SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
COMMISSION FILE NUMBER: 1-7003
PROPERTY CAPITAL TRUST
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2452367
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
ONE POST OFFICE SQUARE, BOSTON, MASSACHUSETTS 02109
(Address of principal executive offices)
(zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(617) 451-2400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes X No .
NUMBER OF SHARES OF COMMON SHARES OUTSTANDING AS OF OCTOBER 31, 1994:
9,030,585
<PAGE>
Page 1
PROPERTY CAPITAL TRUST
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Consolidated Balance Sheet - October 31, 1994
and July 31, 1994 (unaudited) 2
Consolidated Statement of Income -
Three Months Ended October 31, 1994 and 1993 (unaudited) 3
Consolidated Statement of Cash Flows -
Three Months Ended October 31, 1994 and 1993 (unaudited) 4
Consolidated Statement of Shareholders' Equity -
Three Months Ended October 31, 1994 and 1993 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 2. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10-11
<PAGE>
Page 2
PART I. FINANCIAL INFORMATION
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1994 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real Estate Investments
Owned Properties held directly by the Trust
(net of accumulated depreciation of $11,383,000
and $10,362,000, respectively) $107,414,000 $105,295,000
Structured Transactions held directly by the Trust 32,579,000 32,581,000
Investment Partnerships 51,903,000 51,998,000
------------ ------------
191,896,000 189,874,000
Allowance for possible investment losses (17,413,000) (17,413,000)
----------- -----------
174,483,000 172,461,000
Cash 994,000 720,000
Interest and rents receivable
Owned Properties held directly by the Trust 1,646,000 1,852,000
Structured Transactions held directly by the Trust 252,000 259,000
Other assets 1,746,000 1,541,000
------------ ------------
$179,121,000 $176,833,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 1,688,000 $ 2,940,000
Accrued interest 1,777,000 711,000
Bank note payable 7,700,000 5,000,000
Mortgage notes payable 42,989,000 43,110,000
9 3/4% Convertible Subordinated Debentures 2,546,000 2,546,000
10% Convertible Subordinated Debentures 30,823,000 30,823,000
------------- -------------
87,523,000 85,130,000
------------- -------------
Shareholders' Equity
Common Shares (without par value, unlimited shares
authorized, 9,030,585 issued and outstanding) 106,060,000 106,060,000
Accumulated deficit (14,462,000) (14,357,000)
------------- -------------
Total Shareholders' Equity 91,598,000 91,703,000
------------- -------------
$179,121,000 $176,833,000
============= ==============
</TABLE>
See accompanying notes
<PAGE>
Page 3
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
------------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Rents from Owned Properties held directly by the Trust $4,498,000 $2,747,000
Structured Transactions held directly by the Trust
Base income 663,000 1,020,000
Overage income 428,000 556,000
Income from unconsolidated Investment Partnerships 280,000 456,000
--------- ---------
5,869,000 4,779,000
Advisory fee income 82,000 80,000
--------- ---------
5,951,000 4,859,000
--------- ---------
EXPENSES
Expenses on Owned Properties held directly by the Trust 1,742,000 1,400,000
Interest 1,871,000 1,567,000
Depreciation 1,021,000 740,000
General and administrative expenses 513,000 464,000
Professional fees 51,000 172,000
Trustees' fees and expenses 45,000 37,000
--------- ---------
5,243,000 4,380,000
--------- ----------
NET INCOME $ 708,000 $ 479,000
========== ==========
NET INCOME PER SHARE $0.08 $0.05
===== =====
AVERAGE SHARES OUTSTANDING 9,031,000 9,029,000
========= =========
</TABLE>
See accompanying notes
<PAGE>
Page 4
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
------------------------------------
1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 708,000 $ 479,000
Adjustments to Net Income
Depreciation and amortization 1,069,000 752,000
Income from unconsolidated Investment Partnerships (280,000) (456,000)
Distributions of income from Investment Partnerships 375,000 377,000
Changes in assets and liabilities
Decrease in interest and rents receivable 213,000 89,000
Increase in other assets, net (253,000) (590,000)
(Decrease) increase in accounts payable, accrued
expenses and accrued interest (186,000) 399,000
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,646,000 1,050,000
--------- ---------
INVESTING ACTIVITIES
Owned Properties held directly by the Trust
Additions (3,140,000) (2,833,000)
Structured Transactions held directly by the Trust
Repayments 2,000 3,000
Investment Partnerships
Distributions in excess of income - 152,000
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,138,000) (2,678,000)
---------- ----------
FINANCING ACTIVITIES
Proceeds from bank note payable, net 2,700,000 2,490,000
Cash dividends paid (813,000) (632,000)
Scheduled amortization of mortgage notes payable (121,000) (113,000)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,766,000 1,745,000
--------- ---------
NET INCREASE IN CASH 274,000 117,000
CASH AT BEGINNING OF PERIOD 720,000 324,000
---------- ----------
CASH AT END OF PERIOD $ 994,000 $ 441,000
========== ==========
</TABLE>
See accompanying notes
<PAGE>
Page 5
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31,
--------------------------------
1994 1993
- ------------------------------------------------------------------------------
COMMON SHARES
Balance at beginning and end of period $106,060,000 $106,052,000
------------ ------------
ACCUMULATED DEFICIT
Balance at beginning of period (14,357,000) (15,918,000)
Net income 708,000 479,000
Cash dividends paid (813,000) (632,000)
------------ ------------
Balance at end of period (14,462,000) (16,071,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY $ 91,598,000 $ 89,981,000
============ ============
NUMBER OF COMMON SHARES
Common Shares issued and outstanding
at beginning and end of period 9,030,585 9,028,585
============ =============
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 October 31, 1994 and the
results of its operations and its cash flows for the three months ended October
31, 1994 and 1993.
Operating results for the quarter ended October 31, 1994 are not necessarily
indicative of the results that may be expected for the year ended July 31,
1995. The information contained in these financial statements should be read
in conjunction with the Trust's 1994 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on October 28, 1994.
2. INVESTMENT PARTNERSHIPS
Certain of the Trust's investments have been made through partnerships, or
participation 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.
A Condensed Combined Summary of Operations for the unconsolidated Investment
Partnerships for the periods indicated follows:
Three Months Ended
October 31,
---------------------------------
1994 1993
---------------------------------
REVENUES
Rents from Owned Properties $5,055,000 $1,811,000
Structured Transactions
Base income 672,000 1,041,000
Overage income 108,000 -
Other income 17,000 6,000
--------- ---------
5,852,000 2,858,000
--------- ---------
EXPENSES
Owned Properties expenses 3,486,000 1,001,000
Depreciation 1,006,000 560,000
Interest 321,000 -
Other 371,000 101,000
--------- ---------
5,184,000 1,662,000
--------- ---------
NET INCOME $ 668,000 $1,196,000
========== ==========
NET INCOME
Trust's share of
combined net income $ 280,000 $ 456,000
Limited partners' share of
combined net income 388,000 740,000
---------- ----------
$ 668,000 $1,196,000
========== ==========
<PAGE>
Page 7
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Trust's debt at October 31, 1994 was $84,058,000 as compared to $81,479,000
at July 31, 1994. The Trust's debt to equity ratio increased to .92 at October
31, 1994 from .89 at July 31, 1994.
The Trust's bank note payable, which is due and payable on demand, represents
borrowings under a $20,000,000 revolving bank line of credit. The interest
rate on the bank line is at the bank's prime rate plus 1/4% (the prime rate was
7.75% at October 31, 1994). The bank line was reduced in June 1994 from
$35,000,000 to $20,000,000 when the Trust refinanced the indebtedness on its
Loehmann's Fashion Island property with the same lender that provides the
Trust's bank line. The maximum amount which may be borrowed under the bank
line will be reduced further, on a dollar for dollar basis but not below
$15,000,000, as additional advances are made under the loan secured by the
Loehmann's Fashion Island property.
The Trust's bank note payable increased to $7,700,000 at October 31, 1994 from
$5,000,000 at July 31, 1994 primarily due to borrowings used for tenant
allowances at Loehmann's Fashion Island. During the remainder of fiscal 1995,
the Trust expects to use the bank line to fund capital expenditures on Owned
Properties held directly by the Trust aggregating approximately $4,000,000,
including approximately $1,850,000 at Loehmann's Fashion Island (primarily for
tenant allowances).
Management believes that with its cash provided by operating activities
retained after dividend distributions, borrowings under the existing bank line
and additional borrowings under the Loehmann's Fashion Island mortgage for
which it believes it will qualify, it will be able to meet its fiscal 1995 cash
requirements for anticipated capital expenditures on Owned Properties held
directly by the Trust. The Trust currently expects that these cash
requirements will total approximately $4,000,000 during the remainder of fiscal
1995. Further, the Trust believes that it will be able to fund anticipated
long-term liquidity requirements with cash provided by operating activities
retained after dividends, existing credit facilities and sales proceeds for the
foreseeable future.
FUNDS FROM OPERATIONS
Funds from operations is considered by the REIT industry to be an appropriate
measure of performance of an equity REIT. Funds from operations is calculated
by the Trust consistent with the National Association of Real Estate Investment
Trusts' definition (funds from operations equals net income, excluding gains
(losses) from debt restructurings and sales of properties, plus depreciation
and amortization and after adjustment for unconsolidated partnerships and joint
ventures). Funds from operations should be considered in conjunction with net
income (loss) as presented in the Trust's unaudited financial statements.
Funds from operations does not represent cash provided by operating activities
in accordance with generally accepted accounting principles and should not be
considered as a substitute for net income as a measure of results of operations
or for cash provided by operating activities as a measure of liquidity. Funds
from operations was calculated by the Trust as follows:
THREE MONTHS ENDED OCTOBER 31,
------------------------------------
1994 1993
- ----------------------------------------------------------------------------
Net Income $ 708,000 $ 479,000
Depreciation on Owned Properties
held directly by the Trust 1,021,000 740,000
Trust's share of depreciation
on unconsolidated Investment
Partnerships 505,000 298,000
---------- ----------
$2,234,000 $1,517,000
========== ==========
<PAGE>
Page 8
ITEM 1. FINANCIAL CONDITION (continued)
REVIEW OF SIGNIFICANT REAL ESTATE ACTIVITY FOR THE QUARTER
APARTMENTS
The Trust, as general partner of PCA Canyon View Associates, an Investment
Partnership in which the Trust has invested approximately $3,400,000, continues
to negotiate with its lessee and the first mortgagee on Phase I of this two-
phase apartment project regarding a restructuring of the investments. The
first mortgagee had scheduled a foreclosure of Phase I for December 5, 1994.
In order to protect its investments, on December 2, 1994 the Investment
Partnership filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
The Investment Partnership has not been paid by its sublessee/mortgagor since
June 1994. Although it is not possible to predict the outcome of these
proceedings or the negotiations, management has had the properties appraised
and believes that adequate provision has been made in the Trust's loss
allowance for any loss that may be sustained on these investments. (See "Item
2, Legal Proceedings.")
PCA Southwest Associates, L.P., an Investment Partnership that owns 3,000
apartment units in Houston, Texas, has offered one of its properties for sale,
Braes Hill, a 152-unit complex, and the Trust, as general partner, is currently
negotiating with a prospective purchaser. The Trust currently anticipates that
this property will be sold without incurring a loss.
OFFICE BUILDINGS
The Trust has also offered for sale 6110 Executive Boulevard, an Owned Property
held directly by the Trust. The Trust is in negotiation with a potential
purchaser. The Trust currently anticipates that the property will be sold at
current book value or higher.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1994 VERSUS THE
THREE MONTHS ENDED OCTOBER 31, 1993
REVENUES
Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) increased 64% for the three months ended October 31, 1994 as
compared to the same period in the prior year, primarily due to $404,000 of
non-recurring income related to the settlement of a bankruptcy claim filed by
the Trust against a former tenant at Loehmann's Fashion Island, the Trust's
acquisition of its lessee's interest in 6110 Executive Boulevard (converting
the investment from a Structured Transaction held directly by the Trust to an
Owned Property held directly by the Trust effective February 1994) and an
increase in rental revenues from the redeveloped Loehmann's Fashion Island as
new tenants have taken occupancy. This increase was offset in part by a
decrease in rental revenue due to the sale of Eagle apartments (March 1994).
Base income from Structured Transactions held directly by the Trust (land rent
and/or mortgage interest) decreased 35% for the three months ended October 31,
1994 as compared to the same period in the prior year, primarily due to the
conversion of 6110 Executive Boulevard to an Owned Property held directly by
the Trust, the prepayment of the loan and sale of the land underlying Brown
County Inn (January 1994), the sale of the land underlying Village Oaks
apartments (March 1994) and the prepayment of the Rapids Mall's loan (June
1994). This decrease was offset in part by an increase in base income from the
restructured Cincinnati Marriott Inn investment (April 1994).
Overage income from Structured Transactions held directly by the Trust
decreased 23% for the three months ended October 31, 1994 as compared to the
same periods in the prior year primarily due to the receipt in the prior year
of overage income from two apartment investments which did not pay overage
income this year and the sales of the Village Oaks and Brown County Inn
investments.
The Trust's share of income from unconsolidated Investment Partnerships
decreased 39% for the three months ended October 31, 1994 as compared to the
same period in the prior year primarily due to the reduced net income recorded
by the Trust from PCA Southwest Associates L.P., the Partnership which owns
3,000 apartment units in Texas. The apartments converted to Owned
<PAGE>
Page 9
ITEM 1. FINANCIAL CONDITION (continued)
Properties in March 1994 and since that date the Trust's share of net income is
reported net of depreciation expense. The decrease in income from
unconsolidated Investment Partnerships was also due to the cessation of rent
and interest payments from the sublessee/mortgagor of the Canyon View apartment
investments. (See "Item 2, Legal Proceedings," for a discussion of the
bankruptcy filing of the Investment Partnership that holds the Canyon View
investments.)
EXPENSES
Expenses on Owned Properties held directly by the Trust increased 24% for the
three months ended October 31, 1994 as compared to the same period in the prior
year primarily due to the acquisition of 6110 Executive Boulevard and an
increase in operating expenses at the redeveloped Loehmann's Fashion Island.
Interest expense increased 19% for the three months ended October 31, 1994 as
compared to the same period in the prior year due to the interest expense
incurred on the first mortgage on 6110 Executive Boulevard and the expensing of
interest related to Loehmann's Fashion Island (a portion of which had been
capitalized during the first quarter of fiscal 1994). These increases were
offset in part by a reduction in interest expense due to the sale of Eagle
apartments.
Depreciation expense increased 38% for the three months ended October 31, 1994
as compared to the same period in the prior year primarily due to the
acquisition of 6110 Executive Boulevard and the increase in depreciation on the
redeveloped Loehmann's Fashion Island, offset in part by the elimination of
depreciation on Eagle apartments, which was sold.
DIVIDENDS
The dividend declared for the first quarter of fiscal 1995 was $.09 per share
versus $.07 per share for the same period in the prior year.
PART II OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
In July 1994, the sublessee/mortgagor of two apartment projects in San Ramon,
California (known as "Canyon View I and Canyon View II" and containing 248 and
188 units, respectively) held by PCA Canyon View Associates Limited Partnership
(an Investment Partnership) failed to make the required payments due the
Investment Partnership and the ground lessor. In addition, in August 1994, the
sublessee/mortgagor failed to make the required mortgage payment to the first
mortgagee of Phase I. The outstanding balance of the first mortgage secured by
Phase I was $12,000,000. The Investment Partnership's carrying value of the
properties was $14,374,000 at July 31, 1994, of which the Trust's share was
$3,422,000.
As a result of the defaults by the sublessee/mortgagor, on August 3, 1994 the
first mortgagee filed a foreclosure action in Superior Court of the State of
California, County of Contra Costa, seeking to take full title to Phase I, to
recover approximately $3,000,000 in insurance proceeds made available as a
result of certain construction defects in Phase I ($500,000 of which had
already been retained by the sublessee/mortgagor for, amongst other things,
attorneys' and engineers' fees) and to have a receiver appointed to operate the
property. On August 26, 1994, the Court appointed a receiver for Phase I. In
addition, on August 8, 1994 the Investment Partnership filed a foreclosure
action in Superior Court of the State of California, Contra Costa County,
seeking to obtain full title to both Phase I and Phase II, to recover the
construction defects insurance proceeds, to force the bank that had issued
$1,750,000 in letters of credit as further security to honor the Investment
Partnership's draw requests under those letters of credit and to have a
receiver appointed to operate Phase II. On August 31, 1994, the Court
appointed a receiver for Phase II. The nonjudicial foreclosure sale for Phase
I had been set by the first mortgagee for December 5, 1994. In order to
preserve the Investment Partnership's investments and stay the foreclosure
proceeding, on December 2, 1994 the Investment Partnership filed for protection
under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the Northern District of California. Although negotiations with the
first mortgagee and the sublessee/mortgagor are ongoing, at this time it is not
possible to predict the outcome of these legal actions.
<PAGE>
Page 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Trust's 1994 Annual Meeting of Shareholders held on November 30, 1994,
the Trust's shareholders (i) elected seven Trustees to serve until the next
annual meeting of the Trust's shareholders, (ii) approved the Amended and
Restated Deferred Stock Plan for Non-Employee Trustees, (iii) approved the
Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees, (iv)
approved certain amendments to the Property Capital Trust 1992 Stock Option
Plan and (v) ratified the appointment of Ernst & Young LLP; for the Trust's
auditors for the year ended July 31, 1995. The votes on each of these items
follows:
1. Election of seven Trustees:
NUMBER OF SHARES
----------------
FOR WITHHOLD AUTHORITY
--------- ------------------
Walter M. Cabot 6,326,786 115,242
John A. Cervieri, Jr. 6,331,386 110,642
Graham O. Harrison 6,330,286 111,742
Walter F. Leinhardt 6,323,842 118,186
Edward H. Linde 6,326,942 115,086
Robert M. Melzer 6,333,686 108,342
Glen P. Strehle 6,345,842 96,186
2. Approval of the Amended and Restated Deferred Stock Plan for Non-Employee
Trustees.
NUMBER OF SHARES
----------------
For 3,752,125
Against 348,774
Abstain 244,022
Broker non-votes 2,097,107
3. Approval of the Property Capital Trust 1994 Stock Option Plan for Non-
Employee Trustees.
NUMBER OF SHARES
----------------
For 3,489,813
Against 599,949
Abstain 257,159
Broker non-votes 2,095,107
4. Approval of Amendments to the Property Capital Trust 1992 Stock Option
Plan.
NUMBER OF SHARES
----------------
For 3,634,429
Against 444,790
Abstain 265,202
Broker non-votes 2,097,607
<PAGE>
Page 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)
5. The ratification of the appointment of Ernst & Young LLP to serve as the
independent auditors for the fiscal year ending July 31, 1995.
NUMBER OF SHARES
----------------
For 6,325,254
Against 62,196
Abstain 51,436
Broker non-votes 3,142
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE>
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
----------------------------------
November 13, 1995 Robert M. Melzer
- -------------------- President and Chief Executive Officer
Date
