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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD ____________
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
incorporation or organization) Identification Number)
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 1, 1998: 9,584,220
<PAGE>
PROPERTY CAPITAL TRUST
INDEX
Page
PART I. FINANCIAL INFORMATION Number
- ------------------------------ ------
ITEM 1. FINANCIAL INFORMATION
Consolidated Balance Sheets - June 30, 1998 (unaudited)
and December 31, 1997 2
Consolidated Statements of Income -
Three and Six Months Ended June 30, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Shareholders' Equity -
Six Months Ended June 30, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-9
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10-11
1
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL INFORMATION
PROPERTY CAPITAL TRUST
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
------------------------------
(Unaudited)
ASSETS
Real Estate Investments
Assets Held for Sale directly by the Trust $ - $ 15,077,000
Cash and cash equivalents 11,043,000 3,160,000
Interest and rents receivable 5,000 280,000
Other assets 12,000 2,666,000
------------ ------------
$ 11,060,000 $ 21,183,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 8,391,000 $ 5,983,000
Accrued interest - 41,000
Mortgage notes payable - 8,345,000
------------ ------------
8,391,000 14,369,000
------------ ------------
Shareholders' Equity
Common Shares (without par value, unlimited
shares authorized, 9,584,220 issued, and
9,584,220 and 9,397,369 outstanding,
respectively) 108,568,000 108,568,000
Accumulated deficit (105,899,000) (100,438,000)
------------ ------------
2,669,000 8,130,000
Less cost of Treasury Shares - (1,316,000)
------------ ------------
Total Shareholders' Equity 2,669,000 6,814,000
$ 11,060,000 $ 21,183,000
============ ============
See accompanying notes
2
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Rents from Owned Properties held directly by the Trust $ (179,000) $2,993,000 $ 421,000 $6,064,000
Structured Transactions held directly by the Trust
Base income 1,716,000 618,000 1,853,000 1,234,000
Overage income 29,000 383,000 107,000 673,000
Income from unconsolidated Investment Partnerships - 85,000 - 90,000
---------- ---------- ---------- ----------
1,566,000 4,079,000 2,381,000 8,061,000
Interest income 62,000 42,000 116,000 196,000
Other income 7,000 - 7,000 -
Advisory fee income - 14,000 - 16,000
---------- ---------- ---------- ----------
1,635,000 4,135,000 2,504,000 8,273,000
---------- ---------- ---------- ----------
EXPENSES
General and administrative expenses 382,000 583,000 747,000 1,049,000
Expenses on Owned Properties held directly by the Trust - 1,423,000 210,000 2,805,000
Trustees' fees and expenses 28,000 24,000 60,000 47,000
Interest - 718,000 10,000 1,457,000
Depreciation - 124,000 - 1,055,000
Professional fees (98,000) 35,000 - 110,000
---------- ---------- ---------- ----------
312,000 2,907,000 1,027,000 6,523,000
---------- ---------- ---------- ----------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE INVESTMENTS 1,323,000 1,228,000 1,477,000 1,750,000
GAIN ON SALE OF REAL ESTATE INVESTMENTS 1,016,000 2,801,000 4,083,000 21,378,000
---------- ---------- ---------- ----------
NET INCOME $2,339,000 $4,029,000 $5,560,000 $23,128,000
========== ========== ========== ==========
NET INCOME PER SHARE
INCOME BEFORE GAIN ON SALE OF REAL ESTATE INVESTMENTS $0.13 $0.13 $0.15 $0.18
GAIN ON SALE OF REAL ESTATE INVESTMENTS 0.11 0.29 0.43 2.24
----- ----- ----- -----
BASIC AND DILUTED NET INCOME PER SHARE $0.24 $0.42 $0.58 $2.42
===== ===== ===== =====
AVERAGE SHARES 9,584,220 9,579,000 9,584,220 9,549,000
========= ========= ========= =========
</TABLE>
See accompanying notes
3
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 5,560,000 $23,128,000
Adjustments to Net Income
Gain on sale of real estate investments (4,083,000) (21,378,000)
Depreciation and amortization - 1,148,000
Income from unconsolidated Investment Partnerships - (90,000)
Distributions of income from Investment Partnerships - 2,000
Changes in assets and liabilities
Decrease in interest and rents receivable 275,000 111,000
Decrease in other assets, net 2,654,000 7,000
(Decrease) increase in accounts payable and accrued
expenses and accrued interest (3,984,000) 920,000
----------- -----------
Net Cash Provided by Operating Activities 422,000 3,848,000
----------- -----------
INVESTING ACTIVITIES
Owned Properties held directly by the Trust
Dispositions 4,564,000 -
Additions (65,000) (1,859,000)
Structured Transactions held directly by the Trust
Dispositions/repayments 6,316,000 22,877,000
Investment Partnerships
Distributions in excess of income - 1,404,000
----------- -----------
Net Cash Provided by Investing Activities 10,815,000 22,422,000
----------- -----------
FINANCING ACTIVITIES
Cash dividends paid (3,354,000) (22,489,000)
Scheduled amortization of mortgage notes payable - (181,000)
Proceeds from exercise of stock options - 515,000
----------- -----------
Net Cash Used in Financing Activities (3,354,000) (22,155,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,883,000 4,115,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,160,000 1,648,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,043,000 $ 5,763,000
=========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
PROPERTY CAPITAL TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON SHARES
Balance at beginning of period $108,568,000 $108,053,000
Stock options exercised - 515,000
------------ ------------
Balance at end of period 108,568,000 108,568,000
------------ ------------
ACCUMULATED DEFICIT
Balance at beginning of period (100,438,000) (45,319,000)
Net income 5,560,000 23,128,000
Cash dividends paid or declared (11,021,000) (22,489,000)
------------ ------------
Balance at end of period (105,899,000) (44,680,000)
------------ ------------
TREASURY SHARES
Balance at beginning of period (1,316,000) (1,362,000)
Distribution to Trustees of Treasury Shares included in Rabbi
Trust for the benefit of Trustees (186,851 and 3,981
Treasury Shares, respectively) 1,316,000 26,000
------------ ------------
Balance at end of period - (1,336,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY $ 2,669,000 $ 62,552,000
============ ============
NUMBER OF COMMON SHARES
Common Shares issued at beginning of period 9,584,220 9,400,860
Stock options exercised - 183,360
------------ ------------
Common Shares Issued at End of Period 9,584,220 9,584,220
============ ============
</TABLE>
See accompanying notes
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
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, 1998 and the
results of its operations and its cash flows for the periods ended June 30, 1998
and 1997.
Operating results for the six months ended June 30, 1998 are not indicative of
the results that may be expected for the remainder of calendar 1998. The
information contained in these financial statements should be read in
conjunction with the Trust's 1997 Annual Report on Form 10-K filed with the SEC
on March 31, 1998, as amended by the Trust's Amendment No. 1 on Form 10-K/A
filed with the SEC on April 30, 1998.
2. REAL ESTATE INVESTMENTS
ASSETS HELD FOR SALE DIRECTLY BY THE TRUST
At June 30, 1998, there were no Assets Held for Sale directly by the Trust.
On June 17, 1998, the Trust's Cincinnati Marriott Inn $2,000,000 land investment
was purchased by the Trust's lessee for $2,000,000 and the Trust's related
leasehold mortgages were prepaid at their face amount of $4,316,000. In August
1996, the Trust had allocated $1,016,000 of its former allowance for possible
investment losses to these mortgages. As a consequence, the repayment resulted
in a gain to the Trust of $1,016,000. In addition, the Trust received $1,600,000
of land rent and mortgage interest, earned in 1991 through 1994, which had
previously been written off.
In January 1998, the Trust sold Park Place to an unrelated party for
$14,145,000, resulting in a gain to the Trust of $3,067,000. Previously, in
August 1996, the Trust had allocated $1,239,000 of its former allowance for
possible investment losses to this investment. The property's $8,345,000 first
mortgage was assumed by the buyer.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS PLAN
The Trust has operated under a business plan (the "Business Plan"), which
provided for the orderly disposition of all of the Trust's investments on a
property-by-property basis. 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. Since then, the Trust has utilized net proceeds from the
sales of its properties to retire debt, to make distributions to the Trust's
shareholders and to satisfy the Trust's cash needs.
In the summer of 1997, management of the Trust and the Trustees began to
consider possible alternatives for terminating the Trust. In June 1998, after
discussions with several groups, the Trust announced that it had entered into an
agreement to merge with an affiliate of the Beal Companies, LLP, a Boston based
real estate development and investment company (the "Beal Affiliate"). The
merger is subject to the approval of the Trust's shareholders and, if approved,
such shareholders will retain only a nominal interest in the Trust, which at
that point will hold only those assets contributed by the new controlling
shareholders. In addition, the existing shareholders will be entitled to receive
the net proceeds from litigation to determine the full compensation due for
certain land that was condemned at Loehmann's Fashion Island prior to its sale
(which amount is not expected to exceed $0.10 per share and could be zero).
Although initially expected to close in September 1998, the merger is now
expected to close in November 1998 if it is approved by the Trust's
shareholders. The Beal Affiliate has agreed, commencing October 1, 1998, to
reimburse the Trust for its general office and employee expenses until either
the consummation of the merger or the termination of the transaction.
The proposed merger, if approved, would eliminate the need to establish a
liquidating trust to hold reserves to meet contingent liabilities of the Trust
and the expenses related thereto (which expenses, net of interest income, were
estimated to be $0.03 per share). It would also enable the Trust to distribute
to its then existing shareholders substantially all of its net worth, which is
currently estimated to be $0.23 per share. To date, the Trust has distributed
$13.65 per share (inclusive of the $0.80 per share dividend paid on July 10,
1998) from the proceeds of sales of its assets. If the merger is consummated the
distributions will total approximately $13.88 per share.
The Trust will circulate a proxy statement to shareholders in anticipation of a
shareholder vote on the proposed merger. Full details of the merger and its
consequences will be set forth in the proxy statement.
The American Stock Exchange (the "ASE") has halted trading the Trust's Common
Shares because the Trust has completed the disposition of its real estate in
accordance with its Business Plan and as a result, has fallen below the ASE's
guidelines for continued listing. As a consequence of the implementation of the
Business Plan, the disposition of all of its investments and the payment of
special dividends from the proceeds of sales 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 and Net Income) have
decreased and it is not anticipated that the Trust will generate any net income
in the future.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Trust had no debt at June 30, 1998 as compared to $8,345,000 at December 31,
1997, which was comprised solely of a mortgage loan on Park Place. Park Place
was sold in January 1998 subject to its mortgage loan. The Trust has reviewed
its liquidity needs in view of its Business Plan. The Trust's principal
liquidity needs are to fund normal operating expenses and the minimum dividend
distributions (if any) required to maintain the Trust's REIT status under the
Internal Revenue Code. The Trust expects to fund these liquidity needs from
interest income and cash on hand.
At June 30, 1998, the Trust's entire portfolio of real estate investments had
been disposed of and its principal asset was $11,043,000 in cash.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
On June 17, 1998, the Trust's Cincinnati Marriott Inn $2,000,000 land investment
was purchased by the Trust's lessee for $2,000,000 and the Trust's related
leasehold mortgages were prepaid at their face amount of $4,316,000. In August
1996, the Trust allocated $1,016,000 of its former allowance for possible
investment losses to these mortgages. As a consequence, the repayment resulted
in a gain to the Trust of $1,016,000. In addition, the Trust received $1,600,000
of land rent and mortgage interest, earned between 1991 and 1994, which had
previously been written off.
On January 29, 1998, the Trust sold the Park Place office building in Clayton,
Missouri, for $14,145,000. The Trust realized a gain of $3,067,000 on the sale
of this investment.
During the first quarter of 1998, the Trust terminated the Amended and Restated
Deferred Stock Plan for Non-Employee Trustees. All of its assets, which were
held in a Rabbi Trust, were distributed to the Trustees. Previously, in the
Trust's financial statements, Common Shares held by the Rabbi Trust were
reflected as "treasury stock," the remaining assets were reflected in "other
assets" and the fund balance was reflected in "accounts payable and accrued
expenses."
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 VERSUS
THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
REVENUES
Rents from Owned Properties held directly by the Trust (base rent plus expense
reimbursements) decreased 106% and 93%, respectively, for the three and six
months ended June 30, 1998, as compared to the same periods in the prior year,
due to the sale, in January 1998, of the Park Place office building, the Trust's
last Owned Property held directly by the Trust, and from the adjustment at June
30, 1998 of approximately $200,000 of previously recorded revenues from
Loehmann's Fashion Island, which had been sold in December 1997.
Base income from Structured Transactions held directly by the Trust increased
178% and 50%, respectively, for the three and six months ended June 30, 1998, as
compared to the same periods in the prior year, due to the receipt, in June
1998, of $1,600,000 of land rent and mortgage interest (earned between 1991 and
1994 but previously written off) from the Cincinnati Marriott Inn. The receipt
and recognition of income occurred in conjunction with the disposition of the
Trust's investments in the Cincinnati Marriott Inn.
Overage income from Structured Transactions held directly by the Trust decreased
92% and 84%, respectively, for the three and six months ended June 30, 1998, as
compared to the same periods in the prior year, due to the sale of all but one
of the Trust's remaining Structured Transactions held directly by the Trust in
the first quarter of 1998 and the disposition of the Cincinnati Marriott Inn
investments in June 1998.
Interest income increased 48% for the three months ended June 30, 1998, as
compared to the same period in the prior year, and decreased 41% for the six
months ended June 30, 1998, as compared to the same period in the prior year.
Interest income is earned on net proceeds received by the Trust from the sale of
its investments, which proceeds are invested until they are distributed to
shareholders in the form of special dividends.
EXPENSES
Total expenses decreased 89% and 84%, respectively, for the three and six months
ended June 30, 1998, as compared to the same periods in the prior year, due to
the sale of all but one of the Trust's remaining real estate investments in the
first quarter of 1998 and the disposition of the last real estate investment in
June 1998. Included in total expense decreases were decreases in professional
fees of 380% and 100%, respectively, for the three and six months ended June 30,
1998, as compared to the same periods in the prior year, due to the downward
revision of approximately $140,000 for estimated liabilities for legal and
similar fees payable that were, in fact, not incurred.
GAIN ON SALE OF REAL ESTATE INVESTMENTS
Net income for the six months ended June 30, 1998 included a gain on sale of
real estate investments of $4,083,000, comprised of $1,016,000 from the
prepayment of Cincinnati Marriott Inn's leasehold mortgages at their face amount
in June 1998 and $3,067,000
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
from the sale of the Park Place office building in January 1998. For the six
months ended June 30, 1997, net income included a gain on sale of real estate
investments of $21,378,000, comprised of $1,944,000 from the sale of the
Lakeside Center investment in June 1997, $857,000 from the sale of the Telegraph
Hill apartments in June 1997 and $18,577,000 from the sale of the City Centre
Holiday Inn investment in January 1997.
DIVIDENDS
On June 16, 1998, the Trustees declared a special dividend of $0.80 per share,
payable July 10, 1998 to shareholders of record on July 1, 1998. Due to the
magnitude of the dividend declared in relation to the Trust's stock price at
that time, and the halting of trading after July 10, 1998, the Trust's shares
did not trade ex-dividend on the ASE.
On February 3, 1998, the Trustees declared a special dividend of $0.35 per
share, payable February 27, 1998 to shareholders of record on February 13, 1998.
Due to the magnitude of the dividend declared in relation to the Trust's stock
price at that time, the ASE determined that the Trust's shares would trade
ex-dividend on March 2, 1998.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report 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 prospects for
the Trust to be materially different from any prospects expressed or implied by
such forward-looking statements. Such risks, uncertainties and other factors
include, among others, estimates of the timing, amount and form of future
distributions and management's assessment from time to time as to the
appropriate amount to set aside as reserves to meet both anticipated and
unanticipated liabilities.
9
<PAGE>
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 Financial Data Schedule
(b) Report on Form 8-K:
Current Report dated June 29, 1998, attaching the Trust's press release
dated June 17, 1998 and June 18, 1998.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Trust
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PROPERTY CAPITAL TRUST
----------------------
Registrant
/s/ Robert M. Melzer
--------------------
Robert M. Melzer
President, Chief Executive Officer and
Chief Financial Officer
Date: August 14, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,043,000
<SECURITIES> 0
<RECEIVABLES> 5,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,060,000
<CURRENT-LIABILITIES> 8,391,000
<BONDS> 0
0
0
<COMMON> 108,568,000
<OTHER-SE> (105,899,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,060,000
<SALES> 6,464,000
<TOTAL-REVENUES> 6,587,000
<CGS> 210,000
<TOTAL-COSTS> 957,000
<OTHER-EXPENSES> 60,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> 5,560,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,560,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,560,000
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
