustees.
Number of Shares
----------------
For 3,752,125
Against 348,774
Abstain 244,022
Broker non-votes 2,097,107
3. Approval of the Property Capital Trust 1994 Stock Option Plan for
Non-Employee Trustees.
Number of Shares
----------------
For 3,489,813
Against 599,949
Abstain 257,159
Broker non-votes 2,095,107
4. Approval of Amendments to the Property Capital Trust 1992 Stock Option
Plan.
Number of Shares
----------------
For 3,634,429
Against 444,790
Abstain 265,202
Broker non-votes 2,097,607
Page 9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)
5. The ratification of the appointment of Ernst & Young LLP to serve as the
independent auditors for the fiscal year ending July 31, 1995.
Number of Shares
----------------
For 6,325,254
Against 62,196
Abstain 51,436
Broker non-votes 3,142
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
Page 10
<PAGE>
SIGNATURE
---------
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
/s/ Robert M. Melzer
--------------------
Robert M. Melzer
12/13/94 President and Chief Executive Officer
- - -------- (Principal Financial Officer)
Date
Page 11
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> OCT-31-1994
<EXCHANGE-RATE> 1
<CASH> 994,000
<SECURITIES> 0
<RECEIVABLES> 1,898,000
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<BONDS> 84,058,000
<COMMON> 106,060,000
0
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<TOTAL-LIABILITY-AND-EQUITY> 179,121,000
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