SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____TO ___
COMMISSION FILE NUMBER: 1-7003
PROPERTY CAPITAL TRUST
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2452367
- ------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
101 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
-----------------------------------------------
(Address of principal executive offices)
(zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
---------------------------------------------------
(617) 737-0100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No
---- ----
NUMBER OF SHARES OF COMMON SHARES OUTSTANDING
AS OF AUGUST 7, 1997: 9,584,220
---------
<PAGE>
PROPERTY CAPITAL TRUST
<TABLE>
<CAPTION>
INDEX
Page
PART I. FINANCIAL INFORMATION Number
------- --------------------- ------
<S> <C>
Consolidated Balance Sheet - June 30, 1997
and December 31, 1996 (unaudited) 2
Consolidated Statement of Income -
Three and Six Months Ended June 30, 1997 and 1996 (unaudited) 3
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1996 (unaudited) 4
Consolidated Statement of Shareholders' Equity -
Six Months Ended June 30, 1997 and 1996 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6 - 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
PART II. OTHER INFORMATION
None
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
Real Estate Investments
Owned Properties held directly by the Trust
(net of accumulated depreciation of $2,592,000
and $7,846,000, respectively) $ 9,875,000 $ 52,001,000
Structured Transactions held directly by the Trust 24,139,000 28,195,000
Investment Partnerships 1,069,000 1,528,000
------------- -------------
35,083,000 81,724,000
Assets Held for Sale directly by the Trust 61,614,000 16,984,000
------------- -------------
96,697,000 98,708,000
Cash and cash equivalents 5,763,000 1,648,000
Interest and rents receivable
Owned Properties held directly by the Trust 1,522,000 1,611,000
Structured Transactions held directly by the Trust 125,000 147,000
Other assets 1,080,000 1,180,000
------------- -------------
$ 105,187,000 $ 103,294,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 5,925,000 $ 5,024,000
Accrued interest 241,000 248,000
Mortgage notes payable 36,469,000 36,650,000
------------- -------------
42,635,000 41,922,000
------------- -------------
Shareholders' Equity
Common Shares (without par value, unlimited shares
authorized, 9,584,220 and 9,400,860 issued and
9,394,274 and 9,206,933 outstanding, respectively) 108,568,000 108,053,000
Accumulated deficit (44,680,000) (45,319,000)
------------- -------------
63,888,000 62,734,000
Less cost of Treasury Shares (1,336,000) (1,362,000)
------------- -------------
Total Shareholders' Equity 62,552,000 61,372,000
------------- -------------
$ 105,187,000 $ 103,294,000
============= =============
</TABLE>
See accompanying notes
2
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
1997 1996 1997 1996
-------------- ----------- ------------ -----------
REVENUES
<S> <C> <C> <C> <C>
Rents from Owned Properties held directly by the Trust $ 2,993,000 $ 3,177,000 $ 6,064,000 $ 5,986,000
Structured Transactions held directly by the Trust
Base income 618,000 675,000 1,234,000 1,299,000
Overage income 383,000 687,000 673,000 1,244,000
Income from unconsolidated Investment Partnerships 85,000 581,000 90,000 1,414,000
-------------- ----------- ------------ -----------
4,079,000 5,120,000 8,061,000 9,943,000
Interest income 42,000 186,000 196,000 275,000
Advisory fee income 14,000 111,000 16,000 185,000
-------------- ----------- ------------ -----------
4,135,000 5,417,000 8,273,000 10,403,000
-------------- ----------- ------------ -----------
EXPENSES
Expenses on Owned Properties held directly by the Trust 1,423,000 1,272,000 2,805,000 2,695,000
Interest 718,000 913,000 1,457,000 2,056,000
Depreciation 124,000 869,000 1,055,000 2,012,000
General and administrative expenses 583,000 970,000 1,049,000 1,816,000
Professional fees 35,000 102,000 110,000 194,000
Trustees' fees and expenses 24,000 35,000 47,000 69,000
-------------- ----------- ------------ -----------
2,907,000 4,161,000 6,523,000 8,842,000
-------------- ----------- ------------ -----------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE INVESTMENTS
AND EXTRAORDINARY ITEM 1,228,000 1,256,000 1,750,000 1,561,000
GAIN ON SALE OF REAL ESTATE INVESTMENTS 2,801,000 1,851,000 21,378,000 2,283,000
-------------- ----------- ------------ -----------
INCOME BEFORE EXTRAORDINARY ITEM 4,029,000 3,107,000 23,128,000 3,844,000
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT -- (76,000) -- (287,000)
-------------- ----------- ------------ ------------
NET INCOME $ 4,029,000 $ 3,031,000 $ 23,128,000 $ 3,557,000
============== =========== ============ ===========
NET INCOME PER SHARE
INCOME BEFORE GAIN ON SALE OF REAL ESTATE INVESTMENTS
AND EXTRAORDINARY ITEM $0.13 $0.14 $0.18 $0.17
GAIN ON SALE OF REAL ESTATE INVESTMENTS 0.29 0.20 2.24 0.25
----- ----- ----- -----
INCOME BEFORE EXTRAORDINARY ITEM $0.42 0.34 2.42 0.42
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT -- (0.01) -- (0.03)
----- ----- ----- -----
NET INCOME PER SHARE $0.42 $0.33 $2.42 $0.39
===== ===== ===== =====
AVERAGE SHARES OUTSTANDING 9,579,000 9,125,000 9,549,000 9,105,000
========= ========= ========= =========
</TABLE>
See accompanying notes
3
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------------
1997 1996
------------- ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 23,128,000 $ 3,557,000
Adjustments to Net Income
Gain on sale of real estate investments (21,378,000) (2,283,000)
Extraordinary loss from extinguishment of debt -- 287,000
Depreciation and amortization 1,148,000 2,085,000
Income from unconsolidated Investment Partnerships (90,000) (1,414,000)
Distributions of income from Investment Partnerships 2,000 1,711,000
Changes in assets and liabilities
Decrease in interest and rents receivable 111,000 256,000
Decrease (increase) in other assets, net 7,000 (569,000)
Increase in accounts payable and accrued
expenses and accrued interest 920,000 1,299,000
------------ ------------
Net Cash Provided by Operating Activities 3,848,000 4,929,000
------------ ------------
INVESTING ACTIVITIES
Owned Properties held directly by the Trust
Additions (1,859,000) (406,000)
Dispositions -- 10,828,000
Structured Transactions held directly by the Trust
Dispositions/repayments 22,877,000 2,151,000
Additions -- (600,000)
Investment Partnerships
Distributions in excess of income 1,404,000 30,047,000
------------ ------------
Net Cash Provided by Investing Activities 22,422,000 42,020,000
------------ ------------
FINANCING ACTIVITIES
Cash dividends paid (22,489,000) (18,344,000)
Scheduled amortization of mortgage notes payable (181,000) (172,000)
Proceeds from exercise of stock options 515,000 112,000
Prepayment of mortgage notes payable -- (3,000,000)
Redemption/repurchase of Convertible Subordinated Debentures -- (19,645,000)
------------ ------------
Net Cash Used in Financing Activities (22,155,000) (41,049,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,115,000 5,900,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,648,000 5,570,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,763,000 $ 11,470,000
============ ============
</TABLE>
See accompanying notes
4
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------------
1997 1996
-------------- -------------
COMMON SHARES
<S> <C> <C>
Balance at beginning of period $ 108,053,000 $ 106,201,000
Stock options exercised 515,000 112,000
Common Shares issued in payment of deferred
Trustees' compensation -- 1,162,000
Conversion of Subordinated Debentures -- 26,000
------------- -------------
Balance at end of period 108,568,000 107,501,000
------------- -------------
ACCUMULATED DEFICIT
Balance at beginning of period (45,319,000) (9,497,000)
Net income 23,128,000 3,557,000
Cash dividends paid (22,489,000) (18,344,000)
------------- -------------
Balance at end of period (44,680,000) (24,284,000)
------------- -------------
TREASURY SHARES
Balance at beginning of period (1,362,000) --
Distribution to Trustees of Treasury Shares included in Rabbi
Trust for the benefit of Trustees (3,981 Treasury Shares) 26,000 --
Purchase of Treasury Shares included in Rabbi Trust for
the benefit of Trustees (163,278 Treasury Shares) -- (1,084,000)
------------- -------------
Balance at end of period (1,336,000) (1,084,000)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY $ 62,552,000 $ 82,133,000
============= =============
NUMBER OF COMMON SHARES
Common Shares issued at beginning of period 9,400,860 9,055,795
Stock options exercised 183,360 23,640
Common Shares issued in payment of deferred
Trustees' compensation -- 176,267
Conversion of Subordinated Debentures -- 1,198
------------- -------------
Common Shares Issued at End of Period 9,584,220 9,256,900
============= =============
</TABLE>
See accompanying notes
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
On January 15, 1997, the Trust elected to change its fiscal year from a year
ended July 31 to the calendar year, effective January 1, 1997.
In the opinion of management of Property Capital Trust (the "Trust"), the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting of normal and recurring adjustments, necessary to
present fairly the Trust's financial position as of June 30, 1997 and the
results of its operations and its cash flows for the periods ended June 30, 1997
and 1996.
Operating results for the six months ended June 30, 1997 are not indicative of
the results that may be expected for the remainder of calendar 1997. The
information contained in these financial statements should be read in
conjunction with the Trust's 1996 Annual Report on Form 10-K filed with the SEC
on October 30, 1996, as amended by the Trust's Amendment No. 1 on Form 10-K/A
filed with the SEC on November 4, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted on December 31, 1997.
At that time, the Trust will be required to change the method currently used to
compute earnings per share and to restate all prior periods. The impact of
Statement No. 128 on the calculation of earnings per share for these periods is
not expected to be material.
VALUATION OF REAL ESTATE INVESTMENTS
Real estate investments are carried at cost, net of accumulated depreciation and
any impairment losses. On August 1, 1996, the Trust adopted FASB 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
specific long-lived assets used in operations where indicators of impairment are
present and the undiscounted cash flows (net realizable value) estimated to be
generated by those assets are less than the assets' carrying amount. Prior to
August 1, 1996, the Trust's real estate investments were carried net of an
allowance for possible investment losses. The Trust's allowance for possible
investment losses was based upon management's estimate of the net realizable
value of each investment, and to the extent this was less than the carrying
value of an investment, an allowance for possible investment losses was
established. The adoption of Statement No. 121 did not have any effect on the
Trust's financial position or results of operations. However, the carrying
values of certain real estate assets were written down against available
reserves.
2. REAL ESTATE INVESTMENTS
STRUCTURED TRANSACTIONS HELD DIRECTLY BY THE TRUST
Investments in land leasebacks and/or mortgage loans are classified as
Structured Transactions.
In June 1997, the Trust's Lakeside Center land investment was purchased by the
Trust's lessee for $2,350,000. The Trust's investment in this property was
$350,000, resulting in a gain to the Trust of $1,944,000 after closing costs.
During the quarter ended March 31, 1997, the Trust sold its land investment in
the Chicago City Centre Holiday Inn to an unrelated third party for $20,577,000.
The Trust's investment in this property was $2,000,000, resulting in a gain to
the Trust of $18,577,000.
INVESTMENT PARTNERSHIPS
Certain of the Trust's investments have been made through partnerships in which
the Trust is the general partner and other institutional investors are limited
partners (the "Investment Partnerships"). Based upon generally accepted
accounting principles, the Trust uses the equity method to account for its
Investment Partnerships.
In June 1997, Telegraph Hill apartments, held in PCA Southwest Associates
Limited Partnership, was sold for $13,750,000. The Trust realized a gain of
$857,000 on the sale. With this sale, all investments made by Investment
Partnerships have now been sold.
ASSETS HELD FOR SALE DIRECTLY BY THE TRust
Subsequent to the end of the quarter, the Trust sold Citibank Office Plaza -
Schaumburg at its carrying value. At June 30, 1997, the Trust had three
investments with a total carrying value of $61,614,000 classified as Assets Held
for Sale directly by the Trust, Loehmann's Fashion Island, One Park West and
Citibank Office Plaza - Schaumburg.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
A Condensed Combined Summary of Income for the unconsolidated Investment
Partnerships for the periods indicated follows:
Investment Partnerships
CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
REVENUES
<S> <C> <C> <C> <C>
Rents from Owned Properties $ 859,000 $ 3,838,000 $ 1,882,000 $ 8,742,000
Structured Transactions
Base income -- 331,000 -- 796,000
Overage income -- 21,000 -- 63,000
Other income 26,000 49,000 49,000 88,000
----------- ----------- ----------- -----------
885,000 4,239,000 1,931,000 9,689,000
----------- ----------- ----------- -----------
EXPENSES
Owned Properties expenses 640,000 2,224,000 1,332,000 4,995,000
Depreciation -- 204,000 114,000 468,000
Interest 72,000 336,000 279,000 728,000
Other 20,000 222,000 40,000 496,000
----------- ----------- ----------- -----------
732,000 2,986,000 1,765,000 6,687,000
----------- ----------- ----------- -----------
INCOME BEFORE GAIN (LOSS) ON REAL ESTATE
INVESTMENTS 153,000 1,253,000 166,000 3,002,000
GAIN (LOSS) ON REAL ESTATE INVESTMENTS
Gain on sale of real estate investments 1,885,000 1,012,000 1,885,000 941,000
Write-down of real estate investments -- -- -- (3,917,000)
-----------
NET INCOME $ 2,038,000 $ 2,265,000 $ 2,051,000 $ 26,000
=========== =========== =========== ===========
INCOME BEFORE GAIN (LOSS) ON REAL ESTATE
INVESTMENTS
Trust's share of income before gain (loss) on
real estate investments $ 85,000 $ 581,000 $ 90,000 $ 1,414,000
Limited partners share of income before
gain (loss) on real estate investments 68,000 672,000 76,000 1,588,000
GAIN (LOSS) ON REAL ESTATE INVESTMENTS
Trust's share of gain on sale of real
estate investments 857,000 531,000 857,000 493,000
Limited partners share of gain on sale of
real estate investments 1,028,000 481,000 1,028,000 448,000
Trust's share of write-down of real estate
investments (previously recorded by the Trust) -- -- -- (1,965,000)
Limited partners share of write-down of real
estate investments -- -- -- (1,952,000)
-----------
NET INCOME $ 2,038,000 $ 2,265,000 $ 2,051,000 $ 26,000
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS PLAN
The Trust currently operates under a business plan (the "Business Plan") which
provides for the orderly disposition of all of the Trust's investments. 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 net proceeds from the sales of its properties to retire
debt, make distributions to the Trust's shareholders and to satisfy the Trust's
cash needs. The Trust intends to utilize future net sales proceeds to make
distributions to its shareholders and to satisfy its cash needs.
At June 30, 1997, the Trust had nine investments remaining. 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 July 25, 1997, that the bulk of the Trust's
remaining investments would be sold within a year and that the amount of
distributions its shareholders would receive after July 1997 from the
disposition of the Trust's investments would be between $6.80 and $7.30 per
share (inclusive of the $1.15 per share special dividend payable on August 22).
This resulted in an increase in management's estimate of total special
dividends, including those previously paid and the special dividend to be paid
on August 22, to between $12.75 and $13.25 per share from the approximately
$12.00 per share previously estimated by the Trust. To date the Trust has paid
$5.95 per share in special dividends (exclusive of the $1.15 per share declared
on July 25 and payable on August 22). The foregoing statements are
forward-looking statements and are estimates subject to a number of factors and
other uncertainties, certain of which are described below. See "Special Note
Regarding Forward-Looking Statements."
As a result of the disposition of investments and the payment of special
dividends from proceeds of the sale of the Trust's investments, certain
operating results which have historically been utilized to judge the Trust's
financial performance (such as Funds from Operations) have decreased and are
expected to continue to decrease. Shareholders are urged to read the following
discussion of Results of Operations with this fact in mind.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Trust's debt at June 30, 1997 was $36,469,000 versus $36,650,000 at December
31, 1996. The Trust's debt to equity ratio was .58x at June 30, 1997 and .60x at
December 31, 1996. All of the Trust's debt consists of first mortgage debt on
its Owned Properties. The Trust has a revolving bank line which the Trust
believes is adequate to meet its working capital requirements for the
foreseeable future. At June 30, 1997 there were no outstanding borrowings under
the line. The bank line was reduced from $10,000,000 to $5,000,000 during the
quarter ended March 31, 1997.
FUNDS FROM OPERATIONS
Funds from operations is calculated by the Trust consistent with the National
Association of Real Estate Investment Trusts' definition (funds from operations
equals net income, excluding gains (losses) from debt restructurings, sales of
properties and nonrecurring items, plus depreciation and amortization and after
adjustment for unconsolidated partnerships and joint ventures). Funds from
operations should be considered in conjunction with net income as presented in
the Trust's unaudited consolidated financial statements. Funds from operations
does not represent cash provided by operating activities in accordance with
generally accepted accounting principles and should not be considered as a
substitute for net income as a measure of results of operations or for cash
provided by operating activities as a measure of liquidity.
8
<PAGE>
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
As provided for in the Business Plan, the Trust is disposing of all of its
assets. As a result, the Trust's funds from operations and net income are
expected to decline as assets are sold and the net proceeds are distributed to
shareholders. Funds from operations was calculated by the Trust as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
1997 1996 1997 1996
---------- --------- --------- ----------
Income before Gain on Sale of Real Estate
<S> <C> <C> <C> <C>
Investments and Extraordinary Item $1,228,000 $1,256,000 $1,750,000 $1,561,000
Depreciation of Owned Properties held directly
by the Trust 124,000 869,000 1,055,000 2,012,000
Trust's share of depreciation from unconsolidated
Investment Partnerships -- 73,000 52,000 174,000
---------- ---------- ---------- ----------
$1,352,000 $2,198,000 $2,857,000 $3,747,000
========== ========== ========== ==========
</TABLE>
REVIEW OF SIGNIFICANT REAL ESTATE ACTIVITY DURING THE SIX MONTHS
ENDED JUNE 30, 1997
At June 30, 1997, the Trust's principal asset was its portfolio of real estate
investments, which consisted of nine properties, comprised of three apartment
complexes, three office buildings, two shopping centers and one hotel. Set forth
below is a discussion of significant changes in the portfolio during the six
months ended June 30, 1997.
APARTMENTS
Telegraph Hill apartments, located in Houston, Texas, and held in an Investment
Partnership, was sold in June 1997. The Trust's share of the sales proceeds was
$1,300,000 and the Trust realized a gain from the sale of $857,000 ($.09 per
share). The Trust is currently in discussion with the lessees of Sandpiper Cove
apartments, located in Boynton Beach, Florida, and Elm Creek apartments, located
in Elmhurst, Illinois, regarding their repurchase of the Trust's investments.
Though no formal agreement has been reached, sales of both investments are
anticipated in the third quarter.
OFFICE BUILDINGS
Citibank Office Plaza - Schaumburg, located in Schaumburg, Illinois, was sold
subsequent to the end of the second quarter at its book value. The Trust
received sales proceeds of approximately $8,700,000. One Park West, located in
Chevy Chase, Maryland, was originally offered for sale in the summer of 1996. At
that time, the Trust was not satisfied with the prices offered by prospective
purchasers and the offering was withdrawn. Subsequently, the Trust leased a
significant amount of space that was becoming available. The property has been
remarketed for sale and management is in contract negotiation with a prospective
purchaser.
SHOPPING CENTERS
Loehmann's Fashion Island, located in Aventura, Florida, was reclassified to an
Asset Held for Sale directly by the Trust at March 31, 1997. The Trust is
currently negotiating with prospective purchasers.
The Trust's lessee of Lakeside Center located in Burbank, California,
repurchased the Trust's $350,000 land investment in June 1997 for $2,350,000 and
the Trust realized a gain on the sale of $1,944,000 ($.20 per share).
9
<PAGE>
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
HOTELS
In January 1997, the Trust sold its land investment in City Centre Holiday Inn
located in Chicago, Illinois, for $20,577,000. The Trust's investment in this
project was $2,000,000 resulting in a gain to the Trust of $18,577.000.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 VERSUS
THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
REVENUES
Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) decreased 6% for the three months ended June 30, 1997, as
compared to the same period in the prior year, due to decreased occupancy at One
Park West, offset by a lease termination payment of $120,000 received from a
former tenant at Citibank Office Plaza - Schaumburg. Rents from Owned Properties
held directly by the Trust increased 1% for the six months ended June 30, 1997,
as compared to the same period in the prior year, due to the receipt of a lease
termination payment of $300,000 in the first quarter from a former tenant at
Loehmann's Fashion Island and the termination payment noted above offset by the
decreased occupancy noted above and the sale of Citibank Office Plaza - Oak
Brook in January 1996. Rents from Owned Properties held directly by the Trust
include rents from One Park West, Loehmann's Fashion Island and Citibank Office
Plaza - Schaumburg (which was sold subsequent to the end of the quarter) which
are classified as Assets Held for Sale directly by the Trust.
Base income from Structured Transactions held directly by the Trust decreased by
8% and 5%, respectively, and overage income decreased by 44% and 46%,
respectively, for the three and six months ended June 30, 1997 as compared to
the same periods in the prior year. These decreases were primarily due to the
sale of the City Centre Holiday Inn investment in January 1997.
The Trust's share of income from unconsolidated Investment Partnerships
decreased 85% and 94%, respectively, for the three and six months ended June 30,
1997, as compared to the same periods in the prior year, primarily due to the
dispositions of the College Hills 3 investment in March 1996, the College Hills
8 and Financial Plaza investments in April 1996, the St. Charles and Boardwalk
investments in June 1996, the Canyon View II investment in August 1996, Plaza
West Retail Center in October 1996 and Telegraph Hill in June 1997. In addition,
the first mortgage investment in the Lisle Hilton Inn was repaid in June 1996.
Interest income decreased 77% and 29%, respectively, for the three and six
months ended June 30, 1997 as compared to the same periods in the prior year.
Interest income is earned on net proceeds received by the Trust from the sale of
its investments and invested until they are distributed to shareholders in the
form of special dividends. More sales proceeds were available for investment in
the prior year than in the current year. Advisory fee income decreased 87% and
91%, respectively, for the three and six months ended June 30, 1997, as compared
to the same periods in the prior year, due to the sale of investments held by
the Investment Partnerships noted above.
EXPENSES
Expenses on Owned Properties held directly by the Trust increased 12% and 4%,
respectively, for the three and six months ended June 30, 1997 primarily due to
the payment of $125,000 in settlement of litigation with a tenant at Loehmann's
Fashion Island. Interest expense decreased 21% and 29%, respectively, for the
three and six months ended June 30, 1997, as compared to the same periods in 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 the fiscal
year ended July 31, 1996.
Depreciation expense decreased 86% and 48%, respectively, for the three and six
months ended June 30, 1997, as compared to the same periods in the prior year,
due to the elimination of depreciation on Citibank Office Plaza - Schaumburg and
Loehmann's Fashion Island in March 1997 and One Park West in July 1996 upon
their reclassification to Assets Held for Sale directly by Trust, offset by the
write-off of certain tenant improvements due to early lease terminations at
Loehmann's Fashion Island. General and administrative expenses decreased 40% and
42%, respectively, for the three and six months ended June 30, 1997, as compared
to the same periods in the prior year, primarily due to the accrual of severance
arrangements for certain of the Trust's employees in conjunction with the
implementation of the Business Plan. Professional fees decreased by 66% and 43%,
respectively, for the three and six months ended June 30, 1997, as compared to
the same periods in the prior year, primarily due to the reduced size of the
investment portfolio.
10
<PAGE>
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
GAIN ON SALE OF REAL ESTATE INVESTMENTS
Net income for the six months ended June 30, 1997 included a gain on sale of
real estate investments of $21,378,000, comprised of $1,944,000 from the sale of
Lakeside Center in June 1997, $857,000 from the sale of the Telegraph Hill
apartments in June 1997 and $18,577,000 from the sale of City Centre Holiday Inn
investment in January 1997. For the six months ended June 30, 1996, net income
included a gain on sale of real estate investments of $2,283,000, comprised of
$443,000 from the sale of College Hills 8 in April 1996, $1,320,000 from the
sale of the land underlying Bluffs II in May 1996, $50,000 from the sale of the
St. Charles and Boardwalk apartments in June 1996 and $470,000 from the sale of
Citibank Office Plaza - Oak Brook in January 1996.
EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT
Net income for the six months ended June 30, 1996, reflected an extraordinary
loss from extinguishment of debt of $287,000 related to the write-off of
original issuance costs when the Trust redeemed its Convertible Subordinated
Debentures.
DIVIDENDS
For the three months ended June 30, 1997, the Trustees declared a regular
quarterly dividend of $.06 per share and a special dividend of $1.15 per share,
each payable August 22, 1997 to shareholders of record on August 11, 1997. Due
to the magnitude of the dividends declared in relation to the Trust's stock
price at that time, the American Stock Exchange has determined that the Trust's
shares will trade ex-dividend on August 25, 1997. The Trust has been paying
regular dividends approximately 55 days following the end of each fiscal
quarter.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in Item 1 "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, 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.
11
<PAGE>
PART II. OTHER INFORMATION
NONE
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Trust
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PROPERTY CAPITAL TRUST
----------------------
REGISTRANT
/S/ ROBIN W. DEVEREUX
---------------------
Robin W. Devereux
Vice President and Chief Financial Officer
Date: August 14, 1997
13
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