SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended July 31, 1994
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 No. 1-7003
PROPERTY CAPITAL TRUST
(Exact name of registrant as specified in its charter)
Massachusetts 04-2452367
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Post Office Square, 21st Floor
Boston, Massachusetts 02109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 451-2400
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each Class on which registered
Common Shares, without par value American Stock Exchange
Rights to purchase Common Shares American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 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 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.
As of September 30, 1994, the aggregate market value of Common
Shares held by non-affiliates of the registrant was approximately
$56,441,000.
As of September 30, 1994, there were 9,030,585 Common Shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed
for the Annual Meeting of Shareholders to be held on November 30,
1994 are incorporated by reference into Part III as set forth
herein.
<PAGE>
PART I
ITEM 1. BUSINESS
Property Capital Trust (the "Trust") is an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts pursuant to
a Declaration of Trust dated June 9, 1969, as amended. The Trust has
qualified and has elected to be taxed as a Real Estate Investment Trust
("REIT") under Sections 856-860 of the Internal Revenue Code since 1969.
It intends to continue to qualify as a REIT.
Real Estate Investments
The Trust's real estate portfolio is comprised primarily of equity
investments in office buildings, shopping centers, apartment complexes and
hotels located throughout the United States. The Trust's investments
consist of Owned Properties and Structured Transactions (land leasebacks
and/or mortgage loans). For financial reporting purposes, the Trust
categorizes these investments into three groups, Owned Properties held
directly by the Trust (or by wholly owned subsidiaries), Structured
Transactions held directly by the Trust and interests in the Trust's
Investment Partnerships. The Investment Partnerships are limited
partnerships (or loan participations) in which the Trust is the general
partner (or lead lender) and other institutional investors are the limited
partners (or participating lenders). Two Investment Partnerships hold
Owned Properties and three hold Structured Transactions. At July 31, 1994,
the Trust held 15 Owned Properties, consisting of six held directly by the
Trust and nine held in Investment Partnerships, and 14 Structured
Transactions, consisting of ten held directly by the Trust and four held
in Investment Partnerships.
For a description of the Trust's individual investments and developments
during the year, reference is made to Item 2, Item 7, Note 2 of the Notes
to Consolidated Financial Statements of the Trust, Schedules XI, XII,
Exhibit A and Exhibit B included in Item 14 hereof.
Business Plan
The Trust's business plan focuses on maximizing shareholder values through
asset, portfolio and liability management and the selective disposition of
investments. It is the Trust's intention, however, to retain much of the
portfolio. To the extent the Trust receives proceeds from the sale of
investments beyond amounts required to repay the bank line, the Trust will
consider whether to retire a portion of the 9 3/4% and 10% debentures
and/or distribute the proceeds to shareholders.
As part of this plan, the Trust expects to invest approximately $8,270,000
in its real estate investments during fiscal 1995 of which $4,325,000 is
for tenant improvements and leasing commissions at the redeveloped
Loehmann's Fashion Island, $2,675,000 is for anticipated capital
expenditures on other Owned Properties held directly by the Trust and
$1,270,000 is for the Trust's share of anticipated capital expenditures
on Owned Properties held in Investment Partnerships.
Competition, Regulation and Other Factors
The success of the Trust depends, among other factors, upon general
economic conditions and trends, including real estate trends and population
trends, interest rates, government regulations and legislation, income tax
laws and zoning laws. The Trust does not consider its real estate
business to be seasonal in nature.
The Trust's real estate investments are located in markets in which they
face significant competition for the revenues they generate. Many of the
Trust's investments, particularly the office buildings and hotels, are
located in markets which have a substantial supply of available space,
resulting in significant competition on the basis of price and amenities.
Tenants
Spaces in the Trust's Owned Properties are leased to tenants for terms
ranging from tenancies-at-will to 20 years. The leases, which are made
directly or through the Investment Partnerships, are to 2,795 tenants,
including 74 retail tenants, 243 office tenants and 2,478 apartment
tenants.
Page 2
<PAGE>
ITEM 1. BUSINESS (continued)
Property Management
All Owned Properties are managed by various professional property
management firms that are independent of the Trust and report directly to
the Trust's management. Property management fees range from 2.5% to 5% of
annual gross receipts from the operations of the properties and each
property management agreement may be terminated upon 30 days' notice.
Insurance
The Trust carries commercial general liability coverage on the Owned
Properties, with limits of $76,000,000 per occurrence and $89,000,000 in
the aggregate. This coverage protects the Trust against liability claims
as well as for the costs of defense. The Trust carries property insurance
on its Owned Properties on a replacement value basis covering both the cost
of direct physical damage and the loss of rental income, subject to an
aggregate limit of $50,000,000 at any one location except Loehmann's
Fashion Island which is subject to a $20,000,000 aggregate limit. Separate
flood and earthquake insurance is provided with an annual aggregate limit
of $10,000,000 for each peril.
The Advisor; Internalization of Management
Effective as of August 1, 1992, the Trust internalized the investment and
day-to-day administrative services previously performed by its former
investment advisor, Property Capital Advisors, Inc. (the "Advisor"), under
its advisory contract with the Trust (the "Advisory Contract") which
expired on July 31, 1992 and was not renewed. No consideration was paid
to the Advisor in connection with the expiration and non-renewal of the
Advisory Contract. For additional information relating to the Advisory
Contract and the internalization of management, see Note 6 of the Notes to
Consolidated Financial Statements of the Trust.
Government Regulations
A number of jurisdictions have laws and regulations relating to the
ownership of real estate, such as local building and similar codes. From
time to time, capital expenditures at Owned Properties 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.
Under various Federal, state, and local laws, ordinances and regulations,
a current or previous owner or operator of real estate may be liable for
the costs of removal or remediation of certain hazardous or toxic
substances released on, under or in its property. The costs of such
removal or remediation could be substantial. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic
substances. The presence of such substances, or the failure to remediate
properly such substances, may adversely affect the owner's ability to sell
or lease such real estate or to borrow using such property as collateral.
Management is not aware of any material violation of applicable
environmental requirements with respect to any of its real estate
investments, nor does it contemplate having to make any material
expenditures in order to comply with any current environmental laws or
regulations.
Customers
As of July 31, 1994, the Trust's most significant relationship with any
single owner consisted of $15,170,000 invested in two separate apartment
properties. The two investments accounted for approximately 8% of the
Trust's real estate portfolio as of July 31, 1994 and approximately 6% of
the Trust's total revenues from its real estate portfolio during fiscal
1994. No lessee or borrower is affiliated with the Trust or its Trustees.
Anticipated Capital Expenditures
For fiscal 1995 the aggregate amount of anticipated capital expenditures
on Owned Properties is $8,270,000. Of this amount $4,325,000 is expected
to be incurred for tenant improvements and leasing commissions in
connection with the leasing of Loehmann's Fashion Island in Aventura,
Florida and $2,675,000 is expected to be incurred on other Owned Properties
held directly by the Trust, primarily for tenant improvements and leasing
commissions. The funds necessary for capital expenditures are anticipated
to be available from cash flow provided by operations, through borrowings
under the line of credit and additional borrowings under the Loehmann's
Fashion Island first mortgage.
Page 3
<PAGE>
ITEM 1. BUSINESS (continued)
Additionally, the Trust's share of tenant improvements, leasing commissions
and other capital expenditures that may be required by Owned Properties
held in Investment Partnerships is approximately $1,270,000. The funds
necessary for capital expenditures expected to be incurred by the
Investment Partnerships are anticipated to be available from such
Investment Partnerships' cash flows.
Borrowing
At July 31, 1994, the Trust had $81,479,000 of debt outstanding as follows:
Principal
Interest Rate Amount
Bank note payable 7.50%* $ 5,000,000
Mortgage notes payable 8.00 43,110,000
Convertible Subordinated Debentures 9.75 2,546,000
Convertible Subordinated Debentures 10.00 30,823,000
----- ----------
Weighted Average 8.76% $81,479,000
===== ==========
* Floats with bank prime rate.
For additional information, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and Note 3 of
the Notes to Consolidated Financial Statements of the Trust.
ITEM 2. PROPERTIES
The Trust's real estate portfolio (net of accumulated depreciation)
consists of the following:
July 31,
1994 1993 1992
-----------------------------------------------
Owned Properties
held directly by the Trust $105,974,000 $101,160,000 $ 72,264,000
Structured Transactions
held directly by the Trust
Land leasebacks 17,140,000 21,140,000 32,940,000
Mortgage loans 15,441,000 21,925,000 35,783,000
Investment Partnerships 51,998,000 51,928,000 52,416,000
----------- ----------- -----------
190,553,000 196,153,000 193,403,000
----------- ----------- -----------
Allowance for possible
investment losses (17,413,000) (20,129,000) (25,000,000)
----------- ----------- -----------
$173,140,000 $176,024,000 $168,403,000
============ ============ ============
Many of the investments in the portfolio are subject to first mortgage
financing which aggregated $188,080,000 as of July 31, 1994. Included in
this amount is $43,110,000 of debt on four of the Trust's Owned Properties
held directly by the Trust and $25,904,000 of debt on Owned Properties held
in an Investment Partnership. The balance represents mortgage debt on
Structured Transactions. All of this indebtedness, with the exception of
$15,000,000 of debt on Loehmann's Fashion Island, is non-recourse to the
Trust. For additional information, see Note 3 of the Notes to Consolidated
Financial Statements of the Trust and Schedule XI and Exhibit A included
in Item 14 hereof.
Page 4
<PAGE>
ITEM 2. PROPERTIES (continued)
As of July 31, 1994, the Trust's real estate investments (net of
accumulated depreciation) were diversified by type of property as follows:
Number of Investment % of
Type of Property Properties Amount Total
- - - ---------------- ---------- ---------- -----
Office Buildings 8 $ 84,492,000 44 %
Shopping Centers 5 55,492,000 29
Apartments 12 29,829,000 16
Hotels 4 20,740,000 11
-- ---------- --
29 $190,553,000 100 %
== ============ ===
As of July 31, 1994, the Trust's real estate investments (net of
accumulated depreciation) were diversified by geographic region as follows:
Number of Investment % of
Geographic Region Properties Amount Total
- - - ----------------- ---------- ---------- -----
Midwest 11 $ 87,931,000 46 %
South 8 57,019,000 30
West 8 14,999,000 8
East 2 30,604,000 16
-- ---------- --
29 $190,553,000 100 %
== ============ ===
For additional information, see Item 7, Note 2 of the Notes to Consolidated
Financial Statements of the Trust, Schedules XI and XII and Exhibits A and
B included in Item 14, hereof.
ITEM 3. LEGAL PROCEEDINGS
In July 1994, the sublessee/mortgagor of two apartment projects (known as
"Phase I" and "Phase II" and containing 248 and 188 units, respectively),
in San Ramon, California held by PCA Canyon View Associates Limited
Partnership (an Investment Partnership) failed to make the required
payments due to 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
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, and the
outstanding balance of the first mortgage secured by Phase I was
$12,000,000. 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 spent by the
sublessee/mortgagor on attorneys' and engineers' fees) and to have a
receiver appointed to operate the property. The Investment Partnership has
argued before the Court that, although the Investment Partnership's real
property investments in Phase I are subject to the lien of the first
mortgage, the Investment Partnership has a first lien on the insurance
proceeds arising from the construction defects. On August 26, 1994, the
Court appointed a receiver for Phase I. In addition to the above
developments, 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, although negotiations
with the sublessee/mortgagor are ongoing, at this time it is not possible
to predict the outcome of these legal actions.
Page 5
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Trust's security holders during
the last quarter of its fiscal year ended July 31, 1994.
ITEM 4a. EXECUTIVE OFFICERS OF THE TRUST
Principal Occupations and
Affiliations During the Past
Name Age Five Years
- - - ---- --- -----------------------------
John A. Cervieri Jr. 63 Managing Trustee of the Trust;
Chairman of Property Capital
Associates, Inc. and its
affiliates; Director of BayBanks,
Inc. and BayBank Boston, N.A.;
Chairman and Chief Executive
Officer of Americana
Hotels and Realty Corporation.
Robert M. Melzer 53 Chief Executive Officer of the Trust
since August 1, 1992 and President.
William A. Bonn 43 Senior Vice President, Counsel and
Assistant Secretary of the Trust.
Robin W. Devereux 35 Vice President and Treasurer of the Trust
since November 1993; prior to that
Treasurer and Controller of the Trust
(August 1992 to November 1993);
Assistant Vice President and Controller
of the Trust (June 1990 to July 1992);
Manager of Aldrich Eastman & Waltch L.P.
(March 1990 to June 1990); Treasurer of
Bradley Real Estate Trust (May 1986
through March 1990).
John J. Monkouski 48 Vice President of the Trust.
Michael I. Sucoff 56 Vice President of the Trust since
September 1992; prior to that Senior
Vice President of Capital Partners Inc.
(1990-1992); President of Management
Division of Peter Elliot & Co., Inc.
(1987-1990).
Randolph L. Kazazian III 33 Vice President of the Trust since
November 1993; prior to that
Assistant Vice President of the Trust.
Walter F. Leinhardt 62 Secretary and Trustee of the Trust.
Partner in the law firm of Paul, Weiss,
Rifkind, Wharton & Garrison, New York,
NY.
There is no family relationship among any of the officers listed above, nor
any arrangement or understanding between any such officers and any other
person pursuant to which he or she was selected as an officer. Each
officer will hold office until the next Annual Meeting of Trustees or until
his or her successor has been elected and has qualified.
Page 6
<PAGE>
PART II
ITEM 5. MARKET FOR THE TRUST'S COMMON SHARES AND RELATED SECURITY HOLDER
MATTERS
(a) Price Range of Common Shares
The Trust's Common Shares are traded on the American Stock Exchange
("ASE") - symbol PCT. The high and low prices on the ASE for each
quarter during the past two fiscal years and dividends declared for such
quarters are shown below:
Fiscal 1994
--------------------------------------------------
Dividends
Quarter High Low Declared
- - - -------------------------------------------------------------------------
First $ 6 1/4 $ 5 1/4 $.07
Second 7 1/8 5 7/8 .07
Third 6 5/8 5 1/4 .07
Fourth 6 1/4 5 1/8 .09
----
$.30
Fiscal 1993
--------------------------------------------------
Dividends
Quarter High Low Declared
- - - ---------------------------------------------------------------------------
First $ 4 5/8 $ 3 5/8 $.07
Second 4 3/16 3 9/16 .07
Third 4 15/16 3 11/16 .07
Fourth 6 3/8 4 1/4 .07
---
$.28
(b) Approximate Number of Equity Security Holders
Approximate Number of
Title of Class Holders as of September 30, 1994
------------------------------------------------------------------
Common Shares 5,000
(c) Dividends Declared on Common Shares
Cash dividends have usually been at least 100% of income before gain
(loss) on real estate investments and extraordinary item. The Trust
pays dividends approximately 55 days following the end of each fiscal
quarter. To maintain its status as a REIT, the Trust is required each
year to distribute to its shareholders at least 95% of its taxable
income (excluding net capital gains and after certain other
adjustments). In addition, the Trust will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than
the sum of 85% of its ordinary income for the calendar year, 95% of its
capital gain income for the calendar year, and any amount of such income
that was not distributed in prior years.
Page 7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended July 31,
-----------------------------------------------------------
(In thousands except per share data) 1994 1993* 1992* 1991* 1990*
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Revenues $21,623 $16,535 $19,109 $24,060 $23,158
Expenses 20,044 14,865 16,544 19,432 14,402
Income before Gain (Loss) on Real Estate
Investments and Extraordinary Item 1,579 1,670 2,565 4,628 8,756
Gain (Loss) on Real Estate Investments
Gain (Loss) on Sale of Real Estate Investments 2,510 7,700 (9,150) (5,090) 13,560
Provision for Possible Investment Losses - (10,000) (17,000) (10,840) (1,500)
2,510 (2,300) (26,150) (15,930) 12,060
Income (Loss) before Extraordinary Item 4,089 (630) (23,585) (11,302) 20,816
Extraordinary Gain from Extinguishment of Debt - - 7,950 - -
Net Income (Loss) $4,089 ($630) ($15,635) ($11,302) $20,816
Per Share Data
Primary Net Income (Loss)
Income before Gain (Loss) on Real Estate
Investments and Extraordinary Item $0.17 $0.18 $0.28 $0.50 $0.85
Gain (Loss) on Real Estate Investments
Gain (Loss) on Sale of Real Estate Investme 0.28 0.85 (1.01) (0.55) 1.31
Provision for Possible Investment Losses - (1.11) (1.88) (1.18) (0.14)
0.28 (0.26) (2.89) (1.73) 1.17
Income (Loss) before Extraordinary Item 0.45 (0.08) (2.61) (1.23) 2.02
Extraordinary Gain from Extinguishment of Debt - - 0.88 - -
Net Income (Loss) per Share $0.45 ($0.08) ($1.73) ($1.23) $2.02
Fully Diluted Net Income (Loss) per Share $0.45 ($0.08) ($1.73) ($1.23) $2.00
Dividends Declared per Share $0.30 $0.28 $0.28 $0.50 $2.19
Average Shares Outstanding 9,030 9,029 9,029 9,223 10,328
Financial Position at Year-End
Total Assets $176,833 $179,459 $173,748 $215,518 $219,909
Net Real Estate Investments 173,140 176,024 168,403 195,743 214,927
Commitments - - 616 6,250 7,950
Total Debt Outstanding 81,479 86,492 76,337 99,294 83,262
Shareholders' Equity 91,703 90,134 93,202 111,726 133,926
</TABLE>
* Restated for change in accounting method to the equity method for
Investment Partnerships.
Page 8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Trust's debt to equity ratio was .89x at July 31, 1994, .96x at July
31, 1993, and .82x at July 31, 1992. The Trust's debt at July 31, 1994 was
$81,479,000, as compared to $86,492,000 at July 31, 1993, and was composed
of $33,369,000 in long-term fixed rate convertible debentures, $43,110,000
of mortgage notes and $5,000,000 of short-term bank borrowings ("bank note
payable").
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 7.25% at July 31, 1994). The bank line was reduced
from $35,000,000 to $20,000,000 when the Trust refinanced Loehmann's
Fashion Island with the same lender that provides the 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 Loehmann's Fashion Island first
mortgage. During fiscal 1995 the Trust expects to use the bank line to
fund anticipated capital expenditures of approximately $7,000,000 on Owned
Properties held directly by the Trust.
The Trust's bank note payable decreased to $5,000,000 at July 31, 1994 from
$16,530,000 at July 31, 1993, primarily as a result of the application of
the $12,060,000 of proceeds from the sales of the Trust's investments in
Village Oaks apartments, Brown County Inn and Eagle apartments, the
prepayment of the Rapids Mall mortgage investment, and the application of
the $6,000,000 of excess proceeds (after repayment of the existing mortgage
and closing costs) obtained from the refinancing of Loehmann's Fashion
Island. These decreases were partially offset by borrowings used for the
redevelopment of Loehmann's Fashion Island and for capital expenditures on
other Owned Properties held directly by the Trust.
The Trust's mortgage notes payable of $43,110,000 at July 31, 1994 were
comprised of four mortgages on four Owned Properties held directly by the
Trust. In February 1994, the Trust acquired its lessee's interest in 6110
Executive Boulevard, an office building in Rockville, Maryland, subject to
a non-recourse mortgage loan which had a balance of $6,458,000 at July 31,
1994, carries an annual interest rate of 9.625%, requires monthly payments
of principal and interest and matures in July 1995.
In March 1993, the Trust acquired its lessee's interest in One Park West,
an office building in Chevy Chase, Maryland, subject to a non-recourse
mortgage loan which had a balance of $10,052,000 at July 31, 1994, carries
an annual interest rate of 9 1/2%, requires monthly payments of principal
and interest and matures in June 2000.
In January 1991, the Trust acquired its lessee's interest in Park Place,
an office building located in Clayton, Missouri, subject to a $8,600,000
non-recourse mortgage loan. In November 1993, the Trust refinanced the
first mortgage, resulting in a reduction in the annual effective interest
rate from 8.25% to 5.65%. Interest is payable semi-annually. The mortgage
balance was $8,600,000 at July 31, 1994 and amortizes $85,000 each year
beginning May 1995 through May 2003, and $860,000 in May 2005. The
remaining balance of $6,975,000 matures in May 2008 and is subject to a
mandatory sinking fund commencing May 2006.
The Trust acquired its lessee's interest in Loehmann's Fashion Island
shopping center during fiscal 1989, subject to a non-recourse mortgage
loan. In June 1994, the Trust refinanced this property's $11,582,000 first
mortgage with a $30,000,000 mortgage commitment of which the first funding
was $18,000,000 ($15,000,000 of which is with recourse to the Trust). The
new loan carries interest at the bank's prime rate plus 1/4% (with options
to fix the interest rate) and expires in June 1998. The interest rate on
the outstanding balance was fixed by the Trust at 7.6%, for one year
expiring in July 1995. The Trust intends to borrow the remaining
$12,000,000 when certain performance goals are achieved.
For additional information regarding the Trust's indebtedness, see Note 3
of the Notes to Consolidated Financial Statements of the Trust.
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
Page 9
<PAGE>
ITEM 7. FINANCIAL CONDITION (continued)
should be considered in conjunction with net income (loss) as presented in
the Trust's audited 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 were calculated by the Trust as follows:
Years Ended July 31,
-----------------------------------------------
1994 1993 1992
- - - ------------------------------------------------------------------------------
Income before gain (loss)
on Real Estate Investments
and Extraordinary Item $1,579,000 $1,670,000 $2,565,000
Depreciation on Owned Properties
held directly by the Trust 3,538,000 2,423,000 2,584,000
Trust's share of depreciation
on unconsolidated Investment
Partnerships 1,445,000 1,145,000 1,035,000
--------- --------- ---------
$6,562,000 $5,238,000 $6,184,000
========== ========== ==========
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 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 $7,000,000 during fiscal 1995.
Review of Real Estate Investments
The Trust's principal asset is its $173,140,000 portfolio of real estate
investments, which is carried at cost, net of accumulated depreciation and
an allowance for possible investment losses. At July 31, 1994, the
portfolio consisted of investments in 29 properties, comprised of
investments in 12 apartment complexes, eight office buildings, five
shopping centers and four hotels. Set forth below is a discussion of
significant changes in the portfolio during the year.
Apartments
The Trust's real estate investments include 12 apartment investments,
consisting of five Structured Transactions held directly by the Trust, five
Owned Properties held in an Investment Partnership and two Structured
Transactions held in an Investment Partnership. Eagle apartments, an Owned
Property held directly by the Trust, and Village Oaks, a Structured
Transaction held directly by the Trust, were sold in March 1994. Eagle
apartments was sold at a loss of $90,000. Village Oaks was sold to the
Trust's lessee at a gain to the Trust of $2,500,000.
On March 31, 1994, PCA Southwest Associates, the Investment Partnership
which held mortgages on and the land under five Structured Transactions,
acquired its lessee's interest in the properties for $427,000. The
properties, which consist of 3,000 apartment units in Houston, Texas, are
subject to first mortgage financing aggregating approximately $25,904,000
at July 31, 1994. As a result, the Investment Partnership now owns the
3,000 apartment units and has direct control over their management. The
Partnership has engaged three separate management firms to operate the
properties. The leasing status of the portfolio has suffered in recent
months, in part due to the poor leasing and management services provided
in the months before the Partnership acquired the properties. In addition,
one of the management firms is being replaced. Recently, leasing has
improved somewhat and further improvement is anticipated. One of the
properties, Braes Hill, is a 152-unit complex that is currently being
offered for sale; a loss is not anticipated. On July 31, 1994, the Trust's
investment in this Investment Partnership was $9,877,000. The apartments
were 85% leased at July 31, 1994 versus 93% at July 31, 1993 and 91% at
July 31, 1992.
Page 10
<PAGE>
ITEM 7. FINANCIAL CONDITION (continued)
In April 1993, the Trust restructured its investments in Elm Creek
apartments in Elmhurst, Illinois and Sandpiper Cove apartments in Boynton
Beach, Florida. The Trust's annual base land rent and leasehold mortgage
interest rate on the Elm Creek apartments were reduced to 8.5% from 10% for
the three year period commencing April 1, 1993. The Trust's annual base
land rent on the Sandpiper Cove apartments was reduced from 10% to 6.3% for
three years commencing April 1, 1993 and 7.4% thereafter, and the Trust's
$2,300,000 leasehold mortgage loan was canceled. This loss was charged
against the Trust's previously established allowance for possible
investment losses. An affiliate of the lessee/mortgagor in both
transactions has agreed to bear any property deficits. This obligation
terminates as to each property upon the conveyance of such property to the
Trust, at which time all amounts then due under the senior indebtedness for
such property and all amounts due the Trust must have been paid and
additional payments of $1,650,000 with regard to Elm Creek apartments or
$1,150,000 with regard to Sandpiper Cove apartments must have been made to
the Trust. During fiscal 1994 the cash flows from each project were not
sufficient to pay the Trust's land rent and/or mortgage interest and the
Trust anticipates the cash flows will be insufficient to make such payments
in fiscal 1995 as well. The Trust had $9,770,000 invested in Elm Creek and
the property was subject to a first mortgage of approximately $21,271,000
at July 31, 1994. The property was 97% leased at July 31, 1994, 99% leased
at July 31, 1993 and 97% leased at July 31, 1992. The Trust's investment
in Sandpiper Cove was $5,400,000 and the property was subject to a first
mortgage of $16,834,000 at July 31, 1994. The property was 97% leased at
July 31, 1994 and 1993 as compared to 95% leased at July 31, 1992.
The Trust has a $3,422,000 investment in an Investment Partnership that
holds Structured Transactions in Phases I and II of the Canyon View
apartments in San Ramon, California. During fiscal 1994, 1993 and 1992
cash flows from the properties were not sufficient to pay the Investment
Partnership's sublease rent and sub-leasehold mortgage interest. As a
result of these cash flow problems, the Investment Partnership has been
paid at a reduced rate on its mortgage loans since April 1992. The
sublessee/mortgagor has also been seeking to sell the two phases for
several months. The Investment Partnership's Phase I investments are
subject to a $12,000,000 first mortgage which had a scheduled maturity of
August 1, 1993, but was extended through August 1, 1994 in anticipation of
a proposed sale. In August 1994, when it became apparent that a sale was
unlikely to occur, the first mortgagee initiated a court proceeding for the
appointment of a receiver for Phase I and commenced foreclosure
proceedings. Both phases are also subject to non-subordinated land leases
held by a third party. The Investment Partnership paid the land rent due
on July 1, 1994 in the amount of approximately $46,000 for Phase II, which
is not encumbered by a first mortgage loan, upon demand from the land
lessor. The Investment Partnership has not been paid by the
lessee/mortgagor since June 1994. The Investment Partnership was
successful in having a receiver appointed for Phase II and has instituted
proceedings to foreclose its mortgages on Phases I and II. It is not
possible at this time to predict the outcome or duration of these
proceedings. For a further discussion see Item 3, "Legal Proceedings." The
Trust's total investment in Phase I was $878,000 at July 31, 1994 and the
property was 99% leased at July 31, 1994, 97% leased at July 31, 1993 and
100% leased at July 31, 1992. The Trust's total investment in Phase II was
$2,544,000 at July 31, 1994, and the property was 98% leased at July 31,
1994, 96% leased at July 31, 1993 and 100% leased at July 31, 1992.
The remaining apartment investments are all current with respect to
payments due the Trust at September 30, 1994.
Office Buildings
The Trust currently has eight office building investments, five Owned
Properties held directly by the Trust and three Owned Properties held in
an Investment Partnership. During fiscal 1994, the Trust's final remaining
office Structured Transaction held directly by the Trust was converted to
an Owned Property held directly by the Trust when the lessee of 6110
Executive Boulevard conveyed its interest in the property to a wholly owned
subsidiary of the Trust. The Trust utilized a portion of its previously
established allowance for possible investment losses to write down this
investment by $2,000,000. Previously, in fiscal 1992, the Trust had
written down this investment by $4,000,000. This property is owned subject
to a $6,458,000 first mortgage which bears interest at 9.625% and matures
in July 1995. The Trust has listed the property for sale with a real
estate broker, and no further loss is anticipated. At July 31, 1994 the
Trust's net investment in this property was $11,862,000 inclusive of the
first mortgage. At July 31, 1994 and 1993 this property was 96% leased as
compared to 97% leased at July 31, 1992.
The One Park West property, in Chevy Chase, Maryland, was acquired by a
wholly owned subsidiary of the Trust from the Trust's lessee on March 31,
1993, subject to a first mortgage loan of $10,227,000. At July 31, 1994,
the Trust's net investment in this property was $18,742,000 inclusive of
the first mortgage. During the year, significant improvement in the
leasing status was achieved and at July 31, 1994 this property was 100%
leased as compared to 83% leased at July 31, 1993 and 84% leased at July
31, 1992.
Page 11
<PAGE>
ITEM 7. FINANCIAL CONDITION (continued)
Shopping Centers
The Trust has five shopping center investments, one Owned Property held
directly by the Trust, two Structured Transactions held directly by the
Trust and two investments held in Investment Partnerships, an Owned
Property and a Structured Transaction.
The owners of the Trust's $500,000 Rapids Mall investment defaulted on
their obligation to pay interest due the Trust in November 1993.
Subsequently, the mortgage was brought current and the mortgagor was
granted an option to prepay the mortgage for $350,000. On June 8, 1994 the
prepayment was consummated. The resulting loss was charged against the
Trust's previously established allowance for possible investment losses.
Loehmann's Fashion Island in Aventura, Florida, an Owned Property held
directly by the Trust, is the Trust's largest investment and its
redevelopment was substantially completed during fiscal year 1994. The
redevelopment included the expansion and renovation of two existing anchor
tenant spaces (Loehmann's and AMC Theatres), the demolition of an existing
building to permit construction of a new 48,000 square foot Publix market
and new facades, walkways, signage, landscaping and tenant improvements for
the entire center. The grand reopening of the center occurred in December
1993. The Trust's investment in the property (net of depreciation) was
approximately $41,607,000 at July 31, 1994. The property was 90% leased
at July 31, 1994, as compared to 80% leased at July 31, 1993 and 63% leased
at July 31, 1992.
The Trust's other retail Owned Property is in Overland Park, Kansas. The
property is held in an Investment Partnership, Property Capital Midwest
Associates, L.P., which also owns three office Owned Properties in Overland
Park. All properties held by this partnership are owned free and clear
of debt. During the year, a capital improvement program for the shopping
center was completed, including a parking lot expansion, new signage,
upgraded landscaping and exterior repairs. The Trust's equity investment
in this property was $7,534,000 at July 31, 1994. The property was 93%
leased at July 31, 1994, as compared to 63% leased at July 31, 1993 and 69%
leased at July 31, 1992.
The remaining three shopping center investments are all current with
respect to their payments due to the Trust or respective Investment
Partnerships at September 30, 1994.
Hotels
The Trust has four hotel investments, three of which are Structured
Transactions held directly by the Trust and one of which is a Structured
Transaction held in an Investment Partnership. During the second quarter
of fiscal 1994, the Trust sold its land investment in the Brown County Inn
in Nashville, Indiana, for $600,000, resulting in a gain of $100,000, and
the Trust's $973,000 leasehold mortgage on this property was prepaid at
par.
Effective April 1, 1994, the Trust modified its $5,716,000 land
leaseback/mortgage loan investment in the Cincinnati Marriott Inn. The
restructured transactions require fixed annual land rent and mortgage
interest payments aggregating $450,000, payable monthly. In addition, the
land lease provides for overage income to the extent the hotel's revenues
exceed stipulated amounts. The restructuring was made in conjunction with
the acquisition of the general partner's interest in the Trust's
lessee/mortgagor by an affiliate of Interstate Hotels. Another affiliate
of Interstate Hotels manages the hotel. During the year ended July 31,
1994 this hotel's average occupancy was 64% as compared to 66% and 65%
during fiscal 1993 and 1992, respectively.
The Trust's three other hotel investments are current with respect to
payments due the Trust or the Investment Partnership at September 30, 1994.
Allowance for Possible Investment Losses
The Trust's $17,413,000 allowance for possible investment losses at July
31, 1994 is based upon management's estimate of net realizable value of
each investment and, to the extent it is less than carrying value, an
allowance for possible investment losses for each investment is
established. In estimating net realizable value, consideration is given
to many factors, such as income to be earned from the investment, the cost
to hold the property to a hypothetical time of sale, the selling price the
property would bring at such time, the cost of improving the property to
the condition contemplated in determining the selling price, the cost of
disposing of the property and prevailing economic conditions, including
availability of credit. In the opinion of both the Trustees and Management
this allowance adequately reflects the extent of the estimated impairment
that existed at July 31, 1994 in the net realizable value of each of the
assets in the portfolio.
Page 12
<PAGE>
ITEM 7. FINANCIAL CONDITION (continued)
RESULTS OF OPERATIONS-1994 VS. 1993
Revenues
Rents from Owned Properties held directly by the Trust (base rent plus
expense reimbursement) increased 71% from fiscal 1993, primarily as a
result of the Trust's acquisition of it's lessees' interests in 6110
Executive Boulevard (February 1994) and One Park West (March 1993), 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 29% from fiscal 1993, primarily due to the conversion of 6110
Executive Boulevard and One Park West to Owned Properties held directly by
the Trust, the sale of Village Oaks apartments (March 1994) and the
prepayment of the mortgage loan investment in Rapids Mall (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 decreased 12% from fiscal 1993 primarily due to the
recognition in the prior year of additional overage income from a certain
hotel investment as a result of an audit of the hotel's records and to the
sale of the Village Oaks and Brown County Inn investments. This decrease
was offset in part by the receipt of overage income in fiscal 1994 from two
apartment investments which did not pay overage income in the prior year.
The Trust's share of income from unconsolidated Investment Partnerships
increased 49% from fiscal 1993 primarily due to improved operating results
at the Trust's Investment Partnership which owns the Overland Park, Kansas,
properties and the completion of the lessee's bankruptcy proceedings and
the resumption of earnings with regard to the Investment Partnership which
owns the Houston apartments.
Expenses
Expenses on Owned Properties held directly by the Trust increased 54% from
fiscal 1993 primarily due to the conversion of 6110 Executive Boulevard and
One Park West to Owned Properties held directly by the Trust and an
increase in operating expenses at the redeveloped Loehmann's Fashion
Island.
Interest expense increased 29% from fiscal 1993 primarily due to the
interest expense incurred on the first mortgages on 6110 Executive
Boulevard and One Park West and the expensing of interest related to
Loehmann's Fashion Island (which had been capitalized during construction).
These increases were offset in part by a reduction in interest expense due
to the sale of Eagle apartments and the refinancing of Park Place.
Depreciation expense increased 46% as compared to the prior year primarily
due to the additions to Owned Properties held directly by the Trust noted
above and the increase in depreciation on Loehmann's Fashion Island as
portions of the redeveloped center were placed in service, offset in part
by the elimination of depreciation on Eagle apartments, which was sold.
General and administrative expenses increased 12% as compared to fiscal
1993 as the Trust incurred certain expenses that had previously been shared
with an affiliate of the former advisor to the Trust.
Professional fees decreased 23% due to reduced legal fees related to
litigation on certain investments.
Income before Gain (Loss) on Real Estate Investments
Income before gain (loss) on real estate investments decreased to
$1,579,000 ($.17 per share) from the prior year's $1,670,000 ($.18 per
share) for the reasons noted above.
Page 13
<PAGE>
ITEM 7. FINANCIAL CONDITION (continued)
Gain (Loss) on Real Estate Investments
The Trust sold three investments resulting in a gain on real estate
investments of $2,510,000 ($.28 per share). The Trust's Village Oaks
apartments investment was sold to the Trust's lessee for $3,500,000,
producing a gain of $2,500,000. The Trust's Eagle apartments were sold to
an unrelated third party for approximately $12,570,000, resulting in a net
loss of $90,000. The Trust's Brown County Inn land investment was sold to
the Trust's lessee for $600,000, producing a gain of $100,000.
Dividends
Dividends declared for fiscal 1994 were $.30 as compared to $.28 for fiscal
1993. During fiscal 1994 the Trust paid dividends approximately 55 days
following each fiscal quarter.
RESULTS OF OPERATIONS-1993 VS. 1992
Revenues
Rents from Owned Properties held directly by the Trust (base rent plus
expense reimbursements) increased 8% in fiscal 1993 from fiscal 1992,
primarily as a result of the Trust's acquisition of its lessee's interest
in the One Park West office building in March 1993 and an increase in rents
received in the fourth quarter as new tenants began to occupy Loehmann's
Fashion Island shopping center, which was under redevelopment.
Base income from Structured Transactions held directly by the Trust
declined 32% in fiscal 1993 from fiscal 1992, primarily due to the sales
of the Dell Industrial investment (March 1992) and the Lakeside apartments
investment (August 1992), the reduction in rent and interest received due
to the restructuring of the 6110 Executive Boulevard investment (July 1992)
and the conversion of One Park West to an Owned Property held directly by
the Trust (March 1993).
Overage income declined 15% in fiscal 1993 from fiscal 1992, primarily due
to the sales of the two investments noted above.
Income from unconsolidated Investment Partnerships decreased 40% from the
prior year primarily as a result of the suspension of rent and interest
payments by the lessee/mortgagor of the Houston apartments investments
following its bankruptcy filing (September 1992) and the associated
attorneys fees.
On August 1, 1992, the Trust commenced earning advisory fee income in
connection with its internalization of management and the assumption of
management services under certain existing advisory agreements (the
"Advisory Agreements") for the five Investment Partnerships (See Note 6
of the Notes to Consolidated Financial Statements of the Trust). Annually,
the Trust is to receive as compensation for providing such services the
first $150,000 of the fees payable under the Advisory Agreements, which
amount generally corresponds to the additional expenses to be incurred by
the Trust in performance of such tasks, plus 50% of any additional fees.
PCAIA, an affiliate of the former advisor to the Trust and the entity that
previously provided these services, will receive the remaining 50% of such
fees in excess of $150,000. During fiscal 1993, the Trust received $269,000
in payments under this arrangement and PCAIA received $119,000.
Expenses
Expenses on Owned Properties held directly by the Trust in fiscal 1993
remained unchanged as compared to fiscal 1992. The increase in expenses
associated with the Trust's acquisition of One Park West in March 1993 was
offset by the capitalization of certain expenses at Loehmann's Fashion
Island related to the redevelopment.
Interest expense declined 26% in fiscal 1993 from fiscal 1992, primarily
as a result of significantly lower borrowings under the bank note payable
and the capitalization of interest related to the redevelopment of
Loehmann's Fashion Island, offset in part by the interest expense incurred
on the first mortgage on One Park West.
Depreciation expense declined 6% in fiscal 1993 from fiscal 1992, primarily
as a result of the suspension of depreciation on portions of Loehmann's
Fashion Island while the redevelopment was under way, offset in part by the
depreciation of the One Park West property after it was acquired by the
Trust in March 1993.
Page 14
<PAGE>
ITEM 7. FINANCIAL CONDITION (continued)
General and administrative expenses include costs of internalized
management (such as salaries, rent and other overhead expenses) and certain
expenses which in previous years had been classified as "other expenses."
Effective August 1, 1992, the Trust internalized the investment and day-
to-day administrative services previously performed by the Advisor under
an advisory contract which expired on July 31, 1992 and was not renewed.
For comparative purposes, fiscal 1992 general and administrative expenses
plus advisory fees totalled $1,237,000 as compared to general and
administrative expenses of $1,817,000 in fiscal 1993, offset by $269,000
of advisory fee income from the Investment Partnerships.
Professional fees decreased 28% in fiscal 1993 from fiscal 1992 due to
certain non-recurring legal services incurred in fiscal 1992.
Income before Gain (Loss) on Real Estate Investments and Extraordinary Item
Income before gain (loss) on real estate investments and extraordinary item
was $1,670,000 ($.18 per share) for fiscal 1993, as compared to $2,565,000
($.28 per share) for fiscal 1992 for the reasons noted above.
Gain (Loss) on Real Estate Investments and Extraordinary Item
In August 1992, the Trust sold its investment in Lakeside apartments for
$9,500,000, which produced a gain of $7,700,000 ($.85 per share).
In the quarter ended January 31, 1993, the Trust increased its allowance
for possible investment losses by $10,000,000 ($1.11 per share).
There was no extraordinary item in fiscal 1993.
Dividends
Dividends for both fiscal 1993 and 1992 were $.28 per share. During fiscal
1993 the Trust paid dividends approximately 55 days following the end of
each fiscal quarter. During fiscal 1992 dividends were paid approximately
45 days following each fiscal quarter.
INFLATIONARY AND ECONOMIC FACTORS
The effect of inflation upon the Trust's operations and real estate
investments has varied. Rental rates have not been increasing materially
with inflation as competitive market conditions exist at most of the
Trust's properties. Although operating expenses are impacted by inflation,
increases in operating expenses in the past year caused by inflation have
not been material.
The Trust believes that most of the real estate markets in which the Trust
operates have stabilized and in some cases have improved. Different areas
of the country are expected to recover from the real estate slump of the
early 1990s at different times and as these markets recover, the portfolio
should benefit accordingly.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Trust
are included under Item 14 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 15
<PAGE>
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be furnished pursuant to this item with respect
to Trustees of the Trust is set forth under the caption "Election of
Trustees" in the Trust's proxy statement (the "Proxy Statement") to be
furnished to shareholders in connection with the solicitation of proxies
by the Trust's Board of Trustees for use at the 1994 Annual Meeting of
Shareholders to be held on November 30, 1994 and is incorporated herein by
reference; the information with respect to Executive Officers is set forth,
pursuant to General Instruction G of Form 10-K, under Part I of this
Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item is set forth
under the caption "Executive Compensation" in the Proxy Statement, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished pursuant to this item is set forth
under the captions "Voting Securities and Principal Shareholders" and
"Election of Trustees" in the Proxy Statement, and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished pursuant to this item is set forth
under the caption "Certain Relationships and Related Transactions" in the
Proxy Statement, and is incorporated herein by reference.
Page 16
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Consolidated Financial Statements
The consolidated financial statements listed in the accompanying index
to financial statements on Page 20 are filed as part of this Annual
Report.
2. Consolidated Financial Statement Schedules
The consolidated financial statement schedules listed in the
accompanying index to financial statements on Page 20 are filed as
part of this Annual Report.
3. Exhibits
22. List of the Trust's subsidiaries on page 63 is filed as part of
this Annual Report.
23. Consent of Ernst & Young LLP on page 64 is filed as part of this
Annual Report.
(b) Reports on Form 8-K
None.
Page 17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /S/ ROBERT M. MELZER
Robert M. Melzer October 12, 1994
Trustee, President and Chief Executive Officer ----------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Trust and in the capacities and on the dates indicated:
/S/ JOHN A. CERVIERI JR. Managing Trustee October 12, 1994
John A. Cervieri Jr.
/S/ ROBERT M. MELZER Trustee, President and October 12, 1994
Robert M. Melzer Chief Executive Officer
(Principal Executive and
Financial Officer)
/S/ WALTER M. CABOT Trustee October 12, 1994
Walter M. Cabot
/S/ GRAHAM O. HARRISON Trustee October 12, 1994
Graham O. Harrison
/S/ J. ATWOOD IVES Trustee October 12, 1994
J. Atwood Ives
/S/ WALTER F. LEINHARDT Trustee October 12, 1994
Walter F. Leinhardt
/S/ NORMAN B. LEVENTHAL Trustee October 12, 1994
Norman B. Leventhal
/S/ EDWARD H. LINDE Trustee October 12, 1994
Edward H. Linde
/S/ GLENN P. STREHLE Trustee October 12, 1994
Glenn P. Strehle
/S/ ROBIN W. DEVEREUX Vice President
Robin W. Devereux & Treasurer October 12, 1994
(Principal Accounting
Officer)
Page 18
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8 and ITEM 14a(1), (2) and (d)
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
Year Ended July 31, 1994
PROPERTY CAPITAL TRUST
Boston, Massachusetts
Page 19
<PAGE>
ITEM 14a(1), (2) and (d) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
Page
PROPERTY CAPITAL TRUST
Report of Independent Auditors 21
The following consolidated financial
statements of Property Capital Trust
are included in Item 8:
Consolidated balance sheet at July 31,
1994 and 1993 22
Consolidated statement of operations
for each of the three years in the
period
ended July 31, 1994 23
Consolidated statement of cash flows
for each of the three years in the
period ended July 31, 1994 24
Consolidated statement of shareholders'
equity for each of the three
years in the period ended July 31, 1994 25
Notes to consolidated financial statements 26-38
The following consolidated financial statement
schedules of Property
Capital Trust are
included in Item 14 (d):
Consolidated Quarterly Financial Data (unaudited) 39
VIII - Allowance for possible investment losses 40
XI - Investments - Land Leasebacks and Owned
Properties held directly by the Trust 41-44
XII - Investments - Mortgage Loans held directly
by the Trust 45-46
Exhibit A - Investment Partnerships - Land
Leasebacks and Owned Properties 47-50
Exhibit B - Investment Partnerships - Mortgage Loans 51-52
The following separate financial statements
are required pursuant to 3-09 of Regulation SX:
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
Report of Independent Auditors 54
The following financial statements of Property
Capital Midwest Associates, L.P. are
included in Item 8:
Balance sheet at December 31, 1993 and 1992 55
Statement of operations for each of the
three years in the period
ended December 31, 1993 56
Statement of cash flows for each of
the three years in the period
ended December 31, 1993 57
Statement of changes in partners' equity
for each of the three years in
the period
ended December 31, 1993 58
Notes to financial statements 59-61
The following financial statement schedules of
Property Capital Midwest
Associates, L.P. are
included in Item 14 (d):
XI - Owned Properties 62
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the instructions or are inapplicable and
therefore have been omitted.
Page 20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Property Capital Trust
We have audited the accompanying consolidated balance sheets of Property
Capital Trust (a real estate investment trust) as of July 31, 1994 and
1993, and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended July
31, 1994. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Property Capital Trust at July 31, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended July 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1994
the Trust changed its method of accounting for certain of its real estate
investments.
ERNST & YOUNG LLP
Boston, Massachusetts
August 26, 1994
Page 21
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
July 31,
1994 1993
<S> <C> <C>
Assets
Real Estate Investments
Owned Properties held directly by the Trust
(net of accumulated depreciation) $105,974,000 $101,160,000
Structured Transactions held directly by the Trust 32,581,000 43,065,000
Investment Partnerships 51,998,000 51,928,000
------------ ------------
190,553,000 196,153,000
Less: Allowance for possible investment losses (17,413,000) (20,129,000)
-------------- -------------
173,140,000 176,024,000
Cash 720,000 324,000
Interest and rents receivable
Owned Properties held directly by the Trust 1,852,000 1,598,000
Structured Transactions held directly by the Trust 259,000 965,000
Other assets 862,000 548,000
----------- ------------
$176,833,000 $179,459,000
============ ============
Liabilities and Shareholders' Equity
Liabilities
Accounts payable and accrued expenses $2,940,000 $2,269,000
Accrued interest 711,000 564,000
Bank note payable 5,000,000 16,530,000
Mortgage notes payable 43,110,000 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
----------- ------------
85,130,000 89,325,000
----------- ------------
Shareholders' Equity
Common Shares (without par value, unlimited shares
authorized, 9,030,585 issued and outstanding at
July 31, 1994 and 9,028,585 at July 31, 1993) 106,060,000 106,052,000
Accumulated deficit (14,357,000) (15,918,000)
----------- -------------
Total Shareholders' Equity 91,703,000 90,134,000
----------- ------------
$176,833,000 $179,459,000
============= ==============
</TABLE>
See accompanying notes
Page 22
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended July 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues
Rents from Owned Properties held directly by the Trust $14,083,000 $8,237,000 $7,626,000
Structured Transactions held directly by the Trust
Base income 3,074,000 4,343,000 6,379,000
Overage income 1,911,000 2,165,000 2,551,000
Income from unconsolidated Investment Partnerships 2,264,000 1,519,000 2,524,000
---------- ---------- ----------
21,332,000 16,264,000 19,080,000
Advisory fee income 290,000 269,000 -
Interest income 1,000 2,000 29,000
---------- ---------- ----------
21,623,000 16,535,000 19,109,000
---------- ---------- ----------
Expenses
Expenses on Owned Properties held directly by the Trust 6,915,000 4,501,000 4,507,000
Interest 6,994,000 5,441,000 7,364,000
Depreciation 3,538,000 2,423,000 2,584,000
General and administrative expenses 2,034,000 1,817,000 146,000
Advisory fees - - 1,091,000
Professional fees 377,000 490,000 678,000
Trustees' fees and expenses 186,000 193,000 174,000
---------- ---------- ----------
20,044,000 14,865,000 16,544,000
---------- ---------- ----------
Income before Gain (Loss) on Real Estate
Investments and Extraordinary Item 1,579,000 1,670,000 2,565,000
---------- ---------- ----------
Gain (Loss) on Real Estate Investments
Gain (Loss) on Sale of Real Estate Investments 2,510,000 7,700,000 (9,150,000)
Provision for Possible Investment Losses - (10,000,000) (17,000,000)
---------- ----------- ------------
2,510,000 (2,300,000) (26,150,000)
---------- ------------ ------------
Gain (Loss) before Extraordinary Item 4,089,000 (630,000) (23,585,000)
Extraordinary Gain from Extinguishment
of Debt - - 7,950,000
------------ ------------ ------------
Net Income (Loss) $4,089,000 ($630,000) ($15,635,000)
============ ============ ============
Net Income (Loss) per Share
Income before Gain (Loss) on Real Estate
Investments and Extraordinary Item $0.17 $0.18 $0.28
------------ ------------- -------------
Gain (Loss) on Real Estate Investments
Gain (Loss) on Sale of Real Estate Investments 0.28 0.85 (1.01)
Provision for Possible Investment Losses - (1.11) (1.88)
------------ -------------- --------------
0.28 (0.26) (2.89)
------------ -------------- --------------
Gain (Loss) before Extraordinary Item 0.45 (0.08) (2.61)
Extraordinary Gain from Extinguishment
of Debt - - 0.88
-------------- -------------- ---------------
Net Income (Loss) per Share $0.45 ($0.08) ($1.73)
============== ============== ===============
Average Shares Outstanding 9,030,000 9,029,000 9,029,000
================ =============== ==============
</TABLE>
See accompanying notes
Page 23
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended July 31,
1994 1993 1992
<S> <C> <C> <C>
Operating Activities
Net Income (Loss) $4,089,000 ($630,000) ($15,635,000)
Adjustments to Net Income (Loss)
(Gain) loss on sale of real estate investments (2,510,000) (7,700,000) 1,200,000
Increase in allowance for possible investment losses - 10,000,000 17,000,000
Depreciation and amortization 3,611,000 2,473,000 2,621,000
Income from unconsolidated Investment Partnerships (2,264,000) (1,519,000) (2,524,000)
Distributions of earnings from Investment Partnership 2,194,000 2,007,000 3,700,000
Changes in assets and liabilities
(Increase) decrease in interest and rents receivabl (115,000) 1,182,000 36,000
(Increase) decrease in other assets, net (387,000) 795,000 367,000
Increase (decrease) in accounts payable, accrued
expenses, and accrued interest 818,000 (1,376,000) (289,000)
----------- ----------- -------------
Net Cash Provided by Operating Activities 5,436,000 5,232,000 6,476,000
----------- ----------- -------------
Investing Activities
Owned Properties held directly by the Trust
Dispositions 12,567,000 -
Additions (9,030,000) (12,877,000) (1,540,000)
Structured Transactions held directly by the Trust
Dispositions 5,434,000 10,859,000 10,556,000
Additions - (587,000) (851,000)
Investment Partnerships
Additions - - (2,785,000)
------------ ------------- -------------
Net Cash Provided by (Used In) Investing Activities 8,971,000 (2,605,000) 5,380,000
------------ ------------- -------------
Financing Activities
Repayment of bank note payable (11,530,000) (5,770,000) (8,800,000)
Cash dividends paid (2,528,000) (2,438,000) (2,889,000)
Amortization of mortgage notes payable (469,000) (302,000) (210,000)
Proceeds from exercise of stock options 8,000 - -
Proceeds from mortgage notes payable 18,000,000 6,000,000 -
Repayment of mortgage notes payable (17,492,000) - -
------------- ------------ --------------
Net Cash Used In Financing Activities (14,011,000) (2,510,000) (11,899,000)
------------- ------------ --------------
Net Increase (Decrease) in Cash 396,000 117,000 (43,000)
Cash at Beginning of Year 324,000 207,000 250,000
------------- ------------- -------------
Cash at End of Year $720,000 $324,000 $207,000
============== =============== ===============
</TABLE>
See accompanying notes
Page 24
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended July 31,
1994 1993 1992
<S> <C> <C> <C>
Common Shares
Balance at beginning of year $106,052,000 $106,052,000 $106,052,000
Stock options exercised 8,000 - -
-------------- ------------- --------------
Balance at end of year 106,060,000 106,052,000 106,052,000
-------------- ------------- --------------
Accumulated Deficit
Balance at beginning of year (15,918,000) (12,850,000) 5,674,000
Net income (loss) 4,089,000 (630,000) (15,635,000)
Cash dividends paid (2,528,000) (2,438,000) (2,889,000)
-------------- -------------- ---------------
Balance at end of year (14,357,000) (15,918,000) (12,850,000)
Total Shareholders' Equity $91,703,000 $90,134,000 $93,202,000
============== ============== ==============
Number of Common Shares
Common Shares issued and outstanding at
beginning of year 9,028,585 9,028,585 9,028,585
Stock options exercised 2,000 - -
---------- ---------
Common Shares issued and outstanding at
end of year 9,030,585 9,028,585 9,028,585
=============== ============== =============
</TABLE>
See accompanying notes
Page 25
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Business
The Trust is an investor in and owner of income producing real estate
located throughout the United States. The Trust's business plan focuses
on maximizing shareholder values through asset, portfolio and liability
management and the selective disposition of investments.
Consolidation
The consolidated financial statements of the Trust include the accounts of
eleven wholly owned subsidiaries of which six own certain Owned Properties
held directly by the Trust. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Federal Income Taxes
The Trust has qualified and has elected to be taxed as a real estate
investment trust under Sections 856-860 of the Internal Revenue Code. The
Trust intends to continue to qualify as a real estate investment trust.
Accordingly, no provision has been made for Federal income taxes in the
financial statements.
Investment Partnerships
Certain of the Trust's investments have been made through partnerships or
a participation agreement in which the Trust is the general partner or lead
lender and other institutional investors are limited partners or
participants ("Investment Partnerships"). During the third quarter of
fiscal 1994, the Trust changed its method of accounting for its Investment
Partnerships to the equity method and prior period financial statements
were restated to reflect the change as if it had occurred at the beginning
of the period. Previously, the Trust consolidated its share of the
Investment Partnerships' results of operations and related assets and
liabilities. Although the change in accounting did not affect the Trust's
net income (loss) or shareholders' equity, the change is to a preferable
method based upon generally accepted accounting principles and is more
consistent with current accounting practices in the real estate industry.
Valuation of Real Estate Investments
Real estate investments are carried at cost, net of accumulated
depreciation and less an allowance for possible investment losses. When
the Trust acquires a property from its lessee/mortgagor it records the
acquired property improvements at the lesser of cost or net realizable
value at the time of acquisition. The Trust's allowance for possible
investment losses is based upon management's estimate of the net realizable
value of each investment and to the extent this is less than the carrying
value, an allowance for possible investment losses is established. In
determining estimated net realizable value, consideration is given to many
factors, such as income to be earned from the investment, the cost to hold
the property to the hypothetical time of sale, the selling price a property
would bring at such time, the cost of improving the property to the
condition contemplated in determining the selling price, the cost of
disposing the property and prevailing economic conditions including
availability of credit.
Depreciation and amortization have been calculated under the straight-line
method, based upon the estimated useful lives of the assets. Properties
and property improvements are depreciated over 25 to 39 years. Leasing
commissions and tenant improvements are amortized under the straight-line
method over the term of the related leases. Expenditures for maintenance,
repairs and betterments which do not materially prolong the normal useful
life of an asset are charged to operations as incurred.
Page 26
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
For financial reporting purposes, the Owned Properties held directly by the
Trust and the Investment Partnerships are accounted for on a one-month lag.
Certain space leases at the Owned Properties held directly by the Trust
provide for stepped minimum rents which are accounted for on a straight-
line basis over the terms of the leases. The difference between rental
income accrued under the straight-line method and rent received or
receivable by the Trust for financial reporting purposes was ($32,000),
($67,000) and $275,000 for the years ended July 31, 1994, 1993 and 1992,
respectively.
Net Income (Loss) Per Share
Net income (loss) per share is calculated by dividing net income (loss) by
the weighted average Common Shares outstanding during the year. Net income
(loss) per share on a quarterly basis may not total to the annual net
income (loss) per share due to rounding.
Reclassification
Certain items in the 1993 and 1992 financial statements have been
reclassified to conform to the 1994 presentation.
NOTE 2. REAL ESTATE INVESTMENTS
The Trust's real estate investments consist primarily of equity investments
in completed, income-producing properties located throughout the United
States. Investments consisting of land leasebacks and/or mortgage loans
are classified as Structured Transactions. Operating properties are
classified as Owned Properties. Investments made through partnerships or
participation agreements in which the Trust is the general partner or lead
lender and other institutional investors are the limited partners or
participating lenders are classified as Investment Partnerships. Two of
the Investment Partnerships hold Owned Properties and three hold Structured
Transactions. As of July 31, 1994, the Trust had ten Structured
Transactions held directly by the Trust, six Owned Properties held directly
by the Trust and five Investment Partnerships, three of which hold four
Structured Transactions and two of which hold nine Owned Properties.
The Trust's real estate investments (net of accumulated depreciation) are
as follows:
July 31,
----------------------------------------
1994 1993
- - - --------------------------------------------------------------------------
Owned Properties
held directly by the Trust $105,974,000 $101,160,000
Structured Transactions
held directly by the Trust
Land leasebacks 17,140,000 21,140,000
Mortgage loans 15,441,000 21,925,000
Investment Partnerships 51,998,000 51,928,000
----------- -----------
$190,553,000 $196,153,000
============ ============
Page 27
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The Trust's real estate investments (net of accumulated depreciation) are
diversified by type of property as follows:
July 31,
---------------------------------------
1994 1993
- - - -------------------------------------------------------------------------
Owned Properties held directly
by the Trust
Office buildings $ 64,367,000 $ 52,613,000
Shopping centers (1) 41,607,000 35,660,000
Apartments - 12,887,000
Hotels - -
----------- -----------
105,974,000 101,160,000
----------- -----------
Structured Transactions
held directly by the Trust - 7,500,000
Office buildings 4,335,000 4,844,000
Apartments 16,530,000 17,530,000
Hotels 11,716,000 13,191,000
----------- ------------
32,581,000 43,065,000
----------- ------------
Investment Partnerships
Office buildings 20,125,000 20,523,000
Shopping centers 9,550,000 9,261,000
Apartments 13,299,000 13,127,000
Hotels 9,024,000 9,017,000
----------- ------------
51,998,000 51,928,000
----------- ------------
Total Real Estate Investments $190,553,000 $196,153,000
============ ============
Real Estate Investments by
type of property
Office buildings $ 84,492,000 $ 80,636,000
Shopping centers (1) 55,492,000 49,765,000
Apartments 29,829,000 43,544,000
Hotels 20,740,000 22,208,000
------------ ------------
Total Real Estate Investments $190,553,000 $196,153,000
============ ============
Number of properties 29 33
== ==
(1) Inclusive of construction in progress of $2,427,000 and $13,259,000
at July 31, 1994 and 1993, respectively.
Page 28
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The Trust's real estate investments (net of accumulated depreciation) are
diversified as of July 31, 1994 by geographic region
as follows:
Number of Investment % of
Geographic Region Properties Amount Total
Midwest 11 $ 87,931,000 46 %
South 8 57,019,000 30
West 8 14,999,000 8
East 2 30,604,000 16
29 $190,553,000 100 %
A majority of the real estate investments are subject to long-term first
mortgage financing which aggregated $188,080,000 at July 31, 1994 and
$200,753,000 at July 31, 1993.
Owned Properties held directly by the Trust
Owned Properties held directly by the Trust (which include those held in
wholly owned subsidiaries) include land, buildings, furniture, fixtures and
equipment, tenant improvements and leasing commissions. Tenant
improvements represent the cost of constructing or finishing tenant space
under the terms of a lease for that space. Leasing commissions represent
payments made to the leasing agent as compensation for the negotiation and
consummation of a lease. Material disbursements that constitute new assets
or improvements to existing assets that extend their useful lives and/or
substantially increase their value are capitalized.
The operating results of Owned Properties held directly by the Trust are
reflected in the statement of operations as Rents from Owned Properties
held directly by the Trust and Expenses on Owned Properties held directly
by the Trust. Rents from Owned Properties held directly by the Trust
represent base rents and expense reimbursements from tenants. Expenses on
Owned Properties held directly by the Trust are as follows:
<TABLE>
<CAPTION>
July 31,
------------------------------------------------------
1994 1993 1992
- - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repairs and maintenance $2,272,000 $1,357,000 $1,637,000
Real estate taxes 1,585,000 1,045,000 1,061,000
Utilities 1,322,000 870,000 790,000
General and administrative 1,072,000 836,000 654,000
Management fees 487,000 308,000 253,000
Insurance 177,000 85,000 112,000
--------- --------- ----------
Expenses on Owned Properties
held directly by the Trust $6,915,000 $4,501,000 $4,507,000
========== ========== ==========
</TABLE>
During fiscal year 1994, the Trust sold Eagle apartments. The property was
purchased by an unrelated third party for approximately $12,570,000,
resulting in a loss of $90,000. Effective February 1, 1994, a wholly owned
subsidiary of the Trust acquired the equity interest of its lessee in 6110
Executive Boulevard, an office building in Rockville, Maryland, subject to
a non-recourse first mortgage loan of $6,478,000. During the quarter ended
January 31, 1994, the Trust wrote down its investment in 6110 Executive
Boulevard by $2,000,000. This write-down was charged against the Trust's
allowance for possible investment losses.
Page 29
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
In the prior fiscal year, on March 31, 1993, a wholly owned subsidiary of
the Trust acquired the equity interest of its lessee in One Park West, an
office building in Chevy Chase, Maryland, subject to a first mortgage loan
of $10,227,000. Upon acquisition the Trust utilized the applicable portion
of its previously established allowance for possible investment losses to
write down this investment by $6,000,000.
In fiscal 1992, a wholly owned subsidiary of the Trust acquired the equity
interest of its lessee in Commerce Centre, comprised of two suburban office
buildings in Des Plaines, Illinois, subject to a non-recourse first
mortgage loan of $17,417,000. Upon acquisition the Trust utilized the
applicable portion of its previously established allowance for possible
investment losses to write down this investment by $7,000,000. In July
1992 the Trust entered into an agreement with the first mortgage lender to
convey the property to the lender for $100,000, at which time the Trust
wrote off both its investment and the related mortgage note payable.
Structured Transactions held directly by the Trust
Land leasebacks consist of land purchased under income-producing properties
and leased back under long-term net lease arrangements. These leases,
which are classified as operating leases, have remaining initial terms of
23 to 70 years, with a weighted average term of 54 years. The leases
require fixed monthly base rental payments to the Trust and generally also
provide for overage rental payments, which are typically computed as a
percentage of property gross receipts in excess of base amounts.
Base rental income contractually due under existing land leasebacks at July
31, 1994 is approximately $1,522,000 per year for the next five years.
Certain land leasebacks contain options whereby the lessees may repurchase
the land at prices typically based on fair market value, but not less than
the Trust's cost, or may cause the land and improvements to be sold to
third parties. When a property is sold to a third party, the Trust
typically receives the greater of a percentage of total sales proceeds of
the property or its cost. During the next five years, repurchase or
similar options covering $3,575,000 of land leasebacks become exercisable.
The mortgage loan investments are generally long-term loans that require
fixed monthly base interest payments and, when not payable on a self-
liquidating basis, require principal payments at maturity. Mortgage loans
are generally owned in conjunction with land leaseback transactions and are
subordinate to and have cross-default provisions with the land leasebacks.
The loans allow for prepayment prior to maturity, and during the next five
years all loans may be prepaid.
Because the mortgage loans were made and continue to be held in conjunction
with land leaseback transactions and these loans were not originally
structured to be considered separately from the land leaseback transactions
it is not practicable to estimate the fair values of these mortgage loans.
A determination of the fair values of these mortgage loans as a separate
component would be too subjective and would not result in a meaningful
estimate.
During fiscal year 1994 the Trust disposed of three Structured Transactions
held directly by the Trust. The Trust's $1,000,000 Village Oaks apartments
investment was purchased by the Trust's lessee for $3,500,000. The Trust's
Brown County Inn $500,000 land investment was purchased by the Trust's
lessee for $600,000 and its $973,000 leasehold mortgage was prepaid at par.
The Trust's $500,000 Rapids Mall mortgage loan was prepaid for $350,000,
with the resulting loss of $150,000 being charged against the Trust's
allowance for possible investment losses.
During fiscal 1993 the Trust disposed of three Structured Transactions held
directly by the Trust. The $1,800,000 Lakeside apartments investment was
sold for $9,500,000. The $4,000,000 Town and Country office investment was
sold for $70,000 and the $2,991,000 Stouffers Bedford Glen Hotel investment
was sold for $350,000. Losses incurred in connection with such sales were
charged against the Trust's allowance for possible investment losses.
Additionally, during the year the Trust reduced its allowance for possible
investment losses by $2,300,000 due to a write-off of the Trust's Sandpiper
Cove mortgage loan.
Page 30
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
Investments in unconsolidated Investment Partnerships
As of July 31, 1994 and 1993, the Trust had investments in five
unconsolidated Investment Partnerships which are accounted
for on the equity method. The Investment Partnerships provide for the
allocation of profits and losses and cash distributions in proportion to
ownership as shown below:
Investment Partnerships % Owned by the Trust
- - - ----------------------------------------------------------------------
Property Capital Midwest Associates, L.P. 53.30%
PCA Southwest Associates, L.P. 45.45%
Lisle Hilton Inn Loan Participation 41.67%
PCA Canyon View Associates, L.P. 23.81%
PCA Crossroads Associates, Ltd. 25.00%
Condensed combined financial statements of the unconsolidated Investment
Partnerships are as follows:
Condensed Combined Balance Sheet
July 31,
-------------------------------------
1994 1993
- - - ---------------------------------------------------------------
Assets
Current assets $ 4,070,000 $ 1,727,000
Owned Properties 99,058,000 52,043,000
Mortgage loans 34,778,000 51,952,000
Land leasebacks 9,084,000 13,984,000
Other assets 70,000 1,350,000
---------- ----------
$147,060,000 $121,056,000
============ ============
Liabilities and Capital
Current liabilities $ 2,905,000 $ 1,412,000
Other liabilities 530,000 475,000
Mortgage notes payable 25,904,000 -
Trust's share of combined capital
51,998,000 51,928,000
Limited partners' share of combined capital
65,723,000 67,241,000
------------ ------------
$147,060,000 $121,056,000
============ ============
Page 31
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
Condensed Combined Summary of Operations
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------------------------
1994 1993 1992
- - - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Rents from Owned Properties $10,968,000 $ 7,194,000 $6,722,000
Structured Transactions
Base income 4,225,000 3,674,000 5,522,000
Overage income 339,000 415,000 476,000
Other income 33,000 24,000 28,000
---------- ---------- ---------
15,565,000 11,307,000 12,748,000
---------- ---------- ----------
Expenses
Owned Properties expenses 5,538,000 3,577,000 3,440,000
Depreciation 2,787,000 2,149,000 1,942,000
Interest 732,000 - -
Other 794,000 1,349,000 831,000
---------- ---------- ---------
9,851,000 7,075,000 6,213,000
---------- ---------- ---------
Net income $ 5,714,000 $ 4,232,000 $ 6,535,000
=========== =========== ===========
Trust's share of combined
net income $ 2,264,000 $ 1,519,000 $ 2,524,000
Limited Partners' share
of combined net income 3,450,000 2,713,000 4,011,000
---------- --------- ----------
Net income $ 5,714,000 $ 4,232,000 $ 6,535,000
=========== =========== ===========
</TABLE>
The Trust's equity in unconsolidated Investment Partnerships are as
follows:
<TABLE>
<CAPTION>
Years Ended July 31,
-------------------------------------------------------------
1994 1993 1992
- - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property Capital Midwest Associates, L.P. $ 27,659,000 $ 27,763,000 $ 27,901,000
PCA Southwest Associates, L.P. 9,877,000 9,668,000 10,006,000
Lisle Hilton Inn Loan Participation 9,024,000 9,017,000 9,022,000
PCA Canyon View Associates, L.P. 3,422,000 3,459,000 3,459,000
PCA Crossroads Associates, Ltd. 2,016,000 2,021,000 2,028,000
---------- ---------- ----------
$51,998,000 $51,928,000 $52,416,000
=========== =========== ===========
</TABLE>
Page 32
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The Trust's share of income (loss) from unconsolidated Investment
Partnerships are as follows:
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------------------------------------------------
1994 1993 1992
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property Capital Midwest Associates, L.P. (1) $ 950,000 $ 646,000 $ 593,000
PCA Southwest Associates, L.P. (2) 209,000 (220,000) 822,000
Lisle Hilton Inn Loan Participation 617,000 570,000 544,000
PCA Canyon View Associates, L.P. 195,000 210,000 240,000
PCA Crossroads Associates, Ltd. 293,000 313,000 325,000
------- ------- -------
$2,264,000 $1,519,000 $2,524,000
========== ========== ==========
</TABLE>
(1) Net of the Trust's share of depreciation of $1,213,000, $1,145,000 and
$1,035,000 for years ended July 31, 1994, 1993 and 1992, respectively.
(2) Net of the Trust's share of depreciation of $232,000 for the year ended
July 31, 1994. These properties converted from Structured Investments to
Owned Properties on March 31, 1994.
Cash distributions received from the unconsolidated Investment Partnerships
are as follows:
<TABLE>
<CAPTION>
Years Ended July 31,
-------------------------------------------------------------------------
1994 1993 1992
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property Capital Midwest Associates, L.P. $ 1,054,000 $ 784,000 $ 1,498,000
PCA Southwest Associates, L.P. - 118,000 821,000
Lisle Hilton Inn Loan Participation 610,000 575,000 757,000
PCA Canyon View Associates, L.P. 232,000 210,000 299,000
PCA Crossroads Associates, Ltd. 298,000 320,000 325,000
--------- --------- ---------
$2,194,000 $2,007,000 $3,700,000
========== ========== ==========
</TABLE>
The Structured Transactions held in Investment Partnerships are similar to
those held directly by the Trust. The land leaseback leases have remaining
initial terms of 18 to 68 years, with a weighted average term of 63 years.
The leases require fixed monthly base rental payments to the Investment
Partnerships and also provide for overage rental payments. The Trust's
share of base rental income contractually due under existing land
leasebacks held in Investment Partnerships at July 31, 1994 is
approximately $268,000 per year for the next five years.
The mortgage loans held in Investment Partnerships are generally long-term
loans that require fixed monthly base interest payments and, when not
payable on a self-liquidating basis, require principal payments at
maturity. Except for the Lisle Hilton Inn loan participation, mortgage
loans are owned in conjunction with land leaseback transactions and are
subordinate to and have cross-default provisions with the land leasebacks.
The Lisle Hilton Inn loan participation, although not owned in conjunction
with a land leaseback transaction, also requires overage interest payments,
similar to the land leasebacks. The loans allow for prepayment prior to
maturity and during the next five years all loans may be prepaid.
Page 33
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
On March 31, 1994, PCA Southwest Associates Limited Partnership, an
Investment Partnership which held mortgages on and owned the land under
3,000 apartments in Houston, Texas, acquired for $427,000 its lessee's
interest in five properties subject to first mortgages aggregating
$25,989,000. The Trust has a 45.45% interest in this Investment
Partnership as general partner. During the quarter ended July 31, 1994,
the Trust wrote down its investment in this partnership by $566,000. This
write-down was charged against the Trust's allowance for possible
investment losses.
In September 1991, pursuant to a prior commitment, the Trust completed the
acquisition of a limited partner's 5.5% interest in Property Capital
Midwest Associates, L.P., which owns seven buildings in Overland Park,
Kansas, increasing the Trust's total interest to 53.3%. The total purchase
price, including closing adjustments, was $3,140,000.
NOTE 3. INDEBTEDNESS
The Trust has a $20,000,000 revolving line of credit from a major New
England bank. Borrowings under the line bear interest at the bank's prime
rate (7.25% at July 31, 1994) plus 1/4%. Previously, the line of credit
was for $35,000,000. Concurrent with the refinancing of Loehmann's Fashion
Island in June 1994 the line of credit was reduced to $20,000,000. The
line will be reduced to no less than $15,000,000, on a dollar for dollar
basis, as additional advances are made under the new Loehmann's Fashion
Island mortgage.
At July 31, 1994 and 1993 four of the Trust's Owned Properties held
directly by the Trust were encumbered by first mortgages aggregating
$43,110,000 and $36,593,000, respectively.
<TABLE>
<CAPTION>
Principal
Owned Properties Balance Interest
Held Directly by the Trust July 31, 1994 Rate Maturity
- - - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loehmann's Fashion Island $18,000,000 7.60% July 1998
One Park West 10,052,000 9.50% July 2000
Park Place 8,600,000 5.65% May 2008
6110 Executive Boulevard 6,458,000 9.625% July 1995
----------
$43,110,000
===========
</TABLE>
The book value of real estate pledged as collateral for these loans was
approximately $84,158,000. Scheduled principal payments on these loans at
July 31, 1994 are as follows:
Year ending July 31,
- - - ------------------------------------------------------------------------
1995 $ 6,736,000
1996 297,000
1997 317,000
1998 18,168,000
1999 312,000
2000 and thereafter 17,280,000
-----------
Total $43,110,000
===========
Page 34
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INDEBTEDNESS (continued)
Loehmann's Fashion Island's $11,582,000 first mortgage was refinanced for
$30,000,000 with an initial advance of $18,000,000 in June 1994.
Additional advances aggregating up to $12,000,000 may be made through June
1996 based upon property performance. The $30,000,000 mortgage loan (of
which $15,000,000 is recourse to the Trust) has a term of four years and
bears interest at the lender's prime rate plus 1/4% with the option to fix
the interest rate. In July 1994 the Trust fixed the interest rate on the
outstanding borrowings at 7.6% for a period of one year.
Effective February 1, 1994 a wholly owned subsidiary of the Trust acquired
its lessee's interest in 6110 Executive Boulevard subject to a $6,478,000
non-recourse first mortgage loan. In November 1993, the Trust refinanced
the $8,600,000 first mortgage on the Park Place office building located in
Clayton, Missouri, resulting in a reduction in the annual effective
interest rate from 8.25% to 5.65%.
The Trust issued $40,000,000 of 9 3/4% Convertible Subordinated Debentures
in May 1983, maturing May 15, 2008, and $40,000,000 of 10% Convertible
Subordinated Debentures in December 1984, maturing December 15, 2009. As
of July 31, 1994, $2,546,000 and $30,823,000 of the 9 3/4% and 10%
Debentures, respectively, were outstanding. The Debentures are subordinated
to all debt of the Trust and are convertible into Common Shares at
conversion prices of $19.00 and $21.70 per share, respectively. Conversion
of all Debentures outstanding at July 31, 1994 would add an additional
1,554,415 Common Shares. Due to conversions in prior years, sinking fund
payments on the 10% Debentures will commence in fiscal 1999, with a payment
of $823,000. There are no sinking fund requirements on the 9 3/4%
Debentures due to conversions in prior years.
For the years ended July 31, 1994, 1993 and 1992, cash paid for interest
on all of the Trust's debt was $6,961,000, $5,579,000 and $7,430,000,
respectively, net of capitalized interest of $858,000, $1,311,000 and
$177,000, respectively.
The fair values of the Trust's mortgage notes payable and Convertible
Subordinated Debentures at July 31, 1994 are $42,759,000 and $29,943,000,
respectively. The fair values were estimated using discounted cash flow
analyses on the mortgage notes and quoted market prices on the convertible
subordinated debentures. The obligations are assumed to be held to
maturity.
NOTE 4. RENTS UNDER OPERATING LEASES
All space leases at the Owned Properties held directly by the Trust are
classified as operating leases. Minimum future base rents to be received
from leases in effect at July 31, 1994 are as follows:
Year ending July 31,
- - - -------------------------------------------------------------------------
1995 $12,069,000
1996 10,647,000
1997 8,832,000
1998 6,899,000
1999 5,208,000
2000 and thereafter 27,920,000
----------
Total $71,575,000
===========
The minimum future base rents do not include contingent rentals, such as
tenant reimbursements which are received under certain leases based upon
property operating costs, or percentage rents which are based on the level
of a tenant's sales.
Page 35
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. RENTAL EXPENSE
The Trust leases office space under an operating lease which expires on May
31, 1997, although the Trust and the landlord each have the option to
cancel the lease as of May 31, 1996 by giving six months, prior notice.
Rental expense under this lease was $128,000 in 1994 and $111,000 in 1993.
There was no rental expense in fiscal 1992. Future minimum rental payments
will be $134,750, $147,000 and $122,500 for fiscal years 1995, 1996 and
1997, respectively.
NOTE 6. ADVISORY SERVICES
Prior to August 1, 1992, services related to investment matters and day-to-
day administration were provided to the Trust by Property Capital Advisors,
Inc. (the "Advisor"). The contract provided that the Advisor receive a
base advisory fee equal to 15% of the first $15,000,000 of the Trust's
income before gains/losses on real estate investments and before the
advisory fee and depreciation; 12 1/2% of the next $10,000,000; and 10%
thereafter. The contract also provided for an incentive fee equal to 10%
of net realized gains, reduced by any current or previously recognized
losses (or provisions for possible losses) on real estate investments for
which the incentive fee was not previously reduced. The contract also
provided that the Trust's share of fees paid to PCA Institutional Advisors
("PCAIA") (an affiliate of the Advisor), the manager of the Investment
Partnerships, were to be offset against advisory fees payable to the
Advisor. The Advisory Contract was not renewed when it expired on July 31,
1992. Effective August 1, 1992 the Trust commenced management of its
affairs through an internal staff.
In connection with the internalization of management, the Trust entered
into an agreement with PCAIA pursuant to which the Trust assumed
responsibility for rendering services under advisory agreements (the
"Advisory Agreements") between PCAIA and the five Investment Partnerships.
The Trust receives annually the first $150,000 of amounts payable pursuant
to the Advisory Agreements as compensation for providing such services,
which amount generally corresponds to the additional expenses incurred by
the Trust in performance of such tasks, plus 50% of additional amounts
payable pursuant to the Advisory Agreements, which aggregated $140,000 and
$119,000 in fiscal 1994 and 1993, respectively. PCAIA receives the
remaining 50% of such payments in excess of $150,000. Excluded from the
foregoing arrangement is the termination fee payable pursuant to the PCA
Crossroads Associates, Ltd. ("Crossroads") advisory agreement, which fee
will be payable solely to PCAIA.
Commencing on August 1, 1997, the Trust may terminate the foregoing
agreement and thereafter receive 100% of all payments under the Advisory
Agreements (other than the termination fee payable pursuant to the
Crossroads advisory agreement) by paying PCAIA three times PCAIA's share
of the average of the annual payments, the "Buy-Out Amount," that it
received under such sharing arrangement during the two prior fiscal years,
calculated without reference to payments attributable to properties sold
or otherwise disposed of during such fiscal years. The Buy-Out Amount is
payable to PCAIA in three annual installments, in arrears, with interest
accruing on the unpaid principal amount of such payment at the prime rate
of the Trust's primary bank lender. The Buy-Out Amount is reduced in the
event that properties are sold or otherwise disposed of during the three
years over which such amount is payable.
NOTE 7. RELATED PARTY TRANSACTIONS
During fiscal 1994, 1993 and 1992, the Trust incurred legal fees in the
amount of $346,000, $347,000 and $229,000, respectively (exclusive of
additional amounts paid by the Trust's lessees and borrowers, if any), from
the law firm of Paul, Weiss, Rifkind, Wharton & Garrison, of which Walter
F. Leinhardt, Secretary and Trustee of the Trust, is a partner. Not
included in the above amount is the Trust's share of legal fees incurred
by the Investment Partnerships in the amount of $46,000, $66,000 and
$14,000 for fiscal 1994, 1993 and 1992, respectively.
During fiscal 1993, the Trust purchased for approximately $85,000 certain
personal property from the Trust's former Advisor used in the conduct of
the Trust's business. Also during fiscal 1993, an affiliate of the Trust
paid approximately $68,000 to Boston Properties, Inc. of which Edward H.
Linde, a Trustee of the Trust, is the President, for certain consulting
services provided by an employee of Boston Properties, Inc. in connection
with the redevelopment of one of the Trust's Owned Properties held directly
by the Trust.
Page 36
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. ANTICIPATED CAPITAL EXPENDITURES
Amounts aggregating approximately $7,000,000 may be required during fiscal
1995 for the Trust's Owned Properties held directly by the Trust.
Additionally, the Trust's share of capital expenditures which may be
required by the Investment Partnerships during 1995 is approximately
$1,270,000.
<TABLE>
<CAPTION>
Owned Properties Owned Properties
Held Directly by the Trust Held In Investment Partnerships
---------------------------- --------------------------------
Under All Under All
Redevelopment Other Redevelopment Other
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tenant Improvements
& Leasing Commissions $4,125,000 $1,454,000 $ - $ 620,000
Other Capital 200,000 1,221,000 - 650,000
---------- ---------- ------ ----------
$4,325,000 $2,675,000 $ - $1,270,000
========== ========== ======== ==========
NOTE 9. SHAREHOLDERS' EQUITY
Stock Option Plan
At the Trust's November 20, 1992 Annual Meeting of Shareholders, the
Shareholders of the Trust adopted the Property Capital Trust 1992 Stock
Option Plan (the "Plan") for key employees of the Trust and its
subsidiaries pursuant to which options for 250,000 shares may be granted
to purchase Common Shares for a purchase price equal to, at a minimum, the
fair market value of the shares on the date of grant, subject to certain
adjustments.
The Compensation Committee of the Board of Trustees administers the Plan
and is responsible for selecting the individuals eligible to receive
options and for determining the number of options to be granted to such
individuals and for determining the purchase price of the shares.
Under the plan 20% of the options become exercisable on each anniversary
date over a five year period. The options are subject to termination under
certain circumstances.
Options outstanding August 1, 1992 -
Options granted on January 8, 1993 @ $3.75 per share 107,750
Options exercised -
Options canceled (3,250)
--------
Options outstanding July 31, 1993 104,500
Options granted on January 6, 1994 @ $6.375 per share 68,850
Options exercised ($3.75 per share) (2,000)
--------
Options outstanding July 31, 1994 171,350
========
Options exercisable July 31, 1994 18,900
=======
Options available for future grant 76,650
=======
Page 37
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. SHAREHOLDERS' EQUITY (continued)
Shareholder Rights Plan
On September 28, 1990 (the "Declaration Date"), the Trustees adopted a
Shareholder Rights Plan (the "Plan") and, in connection therewith, declared
a dividend distribution of one right for each of the Trust's outstanding
Common Shares to shareholders of record at the close of business on October
12, 1990. Each right entitles the holder thereof, upon the occurrence of
certain events making such rights exercisable, to exercise the right to buy
one Common Share at a purchase price of $27.00. The rights become
exercisable (i) 10 business days following the announcement that a person
or group of persons has acquired or obtained the right to acquire 9.8% or
more of the Common Shares (with certain exceptions for persons who were
shareholders on the Declaration Date) or (ii) upon the closing of a tender
offer resulting in ownership of 9.8% or more of the Common Shares (any
person acquiring in excess of 9.8% of the Common Shares being an
"Acquiror"). On the twenty-first business day after the acquisition of
9.8% or more of the Common Shares by an Acquiror, or upon the closing of
a tender offer for 9.8% or more of the Common Shares by an Acquiror, each
right will entitle its holder to purchase, at the right's exercise price,
that number of Common Shares having a market value at that time of twice
the right's exercise price. Each right will also become exercisable to
purchase Common Shares at a 50% discount in the event that an Acquiror
engages in self-dealing transactions with the Trust. If, at any time after
the rights become exercisable, the Trust is involved in a merger or other
business combination in which the Trust is not the surviving entity, each
right will entitle its holder to purchase, at the right's exercise price,
that number of shares of the acquiring company's common stock having a
market value at that time of twice the right's exercise price. The rights
will expire on the earlier of (i) September 28, 2000 or (ii) their
redemption by the Trustees at any time prior to the date that they become
exercisable, as described above, at a price of $.01 per right.
NOTE 10. DIVIDENDS
The Trust pays dividends approximately 55 days following each fiscal quarter,
equal to at least 100% of income before gains (losses) on real estate
investments.
Years Ended July 31,
--------------------------------------------------------------
1994 1993 1992
- - - -----------------------------------------------------------------------------
Dividends declared $.30 $.28 $.28
On August 26, 1994, the Trustees declared a dividend of $.09 per share,
payable on September 23, 1994 to shareholders of record on September 12,
1994 and which dividend is included in the above table.
In order to qualify as a real estate investment trust, Property Capital Trust
must distribute substantially all of its taxable income to shareholders not
later than twelve months following the end of its fiscal year.
Page 38
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------------
October 31, January 31, April 30, July 31,
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1994
Revenues $4,859,000 $4,981,000 $5,898,000 $5,885,000
Expenses 4,380,000 4,535,000 5,620,000 5,509,000
--------- --------- --------- ---------
Income before Gain on Real Estate Investments 479,000 446,000 278,000 376,000
--------- --------- --------- ---------
Gain on Real Estate Investments
Gain on Sale of Real Estate Investments - 100,000 2,410,000 -
Provision for Possible Investment Losses - - - -
--------- --------- --------- ---------
- 100,000 2,410,000 -
--------- --------- --------- ---------
Net Income $479,000 $546,000 $2,688,000 $376,000
========= ========= ========== =========
Net Income per Share
Income before Gain on Real Estate Investments $0.05 $0.05 $0.03 $0.04
Gain on Real Estate Investments
Gain on Sale of Real Estate Investments - 0.01 0.27 -
Provision for Possible Investment Losses - - - -
-------- ------ ---------- ----------
- 0.01 0.27 -
-------- ------ ---------- ----------
Net Income per Share $0.05 $0.06 $0.30 $0.04
======== ====== ========= ==========
Fiscal 1993
Revenues $3,787,000 $3,949,000 $4,201,000 $4,598,000
Expenses 3,407,000 3,563,000 3,742,000 4,153,000
---------- --------- --------- ---------
Income before Gain (Loss) on Real Estate Investmen 380,000 386,000 459,000 445,000
---------- --------- --------- ---------
Gain (Loss) on Real Estate Investments
Gain on Sale of Real Estate Investments 7,700,000 - - -
Provision for Possible Investment Losses - (10,000,000) - -
---------- ---------- ---------- ----------
7,700,000 (10,000,000) - -
---------- ---------- ----------- ----------
Net Income (Loss) $8,080,000 ($9,614,000) $ 459,000 $ 445,000
========== =========== ========= =========
Net Income (Loss) per Share
Income before Gain (Loss) on Real Estate Investments $0.04 $0.04 $0.05 $0.05
Gain (Loss) on Real Estate Investments
Gain on Sale of Real Estate Investments 0.85 - - -
Provision for Possible Investment Losses - (1.11) - -
----- ------- ----- -----
0.85 (1.11) - -
----- ------- ----- -----
Net Income (Loss) per Share $0.89 ($1.07) $0.05 $0.05
====== ======= ====== ======
Note: During the third quarter of fiscal 1994, the Trust adopted a change in accounting method to the equity method for Investment
Partnerships and accordingly all prior quarters have been restated.
</TABLE>
Page 39
<PAGE>
PROPERTY CAPITAL TRUST
SCHEDULE VIII
ALLOWANCE FOR POSSIBLE INVESTMENT LOSSES
Years Ended July 31,
1994 1993 1992
Balance at beginning of year $20,129,000 $25,000,000 $15,000,000
Additions during year - 10,000,000 17,000,000
Property write-downs (2,716,000) (14,871,000) (7,000,000)
------------ ---------- ----------
Balance at end of year $17,413,000 $20,129,000 $25,000,000
============ =========== ===========
Allowance as a % of total Real Estate Investments
(before allowance for possible investment losses)
9.1 % 10.3 % 12.9 %
====== ====== =======
The allowance for possible investment losses represents the excess of the
carrying value of individual real estate investments over their estimated
net realizable value. Based upon a review and evaluation of each real
estate investment in the Trust's portfolio, management believes the
allowance was adequate at July 31, 1994.
Page 40
<PAGE>
PROPERTY CAPITAL TRUST
SCHEDULE XI
July 31, 1994
(thousands of dollars)
<TABLE>
<CAPTION>
Land Leasebacks Held Directly by the Trust
Third Party Senior Amount of
Indebtedness Trust's Land
Rentable Date of Balance Interest Rate/ Investment
Type and Name of Property Location Space Investment at 7/31/94 Maturity at 7/31/94(a)
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartments
Sandpiper Cove Boynton Beach, F 416 units Apr-89 $16,834 9.25%/1999 $5,400
Elm Creek Elmhurst, IL 372 units Nov-88 21,271 9.50%/1997 2,230 (b)
Bluffs II San Diego, CA 224 units Jun-73 1,742 8.38%/2004 825
Northbrook San Bernardino, 190 units May-74 - - 400
Yorkshire Midwest City, OK 111 units Nov-71 - 135
----------- ------- ------
1,313 units 39,847 8,990
=========== ------- ------
Shopping Centers
Roseburg Valley Mall Roseburg, OR 237,000 sq.ft. Sep-82 6,933 9.25%/2015 1,800 (b)
Lakeside Center Burbank, CA 66,000 sq.ft. Mar-73 273 8.00%/1998 350
------------- ------ -----
303,000 sq.ft. 7,206 2,150
============= ------ -----
Hotels
Cincinnati Marriott Inn Cincinnati, OH 350 rooms Feb-84 10,741 9.75%/2001 2,000 (b)
Grosvenor Airport Inn South San Francisco, CA 206 rooms Mar-82 1,529 10.00%/1995 2,000 (b)
City Centre Holiday Inn Chicago, IL 500 rooms Mar-77 10,553 9.13%/1997 2,000
------------- ------ ------
1,056 rooms 22,823 6,000
============= ------ ------
$69,876 $17,140 (f)
======= ========
</TABLE>
(continued)
Rent and Base Rental Overage
Overage Income Income
Base Receivable Y/E Y/E
Land Rent at 7/31/94 7/31/94 7/31/94
- - - -------------------------------------------
[C] [C] [C] [C]
6.30%(c) $0 $340 $35
8.50%(d) 0 190 80
10.00% 35 83 133
10.50% 15 42 48
11.00% 2 17 32
-- --- ---
52 672 328
--- --- ---
12.00% 0 216 0
10.00% 14 35 123
--- ---- ----
14 251 123
--- ---- ----
12.00% 0 140 0
4.00%(e) 0 80 0
11.00% 100 220 1,248
--- --- -----
100 440 1,248
--- --- -----
$166 $1,363(g) $1,699 (h)
==== ======= ======
For information on Land Leasebacks Held in Investment Partnerships see
Exhibit A.
Page 41
<PAGE>
PROPERTY CAPITAL TRUST
SCHEDULE XI (continued)
July 31, 1994
(thousands of dollars)
Owned Properties Held Directly by the Trust
<TABLE>
<CAPTION>
Third Party Senior
Indebtedness
Type and Name Rentable Date of Balance Interest Rate/
of Property Location Space Acquisition (i) at 7/31/94 Maturity
- - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office Buildings
One Park West Chevy Chase, MD 128,500 sq.ft Mar-93 $10,052 9.50%/2000
Park Place Clayton, MO 72,000 sq.ft Jan-91 8,600 5.65%/2008
6110 Executive Blvd Rockville, MD 197,000 sq.ft Feb-94 6,458 9.625%/1995
Citibank Office Plaza Oak Brook, IL 100,400 sq.ft Feb-89 - -
Citibank Office Plaza Schaumburg, IL 105,400 sq.ft Feb-89 - -
603,300 sq.ft. 25,110
Shopping Centers
Loehmann's Fashion Island Aventura, FL 280,000 sq.ft May-89 18,000 7.60%/1998
$43,110
For information on Owned Properties Held in Investment Partnerships
see Exhibit A
</TABLE>
<TABLE>
(continued)
<CAPTION>
Amount of Trust's Investment Costs
at Date of Acquisition Capitalized Gross Amount of Trust's Investment Net
Buildings and Subsequent Buildings and Accumulated Investment
Land Improvements to Acquistion Land (a) Improvements Total Depreciation at 7/31/94
- - - -----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$3,500 $14,942 $875 $3,500 $15,817 $19,317 $575 $18,742
3,000 9,194 1,033 3,000 10,227 13,227 1,280 11,947
2,500 9,473 0 2,500 9,473 11,973 111 11,862 (k)
1,875 10,766 2,108 1,875 12,874 14,749 3,083 11,666
1,275 9,001 2,509 1,275 11,510 12,785 2,635 10,150
12,150 53,376 6,525 12,150 59,901 72,051 7,684 64,367
4,800 17,546 21,957 9,706 34,597 44,303 2,696 41,607
$16,950 $70,922 $28,482 $21,856 $94,498 $116,354 ( $10,380 $105,974
</TABLE>
Rental Operating Net
Rent Income Expense Operating
Receivable Y/E Y/E Income Y/E
at 7/31/94 7/31/94 7/31/94 7/31/94
- - - --------------------------------------------------
$60 $2,806 $1,004 $1,802
3 1,585 641 944
17 1,564 724 840
318 (j) 1,809 782 1,027
989 (j) 1,580 1,045 535
1,387 9,344 4,196 5,148
465 (j) 3,617 2,234 1,383
$1,852 $12,961 (m) $6,430 (n) $6,531
Page 42
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO SCHEDULE XI
(a) This amount represents the cost of each land investment and the amount
at which each investment is carried on the balance sheet at July 31, 1994.
There are no differences between the cost of each land investment for
financial reporting purposes and the cost of each land investment for
federal income tax purposes, except as follows:
Name of Property Book Basis Tax Basis
- - - ----------------------------------------------------------------------------
Cincinnati Marriott Inn $2,000,000 $1,419,000
Citibank Office Plaza - Oak Brook 1,875,000 781,000
Park Place 3,000,000 767,000
Loehmann's Fashion Island 9,706,000 5,535,000
Citibank Office Plaza - Schaumburg 1,275,000 531,000
(b) The Trust also holds a leasehold mortgage on this property (see
Schedule XII).
(c) The base land rent rate was renegotiated, effective April 1, 1993, from
a base payment rate of 10% to a base payment rate of 6.3% until March 31,
1996, and 7.4% thereafter.
(d) The base land rent rate was renegotiated, effective April 1, 1993, from
a base payment rate of 10% to a base payment rate of 8.5% until March 31,
1996, and 10% thereafter.
(e) The base land rent rate was renegotiated, effective September 1, 1991,
from a base payment rate of 13% to a base payment rate of the greater of
4.0% per annum or property cash flow. The unpaid amount (the difference
between 13% and actual payments) is payable at maturity.
(f) Changes in land leasebacks held directly by the Trust are summarized
below (thousands of dollars).
Years Ended July 31,
---------------------------------------------
1994 1993 1992
- - - ----------------------------------------------------------------------------
Balance at beginning of year $21,140 $32,940 $46,140
Sales (1,500) (1,800) (4,200)
Converted to Owned Properties
held directly by the Trust (2,500) (3,500) (9,000)
Property conveyed to first
mortgage lender - (6,500) -
-------- ------- ------
Balance at end of year $17,140 $21,140 $32,940
======= ======= =======
(g) This total does not include rental income of $147,000 earned in fiscal
1994 from investments disposed of or converted to Owned Properties held
directly by the Trust during the year.
(h) This total does not include overage income of $178,000 earned in fiscal
1994 from investments disposed of or converted to Owned Properties held
directly by the Trust during the year.
(i) The Trust acquired the equity interests in these properties from its
lessees. The date of the acquisition reflects the date on which the Trust
converted its land leaseback/mortgage loan investment to an Owned Property
held directly by the Trust.
Page 43
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO SCHEDULE XI (continued)
(j) Rent receivable includes rents accrued but not yet due under leases
with stepped minimum rents which have been accounted for on a straight line
basis for financial reporting purposes in the amount of $318,000, $980,000
and $126,000 for Citibank Office Plaza-Oakbrook, Citibank Office Plaza-
Schaumburg and Loehmann's Fashion Island, respectively.
(k) In February 1994, the Trust acquired the equity interest of its lessee
in 6110 Executive Boulevard, a 197,000 square foot office building in
Rockville, Maryland.
(l) Changes in Owned Properties held directly by the Trust are summarized
below (thousands of dollars).
Years Ended July 31,
1994 1993 1992
Balance at beginning of year $109,372 $ 78,744 $75,233
Acquisitions and additions 15,490 21,187 3,511
Sales to third parties (14,008) - -
Converted from mortgage loans
held directly by the Trust 3,000 11,941 -
Converted from land leasebacks
held directly by the Trust 2,500 3,500 9,000
Investments written down - (6,000) (o) (7,000) (p)
Property conveyed to first
mortgage lender - - (2,000) (p)
--------- -------- --------
Balance at end of year $116,354 $109,372 $78,744
========== ========= =========
(m) This total does not include rental income earned in fiscal 1994 of
$1,122,000 from Eagle apartments which was sold during the year.
(n) This total does not include operating expenses incurred in fiscal 1994
of $485,000 from Eagle apartments which was sold during the year.
(o) In March 1993, the Trust acquired the equity interest of its lessee in
One Park West, a 128,500 square foot office building in Chevy Chase,
Maryland. Upon acquisition, the Trust utilized a portion of its allowance
for possible investment losses and wrote down this investment by
$6,000,000.
(p) In April 1992, the Trust acquired the equity interest of its lessee in
Commerce Centre, comprised of two buildings totaling 291,000 square feet
in Des Plaines, Illinois. Upon acquisition, the Trust utilized a portion
of its allowance for possible investment losses to write down this
investment by $7,000,000. In July 1992, the Trust entered into an
agreement with the first mortgage lender to convey the property to the
lender for $100,000, at which time the Trust wrote off this investment.
Page 44
<PAGE>
PROPERTY CAPITAL TRUST
SCHEDULE XII
July 31, 1994
(thousands of dollars)
Mortgage Loans Held Directly by the Trust
<TABLE>
<CAPTION>
Base Periodic
Interest Payment
Type and Name of Property Location Type of Mort Rate Maturity Terms
<S> <C> <C> <C> <C> <C>
Apartments
Elm Creek Elmhurst, IL First leasehold 8.50% (b) 11/01/18 (c)
Shopping Centers
Roseburg Valley Mall Roseburg, OR First leasehold 12.00% 10/01/22 (d)
Hotels
Cincinnati Marriott Inn Cincinnati, OH First leasehold 5.65%(e) 03/01/14 (f)
Grosvenor Airport Inn S. San Francisco, CA First leasehold 4.00%(g) 04/01/22 (h)
</TABLE>
(continued)
Interest and Interest Overage
Amount of Principal Principal Overage Income Income
Trust's Loan Payment at Amount Receivable Y/E Y/E
at 7/31/9(a) Maturity Delinquent at 7/31/94 7/31/94 7/31/94
[C] [C] [C] [C] [C] [C]
$7,540 $7,540 - $53 $641 $0
------- -------- ------- ----- ------ --------
2,185 - - 22 263 0
------- --------- -------- ----- ------ --------
3,716 - - 18 150 0
2,000 - - - 80 0
------- ---------- --------- ------ ------ --------
5,716 - - 18 230 0
------- ---------- --------- ------ ------ --------
$15,441 (i) $7,540 $0 $93 $1,134 (j) $0 (k)
=========== ========== ========== ====== ======== ==========
Page 45
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO SCHEDULE XII
(a) The Trust also has land leaseback investments in these properties.
First mortgage indebtedness and rentable space are shown with those
investments (see Schedule XI).
(b) The base interest rate on this mortgage was renegotiated, effective
April 1, 1993, from a base payment rate of 10% to a base payment rate of
8.5% until March 31, 1996, and 10% thereafter.
(c) Monthly payments of interest only, with the entire principal due at
maturity. Commencing July 1, 1996 the loan may be prepaid without penalty.
(d) Monthly payments of interest and principal amortizing over a 28-year
schedule. The loan may be prepaid at a premium of 104 1/2% through
September 30, 1994. Thereafter the prepayment premium declines 1/2% a year
annually.
(e) The base interest rate on this mortgage was renegotiated, effective
April 1, 1994, from a cash flow basis to 5.65% interest only through March
31, 1997, 7% interest only through April 30, 1999 and payments of principal
and interest (at 7%) thereafter. The loan may be prepaid at any time.
(f) Monthly payments of interest only until April 30, 1999. Commencing May
1, 1999 payments of principal and interest.
(g) The base interest rate on this mortgage was renegotiated, effective
September 1, 1991, from the stated interest rate of 13% to the greater of
4.0% per annum or property cash flow. The unpaid amount (the difference
between 13% and actual payments) is payable at maturity.
(h) Monthly payments of interest and, to the extent there is sufficient
cash flow, principal. The loan is prepayable at any time without penalty.
(i) Changes in mortgage loans held directly by the Trust are summarized
below (thousands of dollars).
Years Ended July 31,
--------------------------------------------------
1994 1993 1992
- - - ----------------------------------------------------------------------------
Balance at beginning of year $21,925 $35,783 $42,458
New mortgage loans - 587 851
Repayments (1,334) (204) (3,526)
Mortgage loans written down (2,150) (2,300) (4,000)
Converted to Owned Properties
held directly by the Trust (3,000) (11,941) -
-------- -------- --------
Balance at end of year $15,441 $21,925 $35,783
(j) This amount does not include interest income in fiscal 1994 of $430,000
from investments disposed of during the year.
(k) This amount does not include overage income in fiscal 1994 of $34,000
from an investment disposed of during the year.
Page 46
<PAGE>
PROPERTY CAPITAL TRUST
EXHIBIT A
July 31, 1994
(thousands of dollars)
Land Leasebacks Held in Investment Partnerships
<TABLE>
<CAPTION>
Third Party Senior
Indebtedness
Rentable Date of Balance Interest Rate/
Type and Name of Property Location Space Investment at 7/31/94 Maturity
- - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartments
Canyon View I (a) San Ramon, CA 248 units Jul-87 $12,000 9.07%/1994 (b)
Canyon View II (a) San Ramon, CA 188 units Jul-88 - -
--------- -------
436 units 12,000
========= -------
Shopping Centers
Crossroads Mall (c) Boulder, CO 814,000 sq.ft(d) Jan-83 37,190 9.25%/1996
============== -------
$49,190
========
</TABLE>
(continued)
Investment Rent and Rental Overage %
Partnership's Overage Income Income Owned
Investment Base Receivable Y/E Y/E by the
at 7/31/94 Land Rent at 7/31/94 7/31/94 7/31/94 Trust
- - - ------------------------------------------------------------------------
[C] [C] [C] [C] [C] [C]
$611 11.00% - $67 - 23.81%
473 11.00% - 52 - 23.81%
----- ----------- ----- --------
1,084 - 119 -
----- ----------- ----- --------
8,000 12.00% $22 961 $339 25.00%
----- ----------- ----- --------
$9,084 (e) $22 $1,080 $339
====== =========== ====== ========
Page 47
<PAGE>
PROPERTY CAPITAL TRUST
EXHIBIT A (continued)
July 31, 1994
(thousands of dollars)
Owned Properties Held in Investment Partnerships
<TABLE>
<CAPTION>
Rentable
Type and Name of Property Location Space
- - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Office Buildings
Financial Plaza Overland Park, KS 303,400 sq.ft. (g)
College Hills 8 Overland Park, KS 50,900 sq.ft. (g)
College Hills 3 Overland Park, KS 37,700 sq.ft. (g)
-------------
392,000 sq.ft.
==============
Shopping Centers
Plaza West Retail Center Overland Park, KS 98,400 sq.ft. (g)
=============
Apartments
Telegraph Hill Houston, TX 1,180 units (h)
St. Charles Houston, TX 780 units (h)
Chimney Rock Houston, TX 714 units (h)
Boardwalk Houston, TX 174 units (h)
Braes Hill Houston, TX 152 units (h)
-----------
3,000 units
============
</TABLE>
<TABLE>
<CAPTION>
(continued)
Investment
Third Party Senior Partnership's Investment Costs
Indebtedness at Date of Acquisition Capitalized
Date of Balance Interest Rate/ Buildings and Subsequent
Acquisition (f) at 7/31/94 Maturity Land Improvements to Acquistion
- - - -------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
May-89 - - $4,933 $25,446 $7,003
May-89 - - 448 3,306 1,352
May-89 - - 807 1,310 550
------- ---------- ------ ------- ------
- - 6,188 30,062 8,905
======= ========== ======= ======== =======
May-89 - - 3,409 9,153 4,144
------- ----------- ------ ------- ------
Mar-94 $13,295 (i) 1,600 14,881 (10)
Mar-94 9,266 (i) 1,510 12,107 9
Mar-94 - - 1,030 9,191 20
Mar-94 3,343 9.00%/1998 510 4,192 10
Mar-94 - - 250 1,785 4
------- ----- ------- -----
25,904 4,900 42,156 33
------- ------ ------- ------
$25,904 $14,497 $81,371 $13,082
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
(continued)
Investment
Gross Amount of Partnership's Investment Partnership's
Investment Partnership's Investment Net Rent Rental
Buildings and Accumulated Investment Receivable Income
Land Improvements Total Depreciation at 7/31/94 at 7/31/94 Y/E 7/31/94
- - - --------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$5,500 $31,882 $37,382 $5,828 $31,554 $76 $5,170
500 4,606 5,106 1,034 4,072 3 661
900 1,767 2,667 329 2,338 26 580
------ ------- ------- ------ ------- ---- -------
6,900 38,255 45,155 7,191 37,964 105 6,411
======= ======== ======== ======= ======== ===== ========
4,109 12,597 16,706 2,190 14,516 62 1,501
------ ------- ------- ------ ------- ----- -------
1,600 14,871 16,471 180 16,291 15 1,058
1,510 12,116 13,626 147 13,479 4 710
1,030 9,211 10,241 112 10,129 0 854
510 4,202 4,712 51 4,661 0 270
250 1,789 2,039 21 2,018 0 164
----- ------- -------- ------ ------- ---- -------
4,900 42,189 47,089 511 46,578 19 3,056
------ ------- ------- ------ ------- ----- -------
$15,909 $93,041 $108,950 (j $9,892 $99,058 $186 $10,968
====== ======= ======= ====== ======= ===== =======
</TABLE>
(continued)
%
Operating Net Operating Owned
Expense Income by the
Y/E 7/31/94 Y/E 7/31/94 Trust
- - - --------------------------------------------
[C] [C] [C]
$2,369 $2,801 53.3%
343 318 53.3%
265 315 53.3%
------- ------
2,977 3,434
======== =======
737 764 53.3%
------- -------
575 483 45.5%
465 245 45.5%
556 298 45.5%
135 135 45.5%
93 71 45.5%
------- --------
1,824 1,232
------- -------
$5,538 $5,430
======= =======
Page 48
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO EXHIBIT A
(a) These investments are held by PCA Canyon View Associates, L.P., a
partnership in which the Trust participates as the sole general partner
with a 23.81% interest and other institutional investors as the limited
partners.The Partnership also has mortgage loan investments in these
properties (see Exhibit B).
(b) This third party first mortgage has matured but has not been repaid.
The first mortgagee has commenced foreclosure on this property.
(c) This investment is held by PCA Crossroads Associates, L.P., a
partnership in which the Trust participates as the sole general partner
with a 25% interest and other institutional investors as the limited
partners.
(d) Includes 231,000 square feet which are not part of the Partnership's
security.
(e) Changes in land leasebacks held in Investment Partnerships are
summarized below (thousands of dollars).
Years Ended July 31,
-----------------------------------------------
1994 1993 1992
Balance at beginning of year $13,984 $13,984 $13,984
Converted to Owned Properties
held in Investment Partnerships (4,900) - -
-------- ------- -------
Balance at end of year $ 9,084 $13,984 $13,984
------- ------- -------
(f) The Partnerships acquired the equity interests in these properties from
their lessees. The date of the acquisition reflects the date on which each
Partnership converted its land leaseback/mortgage loan investment to an
Owned Property held in an Investment Partnership.
(g) These investment are held by Property Capital Midwest Associates, L.P.,
a partnership in which the Trust participates as the sole general partner
with a 53.3% interest and other institutional investors as the limited
partners.
(h) These investments are held by PCA Southwest Associates, L.P., a
partnership in which the Trust participates as the sole general partner
with a 45.45% interest and other institutional investors as the limited
partners.
(i) Certain of the apartment complexes held by PCA Southwest Associates,
L.P. are encumbered by third party senior indebtedness as follows.
Principal Interest
Balance Rate Maturity
Telegraph Hill A $ 2,677,000 8.25% 1997 *
Telegraph Hill B 2,492,000 8.50% 1998
Telegraph Hill C 1,998,000 7.50% 1998
Telegraph Hill D 2,011,000 7.50% 1998
Telegraph Hill E 1,932,000 8.75% 1998
Telegraph Hill F 1,932,000 8.75% 1998
Telegraph Hill E&F
Note B 253,000 8.00% 1998
---------
$13,295,000
===========
Page 49
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO EXHIBIT A (continued)
(i) (continued)
Principal Interest
Balance Rate Maturity
St. Charles A $ 3,053,000 8.25% 1997 *
St. Charles B 3,035,000 7.50% 1998
St. Charles C 3,178,000 8.50% 1998
-----------
$ 9,266,000
===========
*The loans originally matured in 1994. The lender and the
Partnership have agreed to an extension on terms described
above. The documentation for the extension is currently
in negotiation.
(j) Changes in Owned Properties held in Investment Partnerships are
summarized below (thousands of dollars).
Years Ended July 31,
1994 1993 1992
Balance at beginning of year $59,148 $57,322 $56,611
Acquisitions and additions 27,802 1,826 711
Converted from mortgage loans
held in Investment Partnerships 17,100 - -
Converted from land leasebacks
held in Investment Partnerships 4,900 - -
------- ------- --------
Balance at end of year $108,950 $59,148 $57,322
======== ======= =======
Page 50
<PAGE>
PROPERTY CAPITAL TRUST
EXHIBIT B
July 31, 1994
(thousands of dollars)
Mortgage Loans Held in Investment Partnerships
<TABLE>
<CAPTION>
Base PeriodiThird Party Partnership's Principal
Interest Payment Senior Loan Payment at
Type and Name of Property Location Type of Mortgage Rate Maturity Terms Indebtedness at 7/31/94 Maturity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartments
Canyon View I San Ramon, CA (a) Sub-leasehold 11.0% 07/01/20 (b) - (k) $2,927 (d) -
Canyon View II San Ramon, CA (a) Sub-leasehold 11.0% 07/31/21 (c) - 10,275 (d) -
----------- --------- --------
- 13,202 -
----------- --------- --------
Hotels
Lisle Hilton Inn Lisle, IL (e) First fee 8.0% (f) 03/31/97 (g) - 21,576 (h) $21,576
----------- ---------- ---------
$0 $34,778 (i) $21,576
=========== =========== =========
</TABLE>
(continued)
Investment Partnership's
Interest and Interest Overage %
Principal Overage Income Income Owned
Amount Receivable Y/E Y/E by the
Delinquent at 7/31/94 7/31/94 7/31/94 Trust
[C] [C] [C] [C] [C]
$2,927 $5 $205 - 23.81%
10,275 14 612 - 23.81%
------- ------ ----- ----
13,202 19 817 -
------- ------ ----- ----
- 144 1,618 - 41.67%
------- ------ ------ ----
$13,202 $163 $2,435(j) $0
======== ====== ====== ====
Page 51
<PAGE>
PROPERTY CAPITAL TRUST
NOTES TO EXHIBIT B
(a) The Partnership that holds this mortgage loan also has a land leaseback
investment in this property. The first mortgage indebtedness and rentable
space are shown with that investment (see Exhibit A).
(b) Amortizing on a 26-year schedule. The loan may be prepaid without
penalty commencing July 1, 1997. The loan is in default and has been
accelerated by the Investment Partnership.
(c) Amortizing on a 27-year schedule. Interest up to 2% may be deferred
for any year in which cash flow is insufficient to fully pay interest at
11% annum ($493,397 has been deferred and added to the investment as of
July 31, 1994). The loan may be prepaid without penalty commending August
1, 1998. The loan is in default and has been accelerated by the Investment
Partnership.
(d) These loans are held by PCA Canyon View Associates, L.P. a partnership
in which the Trust participates as the sole general partner with a 23.81%
interest and other institutional investors as the limited partners.
(e) The hotel has 313 rooms.
(f) A modification of the loan terms was negotiated in May 1991 and was
executed in September 1991. This modification calls for interest to be
paid, commencing January 1, 1991, on the original principal plus all
accrued and unpaid interest through December 31, 1990, at a stated annual
interest rate of 7% through December 31, 1993; 8% through December 31,
1995; and 9% through the extended maturity date of March 1997. In
addition, the borrower is required to pay participation interest to the
extent room and food and beverage revenues exceed base amounts.
(g) Monthly payments of interest only, with the entire principal due at
maturity. Maturity has been extended from December 1993 to March 1997.
The loan may be prepaid without penalty at any time.
(h) This loan is held by the Trust and a group of institutional investors
through a loan participation agreement. The Trust is the lead participant
with a 41.67% interest.
(i) Changes in mortgage loans held in Investment Partnerships are
summarized below (thousands of dollars).
Years Ended July 31,
----------------------------------------------------
1994 1993 1992
- - - -----------------------------------------------------------------------------
Balance at beginning of year $51,952 $52,018 $51,106
New mortgage loans - - 1,077
Repayments (74) (66) (165)
Converted to Owned Properties
held directly by the Trust (17,100) - -
-------- -------- --------
Balance at end of year $34,778 $51,952 $52,018
======= ======== ========
(j) This amount does not include income in fiscal 1994 of $710,000 from
investments converted to Owned Properties held in an Investment Partnership
during the year.
(k) See Exhibit A for the information on the first mortgage indebtedness
on this property.
Page 52
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8 and ITEM 14(d)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Year Ended December 31, 1993
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
Boston, Massachusetts
Page 53
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Property Capital Midwest Associates, L.P.
We have audited the accompanying balance sheets of Property Capital Midwest
Associates, L.P. as of December 31, 1993 and 1992, and the related
statements of operations, cash flows and partners' equity for each of the
three years in the period ended December 31, 1993. Our audits also
included the financial statement schedule listed in the Index at Item
14(a). These financial statements and the financial statement schedule are
the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements and schedule 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Property Capital
Midwest Associates, L.P. at December 31, 1993 and 1992, and the results of
its operations and its cash flows for each of three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
March 4, 1994
Page 54
<PAGE>
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
BALANCE SHEET
December 31,
--------------------------
1993 1992
Assets
Real estate investments, (net of accumulated
depreciation of $8,040,635 and
$5,800,937, respectively) $52,558,883 $52,531,171
Cash and cash equivalents 604,707 454,904
Rent receivable, (net of allowance for
doubtful accounts of $138,000 and
$595,827, respectively) 383,000 521,669
Prepaid insurance 26,086 22,077
Other assets 4,852 20,282
----------- -----------
$53,577,528 $53,550,103
=========== ===========
Liabilities and Partners' Equity
Real estate taxes payable $620,375 $626,802
Accounts payable and accrued expenses 216,776 352,500
Prepaid rent 192,826 178,851
Security deposits 184,851 199,939
--------- ---------
1,214,828 1,358,092
--------- ---------
Partners' Equity
Capital contributions 55,491,695 55,491,695
Undistributed net income (3,128,995) (3,299,684)
---------- ----------
Total Partners' Equity 52,362,700 52,192,011
----------- ----------
$53,577,528 $53,550,103
=========== ===========
See accompanying notes
Page 55
<PAGE>
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------
1993 1992 1991
- - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Rental income $7,477,067 $7,138,460 $6,667,146
Short-term interest income 19,008 15,427 33,384
---------- ---------- ----------
7,496,075 7,153,887 6,700,530
---------- ---------- ----------
Property Expenses
Depreciation 2,239,698 2,024,940 1,805,310
Real estate taxes 1,310,222 1,279,834 1,253,109
Utilities 973,469 978,747 830,509
Repairs and maintenance 408,216 440,859 374,013
Management 334,535 303,740 257,774
Cleaning 280,337 279,040 236,727
Roads & grounds 158,938 116,176 98,475
Other 131,598 20,759 18,309
Security 62,483 93,799 79,553
Insurance 44,468 41,983 35,528
---------- --------- ----------
5,943,964 5,579,877 4,989,307
---------- --------- ----------
Partnership Expenses
Advisory fee 99,488 167,278 132,629
Administrative expense 53,801 59,827 75,169
---------- --------- ----------
153,289 227,105 207,798
---------- --------- ----------
Net Income $1,398,822 $1,346,905 $1,503,425
========== ========== ==========
</TABLE>
See accompanying notes
Page 56
<PAGE>
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1993 1992 1991
- - - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow From Operating Activities
Net income $1,398,822 $1,346,905 $1,503,425
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,239,698 2,024,940 1,805,310
Changes in assets and liabilities
Decrease in rent receivable, net 138,669 164,683 180,335
Decrease (increase) in prepaid insurance (4,009) (1,367) 3,459
Decrease (increase) in other assets 15,430 (15,059) (5,223)
(Decrease) increase in real estate taxes payable (6,427) 17,683 (44,244)
(Decrease) increase in accounts payable and accrued (135,724) 94,444 (74,674)
expenses
Increase (decrease) in prepaid rent 13,975 (42,686) 120,005
(Decrease) increase in security deposits (15,088) 7,942 (29,623)
----------- ---------- -----------
Net Cash Provided by Operating Activities 3,645,346 3,597,485 3,458,770
----------- ---------- -----------
Cash Flow From Investing Activities
Capital expenditures (2,267,410) (1,254,704) (1,060,405)
----------- ----------- -----------
Net Cash Used in Investing Activities (2,267,410) (1,254,704) (1,060,405)
----------- ----------- -----------
Cash Flow From Financing Activities
Distributions to partners (1,228,133) (2,554,886) (2,731,000)
Partners' capital contributions - - 500,000
----------- ----------- -----------
Net Cash Used in Financing Activities (1,228,133) (2,554,886) (2,231,000)
----------- ----------- ------------
Net Increase (Decrease) In Cash and
Cash Equivalents 149,803 (212,105) 167,365
Cash And Cash Equivalents
At Beginning Of Year 454,904 667,009 499,644
--------- ---------- -----------
Cash And Cash Equivalents At
End Of Year $604,707 $454,904 $667,009
========== ========== ==========
</TABLE>
See accompanying notes
Page 57
<PAGE>
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
Beginning Partners' Operating
Ownership Partners' Capital Net Income
Percentage Equity Contributed Income Distribution
- - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1993
Property Capital Trust,
General Partner 53.2967 % $27,816,622 - $745,527 ($654,555)
Limited Partners 46.7033 24,375,389 - 653,295 (573,578)
----------- ----------- ------------- ---------- ------------
100.0000 % $52,192,011 - $1,398,822 ($1,228,133)
=========== =========== ============= ========== ============
For the Year Ended December 31, 1992
Property Capital Trust,
General Partner 53.2967 % $28,460,434 - $717,856 ($1,361,668)
Limited Partners 46.7033 24,939,558 - 629,049 (1,193,218)
------------ ----------- -------------- ---------- ------------
100.0000 % $53,399,992 - $1,346,905 ($2,554,886)
============ =========== ============== =========== ============
For the Year Ended December 31, 1991
Property Capital Trust,
General Partner 53.2967 % $25,874,168 $239,009 $674,169 ($1,342,400)
Limited Partners 46.7033 28,253,399 260,991 829,256 (1,388,600)
----------- ----------- -------- ---------- ------------
100.0000 % $54,127,567 $500,000 $1,503,425 ($2,731,000)
=========== =========== ======== ========== ============
</TABLE>
(continued)
Transfer of Ending
Ownership Partners'
Interest Equity
- - - --------------------------------
- $27,907,594
- 24,455,106
------------ -----------
- $52,362,700
============ ===========
- $27,816,622
- 24,375,389
------------- -----------
- $52,192,011
============= ===========
$3,015,488 $28,460,434
(3,015,488) 24,939,558
----------- -----------
$0 $53,399,992
=========== ===========
See accompanying notes
Page 58
<PAGE>
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Organization
Property Capital Midwest Associates, L.P. (the "Partnership") was organized
on April 20, 1983 as a Delaware limited partnership (under the name PCA
Executive Hills Associates, L.P.) and is qualified to do business in the
State of Kansas. Property Capital Trust is the sole general partner (the
"General Partner") of the partnership and six institutional investors are
limited partners. In September 1991, the General Partner purchased a
5.4945% limited partnership interest bringing the general partner interest
to 53.2967%.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.
Real Estate Investments
Real estate investments are carried at cost, net of accumulated
depreciation. Depreciation has been calculated under the straight-line
method, based upon the estimated useful lives of the assets. Properties
and property improvements are depreciated over 25 to 39 years. Leasing
commissions and tenant improvements are amortized under the straight-line
method over the term of the related leases. Expenditures for maintenance,
repairs and betterments which do not materially prolong the normal useful
life of an asset are charged to operations as incurred.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Partnership considers all
highly liquid investments with a maturity of three months or less to be
cash equivalents.
Revenue Recognition
Certain space leases at the properties provide for stepped minimum rents
which are accounted for on a straight-line basis over the terms of the
leases. The difference between rental income accrued under the straight-
line method and rent received or receivable by the Partnership for
financial reporting purposes was $54,000, $108,500 and $171,100 for the
years ended December 1993, 1992 and 1991, respectively.
Income Taxes
The Partnership is not subject to Federal or state income taxes and,
accordingly, no provisions have been made for such taxes in the financial
statements.
Reclassification
Certain items in the 1992 and 1991 financial statements have been
reclassified to conform to the 1993 presentation.
Page 59
<PAGE>
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS
As of December 31, 1993, 1992 and 1991 the Partnership's investments in the
four properties, which are all located in Overland Park, Kansas, were as
follows:
<TABLE>
<CAPTION>
Investment Investment Investment Net Rentable
Property 12/31/93 12/31/92 12/31/91 Square Feet
<S> <C> <C> <C> <C>
Financial Plaza $37,192,596 $36,146,570 $35,181,592 303,400
Plaza West Retail Center 15,765,157 14,844,392 14,781,055 96,000
College Hills 8 5,055,503 4,762,387 4,586,196 50,850
College Hills 3 2,586,262 2,578,759 2,528,561 37,650
---------- ----------- ----------- -------
60,599,518 58,332,108 57,077,404
---------- ----------- -----------
Accumulated Depreciation (8,040,635) (5,800,937) (3,775,998)
----------- ----------- -----------
$52,558,883 $52,531,171 $53,301,406 487,900
============ ============ ============ =======
</TABLE>
The former owner is entitled to a deferred residual payment in an amount
equal to 5% of the cash flow from the properties over an 11% imputed return
on the Partnership's investment, at cost, plus 5% of the gain, as defined,
on each property sold by 1999. If any property is not sold by 1999, the
calculation of gain will be based upon an independent appraiser's estimate
of current market value for such property.
NOTE 3. MANAGEMENT AGREEMENT
Services related to investment matters and day-to-day administration have
been provided to the Partnership under a contract, dated May 24, 1989, with
PCA Institutional Advisors (the "Advisor"). The contract had an initial
term of five years and is extended automatically on a year-to-year basis
unless terminated by the Partnership or the Advisor. The contract provides
for a base advisory fee equal to 8% of the Partnership's cash flow (as
defined) and for a disposition fee equal to 8% of the gain from the sale
of the Partnership's properties. The Partnership paid PCA Institutional
Advisors management fees aggregating $74,297 and $204,020 in 1993 and 1992,
respectively. Management fees payable are $30,832, $5,641 and 42,383 at
December 31, 1993, 1992 and 1991, respectively.
Effective August 1, 1992, Property Capital Trust, the General Partner of
the Partnership, assumed responsibility for managing the affairs of the
Partnership pursuant to a sub-contract and option agreement with PCA
Institutional Advisors. This change was approved by the Partners.
NOTE 4. DISTRIBUTIONS
The Partnership makes monthly cash distributions to its Partners equal to
approximately 100% of available cash flow from investments, including
returns of capital, if any. For the years ended December 31, 1993, 1992
and 1991, the Partnership distributed $1,228,133, $2,554,886 and $2,731,00
respectively.
Page 60
<PAGE>
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 5. LEASES
Expected future minimum rents to be received from tenants under non-
cancelable operating leases in effect at December 31, 1993 are as follows:
Years ending December 31,
- - - ---------------------------------------------------------------------------
1994 $6,250,625
1995 5,055,250
1996 3,668,235
1997 2,487,376
1998 1,420,363
Thereafter 2,438,974
----------
$21,320,823
===========
Page 61
<PAGE>
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
SCHEDULE XI
December 31, 1993
(thousands of dollars)
Owned Properties
<TABLE>
<CAPTION>
Amount of Investment
Partnership's Investment Costs
at Date of Acquisition Capitalized
Type and Name Rentable Date of Buildings and Subsequent
of Property Location Space Acquisition(a) Land Improvements to Acquistion
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Office Buildings
Financial Plaza Overland Park, KS 303,400 sq.ft. May-89 $4,933 $25,446 $6,814
College Hills 3 Overland Park, KS 37,700 sq.ft. May-89 807 1,310 469
College Hills 8 Overland Park, KS 50,900 sq.ft. May-89 448 3,306 1,302
-------------- ------ ------- -------
392,000 sq.ft. 6,188 30,062 8,585
============== ------ ------- -------
Shopping Centers
Plaza West Retail CenterOverland Park, KS 98,400 sq.ft. May-89 3,409 9,153 3,203
============== ------- ------- -------
$9,597 $39,215 $11,788
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Gross Amount of
Investment Partnerships' Investment Net Rent Rental Operating Net Operating
Buildings and Accumulated Investment Receivable Income Expense Income
Land Improvement Total Depreciation at 12/31/93 at 12/31/93 Y/E 12/31/93 Y/E 12/31/93 Y/E 12/31/93
- - - ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$5,500 $31,693 $37,193 $4,993 $32,200 $253 $5,082 $2,342 $2,740
900 1,686 2,586 293 2,293 2 556 272 284
500 4,555 5,056 896 4,160 17 656 352 304
------- ------- ------- ------- ------- ---- ------- ------- ------
6,900 37,934 44,835 6,182 38,653 272 6,294 2,966 3,328
------- ------- ------- ------- ------- ---- ------- ------- ------
3,988 11,777 15,765 1,859 13,906 111 1,183 738 445
------- ------ ------- -------- -------- ------ -------- ------- -----
$10,888 $49,711 $60,600 (b) $8,041 $52,559 $383 $7,477 $3,704 $3,773
======= ======= ======== ========= ========= ====== ========= ======== ======
</TABLE>
(a) The Partnership acquired the equity interests in these properties from
its lessees and, accordingly, the date of the acquistion reflects the
date on which the Partnership converted its land leaseback/mortgage
loan investments to Owned Properties.
(b) Changes in Owned Properties are summarized below (thousands of dollars).
Years Ended December 31,
-----------------------------------------------
1993 1992 1991
- - - -----------------------------------------------------------------------------
Balance at beginning of year $58,332 $57,077 $56,017
Acquisitions and additions 2,268 1,255 1,060
Balance at end of year $60,600 $58,332 $57,077
Page 62
Exhibit 22
List of Subsidiaries
July 31, 1994
PCT Office Company
PCT Shopping Center Company
PCT Biscayne Center, Inc.
PCT Clayton, Inc.
PCT Scottsdale, Inc.
Friendship Avenue Office Company, Inc.
Chicago Hotel Company, Inc.
San Francisco Hotel Company, Inc.
Cincinnati Hotel Company, Inc.
Houston Southwest Apartments, Inc.
Executive Boulevard Office Company, Inc.
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-51839) pertaining to the Property Capital Trust 1992 Stock
Option Plan of Property Capital Trust of our report dated August 26, 1994,
with respect to the consolidated financial statements and schedules of
Property Capital Trust and of our report dated March 4, 1994, with respect
to the financial statements and schedule of Property Capital Midwest
Associates, L.P. included in the Annual Report (Form 10-K) of Property
Capital Trust for the year ended July 31, 1994.
ERNST & YOUNG LLP
Boston, Massachusetts
October 12, 1994
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<EXCHANGE-RATE> 1
<CASH> 720,000
<SECURITIES> 0
<RECEIVABLES> 2,111,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 862,000
<PP&E> 183,520,000
<DEPRECIATION> (10,380,000)
<TOTAL-ASSETS> 176,833,000
<CURRENT-LIABILITIES> 3,651,000
<BONDS> 81,479,000
0
0
<COMMON> 106,060,000
<OTHER-SE> (14,357,000)
<TOTAL-LIABILITY-AND-EQUITY> 176,833,000
<SALES> 23,842,000
<TOTAL-REVENUES> 24,133,000
<CGS> 10,453,000
<TOTAL-COSTS> 12,864,000
<OTHER-EXPENSES> 186,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,994,000
<INCOME-PRETAX> 4,089,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,089,000
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
