SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-2
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission file number 1-13766
CROCKER REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
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MARYLAND 13-3794787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
433 PLAZA REAL, SUITE 335
BOCA RATON, FLORIDA 33432
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (407) 395-9666
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
COMMON STOCK PURCHASE WARRANTS
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [__]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
As of August 26, 1996, the aggregate market value of the voting stock
of the Registrant held by non-affiliates of the Registrant was $73,301,283.00.
As of August 26, 1996, the number of outstanding shares of Common
Stock, par value $.01 per share, of the Registrant was 29,108,007.
Documents Incorporated by Reference
NONE
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I PAGE
- ------ ----
<S> <C> <C>
Item 1. Business (only Environmental Matters section)...................................................1
PART II
Item 6. Selected Financial Data.........................................................................3
Item 7. Management's Discussion and Analysis of Financial Conditions
and Results of Operations (only Funds From Operations section)..................................5
Item 8. Financial Statements and Supplementary Data (only the Pro Forma Consolidated
Statement of Operations for the Year Ended December 31, 1995 and the
related Notes thereto)..........................................................................6
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure........................................................................8
Signatures ...............................................................................................9
</TABLE>
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<PAGE>
PART I
ITEM 1. BUSINESS
(ONLY ENVIRONMENTAL MATTERS SECTION)
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, a current
or previous owner or operator, manager or developer of real estate may be liable
for the costs of removing and remediating certain hazardous or toxic substances
on the property. These laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of the hazardous
or toxic substances. The costs of removing or remediating these substances may
be substantial and the presence of these substances, or the failure to remediate
conditions affected by the substances promptly, may adversely affect the owner's
or operator's ability to sell the real estate or to borrow using the real estate
as collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removing or remediating the
substances at the disposal or treatment facility. Certain laws impose liability
for the release of asbestos into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
exposure to asbestos. In connection with its ownership and operation of the 70
Class A office properties, aggregating approximately 5.7 million rentable square
feet (collectively the "Properties"), Crocker Realty Trust, Inc. (the "Company")
may be potentially liable for these costs. In addition, the presence of
hazardous or toxic substances at a site adjacent to or in the vicinity of a
property could require the property owner to participate in remediation
activities in certain cases or could have an adverse effect on the value of such
property. Although certain tenants at several of the Properties use hazardous or
toxic substances in the ordinary course of their operations, the Company
believes that the Properties are in compliance in all material respects with all
federal, state and local regulations regarding hazardous or toxic substances and
is not aware of any material liability or claim relating to hazardous or toxic
substances at any of the Properties. Pursuant to an environmental indemnity
agreement, AP Southeast Portfolio Partners, L.P., a subsidiary of the Company
(the "Financing Partnership"), made certain representations and warranties
concerning compliance in all material respects with, and lack of liability
under, environmental laws and regulations with respect to the Properties owned
by such partnership.
All of the Properties have been subject to at least one Phase I
environmental assessment since April 1993. Such assessments were intended to
evaluate the environmental condition of, and potential environmental liabilities
associated with, the Properties, and included visual observations of the
Properties during site visits, reviews of certain records concerning the
Properties as well as publicly-available information concerning known conditions
at properties in the vicinity of the Properties, consideration of the likely
presence of asbestos-containing materials ("ACMs") in the buildings on the
Properties and the presence of elevated levels of lead in the drinking water,
inquiries into the likely presence of polychlorinated biphenyls ("PCBs") in
electrical transformers, the presence of underground or above ground storage
tanks and the preparation of a written report, but did not include sampling or
analysis of soil, groundwater or other environmental media or subsurface
investigations.
A property located adjacent to the southwestern perimeter of the Sabal
VI Property is listed on the National Priority List ("NPL") of the Environmental
Protection Agency (the "EPA"). Groundwater at this site contains inorganic
metals that have leached from the soil and the cost of this remediation is
estimated by the EPA as ranging from a present value of $140,000 to $2,650,000,
depending on the remedy ultimately implemented. The EPA has not yet completed
its investigation of wetlands in the area that may have been affected by the
contamination at this adjacent site. Groundwater sampling on the portion of the
Sabal VI Property that borders such adjacent property revealed concentrations at
above cleanup standards of inorganic metals similar to those found to be
leaching from the adjacent site. However, soil sampling from the same location
on the Sabal VI Property revealed concentrations of such inorganic metals within
the range commonly found in area soils. The Company does not believe that its
Property is a source of the problems found in the adjacent site and, based on
the information known to date, the Company believes it is unlikely that the EPA
or any other party would seek to impose liability on the Company with respect to
such Property.
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<PAGE>
Contamination exists in groundwater at two NPL sites adjacent to and
upgradient from the Properties in Nashville, Tennessee (the "Grassmere
Properties"). Due to the geology of the area, the Company's consultant advised
that sampling on the Grassmere Properties would not definitively determine
whether contamination from off-site had reached the Grassmere Properties;
therefore, no on-site sampling was performed. Funded clean-ups are ongoing at
both NPL sites. Based on information known to date, there is no indication that
the Grassmere Properties are a source of the contamination, and it is unlikely
that the EPA or any other party would seek to impose liability on the Company
for the presence of such contamination.
Lead was detected above the federal action level in drinking water from
limited outlets at seven of the Properties. Federal law only requires that
public water suppliers take action when this level is exceeded and requires no
direct action by the Company. Sampling was limited and more thorough sampling
would be required to determine accurately the sources and levels of lead in
those buildings. However, if elevated lead levels do exist, it could present the
potential for allegations of liability from third parties.
It is possible that these assessments with respect to the Properties do
not reveal all potential environmental liabilities or that there are material
environmental liabilities of which the Company is unaware. Moreover, no
assurances can be given that (i) future laws, ordinances or regulations will not
impose any material environmental liability or (ii) the current environmental
condition of the Properties has not been or will not be affected by tenants and
occupants of the Properties, by the condition of properties in the vicinity of
the Properties or by third parties unrelated to the Company.
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<PAGE>
PART II
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information for the Company on an historical basis and pro forma basis and
should be read in conjunction with the pro forma and historical financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Form
10-K.
The pro forma financial information is not necessarily indicative of
what the Company's actual financial position and results of operations would
have been as of and for the period indicated, nor does it purport to represent
the future financial position or results of operations of the Company.
<TABLE>
<CAPTION>
At or for the year ended December 31,
----------------------------------------------------------
Pro Forma Historical Historical Historical
1995(1) 1995(2) 1994(3) 1993(3)
--------- ---------- ---------- ----------
OPERATING DATA: (Dollars in thousands, except per share data)
Revenue:
<S> <C> <C> <C> <C>
Rental income........................................ $66,474 $ 42,489 $ 37,047 $ 3,813
Management income (4)................................ 2,654 770 - -
Interest and other (5)............................... 1,233 1,007 318 155
-------- -------- ------- -------
Total revenue............................... $70,361 $ 44,266 $ 37,365 $ 3,968
-------- -------- --------- ---------
Expenses:
Operating expenses................................... $15,648 $8,632 $ 5,601 $ 611
Real estate taxes and insurance...................... 7,128 3,680 3,343 359
General and administrative........................... 5,189 2,813 505 135
Management fees...................................... 444 1,289 2,122 219
Depreciation and amortization........................ 12,247 7,366 5,110 525
Interest (6)......................................... 21,901 16,212 14,001 1,563
------- ------ -------- --------
Total expenses.............................. $62,557 $ 39,992 $ 30,682 $ 3,412
-------- -------- --------- --------
Income before extraordinary item.............................. $ 7,804 $ 4,274 $ 6,683 $ 556
========= ========= ========== =========
Income before extraordinary item per share (7)................ $ 0.29 $ 0.31 $ N/A $ N/A
========== ========== ========== =========
BALANCE SHEET DATA:
Real estate assets, before accumulated depreciation and amortization $384,856 $302,156 $208,544 $203,767
Real estate assets, after accumulated depreciation and amortization $373,266 $290,566 $203,265 $203,249
Total assets.................................................. $408,157 $324,676 $223,211 $221,996
Total debt.................................................... $239,649 $181,873 $160,000 $160,000
Total liabilities............................................. $246,508 $190,537 $165,322 $164,690
CASH FLOW INFORMATION:
Net cash flow provided by operating activities................ $ 16,474 $ 7,771 $ 10,830 $ 4,661
Net cash flow used in
investing activities.......................................... $(49,500) $(47,059) $ (6,567) $(204,243)
Net cash flow provided by (used in)
financing activities.......................................... $ 49,488 $ 44,875 $ (5,073) $ 200,524
OTHER DATA:
Funds from Operations (8)..................................... $ 20,960 $ 12,257 $ 12,463 $ 1,165
Cash dividends declared per share (9)......................... N/A $ 0.20 N/A N/A
Book value per share (10)..................................... N/A $ 5.74 N/A N/A
<FN>
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(1) Balance sheet data has been presented as if the following transactions
had occurred on December 31, 1995: (a) the Company had issued 1,875,000
shares of Common Stock at $8.00 per share to Fortis and (b) the
Towermarc Acquisition. Statement of Operations data has been presented
as if the foregoing transactions as well as the following transactions
had occurred on January 1, 1995: (i) the Company had issued 8,818,231
shares of Common Stock at $7.35 per share to AEW, (ii) the Sabal
Acquisition and (iii) the CRI Merger and Management Subsidiary Merger.
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<PAGE>
(2) Statement of Operating Data represents the Company's activity for the
year ended December 31, 1995, which consists of 12 months of operations
for the Partnership Properties and the six months of operations for the
period ended December 31, 1995 for Crocker Realty Investors, Inc.,
Crocker Realty Management, Inc. and Leasing Company. The balance sheet
data represents the consolidated assets, liabilities and stockholders
equity of the Company at December 31, 1995.
(3) Represents the combined historical data for the Partnerships. The
Partnerships' inception dates occurred in the fourth quarter of 1993.
(4) Includes property management, development and construction fees, and
leasing and brokerage commissions from third parties.
(5) Includes gain on sale of land of $124,000 in historical and pro forma
1995.
(6) Interest expense includes amortization of deferred loan costs of
$1,029,000, $737,000, $667,000 and $84,000 for pro forma 1995, and
historical for 1995, 1994 and 1993, respectively.
(7) Based on 13,537,976 weighted average number of shares of Common Stock
outstanding in 1995, and 26,925,431 shares of Common Stock outstanding
in 1995 on a pro forma basis.
(8) Funds from Operations ("FFO") is defined by the NAREIT as net income or
loss excluding gains or losses from debt restructuring and sales of
property plus depreciation and amortization, and after adjustments for
minority interest, unconsolidated partnerships and joint ventures
(adjustments for minority interests, unconsolidated partnerships and
joint ventures are calculated to reflect FFO on the same basis). FFO
does not represent cash flow from operating activities as defined by
generally accepted accounting principles, 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. The Company generally considers FFO to be an appropriate
measure of the performance of an equity REIT because it is predicated
on a cash flow analysis, as opposed to a measure predicated on
generally accepted accounting principles, which gives effect to
non-cash items such as depreciation. Since there is no formally agreed
upon calculation of FFO, and the NAREIT definition thereof is merely a
guideline, computation of FFO may vary from one REIT to another. 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-rental real estate assets are no longer to be
added back to net income in arriving at FFO. The Company adopted these
changes effective January 1, 1996. The amounts in this table do not
include the effect of the new clarifications. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Funds From Operations."
The following table represents the old computation of the Funds From
Operations for each period presented:
</FN>
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
PREDECESSOR PREDECESSOR
PRO FORMA HISTORIC HISTORICAL HISTORICAL
1995 1995 1994 1993
--------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Income before extraordinary item $ 7,804 $ 4,274 $ 6,683 $ 556
Add back:
Depreciation and amortization on real estate assets 10,940 6,354 4,761 518
Depreciation on non-real estate assets 90 60 - -
Amortization of deferred leasing costs 682 682 349 7
Amortization of deferred loan costs 1,029 737 667 84
Amortization of goodwill and management contracts 535 270 - -
Amortization of organization costs 4 4 3 -
Cost incurred for terminated offering - - - -
Deduct:
Gain on sale of land (124) (124) - -
--------- --------- --------- ---------
Funds From Operations $ 20,960 $ 12,257 $ 12,463 $ 1,165
========= ========= ========= =========
<FN>
(9) Based on 13,537,976 weighted average number of shares of Common Stock
outstanding in 1995. Excludes a special dividend of $0.03 per share
related to the Company's 1995 REIT dividend distribution requirements,
which dividend was declared on March 7, 1996 for shareholders of record
on March 18, 1996 and is payable on March 28, 1996.
(10) Based on 23,362,492 shares of Common Stock outstanding as of December
31, 1995.
</FN>
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(ONLY FUNDS FROM OPERATIONS SECTION)
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 year
ended December 31, 1995 under both methods of calculation for illustrative
purposes (in thousands):
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
--------- ----------
NEW CURRENT NEW CURRENT
METHOD METHOD METHOD METHOD
------ ------- ------ -------
<S> <C> <C> <C> <C>
Income before extraordinary item............. $7,804 $7,804 $4,274 $4,274
Add back:
Depreciation and amortization of
real estate assets.................. 10,940 10,940 6,354 6,354
Depreciation of non-real estate
assets.............................. -- 90 -- 60
Amortization of deferred leasing
costs............................... 682 682 682 682
Amortization of deferred loan
costs............................... -- 1,029 -- 737
Amortization of goodwill and
management contracts................ -- 535 -- 270
Amortization of organization
costs............................... -- 4 -- 4
Deduct:
Gain on sale of land................ (124) (124) (124) (124)
-------- -------- -------- --------
Funds From Operations....................... $ 19,302 $ 20,960 $ 11,186 $ 12,257
========== ========== ========== ==========
</TABLE>
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 generally accepted accounting principles
("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. The Company generally considers FFO to be
an appropriate measure of the performance of an equity REIT because it is
predicated on a cash flow analysis, as opposed to a measure predicated on GAAP,
which gives effect to non-cash items such as depreciation. Since there is no
formally agreed upon calculation of FFO, and the NAREIT definition thereof is
merely a guideline, computation of FFO may vary from one REIT to another.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(ONLY THE PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1995 AND THE RELATED NOTES THERETO)
CROCKER REALTY TRUST, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT COMMON STOCK AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
------------
(A)
ACQUISITIONS
AND
PRIVATE
HISTORICAL PLACEMENTS PRO FORMA
---------- ------------ ---------
<S> <C> <C> <C>
Revenue:
Rental income and tenant reimbursements $ 42,489 23,985 66,474
Management fees - building, development
and construction 618 1,051 1,669
Leasing commissions 152 833 985
---------- ---------- ---------
Total revenue 43,259 25,869 69,128
---------- ---------- ----------
Operating expenses:
Rental property operating expenses 8,632 7,016 15,648
Real estate taxes and insurance 3,680 3,448 7,128
Management fees 1,289 (845) 444
Amortization of deferred leasing costs 682 -- 682
Depreciation and amortization of
property and equipment 6,414 4,616 11,030
Amortization of goodwill and
management contracts 270 265 535
General and administrative expenses 2,813 2,376 5,189
--------- ---------- ----------
Total operating expenses 23,780 16,876 40,656
--------- ---------- ----------
Operating income 19,479 8,993 28,472
--------- ---------- ----------
Other income (expense):
Interest and other income 883 226 1,109
Gain from sale of land 124 -- 124
Interest expense (16,212) (5,689) (21,901) (B)
--------- ---------- ----------
Total other income (expense) (15,205) (5,463) (20,668)
--------- ---------- ----------
Income before extraordinary item (C) $ 4,274 3,530 7,804
========== ========== ==========
Number of outstanding shares of common stock (D) 26,925,431
==========
Income per share before extraordinary item (D) $ 0.29
==========
</TABLE>
See accompanying notes to Pro Forma Consolidated Statement of Operations.
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<PAGE>
CROCKER REALTY TRUST, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
ADJUSTMENTS
(A) Reflects the historical operations of CRI, CSI, CRMSI, the Sabal
Properties and the Towermarc Properties, adjusted on a pro forma basis
for interest and depreciation expense, for the period of time during 1995
prior to acquisition by the Company.
Interest expense reflects incremental indebtedness (net of $9.4 million
of debt prepaid with the proceeds of the private placement with Fortis)
of approximately $97.4 million (debt on Towermarc and CRI Properties) for
the first half of 1995 at an effective rate of 9.91% (the rate in effect
at the acquisition dates) and $57.8 million (debt on Towermarc
Properties) for the second half of 1995 at an effective rate of 9.54%
(the rate in effect at the acquisition date) plus loan cost amortization
of $292,000. The interest rates used are based on the terms of the notes
acquired from CRI and Towermarc for the period presented. Historical
indebtedness was also reduced by $20 million which was prepaid on
December 28, 1995 using the proceeds of the private placement with AEW.
The $20 million had a fixed rate of interest of 11.5%. Depreciation is
calculated using the respective purchase prices allocated to buildings,
site improvements and tenant improvements with depreciation calculated on
a straight-line basis over useful lives of 40 years, 15 years, and the
life of the respective leases, respectively.
(B) Pro forma interest expense for the year ended December 31, 1995 includes
amortization of deferred loan costs of $1,029,000.
(C) Income before extraordinary item is presented as the last line item of
the pro forma statement of operations, since the statement excludes the
significant non-recurring charge of the extraordinary loss on early
extinguishment of debt.
(D) Reflects income per share based on 26,925,431 shares of Common Stock
outstanding after issuing 1,875,000 shares of Common Stock in the Fortis
private placement on January 12, 1996 and issuing 1,687,939 shares of
Common Stock in the acquisition of the Towermarc Properties on January
16, 1996.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During August 1995, the Company dismissed Deloitte & Touche LLP
("Deloitte"), and engaged KPMG Peat Marwick LLP ("KPMG"), as the Company's
independent accountant to audit its financial statements. No report by Deloitte
on the Company's financial statements had contained an adverse opinion or a
disclaimer or was qualified or modified as to uncertainty, audit scope or
accounting principles. The change of accountants was approved by the board of
directors of the Company. There were no disagreements with Deloitte on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope of procedure, which, if not resolved to the satisfaction of
Deloitte, would have caused it to make reference to the subject matter of the
disagreement in connection with its report.
On September 1, 1995, the Company filed a report on Form 8-K, dated
August 25, 1995, in connection with a change in the Company's certifying
accountant from Deloitte to KPMG.
On September 5, 1995, the Company filed an amendment to its report on
Form 8-K, dated August 25, 1995, containing a letter dated August 31, 1995 from
Deloitte stating its agreement with comments made in item 4 of the Company's
Form 8-K filed on September 1, 1995.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report on
Form 10-K/A-2 to be signed on its behalf by the undersigned, thereunto duly
authorized.
CROCKER REALTY TRUST, INC.
By: /S/ DREW P. CUNNINGHAM
----------------------
Name: Drew P. Cunningham
Title: Vice President and Secretary
Dated: August 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K/A-2 has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DREW P. CUNNINGHAM Vice President and Secretary August 29, 1996
- -------------------------
Drew P. Cunningham
/s/ THOMAS F. COCHRAN Executive Vice President and
- ------------------------- Acting Principal Financial Officer August 29, 1996
Thomas F. Cochran
/s/ WILLIAM L. MACK Director August 29, 1996
- -------------------------
William L. Mack
Director
- -------------------------
Kevin McCall
/s/ JAMES P. NEEVES Director August 29, 1996
- -------------------------
James P. Neeves
/S/ LEE S. NEIBART Director August 29, 1996
- -------------------------
Lee S. Neibart
/S/ THOMAS H. NOLAN, JR. Director August 29, 1996
- -------------------------
Thomas H. Nolan, Jr.
/S/ W. EDWARD SCHEETZ Director August 29, 1996
- -------------------------
W. Edward Scheetz
Director
- -------------------------
S. Bruce Wunner
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