SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM to
COMMISSION FILE NUMBER: 1-7003
PROPERTY CAPITAL TRUST
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2452367
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
ONE POST OFFICE SQUARE, BOSTON, MASSACHUSETTS 02109
(Address of principal executive offices)
(zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(617) 451-2400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
Yes X No .
NUMBER OF SHARES OF COMMON SHARES OUTSTANDING AS OF JANUARY 31, 1996:
9,083,784
<PAGE>
Page 1
PROPERTY CAPITAL TRUST
INDEX
PART I. FINANCIAL INFORMATION Page
Number
Consolidated Balance Sheet - January 31, 1996
and July 31, 1995 (unaudited) 2
Consolidated Statement of Income -
Three and Six Months Ended January 31, 1996 and 1995 (unaudited) 3
Consolidated Statement of Cash Flows -
Six Months Ended January 31, 1996 and 1995 (unaudited) 4
Consolidated Statement of Shareholders' Equity -
Six Months Ended January 31, 1996 and 1995 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II. OTHER INFORMATION
Item 2. Legal Proceedings 14
Item 4. Submission of Matters to a vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
Page 2
PART I. FINANCIAL INFORMATION
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1996 1995
<S> <C> <C>
ASSETS
Real Estate Investments
Owned Properties held directly by the Trust
(net of accumulated depreciation of $12,614,000
and $10,522,000, respectively) $ 82,235,000 $ 83,985,000
Structured Transactions held directly by the Trust 28,431,000 32,571,000
Investment Partnerships 39,505,000 48,299,000
150,171,000 164,855,000
Allowance for possible investment losses (8,767,000) (14,077,000)
141,404,000 150,778,000
Asset Held for Sale directly by the Trust - 10,185,000
141,404,000 160,963,000
Cash and cash equivalents 13,333,000 5,209,000
Interest and rents receivable
Owned Properties held directly by the Trust 1,103,000 1,958,000
Structured Transactions held directly by the Trust 229,000 221,000
Other assets 1,340,000 1,088,000
$157,409,000 $169,439,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 3,044,000 $ 3,207,000
Accrued interest 519,000 707,000
Mortgage notes payable 40,061,000 40,145,000
9 3/4% Convertible Subordinated Debentures 2,546,000 2,546,000
10% Convertible Subordinated Debentures 14,125,000 29,125,000
60,295,000 75,730,000
Shareholders' Equity
Common Shares (without par value, unlimited shares
authorized, 9,083,784 and 9,053,881 issued and
outstanding, respectively) 106,358,000 106,190,000
Accumulated deficit (9,244,000) (12,481,000)
Total Shareholders' Equity 97,114,000 93,709,000
$157,409,000 $169,439,000
</TABLE>
See accompanying notes
<PAGE>
Page 3
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Rents from Owned Properties held directly by the Trust $3,107,000 $4,140,000 $6,427,000 $8,638,000
Structured Transactions held directly by the Trust
Base income 655,000 663,000 1,350,000 1,326,000
Overage income 538,000 458,000 1,033,000 886,000
Income from unconsolidated Investment Partnerships 1,005,000 437,000 2,075,000 717,000
5,305,000 5,698,000 10,885,000 11,567,000
Advisory fee income 57,000 78,000 216,000 160,000
Interest income 101,000 2,000 190,000 2,000
5,463,000 5,778,000 11,291,000 11,729,000
EXPENSES
Expenses on Owned Properties held directly by the Trust 1,451,000 1,815,000 2,943,000 3,557,000
Interest 1,359,000 1,869,000 2,888,000 3,740,000
Depreciation 1,174,000 1,086,000 2,092,000 2,107,000
General and administrative expenses 781,000 518,000 1,647,000 1,031,000
Professional fees 126,000 74,000 284,000 125,000
Trustees' fees and expenses 40,000 43,000 75,000 88,000
4,931,000 5,405,000 9,929,000 10,648,000
INCOME BEFORE GAIN ON SALE OF REAL ESTATE INVESTMENTS
AND EXTRAORDINARY ITEM 532,000 373,000 1,362,000 1,081,000
GAIN ON SALE OF REAL ESTATE INVESTMENTS 780,000 3,099,000 4,281,000 3,099,000
INCOME BEFORE EXTRAORDINARY ITEM 1,312,000 3,472,000 5,643,000 4,180,000
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT (169,000) - (232,000) -
NET INCOME $1,143,000 $3,472,000 $5,411,000 $4,180,000
NET INCOME PER SHARE
INCOME BEFORE GAIN ON SALE OF REAL ESTATE INVESTMENTS
AND EXTRAORDINARY ITEM $0.06 $0.04 $0.15 $0.12
GAIN ON SALE OF REAL ESTATE INVESTMENTS 0.09 0.34 0.48 0.34
INCOME BEFORE EXTRAORDINARY ITEM 0.15 0.38 0.63 0.46
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT (0.02) - (0.03) -
NET INCOME PER SHARE $0.13 $0.38 $0.60 $0.46
AVERAGE SHARES OUTSTANDING 9,064,000 9,043,000 9,059,000 9,037,000
See accompanying notes
</TABLE>
<PAGE>
Page 3
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 31,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 5,411,000 $4,180,000
Adjustments to Net Income
Gain on sale of real estate investments (4,281,000) (3,099,000)
Depreciation and amortization 2,195,000 2,203,000
Income from unconsolidated Investment Partnerships (2,075,000) (717,000)
Distributions of income from Investment Partnerships 5,300,000 804,000
Changes in assets and liabilities
Decrease in interest and rents receivable 847,000 222,000
Increase in other assets, net (355,000) (298,000)
Decrease in accounts payable and accrued expenses
and accrued interest (262,000) (807,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,780,000 2,488,000
INVESTING ACTIVITIES
Owned Properties held directly by the Trust
Dispositions 10,828,000 15,310,000
Additions (515,000) (5,096,000)
Structured Transactions held directly by the Trust
Dispositions/repayments 2,950,000 5,000
Investment Partnerships
Distributions in excess of income 5,260,000 -
NET CASH PROVIDED BY INVESTING ACTIVITIES 18,523,000 10,219,000
FINANCING ACTIVITIES
Redemption of 10% Convertible Subordinated Debentures (15,000,000) -
Cash dividends paid (2,174,000) (1,627,000)
Scheduled amortization of mortgage notes payable (84,000) (285,000)
Proceeds from exercise of stock options 79,000 -
Prepayment of mortgage notes payable - (2,440,000)
Repayment of bank note payable, net - (5,000,000)
NET CASH USED IN FINANCING ACTIVITIES (17,179,000) (9,352,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,124,000 3,355,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,209,000 720,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,333,000 $4,075,000
See accompanying notes
</TABLE>
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 31,
1996 1995
<S> <C> <C>
COMMON SHARES
Balance at beginning of period $106,190,000 $106,060,000
Common Shares issued in payment of deferred
Trustees' compensation 89,000 117,000
Stock options exercised 79,000 -
Balance at end of period 106,358,000 106,177,000
ACCUMULATED DEFICIT
Balance at beginning of period (12,481,000) (14,357,000)
Net income 5,411,000 4,180,000
Cash dividends paid (2,174,000) (1,627,000)
Balance at end of period (9,244,000) (11,804,000)
TOTAL SHAREHOLDERS' EQUITY $ 97,114,000 $ 94,373,000
NUMBER OF COMMON SHARES
Common Shares issued and outstanding
at beginning of period 9,053,881 9,030,585
Common Shares issued in payment of deferred
Trustee's compensation 14,903 20,296
Stock options exercised 15,000 -
NUMBER OF COMMON SHARES ISSUED AND
OUTSTANDING AT END OF PERIOD 9,083,784 9,050,881
</TABLE>
See accompanying notes
<PAGE>
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
In the opinion of management of Property Capital Trust (the "Trust"), the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting of normal and recurring adjustments, necessary to
present fairly the Trust's financial position as of January 31, 1996 and the
results of its operations and its cash flows for the periods ended January 31,
1996 and 1995.
Operating results for the six months ended January 31, 1996 are not necessarily
indicative of the results that may be expected for the remainder of fiscal
1996. The information contained in these financial statements should be read
in conjunction with the Trust's 1995 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on October 30, 1995.
2. REAL ESTATE INVESTMENTS
ASSET HELD FOR SALE
Owned Properties which have been approved for sale and are being marketed for
sale are classified as Assets Held for Sale.
In January 1996 the Trust sold its one Asset Held for Sale directly by the
Trust, Citibank Office Plaza - Oak Brook. The property was sold for
$11,380,000, resulting in a gain to the Trust of $470,000.
During the quarter ended January 31, 1996, the Investment Partnerships
reclassified certain of their real estate investments to assets held for sale
and wrote down these assets to estimated net realizable value, which the Trust
then charged against its previously established allowance for possible
investment losses.
STRUCTURED TRANSACTIONS HELD DIRECTLY BY THE TRUST
Investments in land leasebacks and/or mortgage loans are classified as
Structured Transactions.
During the quarter ended January 31, 1996 the Trust sold two Structured
Transactions held directly by the Trust. In December 1995 the Trust sold its
investment in Yorkshire apartments. The Trust's land investment was purchased
by an unrelated third party for $460,000, resulting in a gain to the Trust of
$310,000. In November 1995 the Trust's Grosvenor Airport Inn land investment
was purchased by the Trust's lessee for $2,000,000 and the Trust's $2,000,000
mortgage loan was prepaid for $500,000, with the resulting loss of $1,500,000
being charged against the Trust's allowance for possible investment losses.
INVESTMENT PARTNERSHIPS
Certain of the Trust's investments have been made through partnerships, or a
participation agreement, in which the Trust or its subsidiary is the general
partner or lead lender and other institutional investors are limited partners
or participants (the "Investment Partnerships").
During the quarter ended January 31, 1996, PCA Southwest Associates Limited
Partnership ("Southwest") disposed of its Telegraph Hill - Phase B investment
(259 units) by allowing the first mortgage lender to foreclose on the property
and, as a result, the Trust wrote down its net investment in this property to
zero. This $307,000 write-down was charged against the Trust's allowance for
possible investment losses. The Trust has a 45.45% general partner interest in
Southwest. In addition, during the quarter two Investment Partnerships
reclassified certain of their real estate investments to assets held for sale
and wrote down these assets to their net realizable values. Property Capital
Midwest Associates, L.P. ("Midwest"), an Investment Partnership which owns
seven buildings in Overland Park, Kansas, wrote down its investments by
$1,255,000 due to the reclassification of College Hills 3 to an asset held for
sale and the further write down of Financial Plaza. These write-downs were
charged against the Trust's previously established allowance for possible
investment losses. The Trust has a 53.3% general partner interest in Midwest.
Southwest which owns 1,875 apartments in Houston, Texas, reclassified its
investments in St. Charles and Boardwalk to assets held for sale resulting in a
write-down by the Trust of $710,000. This write-down was charged against the
Trust's previously established allowance for possible investment losses.
<PAGE>
Page 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
During the first quarter of fiscal 1996, three of the Trust's Investment
Partnerships disposed of two Structured Transactions and one Owned Property.
In October 1995, PCA Crossroads Associates, Ltd. ("Crossroads"), an Investments
Partnership which owned the land underlying the Crossroads Mall in Boulder,
Colorado, sold the land to its lessee, resulting in a gain to the Trust of
$3,500,000 on its investment of $2,000,0000. The Trust has a 25.0% general
partner interest in Crossroads. In September 1995, Southwest, which owned
Chimney Rock apartments (714 units), sold the complex which resulted in a gain
to the Trust of $1,000. In August 1995, PCA Canyon View Associates Limited
Partnership ("Canyon View"), an Investment Partnership which held Structured
Transactions in Phases I and II of the Canyon View apartments in San Ramon,
California settled certain litigation. The Investment Partnership received
$300,000 from the first mortgagee of Phase I for permitting it to take title to
Phase I and the Investment Partnership took title to Phase II and received the
proceeds from two letters of credit aggregating $1,750,000. At that time, the
Trust wrote down its investment in this partnership by $1,538,000. This write-
down was charged against the Trust's allowance for possible investment losses.
The Trust has a 23.8% general partner interest in Canyon View.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
A Condensed Combined Summary of Operations for the unconsolidated Investment
Partnerships for the periods indicated follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
JANUARY 31, JANUARY 31,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
REVENUES
Rents from Owned Properties $5,312,000 $5,245,000 $11,296,000 $10,300,000
Structured Transactions
Base income 429,000 672,000 1,608,000 1,344,000
Overage income 5,000 173,000 120,000 281,000
Other income 89,000 14,000 130,000 31,000
5,835,000 6,104,000 13,154,000 11,956,000
EXPENSES
Owned Properties expenses 2,716,000 3,234,000 6,162,000 6,720,000
Depreciation 403,000 1,037,000 782,000 2,043,000
Interest 469,000 485,000 998,000 806,000
Other 175,000 364,000 567,000 735,000
3,763,000 5,120,000 8,509,000 10,304,000
INCOME BEFORE GAIN (LOSS) ON REAL
ESTATE INVESTMENTS 2,072,000 984,000 4,645,000 1,652,000
GAIN (LOSS) ON REAL ESTATE INVESTMENTS
Gain on sale of real estate investments - - 14,002,000 -
Write-down of real estate investments (4,593,000) - (11,051,000) -
NET (LOSS) INCOME ($2,521,000) $984,000 $ 7,596,000 $1,652,000
INCOME BEFORE GAIN (LOSS) ON REAL
ESTATE INVESTMENTS
Trust's share of income before gain
(loss) on real estate investments $1,005,000 437,000 $ 2,075,000$ 717,000
Limited partners' share of income
before gain (loss) on real estate
investments 1,067,000 547,000 2,570,000 935,000
GAIN (LOSS) ON REAL ESTATE INVESTMENTS
Trust's share of gain on sale of
real estate investments - - 3,501,000 -
Limited partners' share of gain
on sale of real estate investments - - 10,501,000 -
Trust's share of write-down of real
estate investments
(previously recorded by the Trust) (2,272,000) - (3,810,000) -
Limited partners' share of write-down
of real estate investments (2,321,000) - (7,241,000) -
NET (LOSS) INCOME ($2,521,000) $984,000 $ 7,596,000 $ 1,652,000
</TABLE>
<PAGE>
Page 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. INDEBTEDNESS
During the quarter ended January 31, 1996, the Trust redeemed $11,000,000
principal amount of 10% Convertible Subordinated Debentures at their face
amount. The Trust recognized an extraordinary loss from the extinguishment of
debt of $169,000 due to the write-off of the debentures' issuance costs.
During the quarter ended October 31, 1995, the Trust redeemed $4,000,000
principal amount of 10% Convertible Subordinated Debentures at their face
amount. The Trust recognized an extraordinary loss from the extinguishment of
debt of $63,000 due to the write-off of the debentures' issuance costs.
4. DIVIDENDS
The Trust pays dividends approximately 55 days following each fiscal quarter,
normally equal to at least 100% of income before gains (losses) on real estate
investments.
On February 23, 1996, the Trustees declared a dividend of $.12 per share,
payable on March 26, 1996 to shareholders of record on March 15, 1996. On
November 29, 1995, the Trustees declared a dividend of $.12 per share, payable
on December 22, 1995 to shareholders of record on December 11, 1995.
The calendar 1995 quarterly allocation of dividends paid per share for
individual shareholders' income tax purposes was as follows:
Date Paid Ordinary Capital Total
in 1995 Income Gain Dividend
March 24 $.10 - $.10
June 23 .10 - .10
September 22 .12 - .12
December 22 .06 $.06 .12
$.38 $.06 $.44
<PAGE>
Page 9
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
NEW BUSINESS PLAN
For the past several years, the Trust's business plan had focused on maximizing
shareholder values through asset, portfolio and liability management and the
selective disposition of investments. This business plan was in large part a
response to the impact of the recent recession on the real estate industry.
During the time this plan was in effect, the Trust retained much of its
portfolio. Following improvements in rental rates and occupancies throughout
the portfolio attributable to improving economic conditions and considerable
progress made by management in resolving problems affecting the portfolio, the
Trustees reevaluated the business plan. The Trustees concluded that the best
means to maximize shareholder values is to provide for an orderly disposition
of the Trust's investments (the "new business plan"). The Trustees also
considered and rejected other strategies, such as a business combination or
expanding the Trust, as being unlikely to be consummated or inappropriate given
their belief that the Trust's stock price is not reflective of the value of the
Trust's assets. The Trustees anticipate that the revised business plan will
involve dispositions of Owned Properties and Structured Transactions on a
property-by-property basis, although the Trust will consider bulk sales and
other opportunities that may arise which expedite the disposition process. At
the Trust's Annual Meeting of Shareholders held on December 15, 1995, the
Trust's shareholders ratified the new business plan and approved certain
amendments to the Trust's Declaration of Trust necessary for the implementation
of the plan.
To the extent the Trust receives net proceeds from sales of its properties, the
Trust intends to utilize such net proceeds to retire debt and/or make
distributions to shareholders. No assurances can be given as to the time
required to carry out the plan (although the Trustees anticipated in June 1995
that the plan would be fully implemented within three to five years) or the
prices at which the properties can be sold. To date the plan is proceeding on
schedule. During the first six months of fiscal 1996, five properties have
been sold and the proceeds have been used to redeem $15,000,000 principal
amount of the Trust's 10% Convertible Subordinated Debentures.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Trust's debt at January 31, 1996 was $56,732,000 as compared to $71,816,000
at July 31, 1995. The Trust's debt to equity ratio decreased to .58x at
January 31, 1996 from .77x at July 31, 1995. The decrease in the Trust's debt
was primarily due to the redemption of $15,000,000 aggregate principal amount
of the Trust's 10% Convertible Subordinated Debentures at their face amount.
The improvement in the debt to equity ratio is due to the redemption of the 10%
debentures and an increase in shareholders' equity as a result of a $3,500,000
gain on the sale of the Crossroads Mall investment.
The Trust's bank note payable, which has no outstanding balance, is a
$10,000,000 revolving bank line which the Trust believes is adequate to meet
its working capital requirements for the foreseeable future.
Subsequent to the end of the quarter, on March 1, 1996 the Trust redeemed
another $11,000,000 of its 10% Convertible Subordinated Debentures from the
proceeds of the sale of real estate investments reducing the outstanding
balance of all Convertible Subordinated Debentures to $5,671,000. The Trust
anticipates the redemption of the balance of outstanding Convertible
Subordinated Debentures in fiscal 1996 from the proceeds of additional real
estate investment sales.
Management believes that with cash provided by operating activities retained
after dividends and the Trust's borrowing capacity under its existing bank
line, the Trust will be able to meet its fiscal 1996 cash requirements for
anticipated capital expenditures on Owned Properties held directly by the Trust
and a funding requirement on a Structured Transaction held directly by the
Trust. The Trust currently expects that these cash requirements will total
approximately $1,000,000 during the remainder of fiscal 1996. Further, the
Trust believes that these same sources will be sufficient to fund its capital
expenditure requirements and anticipated long-term liquidity requirements for
the foreseeable future. As discussed above, the Trust intends to use the
proceeds received from the sale of its real estate investments to retire debt
and/or make distributions to shareholders.
<PAGE>
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS (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, sales of properties and extraordinary items,
plus depreciation and amortization and after adjustment for unconsolidated
partnerships and joint ventures). Funds from Operations should be considered
in conjunction with net income as presented in the Trust's unaudited financial
statements. Funds from Operations does not represent cash provided by
operating activities in accordance with generally accepted accounting
principles and should not be considered as a substitute for net income as a
measure of results of operations or for cash provided by operating activities
as a measure of liquidity. Funds from Operations was calculated by the Trust
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
JANUARY 31, JANUARY 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Income before Gain on Sale of
Real Estate Investments and
Extraordinary Item $532,000 $373,000 $1,362,000 $1,081,000
Depreciation on Owned Properties
held directly by the Trust 1,174,000 1,086,000 2,092,000 2,107,000
Trust's share of depreciation
on unconsolidated Investment
Partnerships 165,000 522,000 326,000 1,027,000
Non-recurring item - - - (404,000)(1)
$1,871,000 $1,981,000 $3,780,000 $3,811,000
</TABLE>
(1)Non-recurring income resulting from the settlement of a bankruptcy
claim filed by the Trust against a former tenant at Loehmann's Fashion
Island.
REVIEW OF SIGNIFICANT REAL ESTATE ACTIVITY FOR THE QUARTER
APARTMENTS
In December 1995 the Trust sold the land underlying the Yorkshire apartments
for $460,000 resulting in a gain of $310,000 on its $135,000 investment. For
the year ended July 31, 1995 the Trust earned $42,000 on this investment.
As previously reported, PCA Southwest Associates Limited Partnership, an
Investment Partnership in which the Trust owns a 45.45% general partner
interest, was in default under the terms of the first mortgage on Telegraph
Hill - Phase B, a 259 unit complex, due to nonpayment of principal and
interest. Management was unable to restructure this $2,487,000 mortgage loan
on terms satisfactory to it, and therefore did not oppose the foreclosure by
the first mortgagee in December 1995. At January 31, 1996, two investments
held in this Investment Partnership were reclassified to assets held for sale
and were written down to their net realizable values. The Trust's share of the
write-down was $710,000, which was charged against the Trust's previously
established allowance for possible investment losses. Also, during the first
quarter, this Investment Partnership sold the Chimney Rock apartments, a 714
unit complex, to an unrelated third party. In July 1995 the Trust reclassified
this property to an asset held for sale and wrote the property down by $54,000.
A $1,000 gain was realized by the Trust on the sale. A portion of the funds
from this sale were used in December to pay off, at a $154,000 discount
reported last quarter, the first mortgage on St. Charles -Phase A.
<PAGE>
Page 12
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS (continued)
During the second quarter the Trust granted its lessee an option to repurchase
the land underlying the Bluffs II apartments for $2,150,000. The option
expires May 31, 1996. The Trust's investment in this Structured Transaction is
$825,000. For the year ended July 31, 1995 the Trust earned $215,000 on this
investment. The lessee has notified the Trust that it intends to consummate
the transaction during the third quarter.
At July 31, 1995 the Trust had a $3,277,000 investment in PCA Canyon View
Associates Limited Partnership, an Investment Partnership that held Structured
Transactions in Phases I and II of the Canyon View apartments in San Ramon,
California. The Investment Partnership's investments in Phase I were
subordinate to a $12,000,000 first mortgage which had a scheduled maturity of
August 1, 1993, but was extended to August 1, 1994 in anticipation of a
proposed sale. Both phases were also subject to non-subordinated land leases
held by a third party. The Trust has a 23.8% general partner interest in
Canyon View. In August 1994, when it became apparent that a sale was unlikely
to occur, the first mortgagee initiated court proceedings for the appointment
of a receiver for Phase I and foreclosure. Shortly thereafter the Investment
Partnership initiated court proceedings for the appointment of a receiver for
Phase II and foreclosure on Phases I and II. Receivers were appointed for both
Phases. In December 1994 the Investment Partnership filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. Extensive negotiations then ensued
with the Investment Partnership's lessee and the first mortgagee of Phase I.
In August 1995, the litigation was settled with the Investment Partnership
receiving $300,000 from the first mortgagee of Phase I for permitting it to
foreclose on Phase I and the Investment Partnership taking title to Phase II
and receiving the proceeds from two letters of credit aggregating $1,750,000.
As a result the Trust incurred a $1,538,000 loss on these transactions
resulting from a $533,000 write-off of the Canyon View Phase I investment and
$1,005,000 write-down of the Canyon View Phase II investment. This loss had
been previously provided for in the Trust's allowance for possible investment
losses.
OFFICE BUILDINGS
During the second quarter, Citibank Office Plaza - Oak Brook was sold at a gain
of $470,000 ($.05) per share. At July 31, 1995 this investment was
reclassified to Asset Held for Sale directly by the Trust and was written down
by $971,000 to its expected sales proceeds. At January 31, 1996 the Trust had
three office buildings classified as assets held for sale, all of which are
held by Property Capital Midwest Associates, L.P., one of the Trust's
Investment Partnerships. The properties have been written down by $2,575,000
(the Trust's share) to their net realizable values. The Investment Partnership
has entered into an agreement to dispose of the Financial Plaza property,
subject to satisfactory completion by the purchaser of its due diligence for
the property. The Investment Partnership has executed a letter of intent with
a purchaser for the sale of the College Hills 8 property, which sale is still
subject to negotiation of an acceptable sales contract and completion of the
purchaser's due diligence. As a result, at this time the Trust is unable to
determine if these sales will be consummated. The third property, College
Hills 3, was sold subsequent to the end of the quarter for $2,400,000.
SHOPPING CENTERS
During the first quarter the Investment Partnership which owned the land under
the Crossroads Mall in Boulder, Colorado, sold its investment back to its
lessee. The Trust received approximately $5,500,000 of sales proceeds on its
$2,000,000 investment. For the year ended July 31, 1995 the Trust earned
$365,000 on this investment.
Loehmann's Fashion Island, in Aventura, Florida, an Owned Property held
directly by the Trust, suffered a decrease in the leased rate from 90% at July
31, 1995 to 87% at October 31, 1995, and at January 31st the leased rate
remained at 87%. As previously reported, the Trust has retained a new property
management and leasing firm. In the spring of 1996 management intends to
reevaluate its strategy for this property based upon leasing performance and
expectations at that time.
Plaza West Retail Center, in Overland Park, Kansas, a mixed use retail office
complex, held in an Investment Partnership, which was reclassified to assets
held for sale at July 31, 1995, is currently being marketed for sale.
HOTELS
As previously reported, the Trust sold to its lessee/mortgagor the Trust's
$4,000,000 Structured Transaction investments in Grosvenor Airport Inn, a 206
room hotel in South San Francisco, California, for $2,500,000. The loss on the
sale had been fully provided for in the Trust's allowance for possible
investment losses. For the year ended July 31, 1995 the Trust earned $200,000
on this investment.
<PAGE>
Page 13
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1996
VERSUS THE THREE AND SIX MONTHS ENDED JANUARY 31, 1995
REVENUES
Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) decreased 25% and 26% for the three and six months ended
January 31, 1996, as compared to the same periods in the prior year, primarily
due to the Trust's sale of the 6110 Executive Boulevard office building in
January 1995, and the receipt by the Trust in the first quarter of the prior
year of $404,000 of non-recurring income related to the settlement of a
bankruptcy claim filed by the Trust against a former tenant at Loehmann's
Fashion Island. Rents from Owned Properties held directly by the Trust
includes rents from Citibank Office Plaza -Oak Brook which was sold on January
26, 1996.
There was no significant change in base income from Structured Transactions
held directly by the Trust (land rent and mortgage interest) for the three and
six months ended January 31, 1996, respectively, as compared to the same
periods in the prior year.
Overage income from Structured Transactions held directly by the Trust
increased 17% for the three and six months ended January 31, 1996,
respectively, as compared to the same periods in the prior year, primarily due
to increased overage income from the Sandpiper Cove apartments and the City
Centre Holiday Inn investments.
The Trust's share of income from unconsolidated Investment Partnerships
increased 130% and 189% for the three and six months ended January 31, 1996,
respectively, as compared to the same periods in the prior year, primarily due
to the increased net income recorded by the Trust from Property Capital Midwest
Associates, L.P. When the assets in this Investment Partnership were
reclassified to assets held for sale they were written down to their expected
sales proceeds; therefore, deprecation is no longer taken on these properties.
The increase is also due to improved performance of certain properties in PCA
Southwest Associates Limited Partnership's portfolio. Additionally, as
previously reported, PCA Canyon View Associates Limited Partnership settled
pending litigation and the partnership received certain income which had been
previously written off by the Trust. These increases were offset by the loss
of revenues due to the sale of Crossroads Mall investment and the Chimney Rock
apartments in the first quarter of fiscal 1996 and the Braes Hill apartments in
the third quarter of fiscal 1995.
Advisory fee income decreased 27% and increased 35% for the three and six
months ended January 31, 1996, respectively, as compared to the same periods in
the prior years primarily due to timing of distributions paid by the Trust's
Investment Partnerships and the sale of Crossroads Mall which was held by an
Investment Partnership. Interest income was earned by the Trust in the amount
of $89,000 and $101,000 for the first and second quarter, respectively,
primarily from short-term investing of sales proceeds prior to the redemption
of debentures.
EXPENSES
Expenses on Owned Properties held directly by the Trust decreased 20% and 17%
for the three and six months ended January 31, 1996, respectively, as compared
to the same periods in the prior year due to the sale of 6110 Executive
Boulevard in January 1995.
Interest expense decreased 27% and 23% for the three and six months ended
January 31, 1996 as compared to the same periods in the prior year primarily
due to the sale of 6110 Executive Boulevard and the redemption of 10%
Convertible Subordinated Debentures, offset by an increase in interest expense
related to Loehmann's Fashion Island.
Depreciation expense increased 8% for the three months ended January 31, 1996
as compared to the same period in the prior year, primarily due to the write-
off of certain tenant improvements at Citibank Office Plaza - Schaumburg
related to a tenant bankruptcy, offset in part by the sale of 6110 Executive
Boulevard in January 1995 and the elimination of depreciation on Citibank
Office Plaza -Oak Brook, upon reclassification of this investment to Asset Held
for Sale directly by the Trust.
General and administrative expenses increased 51% and 60% for the three and six
months ended January 31, 1996, respectively, primarily due to the accrual of
severance arrangements for the Trust's employees provided as part of the new
business plan. Professional fees increased to 70% and 127% for the three and
six months ended January 31, 1996, respectively, due to the legal fees
associated with the Trust's adoption of its new business plan.
<PAGE>
Page 14
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS (continued)
GAIN ON SALE OF REAL ESTATE INVESTMENTS
Net income for the second quarter of fiscal 1996 included a gain of $470,000
($.05 per share) on the sale of the Citibank Office Plaza - Oak Brook and a
$310,000 ($.04 per share) gain on the sale of the land underlying the Yorkshire
apartments. Net income for the first quarter of fiscal 1996 included a gain of
$3,500,000 ($.39 per share) on the sale of the land underlying Crossroads Mall
located in Boulder, Colorado and a gain of $1,000 on the sale of the Chimney
Rock apartments. In the prior year net income included a gain of $3,099,000
($.34 per share) on the sale of 6110 Executive Boulevard.
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT
During the first and second quarter of fiscal 1996 the Trust redeemed
$4,000,000 and $11,000,000, respectively, of its 10% Convertible Subordinated
Debentures at face value and incurred an Extraordinary Loss on the
Extinguishment of Debt from the write-off of related issuance costs in the
amounts of $63,000 ($.01 per share) in the first quarter and $169,000 ($.02 per
share) in the second quarter.
DIVIDENDS
The dividend declared for the second quarter of fiscal 1996 was $.12 per share
versus $.10 per share for the same period in the prior year. The Trust pays
dividends approximately 55 days following the end of each fiscal quarter.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Management's Discussion and Analysis of Financial
Condition and Results of Operations section constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Trust, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; adverse
changes in the real estate market in the regions of the country in which the
Trust owns properties or has investments; and other factors noted in this
report.
PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
In November 1994, a tenant that occupies approximately 28,000 square feet of
College Hills 3, a 37,700 square foot office building located in Overland Park,
Kansas, owned by Property Capital Midwest Associates, L.P. (an Investment
Partnership), filed an action in the District Court of Johnson County, Kansas,
in which the tenant claimed that the Trust and the Investment Partnership
violated the terms of the tenant's space leases. The tenant alleged that it
had an oral agreement with the Investment Partnership's predecessor-in-title to
the building, the Trust and the Investment Partnership granting the tenant the
right to lease additional space that might become available in the building,
which allegation the Trust and Investment Partnership denied. The tenant also
asserted that it was entitled to damages in excess of $1,000,000, which
assertion was denied by the Trust and the Investment Partnership. The tenant,
the Trust and the Investment Partnership have executed a settlement agreement
whereby the litigation was dismissed with prejudice upon the closing of a sale
of the building to the tenant on March 12, 1996 and the reimbursement by the
Partnership to the tenant of $100,000 of the tenant's litigation expenses.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Trust's 1995 Annual Meeting of Shareholders held on December 15, 1995
the Trust's shareholders (i) elected seven Trustees to serve until the next
annual meeting of the Trust's shareholders, (ii) ratified the new business plan
and approved amendments to the Trust's Declaration of Trust and (iii) ratified
the appointment of Ernst & Young LLP as the Trust's auditors for the year ended
July 31, 1996. The votes on each of these items follows:
1. Election of seven Trustees:
NUMBER OF SHARES
FOR WITHHOLD AUTHORITY
Walter M. Cabot 8,205,032 97,501
John A. Cervieri, Jr. 8,204,682 97,851
Graham O. Harrison 8,204,432 98,101
Walter F. Leinhardt 8,204,682 97,851
Edward H. Linde 8,205,032 97,501
Robert M. Melzer 8,203,032 99,501
Glen P. Strehle 8,204,782 97,751
2. Ratification of the New Business Plan and approval of the amendments to the
Trust's Declaration of Trust.
NUMBER OF SHARES
For 6,754,794
Against 56,332
Abstain 132,406
Broker non-votes 1,359,001
3. The ratification of the appointment of Ernst & Young LLP to serve as the
independent auditors for the fiscal year ending July 31, 1996.
NUMBER OF SHARES
For 8,204,169
Against 36,654
Abstain 61,710
Broker non-votes -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Trust
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PROPERTY CAPITAL TRUST
REGISTRANT
Robert M. Melzer
President and Chief Executive Officer
Date (Principal Financial Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
<Period Start> Aug-01-1995
<Period End> Jan-31-1996
<Period Type> Year
<Exchange Rate> 1
<CASH> 13,333,000
<SECURITIES> 0
<RECEIVABLES> 1,332,000
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<Current Assets> 1,340,000
<PP&E> 154,018,000
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<BONDS> 56,732,000
0
0
<COMMON> 106,358,000
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<Total Liability & Equity> 157,409,000
<SALES> 15,166,000
<Total Revenues> 15,572,000
<CGS> 5,035,000
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<Loss Provision> 0
<Interest Expense> 2,888,000
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<EXTRAORDINARY> (232,000)
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