As filed with the Securities and Exchange Commission on November 14, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) October 31, 1997
CAPITAL TRUST
(Exact Name of Registrant as Specified in its Charter)
California 1-8063 94-6181186
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(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification
incorporation) No.)
605 Third Avenue, 26th Floor
New York, New York 10016
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(Address of Principal Executive Offices) (Zip Code)
(212) 655-0220
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(Registrant's Telephone Number, Including Area Code)
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(Former name or former address, if changed since last report)
ITEM 2. Acquisition or Disposition of Assets
On October 31, 1997, the Registrant originated and funded a $10 million
second mortgage loan (the "Mortgage Loan") to the purchaser of a 64%
tenancy-in-common interest (the "TIC Interest") in an office building
located at 555 West 57th Street, New York, New York (the "Property"). The
Mortgage Loan proceeds were used to finance the acquisition of the TIC Interest
by 555 West 57th, LLC, a Delaware limited liability company (the "Borrower").
The Mortgage Loan is secured by a mortgage on the TIC Interest. The
Mortgage Loan is further secured by a pledge by the members of the Borrower of
100% of the membership interests in the Borrower. The mortgage is subordinate to
a first mortgage on the Property of approximately $45 million. The Mortgage Loan
has a term of five years and bears interest at a fixed rate. The Mortgage Loan
is non-amortizing and may be prepaid with yield maintenance at any time. The
Borrower was required to establish an interest reserve at closing.
The Property, which was built by the Ford Motor Company in 1971, is a
930,625 net rentable square foot, 20-story multi-tenant office/garage/showroom
tower located on 11th Avenue and 57th Street in New York City. The Property is
currently 90% occupied.
In assessing whether to extend the Mortgage Loan to the Borrower, the
Registrant considered, among other things, the quality of the Property, the
condition of the Property, the current tenants in the Property and the current
market conditions. In assessing the Property, the Registrant considered several
material factors, including, but not limited to those described below.
With respect to sources of revenue, the Registrant considered: the
Property's occupancy rate of 90% as compared to the overall sub-market occupancy
rate of approximately 90%; the Property's average annual rental rate of
approximately $16 per occupied square foot (due primarily to the fact that these
leases were signed without significant tenant improvements) and the Property's
asking rental rates of approximately $25 to $27 per occupied square foot as
compared to competitive office asking rental rates in the sub-market ranging
from $24 to $29 per square foot; the principal businesses, occupations, and
professions which operate at the Property, including long-term credit worthy
tenants such as BMW, CBS, the City University of New York and St. Luke's
Hospital.
Between 1997 and year-end 2000, ten leases representing approximately
156,000 square feet or 16.8% of the Property will mature. These leases represent
approximately $2.4 million of gross revenue or 15.5% of the gross annual rent of
the Property.
Three tenants each occupy in excess of 10.0% of the Property
representing collectively approximately 42% of the Property. These include
BMW, CBS and the City University of New York. The BMW lease expires in August of
2012 with two ten-year renewal options. The CBS lease expires in December of
1998 with one option to renew for five years. The City University of New York
lease expires in May of 2010 with no renewal options. Taking into consideration
concession packages, these leases are at market rates for leases of equivalent
length and credit quality.
With respect to factors relating to expenses, the Registrant
considered: the utility rates at the Property for electricity, chilled water and
water and sewer which were considered at market levels; the real estate taxes at
the Property which were considered at market levels, the maintenance and
operating expenses which were in line for similar properties which are operated
and maintained in a professional manner; and the projected capital expenditures
at the Property with respect to the conversion of the fifth and sixth floors
from garage to office use, tenant-related costs and base building expenditures,
including elevator and fire alarm upgrades.
After reasonable inquiry, the Registrant is not aware of any material
factors relating to the Property underlying the Mortgage Loan that would cause
the reported financial information herein not to be indicative of future
operating results.
ITEM 7. Financial Statements, Supplemental Financial Information and Exhibits
Audited and unaudited financial statements of 555 West 57th
Associates, the predecessor owner of the Property reported in Item 2,
are included herein as indicated in the following index to the
financial statements.
Index to Financial Statements
Report of Independent Public Accountants................................... F-1
Statement of Revenues and Certain Operating Expenses
of 555 West 57th Associates for the Year Ended
December 31, 1996 and the Nine Months Ended
September 30, 1997 (Unaudited)....................................... F-2
Notes to Statement of Revenues and Certain Operating Expenses
of 555 West 57th Associates.......................................... F-3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAPITAL TRUST
(Registrant)
Date: November 13, 1997 By: /s/ John R. Klopp
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Name: John R. Klopp
Title: Chief Executive Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of 555 West 57th Associates:
We have audited the accompanying statement of revenues and certain operating
expenses, as described in Note A, of 555 West 57th Associates for the year ended
December 31, 1996. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with Rule 3-14 of Regulation S-X of the Securities and
Exchange Commission for inclusion in the Form 8-K of Capital Trust and is not
intended to be a complete presentation of the Partnership's revenues and
expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain operating expenses of 555 West
57th Associates, as described in Note A, for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
Tackman, Pilla, Arnone and Company, P.C.
Stamford, Connecticut
February 4, 1997
F-1
555 West 57th Associates
(A General Partnership)
Statement of Revenues and Certain Operating Expenses
For the Year Ended December 31, 1996 and
the Nine Months Ended September 30, 1997 (Unaudited)
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Nine Months Ended
Year Ended September 30, 1997
December 31, 1996 (Unaudited)
Revenues
Base rent $14,399,863 $10,241,041
Expense recoveries 2,480,074 2,325,455
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Total Revenues 16,879,937 12,566,496
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Certain Operating Expenses
Real estate taxes 3,153,939 2,304,106
Operating expenses 6,103,168 4,752,697
Management fees 456,160 358,104
General and administrative expenses 234,420 239,342
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Total Certain Operating Expenses 9,947,687 7,654,249
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Revenues in excess of certain operating expenses $ 6,932,250 $ 4,912,247
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See accompanying notes to the financial statement.
F-2
555 West 57th Associates
(A General Partnership)
Statement of Revenues and Certain Operating Expenses
For the Year Ended December 31, 1996 and
the Nine Months Ended September 30, 1997 (Unaudited)
Note A- Summary of Significant Accounting Policies
1. Organization
555 W. 57th Associates, a New York general partnership (The
Partnership), holds title to a building located at 555 W. 57th
Street in New York City which contains a showroom, automobile
sales and maintenance floors, office space, and parking facilities
(the Property).
A breakdown of the occupied space as of December 31, 1996 and
September 30, 1997 is as follows:
September 30, 1997
December 31, 1996 (Unaudited)
Percent Square Percent Square
Footage Footage
Office 64% 64%
Showroom, Automobile Sales and
Maintenance floors 31 17
Parking 5 9
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100% 90%
=== ==
In the nine months ended September 30, 1997 the fifth and sixth
floors of the building are being renovated as office space.
Management projects the cost of renovation to bring these floors
to rentable office space to be approximately $4,000,000.
Management considers the unoccupied floors a material factor
affecting future rent revenues.
2. Basis of Presentation
The statement of revenues and certain operating expenses for the
year ended December 31, 1996 and the nine months ended September
30, 1997 (unaudited) relates to the operation of the Partnership's
Property. The accompanying financial statement excludes interest
income from treasury bills for the year ended December 31, 1996
and for the nine months ended September 30, 1997. In addition,
interest income on a note received as part of a termination
agreement has been excluded as has the related termination fee
income of $3,500,000. Certain operating expenses exclude interest
expense, depreciation and amortization of leasing commissions and
certain other costs for the year ended December 31, 1996 and the
nine months ended September 30, 1997. It also excludes a lease
penalty paid to a current tenant during the nine months ended
September 30, 1997. Such revenue and expenses are being excluded
from the financial statement in accordance with Rule 3-14 of
Regulation S-X which requires exclusion of certain revenues and
expenses and other costs not comparable to proposed future
operations of the Partnership's Property.
3. Recognition of Rental Revenue
The Partnership records revenues from base rent billed to tenants
under long-term leases. Base rent includes amortization of the
present value of lease inducements and level rent calculations for
new leases.
F-3
555 West 57th Associates
(A General Partnership)
Statement of Revenues and Certain Operating Expenses
For the Year Ended December 31, 1996 and
the Nine Months Ended September 30, 1997 (Unaudited)
Note A- Summary of Significant Accounting Policies-(Continued)
4. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Accordingly, actual
results could differ from those estimates.
5. Concentration of Credit Risks
The building and tenants in the building are located in New York
City where the real estate market is recovering from depressed
conditions.
Note B - Related Party Transactions
Certain payments to the managing agent, a related party, have been
reflected in the financial statement. The managing agent received
management fees totaling $456,160 for the year ended December 31, 1996
and $358,104 for nine months ended September 30, 1997 based on 3% of
rent collected.
Note C - Leases
Revenues from base rent are recorded from long-term tenant leases in
the office building located at 555 W. 57th Street, New York City. At
December 31, 1996, the minimum base rent receivable under noncancelable
leases is as follows:
Year
1997 $12,744,354
1998 12,281,453
1999 13,182,578
2000 13,121,819
2001 13,018,508
Thereafter to 2011 75,127,511
One tenant comprises 31% of the base rent revenues for the year ended
December 31, 1996 and two tenants comprise 27% for the nine months
ended September 30, 1997, exclusive of rent income of 25% from its
former primary tenant.
F-4
555 West 57th Associates
(A General Partnership)
Statement of Revenues and Certain Operating Expenses
For the Year Ended December 31, 1996 and
the Nine Months Ended September 30, 1997 (Unaudited)
Note D - Commitments and Contingencies
During the nine months ended September 30, 1997, the Partnership found
that it may be subject to certain environmental liabilities arising out
of the operation of the Property. The Partnership will accrue such
costs when it is probable that a liability has been incurred and that
the amount can be reasonably estimated.
Note E - Subsequent Event
Subsequent to September 30, 1997, the Partnership entered into an
agreement to sell certain of the present partnership interests. If the
sale becomes final, the Property and other assets would be held as
tenants-in-common by the new owners and certain of the former owners.
Note F - Interim Unaudited Financial Information
The statement of revenues and certain operating expenses for the nine
months ended September 30, 1997 is unaudited, however, in the opinion
of management, all adjustments consisting of normal recurring
adjustments necessary for a fair presentation of this financial
statement for the interim period have been included. The results of
interim periods are not necessarily indicative of results to be
obtained for the full fiscal year.
F-5