<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 March 31, 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)
1790 Commerce Park Drive, El Paso, Texas 79912
--------------------------------------------------------------------------
(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
April 22, 1994 was:
Shares of Beneficial Interest, $1 par value - 44,695,299 shares
<PAGE>
PROPERTY TRUST OF AMERICA
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . . . 3
Statements of Earnings - Three months
ended March 31, 1994 and 1993 . . . . . . . . . . . . . 4
Statements of Cash Flows - Three months ended
March 31, 1994 and 1993 . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . 6
Independent Auditor's Report . . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 11
PART II. Other Information
Item 6. Exhibits and Reports on Form 8K . . . . . . . . . . . . 16
2
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PROPERTY TRUST OF AMERICA
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
------------ ------------
(unaudited)
<S> <C> <C>
Real estate.................................... $ 963,551 $872,610
Less accumulated depreciation.................. 26,903 22,022
---------- --------
936,648 850,588
Mortgage notes receivable...................... 22,602 22,624
---------- --------
Total investments.......................... 959,250 873,212
Cash and cash equivalents...................... 68,579 5,525
Accounts receivable............................ 1,614 763
Other assets................................... 15,779 10,801
---------- --------
Total assets............................... $1,045,222 $890,301
========== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Liabilities:
<S> <C> <C>
Line of credit............................... $ - $ 51,500
Long term debt............................... 200,000 -
Mortgages payable............................ 56,248 48,872
Distributions payable........................ - 11,161
Accounts payable............................. 13,473 13,514
Accrued expenses and other liabilities....... 14,239 10,237
---------- --------
Total liabilities.......................... 283,960 135,284
---------- --------
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 - 44,859,773
in 1994 and 44,809,208 in 1993)............ 44,860 44,809
Additional paid-in capital................... 523,760 523,053
Distributions in excess of net earnings...... (35,429) (40,916)
---------- --------
763,191 756,946
Less treasury shares (164,474 in 1994 and
164,467 in 1993)........................... 1,929 1,929
---------- --------
Total shareholders' equity................. 761,262 755,017
---------- --------
Total liabilities and
shareholders' equity..................... $1,045,222 $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
ENDED MARCH 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Revenues:
Rental income............................... $37,425 $14,109
Interest and other income................... 852 432
------- -------
38,277 14,541
------- -------
Expenses:
Rental expenses............................. 15,832 5,584
Depreciation................................ 4,950 2,011
Interest.................................... 3,154 1,089
General and administrative and REIT
management fee............................ 3,152 1,367
Provision for possible loss on
investments............................... 1,600 -
Other....................................... 77 2
------- -------
28,765 10,053
------- -------
Net earnings.................................. 9,512 4,488
Less Series A Preferred share distributions... 4,025 -
------- -------
Net earnings attributable to
common shares............................ $ 5,487 $ 4,488
======= =======
Weighted average common shares outstanding.... 44,668 30,742
======= =======
Per common share amounts:
Net earnings attributable to common shares.. $ .12 $ .15
======= =======
Distributions............................... $ .25 $ .205
======= =======
</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>
THREE MONTHS ENDED
MARCH 31,
---------------------
1994 1993
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings................................. $ 9,512 $ 4,488
Items not requiring (providing) cash:
Depreciation and amortization.............. 5,635 2,185
Other, net................................. - 43
Provision for possible loss on
investments.............................. 1,600 -
Accounts payable............................. 504 568
Accrued expenses and other liabilities....... 4,002 (47)
Net change in other operating assets......... (4,325) (1,467)
--------- --------
Net cash flow provided by operating
activities............................... 16,928 5,770
--------- --------
INVESTING ACTIVITIES:
Real estate investments...................... (85,236) (35,662)
Mortgage notes receivable.................... 22 30
Other........................................ - (41)
--------- --------
Net cash flow used in investment
activities................................ (85,214) (35,673)
--------- --------
FINANCING ACTIVITIES:
Proceeds from sale of shares,
net of expenses............................ - 129,660
Proceeds from line of credit................. 50,750 26,000
Proceeds from dividend reinvestment
and share purchase plan, net............... 991 2,147
Proceeds from long term debt................. 200,000 -
Proceeds from exercise of stock
options, net............................... - 95
Cash distributions paid on common shares..... (11,161) (5,541)
Cash distributions paid on preferred shares.. (4,025) -
Debt issuance costs incurred................. (2,258) (1,139)
Principal payments on mortgages payable...... (474) (5,124)
Principal payments on line of credit......... (102,250) (80,792)
Other........................................ (233) -
--------- --------
Net cash flow provided by
financing activities...................... 131,340 65,306
--------- --------
Net increase in cash and cash equivalents...... 63,054 35,403
Cash at beginning of period.................... 5,525 6,998
--------- --------
Cash at end of period.......................... $ 68,579 $ 42,401
========= ========
Non-cash financing activities:
Purchase money notes given upon purchase of
multifamily properties..................... $ 7,850 $ -
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
March 31, 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 adjustments necessary for a fair presentation of
PTR's financial statements for the interim period. The results of
operations for the three month period ended March 31, 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 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 three months ended March 31, 1994.
(2) REAL ESTATE
Investments in real estate, at cost, were as follows (dollar amounts
in thousands):
<TABLE>
<CAPTION>
March 31, 1994 December 31, 1993
----------------- -----------------
Investment Units Investment Units
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Multifamily:
Operating properties...... $820,173 24,883 $730,994 22,493
Developments under
construction............ 81,644 3,188 84,395 3,048
Developments in planning.. 19,337 2,458 17,490 2,550
Land held for future
development.............. 8,515 4,208
-------- --------
Total Multifamily....... 929,669 837,087
Non-multifamily............. 33,882 35,523
-------- --------
Total real estate....... $963,551 $872,610
======== ========
The change in investments in real estate, at cost, from December 31,
1993 to March 31, 1994 consisted of the following (in thousands):
Balance at December 31, 1993............. $872,610
Acquisitions, including renovation
expenditures........................... 51,336
Development expenditures including land
acquisitions........................... 36,636
Capital improvements..................... 546
Acquisition of land held for future
development............................ 4,064
Provision for possible loss on
investments............................ (1,600)
Other.................................... (41)
--------
Balance at March 31, 1994................ $963,551
========
</TABLE>
6
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
March 31, 1994
At April 22, 1994, PTR had contingent contracts or letters of intent,
subject to PTR's final due diligence, for the acquisition or near term
development of 9,409 multifamily units in various southwestern cities with
an aggregate acquisition, improvement and development cost of $370.5
million.
At April 22, 1994, PTR had unfunded development commitments for
developments under construction of $65.5 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 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 March 31, 1994 statement of earnings. PTR's net carrying value after
the provision is $2,972,000. This provision has no impact on cash flow
from operating activities nor does PTR have any further financial
obligation to the partnership.
(3) DISTRIBUTIONS
On April 22, 1994, the Trustees declared a cash distribution of $.25
per common share to be paid on May 13, 1994 to shareholders of record on
May 2, 1994.
(4) LINE OF CREDIT AND LONG TERM DEBT
Line of Credit
PTR has a $200 million revolving line of credit facility with Texas
Commerce Bank, National Association, as agent bank for a group of lenders
("TCB"). Borrowings bear interest at prime, or at PTR's option, LIBOR plus
2%. Additionally, there is a commitment fee of .125% per annum of the
average unfunded line of credit balance. The line is secured by operating
multifamily properties having an aggregate undepreciated cost of $310.3
million at March 31, 1994.
The TCB line matures August 1995 and may annually be extended for an
additional year with the approval of TCB. All debt incurrences are subject
to a covenant that PTR maintain a debt to tangible net worth ratio of not
greater than 1:1. At March 31, 1994, PTR's debt to tangible net worth
ratio was .38:1.
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
7
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
March 31, 1994
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
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 1.5:1.
Interest
Interest paid for the three months ended March 31, 1994 was
$1,586,000, including $1,207,000 of interest capitalized during
construction. Interest paid for the three months ended March 31, 1993 was
$1,308,000, including $256,000 of interest capitalized during construction.
Amortization of loan costs included in interest expense for the three
months ended March 31, 1994 and 1993 was $685,000 and $174,000,
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 26.9% 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
8
<PAGE>
PROPERTY TRUST OF AMERICA
NOTES TO FINANCIAL STATEMENTS
March 31, 1994
0.25% per year on the average daily balance of cash equivalent investments.
The REIT Management fee for the three months ended March 31, 1994 was
$3,004,000 and $1,249,000 for the three months ended March 31, 1993.
SCG Realty Services Incorporated ("SCG Realty Services"), formerly
WilsonSchanzer, Inc., a property management firm, currently manages
approximately 81% 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 three
months ended March 31, 1994 and 1993, PTR paid an aggregate of $1.4 million
and $672,000, respectively, to SCG Realty Services, including $1.3 million
and $525,000, respectively, in property management fees. Rates for
services performed by SCG Realty Services are subject to approval by PTR's
Board of Trustees and are at rates prevailing in the markets in which PTR
operates.
9
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Independent Auditors' 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 March 31, 1994, and the related statements of earnings and cash flows for the
three-month periods ended March 31, 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, stockholders' equity, and cash
flows for the year then ended (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. 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 it has been derived.
KPMG PEAT MARWICK LLP
El Paso, Texas
April 22, 1994
10
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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 acquire and develop
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. 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. Real estate taxes have increased at a higher rate due
to revaluation of purchased properties, for which PTR budgets in analyzing
acquisitions.
The reduced availability of real estate financing in PTR's target market
has also created favorable conditions for the acquisition and development of
multifamily properties, although available capital has increased the competition
for acquiring multifamily units in recent months. The REIT Manager believes
PTR's ability to compete is significantly enhanced relative to other companies
because of the REIT Manager's depth of acquisition personnel and presence in
local markets combined with PTR's access to investment capital. As a result,
PTR has been able to acquire large numbers of multifamily units on favorable
terms throughout 1993 and the first quarter of 1994. Over the longer term,
multifamily developments are expected to constitute a greater percentage of
PTR's growth than acquisitions.
RESULTS OF OPERATIONS
INTERIM PERIOD COMPARISON
During the three months ended March 31, 1994, PTR acquired five multifamily
properties aggregating 1,374 units for a total purchase price, including planned
renovations, of approximately $53 million and completed development of five
multifamily properties aggregating 1,016 units with a completed cost of $38.3
million. At April 22, 1994, PTR had 3,188 multifamily units under construction
with a budgeted completed cost of $144.1 million and had in the final planning
stages an estimated 2,458 multifamily units with an aggregate budgeted completed
cost of $112.6 million. During the three months ended March 31, 1993, PTR
acquired three multifamily properties aggregating 710 units for a total purchase
price, including renovations, of approximately $20.4 million and completed
development of one upper middle income multifamily property with 276 units with
a completed cost of $18 million. At March 31, 1993, PTR had 2,558 multifamily
units under construction with a budgeted completed cost of $90.9 million.
The percentage of PTR's total rental income generated by multifamily
properties was 97.9% and 89.2% for the three months ended March 31, 1994 and
1993, respectively. This percentage will continue to increase throughout 1994
due to past and ongoing multifamily property acquisitions and the periodic sale
11
<PAGE>
of non-multifamily properties.
Property Operations
Including the newly acquired and developed assets, rental income increased
$23.3 million (165.3%), rental expenses increased $10.2 million (183.5%) and
depreciation increased $2.9 million (146.1%) for the three months ended March
31, 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% of PTR's
total operating properties, based on cost at March 31, 1994, per unit rental
expenses were 42.7% and 42.8% of per unit rental income during the three months
ended March 31, 1994 and 1993, respectively.
Multifamily Properties Stabilized Throughout Both Periods
During the period prior to a property being stabilized, the REIT Manager's
asset managers and the property managers begin implementing expense controls,
reconfigure the resident mix, supervise renovations and implement a strategy to
increase rental income. The term "stabilized" means that renovation,
repositioning, new management and new marketing programs (or development and
marketing in the case of newly-developed properties) have been completed and in
effect for a sufficient period of time (but in no case longer than 12 months) to
achieve 93% occupancy at market rents. Prior to being "stabilized," a property
is considered "pre-stabilized." The full benefits of these changes are not
reflected until after the properties are stabilized. As of March 31, 1994,
56.92% of the operating multifamily portfolio, based on cost, was stabilized as
compared to 53.10% at March 31, 1993.
For the twenty multifamily properties which were stabilized throughout the
three months ended March 31, 1994 and 1993, rental income increased $539,000
(7%), rental expenses increased $250,700 (7.7%), and depreciation increased
$75,300 (6%). The increase in rental income primarily related to a 5.92%
average rental rate increase. The increase in rental expenses is substantially
due to increases in real estate taxes and make-ready costs. Depreciation
expense increased as a result of planned renovations being placed in service
during 1994. Average occupancy was 94% for both the three month periods ended
March 31, 1994 and 1993. PTR's other multifamily operating properties generally
continue to experience strong occupancies and comparable rent increases.
Interest and Other Income
Interest and other income for the three months ended March 31, 1994
increased $420,000 (97.2%) 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 and an increase in interest
income from bank accounts due to higher average cash balances invested in short
term interest bearing accounts in 1994 ($43.6 million) as compared to 1993
($21.6 million). The higher average cash balances resulted from the proceeds of
the long term debt offering of $200 million which was closed in February 1994,
as more fully discussed under "Liquidity and Capital Resources." First quarter
earnings were impacted by the short term dilutive effect of proceeds from PTR's
$200 million February debt offering. The full investment of those proceeds in
multifamily properties will improve results of operations in future periods.
Interest Expense
Interest expense increased $2.1 million (189.6%) for the three months ended
March 31, 1994 when compared to 1993. The increase is primarily attributable to
interest expense of $1.96 million resulting from the issuance of $200 million
oflong term notes in February 1994, as more fully discussed under "Liquidity and
12
<PAGE>
Capital Resources."
Mortgage interest expense increased $606,000 (123.2%) for the three months
ended March 31, 1994 when compared to 1993 as a result of the addition of three
mortgages aggregating $26.9 million during 1993.
Line of credit interest expense increased $361,000 (42.2%) 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 $32.8 million
(with an average interest rate of 7.05%) during the three months ended March 31,
1994, as compared to average borrowings of $31.4 million (with an average
interest rate of 6.15%) during 1993.
The increases in interest expense were offset by an increase of $951,000
(371.5%) in capitalized interest. The increase in capitalized interest is
attributable to increased multifamily development activity for the three months
ended March 31, 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 $1.8 million (140.4%) during the three months ended March
31, 1994 as compared to 1993 because cash flow increased substantially (see
"REIT Management Agreement"). 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.
Provision for Possible Loss
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 March 31, 1994 statement of
earnings. PTR's net carrying value after the provision is $3 million. This
provision has no impact on cash flow from operating activities nor does PTR have
any further financial obligation to the partnership.
Preferred Share Distributions
In November of 1993, PTR issued $230 million of Series A Preferred Shares
at $25 per share which receive an annual distribution of $1.75 per share (7%
annual distribution rate), which amounted to $4.03 million for the three months
ended March 31, 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.
ENVIRONMENTAL MATTERS
PTR does not expect any environmental condition on its properties to
materially adversely affect its results of operations or financial position.
13
<PAGE>
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 acquisition,
development, operating, debt service and shareholder distribution requirements.
Net cash flow provided by operating activities increased by $11.2 million
(193.3%) for the three months ended March 31, 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 three months ended March 31, 1994, PTR invested $84.2 million
for the acquisition, development and renovation of multifamily properties, net
of $7.9 million in mortgages. During the first three months of 1993, PTR
invested $36.5 million for the acquisition, development and renovation of
multifamily properties. These acquisitions, developments 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 April 22, 1994, PTR had unfunded development commitments for
developments under construction of $65.5 million. Additionally, at April 22,
1994, PTR had letters of intent or contingent contracts, subject to PTR's final
due diligence, for the acquisition or near term development of 9,409 multifamily
units in various southwestern cities with an aggregate acquisition, improvement
and development cost of $370.5 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 three months ended March 31, 1994
provided $66 million (101.1%) more cash flow than 1993. The increase in cash
flow 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 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 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
the 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
14
<PAGE>
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 1.5:1.
In November 1993, PTR consummated an extension of its line of credit to
August 1995 with an increase to $200 million, and a reduction in interest rate
to prime or, at PTR's option, LIBOR plus 2%. The line may be extended annually
for an additional year with the approval of Texas Commerce Bank, National
Association ("TCB"), the agent bank, and the other participating lenders. All
debt incurrences are subject to a covenant that PTR maintain a debt to tangible
net worth ratio of not greater than 1:1. At March 31, 1994, PTR's debt to
tangible net worth ratio was .38:1. At April 22, 1994, there were no borrowings
outstanding under the line of credit. PTR is currently discussing conversion of
the line to an unsecured facility. No assurances can be given that this
conversion will be completed.
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 (25% at March 31, 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.
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 $5.7 million and $1.1 million for the three months ended March
31, 1994 and 1993, respectively.
Pursuant to the terms of the Series A Preferred Shares ("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 loan 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
15
<PAGE>
changes in accounts receivable and accounts payable. Funds from Operations
attributable to Common Shares increased $6 million (89.4%) to $12.7 million for
the three months ended March 31, 1994 from $6.7 million 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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
---- ------------- --------------------
February 2, 1994 5,7 Yes
16
<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
17
<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 April 22, 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 March 31, 1994, as amended
by Form 10-Q/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-31-1993
<PERIOD-END> MAR-31-1994
<CASH> 68,579
<SECURITIES> 0
<RECEIVABLES> 24,216
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 963,551
<DEPRECIATION> 26,903
<TOTAL-ASSETS> 1,045,222
<CURRENT-LIABILITIES> 0
<BONDS> 256,248
<COMMON> 44,860
0
230,000
<OTHER-SE> 486,402
<TOTAL-LIABILITY-AND-EQUITY> 1,045,222
<SALES> 37,425
<TOTAL-REVENUES> 38,277
<CGS> 0
<TOTAL-COSTS> 15,832
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,600
<INTEREST-EXPENSE> 15,832
<INCOME-PRETAX> 5,487
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,487
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
