-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WV5sQX5iFUPLg6922fXk13Ni5uaXACcYen2sa4J9Ot5McPacxsBTFrkdWvbKZCgh 8AOpN+I3RQM6/YoxlXvM9w== 0000950142-99-000239.txt : 19990331 0000950142-99-000239.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950142-99-000239 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROPERTY CAPITAL TRUST CENTRAL INDEX KEY: 0000080718 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 042452367 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07003 FILM NUMBER: 99576840 BUSINESS ADDRESS: STREET 1: 101 FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02100 BUSINESS PHONE: 6177370100 MAIL ADDRESS: STREET 1: 101 FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02110 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 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 No. 1-7003 PROPERTY CAPITAL TRUST ---------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2452367 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 177 Milk Street, Suite 14B Boston, Massachusetts 02109-3404 -------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 482-4081 Securities registered pursuant to Common Shares, without par value Section 12(g) of the Act: Rights to purchase Common Shares 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. Yes [X] No [ ] As of January 31, 1999, the aggregate market value of Common Shares held by non-affiliates of the registrant was approximately $2,204,000. As of January 31, 1999, there were 9,584,220 Common Shares outstanding. PART I ITEM 1. BUSINESS - ---------------- Property Capital Trust (the "Trust") is an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated June 9, 1969, as amended. The Trust has qualified and has elected to be taxed as a real estate investment trust ("REIT") under Sections 856-860 of the Internal Revenue Code since 1969. Since 1995, the Trust has operated under a business plan (the "Business Plan") which provided for the orderly disposition of all of the Trust's investments. At the Trust's Annual Meeting of Shareholders held on December 15, 1995, the Trust's shareholders ratified the Business Plan and approved certain amendments to the Trust's Declaration of Trust necessary for its implementation. During 1998, the Trust disposed of its last two real estate investments. The Trust has utilized net sales proceeds from the sale of its properties to pay its indebtedness, make distributions to shareholders and satisfy its cash needs. Through December 31, 1998 distributions to shareholders from proceeds of sales have aggregated $13.65 per share. No properties were sold to persons deemed to be affiliates of the Trust. Each offer to purchase Trust assets was acted upon by the Board of Trustees, which Board is currently comprised of six Trustees, five of whom are unaffiliated with the Trust. In the summer of 1997, when it was apparent that the Business Plan would be successfully completed, management and the Trustees considered alternatives for terminating the Trust in an orderly manner. One alternative was to organize a liquidating trust after the Trust had completed the disposition of its real estate investments, fund the liquidating trust with cash sufficient to meet unknown contingent liabilities of the Trust and, after a period of time deemed sufficient by the Trustees for any such liabilities to surface, distribute the remaining cash held by the liquidating trust, net of expenses of such trust and any payments made in respect of contingent liabilities, to the former shareholders of the Trust. However, management and the Trustees decided to pursue a more favorable alternative for the shareholders - namely a merger with another entity which would assume all of the Trust's contingent liabilities and enable the Trust to distribute to its shareholders all of its remaining assets without delay and without diminution by the cost of operating a liquidating trust or satisfying any such liabilities. Management and the Trustees determined that a merger on these terms would be in the best interests of its shareholders. Accordingly, management had discussions with several parties with respect to such a merger and in June 1998, the Trust announced that it had entered into an agreement to merge with an affiliate of The Beal Companies, LLP, a Boston based real estate development and investment company. The merger is subject to approval of the Trust's shareholders and, if approved, is now expected to occur in May 1999. If approved, immediately prior to the closing the Trust expects to declare a final distribution to the Trust's then existing shareholders equal to substantially all of the Trust's net worth, which is estimated to be between $.25 and $.26 per share. This is inclusive of funds to be received by the Trust pursuant to the settlement reached in February 1999, of the litigation with the Florida Department of Transportation regarding certain land that was condemned at Loehmann's Fashion Island, one of the Trust's former properties. The distribution is also inclusive of the payment of $.01 per share to be made to redeem the rights outstanding pursuant to the Trust's Shareholder Rights Plan. While such existing shareholders will retain an interest in the merged entity, it is believed that such interest will be without value at the time of the merger and may not have any value in the future. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations--Special Note Regarding Forward-Looking Statements." In the event the merger does not occur, the Trust will distribute a portion of its assets to its shareholders and will transfer the remainder of its assets to a liquidating trust to satisfy any known and contingent liabilities of the Trust. Shareholders of the Trust, at the time of its dissolution, will become holders of beneficial interests in the liquidating trust. These beneficial interests will not be transferable except by operation of law. The transfer of assets into the liquidating trust is a taxable event to the beneficial owners. If this alternative is utilized, the Trust believes that the liquidating trust will make a final distribution of its assets within one year after its establishment, net of expenses to maintain the trust (estimated at $100,000) and any payments made to satisfy any liabilities which amount cannot be estimated at this time. Trading of Shares As a result of the disposition of all of the Trust's real estate investments, the American Stock Exchange ("AMEX") halted trading in its shares at the close of business on July 10, 1998 and delisted the shares on October 29, 1998. The Trust is now traded on NASDAQ's over-the-counter Bulletin Board (symbol "PCTG"). 2 ITEM 1. BUSINESS (continued) Real Estate Investments At December 31, 1998, the Trust had no real estate investments. During 1998, the Trust disposed of its last two investments, which were both classified as Assets Held for Sale directly by the Trust. One investment was Park Place, an office building which was previously classified as an Owned Property held directly by the Trust, and the other was an investment in the Cincinnati Marriott Inn, which was previously classified as a Structured Transaction held directly by the Trust. The Trust's investments were originally either made directly (including through wholly owned subsidiaries) or through limited partnerships (classified as and referred to herein as "Investment Partnerships") in which the Trust or its subsidiary was general partner and other institutional investors were limited partners. The Trust's investments in the two assets disposed of in 1998 were made directly by the Trust. Investments in land leasebacks and/or mortgage loans were classified as Structured Transactions. Investments representing ownership of improved income producing properties were classified as Owned Properties. Owned Properties involved operation and management responsibility with property management delegated to independent contractors. For financial reporting purposes, the Trust categorized its investments into four groups, Owned Properties held directly by the Trust (which included investments held by wholly owned subsidiaries), Structured Transactions held directly by the Trust, Assets Held for Sale directly by the Trust and interests in Investment Partnerships. For additional information, see Item 2, Item 7, Note 2 of the Notes to Consolidated Financial Statements of the Trust and Schedule III. Government Regulations Under various Federal, state, and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances released on, under or in its property. The costs of such removal or remediation can be substantial. Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such hazardous or toxic substances. Management is not aware of any material violation of applicable environmental requirements with respect to its former investments, nor does it contemplate having to make any material expenditures in order to comply with any current environmental laws or regulations. Borrowings At December 31, 1998, the Trust had no debt. For additional information, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Note 3 of the Notes to Consolidated Financial Statements of the Trust. Year 2000 The Trust announced early in 1998 that it had signed an agreement, subject to shareholder ratification, for the acquisition of the Trust by an affiliate of The Beal Companies, LLP. The Trust has also announced that in the event the shareholders do not approve of the transaction the Trustees intend to dissolve the Trust in 1999. As one or the other of these alternatives will occur in 1999 and, therefore, the Trust will not be in existence in the year 2000, management has concluded that a discussion of the year 2000 issue is not warranted. ITEM 2. PROPERTIES - ------------------ At December 31, 1998, the Trust had no real estate investments. ITEM 3. LEGAL PROCEEDINGS - ------------------------- The Trust was involved in litigation with the Florida Department of Transportation to determine full compensation for certain land that was condemned at Loehmann's Fashion Island prior to its sale. In February 1999, a settlement was reached which provides that the State will pay the Trust $271,700 for the land and as reimbursement for certain expenses incurred by it. This payment should be received by March 30, 1999 and is in addition to the $328,300 payment from the Florida Department of Transportation that was received by the Trust and distributed to shareholders in 1998. 3 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- No matters were submitted to a vote of the Trust's security holders during the last quarter of its calendar year ended December 31, 1998. ITEM 4a. EXECUTIVE OFFICERS OF THE TRUST - ---------------------------------------- Name Age Principal Occupations and Affiliations During the Past Five Years - -------------------------------------------------------------------------------- [See Part III, Item 10, incorporated herein by reference] 4 PART II ITEM 5. MARKET FOR THE TRUST'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS - -------------------------------------------------------------------------------- (a) Price Range of Common Shares The Trust's Common Shares were traded on the AMEX until the close of business on July 10, 1998 when trading was halted. As a result of the successful consummation of the Business Plan, the Trust ceased to satisfy the AMEX's listing guidelines and the Common Shares of the Trust were delisted on October 29, 1998. The Trust's shares are now traded on the NASDAQ's over-the-counter Bulletin Board (symbol PCTG). The close, high and low prices on the AMEX and the Bulletin Board for each quarter during the past two calendar years and dividends declared in respect of such quarters are shown below. Calendar 1998 -------------------------------------------- Dividends Quarter Close High Low Declared -------------------------------------------------------------------------- First $11/16 $1 1/2 $ 5/8 $ .35 Second 15/16 1 1/8 11/16 .80 Third(1) 1 1/8 1 1/8 15/16 - Fourth(2) .215 .3125 .125 - ------- $ 1.15* ======= (1) Represents trading on the AMEX from July 1 to July 10, 1998, when trading was halted. (2) Trading commenced on the NASDAQ's over-the-counter Bulletin Board on November 2, 1998. Calendar 1997 -------------------------------------------- Dividends Quarter Close High Low Declared -------------------------------------------------------------------------- First $ 5 11/16 $ 8 3/4 $ 5 11/16 $ 2.26 Second 6 3/8 7 3/8 5 1/4 .06 Third 5 15/16 7 3/8 5 9/16 3.71 Fourth 1 1/8 6 1/2 3/4 2.90 ------- $ 8.93* ======= *Special dividends totaling $1.15 and $8.75 were paid respectively during the calendar years 1998 and 1997 representing proceeds from dispositions of certain of the Trust's investments. (b) Approximate Number of Equity Security Holders Approximate Number of Holders Title of Class as of December 31, 1998 -------------------------------------------------------------------------- Common Shares 5,000 (c) Dividends Declared on Common Shares To maintain its status as a REIT, the Trust is required each calendar year to distribute to its shareholders at least 95% of its taxable income (excluding net capital gains and after certain other adjustments). In addition, the Trust will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by it with respect to any calendar year are less than the sum of 85% of its ordinary income for the calendar year, 95% of its capital gain income for the calendar year, and any amount of such income that was not distributed in prior years. The Trust did not incur any such excise tax liability with respect to calendar 1998 or 1997. Pursuant to the Business Plan, the Trust declared special dividends from the proceeds of its disposition of investments. As a result, the dividends paid in calendar 1998 and 1997 and fiscal year July 31, 1996 significantly exceeded the Trust's net income. All of the Trust's real estate investments have been disposed of and, accordingly, the Trust's revenues have been significantly reduced. As a consequence, management does not anticipate that there will be any further regular quarterly dividends. 5 ITEM 5. MARKET FOR THE TRUST'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS (continued) - -------------------------------------------------------------------------------- Listed below is the Federal income tax classification for dividends paid during calendar year ended December 31, 1998. Record Ex-Dividend Payment Total Amount Ordinary Capital Return of Date Date Date Paid Per Share Income Gain Capital - -------------------------------------------------------------------------------- 02/13/98 03/02/98 02/27/98 $ .35 $ - $ - $ .35 07/01/98 07/13/98 07/10/98 .80 - - .80 ------ ------ ------ ------ Total 1998 Dividends $ 1.15* $ - $ - $ 1.15 ====== ====== ====== ====== * Special dividends paid pursuant to the Trust's Business Plan. 6 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------
Five Months Years Ended Ended Years Ended ------------------- ------------------- ------------------- December 31, December 31, December 31, July 31, July 31, July 31, (Dollars in thousands, except per share data) 1998 1997 1996* 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Summary of Operations Revenues $ 2,643 $ 14,717 $ 8,187 $ 21,799 $ 22,619 $ 21,623 Expenses 1,309 11,232 6,651 21,506 20,603 20,044 -------- -------- -------- -------- -------- -------- Income before Gain on Sale of Real Estate Investments and Extraordinary Item 1,334 3,485 1,536 293 2,016 1,579 Gain on Sale of Real Estate Investments 4,083 27,812 832 6,094 3,209 2,510 -------- -------- -------- -------- -------- -------- Income before Extraordinary Item 5,417 31,297 2,368 6,387 5,225 4,089 Extraordinary (Loss) Gain from Extinguishment of Debt - - - (473) 88 - -------- -------- -------- -------- -------- -------- Net Income $ 5,417 $ 31,297 $ 2,368 $ 5,914 $ 5,313 $ 4,089 ======== ======== ======== ======== ======== ======== Per Share Data Basic Net Income Income before Gain on Sale of Real Estate Investments and Extraordinary Item $ 0.14 $ 0.36 $ 0.16 $ 0.03 $ 0.23 $ 0.17 Gain on Sale of Real Estate Investments 0.43 2.91 0.09 0.67 0.35 0.28 -------- -------- -------- -------- -------- -------- Income before Extraordinary Item 0.57 3.27 0.25 0.70 0.58 0.45 Extraordinary (Loss) Gain from Extinguishment of Debt - - - (0.05) 0.01 - -------- -------- -------- -------- -------- -------- Basic Net Income per Share $ 0.57 $ 3.27 $ 0.25 $ 0.65 $ 0.59 $ 0.45 ======== ======== ======== ======== ======== ======== Diluted Net Income per Share $ 0.57 $ 3.27 $ 0.25 $ 0.64 $ 0.59 $ 0.45 ======== ======== ======== ======== ======== ======== Dividends Declared per Share $ 1.15 $ 8.93 $ 1.18 $ 3.23 $ 0.41 $ 0.30 ======== ======== ======== ======== ======== ======== Average Shares Outstanding 9,584 9,567 9,353 9,097 9,044 9,030 ======== ======== ======== ======== ======== ======== Financial Position at Year-End Total Assets $ 3,285 $ 21,183 $103,294 $112,619 $169,439 $176,833 Net Real Estate Investments - 15,077 98,708 106,912 160,963 172,461 Total Debt Outstanding - 8,345 36,650 36,889 71,816 81,479 Shareholders' Equity 2,526 6,814 61,372 70,076 93,709 91,703
* The Trust's fiscal year changed from one which ended on July 31st to one which ends on December 31st. 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Trust has reviewed its short-term and long-term liquidity needs in view of the completion of its Business Plan. The Trust's liquidity needs are to fund normal operating expenses and to satisfy any contingent liabilities. The Trust expects to fund these liquidity needs from cash on hand. At December 31, 1998, the Trust's principal asset was $3,233,000 of cash and cash equivalents. The Trust had no debt at December 31, 1998 as compared to $8,345,000 at December 31, 1997. Review of Real Estate Investments The Trust's last two real estate investments, Park Place and Cincinnati Marriott Inn, were sold during calendar year 1998. Set forth below is a discussion of the last portfolio sales during the year. Office Building On January 29, 1998, the Trust sold its only office investment, Park Place, located in Clayton, Missouri, for $14,145,000. The Trust received net sales proceeds of approximately $4,700,000 after deduction of the first mortgage balance and payment of closing expenses. The first mortgage on the property was assumed by the purchaser. The Trust realized a gain on the sale of this property of $3,067,000. On August 1, 1996, the Trust allocated $1,239,000 of its former allowance for possible investment losses to this investment. Hotel On June 17, 1998, the Trust's Cincinnati Marriott Inn $2,000,000 land investment was purchased by the Trust's lessee for $2,000,000 and the Trust's related leasehold mortgages were prepaid at their face amount of $4,316,000. On August 1, 1996, the Trust had allocated $1,016,000 of its former allowance for possible investment losses to these mortgages. As a consequence, the repayment resulted in a gain to the Trust of $1,016,000. RESULTS OF OPERATIONS - Calendar Year Ended December 31, 1998 vs. 1997 During 1998, the Trust disposed of its last two investments in accordance with the Business Plan. As a result, the Trust's revenues, expenses and resulting net income decreased significantly. Revenues Rents from Owned Properties held directly by the Trust (base rent plus expense reimbursements) decreased 96% for the year ended December 31, 1998, as compared to the prior year, primarily due to the sale, in January 1998, of the Park Place office building, the Trust's last Owned Property which was classified as an Asset Held for Sale directly by the Trust, and from the write-off of approximately $152,000 of previously recorded revenues from Loehmann's Fashion Island, which had been sold in December 1997. Base income from Structured Transactions held directly by the Trust (land rent and mortgage interest) decreased 5% for the year ended December 31, 1998, as compared to the prior year, due to the sale of all but one of the Trust's Structured Transactions held directly by the Trust prior to calendar 1998 offset by the receipt in June 1998, of $1,600,000 of land rent and mortgage interest (earned between 1991 and 1994 but subsequently written off) from the Cincinnati Marriott Inn. Overage income from Structured Transactions held directly by the Trust decreased 91% for the year ended December 31, 1998, as compared to the prior year, primarily due to the sale of all but one of the Trust's Structured Transactions held directly by the Trust prior to calendar 1998. The receipt and recognition of base and overage income in the Cincinnati Marriott Inn transaction occurred in conjunction with the disposition of these investments, the Trust's last Structured Transaction, which was classified as an Asset Held for Sale directly by the Trust. Interest income decreased 70% for the year ended December 31, 1998, as compared to the prior year. Interest income is earned on net proceeds received by the Trust from the sale of its investments, which proceeds are invested until they are distributed to shareholders in the form of special dividends. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) - -------------------------------------------------------------------------------- Expenses Total expenses decreased 88% for the year ended December 31, 1998, as compared to the prior year, primarily due to the sale of the Trust's last two real estate investments in the first and second quarters of 1998. Included in total expense decreases were decreases in professional fees of 90% for the year ended December 31, 1998, as compared to the prior year, due to the downward revision of approximately $140,000 accrued for estimated liabilities for legal and similar fees payable that were, in fact, not incurred. General and administrative expenses also decreased by 58% for the year ended December 31, 1998, as compared to the prior year, primarily due to the reduction of the Trust's management and support staff. Gain on Sale of Real Estate Investments Net income for the year ended December 31, 1998, included gains on the sale of real estate investments of $4,083,000 ($.43 per share), comprised of $3,067,000 ($.32 per share) from the sale of the Park Place office building in January 1998 and $1,016,000 ($.11 per share) from the prepayment of Cincinnati Marriott Inn's leasehold mortgages at their face amount in June 1998. These mortgages had previously been written down by this amount. Dividends Dividends declared in respect of calendar year 1998 were $1.15 per share as compared to $8.93 per share for calendar 1997. Pursuant to its Business Plan, beginning in fiscal year 1996 the Trust declared special dividends from the proceeds of its disposition of investments. The Trust declared special dividends of $1.15 per share and $8.75 per share during calendar years 1998 and 1997, respectively. The Trust has now disposed of all of its investments. These dispositions have caused the Trust's revenues to decline significantly. Consequently, management does not anticipate that the Trust will declare any regular quarterly dividends from operations in the future. In respect of calendar year 1998, no regular quarterly dividends were declared as compared to $.18 per share in calendar 1997. Inflationary and Economic Factors As the Trust has no real estate investments, inflation and economic factors should have no effect on the Trust. RESULTS OF OPERATIONS - Calendar Year Ended December 31, 1997 vs. Fiscal Year Ended July 31, 1996 Revenues Rents from Owned Properties held directly by the Trust (base rent plus expense reimbursements) decreased 15%, primarily due to the Trust's sales of Citibank Office Plaza - Oak Brook in January 1996, Citibank Office Plaza - Schaumburg in July 1997, One Park West in October 1997 and Loehmann's Fashion Island in December 1997. Base income from Structured Transactions held directly by the Trust (land rent and mortgage interest) decreased 27%, primarily due to the sales of Yorkshire in December 1995, Bluffs II in May 1996, City Centre Holiday Inn in January 1997, Lakeside Center in June 1997, Roseburg Valley Mall, Elm Creek and Sandpiper Cove in September 1997, and Northbrook in October 1997. Overage income from Structured Transactions held directly by the Trust decreased 50% primarily due to the sale of City Centre Holiday Inn in January 1997 and Elm Creek and Sandpiper Cove in September 1997. Income from unconsolidated Investment Partnerships decreased by 96% due to the sales of Chimney Rock in September 1995, Crossroads Mall in October 1995, College Hills 3 in March 1996, College Hills 8 and Financial Plaza in April 1996, the Lisle Hilton Inn (a mortgage repayment) in June 1996, Boardwalk and St. Charles in June 1996, Canyon View II in August 1996, Plaza West Retail Center in October 1996 and Telegraph Hill in June 1997. Interest income increased 43% for the year ended December 31, 1997. Interest income is earned on net proceeds received by the Trust from the sale of its investments, which proceeds are invested until they are distributed to shareholders in the form of special dividends. Advisory fee income decreased 88% due to the sale of the investments held by Investment Partnerships noted above. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) - -------------------------------------------------------------------------------- Expenses Expenses on Owned Properties held directly by the Trust decreased 14% due to the sale of the properties noted above. Interest expense decreased 45% primarily due to the retirement of all of the Trust's remaining outstanding 10% and 9 3/4% Convertible Subordinated Debentures prior to June 1996 and a $3,000,000 amortization payment made on the Loehmann's Fashion Island first mortgage in June 1996. The decrease was also due to the sale of One Park West in October 1997 and Loehmann's Fashion Island in December 1997, both of which were encumbered by first mortgages. Depreciation decreased 70% due to the elimination of depreciation on Citibank Office Plaza - Schaumburg and Loehmann's Fashion Island in March 1997 and One Park West in July 1996 upon their reclassification to Assets Held for Sale directly by the Trust prior to their sale. General and administrative expenses decreased by 34% primarily due to the accrual of severance arrangements in prior periods for certain of the Trust's employees in conjunction with the implementation of the Business Plan. Professional fees decreased by 66% primarily due to the reduced size of the Trust's portfolio. Trustees' fees and expenses did not change significantly in calendar 1997 from fiscal 1996. During the fourth quarter of the fiscal year ended July 31, 1996, the Trust wrote down its investment in Loehmann's Fashion Island by $5,612,000, of which $3,000,000 was charged to operations and $2,612,000 was charged to the Trust's previously established allowance for possible investment losses. Gain on Sale of Real Estate Investments Net income for the calendar year ended December 31, 1997 included a gain on the sale of real estate investments of $27,812,000 ($2.91 per share) consisting of a gain of $18,577,000 ($1.94 per share) from the sale of the land underlying City Centre Holiday Inn, a gain of $857,000 ($.09 per share) from the sale of Telegraph Hill, a gain of $1,944,000 ($.20 per share) from the sale of the land underlying Lakeside Center, a gain of $4,750,000 ($.50 per share) from the sale of the land underlying Elm Creek and Sandpiper Cove, a gain of $350,000 ($.04 per share) from the sale of the land underlying Northbrook and a gain of $1,334,000 ($.14 per share) from the sale of One Park West. Extraordinary Loss from Extinguishment of Debt Net income for the fiscal year ended July 31, 1996 reflected an extraordinary loss from extinguishment of debt of $473,000 related to the write-off of capitalized issuance costs when the Trust redeemed its Convertible Subordinated Debentures. Dividends Dividends declared in respect of calendar year 1997 were $8.93 per share consisting of $.18 per share in regular quarterly dividends and $8.75 per share in special dividends. RESULTS OF OPERATIONS - Five Months Ended December 31, 1996 (the Transition Period) vs. the Five Months Ended December 31, 1995 Revenues Rents from Owned Properties held directly by the Trust (base rent plus expense reimbursements) decreased 8% for the five-month Transition Period, as compared to the same period in the prior year, primarily due to the sale of Citibank Office Plaza - Oak Brook in January 1996, offset in part by $230,000 received from the settlement of litigation with a former tenant of Loehmann's Fashion Island and the inclusion of rents from One Park West which was reclassified to an Asset Held for Sale directly by the Trust at July 31, 1996. Base income from Structured Transactions held directly by the Trust (land rent and mortgage interest) decreased 4% for the five months ended December 31, 1996 as compared to the same period in the prior year, primarily due to the sales of the Yorkshire apartments investment in December 1995 and the Bluffs II apartments investment in May 1996. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) - -------------------------------------------------------------------------------- Overage income from Structured Transactions held directly by the Trust increased 108% for the five months ended December 31, 1996, as compared to the same period in the prior year primarily due to increased overage income from the City Centre Holiday Inn (which was sold by the Trust after the Transition Period) and Sandpiper Cove investments. The Trust's share of income from unconsolidated Investment Partnerships decreased 96% for the five months ended December 31, 1996 as compared to the same period in the prior year, primarily due to the dispositions of the Chimney Rock apartments in September 1995, the Crossroads Mall investment in October 1995, the College Hills 3 investment in March 1996, the College Hills 8 and Financial Plaza investments in April 1996, the St. Charles and Boardwalk apartments investments in June 1996, the Canyon View II apartments investment in August 1996 and the Plaza West Retail Center in October 1996, and the repayment of the first mortgage investment in the Lisle Hilton Inn in June 1996. Advisory fee income decreased 88% for the five months ended December 31, 1996, as compared to the same period in the prior year, due to the sale of certain investments held by the Investment Partnerships as noted above. Expenses Expenses on Owned Properties held directly by the Trust decreased 6% for the five months ended December 31, 1996, as compared to the same period in the prior year, due to the sale of Citibank Office Plaza - Oak Brook, offset in part by an increase in real estate taxes at certain Owned Properties held directly by the Trust. Interest expense decreased 49% for the five months ended December 31, 1996, as compared to the same period in the prior year, primarily due to the retirement of all of the Trust's remaining outstanding 10% and 9 3/4% Convertible Subordinated Debentures during the fiscal year ended July 31, 1996. General and administrative expenses increased 7% for the five months ended December 31, 1996, as compared to the same period in the prior year, primarily due to the accrual of severance arrangements for certain of the Trust's employees in conjunction with the implementation of the Business Plan. Depreciation expense decreased 8% for the five months ended December 31, 1996, as compared to the same period in the prior year, due to the elimination of depreciation on One Park West upon its reclassification to an Asset Held for Sale directly by the Trust in July 1996, offset in part by the write-off of certain tenant improvements due to early lease terminations at Loehmann's Fashion Island. Professional fees decreased 36% for the five months ended December 31, 1996, as compared to the same period in the prior year, primarily due to higher legal fees in the prior year associated with the adoption of the Business Plan. Trustees' fees and expenses did not change significantly from the prior year. Gain on Sale of Real Estate Investments Net income for the five months ended December 31, 1996 included a gain on the sale of real estate investments of $832,000 from the sale of Canyon View II apartments. For the five months ended December 31, 1995, net income included gains on the sale of real estate investments of $3,811,000 from the sales of the Crossroads Mall, the Yorkshire apartments and the Chimney Rock apartments investments. Extraordinary Loss from Extinguishment of Debt Net income for the five months ended December 31, 1995 reflected an extraordinary loss from extinguishment of debt of $186,000 related to the write-off of original issuance costs when the Trust redeemed a portion of its 10% Convertible Subordinated Debentures at face value. Dividends Dividends declared in respect of the Transition Period were $1.18 per share. Included in this amount was a special dividend of $1.00 per share from the proceeds from sale of investments. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) - -------------------------------------------------------------------------------- Special Note Regarding Forward-Looking Statements Certain statements in Item 1 "Business" constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance (financial, operating or otherwise) or achievements of the Trust to be materially different from any future results, performance (financial, operating or otherwise) or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, among others, management's estimates of future dividends, the likelihood and timing of the merger and other factors noted in this report. As a result, no assurance can be given as to future results, performance (financial, operating or otherwise) or achievements of the Trust. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------------------- The consolidated financial statements and supplementary data of the Trust are included under Item 14 of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------------------------------------------------- None. 12 PART III ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT - ---------------------------------------------------------- The information with respect to the Trustees and Executive Officers is set forth below pursuant to General Instruction G of Form 10-K.
Principal Occupation Trustee and Positions For Past 5 Years, Held with Trust Affiliations and Age Since - --------------------- --------------------------------------------------------------------- ----- Walter M. Cabot ..... Senior Advisor of Standish, Ayer & Wood, Inc., Boston, MA; Director, 1982 Trustee(1)(3) Rockefeller Financial Services, New York, NY; Trustee and Treasurer, Wellesley College, Wellesley, MA; Member, Board of Trustees, Lifespan Corp., Providence, RI (Age 66). John A. Cervieri Jr.. Chairman and President of Property Capital Associates, Inc., formerly 1969 Managing Trustee (1)(5) known as Property Capital Advisors, Inc. (the "Advisor")(the former investment advisor to the Trust) and its affiliates, Boston, MA; Director of BankBoston, Boston, MA (1996-1998); Chairman and Chief Executive Officer of Americana Hotels and Realty Corporation, Boston, MA (Age 68). Graham O. Harrison... Manager and Investment Committee Chairman, Swarthmore College, 1980 Trustee (2)(3) Swarthmore, PA; prior to May, 1994, Vice President and Chief Investment Officer of the Howard Hughes Medical Institute, Chevy Chase, MD; Chairman, European Renaissance Fund (Age 75). Walter F. Leinhardt.. Partner of Paul, Weiss, Rifkind, Wharton & Garrison, New York, NY, 1969 Trustee and Secretary law firm (Age 66). (2)(4)(5) Robert M. Melzer..... President and Chief Executive Officer of the Trust since 1996 and 1992 Trustee, President, Chief Financial Officer since June 1998; prior to 1996, President, Chief Executive Officer Chief Executive Officer and Chief Financial Officer of the Trust; and Chief Financial Director, Genesee & Wyoming Inc., Greenwich, CT; Trustee, MGI Officer (1)(5) Properties, Boston, MA and Trustee, Beth Israel Deaconess Medical Center, Boston, MA (Age 58). Glenn P. Strehle..... Treasurer Emeritus and Advisor to the Chairman and President 1993 Trustee (2)(3) (since 1999), Vice President for Finance (from 1994 to 1998), Treasurer (from 1975 to 1998) and Vice President for resource development (from 1986 to 1994) of the Massachusetts Institute of Technology, Cambridge, MA; former ex-officio member of MIT Executive and Investment Committees; Chairman of the Trustees of the MIT Retirement Plan; Director of Liberty Mutual Insurance Companies and Liberty Financial Companies, Boston, MA and BankBoston, Boston, MA (Age 63). - ------------------------
(1) Member of the Executive Committee. (2) Member of the Audit Committee. (3) Member of the Compensation Committee. (4) Paul, Weiss, Rifkind, Wharton & Garrison performed legal services for the Trust during 1998 and is performing legal services for the Trust during the current calendar year. See Item 13 "Certain Relationships and Related Transactions." (5) There is no family relationship among any of the officers listed above, nor are there any arrangements or understandings between any such officers and any other person pursuant to which he was selected as an officer. Each officer will hold office until the termination of the Trust or its merger into an affiliate of The Beal Companies, LLP, one of which is expected to occur within the next several months. 13 ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued) - ---------------------------------------------------------------------- During 1998, there were six meetings of the Board of Trustees. The Trust has standing Audit, Executive and Compensation Committees. The Audit Committee, which during 1998 was composed of Messrs. Harrison, Leinhardt and Strehle, none of whom is or was employed by the Trust ("Outside Trustees"), met once during such year. The function of the Audit Committee is to supervise all relations between the Trust and its independent auditors, including participating in the planning for the annual audit and receiving and reviewing the results of that audit. The Executive Committee, which during 1998 was composed of Messrs. Cabot, Cervieri and Melzer, is responsible, among other things, for addressing major issues which arise between scheduled Trustees' meetings. During 1998, the Executive Committee did not hold meetings, but its members discussed by telephone from time to time matters concerning the Trust's business. The Compensation Committee, which during 1998 was composed of three Outside Trustees, Messrs. Cabot, Harrison and Strehle, did not hold meetings during 1998. The Compensation Committee is responsible for administering the 1992 Employee Stock Option Plan and for making decisions concerning the compensation of Mr. Melzer, which is subject to ratification by the full Board of Trustees. During 1999 the Audit and Compensation Committees will continue to be composed entirely of Outside Trustees. The Trust does not have a standing Nominating Committee. During 1998, each Trustee attended at least 67% of the meetings of the Board and of each committee on which such Trustee served. Compensation of Trustees Each Trustee receives a base fee of $833 per month and each member of the Executive Committee and each member of the Audit Committee receives a fee of $417 per month. In addition, each Trustee receives $1,000 for each meeting attended. Trustees' fees totaled $102,000 in 1998. The Trust also reimburses the Trustees for their expenses incurred in attending meetings of the Trustees. For 1998, reimbursed expenses totaled $5,965. Mr. Melzer receives no compensation for serving as a Trustee. Amended and Restated Deferred Stock Plan for Non-Employee Trustees Prior to February 19, 1998, under the Trustee Deferred Stock Plan, each non-employee Trustee could elect, on an annual basis, to have fees that would otherwise have been payable in cash to the Trustee credited to an account for the Trustee's benefit. Until January 1, 1997, to the extent such fees were deferred by a Trustee, (i) share units of the Trust's Common Shares were allocated to such Trustee's account based upon the closing price for the Common Shares on the AMEX as of the date the fees would have been paid, and (ii) additional share units were allocated to reflect dividends that would have been paid on a number of Common Shares equal to the number of share units in a Trustee's account. The Trustees could also direct that their fees be invested in cash equivalents. Subsequent to January 1, 1997, the non-employee Trustees elected to invest their fees in mutual funds and cash equivalents. For calendar 1997, all of the non-employee Trustees elected to participate in the Trustee Deferred Stock Plan with respect to all fees payable to them, except for Walter F. Leinhardt, who elected to receive his fees in cash. On February 19, 1998, the Trustee Deferred Stock Plan was terminated and all Common Shares and funds held by the Trustee Deferred Stock Plan were distributed to the Trustees. In calendar 1998, all of the non-employee Trustees received all fees in cash. For calendar 1999 all of the non-employee Trustees will receive all fees payable to them in cash. 1994 Stock Option Plan for Non-Employee Trustees Under the Trustee Stock Option Plan, each Trustee who was not an employee of the Trust or any of its affiliates was entitled to receive a grant of non-qualified stock options for the purchase of 4,000 Common Shares upon the election or reelection of such Trustee at an annual meeting of shareholders. The exercise price of options under the Trustee Stock Option Plan was equal to the fair market value of the underlying Common Shares on the date of grant, but not less than $1.00 per share. Options vested on the day immediately preceding the next annual meeting of shareholders to occur following the date of grant, except in the event of death, disability or a change of control (as defined in the Trustee Stock Option Plan) occurring prior to such annual meeting, in which case such options immediately vested and became exercisable. On December 30, 1998, the Trustee Stock Option Plan was terminated and all outstanding options were canceled. 14 ITEM 11. EXECUTIVE COMPENSATION - ------------------------------- Summary Compensation of Executive Officers The following table sets forth the compensation awarded to, earned by or paid to the Chief Executive Officer and the other most highly compensated executive officers of the Trust during the calendar years ended December 31, 1998 and 1997, the five months ended December 31, 1996 (the Transition Period) and the fiscal year ended July 31, 1996. Summary Compensation Table (1)
Long-Term Annual Compensation Compensation ------------------------------- ------------ Other Annual Options All Other Salary Bonuses Compensation Granted Compensation Name and Principal Position Period $ $ $ # $ - --------------------------- ------ ------ ------- ------------ ------- ------------ Robert M. Melzer........... Y/E 12/31/98 216,259 0 0 0 993,330(5) President, Chief Executive Y/E 12/31/97 254,854 0 0 0 749,471(6) Officer and Chief Financial P/E 12/31/96(3) 105,462 0 0 0 3,855(7) Officer Y/E 7/31/96 241,505 0 0 0 9,701(8) Michael I. Sucoff(2)....... Y/E 12/31/98 33,075(4) 33,787 0 0 140,053(5) Former Vice President Y/E 12/31/97 128,447 50,400 0 0 8,665(6) P/E 12/31/96(3) 53,123 0 0 0 5,932(7) Y/E 7/31/96 119,850 48,000 0 0 8,234(8) Robin W. Devereux(2)....... Y/E 12/31/98 40,342(4) 33,580 0 0 108,042(5) Former Vice President and Y/E 12/31/97 115,067 45,150 0 0 8,422(6) Chief Financial Officer P/E 12/31/96(3) 47,589 0 0 0 6,149(7) Y/E 7/31/96 107,327 43,000 0 0 7,592(8) Randolph L. Kazazian(2).... Y/E 12/31/98 6,361(4) 18,827 0 0 80,125(5) Former Vice President Y/E 12/31/97 107,039 42,000 0 0 8,413(6) P/E 12/31/96(3) 44,269 0 0 0 6,037(7) Y/E 7/31/96 99,827 40,000 0 0 6,966(8)
(1) The columns designated by the Securities and Exchange Commission ("SEC") for the reporting of restricted stock awards and payouts of certain long-term compensation have been eliminated as being inapplicable during the period covered by the table. (2) In connection with the Business Plan, the employment of certain executive officers was terminated; Mr. Sucoff on March 20, 1998, Ms. Devereux on May 29, 1998 and Mr. Kazazian on January 2, 1998. (3) In 1997 the Trust changed its fiscal year from one which ended on July 31st to one which ends on December 31st. This information is for the five months ended December 31, 1996. (4) During calendar 1998, annual salaries of certain executive officers whose employment with the Trust terminated during the year were $132,300 for Mr. Sucoff, $118,519 for Ms. Devereux and $110,250 for Mr. Kazazian. The amounts listed on the table represent his/her salary through their date of termination. 15 ITEM 11. EXECUTIVE COMPENSATION (continued) - ------------------------------------------- (5) Represents (i) amounts contributed by the Trust (a) on a matching basis with contributions made by employees and (b) on a profit-sharing basis under the PCT 401(k) plan ($10,830 for Mr. Melzer, $13,637 for Mr. Sucoff and $13,716 for Ms. Devereux), (ii) premiums paid by the Trust for term life insurance policies (in the aggregate face amount of $50,000 for Mr. Sucoff and Ms. Devereux) ($266 for Mr. Sucoff and $67 for Ms. Devereux), (iii) amounts paid by the Trust for (a) severence compensation as provided for by the Severence Plan plus (b) an additional payment based on his/her performance totaling ($126,150 for Mr. Sucoff, $94,259 for Ms. Devereux and $80,125 for Mr. Kazazian), and (iv) $982,500 paid by the Trust to Mr. Melzer as provided for in his Incentive Compensation Agreement (see below). (6) Represents (i) amounts contributed by the Trust (a) on a matching basis with contributions made by employees and (b) on a profit-sharing basis under the PCT 401(k) plan ($8,147 for each of Messrs. Melzer, Sucoff, Kazazian and Ms. Devereux), (ii) premiums paid by the Trust for term life insurance policies (in the aggregate face amount of $50,000 for each executive officer) ($216 for Mr. Melzer, $518 for Mr. Sucoff, $275 for Ms. Devereux and $266 for Mr. Kazazian), and (iii) $741,108 paid by the Trust to Mr. Melzer as provided for in his Incentive Compensation Agreement. (7) Represents (i) amounts contributed by the Trust (a) on a matching basis with contributions made by employees and (b) on a profit-sharing basis under the PCT 401(k) plan ($3,735 for Mr. Melzer, $5,812 for Mr. Sucoff, $6,029 for Ms. Devereux and $5,917 for Mr. Kazazian), and (ii) premiums paid by the Trust for term life insurance policies (in the aggregate face amount of $50,000 for each executive officer) ($120 for each of Messrs. Melzer, Sucoff, Kazazian and Ms. Devereux). (8) Represents (i) amounts contributed by the Trust (a) on a matching basis with contributions made by employees and (b) on a profit-sharing basis under the PCT 401(k) plan ($9,413 for Mr. Melzer, $7,946 for Mr. Sucoff, $7,304 for Ms. Devereux and $6,678 for Mr. Kazazian), and (ii) premiums paid by the Trust for term life insurance policies (in the aggregate face amount of $50,000 for each executive officer) ($288 for each of Messrs. Melzer, Sucoff, Kazazian and Ms. Devereux). Incentive Compensation Agreement The following sets forth certain information concerning the incentive compensation arrangement with Robert M. Melzer. Long-Term Incentive Plan Awarded in Fiscal Year 1996
Estimated Future Payouts under Non-Stock Price-Based Plans ------------------------------ Number of Shares, Units Performance or Other Period Name Or Other Rights Until Maturation or Payout Threshold Target Maximum - ---- ----------------------- --------------------------- --------- ------ ------- Robert M. Melzer (1)... 250,000 (1) N/A
(1) As of August 25, 1995, the Trust entered into an incentive compensation agreement (the "Incentive Compensation Agreement") with Mr. Melzer. Under the Incentive Compensation Agreement, Mr. Melzer receives cash compensation equal to the amount he would have realized if he had purchased on May 24, 1995 (the date of the adoption by the Trustees of the 1995 Business Plan), 250,000 Common Shares of the Trust (the "Phantom Shares") at $6.75 per share, the market price of a Common Share on May 24, 1995, with the proceeds of a loan made to him by the Trust bearing interest at the rate of 10% per annum, compounding monthly (the "Phantom Loan"). Each dividend or other distribution paid on each Common Share subsequent to May 24, 1995 is deemed to have been simultaneously paid on the Phantom Shares, with such deemed dividends and other distributions being applied first to pay the interest on and principal of the Phantom Loan. Once the Phantom Loan has been discharged, Mr. Melzer is paid in cash an amount equal to all such deemed dividends and other distributions. Upon termination of Mr. Melzer's employment with the Trust, whether such termination results from Mr. Melzer's discharge by the Trust, his election to leave the Trust, death, disability or the termination of the Trust, the Trust will pay to Mr. Melzer an amount in cash equal to the excess of the market value of the Phantom Shares (which is equivalent to the then market value of a like amount of Common Shares) over the amount, if any, then due on the Phantom Loan. Mr. Melzer will not be entitled to any such payment if he voluntarily terminates his employment with the Trust and fails to give the Trust the requisite notice under his Termination Agreement or if the Trust terminates Mr. Melzer's employment for cause (as defined in Mr. Melzer's Termination Agreement). If the Trust merges or consolidates into or with another entity and the Trust is not the survivor of such merger or consolidation, then the surviving entity will be required to pay to Mr. Melzer an amount equal to the 16 ITEM 11. EXECUTIVE COMPENSATION (continued) - ------------------------------------------- excess of the value of 250,000 Common Shares of the Trust in connection with such merger or consolidation over the amount then due on the Phantom Loan. As of December 31, 1998, the principal of the Phantom Loan was repaid together with unpaid interest thereon. In this regard, if the merger discussed above is consummated, Mr. Melzer will be paid an amount based on the final distribution to shareholders but will not be paid in respect to the value of the Common Shares of the Trust at the time of the merger. Mr. Melzer has received $1,723,608 in compensation, $982,500 paid in calendar 1998 and $741,108 in calendar 1997, under this Incentive Compensation Agreement. Stock Option Grants During 1998 there were no grants of stock options to the executive officers. At December 31, 1998, there were no outstanding options to acquire Trust shares. The Trust does not grant stock appreciation rights ("SARs") of any kind. Termination of Employment and Change of Control Arrangements The Trust is a party to a termination agreement (the "Termination Agreement") with Mr. Melzer, which Termination Agreement expires on October 19, 2000. During the term of the Termination Agreement, upon the occurrence of a "change of control" of the Trust, Mr. Melzer would be entitled to a payment from the Trust equal to 150% of his annual base salary at the date of such change of control if during the six months following such change of control he elects to terminate his employment. Beginning October 19, 1997, the amount payable to Mr. Melzer following such termination was reduced to 100% of his annual base salary at the date of such change of control. The Termination Agreement also provides for the Trust to make certain payments to Mr. Melzer equal to 150% of annual base salary on the date of termination or resignation if Mr. Melzer is terminated by the Trust other than for "cause" or if he resigns for "good reason." Beginning October 19, 1997, the amount payable to Mr. Melzer in such event was reduced to 100% of his annual base salary at the date of such termination or resignation. The Termination Agreement provides that termination for "cause" may occur if (i) Mr. Melzer engages in fraud, misappropriation, embezzlement or any other conduct that either results in his conviction for a felony under the laws of the United States or any State or is designed to result, directly or indirectly, in improper gain or personal enrichment of himself at the expense of the Trust, or any of its affiliates, or (ii) in the reasonable opinion of the Trustees, has wilfully failed to perform material duties of his office and such failure is not cured within a cure period. The Termination Agreement provides that Mr. Melzer may resign for "good reason" if (i) he is removed from his current position with the Trust (other than if he is terminated for cause or receives an equivalent or more senior position with the Trust), (ii) he is assigned duties materially inconsistent with his position, responsibilities, reporting requirements and status or the Trust takes any action which results in a material diminution of his position, authority, duties, responsibilities, reporting requirements or status, subject in each case to a cure right, (iii) his annual base salary is reduced or (iv) the Trust relocates its current headquarters outside the greater metropolitan Boston area. The Termination Agreement also requires that Mr. Melzer provide the Trust with at least six months' written notice prior to a voluntary cessation of employment with the Trust that does not qualify for payment of a termination fee. A "change of control" as defined in the Termination Agreement will have occurred if (i) after the effective date of the Termination Agreement, any person becomes a beneficial owner directly or indirectly of securities representing 25% or more of the combined voting power of the then outstanding voting securities of the Trust or (ii) a merger or consolidation of the Trust, a sale of all or substantially all of the assets of the Trust or a contested election of Trustees, or any combination of the foregoing, occurs and within two years after the occurrence of any of the foregoing, the individuals who are Trustees (excluding any employee of the Trust) immediately prior thereto shall cease to constitute a majority of the Board of Trustees of the Trust or the Board of Trustees or Directors of the Trust's successor. Mr. Melzer is not entitled to any payment under his Termination Agreement if he voluntarily leaves the employ of the Trust (other than for good reason or within six months after a change of control) or if his employment terminates by reason of his death or disability. In the event the proposed merger occurs, Mr. Melzer will receive, as full payment pursuant to the Termination Agreement, the sum of $262,500. 17 ITEM 11. EXECUTIVE COMPENSATION (continued) - -------------------------------------------- Compensation Committee's Report on Compensation The Trust had a standing Compensation Committee during 1998. The Committee has traditionally reviewed compensation (salary and bonuses) in the spring of each year in order to make adjustments effective August 1. In the case of Robert M. Melzer, President, Chief Executive Officer and Chief Financial Officer of the Trust, compensation is subject to ratification by the full Board of Trustees and Mr. Melzer did not participate in discussions regarding his own compensation. In early 1998, Mr. Melzer met with the full Board of Trustees and requested a 20% decrease in his salary, effective January 1, 1998, given the significantly reduced activity of the Trust. This request was approved by the Board. In 1998 there were no subsequent adjustments to Mr. Melzer's salary nor was he awarded a bonus. In addition, in 1998 no other executive officer of the Trust received a salary adjustment. In addition, the Board determined that Mr. Melzer's Incentive Compensation Agreement, which was established in 1995, was adequate as an incentive to help secure his continuing services and, as a consequence, no additional incentives were recommended. By the 1998 Compensation Committee: Walter M. Cabot Graham O. Harrison Glenn P. Strehle 18 ITEM 11. EXECUTIVE COMPENSATION (continued) - -------------------------------------------- Performance Graph The following graph compares the yearly percentage change in the cumulative total shareholder return on the Trust's Common Shares against the cumulative total return of the AMEX Market Index and the National Association of Real Estate Investment Trust Total Return Index for Hybrid REITS (the "Hybrid Index") for the period of five years commencing January 1, 1994 and ended on the last day of the Trust's last completed year, December 31, 1998. The graph assumes an investment of $100 on January 1, 1994, a reinvestment of dividends and actual increase or decrease of the market value of the Trust's Common Shares relative to an initial investment of $100. The Trustees believe that the Hybrid Index is the most relevant index of a peer group for the Trust because the Trust's portfolio consisted of wholly-owned properties, structured investments and mortgages. COMPARISON OF CUMULATIVE TOTAL RETURN FOR PERIOD FROM 1/1/94 THROUGH 12/31/98 AMONG PROPERTY CAPITAL TRUST, AMEX MARKET INDEX AND NAREIT TOTAL RETURN INDEX FOR HYBRID REITS Total Return Performance
Period Ended ------------ Index 1/1/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 - ----- ------ -------- -------- -------- -------- -------- Property Capital Trust 100.00 95.30 148.34 218.70 315.56 696.18* AMEX Market Index 100.00 90.90 114.91 122.25 148.28 150.83 NAREIT Hybrid Index 100.00 104.02 127.91 165.46 183.25 119.66
ASSUMES $100 INVESTED ON JANUARY 1, 1994 ASSUMES DIVIDENDS REINVESTED THROUGH DECEMBER 31, 1998 * Total return for 1998 assumed that the dividend paid on July 10, 1998 was reinvested on November 2, 1998, the first day that trading in the Trust's shares resumed after the ex-dividend date. The Trust believes the information provided in the above performance graph has only limited relevance to an understanding of the Trust's compensation policies during the indicated period as the Trust believes that the graph does not reflect all matters appropriately considered by the Trust in developing its compensation strategy. 19 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------------- The following table sets forth certain information regarding each person (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) known (based solely upon filings with the Securities and Exchange Commission (the "Commission") prior to such date pursuant to Sections 13(d) or 13(g) of the Exchange Act) to own beneficially (as such term is defined in Rule 13d-3 under the Exchange Act) more than 5% of the outstanding Common Shares. In accordance with the rules promulgated by the Commission, such ownership includes shares currently owned as well as shares of which the named person has the right to acquire beneficial ownership within 60 days, including, but not limited to, shares which the named person has the right to acquire through the exercise of any option, warrant or right, or through the conversion of a security. Accordingly, more than one person may be deemed to be a beneficial owner of the same securities. Percent of Name and Address Number of Shares Owned Outstanding Shares ---------------- ---------------------- ------------------ Warren E. Buffett . . . . 815,100 8.5% 1440 Kiewit Plaza Omaha, Nebraska 68131 The following table sets forth, as of December 31, 1998, information known to the Trust with respect to the beneficial ownership of Common Shares by (i) each Trustee of the Trust, (ii) each executive officer of the Trust named in the Summary Compensation Table under "Executive Compensation" (other than Robin W. Devereux, Randolph L. Kazazian and Michael I. Sucoff, whose employment with the Trust terminated during calendar 1998) and (iii) all Trustees and executive officers of the Trust as a group: Amount and Nature of Beneficial Percent of Name and Address Ownership(1) Class ---------------- ------------ ----- Walter M. Cabot . . . . . . . . . . . . . 22,165 (2) John A. Cervieri Jr. . . . . . . . . . . . . 0 - Graham O. Harrison . . . . . . . . . . . 57,720 (2) Walter F. Leinhardt . . . . . . . . . . . . . 40 (2) Robert M. Melzer . . . . . . . . . . . . 57,000(3) (2) Glenn P. Strehle . . . . . . . . . . . . 20,110(4) (2) All Trustees and executive officers as a group (6 persons) . . . . . . . . 157,035(5) 1.6% (1) Nature of beneficial ownership is sole voting and investment power except as indicated in subsequent notes. (2) Less than 1%. (3) Includes 41,000 Common Shares owned by Mr. Melzer and 16,000 Common Shares held through an Individual Retirement Account owned and controlled by Mr. Melzer. (4) Includes 20,110 Common Shares owned by Mr. Strehle. The Massachusetts Institute of Technology ("M.I.T.") owns 350,000 Common Shares with respect to which Mr. Strehle has voting and investment power by virtue of his position as Vice President for Finance and Treasurer of M.I.T., subject to the policies and procedures of the Investment Committee of M.I.T. of which Committee Mr. Strehle is an ex-officio member. In addition, the M.I.T. Retirement Plan owns 240,047 Common Shares with respect to which Mr. Strehle has voting and investment power by virtue of his position as Chairman of the Trustees of the M.I.T. Retirement Plan. Mr. Strehle disclaims beneficial ownership of the Common Shares owned by M.I.T. and the M.I.T. Retirement Plan. (5) Includes shares owned by members of the immediate families of certain Trustees and officers, as to which shares the relevant Trustee or officer disclaims beneficial ownership. 20 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- During calendar 1998, the Trust paid legal fees in the amount of $178,076 (exclusive of additional amounts, if any, paid by the Trust's lessees and borrowers) to the law firm of Paul, Weiss, Rifkind, Wharton & Garrison, of which Walter F. Leinhardt, Secretary and Trustee of the Trust, is a partner. 21 PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ----------------------------------------------------------------------------- (a) 1. Consolidated Financial Statements The consolidated financial statements listed in the accompanying index to financial statements and financial statement schedules on Page 27 are filed as part of this Annual Report. 2. Consolidated Financial Statement Schedules The consolidated financial statement schedules listed in the accompanying index to financial statements and financial statement schedules on Page 27 are filed as part of this Annual Report. 3. Exhibits The exhibits listed in the accompanying index to exhibits on Pages 23 and 24 are filed as part of the Annual Report. (b) Reports on Form 8-K None 22 (Item 14(a)) INDEX TO EXHIBITS - ------------------------------
Exhibit Number Description - -------------- ----------- 3.1 Declaration of Trust as currently in effect except for the five Amendments below is incorporated herein by reference to Exhibit 4.1 of the May 13, 1983 Form S-2 Registration Statement (Registration No. 2-83624). N/A 3.2 Amendment, dated October 1, 1987, to the Declaration of the Trust is incorporated herein by reference to the exhibit to the Trust's Form 10-K Annual Report for the fiscal year ended July 31, 1987. N/A 3.3 Amendment, dated August 21, 1992, to the Declaration of the Trust is incorporated herein by reference to Exhibit 3.3 of the Trust's Form 10-K for the fiscal year ended July 31, 1992. N/A 3.4 Amendment, dated December 29, 1992, to the Declaration of Trust is incorporated by reference to Exhibit 3.4 or the Trust's Form 10-K for the fiscal year ended July 31, 1993. N/A 3.5 Amendment, dated February 26, 1993, to the Declaration of Trust as to the number and identity of Trustees is incorporated herein by reference to Exhibit 3.5 of the Trust's Form 10-K for the fiscal year ended July 31, 1993. N/A 3.6 Amendment, dated June 19, 1996, to the Declaration of Trust as to the New Business Plan. N/A 3.7 By-Laws of the Trust as currently in effect are incorporated herein by reference to Exhibit 3.3 of the Trust's Form 10-K for the fiscal year ended July 31, 1992. N/A 4.3 Form of Certificate representing shares of Beneficial Interest of the Trust incorporated herein by reference to Exhibit 4 of the Trust's Annual Report on Form 10-K for the fiscal year ended July 31, 1990. N/A 4.4 Shareholder Rights Plan, incorporated herein by reference to the Trust's Form 8-K report dated October 12, 1990. N/A 10.1 Termination Agreement dated as of October 19, 1992 between Robert M. Melzer and the Trust is incorporated herein by reference to Exhibit 10.1 of the Trust's Form 10-K for the fiscal year ended July 31, 1992. N/A 10.2 Amendment, dated as of August 25, 1995, to Termination Agreement, dated October 19, 1992 between Robert M. Melzer and the Trust is incorporated herein by reference to Exhibit 10.2 of the Trust's Form 10-K for the fiscal year ended July 31, 1995. N/A 23 (Item 14(a)) INDEX TO EXHIBITS (continued) - ------------------------------------------ Exhibit Number Description - -------------- ----------- 10.3 Termination Agreement, dated as of October 19, 1992, between William A. Bonn and the Trust is incorporated herein by reference to Exhibit 10.3 of the Trust's Form 10-K for the fiscal year ended July 31, 1995. N/A 10.4 Amendment, dated as of August 16, 1995, to Termination Agreement, dated October 19, 1992 between William A. Bonn and the Trust is incorporated herein by reference to Exhibit 10.4 of the Trust's Form 10-K for the fiscal year ended July 31, 1995. N/A 10.5 Property Capital Trust 1992 Employee Stock Option Plan, as Amended (the "1992 Plan") is incorporated herein by reference to Exhibit 10.3 of the Trust's Form 10-Q for the quarter ended October 31, 1992. N/A 10.6 Subcontract and Option Agreement dated August 1, 1992 between Property Capital Trust and PCA Institutional Advisors is incorporated herein by reference to Exhibit 10.6 of the Trust's Form 10-K for the fiscal year ended July 31, 1995. N/A 10.7 Property Capital Trust Amended and Restated Deferred Stock Plan for Non-Employee Trustees is incorporated herein by reference to Exhibit 10.7 of the Trust's Form 10-K for the fiscal year ended July 31, 1995. N/A 10.8 Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees is incorporated herein by reference to Exhibit 10.8 of the Trust's Form 10-K for the fiscal year ended July 31, 1995. N/A 10.9 Incentive Compensation Agreement, dated August 25, 1995, between Robert M. Melzer and the Trust is incorporated herein by reference to Exhibit 10.9 of the Trust's Form 10-K for the fiscal year ended July 31, 1995. N/A 21 List of the Trust's subsidiaries. 82 27 Financial Data Schedule. 84
24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Trust has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PROPERTY CAPITAL TRUST (Registrant) By /s/ Robert M. Melzer -------------------- Robert M. Melzer March 25, 1999 President, Chief Executive Officer Date and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Trust and in the capacities and on the dates indicated: /s/ John A. Cervieri Jr. Managing Trustee March 25, 1999 - ------------------------ John A. Cervieri Jr. /s/ Robert M.Melzer Trustee, President, March 25, 1999 - ------------------- Chief Executive Officer Robert M. Melzer and Chief Financial Officer (Principal Executive and Financial Officer) /s/ Walter M. Cabot Trustee March 25, 1999 - ------------------- Walter M. Cabot /s/ Graham O. Harrison Trustee March 25, 1999 - ---------------------- Graham O. Harrison /s/ Walter F. Leinhardt Trustee March 25, 1999 - ----------------------- Walter F. Leinhardt /s/ Glenn P. Strehle Trustee March 25, 1999 - -------------------- Glenn P. Strehle 25 ANNUAL REPORT ON FORM 10-K ITEM 8 and ITEM 14(a) (1), (2) and (d) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES PROPERTY CAPITAL TRUST Boston, Massachusetts Year Ended December 31, 1998 26 ITEM 14(a) (1) and (2) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES - ---------------------------------------------------------------------------- Page Property Capital Trust The following consolidated financial statements of Property Capital Trust are included in Item 8:
Consolidated balance sheets at December 31, 1998 and 1997 29 Consolidated statements of income for the years ended December 31, 1998, December 31, 1997 and July 31, 1996 30 and for the five-month period ended December 31, 1996 and 1995 (unaudited) 31 Consolidated statements of cash flows for the years ended December 31, 1998, December 31, 1997 and July 31, 1996 32 and for the five-month period ended December 31, 1996 and 1995 (unaudited) 33 Consolidated statements of shareholders' equity for the years ended December 31, 1998, December 31, 1997 and July 31, 1996 and for the five-month period ended December 31, 1996 34 Notes to consolidated financial statements 35-53 Consolidated Quarterly Financial Data (unaudited) 54 The following consolidated financial statement schedules of Property Capital Trust are included in Item 14(d): II - Allowance for possible investment losses 55 III - Investments - Assets Held for Sale directly by the Trust 56 The following separate financial statements are required pursuant to Rule 3-09 of Regulation S-X: Property Capital Midwest Associates, L.P. The following financial statements of Property Capital Midwest Associates, L.P. are included in Item 8: Balance sheet at December 31, 1996 59 Statements of income for the ten-month period ended October 31, 1997 and for the year ended December 31, 1996 60 Statements of cash flows for the ten-month period ended October 31, 1997 and for the year ended December 31, 1996 61 Statements of changes in partners' equity for the ten-month period ended October 31,1997 and for the year ended December 31, 1996 62 Notes to financial statements 63 PCA Canyon View Associates Limited Partnership The following financial statements of PCA Canyon View Associates Limited Partnership are included in Item 8: Balance sheet at December 31, 1996 66 Statements of operations for the nine-month period ended September 30, 1997 and for the year ended December 31, 1996 67 Statements of cash flows for the nine-month period ended September 30, 1997 and for the year ended December 31, 1996 68 Statements of changes in partners' equity for the nine-month period ended September 30, 1997 and for the year ended December 31, 1996 69 Notes to financial statements 70
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the instructions or are inapplicable and therefore have been omitted. 27 REPORT OF INDEPENDENT AUDITORS The Trustees and Shareholders Property Capital Trust We have audited the accompanying consolidated balance sheets of Property Capital Trust (a real estate investment trust) as of December 31, 1998 and 1997, and the related consolidated statements of income, cash flows, and shareholders' equity for the years ended December 31, 1998 and 1997, and July 31, 1996 and the five-month period ended December 31, 1996. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Property Capital Trust at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for the years ended December 31, 1998 and 1997, and July 31, 1996 and the five-month period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Boston, Massachusetts February 18, 1999 28 Property Capital Trust CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1998 1997 ---- ---- Assets Real Estate Investments Assets Held for Sale directly by the Trust $ - $ 15,077,000 Cash and cash equivalents 3,233,000 3,160,000 Interest and rents receivable - 280,000 Other assets 52,000 2,666,000 ------------- ------------- $ 3,285,000 $ 21,183,000 ============= ============= Liabilities and Shareholders' Equity Liabilities Accounts payable, accrued expenses and other $ 759,000 $ 5,983,000 Accrued interest - 41,000 Mortgage notes payable - 8,345,000 ------------- ------------- 759,000 14,369,000 ------------- ------------- Shareholders' Equity Common Shares (without par value, unlimited shares authorized, 9,584,220 issued and 9,584,220 and 9,397,369 outstanding, respectively) 108,568,000 108,568,000 Accumulated deficit (106,042,000) (100,438,000) ------------- ------------- 2,526,000 8,130,000 Less cost of Treasury Shares - (1,316,000) ------------- ------------- Total Shareholders' Equity 2,526,000 6,814,000 ------------- ------------- $ 3,285,000 $ 21,183,000 ============= =============
See accompanying notes 29 Property Capital Trust CONSOLIDATED STATEMENTS OF INCOME
Years Ended ----------- December 31, December 31, July 31, 1998 1997 1996 ---- ---- ---- Revenues Rents from Owned Properties held directly by the Trust $ 470,000 $ 10,746,000 $ 12,641,000 Structured Transactions held directly by the Trust Base income 1,853,000 1,956,000 2,664,000 Overage income 107,000 1,153,000 2,297,000 Income from unconsolidated Investment Partnerships - 120,000 3,326,000 ------------ ------------ ------------ 2,430,000 13,975,000 20,928,000 Interest income 206,000 695,000 486,000 Other income 7,000 - - Advisory fee income - 47,000 385,000 ------------ ------------ ------------ 2,643,000 14,717,000 21,799,000 ------------ ------------ ------------ Expenses General and administrative expenses 963,000 2,316,000 3,518,000 Expenses on Owned Properties held directly by the Trust 211,000 4,773,000 5,569,000 Trustees' fees and expenses 108,000 108,000 137,000 Professional fees 17,000 162,000 474,000 Interest 10,000 2,653,000 4,800,000 Depreciation - 1,220,000 4,008,000 Write-down of real estate investment - - 3,000,000 ------------ ------------ ------------ 1,309,000 11,232,000 21,506,000 ------------ ------------ ------------ Income before Gain on Sale of Real Estate Investments and Extraordinary Item 1,334,000 3,485,000 293,000 Gain on Sale of Real Estate Investments 4,083,000 27,812,000 6,094,000 ------------ ------------ ------------ Income before Extraordinary Item 5,417,000 31,297,000 6,387,000 Extraordinary Loss from Extinguishment of Debt - - (473,000) ------------ ------------ ------------ Net Income $ 5,417,000 $ 31,297,000 $ 5,914,000 ============ ============ ============ Net Income per Share Income before Gain on Sale of Real Estate Investments and Extraordinary Item $ 0.14 $ 0.36 $ 0.03 Gain on Sale of Real Estate Investments 0.43 2.91 0.67 ------------ ------------ ------------ Income before Extraordinary Item 0.57 3.27 0.70 Extraordinary Loss from Extinguishment of Debt - - (0.05) ------------ ------------ ------------ Basic Net Income per Share $ 0.57 $ 3.27 $ 0.65 ============ ============ ============ Diluted Net Income per Share $ 0.57 $ 3.27 $ 0.64 ============ ============ ============ Average Shares Outstanding 9,584,220 9,567,000 9,097,000 ============ ============ ============
See accompanying notes 30 Property Capital Trust CONSOLIDATED STATEMENTS OF INCOME
Five Months Ended ----------------- December 31, December 31, 1996 1995 ---- ---- (Unaudited) Revenues Rents from Owned Properties held directly by the Trust $ 5,152,000 $ 5,581,000 Structured Transactions held directly by the Trust Base income 1,103,000 1,144,000 Overage income 1,678,000 808,000 Income from unconsolidated Investment Partnerships 67,000 1,778,000 ----------- ----------- 8,000,000 9,311,000 Interest income 165,000 170,000 Advisory fee income 22,000 189,000 ----------- ----------- 8,187,000 9,670,000 ----------- ----------- Expenses General and administrative expenses 1,446,000 1,357,000 Expenses on Owned Properties held directly by the Trust 2,314,000 2,472,000 Trustees' fees and expenses 65,000 62,000 Professional fees 154,000 240,000 Interest 1,267,000 2,474,000 Depreciation 1,405,000 1,532,000 ----------- ----------- 6,651,000 8,137,000 ----------- ----------- Income before Gain on Sale of Real Estate Investments and Extraordinary Item 1,536,000 1,533,000 Gain on Sale of Real Estate Investments 832,000 3,811,000 ----------- ----------- Income before Extraordinary Item 2,368,000 5,344,000 Extraordinary Loss from Extinguishment of Debt - (186,000) ----------- ----------- Net Income $ 2,368,000 $ 5,158,000 =========== =========== Net Income per Share Income before Gain on Sale of Real Estate Investments and Extraordinary Item $ 0.16 $ 0.17 Gain on Sale of Real Estate Investments 0.09 0.42 ----------- ----------- Income before Extraordinary Item 0.25 0.59 Extraordinary Loss from Extinguishment of Debt - (0.02) ----------- ----------- Basic Net Income per Share $ 0.25 $ 0.57 =========== =========== Diluted Net Income per Share $ 0.25 $ 0.57 =========== =========== Average Shares Outstanding 9,353,000 9,054,000 =========== ===========
See accompanying notes 31 Property Capital Trust CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended ----------- December 31, December 31, July 31, 1998 1997 1996 ---- ---- ---- Operating Activities Net Income $ 5,417,000 $ 31,297,000 $ 5,914,000 Adjustments to Net Income Gain on sale of real estate investments (4,083,000) (27,812,000) (6,094,000) Extraordinary loss from extinguishment of debt - - 473,000 Depreciation and amortization - 1,398,000 4,205,000 Write-down of real estate investment - - 3,000,000 Income from unconsolidated Investment Partnerships - (120,000) (3,326,000) Distributions of income from Investment Partnerships - 121,000 3,326,000 Changes in assets and liabilities Decrease in interest and rents receivable 280,000 1,478,000 435,000 Decrease (increase) in other assets, net 2,614,000 (1,664,000) (137,000) (Decrease) increase in accounts payable, accrued expenses and other liabilities and accrued interest (3,949,000) 798,000 1,418,000 ------------- ------------- ------------ Net Cash Provided by Operating Activities 279,000 5,496,000 9,214,000 ------------- ------------- ------------ Investing Activities Owned Properties held directly by the Trust Dispositions 4,564,000 36,288,000 10,828,000 Additions (65,000) (3,992,000) (1,075,000) Structured Transactions held directly by the Trust Dispositions/repayments 6,316,000 47,500,000 5,101,000 Additions - - (600,000) Investment Partnerships Distributions in excess of income - 2,384,000 38,883,000 ------------- ------------- ------------ Net Cash Provided by Investing Activities 10,815,000 82,180,000 53,137,000 ------------- ------------- ------------ Financing Activities Cash dividends paid (11,021,000) (86,416,000) (29,774,000) Redemption/repurchase of Convertible Subordinated Debentures - - (31,645,000) Prepayment of mortgage notes payable - - (3,000,000) Scheduled amortization of mortgage notes payable - (263,000) (256,000) Proceeds from exercise of stock options - 515,000 112,000 ------------- ------------- ------------ Net Cash Used in Financing Activities (11,021,000) (86,164,000) (64,563,000) ------------- ------------- ------------ Net Increase (Decrease) in Cash and Cash Equivalents 73,000 1,512,000 (2,212,000) Cash and Cash Equivalents at Beginning of Year 3,160,000 1,648,000 5,209,000 ------------- ------------- ------------ Cash and Cash Equivalents at End of Year $ 3,233,000 $ 3,160,000 $ 2,997,000 ============= ============= ============
See accompanying notes 32 Property Capital Trust CONSOLIDATED STATEMENTS OF CASH FLOWS
Five Months Ended ----------------- December 31, December 31, 1996 1995 ---- ---- (Unaudited) Operating Activities Net Income $ 2,368,000 $ 5,158,000 Adjustments to Net Income Gain on sale of real estate investments (832,000) (3,811,000) Extraordinary loss from extinguishment of debt - 186,000 Depreciation and amortization 1,480,000 1,619,000 Income from unconsolidated Investment Partnerships (67,000) (1,778,000) Distributions of income from Investment Partnerships 45,000 1,477,000 Changes in assets and liabilities (Increase) decrease in interest and rents receivable (14,000) 133,000 (Increase) decrease in other assets, net (289,000) 294,000 (Decrease) increase in accounts payable, accrued expenses and other liabilities and accrued interest (222,000) 95,000 ------------- ------------ Net Cash Provided by Operating Activities 2,469,000 3,373,000 ------------- ------------ Investing Activities Owned Properties held directly by the Trust Additions (702,000) (481,000) Structured Transactions held directly by the Trust Dispositions/repayments 5,000 2,949,000 Investment Partnerships Distributions in excess of income 8,350,000 8,763,000 ------------- ------------ Net Cash Provided by Investing Activities 7,653,000 11,231,000 ------------- ------------ Financing Activities Cash dividends paid (11,346,000) (2,174,000) Redemption/repurchase of Convertible Subordinated Debentures - (12,000,000) Prepayment of mortgage notes payable (163,000) - Scheduled amortization of mortgage notes payable (76,000) (69,000) Proceeds from exercise of stock options 114,000 - ------------- ------------ Net Cash Used in Financing Activities (11,471,000) (14,243,000) Net (Decrease) Increase in Cash and Cash Equivalents (1,349,000) 361,000 Cash and Cash Equivalents at Beginning of Period 2,997,000 5,209,000 ------------- ------------ Cash and Cash Equivalents at End of Period $ 1,648,000 $ 5,570,000 ============= ============
See accompanying notes 33 Property Capital Trust CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Accumulated Treasury Number of Shares Amount Deficit Shares ---------------- ------ ------- ------ Balance at August 1, 1995 9,053,881 $106,190,000 $ (12,481,000) $ - Common Shares issued in payment of deferred Trustees' compensation 199,542 1,344,000 Stock options exercised 23,640 112,000 Conversion of Convertible Subordinated Debentures 1,198 26,000 Net income 5,914,000 Cash dividends paid ($3.23 per share) (29,774,000) Purchase of 184,639 Treasury Shares included in Rabbi Trust for the benefit of Trustees (1,255,000) --------- ----------- ------------ -------------- Balance at July 31, 1996 9,278,261 107,672,000 (36,341,000) (1,255,000) Common Shares issued in payment of deferred Trustees'compensation 31,499 267,000 Stock options exercised 91,100 114,000 Net income 2,368,000 Cash dividends paid ($1.21 per share) (11,346,000) Purchase of 31,499 Treasury Shares included in Rabbi Trust for the benefit of Trustees (267,000) Distribution to Trustees of 22,211 Treasury Shares included in Rabbi Trust for the benefit of Trustees 160,000 --------- ----------- ------------ -------------- Balance at December 31, 1996 9,400,860 108,053,000 (45,319,000) (1,362,000) Stock options exercised 183,360 515,000 Net income 31,297,000 Cash dividends paid ($9.02 per share) (86,416,000) Distribution to Trustees of 7,076 Treasury Shares included in Rabbi Trust for the benefit of Trustees 46,000 --------- ----------- ------------ ------------- Balance at December 31, 1997 9,584,220 108,568,000 (100,438,000) (1,316,000) Net income 5,417,000 Cash dividends paid ($1.15 per share) (11,021,000) Distribution to Trustees of 186,851 Treasury Shares included in Rabbi Trust for the benefit of Trustees 1,316,000 --------- ----------- ------------ ------------- Balance at December 31, 1998 9,584,220 $108,568,000 $(106,042,000) $ - ========= =========== ============ =============
See accompanying notes 34 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------------------------ Business Plan Since 1995, the Trust has operated under a business plan (the "Business Plan") which provided for the orderly disposition of all of the Trust's investments on a property-by-property basis. As of December 31, 1998, the Trust had disposed of all of its real estate investments and had as its principal asset approximately $3 million in cash. In the summer of 1997, management of the Trust and the Trustees began to consider possible alternatives for terminating the Trust once its assets had been sold. In June 1998, after discussions with several groups, the Trust announced that it had entered into an agreement to merge with and into Maryland Property Capital Trust, Inc. (the "Corporation"). Simultaneously with the execution of the merger agreement, the Corporation entered into a series of related agreements (the "Related Transactions") with affiliates of The Beal Companies, LLP, a Boston based real estate development and investment company. Due to changes in market conditions in the summer and fall of 1998, however, the parties renegotiated the terms of the proposed merger and the Related Transactions in October 1998. As a result of a restructuring of the merged entity's capitalization, the interests of Property Capital Trust's shareholders will be junior to certain interests of affiliates of The Beal Companies, LLP in the merged entity and will be without value. The Beal Companies, LLP has paid a $350,000 deposit to the Trust, which is reflected in accounts payable, accrued expenses and other in the accompanying balance sheet. Just prior to the closing of the merger, the Trustees intend to declare a final distribution to the Trust's shareholders equal to all of the Trust's remaining net worth (which is currently estimated to be between $.25 and $.26 per share). This is inclusive of the settlement reached in February 1999, of the litigation with the Florida Department of Transportation regarding certain land that was condemned at Loehmann's Fashion Island, one of the Trust's former properties. The distribution is also inclusive of the payment of $.01 per share to be made to redeem the rights outstanding pursuant to the Trust's Shareholder Rights Plan. The merger is subject to the approval of the Trust's shareholders and, if approved, would eliminate the need to establish a liquidating trust to hold reserves to meet contingent liabilities of the Trust and the expenses related thereto (which expenses, net of interest income, are estimated to be $100,000). Consolidation The consolidated financial statements of the Trust include the accounts of its wholly owned subsidiaries and of a trust which was established to hold certain assets of the Deferred Stock Plan as described in Note 8 (the "Rabbi Trust"). All significant intercompany accounts and transactions have been eliminated in consolidation. Federal Income Taxes The Trust has qualified and has elected to be taxed as a real estate investment trust under Sections 856-860 of the Internal Revenue Code. The trust intends to continue to qualify as a real estate investment trust. Accordingly, no provision has been made for Federal income taxes in the consolidated financial statements. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, the Trust considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Investment Partnerships Certain of the Trust's investments were made through partnerships or a participation agreement in which the Trust or one of its subsidiaries was the general partner or lead lender and other institutional investors were limited partners or participating lenders ("Investment Partnerships"). Based upon generally accepted accounting principles, the Trust applied the equity method to account for its Investment Partnerships. 35 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) - ------------------------------------------------------------------------------ Valuation of Real Estate Investments Real estate investments were carried at cost, net of accumulated depreciation and any impairment losses. On August 1, 1996, the Trust adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", which required impairment losses to be recorded on specific long-lived assets used in operations where indicators of impairment were present and the undiscounted cash flows (net realizable value) estimated to be generated by those assets were less than the assets' carrying amount. Prior to August 1, 1996, the Trust's real estate investments were carried net of an allowance for possible investment losses. The Trust's allowance for possible investment losses was based upon management's estimate of the net realizable value of each investment, and to the extent this was less than the carrying value of an investment, an allowance for possible investment losses was established. The adoption of Statement No. 121 did not have any effect on the Trust's financial position or results of operations. However, the carrying values of certain real estate assets were written down against available reserves. Depreciation and amortization were calculated under the straight-line method, based upon the estimated useful lives of the assets. Properties and property improvements were depreciated over 25 to 39 years. Leasing commissions and tenant improvements were amortized under the straight-line method over the terms of the related leases. Expenditures for maintenance, repairs and betterments which did not materially prolong the normal useful life of an asset have been charged to operations as incurred. Assets Held for Sale The Trust defined an "Asset Held for Sale" as an asset that had been approved for sale by the Trustees and, if applicable, the Investment Partnership and either was being marketed for sale or was soon to be marketed. Assets Held for Sale were written down to the lower of cost or net realizable value and, in the case of investments held directly by the Trust, were classified separately on the balance sheet. Depreciation was not recorded on these assets. The revenues and expenses of an Asset Held for Sale were not reclassified, and continued to be recorded as they were prior to the reclassification. Mortgage Loans The Trust accounted for its mortgage loans under the provisions of FASB Statement No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by FASB Statement 118. This statement required impairment losses to be recorded when it was probable that a creditor would be unable to collect all amounts due according to the contractual terms of the loan agreement. The statement required impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if collateral dependent. Stock Options The Trust accounts for its stock compensation arrangements under the provisions of APB 25, "Accounting for Stock Issued to Employees." Change in Fiscal Year In January 1997, the Trustees authorized a change in the Trust's fiscal year from one which ended on July 31st to one which ends on December 31. The five-month period ended December 31, 1996 (the "Transition Period"), together with unaudited comparative data for the five-month period ended December 31, 1995, is presented within the body of the Trust's financial statements. Revenue Recognition For financial reporting purposes, the Owned Properties held directly by the Trust were accounted for on a one-month lag. Certain space leases provided for free rent periods and stepped minimum rents which were accounted for on a straight-line basis over the terms of the leases. Rental income recognized under the straight-line method was less than rent received or receivable by the Trust for financial reporting purposes by $54,000 and $119,000 for the years ended December 31, 1997 and July 31, 1996, respectively, and $24,000 and $77,000 (unaudited) for the five-month periods ended December 31, 1996 and 1995, respectively. Rental income recognized in calendar 1998 equaled rent received or receivable by the Trust in calendar 1998. 36 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) - ------------------------------------------------------------------------------ Net Income Per Share In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share." FASB Statement 128 replaced the calculation of primary and fully diluted net income per share with basic and diluted net income per share. Unlike primary net income per share, basic net income per share excludes any dilutive effects of options, warrants and convertible securities. Diluted net income per share is very similar to the previously reported fully diluted net income per share. All net income per share amounts for all periods have been presented and, where appropriate, restated to conform to the FASB Statement 128 requirements. Basic net income per share is calculated by dividing net income by the weighted average Common Shares outstanding during the year. Basic net income per share on a quarterly basis may not total to the annual basic net income per share due to rounding. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassification Certain items in the December 31, 1997 and July 31, 1996 financial statements have been reclassified to conform to the December 31, 1998 presentation. NOTE 2. REAL ESTATE INVESTMENTS As of December 31, 1998, the Trust had no real estate investments. The Trust's real estate investments consisted primarily of equity investments in completed, income-producing properties located throughout the United States. The Trust's portfolio of real estate investments consisted of Structured Transactions and Owned Properties. Land leasebacks and/or mortgage loans were classified as Structured Transactions. Land leasebacks consisted of land purchased under income-producing properties and leased back under long-term net lease arrangements. The leases required fixed monthly base rental payments and generally also provided for overage rental payments, which were typically computed as a percentage of property gross receipts in excess of base amounts. The mortgage loan investments were generally long-term loans that required fixed monthly base interest payments and, when not payable on a self-amortizing basis, principal payments at maturity. Operating properties were classified as Owned Properties. Owned Properties (which included those held in wholly owned subsidiaries) included land, buildings, tenant improvements, and other. Tenant improvements represented the cost of constructing or finishing tenant space under the terms of a lease for that space. Material disbursements that constituted new assets or improvements to existing assets that extended their useful lives and/or substantially increased their value were capitalized. The Trust categorized its Structured Transactions and Owned Properties into four groups, Structured Transactions held directly by the Trust, Owned Properties held directly by the Trust, Assets Held for Sale directly by the Trust (investments formerly classified as Structured Transactions held directly by the Trust and Owned Properties held directly by the Trust), and Investment Partnerships (inclusive of Structured Transactions, Owned Properties, and Assets Held for Sale). 37 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - -------------------------------------------- Assets Held for Sale directly by the Trust At December 31, 1998, there were no Assets Held for Sale directly by the Trust. During 1998, the Trust sold its two remaining real estate investments both of which were classified as Assets Held for Sale directly by the Trust. Subsequent to year end, the Trust reached a settlement agreement with the Florida Department of Transportation regarding certain land that was condemned at Loehmann's Fashion Island, one of the Trust's former properties. On June 17, 1998, the Trust's Cincinnati Marriott Inn $2,000,000 land investment was purchased by the Trust's lessee for $2,000,000 and the Trust's related leasehold mortgages were prepaid at their face amount of $4,316,000. In August 1996, the Trust had allocated $1,016,000 of its former allowance for possible investment losses to these mortgages. As a consequence, the repayment resulted in a gain to the Trust of $1,016,000. In addition, the Trust received $1,600,000 of land rent and mortgage interest, earned in 1991 through 1994, which had previously been written off. In January 1998, the Trust sold Park Place to an unrelated party for $14,145,000, resulting in a gain to the Trust of $3,067,000. Previously, in August 1996, the Trust had allocated $1,239,000 of its former allowance for possible investment losses to this investment. The property's $8,345,000 first mortgage was assumed by the buyer. At December 31, 1997, the Trust had two Assets Held for Sale directly by the Trust, Park Place, an office building previously classified as an Owned Property held directly by the Trust, and the Trust's investments in the Cincinnati Marriott Inn, a hotel previously classified as a Structured Transaction held directly by the Trust. These two remaining real estate investments had an aggregate net book value of $15,077,000 at December 31, 1997. Park Place, located in Clayton, Missouri, was acquired by a wholly owned subsidiary of the Trust in fiscal 1991, subject to a non-recourse first mortgage of $8,600,000. Upon the Trust's adoption of FASB Statement No. 121 in August 1996, the Trust allocated $1,239,000 of its former allowance for possible investment losses to this investment. At December 31, 1997, Park Place had a net book value of $9,777,000. The Trust's investments in the Cincinnati Marriott Inn, located in Cincinnati, Ohio, consisted of a land leaseback and mortgage loans. During fiscal year ended July 31, 1996, the Trust loaned an additional $600,000 to its lessee/mortgagor, secured by a junior leasehold mortgage, to make certain approved capital improvements to the hotel. Upon the Trust's adoption of FASB Statement No. 121 in August 1996, the Trust allocated $1,016,000 of its former allowance for possible investment losses to these investments. At December 31, 1997, Cincinnati Marriott Inn investments had an aggregate net book value of $5,300,000. During calendar year 1997, the Trust sold three Assets Held for Sale directly by the Trust, Loehmann's Fashion Island, One Park West and Citibank Office Plaza - Schaumburg. In December 1997, the Trust sold Loehmann's Fashion Island shopping center to an unrelated party for $37,300,000, resulting in no gain or loss to the Trust. Previously, in August 1996, the Trust allocated $869,000 from its former allowance for possible investment losses to this investment. In addition, during the quarter ended July 31,1996, the Trust wrote down its investment in Loehmann's Fashion Island by $5,612,000, of which $3,000,000 was charged to earnings and the balance was charged to the Trust's previously established allowance for possible investment losses. In October 1997, the Trust sold the One Park West office building to an unrelated party for $20,685,000, resulting in a gain of approximately $1,334,000. In March 1993, a wholly owned subsidiary of the Trust acquired the equity interest of its lessee in One Park West, subject to a first mortgage loan of $10,227,000. Upon acquisition the Trust utilized a portion of its former allowance for possible investment losses to write down this investment by $6,000,000. In addition at July 31, 1996, the Trust wrote down its investment in this property by $1,519,000 when the Trust reclassified One Park West to an Asset Held for Sale directly by the Trust, this write-down was charged against the Trust's former allowance for possible investment losses. In August 1996, the Trust allocated $936,000 of its former allowance for possible investment losses to the Citibank Office Plaza - Schaumburg investment. In July 1997, the Trust sold Citibank Office Plaza - Schaumburg to an unrelated third party for $9,640,000, resulting in no gain or loss to the Trust. At July 31, 1996, the Trust had one Asset Held for Sale directly by the Trust, the One Park West office building. This investment, which had a net book value of $18,457,000, had previously been classified as an Owned Property held directly by the Trust. At July 31, 1996, the Trust wrote down its investment in this property by $1,519,000 to $16,938,000. This loss was charged against the Trust's former allowance for possible investment losses. In addition, during fiscal 1996, the Trust sold the Citibank Office Plaza - Oak Brook building to an unrelated third party for $11,380,000, resulting in a gain of approximately $470,000. In fiscal 1995, this investment, which had a net book value of $11,156,000, had previously been classified as an Owned Property held directly by the Trust. During the quarter ended July 31, 1995, the Trust wrote down its investment in this property by $971,000 to $10,185,000. This loss was charged against the Trust's former allowance for possible investment losses. 38 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - -------------------------------------------- Owned Properties held directly by the Trust At December 31, 1998 and 1997, the Trust had no real estate investments classified as Owned Properties held directly by the Trust. During the calendar year ended December 31, 1997, the Trust reclassified three real estate investments, Citibank Office Plaza - Schaumburg, Loehmann's Fashion Island and Park Place to Assets Held for Sale directly by the Trust. During fiscal year ended July 31, 1996, the Trust reclassified One Park West to an Asset Held for Sale directly by the Trust. The operating results of Owned Properties held directly by the Trust (inclusive of Owned Properties classified as Assets Held for Sale directly by the Trust) are reflected in the consolidated statements of income as Rents from Owned Properties held directly by the Trust and Expenses on Owned Properties held directly by the Trust. Rents from Owned Properties held directly by the Trust represent base rents and expense reimbursements from tenants. Expenses on Owned Properties held directly by the Trust are as follows:
Years Ended ----------- December 31, December 31, July 31, 1998 1997 1996 ---- ---- ---- Repairs and maintenance $ 32,000 $1,474,000 $1,819,000 Real estate taxes - 1,157,000 1,295,000 Utilities 32,000 655,000 1,002,000 General and administrative 103,000 1,006,000 836,000 Management fees 37,000 396,000 448,000 Insurance 7,000 85,000 169,000 ---------- ---------- ---------- Expenses on Owned Properties held directly by the Trust $ 211,000 $4,773,000 $5,569,000 ========== ========== ==========
Five Months Ended ----------------- December 31, December 31, 1996 1995 ---- ---- (Unaudited) Repairs and maintenance $ 662,000 $ 776,000 Real estate taxes 726,000 583,000 Utilities 338,000 496,000 General and administrative 368,000 322,000 Management fees 147,000 221,000 Insurance 73,000 74,000 ------------- ------------- Expenses on Owned Properties held directly by the Trust $ 2,314,000 $ 2,472,000 ============= ============= 39 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - -------------------------------------------- Structured Transactions held directly by the Trust At December 31, 1998 and 1997, the Trust had no real estate investments classified as Structured Transactions held directly by the Trust. During calendar year 1997, the Trust reclassified Cincinnati Marriott Inn to an Asset Held for Sale directly by the Trust and disposed of six Structured Transactions held directly by the Trust. The Trust's $2,000,000 City Centre Holiday Inn land investment was purchased by the Trust's lessee for $20,577,000, resulting in a gain to the Trust of $18,577,000. The Trust's $350,000 Lakeside Center land investment was purchased by the Trust's lessee for $2,350,000, resulting in a gain to the Trust of $1,944,000 after closing costs. The Trust's $400,000 Northbrook apartments land investment was purchased by the Trust's lessee for $750,000, resulting in a gain to the Trust of $350,000. The Trust's land and mortgage investments in Roseburg Valley Mall were sold to the Trust's lessee/mortgagor for $3,950,000, resulting in no gain or loss to the Trust. The Trust's lessee/mortgagor of its $5,400,000 Sandpiper Cove apartments land investment, its $2,230,000 Elm Creek apartments land investment and its $7,540,000 Elm Creek apartments mortgage loan investment purchased the investments, with an aggregate carrying value of $15,170,000, for $20,000,000, resulting in a gain to the Trust of $4,750,000 after closing costs. During fiscal year ended July 31, 1996, the Trust disposed of three Structured Transactions held directly by the Trust. The Trust's $825,000 Bluffs II land investment was purchased by the Trust's lessee for $2,150,000, resulting in a gain to the Trust of $1,320,000 after closing costs. The Trust's $135,000 Yorkshire land investment was purchased by an unrelated third party for $460,000, resulting in a gain to the Trust of $310,000 after closing costs. The Trust's $2,000,000 Grosvenor Airport Inn land investment was purchased by the Trust's lessee for $2,000,000 and the Trust's related $2,000,000 mortgage loan was prepaid for $500,000, with the resulting loss of $1,500,000 being charged against the Trust's allowance for possible losses. Investments in unconsolidated Investment Partnerships As of December 31, 1998 and 1997, neither the Trust nor its subsidiaries had investments in unconsolidated Investment Partnerships. These former investments had been accounted for on the equity method. The Investment Partnerships provided for the allocation of profits and losses and cash distributions in proportion to ownership as shown below: Percent Owned by Trust ---------------------- Property Capital Midwest Associates, L.P. 53.30% PCA Southwest Associates Limited Partnership 45.45% PCA Canyon View Associates Limited Partnership 23.81% Lisle Hilton Inn Loan Participation 41.67% PCA Crossroads Associates, Ltd. 25.00% 40 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - -------------------------------------------- Investment Partnerships Condensed Combined Statements of Income
Years Ended ----------- December 31, December 31, July 31, 1998 1997 1996 ---- ---- ---- Revenues $ - $ 1,996,000 $ 22,146,000 Expenses - 1,768,000 14,817,000 --------------- ------------ ------------ Income before Gain (Loss) on Real Estate Investments - 228,000 7,329,000 Gain (Loss) on Real Estate Investments Gain on sale of real estate investments - 1,885,000 14,944,000 Write-down of real estate investments - - (11,051,000) --------------- ------------ ------------ Net Income $ - $ 2,113,000 $ 11,222,000 =============== ============ ============ Income before Gain (Loss) on Real Estate Investments Trust's share of income before gain (loss) on real estate investments $ - $ 120,000 $ 3,326,000 Limited Partners' share of income before gain (loss) on real estate investments - 108,000 4,003,000 Gain (Loss) on Real Estate Investments Trust's share of gain on sale of real estate investments - 857,000 3,994,000 Limited Partners' share of gain on sale of real estate investments - 1,028,000 10,950,000 Trust's share of write-down of real estate investments (previously recorded by the Trust) - - (3,810,000) Limited Partners' share of write-down of real estate investments - - (7,241,000) --------------- ------------ ------------ Net Income $ - $ 2,113,000 $ 11,222,000 =============== ============ ============
41 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - ------------------------------------------- Investment Partnerships Condensed Combined Statements of Income
Five Months Ended ----------------- December 31, December 31, 1996 1995 ---- ---- (Unaudited) Revenues $ 2,869,000 $ 11,332,000 Expenses 2,716,000 7,292,000 ------------ ------------ Income before Gain (Loss) on Real Estate Investments 153,000 4,040,000 Gain (Loss) on Real Estate Investments Gain on sale of real estate investments 3,495,000 14,002,000 Write-down of real estate investments (1,178,000) (7,134,000) ------------ ------------ Net Income $ 2,470,000 $ 10,908,000 ============ ============ Income before Gain (Loss) on Real Estate Investments Trust's share of income before gain (loss) on real estate investments $ 67,000 $ 1,778,000 Limited Partners' share of income before gain (loss) on real estate investments 86,000 2,262,000 Gain (Loss) on Real Estate Investments Trust's share of gain on sale of real estate investments 832,000 3,501,000 Limited Partners' share of gain on sale of real estate investments 2,663,000 10,501,000 Trust's share of write-down of real estate investments (previously recorded by the Trust) (576,000) (1,845,000) Limited Partners' share of write-down of real estate investments (602,000) (5,289,000) ------------ ------------ Net Income $ 2,470,000 $ 10,908,000 ============ ============
42 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - ------------------------------------------- The Trust's share of net income (loss) (including gain on sales) from unconsolidated Investment Partnerships was as follows:
Years Ended ----------- December 31, December 31, July 31, 1998 1997 1996 ---- ---- ---- Property Capital Midwest Associates, L.P. (1) $ - $ 110,000 $ 2,277,000 PCA Southwest Associates Limited Partnership (2) - 868,000 721,000 PCA Canyon View Associates Limited Partnership (3) - (1,000) 153,000 Lisle Hilton Inn Loan Participation - - 566,000 PCA Crossroads Associates, Ltd. - - 3,603,000 --------- ----------- ----------- $ - $ 977,000 $ 7,320,000 ========= =========== ===========
(1) Net of the Trust's share of depreciation of $21,000 for the year ended July 31, 1996. No depreciation was recorded in calendar 1997. (2) Net of the Trust's share of depreciation of $52,000 and $372,000 for the years ended December 31, 1997 and July 31, 1996, respectively. (3) Net of the Trust's share of depreciation of $80,000 for the year ended July 31,1996. No depreciation was recorded in calendar 1997. This property converted from a Structured Transaction to an Owned Property in August 1995.
Five Months Ended ----------------- December 31, December 31, 1996 1995 ---- ---- (Unaudited) Property Capital Midwest Associates, L.P. (1) $ 53,000 $1,066,000 PCA Southwest Associates Limited Partnership (2) 3,000 218,000 PCA Canyon View Associates Limited Partnership (3) 843,000 125,000 Lisle Hilton Inn Loan Participation - 275,000 PCA Crossroads Associates, Ltd. - 3,595,000 ---------- ---------- $ 899,000 $5,279,000 ========== ==========
(1) Net of the Trust's share of depreciation of $17,000 for the five-month period ended December 31, 1995. No depreciation was recorded in 1996. (2) Net of the Trust's share of depreciation of $103,000 and $228,000 for the five-month periods ended December 31, 1996 and 1995, respectively. (3) Net of the Trust's share of depreciation of $29,000 for the five-month period ended December 31, 1995. No depreciation was recorded in 1996. This property converted from a Structured Transaction to an Owned Property in August 1995. 43 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - ------------------------------------------- Cash distributions received by the Trust from the unconsolidated Investment Partnerships were as follows:
Years Ended ----------- December 31, December 31, July 31, 1998 1997 1996 ---- ---- ---- Property Capital Midwest Associates, L.P. $ - $ 654,000 $19,506,000 PCA Southwest Associates Limited Partnership - 1,718,000 7,274,000 PCA Canyon View Associates Limited Partnership - 133,000 256,000 Lisle Hilton Inn Loan Participation - - 9,547,000 PCA Crossroads Associates, Ltd. - - 5,626,000 --------- ----------- ----------- $ - $ 2,505,000 $42,209,000 ========= =========== ===========
Five Months Ended ----------------- December 31, December 31, 1996 1995 ---- ---- (Unaudited) Property Capital Midwest Associates, L.P. $ 5,889,000 $ 765,000 PCA Southwest Associates Limited Partnership 161,000 3,410,000 PCA Canyon View Associates Limited Partnership 2,345,000 184,000 Lisle Hilton Inn Loan Participation - 279,000 PCA Crossroads Associates, Ltd. - 5,602,000 ----------- ----------- $ 8,395,000 $10,240,000 =========== ===========
45 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - ------------------------------------------- In August 1996, the Trust allocated a portion of its former allowance for possible investment losses in the amount of $576,000 to the Investment Partnerships. During fiscal year ended July 31, 1996, the Trust's Investment Partnerships reclassified certain of their real estate investments to Assets Held for Sale and wrote down these assets by $2,970,000 (the Trust's share). In addition, PCA Southwest Associates Limited Partnership and PCA Canyon View Associates Limited Partnership each wrote off an investment resulting in losses to the Trust of $307,000 and $533,000 (the Trust's share), respectively. The Trust charged these losses against its former allowance for possible investment losses as follows:
Years Ended ----------- December 31, December 31, July 31, 1998 1997 1996 ---- ---- ---- Property Capital Midwest Associates, L.P. $ - $ - $1,255,000 PCA Southwest Associates Limited Partnership - - 1,017,000 PCA Canyon View Associates Limited Partnership - - 1,538,000 ----------- ----------- ---------- $ - $ - $3,810,000 =========== =========== ==========
Five Months Ended December 31, December 31, 1996 1995 (Unaudited) Property Capital Midwest Associates, L.P. $ 276,000 $ - PCA Southwest Associates Limited Partnership 300,000 307,000 PCA Canyon View Associates Limited Partnership - 1,538,000 ---------- ---------- $ 576,000 $1,845,000 ========== ==========
The Structured Transactions held by Investment Partnerships were similar to those held directly by the Trust. The land leaseback leases required fixed monthly base rental payments to the Investment Partnerships and also provided for overage rental payments. The mortgage loans held by Investment Partnerships were generally long-term loans that required fixed monthly base interest payments and, when not payable on a self-amortizing basis, required principal payments at maturity. Except for the Lisle Hilton Inn loan participation, mortgage loans were owned in conjunction with land leaseback transactions and were subordinate to and had cross-default provisions with the land leasebacks. The Lisle Hilton Inn loan participation, although not owned in conjunction with a land leaseback transaction, also required overage interest payments similar to the land leasebacks. During calendar year 1997, the Trust's last remaining Investment Partnership, PCA Southwest Associates Limited Partnership ("Southwest"), reclassified its Telegraph Hill apartments investment from an Owned Property to an Asset Held for Sale and, in June 1997, sold the investment to an unrelated third party for $13,750,000. The Trust realized a gain of $857,000 on this sale. During the Transition Period ended December 31, 1996, the Trust allocated a portion of its former allowance for possible investment losses to the Telegraph Hill investment in the amount of $300,000. The Trust, through a wholly owned subsidiary, had a 45.45% general partner interest in Southwest. During the year, the Trust has received its final distributions from Southwest, PCA Canyon View Associates Limited Partnership ("Canyon View") and Property Capital Midwest Associates, L.P. ("Midwest"). At December 31, 1997, the Trust had no investments in Investment Partnerships. During the Transition Period ended December 31, 1996, two Investment Partnerships each sold an investment which was classified as an Asset Held for Sale at July 31, 1996. Canyon View, an Investment Partnership which owned the Canyon View II apartments in San Ramon, California, sold this property in August 1996 to a third party. In fiscal 1996 the Trust wrote down its share of the investment in this property by $1,005,000 and at July 31, 1996, Phase II was reclassified from an Owned Property to an Asset Held for Sale. The sale resulted in a gain to the Trust in the amount of $832,000. The Trust had a 23.81% general partner interest in Canyon View. Midwest, an Investment Partnership which owned the Plaza West Retail Center, reclassified this investment from an Owned Property to an Asset 45 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. REAL ESTATE INVESTMENTS (continued) - ------------------------------------------- Held for Sale in fiscal year ended July 31, 1995, and at that time wrote down the investment to its estimated net realizable value. During the Transition Period ended December 31, 1996, the Trust allocated a portion of its former allowance for possible investment losses to this investment in the amount of $276,000. In October 1996, Plaza West was sold to an unrelated third party at no gain or further loss to the Trust. The Trust had a 53.3% general partner interest in Midwest. During fiscal year ended July 31, 1996, certain of the Trust's Investment Partnerships disposed of three Structured Transactions. PCA Crossroads Associates, Ltd. ("Crossroads"), an Investment Partnership which owned the land underlying the Crossroads Mall in Boulder, Colorado, sold the land to its lessee, resulting in a gain to the Trust of $3,500,000 on its investment of $2,000,000. The Trust had a 25.0% general partner interest in Crossroads. The first mortgage held by the Lisle Hiton Inn loan participation ("Lisle"), secured by the Lisle Hilton Inn located in Lisle, Illinois, was prepaid at par. The Trust had a 41.6% interest in Lisle and received $8,942,000 from the prepayment. Canyon View, an Investment Partnership which held Structured Transactions in Phases I and II of the Canyon View apartments in San Ramon, California, settled certain litigation. As a result, the Investment Partnership received $300,000 from the first mortgagee of Phase I for permitting it to foreclose on Phase I and the Investment Partnership took title to Phase II and received the proceeds from two letters of credit aggregating $1,750,000. At that time, the Trust wrote down its investment in this partnership by $1,538,000. This write-down was charged against the Trust's allowance for possible investment losses. At July 31, 1996, Phase II was reclassified from an Owned Property to an Asset Held for Sale. During fiscal 1996, two Investment Partnerships sold six Assets Held for Sale, three of which were classified as Assets Held for Sale at July 31, 1995 and three were reclassified to Assets Held for Sale during fiscal 1996. Southwest, an Investment Partnership which owned 2,848 apartments in Houston, Texas at July 31, 1995, sold the Chimney Rock complex to an unrelated party resulting in a gain to the Trust of $1,000. Two additional properties, St. Charles and Boardwalk, were reclassified during fiscal 1996 to Assets Held for Sale resulting in a write-down by the Trust of $710,000. This write-down was charged against the Trust's previously established allowance for possible investment losses. These investments were sold in June 1996 to an unrelated third party resulting in a gain to the Trust of $50,000. Southwest also disposed of its Telegraph Hill - Phase B investment (259 units) by allowaing the first mortgage lender to foreclose on the property and, as a result, the Trust wrote off its $307,000 net invesment in this property against the Trust's allowance for possible investment losses. Midwest, an Investment Partnership which owned four investments in Overland Park, Kansas, reclassified its investment in College Hills 3 to an Asset Held for Sale in fiscal 1996. In addition, Midwest's Financial Plaza investment, which was previously reclassified to an Asset Held for Sale, was further written down by the Trust by $1,255,000. Financial Plaza, College Hills 3 and College Hills 8 were sold to unrelated third parties and the net sales prices of these properties resulted in a gain to the Trust aggregating $443,000. NOTE 3. INDEBTEDNESS The Trust had no debt at December 31, 1998. Both of the real estate investments owned on December 31, 1997, Park Place office building and Cincinnati Marriott Inn, were subject to long-term first mortgage financing which aggregated $18,399,000. $10,054,000 of this long- term first mortgage financing represented debt on the Cincinnati Marriott Inn which was not reflected on the Trust's balance sheet because the obligation to pay such debt was that of the Trust's lessee/mortgagor. $8,345,000 of this long-term first mortgage financing represented debt on the Park Place office building located in Clayton, Missouri, and was reflected on the Trust's balance sheet. This debt had an annual effective interest rate of 5.65% which was payable semi-annually. During 1998, Park Place was sold and its first mortgage was assumed by the buyer. During calendar 1998 and 1997, fiscal year ended July 31, 1996 and the five-month periods ended December 31, 1996 and 1995, cash paid for interest on all of the Trust's debt was $128,000, $2,704,000, $5,044,000, $1,252,000 and $2,277,000, respectively. 46 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. RENTAL EXPENSE In September 1998, the Trust's prior space lease expired and the Trust moved its office to 177 Milk Street, Boston, Massachusetts, and entered into a lease that expires in March 1999. Rental expense was $93,000, $116,000, and $152,000 in calendar 1998 and 1997 and fiscal year July 31, 1996, respectively. Rental expense was $44,000 and $63,000 for the five-month periods ended December 31, 1996 and 1995, respectively. Future minimum rental payments will be $600 per month in 1999. NOTE 5. ADVISORY SERVICES Effective August 1, 1992 the Trust entered into an agreement with PCA Institutional Advisors ("PCAIA") pursuant to which the Trust assumed responsibility for rendering services under advisory agreements (the "Advisory Agreements") between PCAIA and the five former Investment Partnerships. The Trust received annually the first $150,000 of amounts payable pursuant to the Advisory Agreements as compensation for providing such services, which amount generally corresponded to the additional expenses incurred by the Trust in performance of such tasks, plus 50% of additional amounts payable pursuant to the Advisory Agreements, which additional amounts aggregated $235,000 in fiscal year ended July 31, 1996. No additional amount was received in calendar 1997 or 1998. PCAIA received the remaining 50% of such payments in excess of $150,000. Excluded from the foregoing arrangement was the termination fee provided for in the PCA Crossroads Associates, Ltd. ("Crossroads") advisory agreement, which fee was paid in fiscal 1996 solely to PCAIA. No amount was payable in 1998 or 1997 or for the five months ended December 31, 1996. NOTE 6. RELATED PARTY TRANSACTIONS During calendar 1998 and 1997, the fiscal year ended July 31, 1996, and the five-month periods ended December 31, 1996 and 1995, the Trust incurred legal fees in the amount of $178,000, $145,000, $262,000, $136,000 and $150,000, respectively (exclusive of additional amounts paid by the Trust's lessees and borrowers, if any), from the law firm of Paul, Weiss, Rifkind, Wharton & Garrison, of which Walter F. Leinhardt, Secretary and Trustee of the Trust, is a partner. Not included in the above amount is the Trust's share of legal fees incurred by the Investment Partnerships in the amount of $0, $2,000, $66,000, $20,000 and $5,000 for those same periods, respectively. The Trust is a party to a termination agreement with its chief executive officer under which he will be entitled to a payment equal to 100% of his base salary in the event of a change in control or termination of his employment, without cause, prior to October 2000. 47 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. DILUTED NET INCOME PER SHARE - ------------------------------------ The following table sets forth the computation of diluted net income per share. The calculation is presented for the July 31, 1996 period only. The effect of stock options and convertible debt was antidilutive for all other periods. Year Ended July 31, 1996 ---- Numerator: Net Income $5,914,000 ---------- Numerator for diluted net income per share - income available to common stockholders after assumed conversions $5,914,000 ========== Denominator: Denominator for basic net income per share - weighted - average shares 9,097,000 Effective of dilutive securities: Stock options 104,000 ---------- Denominator for diluted net income per share - adjusted weighted - average shares and assumed conversions 9,201,000 ========== Basic net income per share $0.65 ===== Diluted net income per share $0.64 ===== 48 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. SHAREHOLDERS' EQUITY - ---------------------------- 1992 Employee Stock Option Plan The Property Capital Trust 1992 Employee Stock Option Plan (the "Plan") for key employees of the Trust and its subsidiaries is a plan under which options for 400,000 shares may be granted to purchase Common Shares for a purchase price equal to, at a minimum, the fair market value of the shares on the date of grant, subject to certain adjustments. The Compensation Committee of the Board of Trustees administers the Plan and is responsible for selecting the individuals eligible to receive options and for determining the number of options to be granted to such individuals and the purchase price of the shares. While the Plan is still in effect, no options have been granted since 1995 and the Compensation Committee of the Board of Trustees does not intend to grant any further options. Under the plan 20% of the options become exercisable on each anniversary of the date of grant and all options vest once the option price declines below $2.00 per share. The options are subject to termination under certain circumstances. Changes in options outstanding during the period were as follows: Average Number Option Price of Shares Per Share Granted - 1993 107,750 $3.750* Canceled - 1993 (4,000) $3.750 ------- Shares under option at July 31, 1993 103,750 $3.750 ------- Granted - 1994 68,850 $6.375* Exercised - 1994 (2,000) $3.750 ------- Shares under option at July 31, 1994 170,600 $4.809 ------- Granted - 1995 82,500 $6.140* Exercised - 1995 (3,000) $4.625 ------- Shares under option at July 31, 1995 250,100 $5.251 ------- Exercised - 1996 (23,640) $4.751 ------- Shares under option at July 31, 1996 226,460 $5.303 ------- Exercised - Transition Period ended December 31, 1996 (91,100) $1.256 ------- Shares under option at December 31, 1996 135,360 $3.593 ------- Exercised - calendar 1997 (135,360) $2.683 ------- Shares under option at December 31, 1997 and 1998 - ======= Options exercisable at December 31, 1998 - ======= Options available for grant at beginning of year 144,900 ======= Options available for grant at December 31, 1998 144,900 ======= * The option price was reduced as a result of distributions made in excess of funds from operations as provided for in the Plan. 49 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. SHAREHOLDERS' EQUITY (continued) - ---------------------------------------- 1994 Stock Option Plan for Non-Employee Trustees The Property Capital Trust 1994 Stock Option Plan for Non-Employee Trustees, approved by the shareholders of the Trust in November 1994, was a plan under which options for 100,000 shares could be granted to purchase Common Shares for a purchase price equal to the fair market value of such Common Shares at the time the option was granted, subject to certain adjustments. Each non-employee Trustee received automatically upon election or re-election as a Trustee at an Annual Meeting of Shareholders an option to purchase 4,000 Common Shares. The option vested on the day immediately preceding the Annual Meeting of Shareholders next succeeding the date of grant of such option. On December 30, 1998, the 1994 Stock Option Plan for Non-Employee Trustees was terminated and all outstanding options were canceled.
Average Number Option Price of Shares Per Share --------- --------- Options granted on November 30, 1994 and outstanding at July 31, 1995 24,000 $6.125* Options granted on December 15, 1995 24,000 $8.563* ------ Options outstanding July 31, 1996 48,000 $7.344 Options granted on December 17, 1996 20,000 $8.063* ------ Options outstanding at December 31, 1996 68,000 $5.685* Exercised - 1997 (48,000) $3.151 ------ Options outstanding at December 31, 1997 20,000 $4.043* Cancellation of options upon termination of plan (20,000) ------ Options outstanding at December 31, 1998 - ======
* The option price was reduced as a result of distributions made in excess of funds from operations as provided for in the Plan. Amended and Restated Deferred Stock Plan for Non-Employee Trustees In November 1994, the Amended and Restated Deferred Stock Plan for Non-Employee Trustees (the "Deferred Stock Plan") was approved by the shareholders of the Trust. If a Trustee elected to defer payment of Trustee fees, share units were allocated to such Trustee's account based upon the closing price for the Common Shares on the date the fees would have been earned. Share units were also allocated to reflect dividends that would have been paid on such share units. There were 250,000 Common Shares available under this Deferred Stock Plan. This Deferred Stock Plan replaced a previous plan, the share units of which were transferred to this Deferred Stock Plan on November 30, 1994. In 1994, the Trust entered into a Trust Agreement with BankBoston, N.A. (formerly BayBank), a Massachusetts corporation, whereby BankBoston, N.A. agreed to hold the Common Shares (and dividends thereon) that were issued under the Deferred Stock Plan (an arrangement commonly known as a "Rabbi Trust"). During the fiscal year ended July 31, 1996, the Rabbi Trust was funded with Common Shares equal to the share units allocated under the Deferred Stock Plan. Under accounting rules, assets of a Rabbi Trust must be accounted for as assets of the Trust. 50 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. SHAREHOLDERS' EQUITY (continued) - ---------------------------------------- In January 1998, the Deferred Stock Plan was terminated by the Trustees and all assets held in the Rabbi Trust were distributed to the participating Trustees. The Common Shares held by the Rabbi Trust had been reflected at cost as "treasury stock," the other assets of the Rabbi Trust had been reflected as "other assets" and the claim of the participating Trustees had been reflected as "accounts payable and accrued expenses" in the accompanying consolidated balance sheets. Share units transferred November 30, 1994 118,385 Share units issued fiscal 1995 30,983 Share units exercised fiscal 1995 (20,296) ------- Share units outstanding July 31, 1995 129,072 Share units issued fiscal 1996 20,922 Share units exercised fiscal 1996 (14,903) Share units outstanding prior to transfer to Rabbi Trust 135,091 Share units issued in Property Capital Trust Common Shares and transferred to the Rabbi Trust (135,080) ------- Share units outstanding July 31, 1996 11 Share units issued Transition Period 6,671 Common shares issued and transferred to the Rabbi Trust (6,680) ------- Share units outstanding December 31, 1996 2 Cumulative fractional share units cashed-out and invested by the Rabbi Trust (2) ------- Share units outstanding December 31, 1997 and 1998 - ======= Common Shares issued and transferred to the Rabbi Trust 135,080 Dividends reinvested in Common Shares issued and transferred to the Rabbi Trust 49,559 ------- Total Common Shares in the Rabbi Trust July 31, 1996 184,639 Common Shares issued and transferred to the Rabbi Trust 6,680 Dividends reinvested in Common Shares issued and transferred to the Rabbi Trust 24,819 Distribution of Common Shares from the Rabbi Trust to retired Trustees (22,211) ------- Total Common Shares in the Rabbi Trust December 31, 1996 193,927 Distribution of Common Shares from the Rabbi Trust to retired Trustee (7,076) ------- Total Common Shares in the Rabbi Trust December 31, 1997 186,851 Distribution of Common Shares from the Rabbi Trust to retired Trustee (3,981) Distribution of Common Shares from the Rabbi Trust to participating Trustees upon termination of plan (182,870) ------- Total Common Shares in the Rabbi Trust December 31, 1998 - ======= 51 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. SHAREHOLDERS' EQUITY (continued) - ---------------------------------------- Shareholder Rights Plan On September 28, 1990 (the "Declaration Date"), the Trustees adopted a Shareholder Rights Plan (the "Rights Plan") and, in connection therewith, declared a dividend distribution of one right for each of the Trust's outstanding Common Shares to shareholders of record at the close of business on October 12, 1990. Each right entitles the holder thereof, upon the occurrence of certain events making such rights exercisable, to exercise the right to buy one Common Share at a purchase price of $27.00. The rights become exercisable (i) 10 business days following the announcement that a person or group of persons has acquired or obtained the right to acquire 9.8% or more of the Common Shares (with certain exceptions for persons who were shareholders on the Declaration Date) or (ii) upon the closing of a tender offer resulting in ownership of 9.8% or more of the Common Shares (any person acquiring in excess of 9.8% of the Common Shares being an "Acquiror"). On the twenty-first business day after the acquisition of 9.8% or more of the Common Shares by an Acquiror, or upon the closing of a tender offer for 9.8% or more of the Common Shares by an Acquiror, each right will entitle its holder to purchase, at the right's exercise price, that number of Common Shares having a market value at that time of twice the right's exercise price. Each right will also become exercisable to purchase Common Shares at a 50% discount in the event that an Acquiror engages in self-dealing transactions with the Trust. If, at any time after the rights become exercisable, the Trust is involved in a merger or other business combination in which the Trust is not the surviving entity, each right will entitle its holder to purchase, at the right's exercise price, that number of shares of the acquiring company's common stock having a market value at that time of twice the right's exercise price. The rights will expire on the earlier of (i) September 28, 2000 or (ii) their redemption by the Trustees at any time prior to the date that they become exercisable, as described above, at a price of $.01 per right. The Trustees intend to redeem the rights issued and outstanding, prior to the consummation of the merger, at the redemption price of $.01 per right. 52 Property Capital Trust NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. DIVIDENDS - ----------------- The Trust paid quarterly dividends approximately 55 days following each fiscal quarter, normally equal to at least 100% of income before gains (losses) on real estate investments. Because all of the Trust's real estate investments have been disposed of and revenues have declined significantly, no further quarterly dividends will be paid. Pursuant to its Business Plan, the Trust has declared special dividends from the proceeds of its disposition of investments which, to date, have totaled $13.65 per share. In respect of calendar years ended 1998 and 1997, fiscal year ended July 31, 1996 and the five-month period ended December 31, 1996, the Trust declared special dividends of $1.15 per share, $8.75 per share, $2.75 per share and $1.00 per share, respectively. If the merger is ratified by shareholders, it is the current intention of the Trustees to declare a final distribution from the remaining assets of the Trust immediately prior to the consummation of the merger. If the merger is not consummated, the Trust intends to dissolve and distribute a portion of its assets to its shareholders and transfer the remainder to a liquidating trust in order to satisfy any known and contingent liabilities of the Trust. It is then anticipated that a final distribution from the liquidating trust will be made within one year thereafter. Years Ended ----------- December 31, December 31, July 31, 1998 1997 1996 ---- ---- ---- Quarterly dividends declared $ - $ .18 $ .48 Special dividends declared 1.15 8.75 2.75 ------ ------ ------ Total dividends declared $ 1.15 $ 8.93 $ 3.23 ====== ====== ====== Five Months Ended ----------------- December 31, 1996 1995 ---- ---- (Unaudited) Quarterly dividends declared $ .18 $ .24 Special dividends declared 1.00 - ----- ----- Total dividends declared $1.18 $ .24 ===== ===== In order to qualify as a real estate investment trust, Property Capital Trust must distribute substantially all of its taxable income to shareholders not later than twelve months following the end of its fiscal year. 53 Property Capital Trust CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)
Quarters Ended -------------- March 31, June 30, September 30, December 31, --------- -------- ------------- ------------ Calendar 1998 Revenues $ 869,000 $ 1,635,000 $ 99,000 $ 40,000 Expenses 715,000 312,000 198,000 84,000 ----------- ----------- ----------- ----------- Income (Loss) before Gain on Sale of Real Estate Investments 154,000 1,323,000 (99,000) (44,000) Gain on Sale of Real Estate Investments 3,067,000 1,016,000 - - ----------- ----------- ----------- ----------- Net Income (Loss) $ 3,221,000 $ 2,339,000 $ (99,000) $ (44,000) =========== =========== =========== =========== Net Income (Loss) per Share Income (Loss) before Gain on Sale of Real Estate Investments $ 0.02 $ 0.13 $ (0.01) $ - Gain on Sale of Real Estate Investments 0.32 0.11 - - ----------- ----------- ----------- ----------- Basic and Diluted Net Income (Loss) per Share $ 0.34 $ 0.24 $ (0.01) $ - =========== =========== =========== =========== Average Shares Outstanding 9,584,220 9,584,220 9,584,220 9,584,220 =========== =========== =========== =========== Calendar 1997 Revenues $ 4,138,000 $4,135,000 $ 3,738,000 $ 2,706,000 Expenses 3,616,000 2,907,000 2,676,000 2,033,000 ----------- ----------- ----------- ----------- Income before Gain on Sale of Real Estate Investments 522,000 1,228,000 1,062,000 673,000 Gain on Sale of Real Estate Investments 18,577,000 2,801,000 4,750,000 1,684,000 ----------- ----------- ----------- ----------- Net Income $19,099,000 $ 4,029,000 $ 5,812,000 $ 2,357,000 =========== =========== =========== =========== Net Income per Share Income before Gain on Sale of Real Estate Investments $ 0.05 $ 0.13 $ 0.11 $ 0.07 Gain on Sale of Real Estate Investments 1.95 0.29 0.50 0.18 ----------- ---------- ----------- ----------- Basic and Diluted Net Income per Share $ 2.00 $ 0.42 $ 0.61 $ 0.25 =========== ========== =========== =========== Average Shares Outstanding 9,520,000 9,579,000 9,584,000 9,584,000 =========== =========== =========== ===========
54 Property Capital Trust SCHEDULE II Allowance for Possible Investment Losses
Five Months Ended Year Ended ----------------- ---------- December 31, July 31, 1996 1996 ---- ---- Balance at beginning of period $ 4,636,000 $ 14,077,000 Allocation to specific investments (1) (4,636,000) - Property write-downs - (9,441,000) ----------- ------------- Balance at end of period $ - $ 4,636,000 =========== ============= Allowance as a % of Real Estate Investments (before allowance for possible investment losses and Asset Held for Sale directly by the Trust) 4.9% ===
(1) In August 1996, the allowance for possible investment losses was allocated to specific investments per FASB Statement No. 121. For further information see Note 1, "Basis of Presentation and Significant Accounting Policies, Valuation of Real Estate Investments." The allowance for possible investment losses represented the excess of the carrying value of individual real estate investments over their estimated net realizable value. Based upon a review and evaluation of each real estate investment in the Trust's portfolio, management believed the allowance was adequate as of the date presented. 55 Property Capital Trust SCHEDULE III December 31, 1998 At December 31, 1998, the Trust had no real estate investments. NOTES TO SCHEDULE III Changes in the Trust's investments in Assets Held for Sale directly by the Trust are summarized below (dollars in thousands).
Five Months Years Ended Ended Year Ended ----------- ----- ---------- December 31, December 31, December 31, July 31, 1998 1997 1996 1996 ---- ---- ---- ---- Balance at beginning of period $ 15,077 $ 16,984 $16,938 $ 10,185 Acquisitions and additions 65 3,517 46 173 Sales to third parties (15,142) (62,996) - (10,358) Reclassified from Owned Properties held directly by the Trust - 67,829 - 20,055 Reclassified from Structured Transactions held directly by the Trust - 5,300 - - Investments written-down - - - (1,519) Write-off of accumulated depreciation - (15,557) - (1,598) ---------- -------- ------- -------- Balance at end of period $ - $ 15,077 $16,984 $ 16,938 ========== ======== ======= ========
56 ANNUAL REPORT ON FORM 10-K ITEM 8 and ITEM 14(d) FINANCIAL STATEMENTS For the Ten-Month Period Ended October 31, 1997 and the Year Ended December 31, 1996 PROPERTY CAPITAL MIDWEST ASSOCIATES, L.P. Boston, Massachusetts REPORT OF INDEPENDENT AUDITORS To the Partners Property Capital Midwest Associates, L.P. We have audited the accompanying balance sheet of Property Capital Midwest Associates, L.P. (the "Partnership") as of December 31, 1996, and the related statements of income, cash flows, and partners' equity for the ten-month period ended October 31, 1997 and the year ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Property Capital Midwest Associates, L.P. at December 31, 1996 and the results of its operations and its cash flows for the ten-month period ended October 31, 1997 and for the year ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Boston, Massachusetts November 3, 1997 58 Property Capital Midwest Associates, L.P. BALANCE SHEET December 31, 1996 ---- Assets Cash and cash equivalents $ 1,142,052 Rent receivable 17,469 Other assets 4,431 ------------ $ 1,163,952 ============ Liabilities and Partners' Equity Liabilities Real estate taxes payable $ 88,195 Accounts payable and accrued expenses 55,005 ------------ 143,200 ------------ Partners' Equity Capital contributions 11,095,815 Accumulated deficit (10,075,063) ------------ Total Partners' Equity 1,020,752 ------------ $ 1,163,952 ============ See accompanying notes 59 Property Capital Midwest Associates, L.P. STATEMENTS OF INCOME Ten Months Ended Year Ended October 31, December 31, 1997 1996 ---- ---- Revenues Rental income $ 89,132 $ 3,799,329 Short-term interest income 49,727 52,816 --------- ----------- 138,859 3,852,145 --------- ----------- Property Expenses Write-down of real estate investments - - Depreciation - - Real estate taxes (72,695) 555,725 Utilities - 567,887 Repairs and maintenance - 162,946 Management - 148,103 Cleaning - 143,965 Roads and grounds - 86,658 Other - 73,225 Insurance - 43,653 Security - 12,161 --------- ----------- (72,695) 1,794,323 --------- ----------- Partnership Expenses Advisory fee 13,816 77,858 Administrative expense (8,173) 125,032 --------- ----------- 5,643 202,890 --------- ----------- Net Operating Income 205,911 1,854,932 Gain on sale of real estate investments - 446,449 --------- ----------- Net Income $ 205,911 $ 2,301,381 ========= =========== See accompanying notes 60 Property Capital Midwest Associates, L.P. STATEMENTS OF CASH FLOWS
Ten Months Ended Year Ended October 31, December 31, 1997 1996 ---- ---- Cash Flow From Operating Activities Net income $ 205,911 $ 2,301,381 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of real estate investments - (446,449) Depreciation - - Write-down of real estate investments - - Changes in assets and liabilities Decrease in rent receivable 17,469 45,240 Decrease in prepaid insurance - 30,407 Decrease in other assets 4,431 54,198 Decrease in real estate taxes payable (88,195) (649,702) Decrease in accounts payable and accrued expenses (55,005) (167,583) Decrease in prepaid rent - (122,882) Decrease in security deposits - (201,872) ------------ ----------- Net Cash Provided by Operating Activities 84,611 842,738 ------------ ----------- Cash Flow From Investing Activities Disposition of real estate investments - 46,522,707 Capital expenditures - (228,727) ------------ ----------- Net Cash Provided by Investing Activities - 46,293,980 ------------ ----------- Cash Flow From Financing Activities Distributions of operating income of invested capital (226,663) (2,130,000) Distributions of invested capital (1,000,000) (44,395,880) ------------ ----------- Net Cash Used in Financing Activities (1,226,663) (46,525,880) ------------ ----------- Net (Decrease) Increase in Cash and Cash Equivalents (1,142,052) 610,838 Cash and Cash Equivalents at Beginning of Period 1,142,052 531,214 ------------ ----------- Cash and Cash Equivalents at End of Period $ - $ 1,142,052 ============ ===========
See accompanying notes 61 Property Capital Midwest Associates, L.P. STATEMENTS OF CHANGES IN PARTNERS' EQUITY
Beginning Distributions Distributions Ending Ownership Partners' Net of Operating of Invested Partners' Percentage Equity Income Income Capital Equity ---------- ------ ------ ------ ------- ------ For the Year Ended December 31, 1996 Property Capital Trust, General Partner 53.2967% $ 24,114,228 $1,226,560 $(1,135,220) $(23,661,539) $ 544,029 Limited Partners 46.7033 21,131,023 1,074,821 (994,780) (20,734,341) 476,723 -------- --------------- ---------- ----------- ------------ ------------- 100.0000% $ 45,245,251 $2,301,381 $(2,130,000) $(44,395,880) $ 1,020,752 ======== =============== ========== =========== ============ ============= For the Ten Months Ended October 31, 1997 Property Capital Trust, General Partner 53.2967% $ 544,029 $ 109,744 $ (120,804) $ (532,967) $ - Limited Partners 46.7033 476,723 96,167 (105,859) (467,033) - -------- --------------- ---------- ----------- ------------ ------------- 100.0000% $ 1,020,752 $ 205,911 $ (226,663) $ (1,000,000) $ - ======== =============== ========== =========== ============ =============
See accompanying notes 62 Property Capital Midwest Associates, L.P. NOTES TO FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------- Organization Property Capital Midwest Associates, L.P. (the "Partnership") was organized on April 20, 1983 as a Delaware limited partnership (under the name PCA Executive Hills Associates, L.P.) and was qualified to do business in the State of Kansas. Property Capital Trust was the sole general partner (the "General Partner") of the Partnership and six institutional investors were limited partners. The Partnership made a final distribution to its Partners on October 29, 1997 and filed a Certificate of Cancellation with the state of Delaware. Basis of Presentation The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, the Partnership considered all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Income Taxes The Partnership is not subject to Federal or state income taxes and, accordingly, no provisions have been made for such taxes in the financial statements. NOTE 2. MANAGEMENT AGREEMENT - ---------------------------- Services related to investment matters and day-to-day administration were provided to the Partnership under a contract, dated May 24, 1989, with PCA Institutional Advisors (the "Advisor"). The contract had an initial term of five years and was extended automatically on a year-to-year basis unless terminated by the Partnership or the Advisor. The contract provided for a base advisory fee equal to 8% of the Partnership's cash flow (as defined) and for a disposition fee equal to 8% of the gain from the sale of the Partnership's properties. The Partnership paid PCA Institutional Advisors management fees aggregating $13,816 and $77,858 for the ten months ended October 31, 1997 and the year ended 1996, respectively. Management fees payable was $10,000 at December 31, 1996. Effective August 1, 1992, Property Capital Trust, the General Partner of the Partnership, assumed responsibility for managing the affairs of the Partnership pursuant to a subcontract and option agreement with PCA Institutional Advisors. This change was approved by the Partners. NOTE 3. DISTRIBUTIONS - --------------------- For the ten months ended October 31, 1997 and the year ended December 31, 1996, the Partnership distributed $226,663 and $2,130,000, respectively, of operating income and $1,000,000 and $44,395,880 of invested capital, respectively. 63 ANNUAL REPORT ON FORM 10-K ITEM 8 and ITEM 14(d) FINANCIAL STATEMENTS For the Nine Months Ended September 30, 1997 and Year Ended December 31, 1996 PCA CANYON VIEW ASSOCIATES LIMITED PARTNERSHIP Boston, Massachusetts 64 REPORT OF INDEPENDENT AUDITORS To the Partners PCA Canyon View Associates Limited Partnership We have audited the accompanying balance sheet of PCA Canyon View Associates Limited Partnership ("the Partnership") as of December 31, 1996, and the related statements of operations, cash flows and changes in partners' equity for the nine-month period ended September 30, 1997 and the year ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PCA Canyon View Associates Limited Partnership at December 31, 1996, and the results of its operations and its cash flows for the nine-month period ended September 30, 1997 and year ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Boston, Massachusetts October 31, 1997 65 PCA Canyon View Associates Limited Partnership BALANCE SHEET December 31, 1996 ---- Assets Cash and cash equivalents $ 518,232 Other assets 58,720 ----------- $ 576,952 =========== Liabilities and Partners' Equity Accounts payable and accrued expenses $ 16,070 ----------- Partners' Equity Contributed capital 3,506,176 Undistributed net income (2,945,294) ----------- Total Partners' Equity 560,882 ----------- $ 576,952 =========== See accompanying notes 66 PCA Canyon View Associates Limited Partnership STATEMENTS OF OPERATIONS
Nine Months Year Ended Ended September 30, December 31, 1997 1996 ---- ---- Revenues Real Estate Investments Rental income $ 386 $1,412,864 Other income - 46,984 Base income - - ----------- ---------- 386 1,459,848 Short-term interest income 20,597 64,800 ----------- ---------- 20,983 1,524,648 Property Expenses Insurance 15,537 54,902 Ground rent - 404,754 Real estate taxes - 161,513 Management - 109,760 Utilities - 74,976 Repairs and maintenance - 58,025 Leasing - 55,781 Depreciation - 213,401 Roads and grounds - 53,839 Make ready - 49,593 Homeowners' association - 37,297 ----------- ---------- 15,537 1,273,841 ----------- ---------- Partnership Expenses Professional fees 3,344 23,024 Administrative 1,370 27,754 Management fee 2,016 21,407 ----------- ---------- 6,730 72,185 ----------- ---------- Net Operating (Loss) Income (1,284) 178,622 Gain on sale of real estate investments - 3,495,652 ----------- ---------- Net (Loss) Income $ (1,284) $3,674,274 =========== ==========
See accompanying notes 67 PCA Canyon View Associates Limited Partnership STATEMENTS OF CASH FLOWS
Nine Months Year Ended Ended September 30, December 31, 1997 1996 ---- ---- Cash Flow From Operating Activities Net (loss) income $ (1,284) $ 3,674,274 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation - 213,401 Gain on sale of real estate investments - (3,495,652) Decrease in rent receivable, net - 139 Decrease (increase) in other assets 58,720 (1,814) Decrease in accounts payable and accrued expenses (16,070) (55,199) Decrease in prepaid rent - (4,942) Decrease in security deposits - (71,215) --------- ------------ Net Cash Provided by Operating Activities 41,366 258,992 --------- ------------ Cash Flow From Investing Activities Increase in real estate investments - (567,809) Disposition of real estate investment, net of closing costs - 9,511,169 Proceeds from letters of credit and litigation settlement - - --------- ------------ Net Cash Provided by Investing Activities - 8,943,360 --------- ------------ Cash Flow From Financing Activities Distributions to partners: Return of invested capital (500,000) (9,667,865) Operating income (59,598) (535,601) Partner loans, net - - --------- ------------ Net Cash Used in Financing Activities (559,598) (10,203,466) --------- ------------ Net Decrease in Cash and Cash Equivalents (518,232) (1,001,114) --------- ------------ Cash and Cash Equivalents at Beginning of Period 518,232 1,519,346 Cash and Cash Equivalents at End of Period $ - $ 518,232 ========= ============
See accompanying notes 68 PCA Canyon View Associates Limited Partnership STATEMENTS OF CHANGES IN PARTNERS' EQUITY
Beginning Net Distributions Distributions Ending Ownership Partners' (Loss) of Operating of Invested Partners' Percentage Equity Income Income Capital Equity ---------- ------ ------ ------ ------- ------ For the Year Ended December 31, 1996 Property Capital Trust, General Partner 23.80952% $1,688,113 $ 874,828 $(127,523) $(2,301,873) $133,545 Limited Partners 76.19048% 5,401,961 2,799,446 (408,078) (7,365,992) 427,337 --------- ---------- ----------- --------- ----------- -------- 100.00000% $7,090,074 $ 3,674,274 $(535,601) $(9,667,865) $560,882 ========= ========== =========== ========= =========== ======== For the Nine Months Ended September 30, 1997 Property Capital Trust, General Partner 23.80952% $133,545 $ (306) $(14,191) $ (119,048) $ - Limited Partners 76.19048% 427,337 (978) (45,407) (380,952) - --------- ---------- ----------- --------- ----------- -------- 100.00000% $560,882 $ (1,284) $(59,598) $(500,000) $ - ========= ========== =========== ========= =========== ========
See accompanying notes 69 PCA Canyon View Associates Limited Partnership NOTES TO FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------- Organization PCA Canyon View Associates Limited Partnership (the "Partnership") was organized on January 24, 1986 as a Massachusetts limited partnership. Property Capital Trust was the sole general partner of the Partnership and thirteen institutional investors were limited partners. The Partnership made a final distribution to its Partners on September 30, 1997 and filed a Certificate of Cancellation of Limited Partnership with the Commonwealth of Massachusetts. Cash and Cash Equivalents For purposes of the Statement of Cash Flows, the Partnership considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Income Taxes The Partnership is not subject to Federal or state income taxes and, accordingly, no provisions have been made for such taxes in the financial statements. NOTE 2. MANAGEMENT AGREEMENT - ---------------------------- Services related to investment matters and day-to-day administration were provided to the Partnership under a contract, dated February 4, 1986, with PCA Institutional Advisors (the "Advisor"). The contract had an initial term which expired on July 29, 1993 and, thereafter, was extended automatically on a year-to-year basis, unless terminated by the Partnership or the Advisor. The contract provided for a base management fee equal to 8% of the Partnership's cash flow (as defined) and for a disposition fee equal to 8% of the gain from the sale of the Partnership's interests. No disposition fees were earned. Effective August 1, 1992, Property Capital Trust, the General Partner of the Partnership, assumed responsibility for managing the affairs of the Partnership pursuant to a subcontract and option agreement with PCA Institutional Advisors. NOTE 3. DISTRIBUTIONS - --------------------- For the nine months ended September 30, 1997 the Partnership distributed $59,598 from operating cash flow and $500,000 from invested capital. For the year ended December 31,1996 the Partnership distributed $535,601 from operating cash flow, and $9,667,865 from invested capital. There will be no further distributions as the Partnership has been terminated. 70 EX-21 2 EXHIBIT 21 Exhibit 21 List of Subsidiaries December 31, 1998 PCT Shopping Center Company PCT Biscayne Center, Inc. PCT Clayton, Inc. Maryland Property Capital Trust, Inc. 71 EX-27 3 ARTICLE 5 FDS FOR 10-K
5 1 U.S. DOLLARS YEAR Jan-01-1998 Dec-31-1998 1 3,233,000 0 0 0 0 52,000 0 0 3,285,000 759,000 0 0 0 108,568,000 (106,042,000) 3,285,000 6,513,000 6,726,000 211,000 1,191,000 108,000 0 10,000 5,417,000 0 5,417,000 0 0 0 5,417,000 0.57 0.57
EX-27.1 4 ARTICLE 5 FDS FOR 10-K
5 1 U.S. DOLLARS YEAR Jan-01-1997 Dec-31-1997 1 3,160,000 0 280,000 0 0 2,666,000 15,077,000 0 21,183,000 6,024,000 8,345,000 0 0 108,568,000 (101,754,000) 21,183,000 41,787,000 42,529,000 5,993,000 8,471,000 108,000 0 2,653,000 31,297,000 0 31,297,000 0 0 0 31,297,000 3.27 3.27
EX-27.2 5 ARTICLE 5 FDS FOR 10-K
5 1 U.S. DOLLARS YEAR AUG-01-1995 JUL-31-1996 1 2,997,000 0 1,744,000 0 0 966,000 119,844,000 (12,932,000) 112,619,000 5,654,000 36,889,000 0 0 107,672,000 (37,596,000) 112,619,000 27,022,000 27,893,000 9,577,000 16,569,000 137,000 0 4,800,000 6,387,000 0 6,387,000 0 (473,000) 0 5,914,000 .65 .64
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