SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] 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 1-13766
CROCKER REALTY TRUST, INC.
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(Exact name of registrant as specified in its charter)
Maryland 13-3794787
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
433 Plaza Real, Suite 335, Boca Raton, FL 33432
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (407) 395-9666
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 shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Class Outstanding at May 10, 1996
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Common Stock, $.01 Par Value 26,981,087 shares
<PAGE>
CROCKER REALTY TRUST, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets of the Company as of March 31,
1996 and December 31, 1995 3
Consolidated Statements of Operations of the Company for the
three months ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows of the Company for the
three months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security-Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROCKER REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1996 1995
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<S> <C> <C>
Investment in real estate:
Rental properties, net of accumulated depreciation of
$14,200 and $11,590 at March 31, 1996 and
December 31, 1995, respectively $357,617 279,407
Office building under construction 2,137 -
Land held for investment 16,285 11,159
Other assets:
Cash and cash equivalents 6,404 5,719
Restricted cash 11,338 9,007
Rents and expense reimbursements receivable, net of
allowance for doubtful accounts of $111 and $141 at
March 31, 1996 and December 31, 1995, respectively 1,267 969
Accounts receivable from managed properties 290 219
Deferred straight-line rents receivable 3,461 3,148
Deferred acquisition and offering costs 126 2,156
Deferred loan costs, net of accumulated amortization of
$1,593 and $1,312 at March 31, 1996 and
December 31, 1995, respectively 4,369 3,821
Deferred leasing costs, net of accumulated amortization of
$1,192 and $1,025 at March 31, 1996 and
December 31, 1995, respectively 3,087 2,689
Prepaid expenses and other assets 1,297 666
Furniture, fixtures and equipment, net of accumulated
depreciation of $97 and $60 at March 31, 1996 and
December 31, 1995, respectively 625 451
Management contracts, net of accumulated amortization
of $156 and $105 at March 31, 1996 and
December 31, 1995, respectively 1,272 1,324
Goodwill, net of accumulated amortization of $248 and
$165 at March 31, 1996 and December 31, 1995,
respectively 3,859 3,941
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Total assets $413,434 324,676
======== =======
</TABLE>
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<PAGE>
CROCKER REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
(in thousands, except for share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
1996 1995
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<S> <C> <C>
Liabilities:
Notes payable $239,502 181,873
Accounts payable and accrued expenses 3,627 2,121
Accrued interest expense 518 361
Accrued real estate taxes 1,519 254
Accrued acquisition and offering costs 772 1,805
Dividend payable 4,047 -
Rents paid in advance 1,160 679
Tenant security deposits 1,494 1,369
Deferred straight-line rents payable 223 156
Other liabilities 1,909 1,919
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Total liabilities 254,771 190,537
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Stockholders' equity:
Preferred stock, $.01 par value, Authorized and
unissued 10,000,000 shares - -
Common stock, $.01 par value, Authorized 50,000,000
shares; issued and outstanding 26,981,087 shares and
23,362,492 shares at March 31, 1996 and
December 31, 1995, respectively 270 234
Additional paid-in capita1 158,393 132,721
Retained earnings - 1,184
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Total stockholders' equity 158,663 134,139
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Total liabilities and stockholders' equity $413,434 324,676
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
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CROCKER REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
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<S> <C> <C>
Revenue:
Rental income and tenant reimbursements $ 16,970 $ 9,161
Management fees-building, development and
construction 392 -
Leasing commissions 198 -
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17,560 9,161
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Expenses:
Rental property operating expenses 4,594 1,319
Real estate taxes andinsurance 1,601 821
Management fees 115 511
Amortization of deferred leasing costs 197 153
Depreciation and amortization of property and
equipment 2,663 1,312
Amortization of goodwill and management contracts 134 -
General and administrative expenses 1,480 279
Costs incurred for terminated offering 390 -
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11,174 4,395
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Operating income 6,386 4,766
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Other income (expense):
Interest and other income 300 238
Interest expense (5,055) (3,502)
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Total other income (expense) (4,755) (3,264)
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Net income $ 1,631 1,502
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Net income per share of common stock $ .06 $ 0.12
=========== ===========
Weighted average number of shares outstanding 26,429,113 12,530,942
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CROCKER REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except for shares issued)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,631 1,502
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment 2,663 1,312
Amortization of loan costs 272 171
Amortization of deferred leasing costs 197 153
Amortization of organization costs 1 1
Amortization of goodwill and management
contracts 134 -
Bad debt expense 2 -
Stock bonuses 231 -
(Increase) decrease in operating assets:
Deferred straight-line rents receivable (313) (320)
Rents and other receivables (386) 185
Prepaid expenses and other assets (632) (190)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 599 (708)
Accrued interest (81) -
Accrued real estate taxes 1,194 449
Accrued terminated offering costs 278 -
Rents paid in advance 482 (63)
Tenant security deposits 125 229
Deferred straight-line rents payable 67 -
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Total adjustments 4,833 1,219
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Net cash provided by operating
activities 6,464 2,721
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Cash flows from investing activities:
Acquisition of rental properties and land (1,724) -
Acquisition of land held for investment (1,648) -
Office building under construction (1,671) -
Payments for building and tenant improvements (905) (681)
Payment of deferred leasing costs (304) (396)
Payments for furniture, fixtures and equipment (85) -
Refund of deferred acquisition costs, net 36 -
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Net cash used in investing activities (6,301) (1,077)
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</TABLE>
(Continued)
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<PAGE>
CROCKER REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(In thousands, except for shares issued)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
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<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $15,000 -
Net (increase) decrease in restricted cash (2,331) (1,074)
Payments under notes payable (9,609) -
Dividends paid (809) (500)
Payment of offering costs (791) -
Payment of financing costs (938) -
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Net cash provided by (used in) financing
activities 522 (1,574)
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Net increase in cash and cash equivalents 685 70
Cash and cash equivalents at beginning of period 5,719 132
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Cash and cash equivalents at end of period $ 6,404 202
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 4,864 3,333
======= ======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1995, the Company exchanged 62,500
shares of common stock for the shares of common stock of Options Corp. held by
the Apollo Fund.
During the three months ended March 31, 1996, the Company issued 24,000 shares
of common stock which are fully-vested and 31,656 shares of common stock which
vest 100% in three years to certain officers of the Company.
On January 16, 1996, the Company issued 1,687,939 shares of common stock in
connection with the Towermarc acquisition. Details of assets acquired,
liabilities assumed and common stock issued in connection with the Towermarc
acquisition is as follows:
Rental properties $(79,208)
Land held for investment (3,460)
Deferred acquisition costs 1,713
Mortgage notes payable 67,237
Accrued interest expense 238
Accrued real estate taxes 71
Accrued acquisition costs (975)
Common stock 17
Additional paid-in capital 12,643
-------
Net cash used in acquisition (1,724)
=======
See accompanying notes to consolidated financial statements.
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<PAGE>
CROCKER REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND FORMATION TRANSACTIONS
Crocker Realty Trust, Inc. (the "Company") was incorporated under the Maryland
General Corporation Law on September 21, 1994 under the name of Southeast Realty
Corp. On June 30, 1995, the Company changed its name to Crocker Realty Trust,
Inc. The Company was formed to succeed to the interests of Apollo Real Estate
Investment Fund, L.P. (the "Apollo Fund") and its affiliates in AP Southeast
Portfolio Partners, L.O. ("AP Southeast Partnership"), AP-GP Southeast Portfolio
Partners, L.P., Southeast Portfolio Operating Corporation, AP Fontaine III
Partners, L.P., AP-GP Fontaine III Partners, L.P., Fontaine III Operating
Corporation and Southeast Options Operating Corporation (collectively, the
"Predecessor Entities"), which collectively include a portfolio of 47 office and
office/service properties and options to acquire up to five parcels of
undeveloped land adjacent to certain of such properties.
The Company accounted for the acquisitions of the interests of the Apollo Fund
and its affiliates at historical cost in a manner similar to that in a pooling
of interests accounting due to the above entities being under the common control
of the Apollo Fund and its affiliates.
On June 30, 1995, pursuant to an Agreement and Plan of Merger, dated as of
September 29, 1994, as amended (the "CRMSI Merger Agreement") among the Company,
SER Management, Inc. ("SER Management"), Crocker Realty Management Services,
Inc. ("CRMSI") and Crocker & Sons, Inc. ("CSI"), CRMSI and CSI merged with and
into SER Management, a wholly-owned subsidiary of the Company (the "CRMSI
Merger"). The outstanding shares of CRMSI and CSI were exchanged for 637,500
shares of the Company's common stock, of which 457,531 shares were issued to the
Chairman of the Board and Chief Executive Officer of the Company and his spouse,
149,974 shares were issued to the President and Chief Operating Officer of the
Company and 29,995 shares were issued to the Executive Vice President and Chief
Financial Officer of the Company.
As a result of the CRMSI Merger, the Company succeeded to the interests of the
property, asset and construction management business and leasing and brokerage
business of CRMSI and CSI and to their respective assets and liabilities.
On July 1, 1995, pursuant to an Agreement and Plan of Merger, dated as of
September 29, 1994, as amended, (the "CRI Merger Agreement"), among the Company,
SER Acquisition, inc. ("SER Acquisition") and Crocker Realty Investors, Inc.
("CRI"), CRI merged with and into SER Acquisition, a wholly-owned subsidiary of
the Company (the "CRI Merger"). Upon consummation of the CRI Merger; (i) the
outstanding shares of common stock of CRI were exchanged for 1,020,000 shares of
the Company's common stock, (ii) the 2,340,000 CRI public warrants each
entitling the holder thereof to purchase, during the four year period ending
January 21, 1998, one share of CRI common stock at $10.00 per share (subject to
adjustment), were assumed by the Company and entitle the holders thereof to
purchase shares of the Company's common stock at the same price and on the same
terms and conditions as set forth in the CRI public warrants, and (iii) purchase
options held by certain individuals and GKN Securities Corp. (the Underwriter of
CRI's 1993 initial public offering) to purchase an aggregate of 210,292 shares
of CRI common stock at an exercise price of $7.85 per share of CRI common stock
and the warrant held by General Electric Capital Corporation to purchase an
aggregate of 160,000 shares of CRI common stock at an exercise price of $10.00
per share
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<PAGE>
CROCKER REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of CRI common stock were assumed by the Company and entitle the holders thereof
to purchase shares of the Company's common stock at the same price and on the
same terms and conditions as set forth in the instruments pursuant to which such
options and warrant were issued. On December 28, 1995, the Company entered into
an agreement to pay $360,000 to certain individuals and GKN Securities Corp. for
their purchase options and other rights held by GKN Securities Corp. The amount
was accrued and charged to additional paid-in capital at December 31, 1995 and
was paid in January 1996.
As a result of the CRI Merger, the Company succeeded to the interests of CRI in
a portfolio of three office properties and to all of the assets and liabilities
of CRI.
(2) BASIS OF PRESENTATION
The interim consolidated financial statements included herein have been prepared
by the Company without audit. The statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary to present fairly the Company's financial position as of
March 31, 1996 and December 31, 1995, and the results of its operations and cash
flows for the three months ended March 31, 1996 and 1995. These consolidated
financial statements should be read in conjunction with the 1995 financial
statements and notes thereto included in the Company's Form 10-K.
The consolidated results of operations for the three months ending March 31,
1996 and 1995 are not necessarily indicative of the results to be expected for
the full year.
Certain reclassifications have been made to the March 31, 1995 balances in order
to conform to the presentation used at March 31, 1996.
(3) INCOME TAXES
The Company qualifies as a real estate investment trust ("REIT") under the
provisions of the Internal Revenue Code. Under these provisions, the Company is
required to distribute at least 95% of its taxable income to its shareholders to
maintain this qualification and not be subject to federal income taxes for the
portion of taxable income distributed. To maintain REIT qualification, the
Company must also satisfy tests concerning the nature of its assets and income
and meet certain recordkeeping requirements.
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<PAGE>
CROCKER REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) ACQUISITIONS AND PRIVATE PLACEMENTS
As a result of the July 1, 1995 CRI Merger and the June 30, 1995 CRMSI Merger,
the Company succeeded to the interests of CRI in a portfolio of three office
properties and to the property, asset and construction management business and
leasing and brokerage business of CRSI and CSI and to all of the assets and
liabilities of the respective entities.
The CRMSI Merger was accounted for under the purchase method of accounting based
on the estimated fair value of the assets acquired as there was no established
market for the Company's common stock prior to the consummation of the CRMSI
Merger. The assets acquired in the CRMSI Merger are comprised primarily of
building, construction and leasing management agreements and leasing and
brokerage operations. Of the total estimated fair value of the assets acquired,
approximately $1.4 million was classified as Management Contracts, and
approximately $3.7 million was classified as Goodwill. The Company owns 100% of
the issued and outstanding non-voting preferred stock and 9.9% of the issued and
outstanding common stock of the leasing company, CRT Leasing, Inc., a Delaware
corporation, which provides leasing and brokerage services to properties not
owned by the Company. CRT Leasing, Inc. has been consolidated into the Company's
financial statements. The non-voting preferred stock generally is entitled to
dividends equal to 95% of all distributions of CRT Leasing, Inc. The portion of
the estimated fair value allocated to Management Contracts is being amortized
over a period of 5-10 years and the portion attributable to Goodwill is being
amortized over a period of 20 years.
The CRI Merger was accounted for under the purchase method of accounting based
on the estimated fair value of the assets and liabilities acquired as there was
no established market for the Company's common stock prior to the consummation
of the CRI Merger. The assets acquired were comprised primarily of three office
properties with a combined appraised value of approximately $48.1 million
encumbered by approximately $41.4 million of variable interest rate mortgage
notes payable.
On December 28, 1995, the Company sold 8,818,231 shares of Common Stock to AEW
Partners, L.P., a pension fund advisor ("AEW"), in a private placement
transaction for $64.8 million (approximately $7.35 per share). Additional shares
may be issued to AEW in the event certain purchase price adjustments are
triggered. Management believes the number of additional shares which may be
issued to AEW will not be material in relation to the number of shares
originally issued to AEW.
On December 29, 1995, the Company completed the acquisition of 11 buildings and
approximately 278 acres of land within Sabal Park in Tampa, Florida, from Sabal
Corporation, a wholly-owned subsidiary of Stone and Webster Incorporated. The
assets were acquired for an aggregate cash consideration of $42.5 million. In a
concurrent transaction, the Company contracted to sell approximately 63 acres of
the land acquired from Sabal Corporation to Security Capital Industrial Trust
and sold approximately 48 of such acres on December 29, 1995 with the sale of
remaining land (consisting of two parcels) contingent upon the resolution or
satisfaction of certain conditions.
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<PAGE>
CROCKER REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 12, 1996, the Company sold 1,875,000 shares of the Common Stock to
Fortis Benefits Insurance Company and its affiliate, Time Insurance Company, in
a private placement transaction for $15.0 million ($8.00 per share).
On January 16, 1996, the Company and certain of its subsidiaries completed the
acquisition of (i) nine office buildings located in Memphis, Tennessee, and in
Tampa and Jacksonville, Florida, (ii) four parcels of land in Memphis and Tampa
and (iii) management contracts for an aggregate of approximately 700,000 square
feet of space in Memphis and Tampa, each from affiliates of Towermarc
Corporation.
The following unaudited pro forma consolidated results of operations for the
three months ended March 31, 1996 and 1995 have been prepared assuming the above
transactions occurred at the beginning of each such period, after giving effect
to certain adjustments, including depreciation and amortization. The following
unaudited pro forma consolidated results of operations is not necessarily
indicative of results of operations that would have occurred had the
transactions been made as of those dates or of results that may occur in the
future (dollars in thousands except per share amounts):
March 31,
------------------------
1996 1995
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(unaudited)
Revenue $ 18,091 17,282
========== ==========
Net income $ 1,661 2,019
========== ==========
Net income per common share $ 0.06 0.07
========== ==========
Weighted average number of common shares outstanding 26,981,087 26,981,087
Pro forma net income for the three months ended March 31, 1996 is lower than the
respective period in 1995 primarily due to the incurrence of $390,000 of costs
for a secondary offering in the first quarter of 1996 which was terminated.
The Company has made other acquisitions during the first quarter of 1996 which
are not included in the above pro forma consolidated results of operations as
follows:
The Company is currently developing an office building in Center Point Office
Park in Columbia, South Carolina. The total cost of the project is expected to
be approximately $7.6 million, which includes the January 4, 1996 purchase of
land for approximately $1.2 million and the construction of an approximately
81,000 square foot office building. Pursuant to a contract entered into with the
builder, the construction costs are fixed. The building is expected to be
completed in the fourth quarter of 1996 and is approximately 50% pre-leased.
On March 27, 1996, the Company acquired eight acres of land in Greenville, South
Carolina, for 1.6 million. The Company believes that it can develop 100,000
square feet of rentable space on this land.
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CROCKER REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) COMMITMENTS AND CONTINGENCIES
Under the terms of the original purchase agreement pursuant to which AP
Southeast Partnership acquired its 46 properties from NationsBank of North
Carolina, N.A., in November 1993, AP Southeast Partnership is obligated to pay a
Deferred Contingent Purchase Price, as defined in the AP Southeast Partnership
purchase agreement. This contingent payment, which will in no event exceed $4.4
million, is due on April 1, 1998, if the actual four-year cumulative cash flow
of the AP Southeast Partnership properties (as defined) exceeds the projected
four-year cash flow (as defined). Based on actual results to date and estimates
of future operations, management does not believe that any Deferred Contingent
Purchase Price will be payable.
The Company is not currently involved in any material litigation, nor, to its
knowledge, is any material litigation currently threatened against it or any of
its properties, except for routine litigation arising in the ordinary course of
business, most of which is expected to be covered by liability insurance. While
the resolution of these matters cannot be predicted with certainty, management
believes that the final outcome of such matters will not have a material adverse
effect on the financial position, results of operations or cash flows of the
Company.
Management believes that any costs associated with environmental risks or
compliance with applicable environmental laws or regulations to which the
Company may be subject would not have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
A number of federal, state and local laws exist, such as the Americans with
Disabilities Act, which may require modifications to existing buildings to
improve, or restrict certain renovations, by requiring access to such buildings
by disabled persons. Additional legislation may impose further requirements on
owners with respect to access by disabled persons. The costs of compliance with
such laws may be substantial and may reduce overall returns of the Company's
investments. The Company believes that all of its properties are in substantial
compliance with laws currently in effect, and will review its properties,
periodically, to determine continuing compliance with existing laws and any
additional laws that are hereafter promulgated.
(6) SUBSEQUENT EVENT
On April 29, 1996, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Highwoods Properties, Inc ("Highwoods"). As a result of
the Merger, the outstanding shares of common stock of the Company will be
converted into the right to receive $11.02 per share in cash, subject to certain
adjustments. The Merger is conditioned upon, among other things, approval by
holders of at least two-thirds of the outstanding Common Stock and the continued
qualification of the Company as a real estate investment trust. Holders of
approximately 83% of the Common Stock have entered into an agreement with
Highwoods pursuant to which such holders have agreed to vote in favor of the
Merger.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying financial
statements and notes thereto.
GENERAL:
The results of operations for the three months ended March 31, 1995 do not
include (i) the Company's acquisition of three properties on July 1, 1995 and
certain property management, leasing, brokerage and construction management
businesses from the Executive Officers and Mrs. Crocker on June 30, 1995,
resulting in the Company becoming self-managed and self-administered, (the
"Reorganization"); (ii) two significant portfolio acquisitions on December 29,
1995 (Sabal acquisition for an approximately $42.5 million contract amount) and
January 16, 1996 (Towermarc acquisition for an approximately $81.4 million
contract amount); and (iii) two private placements on December 28, 1995 (AEW for
approximately $64.8 million) and January 12, 1996 (Fortis for approximately
$15.0 million). As a result, the operating results of the Company for the three
months ended March 31, 1996 and 1995 are not directly comparable.
Rental income and tenant reimbursements are derived principally from base rents,
additional rents in the form of escalation billings and expense reimbursements
charged to tenants of the properties. The recognition of rental revenue is a
function of the terms of the leases entered into with the tenants and rent
concessions granted. The operating expenses of the properties include operating
costs typically incurred by office building projects of the type owned by the
Company.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1995
Net income for the three months ended March 31, 1996 was $1.6 million compared
with net income of $1.5 million in 1995.
Rental income and tenant reimbursements were $17.0 million for the three months
ended March 31, 1996 compared to $9.2 million in 1995. The increase of $7.8
million is primarily attributable to the properties acquired in the
Reorganization, the Sabal acquisition and the Towermarc acquisition, which
contributed in the aggregate $7.4 million, including a $610,000 net lease
termination fee earned in 1996.
Management fee and leasing commission revenue of approximately $590,000 in the
aggregate relate to third-party management contracts acquired in the
Reorganization and Towermarc acquisition.
Rental property operating expenses were $4.6 million for the three months ended
March 31, 1996 compared to $1.3 million in 1995. Of the total increase of $3.3
million, $3.0 million is attributable to the properties acquired in the
Reorganization, the Sabal acquisition and the Towermarc acquisition. The
remaining increase is due to higher occupancies at the Predecessor Entities
Properties and the change in the overall management of the Company from
third-party to primarily self-managed subsequent to March 31, 1995.
Real estate taxes and insurance costs were $1.6 million for the three months
ended March 31, 1996, compared to $821,000 in 1995. All of the total net
increase is attributable to the properties acquired in the Reorganization, the
Sabal acquisition and the Towermarc acquisition.
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<PAGE>
Management fee expenses were $115,000 for the three months ended March 31, 1996
compared to $511,000 in 1995. This decrease is due to the change in the overall
management of the Company from third-party to primarily self-managed as a result
of the Reorganization subsequent to March 31, 1995. The third-party asset
management fees were approximately $250,000 for the three months ended March 31,
1995 compared to none during 1996. Third-party property management fees were
approximately $261,000 for the three months ended March 31, 1995.
Depreciation and amortization of property and equipment was $2.7 million for the
three months ended March 31, 1996 compared to $1.3 million in 1995. Of the total
increase of $1.4 million, approximately $1.3 million is attributable to the
properties acquired in the Reorganization, the Sabal acquisition and the
Towermarc acquisition.
Amortization of goodwill and management contracts was approximately $134,000 for
the three months ended March 31, 1996 compared to none in 1995. This
amortization relates to the goodwill and management contract assets recorded by
the Company in connection with the Reorganization.
General and administrative expenses were $1.5 million for the three months ended
March 31, 1996 compared to approximately $279,000 in 1995. This $1.2 million
increase resulted from the Reorganization as well as becoming a public company
subsequent to March 31, 1995.
Interest expense was $5.1 million for the three months ended March 31, 1996
compared to $3.5 million in 1995. Interest expense resulting from debt assumed
in the Reorganization and Towermarc acquisition was approximately $2.2 million
for 1996. This was offset by a reduction of approximately $600,000 of interest
expense for the period resulting from the extinguishment of $20 million of debt
on December 28, 1995.
Costs incurred for terminated offering of $390,000 represents costs incurred by
the Company as of March 31, 1996 in connection with a planned offering of common
stock which was canceled due to the April 29, 1996 announcement that Highwoods
Properties, Inc. would be acquiring all of the outstanding common stock of the
Company.
MATERIAL CHANGES IN FINANCIAL CONDITION AT MARCH 31, 1996 COMPARED TO
DECEMBER 31, 1995
Rental properties, net of accumulated depreciation, increased by $78.2 million
from December 31, 1995 to March 31, 1996. In addition, land held for investment
increased by $5.1 million. These increases are primarily attributable to the
Towermarc acquisition on January 16, 1996. Office building under construction of
$2.1 million represents $1.2 million of land costs and $900,000 in construction
to date on the Company's construction of an office building in Columbia, South
Carolina.
The Company's cash and cash equivalents at March 31, 1996 increased by $685,000
compared to December 31, 1995. This increase resulted from $6.5 million net cash
provided by operating activities and $522,000 net cash provided by financing
activities offset by $6.3 million net cash used in investing activities. The net
cash used in investing activities resulted primarily from $1.7 million used to
acquire certain rental properties and undeveloped land, $1.6 million for the
acquisition of land held for investment, and $1.7 million for the office
building under construction. The net cash provided by financing activities
resulted from the receipt of $15.0 million from the Fortis private placement of
the Company's Common Stock. These receipts were offset primarily by payments to
reduce debt of $9.6 million, $938,000 for the payment of financing costs,
$809,000 in dividends paid, and the payment of $791,000 in offering costs
related to the AEW and Fortis private placements and the Company's terminated
secondary offering.
-14-
<PAGE>
The balance in restricted cash at March 31, 1996 increased by $2.3 million
compared to December 31, 1995 primarily due to the funding of real estate tax
and insurance escrows into the restricted cash accounts referred to above.
Accounts payable and accrued expenses were $3.7 million at March 31, 1996
compared to $2.1 million at December 31, 1995. Of this $1.6 million increase,
$415,000 relates to operation of the properties from the Sabal and Towermarc
acquisitions. In addition, amounts due for office building under construction,
tenant improvements and leasing commissions increased by $1.0 million.
Accrued real estate taxes at March 31, 1996 increased by $1.3 million compared
to December 31, 1995. A significant portion of the Company's portfolio's real
estate taxes are due in January of each year. The amounts which were due in
January 1996 were paid in December 31, 1995. Accordingly, the balance in accrued
real estate taxes increases during the year.
The $4.0 million dividend payable was paid on April 3, 1996 for shareholders of
record on March 20, 1996.
Common Stock and additional paid-in capital at March 31, 1996 increased by
approximately $36,000 and $25.7 million, respectively, since December 31, 1995.
The increase is primarily due to a $15.0 million private placement of the
Company's Common Stock and the issuance of 1,687,939 shares of Common Stock for
the Towermarc acquisition. These increases were offset by approximately $1.6
million of dividends paid or accrued during the three month period in excess of
net income and retained earnings.
LIQUIDITY AND CAPITAL RESOURCES
Capital resources for the three months ended March 31, 1996 were provided
primarily by operations in addition to a $15.0 million private placement of the
Company's Common Stock. The net proceeds from the private placement were used
principally to pay off $9.4 million of debt assumed in the Towermarc
acquisition. Assets acquired in the Towermarc acquisition were acquired
primarily through the issuance of Common Stock and the assumption of debt.
At March 31, 1996, the Company's properties were approximately 94.4% leased.
The Properties (including the Properties acquired in the Towermarc acquisition)
had an Annual Base Rent per square foot leased of $10.84 as of December 31, 1995
compared to $11.12 as of March 31, 1996. Annual Base Rent at March 31, 1996 and
December 31, 1995, is defined as the amounts contractually due (excluding
percentage rents due and recoveries from tenants for common area maintenance
charges, taxes or other items) for the month of March 1996 and December 1995,
respectively, annualized, for continuing leases in force on or before March 31,
1996 and December 31, 1995.
The Company's consolidated indebtedness at March 31, 1996 was $239.5 million at
a weighted average interest rate of 8.57%. Such indebtedness included (i) a
mortgage note (the "Mortgage Note") issued by the AP Southeast Partnership and
secured by the Properties owned by the AP Southeast Partnership, (ii) two loans
issued by General Electric Capital Corporation ("GE Capital") to Crocker Realty
Investors, Inc. ("CRI") and secured by the three Properties in Boca Raton,
Florida, and (iii) various loans assumed in the Towermarc acquisition.
-15-
<PAGE>
The Mortgage Note is a conventional, monthly pay, first mortgage note in the
principal amount of $140 million. The Mortgage Note is a limited recourse
obligation of the AP Southeast Partnership that was issued to Kidder Peabody
Acceptance Corporation I pursuant to an Indenture, dated March 1, 1994 (the
"Indenture") among the AP Southeast Partnership, Bankers Trust Company of
California, N.A., and Bankers Trust Company. The Mortgage Note bears interest on
its outstanding principal balance at the rate of 7.88% per annum, subject to
increase in the event of a default in the payment of any amount due, and matures
on January 3, 2001. The Mortgage Note provides for scheduled monthly payments of
interest only which are due on the first business day of each calendar month.
The Mortgage Note is secured by a blanket, first mortgage lien on the Properties
owned by the AP Southeast Partnership, as well as (i) a first priority
assignment of all present and future leases encumbering portions of those
Properties, (ii) a security interest in any personal property owned by AP
Southeast Partnership and (iii) a collateral assignment of the right, title and
interest of AP Southeast Partnership in and rights to all management agreements
relating to those Properties. As an additional security for the Mortgage Note,
AP Southeast Partnership maintains with a servicer various "sweep accounts," a
central cash collateral account (the "Cash Collateral Account") and a
contingency reserve account (the "Contingency Reserve Account"). All rents with
respect to the Properties securing the Mortgage Note are made payable to, and
deposited directly in, the sweep accounts, which are then transferred to the
Cash Collateral Account, and all other property income and capital event
proceeds are deposited into the Cash Collateral Account promptly upon receipt
thereof. Cash of at least $7 million is maintained in the Contingency Reserve
Account.
In connection with the Reorganization, the Company assumed the two loans issued
by GE Capital. Both of the loans have floating interest rates based on the GE
Capital Composite Commercial Paper Rate, which was 5.53% at March 31, 1996. The
GE Capital Composite Commercial Paper Rate has had a decrease of 30 basis points
since December 31, 1995. The first loan (as amended on April 27, 1994), which at
March 31, 1996 had an outstanding principal balance of $11.4 million and
approximately $85,000 available to be drawn upon, bears interest at the rate of
9.53% per annum (at March 31, 1996). The second loan, which had an outstanding
principal balance of $30.5 million at March 31, 1996, bears interest at the rate
of 9.78% per annum (at March 31, 1996). Both loans require monthly payments of
interest. The outstanding principal balance of the first loan is due at maturity
on April 27, 1999. The outstanding principal balance of the second loan is
payable in an amount equal to 50% of the annual cash flow generated by the One
Boca Place Property after payment of interest on the loan and tenant
improvements and expenses on the One Boca Place Property for each calendar year
subsequent to 1995. This payment is limited to a maximum amount of $750,000 per
year. All remaining unpaid principal on the second loan is payable at maturity
on April 27, 1999.
In connection with the Towermarc acquisition in January 1996, the Company
assumed eleven separate mortgage notes. At March 31, 1996, and an aggregate of
$30.1 million of the debt has fixed interest rates with a weighted average rate
of 9.77% and an aggregate of $27.5 million of the debt has floating interest
rates, which in the aggregate had a weighted average interest rate of 9.03% at
March 31, 1996. The notes have various years of maturities ranging from 1996 to
2001, with approximately $15.9 million due in 1996, including one loan for $14.0
million due on October 31, 1996.
The Company expects to meets its liquidity requirements (excluding debt
principal payments) through net cash flows provided by property operations. The
Company expects to pay its debt principal payments due in 1996 by refinancing.
Management believes the cash flows from operations are adequate to fund property
operations, related leasing costs and tenant and building improvements and to
meet debt service (excluding debt principal payments) requirements.
Additionally, the Indenture requires the maintenance of a $7.0 million
contingency fund as additional security in the event that operations of the
Properties securing the Mortgage Note do not provide sufficient cash flows for
the payment of tenant lease-up costs. Escrow accounts to pay real estate taxes
and insurance have been
-16-
<PAGE>
established and will continue to be funded by the AP Southeast Partnership from
the monthly cash receipts received from its Properties.
In addition, on March 20, 1996, the Company entered into an agreement with The
First National Bank of Boston for a Line of Credit, which is a full recourse $20
million secured revolving credit facility. The Line of Credit has a term of
three years and bears interest at either the LIBOR plus 175 basis points or The
First National Bank of Boston's Base Rate plus 75 basis points, at the Company's
option. The Line of Credit is available to fund acquisitions and development
activities, as well as for the refinancing of indebtedness and for general
corporate purposes, and is subject to customary covenants and reporting
requirements. On April 1, 1996, the Company borrowed $5 million on this Line of
Credit.
The Company paid a special dividend of $809,000 on March 28, 1996 related to the
Company's 1995 REIT dividend distribution requirements. In addition, on April 3,
1996, the Company paid a dividend of $4,047,000 which was the Company's first
quarterly dividend.
FUNDS FROM OPERATIONS
Management believes that FFO is the industry standard for reporting the
operations of real estate investment trusts. In March 1995, NAREIT issued a
clarification of its definition of FFO. The clarification provides that
amortization of deferred financing costs and depreciation of non-real estate
assets are no longer to be added back to net income in arriving at FFO. The
Company adopted the changes effective the year beginning January 1, 1996. The
following table presents the Company's pro forma and historical FFO for the
three months ended March 31, 1996 under both methods of calculation for
illustrative purposes (in thousands, except share data):
<TABLE>
<CAPTION>
Pro Forma Historical
------------------------- -------------------------
New Old New Old
Method Method Method Method
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 1,661 $ 1,661 $ 1,631 $ 1,631
Add back:
Depreciation and amorti-
zation of real estate
assets 2,733 2,733 2,626 2,626
Depreciation of non-real
estate assets - 37 - 37
Amortization of deferred
leasing costs 198 198 197 197
Amortization of deferred
loan costs - 285 - 272
Amortization of goodwill
and management con-
tracts - 134 - 134
Amortization of organiza-
tion costs - 1 - 1
Cost of terminated
offering 390 390 390 390
----------- ----------- ---------- -----------
Funds From Operations $ 4,982 $ 5,439 $ 4,844 $ 5,288
----------- ----------- ---------- -----------
Weighted average number of
shares outstanding 26,981,087 26,981,087 26,429,113 26,429,113
=========== =========== =========== ===========
FFO per share $ 0.18 $ 0.20 $ 0.18 $ 0.20
=========== =========== =========== ===========
</TABLE>
-17-
<PAGE>
While management believes that FFO is the most relevant and widely used measure
of the Company's operating performance, such amount does not represent cash flow
from operations as defined by GAAP, should not be considered as an alternative
to net income as an indicator of the Company's operating performance, and is not
indicative of cash available to fund all cash flow needs.
-18-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company held a Special meeting of Stockholders March 22, 1996 for the
following three proposals:
1. To approve an amendment to the Company's Articles of Incorporation to effect
a reverse stock split of the common stock, par value $.01 per share, of the
Company (the "Common Stock"), and to authorize the Board of Directors to set
the rate of the split between 1 for 2 shares and 1 for 3 shares and to fix
the effective date of the split.
2. To approve an amendment to the Company's Articles of Incorporation to provide
to AP CRTI Holdings, L.P., a wholly owned subsidiary of Apollo Real Estate
Investment Fund, L.P. (the "Apollo Fund") and the entity to which the Apollo
Fund intends to transfer all shares of Common Stock owned by it, the same
rights as are currently afforded to the Apollo Fund under the Articles of
Incorporation by amending the definition of "Apollo Fund" from "Apollo Real
Estate Investment Fund, L.P." to "AP CRTI Holdings, L.P."
3. To approve an amendment to the Company's 1995 Stock Option Plan to increase
the number of shares of Common Stock authorized for issuance to 2,500,000, to
be effective immediately after the reverse stock split.
At such meeting, the following votes were cast:
Broker
For Against Withheld Abstain Non-Votes
--- ------- -------- ------- ---------
Proposal #1 26,731,602 9,000 - 170 1,210
Proposal #2 26,727,352 5,950 - 2,170 6,510
Proposal #3 26,728,027 13,485 - 470 -
ITEM 5. OTHER INFORMATION
None.
-19-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Not applicable.
(b) Reports on Form 8-K
On January 16, 1996, the Company filed a report on Form 8-K, dated
December 28, 1995, in connection with (i) the private placement of
Common Stock to AEW Partners, Ltd., and (ii) the acquisition of certain
properties and land from Sabal Corporation.
On January 31, 1996, the Company filed a report on Form 8-K, dated
January 16, 1996, in connection with the acquisition of certain
properties and land from Towermarc Corporation.
On March 12, 1996, the Company filed an amendment to a report on Form
8-K, dated December 28, 1995, including pro forma financial statements
of the Company as of September 30, 1995 and for the nine months ended
September 30, 1995 and the year ended December 31, 1994.
On March 31, 1996, the Company filed an amendment to a report on Form
8-K, dated January 16, 1996, including pro forma financial statements
of the Company as of and for the year ended December 31, 1995.
-20-
<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.
CROCKER REALTY TRUST, INC.
Registrant
Date: May 13, 1996 /s/ Thomas J. Crocker
-----------------------------
Thomas J. Crocker
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1996 /s/ Richard S. Ackerman
-----------------------------
Richard S. Ackerman
President and Chief Operating Officer
Date: May 13, 1996 /s/ Robert E. Onisko
-----------------------------
Robert E. Onisko
Executive Vice President,
Chief Financial Officer and Secretary
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILE AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 17,742
<SECURITIES> 0
<RECEIVABLES> 5,129
<ALLOWANCES> 111
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 390,961
<DEPRECIATION> 14,297
<TOTAL-ASSETS> 413,434
<CURRENT-LIABILITIES> 0
<BONDS> 239,502
0
0
<COMMON> 270
<OTHER-SE> 158,393
<TOTAL-LIABILITY-AND-EQUITY> 413,434
<SALES> 16,970
<TOTAL-REVENUES> 17,560
<CGS> 10,784
<TOTAL-COSTS> 10,784
<OTHER-EXPENSES> 390
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 5,055
<INCOME-PRETAX> 1,631
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,631
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
