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
For the Fiscal Year Ended July 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 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.)
101 FEDERAL STREET, 4TH FLOOR
BOSTON, MASSACHUSETTS 02110-1817
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 737-0100
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. Yes X No .
As of September 30, 1996, the aggregate market value of Common Shares held by
non-affiliates of the registrant was approximately $85,539,000
As of September 30, 1996, there were 9,374,123 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 December 17, 1996 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.
The Trust currently operates under a business plan which provides for the
orderly disposition of the Trust's investments (the "Business Plan"). The
Business Plan contemplates the disposition 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 Business Plan and
approved certain amendments to the Trust's Declaration of Trust necessary for
its implementation. The Trust has utilized, and currently intends to continue
to utilize, net proceeds from the sale of its properties to retire debt and/or
make distributions to shareholders to the extent such funds are not needed by
the Trust for its operations.
The progress made by the Trust in implementing the Business Plan has been
greater than initially anticipated. Immediately prior to the implementation
of the Business Plan, the Trust owned 27 investments. During fiscal 1996, 13
properties were sold or otherwise disposed of. The proceeds from these sales
and approximately $5,000,000 in cash received by the Trust from sales made at
the end of fiscal 1995, were used to retire all of the Trust's 10% and 9 3/4%
Convertible Subordinated Debentures ($31,671,000 principal amount), to prepay
$3,000,000 of the first mortgage loan on the Trust's Loehmanns Fashion Island
property in Aventura, Florida, and to pay special dividends aggregating $2.75
per share ($25,403,000). Since the end of fiscal 1996, the Trust has disposed
of two additional properties.
In implementing the Business Plan, the Trustees have followed two different
approaches with respect to the disposition process, one relating to the
Structured Transactions (land leasebacks and/or mortgage loans) and the other
relating to the Owned Properties. With respect to the Structured Transactions,
the Trust has commenced discussions with many of its lessees/mortgagors
regarding repurchasing or repaying the Trust's investments. Since management
is intent on realizing full value for the Structured Transactions, negotiations
with some of these logical purchasers are likely to extend over a considerable
period of time. With respect to the disposition of Owned Properties, the Trust
has used brokers to handle most sales. The Trust bases its decision as to
timing of sales on such factors as the physical condition, occupancy and cash
flow status of each property and prevailing market conditions. Once a decision
to sell an Owned Property is made, the process of broker selection, marketing,
contract negotiations and closing normally takes between six and nine months.
No properties have been, and it is not expected that any properties will be,
sold to persons deemed to be affiliates of the Trust. Each offer to purchase
Trust assets must be acted upon by the Board of Trustees, which Board is
currently comprised of seven Trustees, five of whom are unaffiliated with the
Trust. Effective as of the Trust's 1996 Annual Meeting of Shareholders, it is
expected that the Board of Trustees will be reduced to six Trustees, four of
whom will be unaffiliated with the Trust.
Although no assurances can be given as to the time required to sell all of the
Trust's investments or the amount of net proceeds that will be realized from
the sale thereof, management estimated, on August 23, 1996, that the bulk of
the Trust's remaining investments will be sold by the end of fiscal 1998 and
that the amount of future distributions its shareholders will receive from the
disposition of the Trust's investments will be approximately $9.25 per share.
When added to the $2.75 per share of disposition proceeds previously
distributed, this results in an increase in management's estimate of total
distributions to approximately $12.00 per share from the approximately $10.00
per share set forth in the Trust's 1995 Proxy Statement. See Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Special Note on Forward-Looking Statements."
Distributions to shareholders will be made periodically at such times and upon
such terms as determined by the Trustees. Following the sale of all of the
Trust's investments and satisfaction by the Trust, through payment or
establishment of reserves, of all of its liabilities and obligations, the Trust
will distribute to its shareholders the balance of available proceeds. The
Trustees may from time to time fix a date in respect of any distribution for
the determination of the persons to be treated as shareholders of record
entitled to receive such distributions. Shareholders will be advised at the
time of any such distribution as to the details of the mechanics of the
distribution and the means by which shares will be canceled once all of the
Trust's assets have been distributed.
Before the final distributions of the Trust's remaining assets to the
shareholders, the Common Shares will continue to be transferable and the
Trust's shareholders will continue to have such rights as applicable law
confers upon shareholders. It is the intention of the Trustees to maintain the
listing of the Common Shares on the American Stock Exchange until such time as
the American Stock Exchange causes the Common Shares to be delisted. Once
either all of the Trust's assets have been sold and the net proceeds are
distributed to the Trust's
<PAGE>
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ITEM 1. BUSINESS (continued)
shareholders, the legal formalities of terminating the Trust will be completed
in accordance with the terms of the Declaration of Trust and with
Massachusetts' laws.
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 were either made
directly (including through wholly owned subsidiaries) or through limited
partnerships (classified as and referred to herein as "Investment
Partnerships") in which the Trust or its subsidiary is general partner and
other institutional investors are the limited partners.
Investments in land leasebacks and/or mortgage loans are classified as
Structured Transactions. Investments representing ownership of improved income
producing properties are classified as Owned Properties. Owned Properties
involve operation and management responsibility with property management
delegated to independent contractors. Owned Properties which have been
approved for sale by the Trustees (and, if applicable, the limited partners of
an Investment Partnership) and are being marketed for sale are classified as
Assets Held for Sale. For financial reporting purposes, the Trust categorizes
its investments into four groups, Owned Properties held directly by the Trust
(which includes investments held by wholly owned subsidiaries), Structured
Transactions held directly by the Trust, Assets Held for Sale directly by the
Trust (which currently consist of Owned Properties) and interests in Investment
Partnerships (which currently hold Owned Properties and Assets Held for Sale).
At July 31, 1996, the portfolio of real estate investments included four Owned
Properties, consisting of three held directly by the Trust, or wholly owned
subsidiaries and one held by an Investment Partnership, seven Structured
Transactions held directly by the Trust and three Assets Held for Sale, one of
which is classified as an Asset Held for Sale directly by the Trust (previously
classified as an Owned Property held directly by the Trust) and two of which
are classified as Assets Held for Sale in Investment Partnerships (previously
classified as Owned Properties held in Investment Partnerships). Subsequent to
the end of fiscal 1996 the two Assets Held for Sale in Investment Partnerships
were sold.
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 Schedule III,
Schedule IV and Exhibit A included in Item 14 hereof.
COMPETITION, REGULATION AND OTHER FACTORS
The success of the Trust depends, among other factors, upon general economic
conditions and trends, including real estate and population trends, interest
rates, government regulations and legislation, income tax laws and zoning laws.
The success of the Business Plan depends on the Trust's ability to sell
investments at prices that reflect the underlying value of such investments.
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. 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. The Trust's real
estate investments also compete with other properties that are being offered
for sale. The market for Owned Properties is competitive and the interest of
potential buyers can be impacted by various factors including property
performance, physical condition, neighborhood characteristics and trends,
interest rates, price and general economic conditions. The Trust has typically
sold its Structured Transactions to its lessees either in conjunction with a
project refinancing or sale. In addition to the factors noted above, such
sales are also dependent on the willingness of the lessee to consummate such a
transaction.
TENANTS
Spaces in the Owned Properties are leased to 1,033 tenants including 56 retail
tenants, 59 office tenants and 921 apartment tenants. The lease terms range
from tenancies-at-will to 20 years.
PROPERTY MANAGEMENT
All Owned Properties are managed by professional property management firms that
are independent of the Trust and report directly to the Trust's management.
Property management fees range from 2.25% to 5% of annual gross receipts from
the operations of the properties and each property management agreement may be
terminated upon 30 days' notice.
<PAGE>
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ITEM 1. BUSINESS (continued)
INSURANCE
The Owned Properties and Assets Held for Sale, which include properties that
are owned directly by the Trust (or its subsidiaries) and by the Investment
Partnerships, have commercial general liability coverage 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 and, where applicable, the
Investment Partnerships against liability claims as well as the costs of
defense. Property insurance on the Owned Properties and Assets Held for Sale
is maintained 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 the apartments located in Houston, which
are subject to a $24,816,600 limit. Separate flood and earthquake insurance is
provided with an annual aggregate limit of $10,000,000 for each peril, with the
exception of the Houston apartments which are subject to a $17,500,000 limit,
with a $1,000,000 per occurrence deductible (for flood coverage only).
Liability and property insurance for Structured Transactions is carried by the
Trust's lessees/mortgagors.
At the end of fiscal 1996, two Investment Partnerships, Property Capital
Midwest Associates, L.P. ("Midwest") and PCA Canyon View Associates Limited
Partnership ("Canyon View"), each held, as its only investment, an Asset Held
for Sale which was sold subsequent to the end of fiscal 1996. Additionally, at
July 31, 1996, PCA Southwest Associates Limited Partnership ("Southwest") held,
as its only investment, an Owned Property. The Trust, as general partner, is
liable for all obligations of and claims made against Midwest and Canyon View
beyond the net worth of such partnerships and, in the case of claims covered by
the Investment Partnership's liability insurance, the amount of such insurance.
The Trust has sought to obviate such liability with respect to Southwest 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 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. When Canyon View took title to its Phase II investment in
August 1995, it voluntarily commenced a program to correct certain construction
deficiencies and make repairs to the exterior siding at a cost of $1,050,000.
This property was sold by the Investment Partnership subsequent to the end of
fiscal 1996.
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 can 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 such substances properly, 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, 1996, the Trust's most significant relationship with any single
third-party owner of real estate was with the National Corporation for 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 in Elm Creek apartments (a $2,230,000 land leaseback and a
$7,540,000 leasehold mortgage loan). These investments accounted for
approximately 14% of the Trust's real estate portfolio as of July 31, 1996 and
approximately 7% of the Trust's total revenues from its real estate portfolio
during fiscal 1996. Neither NHP nor any other lessee or borrower is affiliated
with the Trust or its Trustees.
<PAGE>
Page 5
ITEM 1. BUSINESS (continued)
ANTICIPATED CAPITAL EXPENDITURES
In accordance with the Business Plan, no new acquisitions of property will be
made. The Owned Properties will continue to be managed
to maximize performance and values. For fiscal 1997 the aggregate amount of
anticipated capital expenditures at Owned Properties held directly by the Trust
and Assets Held for Sale directly by the Trust is $4,050,000, primarily for
tenant improvements and leasing commissions. The funds necessary for capital
expenditures are anticipated to be available from cash flow provided by
operations and proceeds from the sale of properties.
Additionally, the Trust's share of anticipated tenant improvements, leasing
commissions and other capital expenditures at Owned Properties and Assets Held
for Sale in Investment Partnerships is approximately $100,000. These funds are
anticipated to be available from the Investment Partnerships' cash flows.
BORROWINGS
At July 31, 1996, the Trust had $36,889,000 of debt outstanding as follows:
PRINCIPAL
AMOUNT INTEREST RATE MATURITY
Mortgage Notes Payable
Loehmann's Fashion Island $ 18,732,000 7.97%{(1)} July 1998
One Park West 9,727,000 9.50% June 2000
Park Place 8,430,000 5.65% May 2008
------------
$ 36,889,000
============
{(1)} Rate is fixed until December 1996; see below for further information.
For additional information, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations", and Note 3 of the Notes to
Consolidated Financial Statements of the Trust.
ITEM 2. PROPERTIES
The Trust's Real Estate Investments (net of accumulated depreciation) consist
of the following:
JULY 31,
1996 1995 1994
Owned Properties held
directly by the Trust $ 56,810,000 $ 83,985,000 $105,295,000
Structured Transactions held
directly by the Trust
Land leasebacks 14,180,000 17,140,000 17,140,000
Mortgage loans 14,020,000 15,431,000 15,441,000
Investment Partnerships* 9,600,000 48,299,000 51,998,000
---------- ----------- -----------
94,610,000 164,855,000 189,874,000
Allowance for possible investment
losses (4,636,000) (14,077,000) (17,413,000)
---------- ---------- ----------
89,974,000 150,778,000 172,461,000
Asset Held for Sale directly by
the Trust 16,938,000 10,185,000 -
---------- ---------- -----------
$106,912,000 $160,963,000 $172,461,000
============ ============ ============
* Includes, Canyon View II and Plaza West Retail Center, which were
classified as Assets Held for Sale in Investment Partnerships in fiscal
1996, and which were both sold subsequent to July 31, 1996.
<PAGE>
Page 6
ITEM 2. PROPERTIES (continued)
Many of the investments in the portfolio are subject to first mortgage
financing, which aggregated $111,420,000 as of July 31, 1996. Included in this
amount is $27,162,000 of debt on two of the Owned Properties held directly by
the Trust, $9,727,000 of debt on the Asset Held for Sale directly by the Trust
and $10,314,000 of debt on an Owned Property held in an Investment Partnership.
The balance represents mortgage debt on Structured Transactions which is not
presented as a liability in the Trust's financial statements because the
obligation to pay such debt is that of the Trust's lessees/mortgagors. All of
this indebtedness, with the exception of $12,000,000 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 III and Exhibit A included in Item 14 hereof.
As of July 31, 1996, the Trust's Real Estate Investments (net of accumulated
depreciation and before the allowance for possible investment losses) were
diversified by type of property as follows:
NUMBER OF INVESTMENT % OF
TYPE OF PROPERTY PROPERTIES AMOUNT TOTAL
Shopping Centers{(1)} 4 $47,127,000 42%
Office Buildings 3 37,591,000 34
Apartments{(2)} 5 18,514,000 17
Hotels 2 8,316,000 7
-- -------------- --
14 $ 111,548,000 100%
== ============== ====
As of July 31, 1996, the Trust's Real Estate Investments (net of accumulated
depreciation and before the allowance for possible investment losses) were
diversified by geographic region as follows:
NUMBER OF INVESTMENT % OF
GEOGRAPHIC REGION PROPERTIES AMOUNT TOTAL
Midwest{(1)} 6 $45,395,000 41%
South 3 42,865,000 38
East 1 16,938,000 15
West{(2)} 4 6,350,000 6
-- ------------- ---
14 $ 111,548,000 100%
== ============= ===
{(1)} Includes Plaza West Retail Center which was sold subsequent to year-end.
{(2)} Includes Canyon View II which was sold subsequent to year-end.
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ITEM 2. PROPERTIES (continued)
The following is a schedule of the 14 properties in which the Trust has
investments at July 31, 1996.
INVESTMENTS HELD DIRECTLY BY THE TRUST
<TABLE>
<CAPTION>
Trust's Average Percent
Year Built/ Carrying Third Party Rent per Leased
Location Property Size Renovated Value Indebtedness Sq. Ft. 7/31/96
- ------------------------------------------------------------------------------------------------------------------------------
OWNED PROPERTIES HELD DIRECTLY BY THE TRUST
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE
Citibank Office Plaza Schaumburg, IL 105,400 sq.ft. 1978 $ 9,452,000 - $17.67 78%
Park Place Clayton, MO 72,000 sq.ft. 1984 11,201,000 $8,430,000 22.44 100%
------------- ----------- ----------
177,400 sq.ft. $20,653,000 $8,430,000
============= =========== ==========
RETAIL
Loehmann's Fashion Island Aventura, FL 282,000 SQ.FT. 1980/1994 $36,157,000 $18,732,000 $14.87{(1)} 90%
============= =========== ==========
ASSET HELD FOR SALE DIRECTLY BY THE TRUST
OFFICE
One Park West Chevy Chase, MD 136,000 SQ.FT. 1980 $16,938,000 $9,727,000 $26.01 99%
============= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Trust's Percent
Year Built/ Carrying Third Party Leased
Location Property Size Renovated Value Indebtedness 7/31/96
- ----------------------------------------------------------------------------------------------------------------
STRUCTURED TRANSACTIONS HELD DIRECTLY BY THE TRUST
<S> <C> <C> <C> <C> <C> <C>
RETAIL
Roseburg Valley Mall Roseburg, OR 237,000 sq.ft. 1980 $3,964,000 $6,685,000 95%
Lakeside Center Burbank, CA 66,000 sq.ft. 1962/1986 350,000 131,000 100%
------------- ---------- ----------
303,000 sq.ft. $4,314,000 $6,816,000
============= ========== ==========
APARTMENTS
Sandpiper Cove Boynton Beach, FL 416 units 1989 $5,400,000 $16,418,000 90%
Elm Creek Elmhurst, IL 372 units 1988 9,770,000 20,921,000 99%
Northbrook San Bernardino, CA 190 units 1972 400,000 - 87%
--------- ------------ -----------
978 units $15,570,000 $37,339,000
========= ============ ===========
HOTELS
City Centre Holiday Inn Chicago, IL 500 rooms 1976 $2,000,000 $ 9,689,000 72%{(2)}
Cincinnati Marriott Inn Cincinnati, OH 350 rooms 1968/1985 6,316,000 10,373,000 68%{(2)}
--------- ---------- -----------
850 rooms $8,316,000 $20,062,000
========= ========== ===========
</TABLE>
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ITEM 2. PROPERTIES (continued)
INVESTMENTS HELD IN INVESTMENT PARTNERSHIPS
<TABLE>
<CAPTION>
Percent Percent
Year Built/ Partnership's Third Party Owned Leased
Location Property Size Renovated Equity Indebtedness by PCT 7/31/96
- -------------------------------------------------------------------------------------------------------------------
OWNED PROPERTIES HELD IN INVESTMENT PARTNERSHIPS
APARTMENTS
<S> <C> <C> <C> <C> <C> <C> <C>
Telegraph Hill Houston, TX 921 UNITS 1978 $2,877,000 $10,314,000 45.5% 100%
ASSETS HELD FOR SALE IN INVESTMENT PARTNERSHIPS
RETAIL
Plaza West Retail
Center{(3)} Overland Park, KS 98,000 SQ.FT. 1988 $12,488,000 - 53.3% 100%
APARTMENTS
Canyon View II{(3)} San Ramon, CA 188 UNITS 1988 $6,870,000 - 23.8% 99%
</TABLE>
{(1)} Net rent
{(2)} Average occupancy for fiscal 1996
{(3)} Sold subsequent to July 31, 1996
OWNED PROPERTIES HELD DIRECTLY BY THE TRUST
The carrying value of the three Owned Properties held directly by the Trust
totals $56,810,000 (51% of Real Estate Investments before the allowance for
possible investment losses). Two of the properties are office buildings
located in suburban markets and the third property is a retail center located
in Aventura, Florida. Each property accounts for more than 5% of either Real
Estate Investments (before the allowance for possible investment losses) or
total revenues and is described below.
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. At July 31,
1996, the property was 78% leased. Two tenants each occupy more than 10% of
the building with spaces aggregating 30,490 square feet and 11,909 square feet
and lease expiration dates of October 31, 2001 (with an early termination
option of October 31, 1998) and December 31, 2003 (with an early termination
option at December 31, 1999), 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, 1996, the property was 100% leased and was
encumbered by a mortgage securing an $8,430,000 Industrial Revenue Bond issue
with an average interest rate of 5.65%, due in May 2008. Three tenants each
occupy more than 10% of the building with spaces aggregating 14,455 square
feet, 12,836 square feet and 9,934 square feet, and lease expiration dates of
March 31, 2001, May 31, 2000 and October 31, 1997, respectively.
LOEHMANN'S FASHION ISLAND - AVENTURA, FLORIDA
Loehmann's Fashion Island is a 282,000 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, 1996, the property was 90% leased and was encumbered by an
$18,732,000 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
<PAGE>
Page 9
ITEM 2. PROPERTIES (continued)
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 1995, and through December 1996 the interest rate is fixed at 7.97%.
Two tenants each occupy more than 10% of the shopping center with spaces
aggregating 47,813 square feet and 47,220 square feet and lease expirations of
May 31, 2013 and May 30, 2013, respectively.
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 III of Item 14.
STRUCTURED TRANSACTIONS HELD DIRECTLY BY THE TRUST
The carrying value of the seven properties classified as Structured
Transactions held directly by the Trust totals $28,200,000 (25% of Real Estate
Investments before the allowance for possible investment losses at July 31,
1996). Three 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. At July 31, 1996, the property was 99%
leased. 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 annual fixed rent of $223,000, payable monthly and overage rent of
40% of increases in revenues (as defined) of the property over specified
amounts. In fiscal 1996, the Trust earned overage rent (rent in excess of the
annual fixed payment) of $90,100. 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 for the land shall be determined at that time pursuant to 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 10% per annum and matures in November 2018. No amortization payments
are required under this loan prior to maturity. The Trust's investments in
this property are subordinated to a third party first mortgage loan of
$20,921,000 bearing interest at 9.5% and due in 1997.
CITY CENTRE HOLIDAY INN - CHICAGO, ILLINOIS
City Centre Holiday Inn, located in downtown Chicago, is a 500 room hotel built
in 1976. In fiscal 1996, the average occupancy was 72%. 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 (as defined) and 15% of
gross room revenues (as defined) over specified amounts. In fiscal 1996, the
overage rent earned by the Trust from this investment was $1,613,000. In
September 1996, the lessee exercised an option to repurchase the Trust's land
investment in January 1997 for approximately $20,000,000. The Trust's
investment is subordinated to a third party first mortgage loan of $9,689,000
bearing interest at 9.13% and due in 1997.
CINCINNATI MARRIOTT INN - CINCINNATI, OHIO
Cincinnati Marriott Inn is a 350 room hotel built in 1968. In fiscal 1996, the
average occupancy was 68%. The Trust holds a $2,000,000 land leaseback
interest in this property and two leasehold mortgage loans totaling $4,316,000.
The land lease, including renewal options, expires in December 2058 and
provides for fixed annual rental of $240,000, payable monthly. The primary
leasehold mortgage of $3,716,000 bears interest at the rate of 5.65% per annum,
with amortization commencing May 1, 1999 and maturing March 2014.
Additionally, during fiscal 1996, the Trust funded a $600,000 junior leasehold
mortgage loan to finance the cost of certain capital improvements. The loan
bears interest at 8% per annum, with amortization commencing May 1, 1999 and
maturing March 2014. The Trust's investments in this property are subordinated
to a third party first mortgage loan of $10,373,000 bearing interest at 9.75%
and due in 1999.
No other Structured Transaction held directly by the Trust constitutes 5% or
more of 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 Structured Transactions held directly by the
Trust see Item 7, Note 2 of the Notes to Consolidated Financial Statements of
the Trust and Schedules III and IV of Item 14.
<PAGE>
Page 10
ITEM 2. PROPERTIES (continued)
INVESTMENT PARTNERSHIPS
The Trust's three Investment Partnerships hold one Owned Property and two
Assets Held for Sale. The Trust's equity investments in these
three Investment Partnerships total $9,600,000 (9% of Real Estate Investments
before the allowance for possible investment losses). The
Trust's most significant partnership investment accounted for more than 5% of
either Real Estate Investments (before allowance for possible investment
losses) or total revenues, and is discussed below.
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
In the beginning of fiscal 1996, Midwest (in which the Trust has an interest of
53.3%) owned three office properties, which were sold during the year, and a
98,000 square foot shopping center building built in 1988, which is classified
as an Asset Held for Sale at July 31, 1996. Subsequent to the end of fiscal
1996, the shopping center was sold. All properties in this partnership were
located in Overland Park, Kansas, a suburb of Kansas City, Missouri, and were
owned free and clear of mortgage debt. At July 31, 1996, the Trust's equity
investment in this partnership was $6,656,000. The shopping center was 100%
leased at July 31, 1996. Two tenants occupy 10% or more of the 98,000 square
feet of rentable space with spaces aggregating 20,784 square feet and 13,105
square feet with lease expiration dates of January 10, 2001 and February 28,
2001, respectively. For further information see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
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 Exhibit A.
ASSET HELD FOR SALE DIRECTLY BY THE TRUST
The Trust has one property classified as an Asset Held for Sale directly by the
Trust at July 31, 1996, One Park West (15% of Real Estate Investments before
the allowance for possible investment losses), which is discussed below.
ONE PARK WEST - CHEVY CHASE, MARYLAND
One Park West is a 136,000 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, 1996, the property was classified as an
Asset Held for Sale directly by the Trust and was under contract to be sold.
Subsequent to the end of fiscal 1996, the sales contract was terminated. At
July 31, 1996, the property was 99% leased and was encumbered by a $9,727,000
first mortgage which bears interest at 9.5%, due June 2000. Four tenants each
occupy more than 10% of the building, with spaces of 34,883 square feet, 22,925
square feet, 15,901 square feet and 14,400 square feet, and with lease
expiration dates of December 31, 1996 (this tenant is not renewing its lease),
October 31, 2000, September 30, 1996 (this tenant is not renewing its lease)
and March 31, 1998 (the last with an early termination option at March 31,
1997), respectively.
The Owned Properties held directly by the Trust, Structured Transactions held
directly by the Trust, Assets Held for Sale directly by the Trust and
Investment Partnerships described above, constitute 88% of the Trust's Real
Estate Investments before the allowance for possible investment losses and 75%
of the Trust's revenues from real estate.
ITEM 3. LEGAL PROCEEDINGS
None.
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, 1996.
<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. 65 Managing Trustee of the Trust since 1992. Prior to 1992, Managing Trustee and Chief Executive
Officer of the Trust; Chairman and President of Property Capital Associates, Inc. and its
affiliates (the former investment advisor to the Trust); Director of BankBoston; Chairman and Chief
Executive Officer of Americana Hotels and Realty Corporation.
Robert M. Melzer 55 Trustee, President and Chief Financial Officer of the Trust since 1992; prior to 1992, President of
the Trust.
William A. Bonn 45 Senior Vice President, General Counsel and Assistant Secretary of the Trust.
Robin W. Devereux 37 Vice President and Treasurer of the Trust since November 1993; Treasurer and Controller of the
Trust (August 1992 to November 1993); Assistant Vice President and Controller of the Trust (June
1990 to July 1992).
Michael I. Sucoff 58 Vice President of the Trust since September 1992; Senior Vice President of Capital Partners Inc.
(1990-1992).
Randolph L. Kazazian III 35 Vice President of the Trust since November 1993; prior to that Assistant Vice President of the
Trust.
Walter F. Leinhardt 64 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 are
there any arrangements or understandings 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 theASE for each quarter
during the past two fiscal years and dividends declared for such quarters are
shown below.
FISCAL 1996
DIVIDENDS
QUARTER HIGH LOW DECLARED
First $ 8 7/16 $ 7 15/16 $ .12
Second 9 8 3/16 .12
Third 11 1/8 8 1/2 .12
Fourth 10 7/8 7 1/2 2.87*
------
$ 3.23
======
FISCAL 1995
DIVIDENDS
QUARTER HIGH LOW DECLARED
First $ 6 1/2 $ 5 5/8$ .09
Second 6 1/4 5 5/8 .10
Third 6 3/4 6 .10
Fourth 8 1/4 6 5/8 .12
------
$ .41
======
*Special dividends totaling $2.75 were paid during the quarter representing
proceeds from dispositions of certain of the Trust's investments.
(B) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
APPROXIMATE NUMBER OF HOLDERS
TITLE OF CLASS AS OF SEPTEMBER 30, 1996
- ---------------------------------------------------------------------------
Common Shares 5,000
(C) DIVIDENDS DECLARED ON COMMON SHARES
Cash dividends have usually been at least 100% of income before gain on sale of
real estate investments and extraordinary items.The Trust typically pays a
dividend 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 aftercertain other adjustments). In addition, the Trust will be
subject to a 4% nondeductible excise tax on the amount, if any, by whichcertain
distributions paid by it with respect to any calendar year are less than the
sum of 85% of its ordinary income for the calendaryear, 95% of its capital gain
income for the calendar year, and any amount of such income that was not
distributed in prior years.The Trust did not incur any such excise tax
liability with respect to calendar 1995 or 1994.
Pursuant to the Business Plan, during fiscal 1996, the Trust declared special
dividends from the proceeds of its disposition ofinvestments. The Trust
expects that it will continue to distribute substantially all of its net
proceeds from sales of investments toshareholders unless needed to retire debt
or otherwise satisfy the Trust's cash requirements. It is the current
intention of the Trusteesto distribute proceeds from dispositions as special
dividends at the same time as the quarterly dividend. However, the Trustees
maychoose to make an additional dividend from time to time rather than wait for
a quarterly dividend payment.
<PAGE>
Page 13
ITEM 5. MARKET FOR THE TRUST'S COMMON SHARES AND RELATED SECURITY HOLDER
MATTERS (continued)
Listed below is the income tax classification for dividends paid during fiscal
year ended July 31, 1996.
<TABLE>
<CAPTION>
DECLARATION RECORD PAYABLE DIVIDENDS ORDINARY RETURN OF CAPITAL
DATE DATE DATE PER SHARE TAXABLE CAPITAL GAIN
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
08/25/95 09/11/95 09/22/95 $ 0.12 $ 0.120 $ - $ -
11/29/95 12/11/95 12/22/95 0.12 0.060 - .060
02/23/96 03/15/96 03/26/96 0.12 0.120 - -
05/22/96 06/13/96 06/24/96 0.12 0.120 - -
05/22/96 06/13/96 06/24/96 1.75* 0.117 1.364 0.269
06/27/96 07/12/96 07/26/96 1.00* 0.067 0.933 -
------- ------- ------- -------
$ 3.23 $ 0.604 $ 2.297 $ 0.329
====== ======= ======= =======
</TABLE>
*Special Dividends paid pursuant to the Trust's Business Plan.
<PAGE>
Page 14
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1996 1995 1994 1993* 1992*
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues $ 21,799 $ 22,619 $ 21,623 $ 16,535 $ 19,109
Expenses 21,506 20,603 20,044 24,865 33,544
-------- -------- -------- -------- ---------
Income (Loss) before Gain (Loss) on Sale of Real
Estate Investments and Extraordinary Item 293 2,016 1,579 (8,330) (14,435)
Gain (Loss) on Sale of Real Estate Investments 6,094 3,209 2,510 7,700 (9,150)
-------- ------- ------- --------- -------
Income (Loss) before Extraordinary Item 6,387 5,225 4,089 (630) (23,585)
Extraordinary (Loss) Gain from Extinguishment (473) 88 - - 7,950
of Debt -------- ------ ------- --------- ------
Net Income (Loss) $ 5,914 $ 5,313 $ 4,089 $ (630) $ (15,635)
========= ========= ======== ========== ==========
PER SHARE DATA
Primary Net Income (Loss)
Income (Loss) before Gain (Loss) on Sale of Real
Estate Investments and Extraordinary Item $ 0.03 $ 0.23 $ 0.17 $ (0.93) $ (1.60)
Gain (Loss) on Sale of Real Estate Investments 0.67 0.35 0.28 0.85 (1.01)
-------- -------- -------- -------- ---------
Income (Loss) before Extraordinary Item 0.70 0.58 0.45 (0.08) (2.61)
Extraordinary (Loss) Gain from Extinguishment
of Debt (0.05) 0.01 - - 0.88
-------- -------- -------- -------- ---------
Net Income (Loss) per Share $ 0.65 $ 0.59 $ 0.45 $ (0.08) $ (1.73)
======== ======== ======== ======== =========
Fully Diluted Net Income (Loss) per Share $ 0.65 $ 0.59 $ 0.45 $ (0.08) $ (1.73)
======== ======== ======== ======== =========
Dividends Declared per Share $ 3.23 $ 0.41 $ 0.30 $ 0.28 $ 0.28
======== ======== ======== ======== =========
Average Shares Outstanding 9,097 9,044 9,030 9,029 9,029
======== ======== ======== ======== =========
FINANCIAL POSITION AT YEAR-END
Total Assets $ 112,619 $ 169,439 $ 176,833 $ 179,459 $173,748
Net Real Estate Investments 106,912 160,963 172,461 176,024 168,403
Commitments - - - - 616
Total Debt Outstanding 36,889 71,816 81,479 86,492 76,337
Shareholders' Equity 70,076 93,709 91,703 90,134 93,202
</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'sprevious method of
accounting and the reasons for the change.
<PAGE>
Page 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Trust has reviewed its short-term and long-term liquidity needs in view of
its Business Plan 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 and capital expenditures for Owned Properties (including Assets
Held for Sale) 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 the proceeds of sales of investments and, if needed, 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 and, if needed, its existing demand line of credit. In
accordance with the Business Plan, the Trust will not make any new
acquisitions. Proceeds from the sales of the Trust's investments will be used
to retire debt and make dividend distributions to the Trust's shareholders or
otherwise satisfy the Trust's cash needs.
The Trust's debt to equity ratio was .52x at July 31, 1996, .77x at July 31,
1995 and .89x at July 31, 1994. The Trust's debt at July 31, 1996 was
$36,889,000, composed solely of mortgage notes payable, as compared to
$71,816,000 at July 31, 1995 and $81,479,000 at July 31, 1994. The decrease in
the Trust's debt in fiscal 1996 was primarily due to the retirement (primarily
at par) of all of the Trust's 10% and 9 3/4% Convertible Subordinated
Debentures, ($29,125,000 and $2,546,000 aggregate principal amounts,
respectively) and a $3,000,000 prepayment of the first mortgage loan secured by
Loehmann's Fashion Island.
The Trust's mortgage notes payable of $36,889,000 at July 31, 1996 were
comprised of three mortgages, two on the Trust's Owned Properties held directly
by the Trust and one on the Asset Held for Sale directly by the Trust.
With respect to one of the Trust's Owned Properties, Park Place, the Trust
acquired its lessee's interest in this office building located in Clayton,
Missouri, in January 1991, subject to an $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 $8,430,000 at July 31, 1996
and amortizes $85,000 annually in May through 2003, and $430,000 annually
thereafter through May 2007. The then remaining balance of $6,115,000 matures
in May 2008.
With respect to the second Owned Property held directly by the Trust,
Loehmann's Fashion Island, the first mortgage on Loehmann's Fashion Island
shopping center was refinanced on June 30, 1994 with an initial advance of
$18,000,000. The loan commitment was for $30,000,000, with additional advances
to be made through June 1996 based upon property performance. There were
subsequent advances aggregating $6,000,000 and periodic amortization payments
including a $3,000,000 payment made during fiscal 1996. The first mortgage
loan had a balance at July 31, 1996 of $18,732,000 ($12,000,000 of which is
recourse to the Trust), matures in July 1998 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 notes
for a specified number of times. This option may be exercised at no cost or
additional liability to the Trust. In July 1995, the Trust fixed the interest
rate on the total outstanding borrowings at 7.97% (2.25% over comparable term
U.S. Treasury notes) until December 1996.
The Asset Held for Sale directly by the Trust which is encumbered by a first
mortgage is One Park West. In March 1993, the Trust acquired its lessee's
interest in this office building located in Chevy Chase, Maryland, subject to a
non-recourse mortgage loan which had a balance of $9,727,000 at July 31, 1996.
The loan carries an annual interest rate of 9.5%, requires monthly payments of
principal and interest and matures in June 2000.
The Trust has a $10,000,000 revolving line of credit from a major New England
bank. Borrowings under the line are repayable on demand by the lender. At
July 31, 1996 there were no outstanding borrowings under the line. Interest is
at the bank's prime rate, (8.25% at July 31, 1996).
For additional information regarding the Trust's indebtedness, see Note 3 of
the Notes to Consolidated Financial Statements of the Trust.
FUNDS FROM OPERATIONS
Funds from Operations is considered by the REIT industry to be an appropriate
measure of performance of an equity REIT. Funds from Operations is calculated
by the Trust consistent with the National Association of Real Estate Investment
Trusts' definition: Funds from Operations equals net income, excluding gains
(losses) from debt restructurings and sales of properties and nonrecurring
items, plus depreciation and amortization and after adjustments 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
<PAGE>
Page 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
of liquidity. In connection with the Business Plan, the Trust is disposing of
all of its assets. As a result, the Trust's Funds from Operations and Net
income will decline as assets are sold and the net proceeds are distributed to
shareholders. Funds from Operations was calculated by the Trust as follows:
YEARS ENDED JULY 31,
-------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
Income before gain on sale of
Real Estate Investments
and Extraordinary Item $ 293,000 $ 2,016,000 $ 1,579,000
Depreciation on Owned Properties
held directly by the Trust 4,008,000 4,192,000 3,538,000
Trust's share of depreciation on
unconsolidated Investment
Partnerships 473,000 2,086,000 1,445,000
Nonrecurring item 3,000,000{(1)} (404,000){(2)} -
--------- --------- ---------
Funds from operations $ 7,774,000 $ 7,890,000 $ 6,562,000
=========== =========== ===========
{(1)}Nonrecurring expense resulting from a write-down of Loehmann's Fashion
Island.
{(2)}Nonrecurring income resulting from the settlement of a bankruptcy claim
filed by the Trust against a former tenant atLoehmann's Fashion Island.
Management believes that with its cash provided by operating activities
retained after dividend distributions, the proceeds from sales of investments
and, if necessary, borrowings under the existing bank line, it will be able to
meet its cash requirements for anticipated capital expenditures on the Owned
Properties held directly by the Trust and Assets Held for Sale directly by the
Trust. The Trust currently expects that these cash requirements will total
approximately $4,050,000 during fiscal 1997.
REVIEW OF REAL ESTATE INVESTMENTS
At July 31, 1996, the Trust's principal asset is its $106,912,000 portfolio of
real estate investments, which, except as noted below, is carried at cost, net
of accumulated depreciation and the allowance for possible investment losses,
and includes Assets Held for Sale (which are carried at the lower of cost or
net realizable value). At July 31, 1996, the portfolio consisted of
investments in 14 properties, two of which were sold subsequent to the end of
the year, comprised of investments in five apartment complexes, three office
buildings, four shopping centers and two hotels. Set forth below is a
discussion of significant changes in the portfolio during the year.
APARTMENTS
At July 31, 1996, the Trust's real estate investments include five apartment
investments, consisting of three Structured Transactions held directly by the
Trust, one Owned Property held in an Investment Partnership and one Asset Held
for Sale in an Investment Partnership (which was sold subsequent to the end of
fiscal 1996). During fiscal 1996 six apartment investments were sold or
otherwise disposed of.
Southwest, an Investment Partnership in which the Trust, through a wholly owned
subsidiary, owns a 45.45% general partner interest, sold three properties
during fiscal 1996. On September 29, 1995, the Investment Partnership sold the
714 unit Chimney Rock apartments, at a gain of $1,000 to the Trust. At July
31, 1995, this property was reclassified to an Asset Held for Sale and was
written down to its net realizable value. The Trust's share of the write-down
($54,000) was charged against the Trust's previously established allowance for
possible investment losses. On June 21, 1996, this Investment Partnership sold
the St. Charles and Boardwalk apartments at a gain to the Trust of $50,000. At
January 31, 1996, these properties had been reclassified to Assets Held for
Sale and the Trust's investment was written down by $710,000 to the
properties' estimated net realizable value.
Southwest's remaining investment is the Telegraph Hill apartments. The
Partnership was in default under the terms of the first mortgage on Phase B,
259 units of this 1,180 unit complex, due to nonpayment of principal and
interest. The Partnership 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
<PAGE>
Page 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
in December 1995. The Trust incurred a loss of $307,000 on this investment
which was charged against the Trust's allowance for possible investment losses.
The remaining 921 units were 100% leased at July 31, 1996 as compared to 98%
leased at July 31, 1995 and 81% at July 31, 1994.
At July 31, 1995, the Trust had a $3,277,000 investment in Canyon View, an
Investment Partnership that held Structured Transactions in Phases I and II of
the Canyon View apartments in San Ramon, California. The Trust has a 23.81%
general partner interest in this Investment Partnership. The Investment
Partnership's investments in Phase I (a Structured Transaction held in an
Investment Partnership) 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. 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 of
its mortgage. Shortly thereafter the Investment Partnership initiated court
proceedings for the appointment of a receiver for Phase II and foreclosure of
its loans on Phases I and II. 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 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 a $1,005,000 write-down of the Canyon View Phase II
investment. These losses had been previously provided for in the Trust's
allowance for possible investment losses. The Investment Partnership undertook
a $1,050,000 capital expenditure program during fiscal 1996 to correct
structural deficiencies, construction deviations and damaged siding at Phase
II.
At July 31, 1996, Canyon View Phase II was reclassified to an Asset Held for
Sale; no further write-down was recorded. Subsequent to the end of the fiscal
year, on August 30, 1996, the Partnership sold the complex and the Trust
realized a gain of approximately $800,000.
Additionally, during fiscal 1996, the Trust sold the land underlying the Bluffs
II apartments for $2,150,000. The Trust's investment in this Structured
Transaction was $825,000 resulting in a gain to the Trust of $1,320,000 after
closing costs. For the year ended July 31, 1995, the Trust earned $215,000 on
this investment. Also, during fiscal 1996, the Trust sold the land underlying
the Yorkshire apartments for $460,000 resulting in a gain of $310,000, after
closing costs, on its $135,000 investment. For the year ended July 31, 1995,
the Trust earned $42,000 on this investment.
The Trust's remaining apartment investments are all Structured Transactions.
They are all current with respect to payments due the Trust at September 30,
1996, although there are ongoing disputes with respect to the amount of
percentage rent due from certain investments.
OFFICE BUILDINGS
At July 31, 1996, the Trust had three office building investments consisting
of two Owned Properties held directly by the Trust and one Asset Held for Sale
directly by the Trust (previously classified as an Owned Property held directly
by the Trust). During fiscal 1996 the Trust sold four office properties.
At July 31, 1996, One Park West, located in Chevy Chase, Maryland, and
previously classified as an Owned Property held directly by the Trust, was
reclassified to an Asset Held for Sale directly by the Trust and was written
down to its estimated net realizable value of $16,938,000. The resulting loss
of $1,519,000 was charged against the Trust's previously established allowance
for possible investment losses. On July 31, 1996, the property was under
contract to be sold. Subsequent to the end of the fiscal year, the sales
contract was terminated. The property is subject to a $9,727,000 first
mortgage loan and was 99% leased at July 31, 1996 versus 98% at July 31, 1995
and 100% at July 31, 1994.
During the third quarter of fiscal 1996 the Trust sold three office properties,
Financial Plaza, a cluster of four buildings, College Hills 3 and College Hills
8, all of which were held by Midwest, one of the Trust's Investment
Partnerships in which the Trust holds a 53.3% general partner interest. The
Trust realized a gain from these sales of $443,000, primarily from the sale of
College Hills 8. The properties had been written down previously by $2,575,000
(the Trust's share) to their estimated net realizable values when they were
classified as Assets Held for Sale in an Investment Partnership.
<PAGE>
Page 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
During the second quarter of fiscal 1996, Citibank Office Plaza - Oak Brook was
sold at a gain to the Trust of $470,000. At July 31, 1995 this investment was
reclassified to an Asset Held for Sale directly by the Trust and was written
down by $971,000 to its then expected net realizable value.
SHOPPING CENTERS
At July 31, 1996, the Trust had four shopping center investments comprised of
one Owned Property held directly by the Trust, two Structured Transactions held
directly by the Trust and one Asset Held for Sale in an Investment Partnership
(previously classified as an Owned Property held in an Investment Partnership).
During the year the Trust sold one shopping center investment.
Loehmann's Fashion Island in Aventura, Florida, an Owned Property held directly
by the Trust, is the Trust's largest investment. Its redevelopment, which
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 47,813 square foot Publix market and new facades,
walkways, signage, landscaping and tenant improvements for the entire center,
was substantially completed during fiscal 1994. As previously reported,
management has been disappointed with the leasing performance of this center.
An independent appraisal was ordered and based upon its analysis at July 31,
1996, the Trust wrote down its investment in the property by $5,612,000 to
$36,157,000, $3,000,000 of which was charged to operations and $2,612,000 was
charged to the Trust's allowance for possible investment losses. The property
was 90% leased at July 31, 1996, 1995 and 1994.
The Trust's other retail Owned Property, Plaza West Retail Center, was in
Overland Park, Kansas, and was held in an Investment Partnership, Midwest.
The property was held free and clear of debt. At July 31, 1995, the Investment
Partnership reclassified the center to an Asset Held for Sale and wrote the
property down to its estimated net realizable value. The Trust's share of the
write-down was $991,000, which was charged against the Trust's previously
established allowance for possible investment losses. The Trust's equity
investment in this property was $6,656,000 at July 31, 1996. The property was
100% leased at July 31, 1996 and 1995, as compared to 93% leased at July 31,
1994. Subsequent to the end of the fiscal year, this property was sold.
During the first quarter of fiscal 1996, the Investment Partnership which owned
the land under Crossroads Mall in Boulder, Colorado, sold its investment back
to its lessee. The Trust realized a gain of $3,500,000 on its $2,000,000
investment.
The remaining two shopping center investments, both of which are Structured
Transactions, are current with respect to their payments due to the Trust at
September 30, 1996.
HOTELS
At July 31, 1996, the Trust had two hotel investments, both of which are
Structured Transactions held directly by the Trust. During fiscal 1996, the
Trust sold two hotel investments.
The Trust's most significant hotel investment is in City Centre Holiday Inn,
located in Chicago Illinois. Subsequent to the end of fiscal 1996, the lessee
exercised its option to repurchase the Trust's $2,000,000 land investment for a
price which is not yet final but is anticipated to be approximately
$20,000,000. The finalization of the price is dependent on the completion of
audits of the hotel's operations for 1993, 1994 and 1995. At the time of
exercise of the option, the lessee delivered a non-refundable $200,000 deposit
to the Trust. The closing is scheduled for January 1997. Consummation of the
transaction remains subject to numerous conditions to closing. During fiscal
1996, the Trust earned $1,833,000 on this investment. The average occupancy of
the hotel was 72% for the year ended July 31, 1996 as compared to 67% and 71%
for the years ending July 31, 1995 and 1994.
During the third quarter, the Trust, as previously agreed, funded a $600,000
junior leasehold mortgage loan to its lessee of the Cincinnati Marriott Inn to
make certain capital improvements. The loan bears interest at 8.0% per annum
with amortization commencing May 1, 1999 and maturing March 1, 2014. This
increased the Trust's investment in the Cincinnati Marriott Inn to $6,316,000.
During the fourth quarter of fiscal 1996, the first mortgage investment in the
Lisle Hilton Inn, which was held by an Investment Partnership, was prepaid at
par. No gain or loss was realized on this prepayment. The Trust's share of
the proceeds was $8,942,000.
<PAGE>
Page 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
During the second quarter of fiscal 1996, 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 of $1,500,000 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.
ALLOWANCE FOR POSSIBLE INVESTMENT LOSSES
The Trust's $4,636,000 allowance for possible investment losses at July 31,
1996 was based upon management's estimate of net realizable value of each
investment. To the extent the estimated net realizable value of any investment
is less than its carrying value, an allowance for possible investment losses
for such investment was established. In estimating net realizable value,
consideration was given to many factors, such as the pace of dispositions as
anticipated in the Business Plan, income to be earned from the investment, the
cost to operate the property to the anticipated time of sale, the anticipated
selling price the property would bring at such time, the cost of improving the
property to the condition contemplated in determining the selling price, the
cost of disposing of the property and prevailing economic conditions, including
availability of credit. In the opinion of both the Trustees and management,
this allowance adequately reflects the extent of the estimated impairment that
existed at July 31, 1996 in the net realizable value of each of the assets in
the portfolio.
RESULTS OF OPERATIONS - 1996 VS. 1995
The Trust is in the process of disposing of all of its investments in
connection with the Business Plan. As a result, the Trust anticipates that its
revenues, funds from operations and net income will continue to decrease as
investments are sold.
REVENUES
Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) decreased 20%, primarily due to the Trust's sales of Citibank
Office Plaza - Oak Brook office building in January 1996 and 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 nonrecurring revenues related to
the settlement of a bankruptcy claim filed by the Trust against a former tenant
at Loehmann's Fashion Island.
There was no significant change in base income from Structured Transactions
held directly by the Trust (land rent
There was no significant change in base income from Structured Transactions
held directly by the Trust (land rent and mortgage interest) for the year ended
July 31, 1996, as compared to the prior year.
Overage income from Structured Transactions held directly by the Trust
increased 24% for the year ended July 31, 1996, as compared to the prior year,
primarily due to increased overage income from the Sandpiper Cove and City
Centre Holiday Inn investments.
The Trust's share of income from unconsolidated Investment Partnerships
increased 79% for the year ended July 31, 1996, as compared to the prior year,
primarily due to the increased net income recorded by the Trust from Midwest.
This resulted primarily from the cessation of depreciation on the Partnership's
properties when they were reclassified to Assets Held for Sale and written down
to their estimated net realizable value. The increase is also due to improved
performance of certain properties in the Southwest portfolio. Additionally, as
previously reported, Canyon View settled pending litigation and the Partnership
received certain income in fiscal 1996 which had not been previously accrued.
These increases were offset by the loss of revenues due to the sales of the
Lisle Hilton Inn investment and the St. Charles and Boardwalk apartments in the
fourth quarter of fiscal 1996, Financial Plaza, College Hills 3 and College
Hills 8 in the third quarter of fiscal 1996, the 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 increased 18% for the year ended July 31, 1996, as compared
to the prior year, primarily due to the increase in operating distributions
paid by the Trust's Investment Partnerships.
Interest income was earned by the Trust in the amount of $486,000 for the year
ended July 31, 1996 as compared to $108,000 in the
prior year. The increased interest income in fiscal 1996 is primarily from the
short-term investment of sales proceeds prior to their use for the retirement
of debentures or payment of special dividends.
<PAGE>
Page 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
EXPENSES
Expenses on Owned properties held directly by the Trust decreased 18% for the
year ended July 31, 1996, as compared to the prior year, primarily due to the
sale of Citibank Office Plaza - Oak Brook in January 1996 and the sale of 6110
Executive Boulevard in January 1995.
Interest expense decreased 31% for the year ended July 31, 1996 as compared to
the prior year primarily due to the retirement of all of the Trust's remaining
outstanding 10% and 9 3/4% Convertible Subordinated Debentures during fiscal
1996 and the sale of 6110 Executive Boulevard in January 1995, which was
encumbered by a first mortgage, partially offset by an increase in interest
expense related to Loehmann's Fashion Island.
Depreciation expense decreased 4% for the year ended July 31, 1996 as compared
to the prior year, primarily due to the elimination of depreciation on Citibank
Office Plaza - Oak Brook upon its reclassification to an Asset Held for Sale
directly by the Trust in July 1995 and the sale of 6110 Executive Boulevard in
January 1995, offset in part by the write-off in the second quarter of fiscal
1996 of certain tenant improvements at Citibank Office Plaza - Schaumburg
related to a tenant's bankruptcy and the write-off of certain tenant
improvements at Loehmann's Fashion Island related to the early termination of
certain space leases.
General and administrative expenses increased 65% for the year ended July 31,
1996, as compared to the prior year, primarily due to the accrual of severance
arrangements for the Trust's employees in conjunction with the implementation
of the Business Plan.
During the fourth quarter of fiscal 1996, the Trust wrote down its investment
in Loehmann's Fashion Island by $5,612,000, of which $3,000,000 was charged to
operations and $2,612,000 was charged to the Trust's previously established
allowance for possible investment losses.
Professional fees increased 31% for the year ended July 31, 1996, due to the
legal fees associated with the Trust's adoption of its Business Plan. Trustee
fees did not change significantly in fiscal 1996 from fiscal 1995.
GAIN ON SALE OF REAL ESTATE INVESTMENTS
Net income for the year ended July 31, 1996 included a gain on sale of real
estate investments of $6,094,000 ($0.67 per share) consisting of a gain of
$1,320,000 ($.15 per share) from the sale of the land underlying Bluffs II, a
gain of $50,000 ($.01 per share) from the sale of St. Charles and Boardwalk
apartments, a gain of $443,000 ($.05 per share) from the sales of certain
properties held in Midwest, primarily College Hills 8, a gain of $470,000 ($.05
per share) from the sale of the Citibank Office Plaza - Oak Brook, a gain of
$310,000 ($.03 per share) gain from the sale of the land underlying Yorkshire
apartments, a gain of $3,500,000 ($.38 per share) from the sale of the land
underlying Crossroads Mall, and a gain of $1,000 from the sale of Chimney Rock
apartments. In the prior year net income included a a gain on the sale of real
estate investments of $3,209,000 consisting of a gain of $3,099,000 ($.34 per
share) from the sale of 6110 Executive Boulevard and a gain of $110,000 ($.01
per share) from the sale of Braes Hill apartments.
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT
During fiscal 1996, the Trust retired all of its 10% Convertible Subordinated
Debentures ($29,125,000 principal amount), and 9 3/4% Convertible Subordinated
Debentures ($2,546,000 principal amount). Due to the early retirement of these
Convertible Subordinated Debentures the Trust incurred an extraordinary loss on
the extinguishment of debt from the write-off of capitalized issuance costs in
the amount of $473,000 ($.05 per share).
DIVIDENDS
Dividends declared for fiscal 1996 were $3.23 per share versus $.41 per share
for fiscal 1995. Included in the 1996 dividends were special dividends of
$1.75 per share paid on June 24, 1996 and $1.00 per share paid on July 26,
1996. These two dividends represented the first distributions to shareholders
from the proceeds from the sale of investments under the Business Plan.
<PAGE>
Page 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS - 1995 VS. 1994
REVENUES
Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursement) increased 12% in fiscal 1995 from fiscal 1994 primarily due to
an increase in rental revenues from the redeveloped Loehmann's Fashion Island
and $404,000 of nonrecurring revenues related to the settlement of a bankruptcy
claim filed by the Trust against a former tenant at Loehmann's Fashion Island.
Additionally, the increase was attributable to increased occupancy at One Park
West. This increase was offset in part by a decrease in rental revenue due to
the sale of Eagle apartments (March 1994). Rents from Owned Properties held
directly by the Trust included rents from the Citibank Office Plaza - Oak Brook
which was reclassified to an Asset Held for Sale directly by the Trust at July
31, 1995.
Base income from Structured Transactions held directly by the Trust (land rent
and/or mortgage interest) decreased 12% in fiscal 1995 from fiscal 1994,
primarily due to the conversion of 6110 Executive Boulevard and One Park West
to Owned Properties held directly by the Trust, the sale of the land underlying
the Village Oaks apartments (March 1994), the prepayment of the loan on and
sale of the land underlying the Brown County Inn (January 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 3% in fiscal 1995 from fiscal 1994 primarily due to
the sale of the Village Oaks and Brown County Inn investments. These decreases
were offset in part by the receipt of increased overage income in fiscal 1995
from two apartment investments and one hotel investment.
The Trust's share of income from unconsolidated Investment Partnerships
decreased 18% in fiscal 1995 from fiscal 1994 primarily due to depreciation
expense recorded by the Trust from PCA Southwest Associates Limited
Partnership, the Partnership which owned, at July 31, 1995, 2,848 apartment
units in Texas. The apartments were converted to Owned Properties in March
1994 and since that date the Trust's share of income from this Investment
Partnership is reported net of depreciation expense. Previously, when the
apartments were held as Structured Transactions held in an Investment
Partnership, the Partnership incurred no depreciation expense. The decrease in
income from Investment Partnerships was also due to the cessation of rent and
interest payments from the sublessee/mortgagor of the Canyon View apartment
investments and the associated legal and professional fees incurred during
negotiations.
EXPENSES
Expenses on Owned Properties held directly by the Trust decreased by 1% in
fiscal 1995 from fiscal 1994 primarily due to the sale of Eagle apartments
(March 1994), offset in part by an increase in operating expenses at the
redeveloped Loehmann's Fashion Island. Expenses on Owned Properties held
directly by the Trust included expenses from Citibank Office Plaza - Oak Brook
which was reclassified to an Asset Held for Sale directly by the Trust at July
31, 1995.
Interest expense decreased by 1% in fiscal 1995 from fiscal 1994 primarily due
to the sale of Eagle apartments, which was encumbered by a mortgage loan, the
refinancing of Park Place at a lower interest rate and the repurchase of 10%
Convertible Subordinated Debentures. These decreases were offset in part by
the expensing of interest related to Loehmann's Fashion Island (which had been
capitalized during construction).
Depreciation expense increased 18% in fiscal 1995 from fiscal 1994 primarily
due to the increase in depreciation on Loehmann's Fashion Island (portions of
the redeveloped center were in service for the entire fiscal 1995 as compared
to only a part of the prior year) and an increase in depreciation of the office
buildings due to capital expenditures made in conjunction with the lease-up of
these properties. These increases were offset in part by the elimination of
depreciation on Eagle apartments which was sold.
General and administrative expenses increased 5% in fiscal 1995 as compared to
fiscal 1994 primarily due to the accrual of expenses related to employee
severance plans associated with the Business Plan.
Trustee fees decreased 15% in fiscal 1995 due to the reduction in the size of
the Board of Trustees from nine Trustees to seven Trustees.
<PAGE>
Page 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
GAIN (LOSS) ON REAL ESTATE INVESTMENTS
The Trust sold two investments in fiscal 1995 resulting in a gain on real
estate investments of $3,209,000 ($.35 per share). The Trust's 6110 Executive
Boulevard office building was sold for $16,380,000, resulting in a gain of
$3,099,000. Southwest, an Investment Partnership, sold its investment in Braes
Hill apartments at a gain, of which the Trust's share was $110,000.
EXTRAORDINARY GAIN FROM EXTINGUISHMENT OF DEBT
The Trust purchased $1,698,000 of its 10% Convertible Subordinated Debentures
at less than the Trust's carrying value, producing an extraordinary gain of
$88,000 ($.01 per share).
DIVIDENDS
Dividends declared for fiscal 1995 were $.41 per share versus $.30 per share
for fiscal 1994. The Trust paid dividends approximately 55 days following the
end of each fiscal quarter.
INFLATIONARY AND ECONOMIC FACTORS
The effect of inflation upon the Trust's operations and real estate investments
has varied. For several years prior to fiscal 1995 rental rates did not
increase by the rate of inflation as extremely competitive market conditions
existed at most of the Trust's properties. The Trust believes that many of the
real estate markets in which the Trust operates have improved. Though not
applicable to all properties in the Trust's portfolio, rental rates at many of
these properties in fiscal 1996 have increased by the rate of or in excess of
inflation. Although operating expenses are generally impacted by inflation,
increases in operating expenses in the past year caused by inflation have not
been material.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in Item 1 "Business" and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" 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, including the sales
proceeds payable to the Trust for its properties, 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.
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 23
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 1996 Annual Meeting of Shareholders to be held
on December 17, 1996 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, other than
information set forth under the subcaptions "Compensation Committee's Report on
Compensation" and "Performance Graphs", 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 24
(ITEM 14(A)) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C> <C>
3.1 Declaration of Trust as currently in effect except for the five Amendments N/A
below is incorporated herein by reference to Exhibit 4.1 of the May 13,
1983 Form S-2 Registration Statement (Registration No. 2-83624).
3.2 Amendment, dated October 1, 1987, to the Declaration of the Trust is N/A
incorporated herein by reference to the exhibit to the Trust's Form 10-K
Annual Report for the fiscal year ended July 31, 1987.
3.3 Amendment, dated August 21, 1992, to the Declaration of the Trust is N/A
incorporated herein by reference to Exhibit 3.3 of the Trust's form
10-K for the fiscal year ended July 31, 1992.
3.4 Amendment, dated December 29, 1992, to the Declaration of Trust is N/A
incorporated by reference to Exhibit 3.4 or the Trust's Form 10-K for the
fiscal year ended July 31, 1993.
3.5 Amendment, dated February 26, 1993, to the Declaration of Trust as to the N/A
number and identity of Trustees is incorporated herein by reference to
Exhibit 3.5 of the Trust's Form 10-K for the fiscal year ended July 31, 1993.
3.6 Amendment, dated June 19, 1996, to the Declaration of Trust as to the New N/A
Business Plan.
3.7 By-Laws of the Trust as currently in effect are incorporated herein by N/A
reference to Exhibit 3.3 of the Trust's Form 10-K for the fiscal year ended
July 31, 1992.
4.3 Form of Certificate representing shares of Beneficial Interest of the Trust N/A
incorporated herein by referenceto Exhibit 4 of the Trust's Annual Report
on Form 10-K for the fiscal year ended July 31, 1990.
4.4 Shareholder Rights Plan, incorporated herein by reference to the Trust's N/A
Form 8-K report dated October 12, 1990.
10.1 Termination Agreement dated as of October 19, 1992 between Robert M. Melzer N/A
and the Trust is incorporated herein by reference to Exhibit 10.1 of the
Trust's Form 10-K for the fiscal year ended July 31, 1992.
10.2 Amendment, dated as of August 25, 1995, to Termination Agreement, dated N/A
October 19, 1992 between Robert M. Melzer and the Trust is incorporated
herein by reference to Exhibit 10.2 of the Trust's Form 10-K for the fiscal
year ended July 31, 1995.
</TABLE>
<PAGE>
Page 25
(ITEM 14(A)) INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C> <C>
10.3 Termination Agreement, dated as of October 19, 1992, between William A. N/A
Bonn and the Trust is incorporated herein by reference to Exhibit 10.3 of
the Trust's Form 10-K for the fiscal year ended July 31, 1995.
10.4 Amendment, dated as of August 16, 1995, to Termination Agreement, dated N/A
October 19, 1992 between William A. Bonn and the Trust is incorporated
herein by reference to Exhibit 10.4 of the Trust's Form 10-K for the fiscal
year ended July 31, 1995.
10.5 Property Capital Trust 1992 Employee Stock Option Plan, as Amended (the "1992 N/A
Plan") is incorporated herein by reference to Exhibit 10.3 of the Trust's
Form 10-Q For the quarter ended October 31, 1992.
10.6 Subcontract and Option Agreement dated August 1, 1992 between Property N/A
Capital Trust and PCA Institutional Advisors is incorporated herein by
reference to Exhibit 10.6 of the Trust's Form 10-K for the fiscal year ended
July 31, 1995.
10.7 Property Capital Trust Amended and Restated Deferred Stock Plan for N/A
Non-Employee Trustees is incorporated herein by reference to Exhibit 10.7
of the Trust's Form 10-K for the fiscal year ended July 31, 1995.
10.8 Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees is N/A
incorporated herein by reference to Exhibit 10.8 of the Trust's Form 10-K
for the fiscal year ended July 31, 1995.
10.9 Incentive Compensation Agreement, dated August 25, 1995, between Robert N/A
M. Melzer and the Trust is incorporated herein by reference to Exhibit 10.9
of the Trust's Form 10-K for the fiscal year ended July 31, 1995.
21 List of the Trust's subsidiaries. 90
23 Consent of Independent Auditors. 91
</TABLE>
<PAGE>
Page 26
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 29 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 29 are filed as
part of this Annual Report.
3. EXHIBITS
The exhibits listed in the accompanying index to exhibits on
Pages 24 and 25 are filed as part of the Annual Report.
(B) REPORTS ON FORM 8-K
Current Report dated August 27, 1996 attaching the Trust's press release dated
August 23, 1996.
Current Report dated October 8, 1996 attaching the Trust's press release
dated October 8, 1996.
<PAGE>
Page 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Trust has duly caused this amendment to the 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 4, 1996
President and Chief Executive Officer Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Trust
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Managing Trustee
John A. Cervieri Jr.
Trustee, President and
Robert M. Melzer Chief Executive Officer
(Principal Executive and Financial Officer)
Trustee
Walter M. Cabot
Trustee
Graham O. Harrison
Trustee
Walter F. Leinhardt
Trustee
Edward H. Linde
Trustee
Glenn P. Strehle
Vice President & Treasurer
Robin W. Devereux (Principal Accounting Officer)
</TABLE>
<PAGE>
Page 28
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 14(A) (1), (2) AND (D)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES,
FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PROPERTY CAPITAL TRUST
Boston, Massachusetts
Year Ended July 31, 1996
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
Boston, Massachusetts
Year Ended December 31, 1995
PCA CROSSROADS ASSOCIATES, LTD.
Boston, Massachusetts
Year Ended December 31, 1995
<PAGE>
Page 29
ITEM 14(A)(1),AND (2) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Property Capital Trust
The following consolidated financial statements of Property Capital Trust are
included in Item 8:
Consolidated balance sheet at July 31, 1996 and 1995 31
Consolidated statement of income for each of the three years in the period ended July 31, 1996 32
Consolidated statement of cash flows for each of the three years in the period ended
July 31, 1996 33
Consolidated statement of shareholders' equity for each of the three years in the period ended
July 31, 1996 34
Notes to consolidated financial statements 35-51
Consolidated Quarterly Financial Data (unaudited) 52
The following consolidated financial statement schedules of Property Capital
Trust are included in Item 14 (d):
II - Allowance for possible investment losses 53
III - Investments - Land Leasebacks held directly by the Trust, and Owned
Properties held directly by the Trust and Assets Held for Sale directly
by the Trust 54-59
IV - Investments - Mortgage Loans held directly by the Trust 60-62
Exhibit A - Investment Partnerships - Owned Properties and Assets Held for Sale 64-69
The following separate financial statements are required pursuant to Rule 3-09
of Regulation S-X:
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
The following financial statements of Property Capital Midwest Associates, L.P.
are included in Item 8:
Balance sheet at December 31, 1995 and 1994 72
Statement of operations for each of the three years in the period ended December 31, 1995 73
Statement of cash flows for each of the three years in the period ended December 31, 1995 74
Statement of changes in partners' equity for each of the three years in the period ended
December 31, 1995 75
Notes to financial statements 76-78
The following financial statement schedule of Property Capital Midwest
Associates, L.P. are included in Item 14 (d):
III - Assets Held for Sale 80-81
PCA CROSSROADS ASSOCIATES, LTD.
The following financial statements of PCA Crossroads Associates, Ltd. are
included in Item 8:
Balance sheet at December 31, 1995 and 1994 84
Statement of income for each of the three years in the period ended December 31, 1995 85
Statement of cash flows for each of the three years in the period ended December 31, 1995 86
Statement of changes in partners' equity for each of the three years in the period ended
December 31, 1995 87
Notes to financial statements 88-89
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.
</TABLE>
<PAGE>
Page 30
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, 1996 and 1995,
and the related consolidated statements of income, cash flows and shareholders'
equity for each of the three years in the period ended July 31, 1996. 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, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended July 31, 1996, 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.
ERNST & YOUNG LLP
Boston, Massachusetts
August 23, 1996
<PAGE>
Page 31
Property Capital Trust
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31,
1996 1995
<S> <C> <C>
ASSETS
Real Estate Investments
Owned Properties held directly by the Trust
(net of accumulated depreciation of $12,932,000
and $10,522,000 in 1996 and 1995, respectively) $56,810,000 $83,985,000
Structured Transactions held directly by the Trust 28,200,000 32,571,000
Investment Partnerships 9,600,000 48,299,000
94,610,000 164,855,000
Allowance for possible investment losses (4,636,000) (14,077,000)
89,974,000 150,778,000
Asset Held for Sale directly by the Trust 16,938,000 10,185,000
106,912,000 160,963,000
Cash and cash equivalents 2,997,000 5,209,000
Interest and rents receivable
Owned Properties held directly by the Trust 1,503,000 1,958,000
Structured Transactions held directly by the Trust 241,000 221,000
Other assets 966,000 1,088,000
$ 112,619,000 $ 169,439,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $5,367,000 $3,207,000
Accrued interest 287,000 707,000
Mortgage notes payable 36,889,000 40,145,000
9 3/4% Convertible Subordinated Debentures - 2,546,000
10% Convertible Subordinated Debentures - 29,125,000
42,543,000 75,730,000
Shareholders' Equity
Common Shares (without par value, unlimited shares
authorized, 9,278,261 and 9,053,881 issued and
outstanding in 1996 and 1995, respectively) 107,672,000 106,190,000
Accumulated deficit (36,341,000) (12,481,000)
71,331,000 93,709,000
Less cost of Treasury Shares (1,255,000) -
Total Shareholders' Equity 70,076,000 93,709,000
$ 112,619,000 $ 169,439,000
See accompanying notes
</TABLE>
<PAGE>
Page 32
Property Capital Trust
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
1994 1995 1996
<S> <C> <C> <C>
REVENUES
Rents from Owned Properties held directly by the Trust $ 12,641,000 $ 15,777,000 $ 14,083,000
Structured Transactions held directly by the Trust
Base income 2,664,000 2,693,000 3,074,000
Overage income 2,297,000 1,858,000 1,911,000
Income from unconsolidated Investment Partnerships 3,326,000 1,858,000 2,264,000
20,928,000 22,186,000 21,332,000
Interest income 486,000 108,000 1,000
Advisory fee income 385,000 325,000 290,000
21,799,000 22,619,000 21,623,000
EXPENSES
Expenses on Owned Properties held directly by the Trust 5,569,000 6,822,000 6,915,000
Interest 4,800,000 6,931,000 6,994,000
Depreciation 4,008,000 4,192,000 3,538,000
General and administrative expenses 3,518,000 2,138,000 2,034,000
Write-down of real estate investment 3,000,000 - -
Professional fees 474,000 362,000 377,000
Trustees' fees and expenses 137,000 158,000 186,000
21,506,000 20,603,000 20,044,000
INCOME BEFORE GAIN ON SALE OF REAL ESTATE
INVESTMENTS AND EXTRAORDINARY ITEM 293,000 2,016,000 1,579,000
GAIN ON SALE OF REAL ESTATE INVESTMENTS 6,094,000 3,209,000 2,510,000
INCOME BEFORE EXTRAORDINARY ITEM 6,387,000 5,225,000 4,089,000
EXTRAORDINARY (LOSS) GAIN FROM EXTINGUISHMENT OF DEBT (473,000) 88,000 -
NET INCOME $ 5,914,000 $ 5,313,000 $ 4,089,000
NET INCOME PER SHARE
INCOME BEFORE GAIN ON SALE OF REAL ESTATE
INVESTMENTS AND EXTRAORDINARY ITEM $ 0.03 $ 0.23 $ 0.17
GAIN ON SALE OF REAL ESTATE INVESTMENTS 0.67 0.35 0.28
INCOME BEFORE EXTRAORDINARY ITEM 0.70 0.58 0.45
EXTRAORDINARY (LOSS) GAIN FROM EXTINGUISHMENT OF DEBT (0.05) 0.01 -
NET INCOME PER SHARE $ 0.65 $ 0.59 $ 0.45
AVERAGE SHARES OUTSTANDING 9,097,000 9,044,000 9,030,000
</TABLE>
<PAGE>
Page 33
Property Capital Trust
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
1994 1995 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 5,914,000 $ 5,313,000 $ 4,089,000
Adjustments to Net Income
Gain on sale of real estate investments (6,094,000) (3,209,000) (2,510,000)
Extraordinary loss (gain) from extinguishment of debt 473,000 (88,000) -
Depreciation and amortization 4,205,000 4,398,000 3,611,000
Write-down of real estate investment 3,000,000 - -
Income from unconsolidated Investment Partnerships (3,326,000) (1,858,000) (2,264,000)
Distributions of income from Investment Partnerships 3,326,000 2,106,000 2,048,000
Changes in assets and liabilities
Decrease (increase) in interest and rents receivable 435,000 (68,000) (115,000)
(Increase) decrease in other assets, net (137,000) 247,000 (387,000)
Increase in accounts payable and accrued
expenses and accrued interest 1,418,000 380,000 818,000
Net Cash Provided by Operating Activities 9,214,000 7,221,000 5,290,000
Owned Properties held directly by the Trust
Dispositions 10,828,000 15,310,000 12,567,000
Additions (1,075,000) (6,249,000) (9,030,000)
Structured Transactions held directly by the Trust
Dispositions/repayments 5,101,000 10,000 5,434,000
Additions (600,000) - -
Investment Partnerships
Distributions in excess of income 38,883,000 1,196,000 146,000
Net Cash Provided by Investing Activities 53,137,000 10,267,000 9,117,000
FINANCING ACTIVITIES
Redemption/repurchase of Convertible
Subordinated Debentures (31,645,000) (1,610,000) -
Cash dividends paid (29,774,000) (3,437,000) (2,528,000)
Prepayment of mortgage notes payable (3,000,000) (8,440,000) (17,492,000)
Scheduled amortization of mortgage notes payable (256,000) (525,000) (469,000)
Proceeds from exercise of stock options 112,000 13,000 8,000
Proceeds from mortgage notes payable - 6,000,000 18,000,000
Repayment of bank note payable, net - (5,000,000) (11,530,000)
Net Cash Used in Financing Activities (64,563,000) (12,999,000) (14,011,000)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,212,000) 4,489,000 396,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,209,000 720,000 324,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,997,000 $ 5,209,000 $ 720,000
</TABLE>
<PAGE>
Page 34
Property Capital Trust
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
1994 1995 1996
<S> <C> <C> <C>
COMMON SHARES
Balance at beginning of year $ 106,190,000 $ 106,060,000 $ 106,052,000
Common Shares issued in payment of deferred
Trustees' compensation 1,344,000 117,000 -
Stock options exercised 112,000 13,000 8,000
Conversion of Convertible Subordinated Debentures 26,000 - -
Balance at end of year 107,672,000 106,190,000 106,060,000
ACCUMULATED DEFICIT
Balance at beginning of year (12,481,000) (14,357,000) (15,918,000)
Net income 5,914,000 5,313,000 4,089,000
Cash dividends paid ($3.23, $0.38 and $0.28 per share
in 1996, 1995 and 1994, respectively) (29,774,000) (3,437,000) (2,528,000)
Balance at end of year (36,341,000) (12,481,000) (14,357,000)
TREASURY SHARES
Balance at beginning of year - - -
Purchase of Treasury Shares included in Rabbi
Trust for the benefit of Trustees (184,639 Treasury
Shares in 1996, and 0 in 1995 and 1994) (1,255,000) - -
Balance at end of year (1,255,000) - -
Total Shareholders' Equity $ 70,076,000 $ 93,709,000 $ 91,703,000
NUMBER OF COMMON SHARES
Common shares issued and outstanding at beginning of year 9,053,881 9,030,585 9,028,585
Common Shares issued in payment of deferred
Trustees' compensation 199,542 20,296 -
Stock options exercised 23,640 3,000 2,000
Conversion of Convertible Subordinated Debentures 1,198 - -
Common Shares Issued and Outstanding at End of Year 9,278,261 9,053,881 9,030,585
</TABLE>
See accompanying notes
<PAGE>
Page 35
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS PLAN
On June 14, 1995, the Trustees adopted a business plan which provides for the
orderly disposition of the Trust's investments (the "Business Plan"). The
Trustees anticipate that the 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
Business Plan and approved certain amendments to the Trust's Declaration of
Trust necessary for its implementation.
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 Business Plan is
proceeding more rapidly and generating higher sales prices than initially
anticipated. Immediately prior to the implementation of the Business Plan, the
Trust owned 27 investments. During fiscal 1996, thirteen properties have been
sold or otherwise disposed of and the proceeds have been used to retire
$31,671,000 principal amount of the Trust's 10% and 9 3/4% Convertible
Subordinated Debentures and to prepay $3,000,000 of the first mortgage loan on
the Trust's Loehmann's Fashion Island property in Aventura, Florida. In
addition, the Trust paid special dividends aggregating $2.75 per share
($25,403,000).
CONSOLIDATION
The consolidated financial statements of the Trust include the accounts of its
wholly owned subsidiaries. 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 consolidated financial
statements.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Trust considers all highly
liquid investments with an initial maturity of three months or less to be cash
equivalents.
INVESTMENT PARTNERSHIPS
Certain of the Trust's investments have been made through partnerships or a
participation agreement in which the Trust or one of its subsidiaries 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 was, and continues to be, 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 (except for Assets Held for Sale) 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 of an investment, 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
of the property and prevailing economic conditions including availability of
credit.
<PAGE>
Page 36
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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
terms 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.
ASSETS HELD FOR SALE
The Trust defines an "Asset Held for Sale" as an asset that has been approved
for sale by the Trustees and, if applicable, the Investment Partnership and
either is being marketed for sale or is soon to be marketed by a broker who has
already been selected by the Trust. Assets Held for Sale are written down to
the lower of cost or net realizable value and, in the case of investments held
directly by the Trust, are classified separately on the balance sheet.
Depreciation is not recorded on these assets. The revenues and expenses of an
Asset Held for Sale are not reclassified, and continue to be recorded as they
were prior to the reclassification.
MORTGAGE LOANS
The Trust accounts for its mortgage loans under the provisions of FASB
Statement No. 114, "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN," as
amended by FASB Statement 118. The statement requires impairment losses to be
recorded, when it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. The
statement requires impaired loans to be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate,
or as a practical expedient at the loan's observable market price or the fair
value of the collateral if collateral dependent.
STOCK OPTION ACCOUNTING POLICY DISCLOSURE
The Trust accounts for its stock compensation arrangements under the provisions
of APB 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and intends to continue
to do so.
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 free rent periods and stepped minimum rents which are accounted for on a
straight-line basis over the terms of the leases. Rental income recognized
under the straight-line method was greater (less) than rent received or
receivable by the Trust for financial reporting purposes by ($119,255),
$280,000 and ($32,000) for the years ended July 31, 1996, 1995 and 1994,
respectively.
NET INCOME PER SHARE
Net income per share is calculated by dividing net income by the weighted
average Common Shares outstanding during the year. Net income per share on a
quarterly basis may not total to the annual net income per share due to
rounding.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain items in the 1995 and 1994 financial statements have been reclassified
to conform to the 1996 presentation.
<PAGE>
Page 37
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF",
which requires impairment losses to be recorded on long-lived assets used in
operations where indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Trust will adopt Statement 121 in the first quarter of fiscal 1997. Based on
current circumstances, including implementing the Business Plan and the
available loss reserve, the financial statement impact of adoption of Statement
121 is not anticipated to adversely impact the Trust's financial statements.
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. Certain properties are classified as Assets Held for Sale (see
Note 1). Investments made through partnerships or participation agreements in
which the Trust or its subsidiary is the general partner or lead lender and
other institutional investors are the limited partners or participating lenders
are classified as Investment Partnerships. As of July 31, 1996, the Trust had
seven Structured Transactions held directly by the Trust, three Owned
Properties held directly by the Trust and one Asset Held for Sale directly by
the Trust. The Trust had investments in three Investment Partnerships, one of
which only held an Owned Property and two of which each only held an Asset Held
for Sale.
The Trust's Real Estate Investments (net of accumulated depreciation) are as
follows:
JULY 31,
1996 1995
Owned Properties held directly by the Trust $56,810,000 $83,985,000
Structured Transactions held directly by the Trust
Land leasebacks 14,180,000 17,140,000
Mortgage loans 14,020,000 15,431,000
Investment Partnerships* 9,600,000 48,299,000
94,610,000 164,855,000
Allowance for possible investment losses (4,636,000) (14,077,000)
89,974,000 150,778,000
Asset Held for Sale directly by the Trust 16,938,000 10,185,000
$ 106,912,000 $ 160,963,000
*Inclusive of Assets Held for Sale in Investment Partnerships.
<PAGE>
Page 38
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The Trust's Real Estate Investments (net of accumulated depreciation),
including Assets Held for Sale and before allowance for possible investment
losses, are diversified by type of property as follows:
JULY 31,
--------------------------------
1996 1995
- ------------------------------------------------------------------------------
OWNED PROPERTIES HELD DIRECTLY BY THE TRUST
Shopping centers $ 36,157,000 $ 43,603,000
Office buildings 20,653,000 40,382,000
Apartments - -
Hotels - -
--------------- ------------
56,810,000 83,985,000
--------------- ------------
STRUCTURED TRANSACTIONS HELD DIRECTLY
BY THE TRUST
Shopping centers 4,314,000 4,325,000
Office buildings - -
Apartments 15,570,000 16,530,000
Hotels 8,316,000 11,716,000
--------------- ------------
28,200,000 32,571,000
--------------- ------------
INVESTMENT PARTNERSHIPS
Shopping centers {(1)} 6,656,000 8,552,000
Office buildings - 18,611,000
Apartments {(1)} 2,944,000 12,155,000
Hotels - 8,981,000
--------------- ------------
9,600,000 48,299,000
--------------- ------------
ASSET HELD FOR SALE DIRECTLY BY THE TRUST
Office buildings 16,938,000 10,185,000
--------------- ------------
Total Real Estate Investments $ 111,548,000 $ 175,040,000
=============== =============
REAL ESTATE INVESTMENTS BY TYPE OF PROPERTY
Shopping centers $ 47,127,000 $ 56,480,000
Office buildings 37,591,000 69,178,000
Apartments 18,514,000 28,685,000
Hotels 8,316,000 20,697,000
--------------- ------------
Total Real Estate Investments $ 111,548,000 $ 175,040,000
=============== =============
NUMBER OF PROPERTIES 14 27
== ==
{(1)} Inclusive of Assets Held for Sale in Investment Partnerships
as of July 31, 1996.
<PAGE>
Page 39
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The Trust's Real Estate Investments (net of accumulated depreciation),
including Assets Held for Sale and before allowance for possible investment
losses, are diversified as of July 31, 1996, by geographic region as follows:
NUMBER OF INVESTMENT % OF
GEOGRAPHIC REGION PROPERTIES AMOUNT TOTAL
- ------------------------------------------------------------------------------
Midwest 6 $ 45,395,000 41%
South 3 42,865,000 38
East 1 16,938,000 15
West 4 6,350,000 6
--- ------------- --
14 $ 111,548,000 100%
=== ============= ====
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, 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,
----------------------------------
1996 1995
- ------------------------------------------------------------------------------
Land $ 13,985,000 $ 17,485,000
Buildings 44,881,000 65,700,000
Tenant improvements 8,893,000 9,206,000
Other 1,983,000 2,116,000
------------ ------------
69,742,000 94,507,000
Accumulated depreciation (12,932,000) (10,522,000)
------------ -----------
Owned Properties
held directly by the Trust $ 56,810,000 $ 83,985,000
============= ============
<PAGE>
Page 40
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The operating results of Owned Properties held directly by the Trust are
reflected in the consolidated statement of income 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:
YEARS ENDED JULY 31,
--------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
Repairs and maintenance $ 1,819,000 $ 2,175,000 $ 2,272,000
Real estate taxes 1,295,000 1,333,000 1,585,000
Utilities 1,002,000 1,336,000 1,322,000
General and administrative 836,000 1,209,000 1,072,000
Management fees 448,000 570,000 487,000
Insurance 169,000 199,000 177,000
--------- ---------- ----------
Expenses on Owned Properties
held directly by the Trust $ 5,569,000 $ 6,822,000 $ 6,915,000
=========== =========== ===========
During the quarter ended July 31, 1996, the Trust wrote down its investment in
Loehmann's Fashion Island, a shopping center in Aventura, Florida, by
$5,612,000 to $36,157,000. $3,000,000 of the write-down was charged to earnings
and the balance was charged to the Trust's allowance for possible investment
losses.
During fiscal 1995, the Trust sold the 6110 Executive Boulevard office building
to an unrelated party for $16,380,000, resulting in a gain of approximately
$3,099,000. 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.
During fiscal 1994, the Trust sold Eagle apartments to an unrelated third party
for approximately $12,570,000, resulting in a loss of $90,000.
ASSETS HELD FOR SALE
At July 31, 1996, the Trust had one Asset Held for Sale directly by the Trust,
One Park West office building. This investment, which had a net book value of
$18,457,000, had previously been classified as an Owned Property held directly
by the Trust. At July 31, 1996, the Trust wrote down its investment in this
property by $1,519,000 to $16,938,000. This loss was charged against the
Trust's previously established allowance for possible investment losses. In
addition, during fiscal 1996, the Trust sold the Citibank Office Plaza - Oak
Brook building to an unrelated third party for $11,380,000, resulting in a gain
of approximately $470,000. In fiscal 1995, this investment, which had a net
book value of $11,156,000, had previously been classified as an Owned Property
held directly by the Trust. During the quarter ended July 31, 1995, the Trust
wrote down its investment in this property by $971,000 to $10,185,000. This
loss was charged against the Trust's previously established allowance for
possible investment losses.
During fiscal 1996 and 1995, 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 its
share against its allowance for possible investment losses.
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 21 to 68 years,
with a weighted average term of 56 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
land leasebacks existing at July 31, 1996 is approximately $1,376,000 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
$2,750,000 of land leasebacks become exercisable.
<PAGE>
Page 41
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-amortizing
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 as such would not result in a meaningful
estimate.
During fiscal 1996, the Trust disposed of three Structured Transactions held
directly by the Trust. The Trust's $825,000 Bluffs II land investment was
purchased by the Trust's lessee for $2,150,000, resulting in a gain to the
Trust of $1,320,000 after closing costs. The Trust's $135,000 Yorkshire land
investment was purchased by an unrelated third party for $460,000, resulting in
a gain to the Trust of $310,000 after closing costs. The Trust's $2,000,000
Grosvenor Airport Inn land investment was purchased by the Trust's lessee for
$2,000,000 and the Trust's related $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.
In addition, during fiscal 1996, as provided for in the March 1994
restructuring of the Trust's Cincinnati Marriott Inn investments, the Trust
loaned an additional $600,000 to its lessee, secured by a junior leasehold
mortgage, to make certain approved capital improvements to the hotel. The loan
bears interest at 8.0% per annum, with amortization commencing May 1, 1999 and
matures on March 1, 2014.
During fiscal 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 the Trust's related $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.
INVESTMENTS IN UNCONSOLIDATED INVESTMENT PARTNERSHIPS
As of July 31, 1996 the Trust or its subsidiary had investments in three
unconsolidated Investment Partnerships and, as of July 31, 1995 and 1994, the
Trust or its subsidiary had investments in five unconsolidated Investment
Partnerships. These investments 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:
% OWNED BY THE TRUST
JULY 31,
---------------------------------
INVESTMENT PARTNERSHIPS 1996 1995
- -----------------------------------------------------------------------------
Property Capital Midwest Associates, L.P. 53.30% 53.30%
PCA Southwest Associates Limited Partnership 45.45% 45.45%
PCA Canyon View Associates Limited Partnership 23.81% 23.81%
Lisle Hilton Inn Loan Participation - 41.67%
PCA Crossroads Associates, Ltd. - 25.00%
<PAGE>
Page 42
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:
Investment Partnerships
CONDENSED COMBINED BALANCE SHEET
JULY 31,
--------------------------------
1996 1995
- ------------------------------------------------------------------------------
ASSETS
Current assets $ 2,711,000 $ 2,686,000
Owned Properties 12,682,000 37,258,000
Assets Held for Sale 18,210,000 55,549,000
Mortgage loans - 34,675,000
Land leasebacks - 9,084,000
Other assets 23,000 72,000
------------ -------------
$ 33,626,000 $ 139,324,000
============ =============
LIABILITIES AND CAPITAL
Current liabilities $ 1,077,000 $ 3,330,000
Other liabilities - 462,000
Mortgage notes payable 10,314,000 25,420,000
Trust's share of combined capital 9,600,000 48,299,000
Limited partners' share of combined capital 12,635,000 61,813,000
----------- ------------
$ 33,626,000 $ 139,324,000
============ =============
<PAGE>
Page 43
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
Investment Partnerships
CONDENSED COMBINED STATEMENT OF INCOME
YEARS ENDED JULY 31,
---------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
REVENUES
Rents from Owned Properties $ 19,483,000 $ 21,042,000 $ 10,968,000
Structured Transactions
Base income 2,261,000 2,664,000 4,225,000
Overage income 183,000 644,000 339,000
Other income 219,000 68,000 33,000
---------- ---------- -----------
22,146,000 24,418,000 15,565,000
---------- ---------- -----------
EXPENSES
Owned Properties expenses 10,933,000 12,651,000 5,538,000
Depreciation 1,190,000 4,144,000 2,787,000
Interest 1,707,000 1,915,000 732,000
Other 987,000 1,440,000 794,000
--------- ----------- ----------
14,817,000 20,150,000 9,851,000
---------- ----------- ----------
INCOME BEFORE GAIN (LOSS) ON
REAL ESTATE INVESTMENTS 7,329,000 4,268,000 5,714,000
GAIN (LOSS) ON REAL ESTATE INVESTMENTS
Gain on sale of real estate investments 14,944,000 242,000 -
Write-down of real estate investments (11,051,000) (4,454,000) -
------------ ---------- ---------
NET INCOME $11,222,000 $ 56,000 $5,714,000
=========== ========== ==========
INCOME BEFORE GAIN (LOSS) ON REAL ESTATE INVESTMENTS
Trust's share of income before gain
(loss) on real estate investments $ 3,326,000 $ 1,858,000 $2,264,000
Limited Partners' share of income before
gain (loss) on real estate investments 4,003,000 2,410,000 3,450,000
GAIN (LOSS) ON REAL ESTATE INVESTMENTS
Trust's share of gain on sale of real
estate investments 3,994,000 110,000 -
Limited Partners' share of gain on sale
of real estate investments 10,950,000 132,000 -
Trust's share of write-down of real
estate investments
(previously recorded by the Trust) (3,810,000) (2,365,000) -
Limited Partners' share of write-down
of real estate investments (7,241,000) (2,089,000) -
------------ ---------- ---------
NET INCOME $ 11,222,000 $ 56,000 $5,714,000
============ ========== ==========
<PAGE>
Page 44
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The Trust's equity in unconsolidated Investment Partnerships is as follows:
JULY 31,
---------------------------------
1996 1995
- ------------------------------------------------------------------------------
Property Capital Midwest Associates, L.P. $ 6,656,000 $25,140,000
PCA Southwest Associates Limited Partnership 1,308,000 8,878,000
PCA Canyon View Associates Limited Partnership 1,636,000 3,277,000
Lisle Hilton Inn Loan Participation - 8,981,000
PCA Crossroads Associates, Ltd. - 2,023,000
----------- -----------
$ 9,600,000 $48,299,000
=========== ===========
The Trust's share of net income (loss) (including gain on sales) from
unconsolidated Investment Partnerships is as follows:
YEARS ENDED JULY 31,
----------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
Property Capital Midwest
Associates, L.P. {(1)} $ 2,277,000 $ 987,000 $ 950,000
PCA Southwest Associates Limited
Partnership {(2)} 721,000 101,000 209,000
PCA Canyon View Associates
Limited Partnership{(3)} 153,000 (145,000) 195,000
Lisle Hilton Inn Loan Participation 566,000 660,000 617,000
PCA Crossroads Associates, Ltd. 3,603,000 365,000 293,000
--------- ---------- ---------
$ 7,320,000 $ 1,968,000 $ 2,264,000
=========== =========== ============
{(1)}Net of the Trust's share of depreciation of $21,000, $1,373,000 and
$1,213,000 for years ended July 31, 1996, 1995 and 1994, respectively.
{(2)}Net of the Trust's share of depreciation of $372,000, $713,000 and
$232,000 for the years ended July 31, 1996, 1995and 1994, respectively. These
properties converted from Structured Transactions to Owned Properties on March
1994.
{(3)}Net of the Trust's share of depreciation of $80,000 for the year
ended July 31, 1996. This property converted from a Structured Transaction
to an Owned Property in August 1995.
Cash distributions received by the Trust from the unconsolidated Investment
Partnerships are as follows:
YEARS ENDED JULY 31,
----------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
Property Capital Midwest
Associates, L.P. $ 19,506,000 $ 1,195,000 $ 1,054,000
PCA Southwest Associates Limited
Partnership 7,274,000 1,046,000 -
PCA Canyon View Associates
Limited Partnership 256,000 - 232,000
Lisle Hilton Inn Loan Participation 9,547,000 703,000 610,000
PCA Crossroads Associates, Ltd. 5,626,000 358,000 298,000
------------ ------- ---------
$ 42,209,000 $ 3,302,000 $2,194,000
============ =========== ==========
<PAGE>
Page 45
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
The Trust's Investment Partnerships reclassified certain of their real estate
investments to Assets Held for Sale and wrote down these assets to estimated
net realizable value aggregating $2,970,000 during fiscal 1996 and $2,365,000
during fiscal 1995. In addition, during fiscal 1996, PCA Southwest Associates
Limited Partnership and PCA Canyon View Associates Limited Partnership each
wrote off an investment resulting in a loss to the Trust of $307,000 and
$533,000, respectively. The Trust then charged these losses against its
allowance for possible investment losses as follows:
JULY 31,
-------------------------------------
1996 1995
- ------------------------------------------------------------------------------
Property Capital Midwest Associates, L.P. $ 1,255,000 $ 2,311,000
PCA Southwest Associates Limited Partnership 1,017,000 54,000
PCA Canyon View Associates Limited Partnership 1,538,000 -
---------- -----------
$ 3,810,000 $ 2,365,000
=========== ===========
The Structured Transactions held by Investment Partnerships were similar to
those held directly by the Trust. The land leaseback leases required fixed
monthly base rental payments to the Investment Partnerships and also provided
for overage rental payments.
The mortgage loans held by Investment Partnerships were generally long-term
loans that required fixed monthly base interest payments and, when not payable
on a self-amortizing basis, required principal payments at maturity. Except
for the Lisle Hilton Inn loan participation, mortgage loans were owned in
conjunction with land leaseback transactions and were subordinate to and had
cross-default provisions with the land leasebacks. The Lisle Hilton Inn loan
participation, although not owned in conjunction with a land leaseback
transaction, also required overage interest payments similar to the land
leasebacks.
During fiscal 1996, certain of the Trust's Investment Partnerships disposed of
three Structured Transactions. PCA Crossroads Associates, Ltd. ("Crossroads"),
an Investment 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 $2,000,000. The Trust had a 25.0%
general partner interest in Crossroads. The first mortgage held by the Lisle
Hilton Inn loan participation ("Lisle"), secured by the Lisle Hilton Inn
located in Lisle, Illinois, was prepaid at par. The Trust had a 41.67%
interest in Lisle and received $8,942,000 from the prepayment. 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. As a result, the
Investment Partnership received $300,000 from the first mortgagee of Phase I
for permitting it to foreclose on 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. At July 31, 1996, Phase II
was reclassified from an Owned Property to an Asset Held for Sale. The Trust
has a 23.81% general partner interest in Canyon View.
During fiscal 1996, two Investment Partnerships sold six Assets Held for Sale,
three of which were classified as Assets Held for Sale at July 31, 1995 and
three were reclassified to Assets Held for Sale during fiscal 1996. In
addition, one Investment Partnership permitted an Owned Property to be
foreclosed by the first mortgagee. PCA Southwest Associates Limited
Partnership ("Southwest"), an Investment Partnership which owned 2,848
apartments in Houston, Texas at July 31, 1995, sold the Chimney Rock complex to
an unrelated party resulting in a gain to the Trust of $1,000. St. Charles and
Boardwalk investments were reclassified during fiscal 1996 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. These investments were sold in June 1996 to an unrelated
third party resulting in a gain to the Trust of $50,000. Southwest also
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 off its net investment in this property. The $307,000 write-off was
charged against the Trust's allowance for possible investment losses. The
Trust, through a wholly owned subsidiary, has a 45.45% general partner interest
in Southwest.
Property Capital Midwest Associates, L.P. ("Midwest"), an Investment
Partnership which owned four investments in Overland Park, Kansas, reclassified
its investment in College Hills 3 to an Asset Held for Sale in fiscal 1996. In
addition, Midwest's Financial Plaza investment, which was previously
reclassified to an Asset Held for Sale, was further written down by the Trust
by $1,255,000. Financial Plaza, College Hills 3 and College Hills 8 were sold
to unrelated third parties and the net sales prices of these properties
resulted in a gain to the Trust aggregating $443,000. The Trust has a 53.3%
general partner interest in Midwest.
<PAGE>
Page 46
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE INVESTMENTS (continued)
During fiscal 1995, Southwest sold the Braes Hill project to an unrelated party
resulting in a gain to the Trust of $110,000. At July 31, 1995, Southwest
reclassified its investment in the Chimney Rock apartments to Assets Held for
Sale resulting in a write-down by the Trust of $54,000, which was charged
against the Trust's previously established allowance for possible investment
losses. The Trust's investment in Southwest had a net book value of $8,932,000
prior to the Chimney Rock property write-down. At July 31, 1995, Midwest
reclassified its investments in Financial Plaza, Plaza West Retail Center and
College Hills 8 to Assets Held for Sales, resulting in a write-down by the
Trust of $2,311,000. The Trust's investment in Midwest had a net book value of
$27,451,000 prior to the Financial Plaza, College Hills 8 and Plaza West Retail
Center's write-downs. The Trust's share of the write-down was charged against
the Trust's previously established allowance for possible investment losses.
On March 31, 1994, Southwest acquired for $427,000 its lessee's interest in
five properties subject to first mortgages aggregating $25,989,000. 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.
NOTE 3. INDEBTEDNESS
The Trust has available a total of $10,000,000 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, 1996 there were no outstanding
borrowings under the line. Interest is at the bank's prime rate (8.25% at July
31, 1996).
A majority of the real estate investments are subject to long-term first
mortgage financing which aggregated $111,420,000 at July 31, 1996 and
$182,686,000 at July 31, 1995. At July 31, 1996, long-term first mortgage
financing consisted of $27,162,000 of debt on Owned Properties held directly by
the Trust, $9,727,000 of debt on the Asset Held for Sale directly by the Trust
and $10,314,000 of debt on Owned Properties held in Investment Partnerships.
The balance of $64,217,000 represents debt on Structured Transactions which is
not reflected on the Trust's balance sheet because the obligation to pay such
debt is that of the Trust's lessees/mortgagors.
At July 31, 1996 two of the Trust's Owned Properties held directly by the Trust
and an Asset Held for Sale directly by the Trust were encumbered by first
mortgages aggregating $36,889,000 and at July 31, 1995, three of the Trust's
Owned Properties held directly by the Trust were encumbered by first mortgages
aggregating $40,145,000.
PRINCIPAL BALANCE
JULY 31, INTEREST
1996 1995 RATE MATURITY
Loehmann's Fashion Island $18,732,000 $ 21,732,000 7.97%* July 1998
One Park West 9,727,000 9,898,000 9.50% June 2000
Park Place 8,430,000 8,515,000 5.65% May 2008
----------- -------------
$ 36,889,000 $ 40,145,000
============ =============
* Rate is fixed until December 1996; see below for further information.
<PAGE>
Page 47
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INDEBTEDNESS (continued)
The book value of real estate pledged as collateral for these loans was
approximately $64,296,000. Scheduled principal payments on these loans at July
31, 1996 are as follows:
YEAR ENDING JULY 31,
1997 $ 273,000
1998 19,023,000
1999 312,000
2000 9,191,000
2001 85,000
2002 and thereafter 8,005,000
------------
Total $ 36,889,000
============
With respect to an Owned Property held directly by the Trust, Loehmann's
Fashion Island, the first mortgage on this property was refinanced on June 30,
1994 with an initial advance of $18,000,000. The loan commitment was for
$30,000,000, with additional advances to be made through June 1996 based upon
property performance. There were subsequent advances aggregating $6,000,000
and periodic amortization payments including a $3,000,000 payment made during
fiscal 1996. The first mortgage loan had a balance at July 31, 1996 of
$18,732,000 ($12,000,000 of which is recourse to the Trust), matures in July
1998 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 notes for a specified number of times.
This option may be exercised at no cost or additional liability to the Trust.
In July 1995, the Trust fixed the interest rate on the total outstanding
borrowings at 7.97% (2.25% over comparable term U.S. Treasury notes) until
December 1996.
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%. Interest
is payable semi-annually. The mortgage balance was $8,430,000 at July 31, 1996
and amortizes $85,000 annually in May through 2003, and $430,000 annually
thereafter through May 2007. The then remaining balance of $6,115,000 matures
in May 2008.
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, 1995, $2,546,000 and $29,125,000 of the 9 3/4% and 10% Debentures,
respectively, were outstanding. During fiscal 1996, all of the Trust's
outstanding Debentures were retired.
For the years ended July 31, 1996, 1995 and 1994, cash paid for interest on all
of the Trust's debt was $5,044,000, $6,818,000, and $6,961,000 respectively,
net of capitalized interest of $0, $0, and $858,000, respectively.
The fair value of the Trust's mortgage notes payable at July 31, 1996 is
$36,992,000. The fair value was estimated using discounted cash flow analyses
on the mortgage notes. The mortgage notes payable are assumed to be held to
maturity.
<PAGE>
Page 48
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996 are as follows:
YEAR ENDING JULY 31,
1997 $ 8,805,000
1998 7,676,000
1999 6,912,000
2000 6,254,000
2001 5,112,000
2002 and thereafter 4,990,000
------------
Total $ 39,749,000
============
The minimum future base rents do not include contingent rentals, such as tenant
reimbursements which are received under certain leases based upon property
operating costs, or percentage rents which are based on the level of a tenant's
sales.
NOTE 5. RENTAL EXPENSE
In July 1996, the Trust moved its offices to 101 Federal Street, Boston,
Massachusetts and entered into a lease that expires on August 31, 1998. In July
1996, the Trust's prior space lease was terminated by the landlord. Rental
expense under the Trust's previous lease was $152,000, $132,000 and $128,000 in
fiscal years 1996, 1995 and 1994, respectively. Future minimum rental payments
will be $103,000 per year for fiscal years 1997 and 1998.
NOTE 6. ADVISORY SERVICES
Effective August 1, 1992 the Trust entered into an agreement with PCA
Institutional Advisors ("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 additional amounts aggregated $235,000,
$175,000 and $140,000 in fiscal 1996, 1995 and 1994, respectively. PCAIA
receives the remaining 50% of such payments in excess of $150,000. Excluded
from the foregoing arrangement was the termination fee provided for in the PCA
Crossroads Associates, Ltd. ("Crossroads") advisory agreement, which fee was
paid in fiscal 1996 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 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 1996, 1995 and 1994, the Trust incurred legal fees in the amount
of $262,000, $224,000 and $346,000, 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 $66,000, $17,000, and $46,000 for fiscal 1996,
1995 and 1994, respectively.
<PAGE>
Page 49
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. ANTICIPATED CAPITAL EXPENDITURES
Amounts aggregating approximately $4,050,000 may be required during fiscal 1997
for capital expenditures on the Trust's Owned Properties held directly by the
Trust and Assets Held for Sale directly by the Trust. Additionally, the
Trust's share of capital expenditures which may be required by the Investment
Partnerships during fiscal 1997 is approximately $100,000.
NOTE 9. SHAREHOLDERS' EQUITY
1992 EMPLOYEE STOCK OPTION PLAN
The Property Capital Trust 1992 Employee Stock Option Plan (the "Plan") for key
employees of the Trust and its subsidiaries is a plan under which options for
400,000 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 the purchase price of the shares.
Under the plan 20% of the options become exercisable on each anniversary of the
date of grant and all options vest once the option price declines below $2.00
per share. The options are subject to termination under certain circumstances.
Changes in options outstanding during the period were as follows:
<TABLE>
<CAPTION>
Average
Number Option Price
of Shares per Share
<S> <C> <C>
Granted - 1993 107,750 $ 3.750*
Canceled - 1993 (4,000) 3.750
Shares under option at July 31, 1993 103,750 3.750
Granted - 1994 68,850 6.375*
Exercised - 1994 (2,000) 3.750
Shares under option at July 31, 1994 170,600 4.809
Granted - 1995 82,500 6.140*
Exercised - 1995 (3,000) 4.625
Shares under option at July 31, 1995 250,100 5.251
Exercised - 1996 (23,640) 4.751
Shares under option at July 31, 1996 226,460 $ 5.303
Options exercisable at July 31, 1996 126,150
Options available for grant at beginning of year 144,900
Options available for grant at July 31, 1996 144,900
* Subsequent to the end of fiscal 1996 the option price was reduced
as a result of distributions made in excess of funds from operations as
provided for in the Plan.
</TABLE>
<PAGE>
Page 50
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. SHAREHOLDERS EQUITY (continued)
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE TRUSTEES
The Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees,
approved by the shareholders of the Trust in November 1994, is a plan under
which options for 100,000 shares may be granted to purchase Common Shares for a
purchase price equal to the fair market value of such Common Shares at the time
the option is granted, subject to certain adjustments.
Each non-employee Trustee receives automatically upon election or re-election
as a Trustee at an Annual Meeting of Shareholders an option to purchase 4,000
Common Shares. The option vests on the day immediately preceding the Annual
Meeting of Shareholders next succeeding the date of grant of such option.
Options granted on November 30, 1994 @ $6.125*
and outstanding at July 31, 1995 24,000
Options granted on December 15, 1995 @ $8.563* 24,000
Options outstanding July 31, 1996 48,000
Options exercisable July 31, 1996 24,000
* Subsequent to the end of fiscal 1996 the option price was
reduced as a result of distributions made in excess of
funds from operations as provided for in the Plan.
AMENDED AND RESTATED DEFERRED STOCK PLAN FOR NON-EMPLOYEE TRUSTEES
In November 1994, the Amended and Restated Deferred Stock Plan for Non-Employee
Trustees was approved by the shareholders of the Trust. If a Trustee elects to
defer payment of Trustee fees, share units are allocated to such Trustee's
account based upon the closing price for the Common Shares on the date the fees
would have been earned. Share units are also allocated to reflect dividends
that would have been paid on such share units. Payments to a Trustee are made
upon death, disability or ceasing to serve as a Trustee. There are 250,000
Common Shares available under this Plan. This plan replaced a previous plan
the shares of which were transferred to this plan on November 30, 1994.
In fiscal 1994, the Trust entered into a Trust Agreement with BayBank, a
Massachusetts corporation, whereby BayBank agreed to hold the Common Shares
(and dividends thereon) that are issued under the Deferred Stock Plan (an
arrangement commonly known as a "Rabbi Trust"). In fiscal 1996, the Rabbi
Trust was funded with Common Shares that had been deferred under the Plan.
Under current accounting rules, assets of a Rabbi Trust must be accounted for
as if they are assets of the Trust.
Share units transferred November 30, 1994 118,385
Share units issued fiscal 1995 30,983
Share units exercised fiscal 1995 (20,296)
Share units outstanding July 31, 1995 129,072
Share units issued fiscal 1996 20,922
Share units exercised fiscal 1996 (14,903)
Share units outstanding prior to transfer to Rabbi Trust 135,091
Share units issued in Property Capital Trust
Common Shares and transferred to the Rabbi Trust (135,080)
Share units outstanding July 31, 1996 11
Common Shares issued and transferred to the Rabbi Trust 135,080
Dividends reinvested in Common Shares 49,559
Common Shares issued and outstanding in the
Rabbi Trust July 31, 1996 184,639
<PAGE>
Page 51
Property Capital Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. SHAREHOLDERS EQUITY (continued)
SHAREHOLDER RIGHTS PLAN
On September 28, 1990 (the "Declaration Date"), the Trustees adopted a
Shareholder Rights Plan (the "Plan") and, in connection therewith, declared a
dividend distribution of one right for each of the Trust's outstanding Common
Shares to shareholders of record at the close of business on October 12, 1990.
Each right entitles the holder thereof, upon the occurrence of certain events
making such rights exercisable, to exercise the right to buy one Common Share
at a purchase price of $27.00. The rights become exercisable (i) 10 business
days following the announcement that a person or group of persons has acquired
or obtained the right to acquire 9.8% or more of the Common Shares (with
certain exceptions for persons who were shareholders on the Declaration Date)
or (ii) upon the closing of a tender offer resulting in ownership of 9.8% or
more of the Common Shares (any person acquiring in excess of 9.8% of the Common
Shares being an "Acquiror"). On the twenty-first business day after the
acquisition of 9.8% or more of the Common Shares by an Acquiror, or upon the
closing of a tender offer for 9.8% or more of the Common Shares by an Acquiror,
each right will entitle its holder to purchase, at the right's exercise price,
that number of Common Shares having a market value at that time of twice the
right's exercise price. Each right will also become exercisable to purchase
Common Shares at a 50% discount in the event that an Acquiror engages in self-
dealing transactions with the Trust. If, at any time after the rights become
exercisable, the Trust is involved in a merger or other business combination in
which the Trust is not the surviving entity, each right will entitle its holder
to purchase, at the right's exercise price, that number of shares of the
acquiring company's common stock having a market value at that time of twice
the right's exercise price. The rights will expire on the earlier of (i)
September 28, 2000 or (ii) their redemption by the Trustees at any time prior
to the date that they become exercisable, as described above, at a price of
$.01 per right.
NOTE 10. DIVIDENDS
The Trust typically pays a dividend approximately 55 days following each fiscal
quarter, normally equal to at least 100% of income before gains (losses) on
real estate investments. In addition, in July 1996, the Trust paid an
additional dividend to distribute proceeds from dispositions. It is the
current intention of the Trustees to distribute proceeds from dispositions as
special dividends at the same time as the quarterly dividend. However, the
Trustees may choose to make an additional dividend from time to time rather
than wait for a quarterly dividend payment date.
YEARS ENDED JULY 31,
1996 1995 1994
Quarterly dividends declared $.48 $.41 $.30
Special dividends declared 2.75 - -
Total dividends declared $3.23 $.41 $.30
On August 23, 1996, the Trustees declared a dividend of $.12 per share, payable
on September 24, 1996 to shareholders of record on September 13, 1996, 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 52
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 1996
Revenues $ 5,828,000 $ 5,463,000 $ 5,255,000 $ 5,253,000
Expenses 4,998,000 4,931,000 4,257,000 7,320,000{(1)}
Income (Loss) before Gain on Sale of Real Estate
Investments and Extraordinary Item 830,000 532,000 998,000 (2,067,000)
Gain on Sale of Real Estate Investments 3,501,000 780,000 443,000 1,370,000
Income (Loss) before Extraordinary Item 4,331,000 1,312,000 1,441,000 (697,000)
Extraordinary Loss from Extinguishment of Debt (63,000) (169,000) (165,000) (76,000)
Net Income (Loss) $ 4,268,000 $ 1,143,000 $ 1,276,000 $ (773,000)
Net Income (Loss) per Share
Income (Loss ) before Gain on Sale of Real Estate
Investments and Extraordinary Item $ 0.09 $ 0.06 $ 0.11 $ (0.22)
Gain on Sale of Real Estate Investments 0.39 0.09 0.05 0.15
Income (Loss) before Extraordinary Item 0.48 0.15 0.16 (0.07)
Extraordinary Loss from Extinguishment of Debt (0.01) (0.02) (0.02) (0.01)
Net Income (Loss) per Share $ 0.47 $ 0.13 $ 0.14 $ (0.08)
Average Shares Outstanding 9,054,000 9,064,000 9,088,000 9,182,000
FISCAL 1995
Revenues $ 5,951,000 $ 5,778,000 $ 5,415,000 $ 5,475,000
Expenses 5,243,000 5,405,000 4,958,000 4,997,000
Income before Gain on Sale of Real Estate Investments
and Extraordinary Item 708,000 373,000 457,000 478,000
Gain on Sale of Real Estate Investments - 3,099,000 110,000 -
Income before Extraordinary Item 708,000 3,472,000 567,000 478,000
Extraordinary Gain from Extinguishment of Debt - - 88,000 -
Net Income $ 708,000 $ 3,472,000 $ 655,000 $ 478,000
Net Income per Share
Income before Gain on Sale of Real Estate Investments
and Extraordinary Item $ 0.08 $ 0.04 $ 0.05 $ 0.05
Gain on Sale of Real Estate Investments - 0.34 0.01 -
Income before Extraordinary Item 0.08 0.38 0.06 0.05
Extraordinary Gain from Extinguishment of Debt - - 0.01 -
Net Income per Share $ 0.08 $ 0.38 $ 0.07 $ 0.05
Average Shares Outstanding 9,031,000 9,043,000 9,051,000 9,051,000
</TABLE>
{(1)} Includes $3,000,000 write-down of Loehmann's Fashion Island.
<PAGE>
Page 53
Property Capital Trust
SCHEDULE II
ALLOWANCE FOR POSSIBLE INVESTMENT LOSSES
YEARS ENDED JULY 31,
1996 1995 1994
Balance at beginning of year $ 14,077,000 $ 17,413,000 $ 20,129,000
Additions during year - - -
Property write-downs (9,441,000) (3,336,000) (2,716,000)
Balance at end of year $ 4,636,000 $ 14,077,000 $ 17,413,000
Allowance as a % of Real Estate
Investments (before allowance
for possible investment losses
and Asset Held for Sale directly
by the Trust) 4.9% 8.5% 9.2%
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 as of each date presented.
<PAGE>
Page 54
Property Capital Trust
SCHEDULE III
JULY 31, 1996
(dollars in thousands)
LAND LEASEBACKS HELD DIRECTLY BY THE TRUST
<TABLE>
<CAPTION>
Third Party Senior
Indebtedness
Rentable Date of Balance Interest Rate/
TYPE AND NAME OF PROPERTY LOCATION SPACE INVESTMENT AT 7/31/96 MATURITY
<S> <C> <C> <C> <C> <C>
APARTMENTS
Sandpiper Cove Boynton Beach, FL 416 units Apr 89 $ 16,418 9.25% / 1999
Elm Creek Elmhurst, IL 372 units Nov 88 20,921 9.50% / 1997
Northbrook San Bernardino, CA 190 UNITS May 74 - -
978 UNITS 37,339
SHOPPING CENTERS
Roseburg Valley Mall Roseburg, OR 237,000 sq. ft. Sep 82 6,685 9.25% / 2015
Lakeside Center Burbank, CA 66,000 SQ. FT. Mar 73 131 8.00% / 1998
303,000 SQ. FT. 6,816
HOTELS
City Centre Holiday Inn Chicago, IL 500 rooms Mar 77 9,689 9.13% / 1997
Cincinnati Marriott Inn Cincinnati, OH 350 ROOMS Feb 84 10,373 9.75% / 1999
850 ROOMS 20,062
$ 64,217
</TABLE>
<PAGE>
Page 55
<TABLE>
<CAPTION>
Amount of Rent and Base Overage
Trust's Land Annual Overage Income Income
Investment Base Receivable Y/E Y/E
AT 7/31/96 (A) LAND RENT AT 7/31/96 7/31/96 7/31/96
<S> <C> <C> <C> <C>
$ 5,400 7.40 % (c) $ 6 $ 360 $ 222
2,230(b) 10.00 % (d) 6 200 90
400 10.50 % 3 42 70
8,030 15 602 382
1,800(b) 12.00 % - 216 -
350 10.00 % 5 35 152
2,150 5 251 152
2,000 11.00% 157 220 1,613
2,000(b) 12.00% (20) 240 -
4,000 137 460 1,613
$ 14,180(e) $ 157 $ 1,313(f) $ 2,147(g)
</TABLE>
<PAGE>
Page 56
Property Capital Trust
SCHEDULE III (CONTINUED)
JULY 31, 1996
(dollars in thousands)
OWNED PROPERTIES HELD DIRECTLY BY THE TRUST
<TABLE>
<CAPTION>
THIRD PARTY SENIOR AMOUNT OF TRUST'S INVESTMENT
INDEBTEDNESS AT DATE OF ACQUISITION
------------------ ----------------------------
RENTABLE DATE OF BALANCE INTEREST RATE/ BUILDING AND
TYPE AND NAME OF PROPERTY LOCATION SPACE ACQUISITION(H) AT 7/31/96 MATURITY LAND IMPROVEMENTS
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDINGS
Park Place Clayton, MO 72,000 sq. ft. Jan 91 $ 8,430 5.65% / 2008 $ 3,000 $ 9,194
Citibank Office Plaza Schaumburg, IL 105,400 sq. ft. Feb 89 - - 1,275 9,001
177,400 SQ. FT. 8,430 4,275 18,195
SHOPPING CENTERS
Loehmann's Fashion Island Aventura, FL 282,000 SQ. FT. May 89 18,732 7.97% / 1998 4,800 17,546
$ 27,162 $ 9,075 $ 35,741
</TABLE>
For information on Owned Properties Held in Investment Partnerships see
Exhibit A
ASSET HELD FOR SALE DIRECTLY BY THE TRUST
<TABLE>
<CAPTION>
THIRD PARTY SENIOR AMOUNT OF TRUST'S INDEBTEDNESS
THIRD PARTY SENIOR AMOUNT OF TRUST'S INVESTMENT
INDEBTEDNESS AT DATE OF ACQUISITION
------------------ ----------------------------
RENTABLE DATE OF BALANCE INTEREST RATE/ BUILDING AND
TYPE AND NAME OF PROPERTY LOCATION SPACE ACQUISITION(H) AT 7/31/96 MATURITY LAND IMPROVEMENTS
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BUILDINGS
One Park West Chevy Chase, MD 136,000 SQ. FT. Mar 93 $ 9,727 9.50% / 2000 $ 3,500 $ 14,942
</TABLE>
For Information on Assets Held for Sale in Investment Partnerships see Exhibit A
<PAGE>
Page 57
<TABLE>
<CAPTION>
RENTS FROM
OWNED
COSTS PROPERTIES
CAPITALIZED WRITE-DOWN GROSS AMOUNT OF TRUST'S INVESTMENT NET RENTS HELD DIRECTLY
SUBSEQUENT OF BUILDINGS AND ACCUMULATED INVESTMENT RECIVABLE BY THE TRUST
TO ACQUISITION INVESTMENT LAND (A) IMPROVEMENTS TOTAL DEPRECIATION AT 7/31/96 AT 7/31/96 Y/E 7/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,147 - $ 3,000 $ 10,341 $ 13,341 $ 2,140 $ 11,201 $ 2 $ 1,507
3,477 - 1,275 12,478 13,753 4,301 9,452 623(i) 1,474
- --------- -------- -------- -------- -------- ---------
4,624 - 4,275 22,819 27,094 6,441 20,653 625 2,981
- --------- -------- -------- -------- -------- ---------
25,914 $ 5,612 9,706 32,942 42,648 6,491 36,157 624(i) 5,458
- --------- -------- -------- -------- -------- ---------
$ 30,538 $ 5,612 $ 13,981 $ 55,761 $ 69,742(j) $ 12,932 $ 56,810 1,249 $ 8,439(k)
- --------- ------- -------- -------- -------- --------
- --------- ------- -------- -------- -------- --------
</TABLE>
(TABLE CONT'D)
EXPENSES ON
OWNED
PROPERTIES
HELD DIRECTLY DEPRECIATION
BY THE TRUST EXPENSE
Y/E 7/31/96 Y/E 7/31/96
[C] [C]
$ 680 $ 450
1,048 990
- ----------- --------
1,728 1,440
- ----------- --------
2,394 2,046
- ----------- --------
$ 4,122(l) $ 3,486(m)
- ----------- --------
- ----------- --------
<TABLE>
<CAPTION>
RENTS FROM
OWNED
COSTS PROPERTIES
CAPITALIZED GROSS AMOUNT OF TRUST'S INVESTMENT WRITE-OFF OF WRITE-DOWN NET RENTS HELD DIRECTLY
SUBSEQUENT BUILDINGS AND ACCUMULATED OF INVESTMENT RECIVABLE BY THE TRUST
TO ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION INVESTMENT AT 7/31/96 AT 7/31/96 Y/E 7/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,613 $ 3,500 $ 16,555 $ 20,055(n) $ 1,598(n) $ 1,519(n) $ 16,938(n) $ 254(i) $ 3,280(o)
- --------- ------- -------- --------- -------- -------- -------- -------- ---------
- --------- ------- -------- --------- -------- -------- -------- -------- ---------
</TABLE>
<TABLE CON'T>
EXPENSES ON
OWNED
PROPERTIES
HELD DIRECTLY DEPRECIATION
BY THE TRUST EXPENSE
Y/E 7/31/96 Y/E 7/31/96
$ 1,059(p) $ 522
--------- -----
--------- -----
<PAGE>
Page 58
Property Capital Trust
NOTES TO SCHEDULE III
(a)This amount represents the cost of each land investment and the amount at
which each investment is carried on the balance sheet atJuly 31, 1996. There
are no differences between the cost of each land investment for financial
reporting purposes and the cost of eachland 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
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
IV).
(c)The base land rent rate was renegotiated, effective April 1, 1993, from a
base payment rate of 10% to a base payment rate of6.3% 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)Changes in the Trust's investment in land leasebacks held directly by the
Trust are summarized below (dollars in thousands).
YEARS ENDED JULY 31,
-------------------------------
1996 1995 1994
- --------------------------------------- -------------------------------
Balance at beginning of year $ 17,140 $ 17,140 $ 21,140
Sales (2,960) - ( 1,500)
Conversions to Owned Properties
held directly by the Trust - - (2,500)
-------- -------- --------
Balance at end of year $ 14,180 $ 17,140 $ 17,140
-------- -------- --------
-------- -------- --------
(f)This total does not include base income of $107,000 earned in fiscal 1996
from investments disposed of during the year.
(g)This total does not include overage income of $150,000 earned in fiscal 1996
from investments disposed of during the year.
(h)The Trust acquired the equity interests in these properties from its
lessees. The date of the acquisition reflects the date on which theTrust
converted its land leaseback investment to an Owned Property held directly by
the Trust.
(i)Many leases provide for stepped minimum rents. Certain of these have been
accounted for on a straight line basis. Rents receivableincludes rents accrued
but not yet due in the amount of $605,000, $508,000, and $183,000 for Citibank
Office Plaza - Schaumburg,Loehmann's Fashion Island and One Park West,
respectively.
<PAGE>
Page 59
Property Capital Trust
NOTES TO SCHEDULE III (continued)
(j) Changes in the Trust's investment in Owned Properties held directly by the
Trust are summarized below (dollars in thousands).
YEARS ENDED JULY 31,
----------------------------------
1996 1995 1994
- -------------------------------------- ----------------------------------
Balance at beginning of year $ 94,507 $ 116,354 $ 109,372
Acquisitions and additions 902 5,551 15,490
Sales to third parties - (12,465) (14,008)
Conversions from mortgage loans
held directly by the Trust - - 3,000
Conversions from land leasebacks
held directly by the Trust - - 2,500
Investments written down (5,612) - -
Property reclassified to Assets
Held for Sale directly by the Trust (20,055) (14,933) -
-------- -------- --------
Balance at end of year $ 69,742 $ 94,507 $ 116,354
-------- -------- --------
-------- -------- --------
(k)This total does not include rental income earned in fiscal 1996 of
$3,280,000 from One Park West which was reclassified to Asset
Held for Sale directly by the Trust at July 31, 1996.
(l)This total does not include operating expenses incurred in fiscal 1996 of
$1,059,000 from One Park West which was reclassified toAsset Held for Sale
directly by the Trust at July 31, 1996.
(m)This total does not include depreciation expense in fiscal 1996 of $522,000
from One Park West which was reclassified to Asset Heldfor Sale directly by the
Trust at July 31, 1996.
(n)Changes in the Trust's investment in Assets Held for Sale directly by the
Trust is summarized below (dollars in thousands).
YEARS ENDED JULY 31,
-------------------------------
1996 1995
- ---------------------------------------- -------------------------------
Balance at beginning of year $ 10,185 $ -
Additions 173 -
Sale to third party (10,358) -
Property reclassified from Owned
Property held directly by the Trust 20,055 14,933
Investment written down (1,519) (971)
Write-off of accumulated depreciation (1,598) (3,777)
-------- ---------
Balance at end of year $ 16,938 $ 10,185
-------- ---------
(o)This total does not include rental income earned in fiscal 1996 of $922,000
from Citibank Office Plaza - Oak Brook which was disposed of during the
year.
(p)This total does not include operating expenses incurred in fiscal 1996 of
$388,000 from Citibank Office Plaza - Oak Brook which
was disposed of during the year.
<PAGE>
Page 60
Property Capital Trust
SCHEDULE IV
JULY 31, 1996
(dollars in thousands)
MORTGAGE LOANS HELD DIRECTLY BY THE TRUST
<TABLE>
<CAPTION>
Periodic Amount of Principal
Type of Interest Payment Trust's Loan Payment at
Type and Name of Property Location Mortgage Rate Maturity Terms at 7/31/96(a) Maturity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
APARTMENTS
Elm Creek Elmhurst, IL First leasehold 10.00%(b) 11/01/18 (c) $ 7,540 $ 7,540
SHOPPING CENTERS
Roseburg Valley Mall Roseburg, OR First leasehold 12.00% 10/01/22 (d) 2,164 -
HOTELS
Cincinnati Marriott Inn Cincinnati, OH First leasehold 5.65%(e) 03/01/14 (f) 3,716 -
Junior leasehold 8.00% 03/01/14 (f) 600 -
----- -------
4,316 -
----- -------
$ 14,020(g) $ 7,540
======== =======
<PAGE>
Page 61
(TABLE CONT'D)
Interest
Principal Interest Income
Amount Receivable Y/E
DELINQUENT AT 7/31/967/31/96
- $ 63 $ 679
- 21 260
- - 210
- - 21
- - 231
- $ 84 $ 1,170(h)
<PAGE>
Page 62
Property Capital Trust
NOTES TO SCHEDULE IV
(a)The Trust also has land leaseback investments in these properties. First
mortgage indebtedness and rentable space are shown withthose investments (see
Schedule III).
(b)The interest rate on this mortgage was renegotiated, effective April 1,
1993, from a payment rate of 10% to a 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 26-year
schedule. The loan may be prepaid at a premium of 103 1/2%through September
30, 1996. Thereafter the prepayment premium declines 1/2% annually.
(e)The interest rate on this mortgage was renegotiated, effective April 1,
1994, from a cash flow basis to 5.65% through March 31, 1997and 7% thereafter.
(f)Monthly payments of interest only until April 30, 1999. Thereafter, monthly
payments of interest and principal amortizing on a 30-year schedule. The loan
may be prepaid at any time.
(g)Changes in the Trust's investment in mortgage loans held directly by the
Trust are summarized below (dollars in thousands).
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 15,431 $ 15,441 $ 21,925
New mortgage loans 600 - -
Repayments (511) (10) (1,334)
Mortgage loans written down (1,500) - (2,150)
Conversions to Owned Properties held
directly by the Trust - - (3,000)
-------- --------- -------
Balance at end of year $ 14,020 $ 15,431 $ 15,441
======== ========= ========
</TABLE>
(h)This total does not include interest income of $74,000 earned in fiscal
1996 from the loan on Grosvenor Airport Inn which was prepaid during the year.
<PAGE>
Page 63
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Page 64
Property Capital Trust
EXHIBIT A
JULY 31, 1996
(dollars in thousands)
OWNED PROPERTIES HELD IN INVESTMENT PARTNERSHIPS
Investment
<TABLE>
<CAPTION>
Investment
Third Party Senior Partnership's Investment
INDEBTEDNESS AT DATE OF ACQUISITION
Rentable Date of Balance Interest Rate/ Buildings and
TYPE AND NAME OF PROPERTY LOCATION SPACE ACQUISITION(A) AT 7/31/96 MATURITY LAND IMPROVEMENTS
<S> <C> <C> <C> <C> <C> <C> <C>
APARTMENT
Telegraph Hill(b) Houston, TX 921 UNITS Mar 94 $ 10,314 (c) $ 1,260 $ 11,766
</TABLE>
<PAGE>
Page 65
<TABLE>
<CAPTION>
Investment
Costs Gross Amount of Partnership's
Capitalized INVESTMENT PARTNERSHIP'S INVESTMENT Net
Subsequent Buildings and Accumulated Investment
TO ACQUISITION LAND IMPROVEMENT TOTAL DEPRECIATION AT 7/31/96
<S> <C> <C> <C> <C> <C>
$ 685 $ 1,260 $ 12,451 $ 13,711(d) $ 1,029 $ 12,682
</TABLE>
<TABLE CON'T>
INVESTMENT PARTNERSHIP'S
-------------------------------------------------
Rent Rental Other than Depreciation Owned
Receivable Income Depreciation Expense by the
AT 7/31/96 Y/E 7/31/96 Y/E 7/31/96 Y/E 7/31/96 TRUST
$ 2 $ 4,096(e) $ 2,591(f) $ 450(g) 45.5%
<PAGE>
Page 66
Property Capital Trust
EXHIBIT A (CONTINUED)
JULY 31, 1996
(dollars in thousands)
ASSETS HELD FOR SALE IN INVESTMENT PARTNERSHIPS
<TABLE>
<CAPTION> Third Party Senior
INDEBTEDNESS
Rentable Date of Balance Interest Rate/
TYPE AND NAME OF PROPERTY LOCATION SPACE ACQUISITION(A) AT 7/31/96 MATURITY
SHOPPING CENTERS
<S> <C> <C> <C> <C> <C>
Plaza West Retail Center(h) Overland Park, KS 98,000 SQ. FT. May 89 - -
APARTMENTS
Canyon View II (i) San Ramon, CA 188 UNITS Aug 95 - -
------------ -----------
-
</TABLE>
<TABLE CON'T>
Investment
Partnership's Investment
AT DATE OF ACQUISITION
Buildings and
LAND IMPROVEMENTS
$ 3,800 $ 8,762
- 9,998
--------- -----------
$ 3,800 $ 18,760
<PAGE>
Page 67
<TABLE>
<CAPTION>
Investment
Costs Gross Amount of Partnership's
Capitalized INVESTMENT PARTNERSHIP'S INVESTMENT Write-off of Write-down Net
Subsequent Buildings and Accumulated of Investment
TO ACQUISITION LAND IMPROVEMENT TOTAL DEPRECIATION INVESTMENT AT 7/31/96
<S> <C> <C> <C> <C> <C> <C>
$ 4,818 $ 3,800 $ 13,580 $ 17,380 $ 2,921 $ 1,859 $ 12,600
167 - 10,165 10,165 335 4,220 5,610
- ------- ------ -------- -------- ------- ------- ---------
$ 4,985 $ 3,800 $ 23,745 $ 27,545 $ 3,256 $ 6,079 $ 18,210(j)
</TABLE>
<TABLE CON'T>
---------- INVESTMENT PARTNERSHIP'S---------------
Expenses %
Rent Rental Other than Depreciation Owned
Receivable Income Depreciation Expenseby the
AT 7/31/96 Y/E 7/31/96 Y/E 7/31/96 Y/E 7/31/96 TRUST
$ 74 $ 2,379 $ 941 $ - 53.3%
- 1,996 1,387 335 23.8%
----- ------- ------- -----
$ 74 $ 4,375 $ 2,328 $ 355
<PAGE>
Page 68
Property Capital Trust
NOTES TO EXHIBIT A
(a)The Partnerships acquired the equity interests in these properties from
their lessees. The date of the acquisition reflects the date onwhich each
Partnership converted its land leaseback/mortgage loan investment to an Owned
Property held in an InvestmentPartnership.
(b)This investment is held by PCA Southwest Associates Limited Partnership, a
partnership in which an affiliate of the Trust is the solegeneral partner with
a 45.45% interest and other institutional investors are the limited partners.
(c)Telegraph Hill apartment complex, held by PCA Southwest Associates Limited
Partnership, is encumbered by third party seniorindebtedness as follows.
Principal Interest
BALANCE RATE
MATURITY
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Telegraph Hill A $ 2,535,000 8.25% 1997
Telegraph Hill C 1,898,000 7.50% 1998
Telegraph Hill D 1,910,000 7.50% 1998
Telegraph Hill E 1,905,000 8.75% 1998
Telegraph Hill F 1,905,000 8.75% 1998
Telegraph Hill E&F Note B 161,000 8.00% 1998
$ 10,314,000
</TABLE>
(d)Changes in Owned Properties held in Investment Partnerships are summarized
below (dollars in thousands).
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
---------------------------------
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 39,223 $ 108,950 $ 59,148
Acquisitions and additions 609 4,497 27,802
Sales/dispositions to third parties (3,608) (2,221) -
Conversions from mortgage loans held
in Investment Partnerships 9,998 - 17,100
Conversions from land leasebacks held
in Investment Partnerships - - 4,900
Properties reclassified to Assets Held
for Sale in Investment Partnerships (32,511) (72,003) -
Balance at end of year $ 13,711 $ 39,223 $ 108,950
</TABLE>
(e)This total does not include rental income earned in fiscal 1996 of
$6,283,000 from PCA Southwest Associates LimitedPartnership's Telegraph
B, Chimney Rock, Boardwalk and St. Charles apartment investments which
were disposedof during the year. Also disposed of during fiscal 1996 were
Property Capital Midwest Associates, L.P.'s College Hills 3, College
Hills 8 and Financial Plaza office building investments and their related
rental income of $4,729,000 is not included in this total. Also not included
in this total is $4,375,000 from Assets Held for Sale in Investment
Partnerships; see Exhibit A .
<PAGE>
Page 69
Property Capital Trust
NOTES TO EXHIBIT A (CONTINUED)
(f)This total does not include expenses other than depreciation incurred in
fiscal 1996 of $3,594,000 from PCA SouthwestAssociates Limited Partnership's
Telegraph B, Chimney Rock, Boardwalk and St. Charles apartment investments
which weredisposed of during the year. Also disposed of during fiscal 1996
were Property Capital Midwest Associates, L.P.'s CollegeHills 3, College Hills
8 and Financial Plaza office building investments and their related expenses
other than depreciation of$2,420,000 is not included in this total. Also not
included in this total is $2,328,000 from Assets Held for Sale in Investment
Partnerships; see Exhibit A.
(g)This total does not include depreciation expense in fiscal 1996 of $367,000
from PCA Southwest Associates LimitedPartnership's Telegraph B, Chimney Rock,
Boardwalk and St. Charles apartment investments which were disposed of during
the year.Also disposed of during fiscal 1996 were Property Capital Midwest
Associates, L.P.'s, College Hills 3, College Hills 8 andFinancial Plaza office
building investments and their related depreciation expense of $38,000 is not
included in this total. Alsonot included in this total is $335,000 from Assets
Held for Sale in Investment Partnerships; see Exhibit A.
(h)This investment is held by Property Capital Midwest Associates, L.P., a
partnership in which the Trust is the sole general partner witha 53.3% interest
and other institutional investors are the limited partners.
(i)This investment is held by PCA Canyon View Associates Limited Partnership, a
partnership in which the Trust participates as thesole general partner with a
23.81% interest and other institutional investors are the limited partners.
(j)Changes in Assets Held for Sale in Investment Partnerships are summarized
below (dollars in thousands).
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
---------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 55,549 $ - $ -
Additions 752 - -
Sales to third parties (60,542) - -
Properties reclassified from Owned
Properties in Investment Partnerships 32,511 72,003 -
Investments written down (8,137) (4,454) -
Write-off of accumulated depreciation (1,923) (12,000) -
Balance at end of year $ 18,210 $ 55,549 $ -
<PAGE>
Page 70
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 14(D)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Year Ended December 31, 1995
PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P.
Boston, Massachusetts
<PAGE>
Page 71
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, 1995 and 1994, and the related statements
of operations, cash flows and partners' equity for each of the three years in
the period ended December 31, 1995. 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, 1995 and 1994, and the results of its
operations and its cash flows for each of three years in the period ended
December 31, 1995, 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
February, 23, 1996, except for Note 6,
as to which the date is October 7, 1996
<PAGE>
Page 72
Property Capital Midwest Associates, L.P.
BALANCE SHEET
DECEMBER 31,
1995
1994
ASSETS
Real estate investments:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Assets held for sale $ 45,847,531 -
Owned properties (net of accumulated depreciation
of $10,419,464) - $ 52,897,128
Cash and cash equivalents 531,214 452,625
Rent receivable (net of allowance for doubtful accounts of
$37,378 and $58,800 in 1995 and 1994, respectively) 62,709 191,047
Prepaid insurance 30,407 32,491
Other assets 58,629 89,907
$ 46,530,490 $ 53,663,198
</TABLE>
LIABILITIES AND PARTNERS' EQUITY
Liabilities
<TABLE>
<CAPTION>
<S> <C> <C>
Real estate taxes payable $ 737,897 $ 659,824
Accounts payable and accrued expenses 222,588 137,182
Prepaid rent 122,882 162,222
Security deposits 201,872 218,286
1,285,239 1,177,514
Partners' Equity
Capital contributions 55,491,695 55,491,695
Accumulated deficit (10,246,444) (3,006,011)
Total Partners' Equity 45,245,251 52,485,684
$ 46,530,490 $ 53,663,198
</TABLE>
See accompanying notes
<PAGE>
Page 73
Property Capital Midwest Associates, L.P.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
REVENUES
<S> <C> <C> <C>
Rental income $ 8,790,766 $ 8,158,180 $ 7,477,067
Short-term interest income 40,738 21,878 19,008
8,831,504 8,180,058 7,496,075
PROPERTY EXPENSES
Write-down of real estate investments 6,690,172 - -
Depreciation 1,567,827 2,378,829 2,239,698
Real estate taxes 1,310,337 1,182,887 1,310,222
Utilities 1,095,158 1,074,710 973,469
Repairs and maintenance 446,591 458,169 408,216
Management 314,371 298,463 334,535
Cleaning 306,885 284,753 280,337
Roads and grounds 169,959 174,245 158,938
Other 148,983 115,034 131,598
Security 59,214 38,144 62,483
Insurance 34,446 64,357 44,468
12,143,943 6,069,591 5,943,964
PARTNERSHIP EXPENSES
Advisory fee 271,803 114,091 99,488
Administrative expense 60,191 45,743 53,801
331,994 159,834 153,289
NET INCOME (LOSS) $ (3,644,433) $ 1,950,633 $ 1,398,822
</TABLE>
See accompanying notes
<PAGE>
Page 74
Property Capital Midwest Associates, L.P.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (3,644,433) $ 1,950,633 $ 1,398,822
Adjustments to reconcile net income (loss)to
net cash provided by operating activities:
Depreciation 1,567,827 2,378,829 2,239,698
Write-down of real estate investments 6,690,172 - -
Changes in assets and liabilities
Decrease in rent receivable 128,338 191,953 138,669
Decrease (increase) in prepaid insurance 2,084 (6,405) (4,009)
Decrease (increase) in other assets 31,278 (85,055) 15,430
Increase (decrease) in real estate taxes payable 78,073 39,449 (6,427)
Increase (decrease) in accounts payable
and accrued expenses 85,406 (79,594) (135,724)
(Decrease) increase in prepaid rent (39,340) (30,604) 13,975
(Decrease) increase in security deposits (16,414) 33,435 (15,088)
--------- --------- ----------
Net Cash Provided by Operating Activities 4,882,991 4,392,641 3,645,346
--------- --------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (1,208,402) (2,717,074) (2,267,410)
--------- --------- ---------
Net Cash Used in Investing Activities (1,208,402) (2,717,074) (2,267,410)
CASH FLOW FROM FINANCING ACTIVITIES
Distributions to partners (3,596,000) (1,827,649) (1,228,133)
--------- --------- ---------
Net Cash Used in Financing Activities (3,596,000) (1,827,649) (1,228,133)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 78,589 (152,082) 149,803
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 452,625 604,707 454,904
--------- --------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 531,214 $ 452,625 $ 604,707
============ ============ ============
</TABLE>
See accompanying notes
<PAGE>
Page 75
Property Capital Midwest Associates, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
Beginning Net Operating Ending
Ownership Partners' (Loss) Income Partners'
PERCENTAGE EQUITY INCOME DISTRIBUTION EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
Property Capital Trust,
General Partner 53.2967% $27,973,140 $(1,942,363) $(1,916,549) $24,114,228
Limited Partners 46.7033 24.512.544 (1.702.070) (1.679.451) 21,131,023
-------- ---------- ----------- ----------- -----------
100.0000% $52,485,684 $(3,644,433) $(3,596,000) $45,245,251
======== =========== =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1994
Property Capital Trust,
General Partner 53.2967% $27,907,594 $1,039,623 $ (974,077) $27,973,140
Limited Partners 46.7033 24,455,106 911,010 (853,572) 24,512,544
-------- ----------- ---------- ----------- -----------
100.0000% $52,362,700 $1,950,633 $(1,827,649) $52,485,684
======== =========== ========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1993
Property Capital Trust,
General Partner 53.2967% $27,816,622 $ 745,527 $ (654,555) $27,907,594
Limited Partners 46.7033 24,375,389 653,295 (573,578) 24,455,106
-------- ----------- ---------- ----------- -----------
100.0000% $52,192,011 $1,398,822 $(1,228,133) $52,362,700
======== =========== ========== ============ ===========
</TABLE>
See accompanying notes
<PAGE>
Page 76
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.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.
ASSETS HELD FOR SALE
The Partnership defines "Assets Held for Sale" as assets that have been
approved for sale by the partners and are being marketed for sale or are soon
to be marketed by a broker who has already been chosen. At December 31, 1995,
all of the Partnership's real estate investments, Financial Plaza, College
Hills 3, College Hills 8 and Plaza West Retail Center, were classified to
Assets Held for Sale. Depreciation is no longer taken on these assets.
VALUATION OF OWNED PROPERTIES
Owned Properties are carried at cost, net of accumulated depreciation.
Depreciation has been calculated under the straight-line method, based upon the
estimated useful lives of the assets. Properties and property improvements are
depreciated over 25 to 39 years. Leasing commissions and tenant improvements
are amortized under the straight-line method over the term of the related
leases. Expenditures for maintenance, repairs and betterments which do not
materially prolong the normal useful life of an asset are charged to operations
as incurred.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Partnership considers all
highly liquid investments with an initial maturity of three months or less to
be cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
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
excess of rental income accrued under the straight-line method over rent
received or receivable by the Partnership for financial reporting purposes was
$18,300, $18,300 and $54,300 for the years ended December 1995, 1994 and 1993,
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.
<PAGE>
Page 77
Property Capital Midwest Associates, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. REAL ESTATE INVESTMENTS
As of December 31, 1995 and 1994 the Partnership has investments in four
properties, which are all located in Overland Park, Kansas, as follows:
<TABLE>
<CAPTION>
Investment Investment Net Rentable
PROPERTY 12/31/95 12/31/95 SQUARE FEET
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Plaza $ 27,798,603 $ 38,285,619 300,600
Plaza West Retail Center 12,562,240 17,085,376 98,000
College Hills 8 3,178,353 5,213,275 50,900
College Hills 3 2,308,335 2,732,322 37,700
------------ ------------ -------
45,847,531 63,316,592 487,200
------------ ------------ =======
Accumulated Depreciation - (10,419,464)
------------ ------------
$ 45,847,531 $ 52,897,128
============ ============
</TABLE>
At June 30, 1995, the Partnership wrote down its investments in Plaza West
Retail Center, Financial Plaza and College Hills 8 by $1,858,832, $1,464,290
and $1,012,308, respectively. In addition, at December 31, 1995, the
Partnership further wrote down its investment in Financial Plaza by $2,354,742.
These write-downs were charged to earnings.
The Partnership acquired the equity interest in these properties from its
lessee in May 1989. The former owner is entitled to a deferred residual
payment in the 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 is to 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 $271,803, $114,091 and $74,297 in 1995, 1994 and 1993,
respectively. Management fees payable are $4,088, $13,213 and $30,832 at
December 31, 1995, 1994 and 1993, 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 subcontract 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, 1995, 1994 and 1993, the
Partnership distributed $3,596,000, $1,827,649 and $1,228,133, respectively.
<PAGE>
Page 78
Property Capital Midwest Associates, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5. LEASES
Expected future minimum rents to be received from tenants under non-cancelable
operating leases in effect at December 31, 1995 are as follows:
YEARS ENDING DECEMBER 31,
- -------------------------------------------------------------------------------
1996 $ 7,410,409
1997 5,936,712
1998 4,430,190
1999 2,807,666
2000 1,627,602
Thereafter 2,609,769
$ 24,822,348
NOTE 6. SUBSEQUENT EVENT
College Hills 3 was sold for $2,400,000 before closing costs on March 12, 1996.
College Hills 8 was sold for $4,325,000 before closing costs on April 18, 1996.
Financial Plaza was sold for $28,330,000 before closing costs on April 22,
1996. Plaza West Retail Center was sold for $12,500,000 before closing costs
on October 7, 1996.
<PAGE>
Page 79
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
Page 80
Property Capital Midwest Associates, L.P.
SCHEDULE III
DECEMBER 31, 1995
(dollars in thousands)
ASSETS HELD FOR SALE
<TABLE>
<CAPTION>
Amount of
Partnership's Investment
at Date of Acquisition Costs
------------------------ Capitalized
Rentable Date of Buildings and Subsequent
Type and Name of Property Location Space Acquisition(a) Land Improvements to Acquisition
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OFFICE BUILDING
Financial Plaza Overland Park, KS 300,600 sq. ft. May 89 $ 5,500 $ 24,879 $ 8,563
College Hills 3 Overland Park, KS 37,700 sq. ft. May 89 900 1,217 637
College Hills 8 Overland Park, KS 50,900 sq. ft. May 89 500 3,254 1,733
--------------- --------- -------- ---------
389,200 sq. ft. 6,900 29,350 10,933
=============== --------- -------- ---------
SHOPPING CENTERS
Plaza West Retail Center Overland Park, KS 98,000 sq. ft. May 89 3,800 8,762 4,780
============== -------- -------- --------
$ 10,700 $ 38,112 $ 15,713
======== ======== ========
</TABLE>
NOTES TO SCHEDULE III
(a) The Partnership acquired the equity interests in these properties
from its lessee. The date of the acquisition reflects the date on which the
Partnership converted its land leaseback/mortgage loan investments to
Owned Properties.
(b) Changes in the Partnership's investment in Assets Held for Sale are
summarized below (dollars in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 1993
--------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ - $ - $ -
Properties reclassified from Owned 63,991 - -
Properties
Additions 534 - -
Investments written down (6,690) - -
Write-off of accumulated depreciation (11,987) - -
------- ------- -------
Balance at end of year $45,848 $ - $ -
</TABLE>
<PAGE>
Page 81
<TABLE>
<CAPTION>
YEAR ENDED 12/31/95
----------------------------------------
Gross Amount of Net Rent
PARTNERSHIP'S INVESTMENT Write-off of Write-down Investment Receivable
Buildings and Accumulated of at at Expenses
Rental on Owned Depreciation
LAND IMPROVEMENT TOTAL DEPRECIATION INVESTMENT 12/31/95 12/31/95 INCOME PROPERTIES EXPENSE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 5,500 $ 33,442 $ 38,942 $ 7,323 $ 3,819 $ 27,800 $ (57) $ 5,208 $ 2,265 $ 895
900 1,854 2,754 446 - 2,308 23 595 368 83
500 4,987 5,487 1,297 1,012 3,178 5 726 348 154
- -------- -------- -------- -------- ------- -------- ------ ------- ------- -------
6,900 40,283 47,183 9,066 4,831 33,286 (29) 6,529 2,981 1,132
- -------- -------- -------- -------- ------- -------- ------- ------- ------- -------
3,800 13,542 17,342 2,921 1,859 12,562 92 2,262 905 435
- -------- -------- ------- ------ ------ ------- ----- ------ ------- -------
$ 10,700 $ 53,825 $ 64,525 $ 11,987(b) $ 6,690(b) $ 45,848(b) $ 63 $ 8,791 $ 3,886 $ 1,567
======== ======== ======== ======== ======= ======== ====== ======= ======= =======
</TABLE>
<PAGE>
Page 82
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS
Year Ended December 31, 1995
PCA CROSSROADS ASSOCIATES, LTD.
Boston, Massachusetts
<PAGE>
Page 83
REPORT OF INDEPENDENT AUDITORS
To the Partners
PCA Crossroads Associates, Ltd.
We have audited the accompanying balance sheets of PCA Crossroads Associates,
Ltd. as of December 31, 1995 and 1994, and the related statements of income,
cash flows and changes in partners' equity for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements 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 PCA Crossroads Associates,
Ltd. at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February, 23, 1996, except for Note 6,
as to which the date is April 26, 1996
<PAGE>
Page 84
PCA Crossroads Associates, Ltd.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
ASSETS
<S> <C> <C>
Real estate investment in Crossroads Mall $ - $ 8,000,000
Cash and cash equivalents 88,515 80,822
Rent receivable - 46,894
Prepaid insurance - 922
--------- -----------
$ 88,515 $ 8,128,638
========= ===========
</TABLE>
LIABILITIES AND PARTNERS' EQUITY
Liabilities
<TABLE>
<CAPTION>
<S> <C> <C>
Accounts payable and accrued expenses $ 25,272 $ 31,336
Partners' Equity
Contributed Capital - 8,000,000
Undistributed net income 63,243 97,302
-------- -----------
Total Partners' Equity 63,243 8,097,302
-------- -----------
$ 88,515 $ 8,128,638
========= ===========
</TABLE>
See accompanying notes
<PAGE>
Page 85
PCA Crossroads Associates, Ltd.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993
REVENUES
<S> <C> <C> <C>
Base income $ 766,452 $ 960,881 $ 960,000
Overage income 470,209 534,733 364,243
Short-term interest income 20,476 1,569 763
--------- --------- ---------
1,257,137 1,497,183 1,325,006
--------- --------- ---------
PARTNERSHIP EXPENSES
Management fee 97,005 118,656 103,822
Administrative expense 10,976 12,418 26,461
-------- -------- -------
107,981 131,074 130,283
------- ------- -------
NET OPERATING INCOME 1,149,156 1,366,109 1,194,723
Gain on sale of real estate investment 14,000,420 - -
------------ ---------- -----------
NET INCOME $ 15,149,576 $ 1,366,109 $ 1,194,723
============ =========== ===========
</TABLE>
See accompanying notes
<PAGE>
Page 86
PCA Crossroads Associates, Ltd.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 15,149,576 $ 1,366,109 $ 1,194,723
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of real estate investment (14,000,420) - -
Changes in assets and liabilities
Decrease (increase) in net receivable 46,894 (6,894) (8,439)
Decrease (increase) in prepaid insurance 922 (922) -
(Decrease) increase in accounts payable and
and accrued expenses (6,064) 6,184 6,410
Net Cash Provided by Operating Activities 1,190,908 1,364,477 1,192,694
CASH FLOW FROM INVESTING ACTIVITIES
Disposition of real estate investment,
net of closing costs 22,000,420 - -
Net Cash Provided by Investing Activities 22,000,420 - -
CASH FLOW FROM FINANCING ACTIVITIES
Distributions to partners (23,183,635) (1,342,904) (1,210,196)
Net Cash Used in Financing Activities (23,183,635) (1,342,904) (1,210 196)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,693 21,573 (17,502)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 80,822 59,249 76,751
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 88,515 $ 80,822 $ 59,249
</TABLE>
See accompanying notes
<PAGE>
Page 87
PCA Crossroads Associates, Ltd.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
DISTRIBUTIONS
-----------------------------------
Proceeds in
Beginning Net Gain Return Excess of Ending
Ownership Partners' Operating on of Contributed Operating Partners'
PERCENTAGE EQUITY INCOME SALE CAPITAL CAPITAL INCOME EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995
Property Capital Trust,
General Partner 25.00% $2,024,335 $ 287,289 $ 3,500,105 $(2,000,000) $ (3,492,079) $ (303,830) $ 15,820
Limited Partners 75.00 6,072,967 861,867 10,500,315 (6,000,000) (10,476,237) (911,489) 47,423
100.00% $8,097,302 $1,149,156 $14,000,420 $(8,000,000) $(13,968,316) $(1,215,319) $ 63,243
FOR THE YEAR ENDED DECEMBER 31, 1994
Property Capital Trust,
General Partner 25.00% $2,018,524 $ 341,528 - - - $ (335,717) $2,024,335
Limited Partners 75.00 6,055,573 1,024,581 - - - (1,007,187) 6,072,967
100.00% $8,074,097 $1,366,109 - - - $(1,342,904) $8,097,302
FOR THE YEAR ENDED DECEMBER 31, 1993
Property Capital Trust,
General Partner 25.00% $2,022,389 $ 298,681 - - - $ (302,546) $2,018,524
Limited Partners 75.00 6,067,181 896,042 - - - (907,650) 6,055,573
100.00% $8,089,570 $ 1,194,723 - - - $(1,210,196) $8,074,097
</TABLE>
See accompanying notes
<PAGE>
Page 88
PCA crossroads Associates, Ltd.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
PCA Crossroads Associates, Ltd. (the "Partnership") was organized on January
19, 1983 as a Colorado limited partnership. Property Capital Trust is the sole
general partner (the "General Partner") of the Partnership and ten
institutional investors are limited partners.
REAL ESTATE INVESTMENTS
Real estate investments are carried at cost at December 31, 1994. The
investment was sold in October 1995.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Partnership considers all
highly liquid investments with an initial maturity of three months or less to
be cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
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.
NOTE 2. REAL ESTATE INVESTMENTS
The Partnership was formed to invest in the Crossroads Mall Shopping Center in
Boulder, Colorado. The investment was originally structured as an $8,000,000
land leaseback and a $32,000,000 first leasehold mortgage loan which was repaid
in 1986. On October 19, 1995 the Partnership sold its $8,000,000 land
investment for a gross sales price of $23,236,500 to the Partnership's lessee.
After closing costs the Partnership realized a gain of $14,000,420 on an
historical cost basis.
NOTE 3. MANAGEMENT AGREEMENT
Services related to investment matters and day-to-day administration have been
provided to the Partnership under a contract, dated January 26, 1983, 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
interest. Pursuant to the agreement the Advisor was paid a disposition fee of
$1,214,636 in connection with the sale.
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 subcontract 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. For the years
ended December 31, 1995, 1994 and 1993 the partnership distributed $1,215,319,
$1,342,904 and $1,210,196 respectively. On October 24, 1995 the Partnership
distributed $21,968,316 from the sale of its land investment.
<PAGE>
Page 89
PCA Crossroads Associates, Ltd.
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5. SUBSEQUENT EVENT
Subsequent to the end of the year the Partnership received additional overage
income from its former lessee. The following is an accounting of the activity
in the Partnership from January 1, 1996 through the final distribution of the
remaining Partnership assets in the amount of $96,049.20 on April 26, 1996.
The Partnership has been terminated and all assets have now been distributed.
Cash Balance at December 31, 1995 $ 88,515
Overage income 41,124
Short-term interest income 1,183
Less:
Management fee (8,352)
Administrative expenses (1,149)
December 31, 1995 payables (25,272)
Cash balance for final distribution 96,049
Distribution to Partners (96,049)
Ending Cash $ -
EXHIBIT 21
List of Subsidiaries
July 31, 1996
PCT Office Company
PCT Shopping Center Company
PCT Biscayne Center, Inc.
PCT Clayton, Inc.
East Ridge Apartment Company, Inc.
Friendship Avenue Office Company, Inc.
Chicago Hotel Company, Inc.
Cincinnati Hotel Company, Inc.
Houston Southwest Apartments, Inc.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-51839 and Form S-8 No. 33-56667) pertaining to the Property
Capital Trust 1992 Employee Stock Option Plan and the Registration Statement
(Form S-8 No. 33-56665) pertaining to the Property Capital Trust 1994 Stock
Option Plan for Non-Employee Trustees and the Property Capital Trust Amended
and Restated Deferred Stock Plan for Non-Employee Trustees of Property Capital
Trust of our report dated August 23, 1996, with respect to the consolidated
financial statements and schedules of Property Capital Trust and of our report
dated February 23, 1996 except for Note 6, as to which the date is October 7,
1996, with respect to the financial statements and schedule of Property Capital
Midwest Associates, L.P. and of our report dated February 23, 1996, except for
Note 6 as to which the date is April 26, 1996 with respect to the financial
statements of PCA Crossroads Associates, Ltd. included in the Annual Report
(Form 10-K) of Property Capital Trust for the year ended July 31, 1996.
ERNST & YOUNG LLP
Boston, Massachusetts
November 4, 1996
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