<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A No. 1
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994.
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 1-10272
PROPERTY TRUST OF AMERICA
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 74-6056896
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7777 Market Center Avenue, El Paso, Texas 79912
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(915) 877-3900
-----------------------------------------------------------
(Registrant's telephone number, including area code)
None
------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 for the
past 90 days.
Yes X No
----- -----
The number of shares outstanding of the Registrant's common stock as of July 21,
1994 was:
Shares of Beneficial Interest, $1 par value - 44,749,741 shares
<PAGE>
PROPERTY TRUST OF AMERICA
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . . . 3
Statements of Earnings - Three and Six months
ended June 30, 1994 and 1993. . . . . . . . . . . . . . 4
Statements of Cash Flows - Six months ended
June 30, 1994 and 1993. . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . 6
Independent Accountants' Review Report. . . . . . . . . 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 18
2
<PAGE>
PROPERTY TRUST OF AMERICA
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
----------- ------------
(unaudited)
<S> <C> <C>
Real estate.................................... $1,173,648 $872,610
Less accumulated depreciation.................. 32,615 22,022
---------- --------
1,141,033 850,588
Mortgage notes receivable...................... 22,586 22,624
---------- --------
Total investments.......................... 1,163,619 873,212
Cash and cash equivalents...................... 9,464 5,525
Accounts receivable............................ 986 763
Other assets................................... 11,047 10,801
---------- --------
Total assets............................... $1,185,116 $890,301
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Line of credit............................... $ 103,000 $ 51,500
Long term debt............................... 200,000 -
Mortgages payable............................ 90,053 48,872
Distributions payable........................ - 11,161
Accounts payable............................. 12,136 13,514
Accrued expenses and other liabilities....... 22,191 10,237
---------- --------
Total liabilities.......................... 427,380 135,284
---------- --------
Shareholders' Equity:
Series A Preferred shares (9,200,000
convertible shares authorized and issued;
stated liquidation preference of
$25 per share)............................. 230,000 230,000
Common shares (shares issued - 44,914,218
in 1994 and 44,809,208 in 1993)............ 44,914 44,809
Additional paid-in capital................... 524,614 523,053
Distributions in excess of net earnings...... (39,863) (40,916)
---------- --------
759,665 756,946
Less treasury shares (164,478 in 1994 and
164,467 in 1993)........................... 1,929 1,929
---------- --------
Total shareholders' equity................. 757,736 755,017
---------- --------
Total liabilities and
shareholders' equity..................... $1,185,116 $890,301
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
PROPERTY TRUST OF AMERICA
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income................... $43,390 $16,881 $80,804 $30,980
Interest and other income....... 644 445 1,508 887
------- ------- ------- -------
44,034 17,326 82,312 31,867
------- ------- ------- -------
Expenses:
Rental expenses................. 18,864 6,738 34,696 12,322
Depreciation.................... 5,841 2,241 10,791 4,252
Interest........................ 5,105 972 8,259 2,061
General and administrative and
REIT management fee........... 3,184 1,725 6,337 3,092
Provision for possible loss on
investments................... - 2,270 1,600 2,270
Other........................... 275 33 352 35
------- ------- ------- -------
33,269 13,979 62,035 24,032
------- ------- ------- -------
Earnings from operations.......... 10,765 3,347 20,277 7,835
Gain on sale of investments, net.. - 2,302 - 2,302
------- ------- ------- -------
Net earnings...................... 10,765 5,649 20,277 10,137
Less Series A Preferred
share distributions............. 4,025 - 8,050 -
------- ------- ------- -------
Net earnings attributable to
common shares................ $ 6,740 $ 5,649 $12,227 $10,137
======= ======= ======= =======
Weighted average common shares
outstanding..................... 44,724 35,263 44,696 33,039
======= ======= ======= =======
Per share amounts attributable
to common shares:
Net earnings.................... $ 0.15 $ 0.16 $ 0.27 $ 0.31
======= ======= ======= =======
Distributions................... $ 0.25 $ 0.205 $ 0.50 $ 0.41
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PROPERTY TRUST OF AMERICA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings................................... $ 20,277 $ 10,137
Items not requiring (providing) cash:
Depreciation and amortization................ 12,166 4,839
Other, net................................... - 122
Provision for possible loss on
investments................................ 1,600 2,270
Gain on sale of investments, net............. - (2,302)
Accounts and accrued interest receivable....... (223) (5,675)
Accounts payable............................... 261 833
Accrued real estate taxes...................... 3,513 125
Accrued other expenses and other liabilities... 3,042 785
Net change in other operating assets........... 507 (1,796)
--------- ---------
Net cash flow provided by operating
activities................................. 41,143 9,338
--------- ---------
INVESTING ACTIVITIES:
Real estate investments........................ (268,342) (121,444)
Sale of real estate property, net.............. 5,959 6,209
Mortgage notes receivable...................... 38 9
Other.......................................... - (126)
--------- ---------
Net cash flow used in investment activities.. (262,345) (115,352)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from sale of shares,
net of expenses.............................. - 129,512
Proceeds from line of credit................... 163,750 91,000
Proceeds from dividend reinvestment
and share purchase plan, net................. 1,955 4,735
Proceeds from long term debt................... 200,000 -
Accrued interest on long term debt............. 5,429 -
Proceeds from exercise of stock options, net... 21 205
Cash distributions paid on common shares....... (22,335) (12,764)
Cash distributions paid on preferred shares.... (8,050) -
Debt issuance costs incurred................... (2,268) (83)
Regularly scheduled principal payments on
mortgages payable............................ (602) (284)
Prepayments of mortgages payable............... (199) (5,513)
Principal payments on line of credit........... (112,250) (95,792)
Purchase of treasury shares.................... - (114)
Other.......................................... (310) -
--------- ---------
Net cash flow provided by
financing activities....................... 225,141 110,902
--------- ---------
Net increase in cash and cash equivalents........ 3,939 4,888
Cash at beginning of period...................... 5,525 6,998
--------- ---------
Cash at end of period............................ $ 9,464 $ 11,886
========= =========
Non-cash financing activities:
Receipt of purchase notes from sale of
non-multifamily investments.................. $ - $ 11,500
Mortgage notes assumed or given upon purchase
of multifamily properties.................... $ 41,982 $ 5,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
June 30, 1994
(1) GENERAL
The financial statements of Property Trust of America ("PTR") are
unaudited and certain information and footnote disclosures normally
included in financial statements have been omitted. Certain amounts in the
financial statements for 1993 have been reclassified to conform to the 1994
presentation. While management of PTR believes that the disclosures
presented are adequate, these interim financial statements should be read
in conjunction with the financial statements and notes included in PTR's
1993 Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements contain all normal recurring adjustments necessary for a fair
presentation of PTR's financial statements for the interim period. The
results of operations for the three and six month periods ended June 30,
1994 are not necessarily indicative of the results to be expected for the
entire year.
Per share data is computed by using the weighted average of common
shares outstanding during the period. The assumed conversion of the
Cumulative Convertible Series A Preferred Shares of Beneficial Interest,
("Preferred Shares") was antidilutive for the six months ended June 30,
1994.
(2) REAL ESTATE
Investments in real estate, at cost, were as follows (dollar amounts
in thousands):
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
------------------ -----------------
Investment Units Investment Units
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Multifamily:
Operating properties...... $1,003,942 29,138 $730,994 22,493
Developments under
construction............ 93,342 3,489 84,395 3,048
Developments in planning.. 27,013 3,691 17,490 2,550
Land held for future
development.............. 15,616 4,208
---------- --------
Total Multifamily....... 1,139,913 837,087
Non-multifamily............. 33,735 35,523
---------- --------
Total real estate....... $1,173,648 $872,610
========== ========
</TABLE>
The change in investments in real estate, at cost, from December 31,
1993 to June 30, 1994 consisted of the following (in thousands):
Balance at December 31, 1993............. $872,610
Acquisitions, including renovation
expenditures........................... 218,553
Development expenditures including land
acquisitions........................... 76,928
Capital improvements..................... 1,228
Real estate sold......................... (6,047)
Acquisition of land held for future
development............................ 12,105
Provision for possible loss on
investments............................ (1,600)
Other.................................... (129)
--------
6
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
June 30, 1994
Balance at June 30, 1994.................. $1,173,648
==========
At July 21, 1994, PTR had contingent contracts or letters of intent,
subject to PTR's final due diligence, for the acquisition or near term
development of 5,015 multifamily units in various southwestern cities with
an aggregate acquisition, improvement and development cost of $197.2
million.
At July 21, 1994, PTR had unfunded development commitments for
developments under construction of $66 million.
PTR's strategy is to focus on the ownership of multifamily properties.
Accordingly, periodic sales of non-multifamily assets have occurred and may
continue to occur as favorable sales opportunities arise. Properties are
periodically evaluated for net realizable value and provisions for possible
losses are made if required.
PTR develops and acquires properties with a view to effective long
term operation and ownership. Over the long term, market and submarket
demographics and economics are likely to change. PTR may from time to time
dispose of assets that in management's view have below average cash flow
growth prospects and redeploy the sales proceeds, generally through like
kind exchanges, into assets that it believes provide better growth
opportunities. Additionally, PTR may on occasion acquire, as a part of a
larger portfolio acquisition, properties that do not meet PTR's long term
investment criteria. In such cases, PTR will sell those properties and
redeploy the funds into properties that do meet its investment criteria.
PTR sold a 258 unit middle income multifamily property in April, 1994
and a 280 unit middle income multifamily property in July 1994. Both
properties had been acquired in a portfolio transaction but did not meet
PTR's long term investment criteria. The properties were sold at an amount
substantially equivalent to their acquisition cost.
PTR is a minority partner with a 40% interest in a partnership which
owns and operates an office building near Dallas, Texas. During the first
quarter of 1994, the partnership adopted a strategy of disposing of the
property rather than continuing to hold the property as a long term
investment. As a result, the managing partner evaluated the building for
net realizable value which resulted in a provision for possible loss of $4
million. PTR's share of the loss provision is $1.6 million as reflected in
the June 30, 1994 statement of earnings. PTR's net carrying value after the
provision is $2.9 million. This provision has no impact on cash flow from
operating activities nor does PTR have any financial obligation to the
partnership.
(3) DISTRIBUTIONS
On July 11, 1994, the Trustees declared a cash distribution of $.25
per common share to be paid on August 12, 1994 to shareholders of record on
July 21, 1994.
(4) LINE OF CREDIT AND LONG TERM DEBT
Line of Credit
On August 4, 1994, PTR consummated a conversion of its $200 million
revolving line of credit facility with Texas Commerce Bank, National
Association, as agent bank for a group of lenders ("TCB") into an unsecured
facility. Borrowings bear interest at the greater of prime or the federal
funds rate plus 1/2%, or at PTR's option, LIBOR plus 1.75% to
7
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
June 30, 1994
2% (varying based upon PTR's Standard & Poors rating). Additionally, there
is a commitment fee of .125% per annum of the average unfunded line of
credit balance.
The TCB line matures August 15, 1995 and may be extended annually for
an additional year with the approval of TCB and other participating
lenders. A request for extension through August 1996 has been submitted
and is expected to be approved. All debt incurrences are subject to
covenants, as more fully defined in the loan agreement, that PTR maintain
(i) an interest coverage ratio of not less than 2:1, (ii) a debt to
tangible net worth ratio no greater than 1:1 and (iii) an unencumbered pool
of real estate properties with an aggregate historical cost of at least
175% of unsecured indebtedness.
Long Term Debt
On February 8, 1994, PTR issued $100 million of 6.875% Senior Notes
due 2008 ("the 2008 Notes") and $100 million of 7.5% Senior Notes due 2014
("the 2014 Notes"), collectively referred to as "the Notes".
In February 1994, PTR received $1.3 million in settlement of an
interest protection agreement in the form of a Forward Treasury Lock
Agreement entered into with an investment banker on January 28, 1994. The
agreement included a determination date of February 1, 1994 and a
settlement date of February 2, 1994. The notional amounts were $100 million
with a reference price of 100.90625% and $75 million with a reference price
of 110.4375%. On February 2, 1994, the settlement prices were 100.32813%
and 109.46875%, respectively. There are no agreements outstanding.
The 2008 Notes bear interest at 6.875% per annum and require annual
principal payments of $12.5 million, commencing February 15, 2001. The
2014 Notes bear interest at 7.5% per annum and require annual principal
payments of $10 million in 2009, $12.5 million in 2010, $15 million in
2011, $17.5 million in 2012, $20 million in 2013 and $25 million in 2014.
Collectively, the Notes have an average life to maturity of 14.25 years and
an average effective interest cost, inclusive of offering discounts,
issuance costs and proceeds from the interest rate protection agreement
described above, of 7.37% per annum. The Notes are redeemable any time at
the option of PTR, in whole or in part, at a redemption price equal to the
sum of the principal amount of the Notes being redeemed plus accrued
interest thereon to the redemption date plus a yield to maturity
adjustment. The Notes are governed by the terms and provisions of an
indenture agreement ("the Indenture") between PTR and State Street Bank and
Trust Company, as trustee.
Under the terms of the Indenture, PTR can incur additional debt only
if, after giving effect to the debt being incurred and application of
proceeds therefrom, (i) the ratio of debt to total assets, as defined in
the Indenture, does not exceed 60%, (ii) the ratio of secured debt to total
assets, as defined in the Indenture, does not exceed 40%, and (iii) PTR's
pro forma interest coverage ratio, as defined in the Indenture, for the
four preceding fiscal quarters is not less than 1.5.
Interest
8
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
June 30, 1994
Interest paid for the six months ended June 30, 1994 was $3,339,000,
including $2,539,000 of interest capitalized during construction. Interest
paid for the six months ended June 30, 1993 was $2,031,000, including
$670,000 of interest capitalized during construction.
Amortization of debt issuance costs included in interest expense for
the six months ended June 30, 1994 and 1993 was $1,375,000 and $587,000,
respectively.
(5) REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
In March 1994, PTR renewed its REIT Management agreement with Security
Capital (Southwest) Incorporated (the "REIT Manager"), to provide REIT
Management services to PTR. The REIT Manager is an affiliate of Security
Capital Realty Incorporated, which owns approximately 26.98% of PTR's
shares of beneficial interest. In exchange for providing research,
investment analysis, acquisition and development services, asset
management, capital funding, legal and accounting services, and day-to-day
management of PTR's operations, the REIT Management agreement permits the
REIT Manager to earn a base annual fee of $855,000, plus 16% of cash flow
per year, as defined in the REIT Management agreement, in excess of
$4,837,000. Under the terms of the agreement, long term debt described in
Note 4 above, is treated as if it had regularly scheduled principal and
interest payments like a 20-year, level monthly payment, fully amortizing
mortgage and the assumed principal and interest payments are deducted from
cash flow in determining the fee. The REIT Manager also receives a fee of
0.25% per year on the average daily balance of cash equivalent investments.
The REIT Management fee for the six months ended June 30, 1994 was
$6,011,000 and $2,817,000 for the six months ended June 30, 1993.
SCG Realty Services Incorporated ("SCG Realty Services"), currently
manages approximately 88% of PTR's multifamily properties. In addition to
property management, SCG Realty Services performs, among other things,
certain due diligence services for PTR's acquisitions. An affiliate of
PTR's REIT Manager owns 100% of SCG Realty Services' voting stock. For the
six months ended June 30, 1994 and 1993, PTR paid an aggregate of $2.9
million and $1.4 million, respectively, to SCG Realty Services, including
$2.7 million and $1.1 million, respectively, in property management fees.
Rates for services performed by SCG Realty Services are subject to approval
by PTR's independent Board of Trustees and are at rates prevailing in the
markets in which PTR operates.
(6) RIGHTS OFFERING
PTR filed a final prospectus relating to a Rights Offering of
5,593,718 common shares of beneficial interest at a price of $18 1/4 per
share ($102,085,354) on July 21, 1994. Under the terms of the Rights
Offering, PTR can issue additional shares of up to 2,625,460 for a total
offering of 8,219,178 ($150,000,000). PTR's shareholders of record on July
21, 1994 will receive a dividend of one right for each PTR share they own.
Eight rights will be required to purchase one PTR share for $18 1/4 in the
Rights Offering. The Rights Offering will expire on August 16, 1994.
Security Capital Realty Incorporated, PTR's principal shareholder and an
affiliate of the REIT Manager, has agreed to exercise in full its Rights to
acquire PTR shares in the offering at the same price paid by the public
($18 1/4 per share) and may seek to acquire additional Rights in open-
9
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
June 30, 1994
market purchases. Proceeds from the offering will be used to fund
developments and to invest in additional multifamily properties in PTR's
target market and to repay borrowings under PTR's revolving line of credit.
On July 11, 1994, the Board of Trustees of PTR announced the
redemption, effective at the close of business on July 21, 1994, of the
shareholder purchase rights issued pursuant to the Rights Agreement dated
as of February 23, 1990, as amended. Pursuant to the redemption, each
holder of record at the close of business on July 21, 1994 is entitled to
receive $0.01 per shareholder purchase right. The redemption price is
payable on August 12, 1994.
In addition, the Board of Trustees declared a dividend of one
preferred share purchase right (a "Purchase Right") for each Common Share
outstanding, payable to holders of Common Shares of record at the close of
business on July 21, 1994. Each Purchase Right entitles the holder under
certain circumstances to purchase from PTR one one-hundredth of a share of
Series B Junior Participating Preferred Share, par value $1.00 per share
(the "Participating Preferred Shares") at a price of $60.00 per one one-
hundredth of a Participating Preferred Share, subject to adjustment.
Purchase Rights are exercisable when a person or group of persons acquires
20% or more of the outstanding Common Shares (49% in the case of Security
Capital Realty and certain defined affiliates) or announces a tender offer
for 25% or more of the outstanding Common Shares. Under certain
circumstances, each Purchase Right entitles the holder to purchase, at the
Purchase Right's then current exercise price, a number of Common Shares
having a market value of twice the Purchase Right's exercise price. The
acquisition of PTR pursuant to certain mergers or other business
transactions would entitle each holder to purchase, at the Purchase Right's
then current exercise price, a number of the acquiring company's common
shares having a market value at that time equal to twice the Purchase
Right's exercise price. The Purchase Rights will expire in July 2004 and
are subject to redemption in whole, but not in part, at a price of $0.01
per Purchase Right payable in cash, shares of PTR or any other form of
consideration determined by PTR's Board of Trustees.
10
<PAGE>
Independent Accountants' Review Report
--------------------------------------
The Board of Trustees and Shareholders
Property Trust of America:
We have reviewed the accompanying balance sheet of Property Trust of America as
of June 30, 1994, and the related statements of earnings for the three- and six-
month periods ended June 30, 1994 and 1993, and the statements of cash flows for
the six-month periods ended June 30, 1994 and 1993. These financial statements
are the responsibility of the Trust's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Property Trust of America as of December 31,
1993, and the related statements of earnings, shareholders' equity, cash flows
for the year then ended, and the related Schedule XI (not presented herein); and
in our report dated January 18, 1994, except as to note 10, which is as of
February 8, 1994, we expressed an unqualified opinion on those financial
statements and schedule. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 1993 is fairly presented, in all
material respects, in relation to the balance sheet from which is has been
derived.
KPMG PEAT MARWICK LLP
El Paso, Texas
July 27, 1994
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
PTR's operating results depend primarily upon income from multifamily
properties, which is substantially influenced by (i) the demand for and supply
of multifamily units in PTR's target market and submarkets, (ii) rental expense
levels, and (iii) the pace and price at which PTR can develop and acquire
additional multifamily properties. Capital and credit market conditions which
affect PTR's cost of equity and debt capital also influence operating results.
PTR's target market and submarkets have benefitted substantially in recent
periods from demographic trends (including job and population growth) which
increase the demand for multifamily units while financing constraints
(specifically, reduced availability of development capital) have limited new
construction to levels substantially below construction activity prior to 1986.
Consequently, rental rates for multifamily units have increased more than the
inflation rate for the last two years and are expected to continue experiencing
such increases for the next twelve months. Rental expense levels also influence
operating results, and rental expenses (other than real estate taxes) for
multifamily properties have generally increased at approximately the same rate
as rents for the past year and are expected to increase at a comparable rate for
the next twelve months.
REIT Management believes that development of multifamily properties from
the ground up which are built for long term ownership and are designed to meet
broad renter preferences and demographic trends will provide a greater source of
long term cash flow growth in the future. Therefore, while land prices are
favorable, PTR has acquired and will acquire, on an unleveraged basis, prudent
amounts of zoned land for multifamily development in the foreseeable future.
The REIT Manager believes PTR's ability to compete is significantly enhanced
relative to other companies because of the REIT Manager's depth of development
and acquisition personnel and presence in local markets combined with PTR's
access to investment capital.
RESULTS OF OPERATIONS
INTERIM PERIOD COMPARISON
During the six months ended June 30, 1994, PTR acquired 16 multifamily
properties aggregating 5,405 units for a total purchase price, including planned
renovations, of approximately $221 million and completed development of 7
multifamily properties aggregating 1,498 units with a completed cost of $59.7
million. At June 30, 1994, PTR had 3,489 multifamily units under construction
with a budgeted completed cost of $159.3 million and had in the final planning
stages an estimated 3,691 multifamily units with an aggregate budgeted completed
cost of $177.1 million. During the six months ended June 30, 1993, PTR acquired
10 multifamily properties aggregating 2,882 units for a total purchase price,
including renovations, of approximately $89.8 million and completed development
of 2 multifamily properties with 396 units with a completed cost of $20.7
million. At June 30, 1993, PTR had 3,061 multifamily units under construction
with a budgeted completed cost of $136.7 million.
The percentage of PTR's total rental income generated by multifamily
properties was 98.06% and 89.30% for the six months ended June 30, 1994 and
1993, respectively. This percentage will continue to increase throughout 1994
due to past and ongoing multifamily property developments and acquisitions and
the periodic sale of non-multifamily properties. Projected 1994 property level
earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for all operating multifamily properties owned by PTR as of June 30, 1994 is
12
<PAGE>
10.2% of PTR's aggregate cost for these properties. EBITDA does not represent,
and should not be construed as, a substitute for net earnings as defined by GAAP
and is not indicative of cash flows from operations or that cash flows are
sufficient to fund all cash needs. Aggregate cost for the properties includes
the purchase price, closing costs and budgeted capital improvements and
marketing costs prior to stabilization. Projected EBITDA is based on current
lease rates for stabilized properties and current market rates for properties
being stabilized and on anticipated operating expenses. No assurance can be
given that projected levels of EBITDA will be achieved by these properties or
that future developments and acquisitions will achieve the same level of EBITDA
relative to PTR's investment basis.
Property Operations
Including the newly acquired and developed assets, rental income increased
$49.8 million (160.8%), partially offset by higher rental expenses, which
increased by $22.4 million (181.6%) and depreciation expense which increased
$6.5 million (153.8%) for the six months ended June 30, 1994 over 1993. These
increases are due to operating multifamily acquisitions and multifamily
developments placed in service and to rental rate increases. For operating
multifamily properties, which comprise 96.8% of PTR's total operating
properties, based on cost at June 30, 1994, rental expenses were 43.5% and 43.4%
of rental income during the six months ended June 30, 1994 and 1993,
respectively.
Multifamily Properties Fully Operating Throughout Both Periods
For the 29 multifamily properties which were fully operating throughout
both the six months ended June 30, 1994 and 1993, property level earnings before
interest, income taxes and depreciation (EBITDA) as a percentage of PTR's
aggregate investment in these properties increased to 11.01% in 1994 (annualized
estimate based on actual results year to date for 1994) from 10.60% in 1993.
This increase in return on investment, which is a function of rental rate
growth, occupancy levels, expense rate growth and capital expenditure levels, is
attributable primarily to growth in rental rates. This increase in return on
investment was achieved at the same time that PTR increased its investment in
these properties by $1.7 million as a result of renovation and other capital
expenditures. EBITDA does not represent, and should not be construed as, a
substitute for net earnings as defined by GAAP and is not indicative of cash
flows from operations or that cash flows are sufficient to fund all cash needs.
The 7.3% increase in rental income for such properties for the six months ended
June 30, 1994 as compared to the same period in 1993 was partially offset by
increases in rental expenses, primarily due to real estate taxes and turnover
expenses.
Interest and Other Income
Interest and other income for the six months ended June 30, 1994 increased
$621,000 (70.0%) over 1993, primarily resulting from the addition of four
purchase money notes aggregating $12.4 million received in 1993 in conjunction
with non-multifamily property sales.
Interest Expense
Interest expense increased $6.2 million (300.7%) for the six months ended
June 30, 1994 when compared to 1993. The increase is primarily attributable to
interest expense of $5.5 million resulting from the issuance of $200 million of
long term notes in February 1994, as more fully discussed under "Liquidity and
Capital Resources."
Mortgage interest expense increased $1.3 million (96.7%) for the six months
ended June 30, 1994 when compared to 1993 as a result of the addition of five
mortgages aggregating $41.98 million during the six month period ended June 30,
1994 and three mortgages aggregating $27.0 million during 1993 that were assumed
or given in connection with the acquisition of multifamily properties.
13
<PAGE>
Line of credit interest expense increased $1.3 million (94.0%) resulting
primarily from the amortization of additional loan costs (commitment fees, title
policies and legal expenses) relating to PTR's revolving credit facility which
was increased from $72 million to $125 million and then to $200 million during
1993. Average borrowings on the line of credit were approximately $37.3 million
(with an average interest rate of 7.25%) during the six months ended June 30,
1994, as compared to average borrowings of $24.8 million (with an average
interest rate of 6.29%) during 1993.
The increases in interest expense were offset by an increase of $1.9
million (279%) in capitalized interest. The increase in capitalized interest is
attributable to increased multifamily development activity for the six months
ended June 30, 1994 as compared to 1993.
General and Administrative Expense and REIT Management Fee
The REIT Management fee paid by PTR fluctuates with the level of PTR's pre-
REIT Management fee cash flow, as defined in the REIT Management Agreement, and
therefore increased by $3.2 million (113.4%) during the six months ended June
30, 1994 as compared to 1993 because cash flow increased substantially. With
the issuance of $200 million of amortizing long term debt as more fully
described under "Liquidity and Capital Resources," the REIT Management fee will
effectively decline in proportion to PTR's earnings from operations because
actual or assumed regularly scheduled principal and interest payments, as
defined in the agreement, associated with the long term debt will be deducted
from the cash flow amount on which the REIT Management fee is based.
Property Sales and Provision for Possible Loss
PTR's strategy is to focus on the ownership of multifamily properties.
Accordingly, periodic sales of non-multifamily assets have occurred and may
continue to occur as favorable sales opportunities arise. Properties are
periodically evaluated for net realizable value and provisions for possible
losses are made if required.
PTR develops and acquires properties with a view to effective long term
operation and ownership. Over the long term, market and submarket demographics
and economics are likely to change. PTR may, from time to time, dispose of
assets that in management's view have below average cash flow growth prospects
and redeploy the sales proceeds, generally through like kind exchanges, into
assets that it believes provide better growth opportunities. Additionally, PTR
may on occasion acquire, as a part of a larger portfolio acquisition, properties
that do not meet PTR's long term investment criteria. In such cases, PTR will
sell those properties and redeploy the funds into properties that do meet its
investment criteria.
PTR sold a 258 unit multifamily property in April, 1994 and a 280 unit
multifamily property in July 1994. Both properties had been acquired in
portfolio transactions but did not meet PTR's long term investment criteria.
The properties were sold at an amount substantially equivalent to their
acquisition cost.
PTR is a minority partner with a 40% interest in a partnership which owns
and operates an office building near Dallas, Texas. During the first quarter of
1994, the partnership adopted a strategy of disposing of the property rather
than continuing to hold the property as a long term investment. As a result,
the managing partner evaluated the building for net realizable value which
resulted in a provision for possible loss of $4 million. PTR's share of the
loss provision is $1.6 million as reflected in the June 30, 1994 statement of
earnings. PTR's net carrying value after the provision is $2.9 million. This
provision has no impact on cash flow from operating activities nor does PTR have
14
<PAGE>
any financial obligation to the partnership.
Preferred Share Distributions
In November of 1993, PTR issued $230 million of Series A Preferred Shares
(the "Preferred Shares") at $25 per share which receive an annual distribution
of $1.75 per share (7% annual distribution rate), which amounted to $8.05
million for the six months ended June 30, 1994. The preferred share
distributions do not reduce the amount PTR has budgeted for common share
distributions but does increase the percentage of the common share distribution
which constitutes a non-taxable return of capital.
Other
Rental income, rental expenses, depreciation and net earnings for the three
months ended June 30, 1994 compared to the three months ended June 30, 1993
reflect changes similar to those discussed in the preceding paragraphs for the
comparison of the six months ended on the same dates. The changes are
substantially attributable to the same reasons discussed in the preceding
paragraphs for the six month periods ended June 30, 1994 and 1993.
ENVIRONMENTAL MATTERS
PTR does not expect any environmental condition on its properties to
materially adversely affect its results of operations or financial position.
LIQUIDITY AND CAPITAL RESOURCES
The REIT Manager considers PTR's liquidity and ability to generate cash to
be adequate and expects it to continue to be adequate to meet PTR's development,
acquisition, operating, debt service and shareholder distribution requirements.
Net cash flow provided by operating activities increased by $31.8 million
(340.6%) for the six months ended June 30, 1994 compared to 1993. The increase
is due primarily to multifamily property acquisitions and developments as
described under "Results of Operations."
Investing Activities
During the six months ended June 30, 1994, PTR invested $268.3 million for
the development, acquisition and renovation of multifamily properties, net of
$41.98 million in mortgages. During the first six months of 1993, PTR invested
$121.4 million for the development, acquisition and renovation of multifamily
properties, net of a $5 million mortgage. These developments, acquisitions and
renovations were financed with cash on hand and borrowings under PTR's revolving
line of credit, which were repaid with the proceeds from PTR's equity and debt
offerings.
At July 21, 1994, PTR had unfunded development commitments for developments
under construction of $66 million. Additionally, at July 21, 1994, PTR had
letters of intent or contingent contracts, subject to PTR's final due diligence,
for the acquisition or near term development of 5,015 multifamily units in
various southwestern cities with an aggregate acquisition, improvement and
development cost of $197.2 million. The foregoing transactions are subject to a
number of conditions, and PTR cannot predict with certainty that any of them
will be consummated.
Financing Activities
PTR's financing activities for the six months ended June 30, 1994 provided
$114.2 million (103.0%) more cash flow than for 1993. The increase in cash flow
15
<PAGE>
provided by financing activities is primarily due to increased offering
proceeds: $200 million from a debt offering in 1994 discussed below as compared
to proceeds of $130 million from sale of common shares in 1993. Proceeds from
the offering were used for acquisition, development and renovation of
multifamily properties or to repay revolving credit balances incurred for such
purposes.
On August 4, 1994, PTR consummated a conversion of its $200 million
revolving line of credit facility with Texas Commerce Bank, National
Association, as agent bank for a group of lenders ("TCB") into an unsecured
facility. Borrowings bear interest at the greater of prime or the federal funds
rate plus 1/2%, or at PTR's option, LIBOR plus 1.75%-2% (varying based upon the
rating from Standard & Poors). Additionally, there is a commitment fee of .125%
per annum of the average unfunded line of credit balance. The TCB line matures
August 15, 1995 and may annually be extended for an additional year with the
approval of TCB and other participating lenders. A request for extension
through August 1996 has been submitted and is expected to be approved. All debt
incurrences are subject to covenants, as more fully defined in the loan
agreement, that PTR maintain (i) an interest coverage ratio of not less than
2:1, (ii) a debt to tangible net worth ratio no greater than 1:1 and (iii) an
unencumbered pool of real estate properties with an aggregate historical cost of
at least 175% of unsecured indebtedness.
PTR expects to finance developments, acquisitions and renovations with cash
on hand and borrowings under its line of credit prior to future debt and equity
offerings in order to efficiently respond to market opportunities while
minimizing the amount of cash invested in short term investments at lower
yields. PTR believes that its current conservative ratio of long term debt to
total book capitalization (28% at June 30, 1994) provides it considerable
flexibility to prudently utilize long term debt as a future financing tool. PTR
intends to limit the sum of long term debt and line of credit debt to less than
50% of the sum of book capitalization (sum of long term debt and shareholders'
equity) and line of credit debt.
In May 1994, PTR filed a shelf registration statement with the Securities
and Exchange Commission. PTR registered a total of $325 million of securities
which can be issued in the form of debt securities, preferred shares of
beneficial interest, common shares of beneficial interest, shareholder purchase
rights or subscription rights for common shares of beneficial interest.
PTR filed a prospectus supplement to the shelf registration relating to a
Rights Offering of 5,593,718 common shares of beneficial interest at a price of
$18 1/4 per share ($102,085,354) on July 21, 1994. Under the terms of the
Rights Offering, PTR can issue additional shares of up to 2,625,460 for a total
offering of 8,219,178 ($150,000,000). PTR's shareholders of record on July 21,
1994 will receive a dividend of one right for each PTR share they own. Eight
rights will be required to purchase one PTR share for $18 1/4 in the Rights
Offering. The Rights Offering will expire on August 16, 1994. Security Capital
Realty Incorporated, PTR's principal shareholder and an affiliate of the REIT
Manager, has agreed to exercise in full its Rights to acquire PTR shares in the
offering at the same price paid by the public ($18 1/4 per share) and may seek
to acquire additional Rights in open-market purchases. Proceeds from the
offering will be used to fund developments and to invest in additional
multifamily properties in PTR's target market and to repay borrowings under
PTR's revolving line of credit.
On February 8, 1994, PTR issued $100 million of 6.875% Senior Notes due
2008 (the "2008 Notes") and $100 million of 7.5% Senior Notes due 2014 (the
"2014 Notes"), collectively referred to as the "Notes". The 2008 Notes bear
interest at 6.875% per annum and require annual principal payments of $12.5
million, commencing February 15, 2001. The 2014 Notes bear interest at 7.5% per
annum and require aggregate annual principal payments of $10 million in 2009,
$12.5 million
16
<PAGE>
in 2010, $15 million in 2011, $17.5 million in 2012, $20 million in 2013, and
$25 million in 2014. In February 1994, PTR received $1.3 million in settlement
of an interest protection agreement in the form of a Forward Treasury Lock
Agreement entered into with an investment banker on January 28, 1994. The
agreement included a determination date of February 1, 1994 and a settlement
date of February 2, 1994. The notional amounts were $100 million with a
reference price of 100.90625% and $75 million with a reference price of
110.4375%. On February 2, 1994, the settlement prices were 100.32813% and
109.46875%, respectively. There are no agreements outstanding. Collectively,
the Notes have an average life to maturity of 14.25 years and an average
effective interest cost, inclusive of offering discounts, issuance costs, and an
interest rate protection agreement, of 7.37% per annum. The Notes are
redeemable any time at the option of PTR, in whole or in part, at a redemption
price equal to the sum of the principal amount of the Notes being redeemed plus
accrued interest thereon to the redemption date plus a yield to maturity
adjustment. The Notes are governed by the terms and provisions of an indenture
agreement (the "Indenture") between PTR and State Street Bank and Trust Company,
as trustee.
Under the terms of the Indenture, PTR can incur additional debt only if,
after giving effect to the debt being incurred and application of proceeds
therefrom, (i) the ratio of debt to total assets, as defined in the Indenture,
does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined
in the Indenture, does not exceed 40%, and (iii) PTR's pro forma interest
coverage ratio, as defined in the Indenture, for the four preceding fiscal
quarters is not less than 1.5.
Distributions
PTR's current distribution policy is to pay quarterly distributions to
holders of Common Shares based upon what it believes to be a prudent percentage
of cash flow. Because depreciation is a non-cash expense, cash flow typically
will be greater than net earnings attributable to Common Shares. Therefore,
quarterly distributions paid will generally be higher than quarterly net
earnings.
Distributions paid on Common Shares exceeded net earnings attributable to
Common Shares by $10.1 million and $2.6 million for the six months ended June
30, 1994 and 1993, respectively.
Pursuant to the terms of the Preferred Shares, PTR is restricted from
declaring or paying any distribution with respect to its Common Shares unless
all cumulative distributions with respect to the Preferred Shares have been paid
or sufficient funds have been set aside for distributions that have been
declared for the then current distribution period with respect to the Preferred
Shares.
Funds from Operations represents PTR's net earnings (computed in accordance
with generally accepted accounting principles) plus depreciation, amortization
of debt issuance costs and provision for possible loss on investments. PTR
believes that Funds from Operations is helpful in understanding a property
portfolio in that such calculation reflects cash flow from operating activities
and the properties' ability to support interest payments and general operating
expenses before the impact of certain activities, such as gains or losses from
property sales and changes in accounts receivable and accounts payable. Funds
from Operations attributable to Common Shares increased $10.9 million (72.5%)to
$26.0 million ($.58 per share) for the six months ended June 30, 1994 from $15.1
million ($.46 per share) for 1993. The increase resulted primarily from
increased properties in operation. Funds from Operations should not be
construed as a substitute for net earnings in evaluating operating results or as
a substitute for cash flow in evaluating liquidity.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10 - Amended and Restated Credit Agreement between PTR and Texas Commerce
Bank National Association, dated August 4, 1994 (Previously filed).
15 -- Letter from KPMG Peat Marwick LLP dated February 1, 1995 regarding
unaudited financial information.
27 -- Financial Data Schedule.
(b) Reports on Form 8-K:
Date Item Reported Financial Statements
---- ------------- --------------------
April 29, 1994 5,7 Yes
July 11, 1994 5,7 No
July 19, 1994 5,7 No
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 1, 1995 PROPERTY TRUST OF AMERICA
/s/ William Kell
----------------------------
William Kell, Vice President
and Duly Authorized Officer and
Principal Financial Officer
19
<PAGE>
Exhibit 15
Board of Trustees and Shareholders
Property Trust of America
Gentlemen:
Re: Registration Statement Nos. 33-87184, 33-86444, 33-71040, and 33-25317
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 27, 1994 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant, or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG PEAT MARWICK LLP
El Paso, Texas
February 1, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, as
amended by Form 10Q/A No. 1 dated February 1, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1994
<CASH> 9,464
<SECURITIES> 0
<RECEIVABLES> 23,572
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,173,648
<DEPRECIATION> 32,615
<TOTAL-ASSETS> 1,185,116
<CURRENT-LIABILITIES> 0
<BONDS> 290,053
<COMMON> 44,914
0
230,000
<OTHER-SE> 482,822
<TOTAL-LIABILITY-AND-EQUITY> 1,185,116
<SALES> 80,804
<TOTAL-REVENUES> 82,312
<CGS> 0
<TOTAL-COSTS> 34,696
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,600
<INTEREST-EXPENSE> 8,259
<INCOME-PRETAX> 12,227
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,227
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
