As filed with the Securities and Exchange Commission on March 13, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) December 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 No.)
incorporation)
605 Third Avenue, 26th Floor
New York, NY 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)
-1-
ITEM 2. Acquisition or Disposition of Assets
Item 2 is hereby amended as follows:
On December 31, 1997, the Registrant acquired a $22 million preferred
equity interest (the "Preferred Equity Interest") from an affiliate of Credit
Suisse First Boston ("CSFB"). The Preferred Equity Interest represents a portion
of the preferred equity interest in the limited liability company that owns the
approximately 1.1 million square foot office and retail property known as the
MGM Plaza which is located at 2501 Colorado Avenue in Santa Monica, California
(the "Property").
The purchase was funded with a combination of existing cash (25%) and
financing (75%) through a repurchase obligation with an affiliate of CSFB
bearing interest at a specified rate above LIBOR. The REPO has a one year term
that may be extended every three months by mutual agreement.
The Preferred Equity Interest has a mandatory redemption date which is
34 months following the closing of the Preferred Equity Interest acquisition
transaction ("Acquisition Closing") and pays dividends at a specified rate over
LIBOR until redemption. Early redemption of the Preferred Equity Interest is not
permitted during the first four months following the Acquisition Closing. The
Preferred Equity Interest is subject to early redemption penalties for the
period from the fifth through the 22nd month following the Acquisition Closing
and is not subject to any penalties during the last year preceding the mandatory
redemption date.
In assessing the Property underlying the Preferred Equity Interest, 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 approximately 99% as compared to the overall
sub-market occupancy rate of approximately 97%; the Property's average annual
base rental rate of approximately $23 per occupied square foot as compared to
competitive office rental rates in the sub-market of approximately $20-$25 per
square foot; and the principal businesses, occupations, and professions of the
tenants operating at the Property, including tenants such as Metro Goldwyn
Mayer, an office tenant, which occupies approximately 27% of the Property (with
a lease expiration date no earlier than 2003, a base rental rate which compares
favorably to the marketplace, and three five-year renewal options), Aurora
National Life, an office tenant, which occupies approximately 13% of the
Property (with a lease expiration date which is no earlier than 2004, a base
rental rate which compares favorably to the marketplace, and two five-year
extension options), and Symantec, an office tenant, which occupies approximately
10% of the Property (with a lease expiration date no earlier than 2000, a base
rental rate which compares favorably to the marketplace, and one five-year
extension option).
During the next four years, 40 leases representing approximately
379,000 square feet or approximately 35% of the Property will mature. These
leases represent approximately $9 million of gross revenue or 39% of the gross
annual rent of the Property.
With respect to factors relating to expenses, the Registrant
considered: the utility rates at the Property for electricity, steam, and water
and sewer which are comparable to utility rates for similar properties; the
taxes at the Property which were comparable to tax rates for similar properties;
maintenance and operating expenses which were in line for similar properties
which are operated and maintained in a professional manner; and the expenditures
for tenant improvement installations at the Property.
After reasonable inquiry, the Registrant is not aware of any material
factors relating to the Property underlying the Preferred Equity Interest that
would cause the reported financial information herein not to be indicative of
future operating results.
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ITEM 7. Financial Statements, Supplemental Financial Information and Exhibits.
(a) Financial Statements of the Property
Audited and unaudited financial statements of the Property
underlying the Preferred Equity Interest reported in Item 2
herein and in the Registrant's Current Report on Form 8-K, as
filed with the Securities and Exchange Commission on January
7, 1998, are included herein in accordance with the
instructions to Form 8-K as indicated in the following index
to the financial statements.
Index to Financial Statements
Page
Report of Independent Auditors................................................................... F1
Statement of Revenue and Certain Expenses for the year ended December 31, 1996
and the nine months ended September 30, 1997 (unaudited).................................... F2
Notes to Statement of Revenues and Certain Expenses............................................... F3
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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: March 13, 1998 By: /s/ Edward L. Shugrue III
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Name: Edward L. Shugrue III
Title: Chief Financial Officer
-4-
Report of Independent Auditors
Capital Trust
We have audited the accompanying statement of revenue and certain expenses of
MGM Plaza (the Property) for the year ended December 31, 1996. This statement of
revenue and certain expenses is the responsibility of the management of MGM
Plaza. Our responsibility is to express an opinion on the statement of revenue
and certain expenses 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 statement of revenue and certain expenses 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. I believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement of revenue and certain operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission. Certain expenses (described in Note 1) that
would not be comparable to those resulting from the proposed future operations
of the Property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the Property.
In our opinion, the statement of revenue and certain expenses of MGM Plaza
presents fairly, in all material respects, the revenue and certain operating
expenses of MGM Plaza for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
February 6, 1998
F-1
MGM Plaza
Statement of Revenue and Certain Expenses
(In Thousands)
For the nine
Year ended months ended
December 31, September 30,
1996 1997
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(unaudited)
Revenues:
Rental $ 23,963 $ 18,480
Tenant reimbursements 9,136 6,857
Parking, net of expenses 3,771 2,929
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Total revenue 36,870 28,266
Certain expenses:
Property operating and maintenance 8,860 7,058
Real estate taxes 1,908 1,855
Insurance 1,273 915
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Total certain expenses 12,041 9,828
Excess of revenue over certain expenses $ 24,829 $ 18,438
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See accompanying notes.
F-2
MGM Plaza
Notes to the Statement of Revenue and Certain Expenses
December 31, 1996
1. Organization and Basis of Presentation
The accompanying statement of revenues and certain expenses include the accounts
of a commercial office complex in Santa Monica, California known as the MGM
Plaza (the Property), which is owned by a private general partnership (the
Partnership).
The accompanying statement has been prepared to comply with rules and
regulations of the Securities and Exchange Commission.
The accompanying statement is not representative of the actual operations for
the period presented, as certain expenses that may not be comparable to the
expenses expected to be incurred by the Partnership in the future operations of
the Property have been excluded. Excluded expenses consist of interest,
deprecation and amortization, leasing costs, and property general and
administrative costs not directly comparable to the future operation of the
Property.
The period presented for the nine months ended September 30, 1997 is unaudited.
In the opinion of management, the information presented reflects all adjustments
necessary for a fair presentation of the results of the interim period and all
such adjustments are of a normal, recurring nature.
2. Summary of Significant Accounting Policies
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
Use of Estimates
The preparation of the statement of revenues and certain expenses in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
certain expenses during the reporting periods. Actual results could differ from
those estimates.
F-3
MGM Plaza
Notes to the Statement of Revenue and Certain Expenses (continued)
3. Property Rentals
Future minimum rental revenues under noncancelable operating leases as of
December 31, 1996 are as follows:
1997 $ 26,915,000
1998 21,910,000
1999 26,966,000
2000 23,208,000
2001 17,507,000
Thereafter 26,952,000
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$ 143,458,000
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These amounts do not include percentage rentals that may be received under
certain leases on the basis of tenant sales in excess of stipulated minimums.
F-4