SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT No. 1
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>
Page 2
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 are either made directly
(including through wholly owned subsidiaries) or through limited partnerships
or a participation agreement (classified as and referred to herein as
"Investment Partnerships") in which the Trust is general partner or lead lender
and other institutional investors are the limited partners or participating
lenders. For financial reporting purposes, the Trust categorizes its
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 Investment Partnerships. Investments in land leasebacks
and/or mortgage loans are classified as Structured Transactions. Investments
in which the Trust (or a wholly owned subsidiary) has title to improved income
producing properties and therefore the obligation to operate the properties,
which it may undertake through independent contractors, are classified as
Owned Properties. 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
relating to such investments during the year, see Item 2, Item 7, Note 2 of the
Notes to Consolidated Financial Statements of the Trust, and 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 its
portfolio. To the extent the Trust receives proceeds from the sale of
investments beyond amounts required to repay its bank line, the Trust will
consider whether to retire a portion of its 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.
<PAGE>
Page 3
ITEM 1. BUSINESS (continued)
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.
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, which includes properties that are owned directly by the Trust (or
its subsidiaries) and by the Investment Partnerships., with limits of
$76,000,000 per occurrence and $89,000,000 in the aggregate except for PCA
Southwest Associates Limited Partnership which is subject to a $77,000,000
aggregate limit. 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 a limit of
$50,000,000 at any one location except Loehmann's Fashion Island which is
subject to a $20,000,000 limit and PCA Southwest Associates Limited Partnership
which is subject to a $82,800,000 limit. Separate flood and earthquake
insurance is provided with an annual aggregate limit of $10,000,000 for each
peril. Currently, only two Investment Partnerships hold Owned Properties--
Property Capital Midwest Associates, L.P. and PCA Southwest Associates Limited
Partnership. The Trust as general partner, is liable for all obligations of
and claims made against Property Capital Midwest Associates, L.P. beyond the
net worth of such partnership and, in case of claims covered by partnership
liability insurance, the amount of such insurance. The Trust has sought to
obviate such liability with respect to PCA Southwest Associates Limited
Partnership by transferring its general partnership interest to a limited
partnership of which a wholly owned subsidiary of the Trust is the general
partner and the Trust is the limited partner.
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
third-party owner of real estate was with National Housing Partnerships (NHP)
which, through affiliates, is the lessee/mortgagor in two of the Trust's
apartment investments. The Trust's investments consist of a $5,400,000 land
leaseback in Sandpiper Cove Apartments and investments totaling $9,770,000
<PAGE>
Page 4
ITEM 1. BUSINESS (continued)
in Elm Creek Apartments (a $2,230,000 land leaseback and a $7,540,000 leasehold
mortgage loan). These 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.
Neither NHP nor any other 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.
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.
<PAGE>
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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.
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 %
== ============ ===
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ITEM 2. PROPERTIES (continued)
The Trust has investments in 29 properties located throughout the United
States. Six properties (including the improvements) are owned and operated by
the Trust (or its wholly owned subsidiaries) and are classified as Owned
Properties held directly by the Trust. Ten properties are investments in which
the Trust owns and leases back land and/or holds a mortgage on the properties
and are classified as Structured Transactions held directly by the Trust.
Additionally, the Trust has investments in five Investment Partnerships, two of
which own and operate nine properties and are classified as Owned Properties
held in Investment Partnerships and three of which hold land leasebacks and/or
mortgage loans on properties and are classified as Structured Transactions held
in Investment Partnerships.
The following is a schedule of the 29 properties in which the Trust has
investments.
OWNED PROPERTIES HELD DIRECTLY BY THE TRUST
<TABLE>
<CAPTION>
YEAR TRUST'S THIRD PARTY AVERAGE PERCENT
PROPERTY BUILT/ CARRYING SENIOR RENT PER LEASED
LOCATION SIZE RENOVATED VALUE INDEBTEDNESS SQ. FOOT 7/31/94
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE
6110 Executive Blvd. Rockville, MD 197,000 sq. ft. 1973 $11,862,000 $6,458,000 $16.41 96%
One Park West Chevy Chase, MD 128,500 sq. ft. 1980 18,742,000 10,052,000 $24.96 100
Citibank Office Plaza Schaumburg, IL 105,400 sq. ft. 1978 10,150,000 - $17.62 88
Citibank Office Plaza Oak Brook, IL 100,400 sq. ft. 1979 11,666,000 - $17.91 99
Park Plaza Clayton, MO 72,000 sq. ft. 1984 11,947,000 8,600,000 $17.80 100
--------------- ----------- ----------- ---
603,300 sq. ft. $64,367,000 $25,110,000 96%
=============== =========== =========== ===
RETAIL
Loehmann's Fashion Island Aventura, FL 280,000 sq. ft. 1980/1994 $41,607,000 $18,000,000 $15.55{1} 90%
=============== =========== =========== ==
</TABLE>
<TABLE>
<CAPTION>
STRUCTURED TRANSACTIONS HELD DIRECTLY BY THE TRUST
YEAR TRUST'S THIRD PARTY PERCENT
PROPERTY BUILT/ CARRYING SENIOR LEASED
LOCATION SIZE RENOVATED VALUE INDEBTEDNESS 7/31/94
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RETAIL
Roseburg Valley Mall Roseburg, OR 237,000 sq. ft. 1980 $3,985,000 $6,933,000 92%
Lakeside Center Burbank, CA 66,000 sq. ft. 1962/1986 350,000 273,000 100
--------------- ---------- ---------- ----
303,000 sq. ft. $4,335,000 $7,206,000 94%
=============== ========== ========== ====
APARTMENTS
Sandpiper Cove Boynton Beach, FL 416 units 1989 $5,400,000 $16,834,000 97%
Elm Creek Elmhurst, IL 372 units 1988 9,770,000 21,271,000 97
Bluffs II San Diego, CA 224 units 1974 825,000 1,742,000 99
Northbrook San Bernardino, CA 190 units 1972 400,000 - 72
Yorkshire Midwest City, OK 111 units 1970 135,000 - 99
----------- ----------- ----------- ---
1,313 units $16,530,000 $39,847,000 94%
=========== =========== =========== ===
HOTELS
City Centre Holiday Inn Chicago, IL 500 rooms 1976 $2,000,000 $10,553,000 71%{2}
Cincinnati Marriott Inn Cincinnati, OH 350 rooms 1968/1985 5,716,000 10,741,000 64 {2}
Grosvenor Airport InnS. San Francisco, CA 206 rooms 1969 4,000,000 1,529,000 70 {2}
--------- ---------- ----------- ------
1,056 rooms $11,716,000 $22,823,000 68%{2}
=========== =========== =========== ======
</TABLE>
{1} Net rent
{2} Average occupancy for fiscal 1994
<PAGE>
Page 7
ITEM 2. PROPERTIES (continued)
INVESTMENT PARTNERSHIPS
<TABLE>
<CAPTION>
YEAR THIRD PARTY PERCENT PERCENT
PROPERTY BUILT/ PARTNERSHIP'S SENIOR OWNED LEASED
LOCATION SIZE RENOVATED EQUITY INDEBTEDNESS BY PCT 7/31/94
- ----------------------------------------------------------------------------------------------------------------------------
OWNED PROPERTIES HELD IN INVESTMENT PARTNERSHIPS
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE
Financial Plaza Overland Park, KS 303,400 sq. ft. 1984-87 $31,242,000 - 53.3% 94%
College Hills 8 Overland Park, KS 50,900 sq. ft. 1982 4,246,000 - 53.3% 97
College Hills 3 Overland Park, KS 37,700 sq. ft. 1979 2,271,000 - 53.3% 100
-------------- ----------- -------- -----
392,000 sq. ft. $37,759,000 95%
============== =========== ======== =====
RETAIL
Plaza West Retail
Center Overland Park, KS 98,400 sq. ft. 1988 $14,135,000 - 53.3% 93%
============== =========== ========= =====
APARTMENTS
Telegraph Hill Houston, TX 1,180 units 1978 $3,147,000 $13,295,000 45.5% 81%
St. Charles Houston, TX 780 units 1978 4,429,000 9,266,000 45.5% 77
Chimney Rock Houston, TX 714 units 1965 10,648,000 - 45.5% 97
Boardwalk Houston, TX 174 units 1978 1,386,000 3,343,000 45.5% 92
Braes Hill Houston, TX 152 units 1971 2,121,000 - 45.5% 99
----------- ----------- ----------- --
3,000 units $21,731,000 $25,904,000 85%
=========== =========== =========== ===
</TABLE>
<TABLE>
<CAPTION>
STRUCTURED TRANSACTIONS HELD IN INVESTMENT PARTNERSHIPS
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL
Crossroads Mall Boulder, CO 814,000 SQ. FT. 1964/1983 $8,065,000 $37,190,000 25.0% 97%
======= ========== =========== ===== ===
APARTMENTS
Canyon View I San Ramon, CA 248 units 1987 $3,687,000 $12,000,000 23.8% 99%
Canyon View II San Ramon, CA 188 units 1988 10,687,000 - 23.8% 98
--------- ----------- ----------- ---
436 units $14,374,000 $12,000,000 99%
========= =========== =========== ===
HOTEL
Lisle Hilton Inn Lisle, IL 313 rooms 1981/1993 $21,657,000 - 41.7% 68%{1}
========= =========== =========== ======
REAL ESTATE
INVESTMENTS
29 investments
</TABLE>
{1} Average occupancy for fiscal 1994
The six Owned Properties held directly by the Trust total $105,974,000 (57% of
real estate investments before the allowance for possible investment losses).
Five of the properties are office buildings located in suburban markets and the
remaining property is a retail center located in Aventura, Florida. Below is a
description of each of these properties.
6110 EXECUTIVE BOULEVARD - ROCKVILLE MARYLAND
6110 Executive Boulevard is a 197,000 square foot, ten story, multi-tenant
office building, built in 1973, with a three story garage. The property is
located in suburban Washington, D.C. and is encumbered by a $6,458,000 first
mortgage which bears interest at 9.625%, due July 1995. The building is
tenanted by a university, a computer software firm, a publishing firm and
professional and general businesses. At July 31, 1994, the property had one
tenant which occupied more than 10% of the building. This tenant occupies
21,530 square feet and the lease expires December 31, 1996. At July 31, 1994,
1993 and 1992 the property was 96%, 96% and 97% leased, respectively.
<PAGE>
Page 8
ITEM 2. PROPERTIES (continued)
ONE PARK WEST - CHEVY CHASE MARYLAND
One Park West is a 128,500 square foot, five story, multi-tenant office
building with underground parking, built in 1980. The property is located in
suburban Washington, D.C. At July 31, 1994,the property was encumbered by a
$10,052,000 first mortgage which bears interest at 9.5% due June 2000. The
building is tenanted by the federal government, a publisher, and general and
medical offices. Four tenants each occupy more than 10% of the building, with
space aggregating 34,883 square feet, 22,925 square feet, 15,901 square feet
and 14,400 square feet, and lease expiration dates of December 31, 1996,
October 31, 2000, March 31, 1998 (with an early termination option at March 31,
1997) and March 31, 1996, respectively. At July 31, 1994, 1993 and 1992, the
property was 100%, 83%, and 84% leased, respectively.
CITIBANK OFFICE PLAZA - SCHAUMBURG ILLINOIS
Citibank Office Plaza - Schaumburg is a 105,400 square foot, five story, multi-
tenant office building, built in 1978. The property is located in suburban
Chicago, Illinois and is not encumbered by mortgage financing. The building is
tenanted by the headquarters of a regional hardware retailer, an accounting
firm , a stockbroker, a bank and general office tenants. Three tenants each
occupy more than 10% of the building, with space aggregating 29,421 square
feet, 18,394 square feet and 11,909 square feet and lease expiration dates of
October 31, 2001 (with an early termination option at October 31, 1998), August
18, 2001 and December 31, 2003 (with and early termination option at December
31, 1996), respectively. At July 31, 1994, 1993, and 1992, the property was
88%. 80%, and 81% leased, respectively.
CITIBANK OFFICE PLAZA - OAKBROOK ILLINOIS
Citibank Office Plaza - Oakbrook (6% of Real Estate Investments before the
allowance for possible investment losses) is a 100,400 square foot, five story,
multi-tenant office building built in 1979. The property is located in
suburban Chicago, Illinois and is not encumbered by mortgage financing. The
building is tenanted by an educational service firm and other professional
banking and service businesses. Three tenants each occupy more than 10% of the
building with spaces aggregating 29,202 square feet, 17,121 square feet and
10,352 square feet and lease expiration dates of January 31, 2001 (of which
7,943 square feet has an early termination option of July 31, 1996), August 31,
2002 (with an early termination option of September 1, 1998) and November 30,
1998, respectively. At July 31, 1994, 1993 and 1992 the property was 99%, 93%
and 91% leased, respectively.
PARK PLACE - CLAYTON MISSOURI
Park Place is a 72,000 square foot, five story, multi-tenant office building
with a parking garage, built in 1984. The property is located in suburban St.
Louis, Missouri. At July 31, 1994, the property was encumbered by an
$8,600,000 Industrial Revenue Bond mortgage with an average interest rate of
5.65% due in May 2008. The building is tenanted by insurance, banking and
professional service businesses. Four tenants each occupy more than 10% of the
building, with space aggregating 13,670 square feet, 12,836 square feet, 11,876
square feet and 9,934 square feet, and lease expiration dates of May 31, 2000,
March 31, 1996 and October 31, 1997, respectively. At July 31, 1994, 1993 and
1992 the property was 100%, 100% and 97% leased, respectively.
LOEHMANN'S FASHION ISLAND - AVENTURA FLORIDA
Loehmann's Fashion Island is a 280,000 square foot open mall specialty shopping
center located in Aventura, Dade County, Florida, which underwent a major
redevelopment that was substantially completed in fiscal 1994. The property is
owned by a partnership whose partners are wholly owned subsidiaries of the
Trust. At July 31, 1994, the property was encumbered by a $18,000,000 mortgage
which is due in July 1998. The loan bears interest at the lender's floating
prime rate plus 1/4%. The borrower, however, has the option, at no cost to it,
to fix the rate from time to time at 2.25% over comparable term LIBOR or U.S.
Treasury rates, for a specified number of times. The borrower made such an
election as to the then outstanding principal balance in July 1994, and through
July 1995 the interest rate is fixed at 7.60%. The shopping center is tenanted
by a 16 screen movie theater, a super market, restaurants and other retailers.
Two tenants each occupy more than 10% of the shopping center, with space
aggregating 47,813 square feet and 47,220 square feet and lease expirations of
May 3, 2013 and May 30, 2013, respectively. At July 31, 1994, 1993 and 1992,
the property was 90%, 80%, and 63% leased, respectively.
<PAGE>
Page 9
ITEM 2. PROPERTIES (continued)
For additional information on the Trust's Owned Properties held directly by the
Trust, see Item 7, Note 2 of the Notes to Consolidated Financial Statements of
the Trust and Schedule XI of Item 14.
The ten properties classified as Structured Transactions held directly the
Trust total $32,581,000 at July 31, 1994 (17% of Real Estate Investments before
the allowance for possible investment losses). Two of the Structured
Transactions held directly by the Trust each account for more than 5% of either
Real Estate Investments (before the allowance for possible investment losses)
or total revenues, and are described below.
ELM CREEK APARTMENTS - ELMHURST ILLINOIS
Elm Creek Apartments is a 372 unit luxury apartment complex built in 1988,
located in suburban Chicago, Illinois. The Trust's total investment in this
property is $9,770,000 and is comprised of a $2,230,000 land leaseback and a
$7,540,000 leasehold mortgage loan. The land lease, including renewal options,
expires in December 2063 and provides for fixed monthly rental payments to the
Trust aggregating $189,500 annually and overage rent of 40% of increases in
revenues (as defined) of the property over specified amounts, In fiscal 1994,
the overage rent earned by the Trust (in excess of the fixed monthly payments)
was $80,300. The lessee has the right to sell the land and improvements to a
third party at any time (subject to the Trust's leasehold mortgage being repaid
in full at that time; if the lessee so elects, the purchase price shall be
determined at the time by a previously agreed upon formula based on the sales
price of the project, but not less than $2,230,000. The Trust's leasehold
mortgage bears interest at the rate of 8.5% per annum through March 31, 1996
and 10% per annum thereafter and matures in November 2018. No amortization
payments are required under this loan prior to maturity. The Trust's
investments in the property are subordinated to a third party first mortgage
loan of $21,271,000, bearing interest at 9.50% and due in 1997. At July 31,
1994, 1993, and 1992 the property was 97%, 99%, and 97% leased, respectively.
CITY CENTRE HOLIDAY INN - CHICAGO ILLINOIS
City Centre Holiday Inn, located in downtown Chicago, is a 500 room hotel built
in 1976. The Trust holds a $2,000,000 land leaseback interest in this
property. The land lease, including renewal options, expires in December 2052
and provides for fixed monthly rent payments of $220,000 per annum. In
addition, the Trust is entitled to receive overage rent annually equal to 1% of
gross receipts and 15% of gross room revenues over specified amounts. In
fiscal 1994 the overage rent earned by the Trust from this investment was
$1,248,000. The lessee has an option to repurchase the Trust's land in 1996
and every five years thereafter for the sum of $2,000,000, plus the product of
the average annual overage rent earned by the Trust in the three years
immediately preceding the repurchase multiplied by 12.50. The Trust's
investment is subordinated to a third-party first mortgage loan of $10,553,000,
bearing interest at 9.13% and due in 1997. For fiscal 1994, 1993, and 1992,
the average occupancy was 71%, 68% and 68%, respectively.
No other Structured Transaction held directly by the Trust constitutes 5% or
more of either the Trust's Real Estate Investments (before the allowance for
possible investment losses) or represents more than 5% of total revenues. For
additional information on the Trust's Structured Transactions held directly by
the Trust see Item 7, Note 2 of the Notes to Consolidated Financial Statements
of the Trust and Schedules XI and XII of Item 14.
The Trust's Investment Partnerships own an aggregate of nine Owned Properties,
and four Structured Transactions. The Trust's equity investment in these five
Investment Partnerships total $51,998,000 at July 31, 1994 (27% of Real Estate
Investments before the allowance for possible investment losses). the Trust's
two most significant partnership investments each account for more than 5% of
either Real Estate Investments (before allowance for possible investment
losses) or total revenues, and are discussed below.
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
Property Capital Midwest Associates, L.P. is the Investment Partnership in
which the Trust has its largest partnership investment. The Trust owns 53.3%
of this Investment Partnership which owns a complex of four office buildings
totaling 303,400 square feet, built in 1984-1987, an office building totaling
50,900 square feet, built in 1982, an office building totaling 37,700 square
feet, built in 1979, and a 98,400 square foot shopping center building, built
in 1988, all of which are classified as Owned Properties. The properties are
located in Overland Park, Kansas, a suburb of Kansas City, Missouri and are
owned free and clear of mortgage debt. At July 31, 1994, the Trust's equity
investment in this partnership was $27,659,000. No single tenant occupies 10%
or more of the 490,400 square feet rentable space owned by this Investment
Partnership. At July 31, 1994, 1993, and 1992, the office buildings were 95%,
93%, and 89% leased, respectively. At July 31, 1994, 1993, and 1992 the
shopping center was 93%, 63%, and 69% leased, respectively. The office
buildings are tenanted by a large variety of businesses including banking and
financial
<PAGE>
Page 10
ITEM 2. PROPERTIES (continued)
services firms, regional sales offices, an office furniture retailer and two
restaurants. The shopping center is a mixed use office and retail center
tenanted by various retail tenants, a realtor and a restaurant. For further
information on this Investment Partnership, please see the separate financial
statements attached to this Form 10-K as part of Item 14.
PCA SOUTHWEST ASSOCIATED LIMITED PARTNERSHIP
The Trust's other significant partnership investment is a 45.45% interest in
PCA Southwest Associates Limited Partnership. This partnership owns five
separate apartment complexes consisting of 3,000 apartment units in Houston,
Texas. The apartments were built from 1965 through 1978. The properties were
encumbered by 11 mortgage loans totaling $25,904,000 at July 31, 1994, at an
average interest rate of 7.94% and maturities ranging between October 1997 and
October 1998. The Investment Partnership assumed full title to these complexes
by exercising an option to terminate its land lease related to these properties
and paying $427,000 to its lessee, an affiliate of Harold Farb, the original
owner of the properties. At July 31, 1994, the Trust's equity investment in
this Investment Partnership was $9,877,000. At July 31, 1994, 1993, and 1992
the apartments were 85%, 93% and 91% leased, respectively.
For further information on all of the Investment Partnerships, see Item 7, Note
2 of the Notes to Consolidated Financial Statements of the Trust and Exhibits A
and B of Item 14.
The Owned Properties, Structured Transactions and Investment Partnerships
described above constitute 81.5% of the Trust's real estate investments before
the allowance for possible investment losses and 77.3% of the Trust's total
revenues from real estate.
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.
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.
<PAGE>
Page 11
ITEM 4A. EXECUTIVE OFFICERS OF THE TRUST
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND AFFILIATIONS DURING THE PAST FIVE YEARS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
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>
Page 12
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.
In fiscal 1994, the Trust's net income was $.45 per share and dividends
declared were $.30 per share. In fiscal 1993, the Trust sustained a loss
of $.08 per share and dividends declared were $.28, consequently $.20 of
this dividend was a return of capital on a generally accepted accounting
principle basis.
<PAGE>
Page 13
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 24,865 33,544 30,272 15,902
------- ------- ------- ------- -------
Income (Loss) before Gain (Loss) on Sale of Real
Estate Investments and Extraordinary Item 1,579 (8,330) (14,435) (6,212) 7,256
Gain (Loss) on Sale of Real Estate Investments 2,510 7,700 (9,150) (5,090) 13,560
------ ------- -------- ------- ------
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 (Loss) before Gain (Loss) on Sale of Real
Estate Investments and Extraordinary Item $0.17 ($0.93) ($1.60) ($0.68) $0.71
Gain (Loss) on Sale of Real Estate Investments 0.28 0.85 (1.01) (0.55) 1.31
----- ------ ------- ------- -----
Income (Loss) before Extraordinary Item 0.45 (0.08) (2.61) (1.23) 2.02
Extraordinary Gain from Extinguishment of Debt - - 0 - -
----- ------ ------- ------- -----
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. The change did not affect net income (loss) or shareholders'
equity. See Note 1 of the Notes to Consolidated Financial Statements of
the Trust which describes the Trust's previous method of accounting and
the reasons for the change.
<PAGE>
Page 14
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.
The Trust has reviewed its short-term and long-term liquidity needs and the
adequacy of cash provided by operating activities and other liquidity sources
to meet these needs. The Trust's principal short-term liquidity needs are to
fund normal operating expenses, debt service requirements, capital expenditures
and the minimum dividend distributions required to maintain the Trust's REIT
status under the Internal Revenue Code. The Trust expects to fund these short-
term liquidity needs from cash flows provided by operating activities and
available borrowings under its existing demand line of credit. The Trust
expects to fund its long-term liquidity requirements for scheduled debt
maturities from property sales, refinancings and its existing demand line of
credit. The Trust does not anticipate making any new acquisitions, major
renovations or expansions at this time.
<PAGE>
Page 15
ITEM 7. FINANCIAL CONDITION (continued)
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 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
<PAGE>
Page 16
ITEM 7. FINANCIAL CONDITION (continued)
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.
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
<PAGE>
Page 17
ITEM 7. FINANCIAL CONDITION (continued)
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.
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
<PAGE>
Page 18
ITEM 7. FINANCIAL CONDITION (continued)
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.
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). When the Trust acquires the
interest of its lessee in a property, the Trust becomes the owner and operator
of that property. As such, the Trust receives all tenant rents and expense
reimbursements which are classified as Rents from Owned Properties held
directly by the Trust and no longer receives income classified as Base Income
from Structured Transactions held directly by the Trust (land rent or mortgage
interest) as it did when the investment was a Structured Transaction.
Additionally, the increase is attributable to 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 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. Prior to August 1992, services
related to investment matters and day-to-day administration were provided by an
independent advisor which shared certain expenses with the Trust such as rent,
Errors & Omissions insurance, computer maintenance, etc. In August 1992, the
Trust became self-managed and the Trust's contract with its independent advisor
was not renewed. In fiscal 1993, although the former advisor did not provide
services to the Trust, it shared offices with the Trust and continued to share
in certain expenses. In fiscal 1994 the former advisor relocated resulting in
an increase in certain Trust expenses.
Professional fees decreased 23% due to reduced legal fees related to litigation
on certain investments.
<PAGE>
Page 19
ITEM 7. FINANCIAL CONDITION (continued)
There was no increase to the Trust's allowance for possible investment losses
in fiscal 1994.
INCOME (LOSS) BEFORE GAIN (LOSS) ON SALE OF REAL ESTATE INVESTMENTS
Income (loss) before gain (loss) on Sale of real estate investments increased
to $1,579,000 ($.17 per share) from the prior year's ($8,330,000) (($.93) per
share) for the reasons noted above.
GAIN (LOSS) ON SALE OF 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 (land rent
and/or mortgage interest) 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.
<PAGE>
Page 20
ITEM 7. FINANCIAL CONDITION (continued)
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.
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.
In the quarter ended January 31, 1993, the Trust increased its allowance for
possible investment losses by $10,000,000 ($1.11 per share).
INCOME (LOSS) BEFORE GAIN (LOSS) ON SALE OF REAL ESTATE INVESTMENTS AND
EXTRAORDINARY ITEM
Income (loss) before gain (loss) on sale of real estate investments and
extraordinary item was ($8,330,000) (($.93) per share) for fiscal 1993, as
compared to ($14,435,000) (($1.60) 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).
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>
Page 21
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>
Page 22
INDEX TO EXHIBITS
(Item 14(a))
Exhibit
Number Description
- ------
3.1 Declaration of Trust as currently in effect except for the three
Amendments below is incorporated herein by reference to Exhibit 4.1
of the May 13, 1983 Form S-2 Registration Statement (Registration No.
2-83624). N/A
3.2 Amendment, dated October 1, 1987, to the Declaration of the Trust is
incorporated herein by reference to the exhibit to the Trust's
Form 10-K Annual Report for the fiscal year ended July 31, 1987. N/A
3.3 Amendment, dated August 21, 1992, to the Declaration of the Trust is
incorporated by reference to Exhibit 3.3 of the Trust's form 10-K for
the Fiscal Year ended July 31, 1992. N/A
3.4 Amendment, dated December 29, 1992, to the Declaration of Trust is
incorporated by reference to Exhibit 3.4 or the Trust's Form 10-K
for the Fiscal year ended July 31, 1993. N/A
3.5 Amendment, dated February 26, 1993, to the Declaration of Trust as to
the number and identity of Trustees in incorporated by reference to
Exhibit 3.5 of the Trust's Form 10-K for the Fiscal Year ended July
31, 1993. N/A
3.6 By-Laws of the Trust as currently in effect are incorporated by
reference to Exhibit 3.3 of the Trust's Form 10-K for the Fiscal
Year ended July 31, 1992. N/A
4.1 Indenture dated May 15, 1983 between the Trust and State Street Bank
& Trust Company and the form of 9 3/4% Convertible Subordinated
Debentures due May 15, 2008 are incorporated herein by reference
to Exhibits 4.2 and 4.3 respectively of the May 13, 1983 Form S-2
Registration Statement (Registration No. 2-83624). N/A
4.2 Indenture dated December 15, 1984 between the Trust and State Street
Bank & Trust Company and the form 10% Convertible Subordinated
Debentures due December 15, 2009, are incorporated herein by reference
to Exhibits 4.3 and 4.4 respectively of the December 11, 1984 Form S-2
Registration Statement (Registration No. 2-94718). N/A
4.3 Form of Certificate representing shares of Beneficial Interest of the
Trust. N/A
4.4 Shareholder Rights Plan, incorporated by reference to the Trust's Form
8-K report dated October 12, 1990. N/A
10.1 Termination Agreement dated as of October 19, 1992 between Robert M.
Melzer and the Trust is incorporated by reference to Exhibit 10.1 of
the Trust's Form 10-K for the fiscal year ended July 31, 1992. N/A
10.2 Termination Agreement dated as of October 19, 1992 between William A.
Bonn and the Trust is incorporated by reference to Exhibit 10.2 of
the Trust's Form 10-K for the Fiscal Year ended July 31, 1992. N/A
10.3 Property Capital Trust 1992 Stock Option Plan (the "1992 Plan") is
incorporated by reference to Exhibit 10.3 of the Trust's Form
10-Q for the quarter ended October 31, 1992. N/A
<PAGE>
Page 23
ITEM 14(a). INDEX TO EXHIBITS (continued)
10.4 Subcontract and Option Agreement dated August 1, 1992 between Property
Capital Trust and PCA Institutional Advisors is incorporated by
reference to Exhibit 10.4 of the Trust's Form 10-Q for the quarter
ended April 30, 1993. N/A
10.5 Amendment to the 1992 Plan.
10.6 Property Capital Trust Amended and Restated Deferred Stock Plan for
Non-Employee Trustees.
10.7 Property Capital Trust 1994 Stock Option Plan for Non-Employee
Trustees.
21 List of the Trust's subsidiaries. 72
23 Consent of Independent Auditors. 73
<PAGE>
Page 24
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 27 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 27 are filed as part of this Annual
Report.
3. EXHIBITS
The exhibits listed in the accompanying index to exhibits on Pages 20 and
21 are filed as part of the Annual Report.
(B) REPORTS ON FORM 8-K
None.
<PAGE>
Page 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Trust
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PROPERTY CAPITAL TRUST
(Registrant)
By /S/ ROBERT M. MELZER
---------------------
Robert M. Melzer NOVEMBER 13, 1995
President and Chief Executive Officer -----------------
Date
<PAGE>
Page 26
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>
Page 27
ITEM 14A(1), (2) AND (D) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
Page
- -------------------------------------------------------------------------------
PROPERTY CAPITAL TRUST
Report of Independent Auditors 28
The following consolidated financial statements of Property Capital Trust are
included in Item 8:
Consolidated balance sheet at July 31, 1994 and 1993 29
Consolidated statement of operations for each of the three years in the
period ended July 31, 1994 30
Consolidated statement of cash flows for each of the three years in the
period ended July 31, 1994 31
Consolidated statement of shareholders' equity for each of the three years
in the period ended July 31, 1994 32
Notes to consolidated financial statements 33-47
The following consolidated financial statement schedules of Property Capital
Trust are included in Item 14 (d):
Consolidated Quarterly Financial Data (unaudited) 48
VIII - Allowance for possible investment losses 49
XI - Investments - Land Leasebacks and Owned Properties held directly
by the Trust 50-53
XII - Investments - Mortgage Loans held directly by the Trust 54-55
Exhibit A - Investment Partnerships - Land Leasebacks and Owned
Properties 56-59
Exhibit B - Investment Partnerships - Mortgage Loans 60-61
The following separate financial statements are required pursuant to 3-09 of
Regulation SX:
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
Report of Independent Auditors 63
The following financial statements of Property Capital Midwest Associates,
L.P. are included in Item 8:
Balance sheet at December 31, 1993 and 1992 64
Statement of operations for each of the three years in the period
ended December 31, 1993 65
Statement of cash flows for each of the three years in the period
ended December 31, 1993 66
Statement of changes in partners' equity for each of the three years
in the period ended December 31, 1993 67
Notes to financial statements 68-70
The following financial statement schedules of Property Capital Midwest
Associates, L.P. are included in Item 14 (d):
XI - Owned Properties 71
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>
Page 28
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
See accompanying notes
<PAGE>
Page 29
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
July 31,
--------------------------------
1994 1993
- -------------------------------------------------------------------------------
Assets
Real Estate Investments
Owned Properties held directly by the Trust
(net of accumulated depreciation of $10,380,000
and $8,212,000 in 1994 and 1993, respectively) $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
============ ============
See accompanying notes
<PAGE>
Page 30
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
Provision for possible investment losses - 10,000,000 17,000,000
---------- ---------- ----------
20,044,000 24,865,000 33,544,000
---------- ---------- ----------
Income (Loss) before Gain (Loss) on Sale of
Real Estate Investments and Extraordinary Item 1,579,000 (8,330,000) (14,435,000)
Gain (Loss) on Sale of Real Estate Investments 2,510,000 7,700,000 (9,150,000)
--------- ---------- ----------
Income (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 (Loss) before Gain (Loss) on Sale of
Real Estate Investments and Extraordinary Item $0.17 ($0.93) ($1.60)
Gain (Loss) on Sale of Real Estate Investments 0.28 0.85 (1.01)
---- ----- -----
Income (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>
Page 31
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 income from Investment Partnerships 2,048,000 1,519,000 2,523,000
Changes in assets and liabilities
(Increase) decrease in interest and rents receivable (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 5,290,000 4,744,000 5,299,000
--------- --------- ---------
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)
Distributions in excess of income 146,000 488,000 1,177,000
--------- ----------- ----------
Net Cash Provided by (Used In) Investing Activities 9,117,000 (2,117,000) 6,557,000
----------- ----------- ----------
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)
Scheduled 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 -
Prepayment 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>
Page 32
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years Ended July 31,
---------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------
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
========= ========= =========
See accompanying notes
<PAGE>
Page 33
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>
Page 34
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>
Page 35
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
Office buildings - 7,500,000
Shopping centers 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>
Page 36
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, tenant improvements, construction
in progress, and other. Tenant improvements represent the cost of constructing
or finishing tenant space under the terms of a lease for that space. Material
disbursements that constitute new assets or improvements to existing assets
that extend their useful lives and/or substantially increase their value are
capitalized.
Assets included as Owned Properties held directly by the Trust are as follows:
July 31,
1994 1993
- ---------------------------------------------------------------
Land $21,856,000 $22,420,000
Buildings 82,237,000 67,556,000
Tenant improvements 7,583,000 4,446,000
Construction in progress 2,427,000 13,545,000
Other 2,251,000 1,405,000
----------- -----------
116,354,000 109,372,000
Accumulated depreciation (10,380,000) (8,212,000)
----------- -----------
Owned Properties held
directly by the Trust $105,974,000 $101,160,000
============ ============
<PAGE>
Page 37
NOTE 2. REAL ESTATE INVESTMENTS (continued)
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:
July 31,
-------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------
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
========== ========== ==========
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.
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.
<PAGE>
Page 38
NOTE 2. REAL ESTATE INVESTMENTS (continued)
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.
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%
<PAGE>
Page 39
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
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>
Page 40
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
CONDENSED COMBINED SUMMARY OF OPERATIONS
Years Ended July 31,
------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------
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
=========== =========== ===========
The Trust's equity in unconsolidated Investment Partnerships are as follows:
Years Ended July 31,
------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
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
=========== =========== ===========
<PAGE>
Page 41
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The Trust's share of income (loss) from unconsolidated Investment Partnerships
are as follows:
Years Ended July 31,
-------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
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
========== ========== ==========
{(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:
Years Ended July 31,
-------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
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
========== ========== ==========
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>
Page 42
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 available a total of $20,000,000 under a revolving line of credit
from a major New England bank. Borrowings under the line of credit are
repayable on demand by the lender. At July 31, 1994 borrowings under the line
were $5,000,000 with 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.
Principal
Owned Properties Balance Interest
Held Directly by the Trust July 31, 1994 Rate Maturity
---------------------------------------------------------------------
Loehmann's Fashion Island $18,000,000 7.60% July 1998
One Park West 10,052,000 9.50% June 2000
Park Place 8,600,000 5.65% May 2008
6110 Executive Boulevard 6,458,000 9.625% July 1995
-----------
$43,110,000
===========
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>
Page 43
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 Trust having the option to fix the
interest rate from time to time at 2.25% above comparable term LIBOR or U.S.
Treasury rates. This option may be exercised at no cost or additional
liability to the Trust. In July 1994 the Trust elected to fix the interest
rate on the outstanding borrowings at 7.6% for a period of one year which, at
that time, was 2.25% over one year LIBOR.
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.
During fiscal 1992 the Trust recognized losses of $3,950,000 and $4,000,000
($.88 per share) on the transfers of Valley Forge Towers and Commerce Centre,
respectively, to the first mortgage lenders. The Trust also recognized
corresponding extraordinary gains of $3,950,000 and $4,000,000 ($.88 per share)
on the extinguishment of the non-recourse debt on Valley Forge Towers and
Commerce Centre. The losses occurred because the net carrying value of the
assets transferred to the lenders exceeded the estimated fair value of the
assets at the time of disposition. The extraordinary gain arose due to the
fact that the balance of the non-recourse mortgage loans exceeded the estimated
fair value of the properties at the time of disposition. The transfers of
ownership were accounted for as troubled debt restructurings in accordance with
Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and
Creditors for the Troubled Debt Restructurings".
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
===========
<PAGE>
Page 44
NOTE 4. RENTS UNDER OPERATING LEASES (continued)
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.
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.
<PAGE>
Page 45
NOTE 7. RELATED PARTY TRANSACTIONS (continued)
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.
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.
Owned Properties Owned Properties
Held Directly by the Trust Held Directly By the Trust
--------------------------- --------------------------
Under All Under All
Redevelopment Other Redevelopment Other
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.
<PAGE>
Page 46
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. SHAREHOLDERS' EQUITY (continued)
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
=======
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.
<PAGE>
Page 47
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
Page 48
PROPERTY CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY CAPITAL TRUST
CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)
<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 Sale of Real Estate Investments 479,000 446,000 278,000 376,000
Gain on Sale of Real Estate Investments - 100,000 2,410,000 -
---------- ---------- ---------- ----------
Net Income $479,000 $546,000 $2,688,000 $376,000
========== ========== ========== ==========
Net Income per Share
Income before Gain on Sale of Real Estate Investments $0.05 $0.05 $0.03 $0.04
Gain on Sale of Real Estate Investments - 0.01 0.27 -
----- ----- ----- -----
Net Income per Share $0.05 $0.06 $0.30 $0.30
===== ===== ===== =====
Fiscal 1993
Revenues $3,787,000 $3,949,000 $4,201,000 $4,598,000
Expenses 3,407,000 13,563,000 3,742,000 4,153,000
---------- ---------- ---------- ----------
Income (Loss) before Gain on Sale of Real Estate
Investments 380,000 (9,614,000) 459,000 445,000
Gain on Sale of Real Estate Investments 7,700,000 - - -
---------- ------------ ---------- ----------
Net Income (Loss) $8,080,000 ($9,614,000) $459,000 $445,000
========== ============ ========== ==========
Net Income (Loss) per Share
Income (Loss) before Gain on Sale of Real Estate
Investments $0.04 ($1.07) $0.05 $0.05
Gain on Sale of Real Estate Investments 0.85 - - -
----- ------ ----- -----
Net Income (Loss) per Share $0.89 ($1.07) $0.05 $0.05
===== ====== ===== =====
</TABLE>
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.
<PAGE>
Page 49
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>
Page 50
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>
Page 51
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 (l) $10,380 $105,974
======= ======= ======= ======= ======= ======== ======= ========
</TABLE>
Rents from Expenses on
Owned Owned
Properties Properties
Rent held Directly held Directly Depreciation
Receivable by the Trust by the Trust Expense
at 7/31/94 Y/E 7/31/94 Y/E 7/31/94 Y/E 7/31/94
- ------------------------------------------------------------
$60 $2,806 $1,004 433
3 1,585 641 437
17 1,564 724 111
318 (j) 1,809 782 707
989 (j) 1,580 1,045 616
----- ----- ----- ------
1,387 9,344 4,196 2,304
----- ----- ----- ------
465 (j) 3,617 2,234 945
----- ----- ----- ------
$1,852 $12,961 (m) $6,430 (n) $3,249
===== ======= ====== ======
<PAGE>
Page 52
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>
Page 53
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) (p) (7,000)(q)
Property conveyed to first
mortgage lender - - (2,000)(q)
------ ------ ------
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) This total does not include depreciation expense in fiscal 1994 of $289,000
from Eagle apartments which was sold during the year.
(p) 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.
(q) 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>
Page 54
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)
=========== ========== ========== ====== ======== ==========
For information on Mortgage Loans held in Investment Partnerships see Exhibit B.
<PAGE>
Page 55
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>
Page 56
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 Partnership's
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>
Page 57
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)
Expenses %
Other than Depreciation Owned
Depreciation Expense by the
Y/E 7/31/94 Y/E 7/31/94 Trust
- --------------------------------------------
[C] [C] [C]
$2,369 $1,411 53.3%
343 237 53.3%
265 72 53.3%
------- ------
2,977 1,720
======== =======
737 556 53.3%
------- -------
575 179 45.5%
465 145 45.5%
556 111 45.5%
135 53 45.5%
93 23 45.5%
------- --------
1,824 511
------- -------
$5,538 $2,787
======= =======
<PAGE>
Page 58
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>
Page 59
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>
Page 60
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>
Page 61
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>
Page 62
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>
Page 63
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>
Page 64
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>
Page 65
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>
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>
Page 67
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>
Page 68
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
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.
VALUATION OF REAL ESTATE INVESTMENTS
Real estate investments are carried at the lower of cost, net of accumulated
depreciation or net realizable value.
In determining net realizable value the Partnership considers 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 of the property and
prevailing economic conditions. To the extent net realizable value is less
than the carrying value an allowance for possible investment losses would be
established. No such allowance is necessary at this time. 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 an original 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>
Page 69
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>
Page 70
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>
Page 71
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>
(continued)
Gross Amount of Expenses
Investment Partnerships' Investment Net Rent Rental Other Than Depreciation
Buildings and Accumulated Investment Receivable Income Depreciation Expense
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 $1,395
900 1,686 2,586 293 2,293 2 556 272 68
500 4,555 5,056 896 4,160 17 656 352 227
------- ------- ------- ------- ------- ---- ------- ------- ------
6,900 37,934 44,835 6,182 38,653 272 6,294 2,966 1,690
------- ------- ------- ------- ------- ---- ------- ------- ------
3,988 11,777 15,765 1,859 13,906 111 1,183 738 550
------- ------ ------- -------- -------- ------ -------- ------- -----
$10,888 $49,711 $60,600 (b) $8,041 $52,559 $383 $7,477 $3,704 $2,240
======= ======= ======== ========= ========= ====== ========= ======== ======
</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
EXHIBIT 21
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
