SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-7003
------
PROPERTY CAPITAL TRUST
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2452367
- - ------------------------------ --------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One Post Office Square, Boston, Massachusetts 02109
---------------------------------------------------
(Address of principal executive offices)
(zip code)
Registrant's telephone number, including area code:
(617) 451-2400
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes X No .
Number of shares of Common Shares outstanding as of April 30, 1995: 9,050,881
---------
<PAGE>
Page 1
PROPERTY CAPITAL TRUST
INDEX
Page
PART I. FINANCIAL INFORMATION Number
------
Consolidated Balance Sheet - April 30, 1995
and July 31, 1994 (unaudited) 2
Consolidated Statement of Income -
Three and Nine Months Ended April 30, 1995 and 1994 (unaudited) 3
Consolidated Statement of Cash Flows -
Nine Months Ended April 30, 1995 and 1994 (unaudited) 4
Consolidated Statement of Shareholders' Equity -
Nine Months Ended April 30, 1995 and 1994 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 2. Legal Proceedings 12
Item 4. Submission of Matters to a vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
<PAGE>
Page 2
PART I. FINANCIAL INFORMATION
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
(Unaudited)
April 30, July 31,
1995 1994
- - ------------------------------------------------------------------------------
ASSETS
Real Estate Investments
Owned Properties held directly by the Trust $ 95,505,000 $105,295,000
(net of accumulated depreciation of
$13,273,000 and $10,362,000 in 1995
and 1994, respectively)
Structured Transactions held directly by
the Trust 32,574,000 32,581,000
Investment Partnerships 50,958,000 51,998,000
----------- -----------
179,037,000 189,874,000
Allowance for possible investment losses (17,413,000) (17,413,000)
----------- -----------
161,624,000 172,461,000
Cash and cash equivalents 3,101,000 720,000
Interest and rents receivable
Owned Properties held directly by the
Trust 1,890,000 1,852,000
Structured Transactions held directly by
the Trust 233,000 259,000
Other assets 1,142,000 1,541,000
------------ ------------
$167,990,000 $176,833,000
============ ============
Liabilities and Shareholder's Equity
Liabilities
Accounts payable and accrued expenses $ 2,333,000 $ 2,940,000
Accrued interest 1,593,000 711,000
Bank note payable - 5,000,000
Mortgage notes payable 38,270,000 43,110,000
9 3/4% Convertible Subordinated Debentures 2,546,000 2,546,000
10% Convertible Subordinated Debentures 29,125,000 30,823,000
---------- ----------
73,867,000 85,130,000
---------- ----------
Shareholders' Equity
Common Shares (without par value,
unlimited shares authorized, 9,050,881
issued and outstanding at
April 30, 1995 and 9,030,585 at July
31, 1994) 106,177,000 106,060,000
Accumulated deficit (12,054,000) (14,357,000)
----------- -----------
Total Shareholders' Equity 94,123,000 91,703,000
------------ ------------
$167,990,000 $176,833,000
============ ============
See accompanying notes
<PAGE>
Page 3
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
------------------------ -------------------------
1995 1994 1995 1994
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Rents from Owned Properties held directly
by the Trust $3,565,000 $4,241,000 $12,203,000 $9,849,000
Structured Transactions held directly
by the Trust
Base income 682,000 582,000 2,008,000 2,403,000
Overage income 471,000 468,000 1,357,000 1,512,000
Income from unconsolidated Investment
Partnerships 553,000 540,000 1,270,000 1,759,000
--------- --------- ---------- ----------
5,271,000 5,831,000 16,838,000 15,523,000
Advisory fee income 77,000 67,000 237,000 214,000
Interest income 67,000 - 69,000 1,000
--------- --------- ---------- ----------
5,415,000 5,898,000 17,144,000 15,738,000
EXPENSES --------- --------- ---------- ----------
Expenses on Owned Properties held
directly by the Trust 1,647,000 2,107,000 5,204,000 4,914,000
Interest 1,585,000 1,940,000 5,325,000 5,075,000
Depreciation 1,059,000 1,030,000 3,166,000 2,594,000
General and administrative expenses 493,000 510,000 1,524,000 1,549,000
Professional fees 141,000 (11,000) 266,000 277,000
Trustees' fees and expenses 33,000 44,000 121,000 126,000
--------- --------- ---------- ----------
4,958,000 5,620,000 15,606,000 14,535,000
--------- --------- ---------- ----------
INCOME BEFORE GAIN ON SALE OF REAL
ESTATE INVESTMENTS AND EXTRAORDINARY
ITEM 457,000 278,000 1,538,000 1,203,000
GAIN ON SALE OF REAL ESTATE INVESTMENTS 110,000 2,410,000 3,209,000 2,510,000
------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 567,000 2,688,000 4,747,000 3,713,000
EXTRAORDINARY GAIN FROM EXTINGUISHMENT
OF DEBT 88,000 - 88,000 -
---------- ---------- ----------- ----------
NET INCOME $ 655,000 $2,688,000 $ 4,835,000 $3,713,000
========== ========== =========== ==========
NET INCOME PER SHARE
INCOME BEFORE GAIN ON SALE OF REAL
ESTATE INVESTMENTS
AND EXTRAORDINARY ITEM $0.05 $0.03 $0.17 $0.13
GAIN ON SALE OF REAL ESTATE
INVESTMENTS 0.01 0.27 0.35 0.28
---- ---- ---- ----
INCOME BEFORE EXTRAORDINARY ITEM 0.06 0.30 0.52 0.41
EXTRAORDINARY GAIN FROM EXTINGUISHMENT
OF DEBT 0.01 - 0.01 -
---- ---- ---- -----
NET INCOME PER SHARE $0.07 $0.30 $0.53 $0.41
===== ===== ===== =====
AVERAGE SHARES OUTSTANDING 9,051,000 9,031,000 9,041,000 9,031,000
========= ========= ========= =========
</TABLE>
See accompanying notes
<PAGE>
Page 4
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
APRIL 30,
---------------------------
1995 1994
- - -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $4,835,000 $3,713,000
Adjustments to Net Income
Gain on sale of real estate investments (3,209,000) (2,510,000)
Depreciation and amortization 3,310,000 2,594,000
Income from unconsolidated Investment
Partnerships (1,270,000) (1,759,000)
Distributions of income from Investment
Partnerships 1,522,000 1,831,000
Changes in assets and liabilities
(Increase) decrease in interest and
rents receivable (12,000) 29,000
Decrease (increase) in other assets, net 255,000 (342,000)
Increase in accounts payable, accrued
expenses and accrued interest 392,000 673,000
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,823,000 4,229,000
--------- ---------
INVESTING ACTIVITIES
Owned Properties held directly by the Trust
Disposition 15,310,000 12,567,000
Additions (5,587,000) (7,584,000)
Structured Transactions held directly by
the Trust
Dispositions/repayments 7,000 5,095,000
Investment Partnerships
Distributions in excess of income 898,000 45,000
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 10,628,000 10,123,000
---------- ----------
FINANCING ACTIVITIES
Repayment of bank note payable, net (5,000,000) (6,130,000)
Cash dividends paid (2,532,000) (1,896,000)
Prepayment of mortgage notes payable, net (4,440,000) (5,910,000)
Scheduled amortization of mortgage notes payable (400,000) (355,000)
Repurchase of 10% Debentures (1,698,000) -
Proceeds from exercise of stock options - 8,000
---------- -----------
NET CASH USED IN FINANCING ACTIVITIES (14,070,000) (14,283,000)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,381,000 69,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 720,000 324,000
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,101,000 $ 393,000
========== ==========
See accompanying notes
<PAGE>
Page 5
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
NINE MONTHS ENDED
APRIL 30,
-------------------------------------
1995 1994
- - ------------------------------------------------------------------------------
COMMON SHARES
Balance at beginning of period $106,060,000 $106,052,000
Shares issued 117,000 -
Stock options exercised - 8,000
------------ ------------
Balance at end of period 106,177,000 106,060,000
------------ ------------
ACCUMULATED DEFICIT
Balance at beginning of period (14,357,000) (15,918,000)
Net income 4,835,000 3,713,000
Cash dividends paid (2,532,000) (1,896,000)
----------- -----------
Balance at end of period (12,054,000) (14,101,000)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY $ 94,123,000 $ 91,959,000
=========== ===========
NUMBER OF COMMON SHARES
Common Shares issued and outstanding
at beginning of period 9,030,585 9,028,585
Shares issued 20,296 -
Stock options exercised - 2,000
---------- ---------
Common Shares issued and outstanding
at end of period 9,050,881 9,030,585
=========== ==========
See accompanying notes
<PAGE>
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
In the opinion of management of Property Capital Trust (the "Trust"), the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting of normal and recurring adjustments, necessary to
present fairly the Trust's financial position as of April 30, 1995 and the
results of its operations and its cash flows for the periods ended April 30,
1995 and 1994.
Operating results for the nine months ended April 30, 1995 are not necessarily
indicative of the results that may be expected for the remainder of fiscal
1995. The information contained in these financial statements should be read
in conjunction with the Trust's 1994 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on October 28, 1994.
2. INVESTMENT PARTNERSHIPS
Certain of the Trust's investments have been made through partnerships, or a
participation agreement, in which the Trust is the general partner or lead
lender and other institutional investors are limited partners or participants
(the "Investment Partnerships"). During the third quarter of fiscal 1994, the
Trust changed its method of accounting for its Investment Partnerships to the
equity method. Previously, the Trust consolidated its share of the Investment
Partnerships' results of operations and related assets and liabilities.
Although the change did not affect the Trust's net income (loss) or
shareholders' equity, prior period financial statements have been restated to
reflect the change as if it had occurred at the beginning of the period. The
change in accounting is to a preferable method based upon generally accepted
accounting principles and is more consistent with current accounting practices
in the real estate industry.
During the quarter ended April 30, 1995, PCA Southwest Associates Limited
Partnership ("Southwest"), an Investment Partnership which owned 3,000
apartments in Houston, Texas, sold the Braes Hill project (152-units) to an
unrelated party resulting in a gain to the Trust of $110,000. The Trust has a
45.45% general partner's interest in Southwest.
<PAGE>
Page 7
A Condensed Combined Summary of Operations for the unconsolidated Investment
Partnerships for the periods indicated follows:
Three Months Ended Nine Months Ended
APRIL 30, APRIL 30,
-------------------- -------------------
1995 1994 1995 1994
- - ------------------------------------------------------------------------------
REVENUES
Rents from Owned Properties $5,308,000 $3,155,000 $15,608,000 $6,950,000
Structured Transactions
Base income 652,000 1,060,000 1,996,000 3,393,000
Overage income 192,000 115,000 473,000 289,000
Other income 127,000 4,000 158,000 15,000
--------- --------- ---------- ----------
6,279,000 4,334,000 18,235,000 10,647,000
--------- --------- ---------- ----------
EXPENSES
Owned Properties expenses 3,014,000 1,656,000 9,734,000 3,525,000
Depreciation 1,045,000 678,000 3,088,000 1,805,000
Interest 581,000 172,000 1,387,000 172,000
Other 402,000 442,000 1,137,000 667,000
--------- --------- ---------- ---------
5,042,000 2,948,000 15,346,000 6,169,000
--------- --------- ---------- ---------
INCOME BEFORE GAIN ON SALE
OF REAL ESTATE INVESTMENT 1,237,000 1,386,000 2,889,000 4,478,000
GAIN ON SALE OF REAL
ESTATE INVESTMENT 242,000 - 242,000 -
---------- ---------- ----------- ----------
NET INCOME $1,479,000 $1,386,000 $ 3,131,000 $4,478,000
========== ========== =========== ==========
NET INCOME
INCOME BEFORE GAIN ON SALE
OF REAL ESTATE INVESTMENT
Trust's share of income
before gain on sale of
real estate investment $ 553,000 $ 540,000 $ 1,270,000 $1,759,000
Limited partners' share
of income before gain
on sale of real
estate investment 684,000 846,000 1,619,000 2,719,000
GAIN ON SALE OF REAL ESTATE
INVESTMENT
Trust's share of gain on
sale of real estate
investment 110,000 - 110,000 -
Limited partners' share of
gain on sale of real
estate investment 132,000 - 132,000 -
---------- ---------- ----------- ----------
$1,479,000 $1,386,000 $ 3,131,000 $4,478,000
========== ========== =========== ==========
3. INDEBTEDNESS
At April 30, 1995, three of the Trust's Owned Properties held directly by the
Trust were encumbered by first mortgages aggregating $38,270,000. In February
1995 the Trust paid down by $2,000,000 the first mortgage loan on one of its
Owned Properties held directly by the Trust, Loehmann's Fashion Island, which
payment eliminated the requirement for monthly amortization payments prior to
maturity in July 1998.
During the quarter ended April 30, 1995, $1,698,000 aggregate principal amount
of the Trust's 10% Convertible Subordinated Debentures were repurchased and
canceled by the Trust. The Trust recognized an extraordinary gain from the
extinguishment of debt of $88,000 due to the repurchase of the Debentures at
less than their net carrying amount.
<PAGE>
Page 8
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
REVISED BUSINESS PLAN
For the past several fiscal years, the Trust's business plan has focused on
maximizing shareholder values through asset, portfolio and liability management
and the selective disposition of investments. This business plan was in large
part a response to the impact of the recent recession on the real estate
industry. During the time this plan was in effect, the Trust retained much of
its portfolio. Following improvements in rental rates and occupancies
throughout the portfolio attributable to improving economic conditions and
considerable progress made by management in resolving problems affecting the
portfolio, the Trustees reevaluated the business plan. The Trustees have
concluded that the best means to maximize shareholder values is to provide for
an orderly disposition of the Trust's investments. The Trustees also
considered and rejected other strategies, such as a business combination
or expanding the trust, as being unlikely to be consummated or
inappropriate given their belief that the stock price is not reflective of the
value of the Trust's assets. The Trustees anticipate that the new strategy
will involve dispositions of Owned Properties and Structured Transactions on a
property-by-property basis, although the Trust will consider bulk sales and
other opportunities that may arise which expedite the disposition process.
The Trustees intend to seek approval of the Trust's shareholders at its 1995
Annual Meeting of Shareholders of amendments to the Trust's Declaration of
Trust that are necessary for the implementation of this Plan. To the extent the
Trust receives net proceeds from sales of its properties, the Trust intends to
utilize such net proceeds to retire debt and/or make distributions to
shareholders. No assurances can be given as to the time required to carry out
the plan (although the Trustees currently anticipate that the plan can be fully
implemented within three to five years) or the price at which the properties
can be sold.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Trust's debt at April 30, 1995 was $69,941,000 as compared to $81,479,000
at July 31, 1994. The Trust's debt to equity ratio decreased to .74 at April
30, 1995 from .89 at July 31, 1994. The decrease in the Trust's debt was due
to the sale of 6110 Executive Boulevard, which was encumbered by a $6,440,000
first mortgage, repayment in full of the Trust's outstanding balance on its
bank note payable and the repurchase of $1,698,000 aggregate principal amount
of the Trust's 10% Convertible Subordinated Debentures, offset in part by a net
addition of $2,000,000 borrowed under the first mortgage secured by Loehmann's
Fashion Island. The debt to equity ratio also improved as a result of the sale
of two investments, 6110 Executive Boulevard at a gain of $3,099,000 and Braes
Hill apartments at a gain of $110,000.
The Trust's bank note payable, which as noted above has no outstanding balance,
was a revolving bank line that provided available credit of $20,000,000 at
July 31, 1994. In January 1995, when the Trust borrowed an additional
$4,000,000 under the first mortgage secured by Loehmann's Fashion Island, the
amount available under the bank line was reduced to $16,000,000. In February
1995, following the sale of 6110 Executive Boulevard, the Trust agreed to
reduce further its borrowing capacity under its bank line to $10,000,000, an
amount which the Trust believes is adequate to meet its working capital
requirements for the foreseeable future.
In January 1995, the Trust borrowed an additional $4,000,000 (at prime plus
1/4%) under its $30,000,000 first mortgage commitment secured by Loehmann's
Fashion Island, increasing the aggregate amount advanced to the Trust to
$22,000,000. During the quarter ended April 30, 1995, a portion of the sale
proceeds from the sale of 6110 Executive Boulevard was used to make a
$2,000,000 amortization payment on this mortgage, which payment eliminated the
requirement for monthly amortization payments prior to maturity in July 1998.
As a result of the $2,000,000 amortization payment, the first mortgage
commitment was reduced to $28,000,000.
Management believes that with its cash provided by operating activities
retained after dividends and its borrowing capacity under its existing bank
line, the Trust will be able to meet its fiscal 1995 cash requirements for
anticipated capital expenditures on Owned Properties held directly by the
Trust. The Trust currently expects that these cash requirements will total
approximately $1,500,000 during the remainder of fiscal 1995. Further, the
Trust believes that these same sources will be sufficient to fund its capital
expenditure requirements and anticipated long-term liquidity requirements for
the foreseeable future.
<PAGE>
Page 9
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, sales of properties and extraordinary items,
plus depreciation and amortization and after adjustment for unconsolidated
partnerships and joint ventures). Funds from Operations should be considered
in conjunction with net income as presented in the Trust's unaudited financial
statements. Funds from Operations does not represent cash provided by
operating activities in accordance with generally accepted accounting
principles and should not be considered as a substitute for net income as a
measure of results of operations or for cash provided by operating activities
as a measure of liquidity. Funds from Operations was calculated by the Trust
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
APRIL 30, APRIL 30,
-------------------- -----------------------
1995 1994 1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income before Gain on Sale of
Real Estate Investments and
Extraordinary Item $ 457,000 $ 278,000 $1,538,000 $1,203,000
Depreciation on Owned Properties
held directly by the Trust 1,059,000 1,030,000 3,166,000 2,594,000
Trust's share of depreciation
on unconsolidated Investment
Partnerships 526,000 351,000 1,553,000 951,000
---------- ---------- ---------- ----------
$2,042,000 $1,659,000 $6,257,000 $4,748,000
========== ========== ========== ==========
</TABLE>
REVIEW OF SIGNIFICANT REAL ESTATE ACTIVITY FOR THE QUARTER
APARTMENTS
The Trust, as general partner of PCA Canyon View Associates Limited
Partnership, an Investment Partnership in which the Trust has invested
approximately $3,400,000, continues to negotiate with its sublessee/mortgagor
and the first mortgagee on Phase I of this two-phase apartment project in which
the partnership invested. As previously reported the Investment Partnership
has not been paid by its sublessee/mortgagor since June 1994. Management
believes that adequate provision has been made in the Trust's loss allowance
for any loss that may be sustained on these investments. (See "Item 2. Legal
Proceedings.")
During the quarter ended April 30, 1995, PCA Southwest Associates Limited
Partnership, an Investment Partnership that now owns 2,848 apartment units in
Houston, Texas, completed the sale of Braes Hill, a 152-unit complex. The
property was sold at a gain, of which the Trust's share was $110,000. As
previously reported, the Investment Partnership, which also owns Telegraph
Hill, Phase B, a 259-unit complex, ceased making payments to the first
mortgagee and is attempting to restructure the terms of the mortgage, on which
$2,487,000 is outstanding. The amount of the unpaid debt service through April
30, 1995 is $161,603. Additionally, Chimney Rock, a 714-unit complex held in
this Investment Partnership is being offered for sale. Management believes
that adequate provision has been made in the Trust's loss allowance for any
loss that may be sustained on this sale.
OFFICE BUILDINGS
During the quarter ended January 31, 1995, the Trust completed the sale of 6110
Executive Boulevard located in Rockville, Maryland, for $16,380,000 resulting
in a gain to the Trust of approximately $3,099,000 after all closing costs.
The Trust took title to this property in February 1994 after previously writing
down its land leaseback and mortgage loan investments by a total of $6,000,000
in fiscal 1992 and 1994.
<PAGE>
Page 10
ITEM 1. FINANCIAL CONDITION (continued)
HOTELS
As previously reported, the Trust has granted its lessee/mortgagor an option to
purchase the Trust's $4,000,000 Structured Transaction investments in Grosvenor
Airport Inn, a 206 room hotel in South San Francisco, California, for
$2,500,000. Subsequent to the end of the quarter the Trust agreed to grant an
extension of the option through September 15, 1995, in exchange for an
additional non-refundable deposit of $50,000, which will bring the total non-
refundable amounts received by the Trust to $350,000. However, there can be no
assurance that the lessee/mortgagor of the Grosvenor Airport Inn will exercise
its option. The Trust had previously restructured this transaction to provide
for a reduced annual return of $160,000. The anticipated loss on sale has been
provided for in the Trust's allowance for possible investment losses.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1995 VERSUS
THE THREE AND NINE MONTHS ENDED APRIL 30, 1994
REVENUES
Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) decreased 16% for the three months ended April 30, 1995 as
compared to the same period in the prior year, primarily due to the Trust's
sale of 6110 Executive Boulevard office building in January 1995, which the
Trust acquired from its lessee effective February 1994 (converting the
investment from a Structured Transaction held directly by the Trust to an Owned
Property held directly by the Trust) and the sale of Eagle apartments in March
1994. Rents from Owned Properties held directly by the Trust increased 24% for
the nine months ended April 30, 1995 as compared to the same period in the
prior year primarily due to an increase in rental revenues from the redeveloped
Loehmann's Fashion Island as new tenants have taken occupancy, $404,000 of non-
recurring income related to the settlement of a bankruptcy claim filed by the
Trust against a former tenant at Loehmann's Fashion Island in the first quarter
of fiscal 1995, the acquisition of 6110 Executive Boulevard effective February
1994, and an increase in rental revenues from increased occupancy at One Park
West, offset in part by the impact of the sale of Eagle apartments (March
1994).
Base income from Structured Transactions held directly by the Trust (land rent
and mortgage interest) increased 17% for the three months ended April 30, 1995
as compared to the same period in the prior year, primarily due to the
restructuring of the Cincinnati Marriott Inn investment in April 1994. Base
income decreased 16% for the nine months ended April 30, 1995 as compared to
the same period into the prior year primarily due to the conversion of 6110
Executive Boulevard to an Owned Property held directly by the Trust, the
prepayment of the loan on and sale of the land underlying Brown County Inn
(January 1994), the sale of the land underlying Village Oaks apartments (March
1994) and the prepayment of the Rapids Mall's mortgage loan (June 1994). This
decrease was offset in part by an increase in base income from the restructured
Cincinnati Marriott Inn investment (April 1994).
Overage income from Structured Transactions held directly by the Trust
decreased 10% for the nine months ended April 30, 1995 as compared to the same
period in the prior year, primarily due to the sales of the Village Oaks and
Brown County Inn investments.
The Trust's share of income from unconsolidated Investment Partnerships
decreased 28% for the nine months ended April 30, 1995 as compared to the same
period in the prior year, primarily due to the reduced net income recorded by
the Trust from PCA Southwest Associates Limited Partnership, the Partnership
which owns 2,848 apartment units in Texas. The apartments were converted to
Owned Properties in March 1994 and since that date the Trust's share of income
from this Investment Partnership
is reported net of depreciation expense. Previously, as a Structured
Transaction held in an unconsolidated Investment Partnership, the revenues of
the Partnership consisted of mortgage interest on the partnership's mortgage
loan investment . The decrease in income from unconsolidated Investment
Partnerships was also due to the cessation of rent and interest payments from
the sublessee/mortgagor of the Canyon View apartment investments and the
associated legal and professional fees incurred during negotiations. (See
"Item 2. Legal Proceedings," for a discussion of the bankruptcy filing of the
Investment Partnership that holds the Canyon View investments.)
<PAGE>
Page 11
ITEM 1. FINANCIAL CONDITION (continued)
EXPENSES
Expenses on Owned Properties held directly by the Trust decreased 22% for the
three months ended April 30, 1995 as compared to the same period in the prior
year due to the sales of 6110 Executive Boulevard and Eagle apartments. The
expenses on Owned Properties held directly by the Trust increased 6% for the
nine months ended April 30, 1995 as compared to the same period in the prior
year primarily due to the conversion of 6110 Executive Boulevard to an Owned
Property held directly by the Trust in February 1994 until its sale in January
1995, and an increase in operating expenses at the redeveloped Loehmann's
Fashion Island, offset in part by the impact of the sale of the Eagle
apartments (March 1994).
Interest expense decreased 18% for the three months ended April 30, 1995 as
compared to the same period in the prior year due to the sale of 6110 Executive
Boulevard and Eagle Apartments which were encumbered by mortgage financing,
offset in part by an increase in interest expense related to Loehmann's Fashion
Island. Interest expense increased 5% for the nine months ended April 30, 1995
as compared to the same period in the prior year due to the interest expense
incurred on the first mortgage on 6110 Executive Boulevard, until the date of
sale in January 1995, and an increase in interest expense related to Loehmann's
Fashion Island. These increases were offset in part by a reduction in interest
expense due to the sale of Eagle apartments in March 1994.
Depreciation expense increased 3% and 22% for the three and nine months ended
April 30, 1995 as compared to the same periods in the prior year, primarily due
to the acquisition of 6110 Executive Boulevard in the prior year and the
related depreciation expense incurred until the sale of this property in
January 1995 and the increase in depreciation on the redeveloped Loehmann's
Fashion Island, offset in part by the elimination of depreciation on Eagle
apartments due to its sale in March 1994. Professional fees increased to
$141,000 for the three months ended April 30, 1995 from a credit of $11,000 in
the comparable period of the prior year primarily due to expenses incurred by
the Trust in its review of long-term strategy.
GAIN ON SALE OF REAL ESTATE INVESTMENTS
Net income for the third quarter of fiscal 1995 included a gain of $110,000
($.01 per share) on the sale of Braes Hill apartments located in Houston,
Texas. In the comparable quarter last year net income included a gain of
$2,410,000 ($.27 per share) comprised of the sale to the Trust's lessee of the
Trust's Village Oaks investment at a gain of $2,500,000 offset by a $90,000
loss on the sale of Eagle apartments. Net income for the nine months ended
April 30, 1995 also included a gain of $3,099,000 ($.34 per share) on the sale
of 6110 Executive Boulevard. In the comparable period last year net income
also included a $100,000 ($.01 per share) gain on the sale of the Trust's land
investment in the Brown County Inn, located in Nashville, Indiana.
EXTRAORDINARY GAIN FROM EXTINGUISHMENT OF DEBT
The Trust purchased $1,698,000 of its 10% Convertible Subordinated Debentures
at less than their carrying value, producing a gain of $88,000 ($.01 per
share).
NET INCOME
Net Income for the three and nine months ended April 30, 1995 was $655,000
($.07 per share) and $4,835,000 ($.53 per share) as compared to $2,688,000
($.30 per share) and $3,713,000 ($.41 per share) for the same periods in the
prior year.
DIVIDENDS
The dividend declared for the third quarter of fiscal 1995 was $.10 per share
versus $.07 per share for the same period in the prior year. The Trust pays
dividends approximately 55 days following the end of each fiscal quarter.
<PAGE>
Page 12
PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
In July 1994, the sublessee/mortgagor of PCA Canyon View Associates Limited
Partnership (an Investment Partnership) of two apartment projects in San Ramon,
California (know as "Canyon View I" and "Canyon View II" and containing 248 and
188 units, respectively) failed to make the required payments due the
Investment Partnership and the ground lessor. In addition, in August 1994, the
sublessee/mortgagor failed to make the required mortgage payment due the first
mortgagee of Phase I. The outstanding balance of the first mortgage secured by
Phase I was $12,000,000. The Investment Partnership's carrying value of the
properties was $14,374,000 at April 30, 1995, of which the Trust's share was
$3,422,000.
As a result of the defaults by the sublessee/mortgagor, on August 3,1994 the
first mortgagee filed a foreclosure action in Superior Court of the State of
California, County of Contra Costa, seeking to take full title to Phase I, to
recover approximately $3,000,000 in insurance proceeds made available as a
result of certain construction defects in Phase I ($500,000 of which had
already been retained by the sublessee/mortgagor in part for attorneys' and
engineers' fees) and to have a receiver appointed to operate the property. On
August 26, 1994, the Court appointed a receiver for Phase I. In addition, on
August 8, 1994 the Investment Partnership filed a foreclosure action in
Superior Court of the State of California, Contra Costa County, seeking to
obtain full title to both Phase I and Phase II, to recover the construction
defects insurance proceeds, to force the bank that had issued $1,750,000 in
letters of credit as further security for the Investment Partnership's
investments to honor the Investment Partnership's draw requests under those
letters of credit and to have a receiver appointed to operate Phase II. On
August 31, 1994, the Court appointed a receiver for Phase II. The nonjudicial
foreclosure sale for Phase I had been set by the first mortgagee for December
5, 1994. On December 2, 1994 the Investment Partnership filed for protection
under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the Northern District of California. Negotiations with the first
mortgagee and the sublessee/mortgagor continue. At this time it is not
possible to predict the outcome of these legal actions.
In November 1994, a space tenant that occupies approximately 70% of College
Hills 3, a 37,700 square foot office building located in Overland Park, Kansas
and owned by Property Capital Midwest Associates, L.P. (an Investment
Partnership), filed an action in the District Court of Johnson County, Kansas,
in which the tenant claims that the Trust and the Investment Partnership have
violated the terms of the tenant's space lease. The tenant has alleged that it
had an oral agreement with the Investment Partnership's predecessor-in-interest
to the building, with the Trust and with the Investment Partnership to lease
additional space that might become available in the building, which allegation
the Trust and Investment Partnership have denied. After the filing of the
action, negotiations for the possible sale of the building to the tenant
ensued, but the Trust determined that it preferred to lease the building to the
tenant on the terms demanded by the tenant in the litigation rather than to
sell the building to the tenant on the terms then being discussed. In March
1995, a settlement agreement to grant the tenant the expansion rights it had
requested in its original pleading in the litigation was entered into with the
tenant but the tenant is currently disputing some of the terms of the leases
proffered to it pursuant the settlement agreement and is arguing that the
settlement agreement did not in fact constitute a full and final settlement
amongst the parties to the litigation. In a pleading filed in the litigation,
the tenant has also asserted that it is entitled to damages in excess of
$1,000,000, which assertion is denied by the Trust and the Investment
Partnership. Although it is not possible to predict with certainty the outcome
of the litigation, the Trust and the Investment Partnership do not believe that
they have any material liability to the tenant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE>
Page 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Trust
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PROPERTY CAPITAL TRUST
Registrant
/S/ ROBERT M. MELZER
------------------------------------
Robert M. Melzer
June 14, 1995 President and Chief Executive Officer
- - ------------- (Principal Financial Officer)
Date
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