SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 11, 1997
----------------------------
(August 28, 1997)
Wellsford Real Properties, Inc.
(Exact name of registrant as specified in its charter)
1-12917 13-3926898
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(Commission File Number) (IRS Employer Identification No.)
Maryland
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(State or other jurisdiction of incorporation)
610 Fifth Avenue, New York, New York 10020
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(Address of principal executive offices)
(Zip Code)
(212) 333-2300
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(Registrant's telephone number, including area code)
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
September 11, 1997 as set forth below:
Item 7. Financial Statements, Proforma Financial Information and Exhibits
(a) Financial Statements
300 Atrium Drive, 400 Atrium Drive, 500 Atrium Drive, 700 Atrium Drive,
1275 K Street, 15 Broad Street, 600 Atrium Drive Financial Statement:
Independent Auditors' Report of Ernst & Young LLP dated October 20,
1997.
Combined Statement of Revenues and Certain Expenses for the year
ended December 31, 1996 (audited) and six months ended June 30, 1997
(unaudited).
Value Property Trust Financial Statements:
Form 10-Q as of June 30, 1997
Form 10-K as of September 30, 1996
(b) Proforma Financial Information
Wellsford Real Properties, Inc. and Subsidiaries Proforma Financial
Statements:
Pro Forma Consolidated Balance Sheet as of June 30, 1997 (unaudited).
Pro Forma Consolidated Income Statement for the six months ended June
30, 1997 (unaudited).
Pro Forma Consolidated Income Statement for the year ended December
31, 1996 (unaudited).
(c) Exhibits
None
Combined Statement of Revenues and Certain Expenses
The Whitehall Properties
Year Ended December 31, 1996 (audited)
and Six Months Ended June 30, 1997 (unaudited)
Contents
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . 1
Combined Statement of Revenues and Certain Expenses . . . . . . . . . . . . . 2
Notes to Combined Statement of Revenues and Certain Expenses. . . . . . . . . 3
Report of Independent Auditors
Board of Directors and Stockholders
Wellsford Real Properties, Inc.
We have audited the combined statement of revenues and certain expenses of the
properties known as 1275 K Street, 300 Atrium Drive, 400 Atrium Drive, 500
Atrium Drive, 600 Atrium Drive, 700 Atrium Drive, and 15 Broad Street,
(collectively, the "Whitehall Properties"), acquired or to be acquired by
Wellsford/Whitehall Properties, L.L.C., as described in Note 1, for the year
ended December 31, 1996. This financial statement is the responsibility of
Wellsford/Whitehall Properties, L.L.C. 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 the 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 combined statement of revenues and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in Form 8-K of Wellsford Real
Properties, Inc. and is not intended to be a complete presentation of the
Whitehall Properties' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the combined revenues and certain expenses of the
Whitehall Properties as described in Note 1 for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
October 20, 1997
The Whitehall Properties
Combined Statement of Revenues and Certain Expenses
(in thousands)
(Note 1)
Six Months Year Ended
Ended June December
30, 1997 31, 1996
------------------------------
(unaudited)
Revenues:
Base rents $ 8,212 $ 11,716
Tenant escalations,
reimbursements, and parking income 823 1,695
------------------------------
Total revenues 9,035 13,411
------------------------------
Certain Expenses:
Property operating expenses 2,335 4,664
Real estate taxes 1,378 2,982
Management fees 226 498
------------------------------
Total certain expenses 3,939 8,144
------------------------------
Revenues in excess of certain expenses $ 5,096 $ 5,267
==============================
See accompanying notes.
The Whitehall Properties
Notes to Combined Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1996
1. Basis of Presentation
Presented herein is the combined statement of revenues and certain expenses
related to the operations of seven commercial real estate properties known as
1275 K Street, 300 Atrium Drive, 400 Atrium Drive, 500 Atrium Drive, 600 Atrium
Drive, 700 Atrium Drive and 15 Broad Street (collectively, the "Whitehall
Properties"). The Whitehall Properties are not a legal entity, but are a
combination of the operations of certain real estate properties which
properties or contracts to purchase such properties were or are expected to be
contributed to Wellsford/Whitehall Properties, L.L.C. ("Wellsford Office") by
WHWEL Real Estate Limited Partnership (the "Whitehall Partner"). The Whitehall
Partner has a 49.9% interest in Wellsford Office and is an affiliate of
Goldman, Sachs & Co. Wellsford Commercial Properties Trust ("WCPT"), a
subsidiary of Wellsford Real Properties, Inc. ("WRP"), has a 50.1% interest in
Wellsford Office. 1275 K Street, located in Washington, D.C., 300 Atrium
Drive, 400 Atrium Drive, 500 Atrium Drive, and the contract to purchase 700
Atrium Drive, all located in Somerset County, New Jersey, were contributed to
Wellsford Office on the date of its formation, August 28, 1997, by the
Whitehall Partner.
On September 25, 1997, Wellsford Office acquired 700 Atrium Drive. It is
currently anticipated that 600 Atrium Drive, a parcel of vacant land located in
Somerset County, New Jersey, and 15 Broad Street, an office building located in
Boston, Massachusetts, will be contributed to Wellsford Office by the Whitehall
Partner by December 15, 1997.
The accompanying financial statement has been prepared in accordance with the
applicable rules and regulations of the Securities and Exchange Commission for
the acquisition of real estate properties. Accordingly, the financial statement
excludes certain expenses that may not be comparable to those expected to be
incurred by Wellsford Office in the proposed future operations of the Whitehall
Properties. Expenses excluded consist of interest, depreciation and general
and administrative expenses not directly related to the future operations.
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.
The combined statement of revenues and certain expenses for the six months
ended June 30, 1997 is unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the combined statement of revenues and certain expenses
for this interim period have been included. The results of interim periods are
not necessarily indicative of the results to be obtained for a full fiscal
year.
2. Lease and Revenue Recognition
The Whitehall Properties are being leased to tenants under operating leases.
Minimum rental income is generally recognized on a straight-line basis over the
term of the lease. The excess of amounts due pursuant to the underlying leases
over amounts recognized on a straight-line basis amounted to approximately
$217,000, for the year ended December 31, 1996. The lease agreements for
certain of the Whitehall Properties generally contain provisions which provide
for reimbursement of real estate taxes and operating expenses over base year
amounts, as well as fixed increases in rent.
The Whitehall Properties are principally multi-tenant office buildings with
leases expiring at various dates over the next eleven years.
3. Management and Leasing Agreements
The Whitehall Properties are managed and leased by various management
companies. These management companies provide property management services to
the Whitehall Properties at the rate of 2% to 5% of gross cash receipts.
4. Property Operating Expenses
Property operating expenses for the year ended December 31, 1996 include
approximately $227,000 for insurance, $2,198,000 for utilities, $213,000 in
general and administrative expenses, $1,676,000 in repair and maintenance
costs, and $350,000 for payroll costs.
5. Significant Tenants
Six tenants, Merck and Co., Inc., Society of Plastics Engineers, Merrill Lynch
& Co., Metzger, Hollis & Gordon, Sun Microsystems, and The Mobil Corporation
accounted for approximately 23%, 14%, 8%, 5%, 4%, and 3% of the combined 1996
base rents on a straight line basis, respectively.
The Society of Plastics Engineers lease expired on December 31, 1996. Metzger,
Hollis & Gordon vacated its space in August 1997.
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Value Property Trust Financial Statements:
Form 10-Q as of June 30, 1997
Form 10-K as of September 30, 1996
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 Number 1-6613
VALUE PROPERTY TRUST
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 23-1862664
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(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
120 Albany Street, 8th Floor
New Brunswick, New Jersey 08901-2163
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 296-3080
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 whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
Number of Common Shares Outstanding at August 5, 1997: 11,226,310
VALUE PROPERTY TRUST AND SUBSIDIARIES
INDEX
Part I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements..........................
Consolidated Balance Sheets at June 30, 1997 (Unaudited)
and September 30, 1996...............................
Consolidated Statements of Operations for the Three and Nine
Months Ended June 30, 1997 and 1996 (Unaudited)......
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1997 and 1996 (Unaudited).............
Consolidated Statement of Shareholders' Equity for the Nine
Months Ended June 30, 1997 (Unaudited)...............
Notes to the Consolidated Financial Statements.............
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...........................
Part II: OTHER INFORMATION
Item 5. Other Information..........................................
Item 6. Exhibits and Reports on Form 8-K...........................
Signatures.................................................
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, September 30,
1997 1996
-------- --------
(Unaudited)
ASSETS
Assets Held for Sale:
Investment in partnerships .............................. $ 11,366 $ 10,219
Real estate owned ....................................... 23,249 38,171
-------- --------
Total Assets Held for Sale ........................ 34,615 48,390
-------- --------
Assets Held for Investment:
Mortgage loans .......................................... 583 663
Investment in partnerships .............................. -- 13,486
Real estate owned ....................................... 37,935 63,196
-------- --------
Total Assets Held for Investment .................. 38,518 77,345
-------- --------
Total Invested Assets ............................. 73,133 125,735
Cash and cash equivalents .................................. 65,932 29,501
Restricted cash ............................................ 34,734 12,213
Interest receivable and other assets ....................... 3,683 4,962
-------- --------
Total Assets ...................................... $177,482 $172,411
======== ========
LIABILITIES
Senior secured notes (due 1999) ............................ $ 42,882 $ 63,226
Accounts payable and accrued expenses ...................... 1,396 1,804
Interest payable ........................................... 244 334
-------- --------
Total Liabilities ................................. 44,522 65,364
-------- --------
CONSOLIDATED BALANCE SHEETS
(In Thousands) (continued)
June 30, September 30,
1997 1996
-------- --------
(Unaudited)
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value: 3,500,000 shares authorized,
none issued ............................................. -- --
Common shares, $1 par value: 20,000,000 shares authorized,
11,226,310 and 11,226,310 shares issued and outstanding . 11,226 11,226
Additional paid-in capital ................................. 88,848 88,848
Accumulated earnings ....................................... 32,886 6,973
-------- --------
Total Shareholders' Equity ........................ 132,960 107,047
-------- --------
Total Liabilities and Shareholders' Equity ........ $177,482 $172,411
======== ========
See accompanying notes to the consolidated financial statements.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
Revenue:
Rental properties:
Rental income ....................... $ 5,052 $ 6,909 $16,701 $20,454
Operating expense reimbursements .... 843 985 2,518 2,681
Interest and fee income on mortgage loans 19 19 61 2,833
Interest on short-term investments ...... 829 543 1,943 1,310
Other ................................... 0 6 8 17
------- ------- ------- -------
Total Revenue ....................... 6,743 8,462 21,231 27,295
------- ------- ------- -------
Expenses:
Interest ................................ 1,389 2,064 4,162 9,049
Rental properties:
Operating ........................... 2,171 2,978 7,102 9,104
Depreciation and amortization ....... 377 585 1,321 1,780
Other operating expenses ................ 802 819 2,317 2,459
------- ------- ------- -------
Total Expenses ...................... 4,739 6,446 14,902 22,392
------- ------- ------- -------
Income before gain on sale of real estate .. 2,004 2,016 6,329 4,903
Gain on sale of real estate ................ 11,712 -- 19,584 --
------- ------- ------- -------
Net income ................................. $13,716 $ 2,016 $25,913 $ 4,903
======= ======= ======= =======
Per share:
Income before gain on sale of real estate .. $ .18 $ .18 $ .56 $ .44
Gain on sale of real estate ................ 1.04 -- 1.75 --
------- ------- ------- -------
Net income ................................. $ 1.22 $ .18 $ 2.31 $ .44
======= ======= ======= =======
Weighted average number of common
shares outstanding ...................... 11,226 11,226 11,226 11,226
======= ======= ======= =======
See accompanying notes to the consolidated financial statements.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Nine Months Ended
June 30,
1997 1996
--------- ---------
Cash flows from operating activities:
Net income .................................................. $ 25,913 $ 4,903
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization on real estate ....... 1,321 1,780
Decrease in payables and accrued expenses .......... (408) (2,897)
(Decrease) increase in interest payable ............ (90) 357
Decrease in receivables and other assets ........... 1,647 3,061
Gain on sale of real estate ........................ (19,584) --
--------- ---------
Total adjustments ........................................... (17,114) 2,301
--------- ---------
Net cash provided by operating activities ........................ 8,799 7,204
--------- ---------
Cash flows from investing activities: Investment in real estate:
Real estate ............................................. (2,706) (3,403)
Partnerships ............................................ (629) (145)
Advances on mortgage loans .............................. -- (73)
Principal repayments on mortgage loans ...................... 80 2,357
Proceeds from the sale of real estate ....................... 73,752 14,677
Proceeds from the sale of mortgage loans and notes receivable -- 53,991
Principal repayments on notes receivable .................... -- 366
--------- ---------
Net cash provided by investing activities ........................ 70,497 67,770
--------- ---------
Cash flows from financing activities:
Payment of mortgage payable ................................. -- (17,535)
Prepayment of senior secured notes (due 2002) ............... -- (109,975)
Borrowing of senior secured notes (due 1999) ................ -- 67,379
Prepayment of senior secured notes (due 1999) ............... (20,344) --
Increase in restricted cash ................................. (22,521) (3,243)
--------- ---------
Net cash used in financing activities ............................ (42,865) (63,374)
--------- ---------
Net increase in cash and cash equivalents ........................ 36,431 11,600
Cash and cash equivalents at beginning of period ................. 29,501 9,977
--------- ---------
Cash and cash equivalents at end of period ....................... $ 65,932 $ 21,577
========= =========
Supplemental schedule of non-cash investment and
financing activities:
Transfer of mortgage loans to real estate owned ............. $ -- $ 5,120
========= =========
Interest paid ............................................... $ 2,747 $ 7,787
========= =========
See accompanying notes to the consolidated financial statements.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(Amounts In Thousands)
For the Nine Months Ended June 30, 1997
Additional Total
Common Shares Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
Balance at September 30, 1996 ...... 11,226 $ 11,226 $ 88,848 $ 6,973 $107,047
Net income ......................... -- -- -- 25,913 25,913
-------- -------- -------- -------- --------
Balance at June 30, 1997 ........... 11,226 $ 11,226 $ 88,848 $ 32,886 $132,960
======== ======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION
In connection with its emergence from the Chapter 11 proceeding (the
"1995 Restructuring"), the Trust implemented Fresh Start Reporting as of
September 30, 1995, as set forth in Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code." Fresh Start
Reporting was required because (1) the reorganization value of the Trust's
assets immediately before the date of confirmation was less than the total of
all post-petition liabilities, (2) there was more than a 50% change in the
ownership of the Trust, and (3) there was a permanent and substantive loss of
control by existing shareholders. As a result, all assets and liabilities were
restated to reflect their respective reorganization value or fair value.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of only normal
recurring accruals, considered necessary for a fair presentation have been
included. Operating results for the nine-month and three-month periods ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the fiscal year ending September 30, 1997. These financial statements should
be read in conjunction with the Trust's September 30, 1996 audited financial
statements and notes thereto included in the Trust's Annual Report on Form 10-K.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant of these estimates relate to the carrying
value of the Assets Held for Sale and the estimated useful lives of Assets Held
for Investment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accounts of the Trust and its wholly owned subsidiaries are
consolidated in the accompanying financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
INCOME TAXES
The Trust is a real estate investment trust ("REIT") that has elected
to be taxed under Sections 856-860 of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Trust does not pay Federal income tax on
income as long as income distributed to shareholders is at least equal to 95% of
real estate investment trust taxable income, and pays no Federal income tax on
capital gains distributed to shareholders.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
In July 1997, the Trust contacted the Internal Revenue Service (the
"IRS") regarding interpretative advice concerning a technical provision of the
REIT requirements of the Internal Revenue Code and, based upon such interpretive
advice, potential violations of such provision during fiscal 1994 and 1995. The
Trust does not believe that any such potential violations would have a material
adverse effect on the Trust. However, the Trust has sought the IRS'
interpretation of the technical provision of the REIT requirements and its
concurrence that, if any technical violations were deemed to have occurred, such
violations would not affect the Trust's REIT status. The Trust believes that if
its status as a REIT was terminated, potential corporate taxes for prior periods
would not be material due to the net operating losses available in prior
periods. Moreover, there should be no material adverse tax consequences to
shareholders during such prior periods since no distributions were made to
shareholders during such periods. The effect of a termination of REIT status in
current and future periods would be based upon a number of factors; because the
Trust is unable to predict the occurrence or magnitude of such factors; it is
unable to predict the effect of a termination of REIT status on the Trust or its
shareholders for such periods.
For the fiscal years ended September 30, 1996, 1995 and 1994, there
were significant differences between taxable net loss and net income (loss) as
reported in the financial statements. The differences were related to the
recognition of bad debt deductions and accounting for reorganization costs and
Fresh Start Reporting. For financial accounting purposes, these items are
expensed currently, while for tax purposes some portion of these items are
deferred to future periods or may not be deductible. In addition, the Fresh
Start Reporting discussed in Note 1 is not recognized for tax purposes, and will
result in future years financial reporting and tax basis differences.
The Trust has approximately $115 million in net operating losses (the
"NOLs") for tax purposes attributable to losses generated in fiscal years 1992
through 1996. The NOLs attributable to each year can be carried forward up to
fifteen years from the year the loss was generated. The use of NOLs in any
taxable year (together with any recognized losses that are economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation under Section 382 of the Code. The Trust estimates that this annual
limitation is approximately $6 million.
INTEREST INCOME
Interest income on each loan is recorded as earned. Interest income is
not recognized if, in the opinion of the management, collection is doubtful. The
Trust generally considers loans as delinquent if payment of interest and/or
principal, as required by the terms of the note, is more than 60 days past due.
Accrual of interest income is generally terminated and foreclosure proceedings
are started if payment is more than 60 days past due.
ALLOWANCE FOR LOSSES
Impairment on mortgage loans is accounted for in accordance with
Financial Accounting Standards Board Statement No. 114 - Accounting by Creditors
for Impairment of a Loan.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NET INCOME PER SHARE
Net income per share is computed using the weighted average common
shares outstanding during the period.
DEPRECIATION AND AMORTIZATION
At September 30, 1995, as a result of Fresh Start Reporting, all assets
and liabilities of the Trust were restated to reflect their respective
reorganization value or fair value. The accumulated depreciation on real estate
owned was reset to zero as a result of the adoption of Fresh Start Reporting. At
September 30, 1995, the Trust segregated the real estate portfolio into two
categories: Held for Sale and Held for Investment. The Trust depreciates the
Held for Investment category over the estimated useful lives of the assets; 40
years for buildings, three to five years for other property and over the term of
the related lease for lease commissions and tenant improvements. The Held for
Sale category is not depreciated. During fiscal 1996, the Trust reclassified
seven real estate properties totaling $18.7 million to Assets Held for Sale from
Assets Held for Investment and no longer depreciates these assets. During the
second quarter of fiscal 1997, the Trust reclassified five real estate
properties totaling $35.7 million to Assets Held for Sale from Assets Held for
Investment and no longer depreciates these assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents and restricted cash include short-term
investments (high grade commercial paper, bank CDS and US Treasury and Agency
Securities) with original maturities not exceeding a term greater than 90 days.
INVESTMENT IN PARTNERSHIPS
Investment in partnerships represents the Trust's investment in real
estate partnerships. The Trust owns a majority percentage interest in most of
these partnerships and receives substantially all of the cash flow. The Trust
accounts for all of these partnerships, except one, in a similar manner as real
estate investments; the one partnership was accounted for using the equity
method.
REAL ESTATE OWNED
As of September 30, 1995, the Trust's invested assets were adjusted to
reorganization value which became the new historical cost basis. Subsequently,
Assets Held for Investment are carried at historical cost less depreciation.
Assets Held for Sale are carried at lower of cost or net realizable value. In
conjunction with the adoption of Fresh Start Reporting on September 30, 1995,
all gains or losses for a period of one year after such adoption were applied
against the carrying value of long lived assets Held for Investment. Through
September 30, 1996, the Trust reduced the carrying values of Assets Held for
Investment by $12.6 million as a result of the net gains on both the disposition
of substantially all of its mortgage loan portfolio in March 1996 and the sale
of nine real estate properties classified as Assets Held for Sale. For the nine
months ended of June 30, 1997, a gain of $19.6 million is recorded in net income
as a result of real estate property sales. At June 30, 1997, the Trust owned 23
real estate properties of which eight are classified as Assets Held for Sale.
The fiscal 1996 revenue and net operating income from these eight real estate
properties were $7.8 million and $4.4 million, respectively.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
DEFERRED COSTS
Included in other assets are costs incurred in obtaining debt financing
which are deferred and amortized over the term of the related debt agreement.
Amortization expense is included in interest expense in the accompanying
statement of operations. Net deferred financing costs included in other assets
in the accompanying balance sheet amounted to $0.7 million at June 30, 1997.
REVENUE RECOGNITION
The Trust recognizes base rental revenue for financial statement
purposes ratably as earned over the term of the lease.
INTEREST RATE SWAP AGREEMENT
The Trust is a party to an interest rate protection agreement (the
"Cap") used to hedge its interest rate exposure on floating rate debt (See Note
4 "Borrowings"). The differential to be paid or received is recognized in the
period incurred and included in interest expense.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" and SFAS No. 129, "Disclosure of Information about Capital
Structure." In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
SFAS 128, which simplifies existing computational guidelines,
supersedes Accounting Principles Board ("APB") Opinion 15, "Earnings Per Share,"
and specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted, and all prior period EPS figures that are
presented are required to be restated. The Trust is currently evaluating SFAS
128 and believes that the adoption of SFAS 128 will not have a significant
impact on the disclosures in the financial statements of the Trust.
SFAS 129, "Disclosure of Information about Capital Structure" lists
required disclosure about capital structure that had been included in a number
of separate statements and opinions of authoritative accounting literature. SFAS
129 is effective for financial statements issued for periods ending after
December 15, 1997. The Trust believes that the adoption of SFAS 129 will not
have a significant impact on the disclosures in the financial statements of the
Trust.
SFAS No. 130, "Reporting Comprehensive Income" establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. SFAS No. 131 is effective for
financial statements issued for periods beginning after December 15, 1997.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information anout operating
segments in interim financial reports issued to shareholders. SFAS No. 131 is
effective for financial statements issued for periods beginning after December
15, 1997.
NOTE 3. MORTGAGE LOANS AND INVESTMENTS IN REAL ESTATE
During the second quarter of fiscal 1996, the Trust completed the
disposition of substantially all of its mortgage loan portfolio. The Trust
received $55.5 million in net cash proceeds through a series of transactions
which included loan repayments and a bulk sale of mortgage loans. The carrying
value of the mortgage loans involved in these transactions totaled $50.5
million. The Trust's remaining mortgage loan holdings are currently less than
$0.6 million.
The following table summarizes the Trust's investments in real estate
owned at June 30, 1997.
Type of
Real Estate Number Carrying Accumulated Book
Property of Properties Amount Depreciation Value
-------- ------------- ------ ------------ -----
(dollars in thousands)
Real Estate Held for Sale:
Real Estate Owned ........ 6 $23,384 $ (135) $23,249
Investment in Partnerships 2 11,562 (196) 11,366
------- ------- ------- -------
Total .................... 8 $34,946 $ (331) $34,615
======= ======= ======= =======
Real Estate Held for Investment:
Real Estate Owned ........ 15 $40,015 $(2,080) $37,935
------- ------- ------- -------
Total .................... 15 $40,015 $(2,080) $37,935
======= ======= ======= =======
NOTE 4. BORROWINGS
SENIOR SECURED NOTES
The Holders of the Prior Notes had a first priority lien on all of the
Trust's collateral. The Prior Notes were governed by the Prior Indenture between
the Trust and Wilmington Trust Co., as Trustee, dated as of the effective date
of the Trust's reorganization (September 29, 1995). Interest on the Prior Notes
accrued at 11-1/8% per annum and was payable semi-annually in arrears on each
June 30 and December 31. The Prior Indenture included affirmative covenants,
negative covenants and financial covenants.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
On March 28, 1996, the Trust entered into a financing agreement which
provided for the issuance of $67.4 million of new Floating Rate Notes (the
"Floating Rate Notes"), which issuance occurred on April 30, 1996. The Floating
Rate Notes bear interest at 30 day LIBOR + 1.375%, payable monthly, and have a
stated maturity date of May 1, 1999.
The indenture relative to the Floating Rate Notes (the "New Indenture")
generally requires that, on a monthly basis, the Trust deposit into a Trapped
Funds Account, as defined in the New Indenture, maintained by the indenture
trustee (the "New Indenture Trustee") for the Floating Rate Notes all Cash Flow
and Asset Sale Proceeds (each as defined in the New Indenture). Cash Flow from
the Trapped Funds Account will be distributed to pay the New Indenture Trustee's
expenses, pay all accrued but unpaid interest on the Floating Rate Notes and to
maintain a Debt Service Reserve Account before any funds are released to the
Trust. In the event of a sale of, or certain casualty, or indemnification events
with respect to any of the remaining sixteen real estate properties of the
original twenty-four real estate properties mortgaged under the terms of the
Floating Rate Notes (underlying collateralized value of $46.1 million at June
30, 1997), the proceeds therefrom will be used to retire up to 125% of a portion
of the allocated debt of such property before any funds are released to the
Trust. The New Indenture includes affirmative covenants and negative covenants.
At June 30, 1997, the Trust was in compliance with the New Indenture.
The proceeds received from the Floating Rate Notes, together with
approximately $56.5 million of cash on hand, were used to prepay the Trust's
Prior Notes and Mortgage Payable. The face amount outstanding of the Prior Notes
and the Mortgage Payable at the time of repayment was $110.0 million and $13.9
million, respectively. The Prior Notes and Mortgage Payable were repaid in full
on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate
protection agreement (the "Cap") that serves to cap the floating interest
component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of
$377,000 to the counterparty to the Cap.
During fiscal 1996, the Trust sold nine real estate properties, three
of which were encumbered under the terms of the New Indenture. The Trust used a
portion of the net proceeds from the sale of encumbered real estate properties
to prepay a portion of the Floating Rate Notes, as required under the terms of
the New Indenture. In July of fiscal 1996, the Trust used $4.2 million of the
net proceeds and in October and November of fiscal 1997 used $2.6 million and
$4.4 million, respectively, of the net proceeds of fiscal 1996 sales to prepay a
portion of the Floating Rate Notes.
During the nine months ended June 30, 1997, the Trust sold five real
estate properties and three of nine buildings owned by the Trust in an
industrial park, which were encumbered under the terms of the New Indenture. In
addition, the Trust sold three real estate properties which were not encumbered
under the terms of the New Indenture. During the nine months ended June 30,
1997, the Trust used $13.3 million of the net proceeds of the encumbered sales
to prepay a portion of the Floating Rate Notes. In July of fiscal 1997, the
Trust used $22.1 million of the net proceeds of two encumbered sales which
occurred in June of fiscal 1997 to prepay a portion of the Floating Rate Notes.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTE 5. SHARE OPTION PLAN
1995 SHARE OPTION PLAN
On October 2, 1995, the Board of Trustees adopted a 1995 Share Option
Plan (the "1995 Plan") for Trustees, officers, employees and other key persons
of the Trust. On February 15, 1996, the Trust's shareholders approved the
adoption of the 1995 Plan at the Trust's 1996 Annual Meeting of Shareholders.
The 1995 Plan provides for the grant of options to purchase up to
870,000 common shares at not less than 100% of the fair market value of the
common shares, subject to adjustment for share splits, share dividends and
similar events. To the extent that awards under the 1995 Plan do not vest or
otherwise revert to the Trust, the common shares represented by such awards may
be the subject of subsequent awards.
The 1995 Plan provides for the grant of incentive stock options
("Incentive Options") which qualify under Section 422 of the Code and
non-qualified stock options ("Non-Qualified Options"). Holders of options also
receive dividend equivalent rights. During fiscal 1996, 894,000 shares from the
1995 Plan were granted with a price range from $10.00 to $12.25 per share and
55,000 shares were canceled at a price of $10.00 per share. During the nine
months ended June 30, 1997, no shares from the 1995 Plan were granted or
canceled. The options expire four years from the date of grant.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following section includes a discussion and analysis of the results
of operations for the nine months and three months ended June 30, 1997 and 1996.
The Trust has, for the past several years, reported significant net losses. As a
result of the 1995 Restructuring, past results should not be indicative of
future operating performance. Future results of operations of the Trust will not
be comparable to the historical operating performance.
RESULTS OF OPERATIONS-NINE MONTHS ENDED JUNE 30, 1997 VERSUS NINE MONTHS
ENDED JUNE 30, 1996
Net income for the nine months ended June 30, 1997 was $25.9 million,
or $2.31 per share, compared to $4.9 million, or $0.44 per share, for the nine
months ended June 30, 1996. Income before gain on sale of real estate was $6.3
million, or $0.56 per share, for the nine months ended June 30, 1997 compared to
$4.9 million, or $0.44 per share, for the nine months ended June 30, 1996.
Rental income was $16.7 million for the nine months ended June 30, 1997
compared to $20.5 million for the nine months ended June 30, 1996. In addition
to rental income, the Trust received reimbursement of certain operating expenses
totaling $2.5 million and $2.7 million for the nine months ended June 30, 1997
and 1996, respectively. The decrease in rental income was the result of the real
estate property sales that occurred during fiscal 1996 and 1997. At June 30,
1997 the Trust owned 23 real estate properties compared to 34 at June 30, 1996
and 38 at September 30, 1995. During the third and fourth quarters of fiscal
1996, the Trust sold eight real estate properties and during the nine months
ended June 30, 1997, the Trust sold eight real estate properties and three of
nine buildings owned by the Trust in an industrial park. The eight real estate
properties sold during the last two quarters of fiscal 1996 contributed $2.8
million in revenue during the nine months ended June 30, 1996. Occupancy levels
decreased to 85.9% at June 30, 1997 compared to 87.5% at September 30, 1996,
88.7% at June 30, 1996 and increased compared to 81.1% at September 30, 1995.
Occupancy levels, adjusted for real estate property sales, increased to 85.9% at
June 30, 1997 compared to 85.1% at June 30, 1996.
Interest and fee income on mortgage loans was $61,000 for the nine
months ended June 30, 1997 compared to $2.8 million for the nine months ended
June 30, 1996. In March 1996, the Trust completed the disposition of
substantially all of its mortgage loan portfolio. The Trust received $55.5
million in net cash proceeds through a series of transactions which included
loan repayments and a bulk sale of mortgage loans. As a result, interest income
earned on the mortgage loan portfolio was substantially reduced. The Trust's
remaining mortgage loan portfolio is currently less than $0.6 million.
Interest on short-term investments was $1.9 million for the nine months
ended June 30, 1997 compared to $1.3 million for the nine months ended June 30,
1996. The increase was due to the increase in cash balances as a result of 11
real estate property sales since June 30, 1996 and the disposition of
substantially all of the mortgage loan portfolio in March 1996.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
Interest expense was $4.2 million for the nine months ended June 30,
1997 compared to $9.0 million for the nine months ended June 30, 1996. During
October of fiscal 1996, the Trust used $3.5 million to repay a portion of the
Mortgage Payable. On April 30, 1996, the Trust refinanced its outstanding Senior
Secured Notes at a substantially lower rate of interest with the issuance of new
Floating Rate Notes in the amount of $67.4 million. The proceeds received from
the Floating Rate Notes, together with approximately $56.5 million of cash on
hand, were used to prepay the Trust's Senior Secured Notes and Mortgage Payable.
The face amount outstanding of the Senior Secured Notes and the Mortgage Payable
at the time of repayment was $110.0 million and $13.9 million, respectively. The
Senior Secured Notes and Mortgage Payable were repaid in full on April 30, 1996.
Included in interest expense for fiscal 1997 and for two months of fiscal 1996
is the amortization of deferred costs incurred in obtaining the Floating Rate
Notes which are amortized over the term of the debt agreement. The Trust has
reduced the Floating Rate Notes by $24.5 million through June 30, 1997 as a
result of the prepayments required under the New Indenture from the sale of six
encumbered real estate properties and three of nine buildings owned by the Trust
in an industrial park. In July of fiscal 1997, the Trust used $22.1 million of
the net proceeds of two encumbered sales which occurred in June of fiscal 1997
to prepay a portion of the Floating Rate Notes.
Operating expenses on rental properties was $7.1 million for the nine
months ended June 30, 1997 compared to $9.1 million for the nine months ended
June 30, 1996. The decrease in operating expenses on rental properties is the
result of real estate property sales that occurred during fiscal 1996 and cost
containment measures. At June 30, 1997 the Trust owned 23 real estate properties
compared to 34 at June 30, 1996 and 38 at September 30, 1995. During the third
and fourth quarters of fiscal 1996, the Trust sold eight real estate properties
and during the nine months of fiscal 1997, the Trust sold eight real estate
properties and three of nine buildings owned by the Trust in an industrial park.
The eight real estate properties sold during the last two quarters of fiscal
1996 contributed $1.0 million in operating expenses during the nine months ended
June 30, 1996. Occupancy levels decreased to 85.9% at June 30, 1997 compared to
87.5% at September 30, 1996, 88.7% at June 30, 1996 and increased compared to
81.1% at September 30, 1995. Occupancy levels, adjusted for real estate property
sales, increased to 85.9% at June 30, 1997 compared to 85.1% at June 30, 1996.
Depreciation and amortization on rental properties was $1.3 million for
the nine months ended June 30, 1997 compared to $1.8 million for the nine months
ended June 30, 1996. At September 30, 1995, the Trust segregated the real estate
portfolio into two categories: Held for Sale and Held for Investment.
Additionally, all assets and liabilities of the Trust were restated to reflect
their respective reorganization value or fair value. The Trust depreciates the
Held for Investment category over the estimated useful lives of the assets. The
Held for Sale category is not depreciated. During fiscal 1996, the Trust
reclassified seven real estate properties with a carrying value of $18.7 million
to Assets Held for Sale from Assets Held for Investment. During the nine months
ended June 30, 1997, the Trust reclassified five real estate properties with a
carrying value of $35.7 million to Assets Held for Sale from Assets Held for
Investment and no longer depreciates these assets.
Other operating expenses decreased 5.8% for the nine months ended June
30, 1997 compared to the nine months ended June 30, 1996.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
RESULTS OF OPERATIONS-THREE MONTHS ENDED JUNE 30, 1997 VERSUS THREE
MONTHS ENDED JUNE 30, 1996
Net income for the three months ended June 30, 1997 was $13.7 million,
or $1.22 per share, compared to $2.0 million, or $0.18 per share, for the three
months ended June 30, 1996. Income before gain on sale of real estate was
unchanged at $2.0 million, or $0.18 per share, for the three months ended June
30, 1997 compared to the same period last fiscal year.
Rental income was $5.1 million for the three months ended June 30, 1997
compared to $6.9 million for the three months ended June 30, 1996. In addition
to rental income, the Trust received reimbursement of certain operating expenses
totaling $0.8 million and $1.0 million for the three months ended June 30, 1997
and 1996, respectively. The decrease in rental income is the result of real
estate property sales that occurred during fiscal 1996 and fiscal 1997. At June
30, 1997 the Trust owned 23 real estate properties compared to 34 at June 30,
1996 and 38 at September 30, 1995. During the last two quarters of fiscal 1996,
the Trust sold eight real estate properties and during the nine months of fiscal
1997, the Trust sold eight real estate properties and three of nine buildings
owned by the Trust in an industrial park. The eight real estate properties sold
during the last two quarters of fiscal 1996 contributed $0.9 million in revenue
during the three months ended June 30, 1996. Occupancy levels decreased to 85.9%
at June 30, 1997 compared to 87.5% at September 30, 1996, 88.7% at June 30, 1996
and 81.1% at September 30, 1995. Occupancy levels, adjusted for real estate
property sales, increased to 85.9% at June 30, 1997 compared to 85.1% at June
30, 1996.
Interest and fee income on mortgage loans was unchanged at $19,000 for
the three months ended June 30, 1997 compared to the same period last year. In
March 1996, the Trust completed the disposition of substantially all of the
mortgage loan portfolio. The Trust received $55.5 million in net cash proceeds
through a series of transactions which included loan repayments and a bulk sale
of mortgage loans. As a result, interest income earned on the mortgage loan
portfolio was substantially reduced. The Trust's remaining mortgage loan
portfolio is currently less than $0.6 million.
Interest on short-term investments was $0.8 million for the three
months ended June 30, 1997 compared to $0.5 million for the three months ended
June 30, 1996. The increase was due to the increase in cash balances as a result
of 11 real estate property sales since June 30, 1996 and the disposition of
substantially all of the mortgage loan portfolio in March 1996.
Interest expense was $1.4 million for the three months ended June 30,
1997 compared to $2.1 million for the three months ended June 30, 1996. On April
30, 1996, the Trust refinanced its outstanding Senior Secured Notes at a
substantially lower rate of interest with the issuance of new Floating Rate
Notes in the amount of $67.4 million. The proceeds received from the Floating
Rate Notes, together with approximately $56.5 million of cash on hand, were used
to prepay the Trust's Senior Secured Notes and Mortgage Payable. The face amount
outstanding of the Senior Secured Notes and the Mortgage Payable at the time of
repayment was $110.0 million and $13.9 million, respectively. The Senior Secured
Notes and Mortgage Payable were repaid in full on April 30, 1996. Included in
interest expense for fiscal 1997 and for two months of fiscal 1996 is the
amortization of deferred costs incurred in obtaining the Floating Rate Notes
which are amortized over the term of the debt agreement. The Trust has reduced
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
the Floating Rate Notes by $24.5 million through June 30, 1997 as a result of
the prepayments required under the New Indenture from the sale of six encumbered
real estate properties and three of nine buildings owned by the Trust in an
industrial park. In July of fiscal 1997, the Trust used $22.1 million of the net
proceeds of two encumbered sales which occurred in June of fiscal 1997 to prepay
a portion of the Floating Rate Notes.
Operating expenses on rental properties was $2.2 million for the three
months ended June 30, 1997 compared to $3.0 million for the three months ended
June 30, 1996. The decrease in operating expenses on rental properties is the
result of real estate property sales that occurred during fiscal 1996 and cost
containment measures. At June 30, 1997 the Trust owned 23 real estate properties
compared to 34 at June 30, 1996 and 38 at September 30, 1995. During the third
and fourth quarters of fiscal 1996, the Trust sold eight real estate properties
and during the nine months of fiscal 1997, the Trust sold eight real estate
properties and three of nine buildings owned by the Trust in an industrial park.
The eight real estate properties sold during the last two quarters of fiscal
1996 contributed $0.3 million in operating expenses during the third quarter
ended June 30, 1996. Occupancy levels decreased to 85.9% at June 30, 1997
compared to 87.5% at September 30, 1996, 88.7% at June 30, 1996 and increased
compared to 81.1% at September 30, 1995. Occupancy levels, adjusted for real
estate property sales, increased to 85.9% at June 30, 1997 compared to 85.1% at
June 30, 1996.
Depreciation and amortization on rental properties was $0.4 million for
the three months ended June 30, 1997 compared to $0.6 million for the three
months ended June 30, 1996. At September 30, 1995, the Trust segregated the real
estate portfolio into two categories: Held for Sale and Held for Investment.
Additionally, all assets and liabilities of the Trust were restated to reflect
their respective reorganization value or fair value. The Trust depreciates the
Held for Investment category over the estimated useful lives of the assets. The
Held for Sale category is not depreciated. During fiscal 1996, the Trust
reclassified seven real estate properties with a carrying value of $18.7 million
to Assets Held for Sale from Assets Held for Investment. During the second
quarter of fiscal 1997, the Trust reclassified five real estate properties with
a carrying value of $35.7 million to Assets Held for Sale from Assets Held for
Investment and no longer depreciates these assets.
Other operating expenses decreased 2.1% for the three months ended June
30, 1997 compared to the three months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the 1995 Restructuring, the Trust faced significant liquidity
problems. The Trust did not generate sufficient cash flow from normal operations
and was not able to liquidate mortgage loans and real estate investments in
order to meet scheduled amortization on its indebtedness. As a result of the
1995 Restructuring, management believes the cash flow from operating activities
will be sufficient to meet minimum debt service requirements. In the near term,
the Trust expects to fund capital expenditures from available funds from
operations and cash on hand, however, no assurance can be given that this
expectation will be achieved. The Trust's present liquidity, cash flow from
operating activities and ability to liquidate existing assets to meet its
obligations can be adversely impacted by a negative change in the national
economy, particularly as those changes may relate to real estate markets in
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
which the Trust operates. Certain factors that might cause such a difference
include the following: risks and uncertainties inherent to general and local
real estate conditions; the supply and demand for the types of rental properties
which the Trust operates; interest rate levels; non-payment of rent by tenants
or that operating costs may be greater than anticipated.
Taxable income required to be distributed in order for the Trust to
maintain its REIT status will be less than income reported for financial
reporting purposes under generally accepted accounting principles due to
differences related to depreciation, use of NOLs (subject to the Code Section
382 limitations) and timing differences related to bad debt deductions.
On March 28, 1996, the Trust entered into a financing agreement which
provided for the issuance of $67.4 million of new Floating Rate Notes, which
issuance occurred on April 30, 1996. The Floating Rate Notes bear interest at 30
day LIBOR + 1.375%, payable monthly, and have a stated maturity date of May 1,
1999.
The New Indenture generally requires that, on a monthly basis, the
Trust deposit into a Trapped Funds Account maintained by the New Indenture
Trustee all Cash Flow and Asset Sale Proceeds. Cash Flow from the Trapped Funds
Account will be distributed by the New Indenture Trustee to pay the New
Indenture Trustee's expenses, pay all accrued but unpaid interest on the
Floating Rate Notes and maintain a Debt Service Reserve Account before any funds
are released to the Trust. In the event of a sale of, or certain casualty or
indemnification events with respect to, any of the real estate properties
mortgaged under the terms of the debt instruments, the proceeds therefrom will
be used to retire up to 125% of a portion of the Floating Rate Notes that has
been allocated to such real estate property before any funds are released to the
Trust. The New Indenture includes affirmative covenants and negative covenants.
At June 30, 1997, the Trust was in compliance with the New Indenture.
The proceeds received from the Floating Rate Notes, together with
approximately $56.5 million of cash on hand, were used to prepay the Trust's
Senior Secured Notes and Mortgage Payable. The face amount outstanding of the
Senior Secured Notes and the Mortgage Payable at the time of repayment was
$110.0 million and $13.9 million, respectively. The Senior Secured Notes and
Mortgage Payable were repaid in full on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate
protection agreement (the "Cap") that serves to cap the floating interest
component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of
$377,000 to the counterparty to the Cap.
During fiscal 1996, the Trust reclassified seven real estate properties
with a carrying value of $18.7 million to Assets Held for Sale from Assets Held
for Investment. During fiscal 1996, the Trust received $26.6 million in net
proceeds from the sale of nine real estate properties with a carrying value of
$19.2 million classified as Assets Held for Sale.
During the second quarter of fiscal, 1997, the Trust reclassified five
real estate properties with a carrying value of $35.7 million to Assets Held for
Sale from Assets Held for Investment. During the nine months ended June 30,
1997, the Trust received $73.8 million in net proceeds from the sale of real
estate properties classified as Assets Held for Sale with a carrying value of
$54.3 million. These sales included eight real estate properties and three of
nine buildings owned by the Trust in an industrial park.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
The Trust's cash flow is derived from operating, investing and
financing activities. For the nine months ended June 30, 1997, cash provided by
operating activities increased to $8.8 million compared to $7.2 million for the
nine months ended June 30, 1996. The increase in cash provided by operating
activities was primarily attributable to a reduced number of real estate
properties offset by lower interest payments in connection with the senior
indebtedness. The outstanding balance on the Senior Secured Notes decreased to
$42.9 million at June 30, 1997 from $67.4 million at June 30, 1996.
Cash provided by investing activities increased to $70.5 million for
the nine months ended June 30, 1997 compared to $67.8 million for the nine
months ended June 30, 1996. The increase in cash provided by investing
activities was primarily attributable to the increase in real estate sales
activity to $73.8 million for the nine months ended June 30, 1997 compared to
$14.7 million for the nine months ended June 30, 1996. Partial offsetting the
increase was the disposition of substantially all of the Trust's mortgage loan
portfolio in March 1996 offset the increase in the real estate sales activity.
Cash used in financing activities decreased to $42.9 million for the
nine months ended June 30, 1997 compared to $63.4 million for the nine months
ended June 30, 1996. In April of fiscal 1996, the Trust issued $67.4 million in
New Floating Rate Notes and used the proceeds from the issuance along with
approximately $56.5 million of cash on hand to repay the Old Notes and the
Mortgage Payable.
During the nine months ended June 30, 1997, the Trust used $20.3 million to
prepay a portion of the Floating Rate Notes. Restricted cash increased to $22.5
million for the nine months ended June 30, 1997 compared to an increase of $3.2
million for the nine months ended June 30, 1996. The increase in restricted cash
is related to the funds held by the New Indenture Trustee in the Trapped Funds
Account as a result of the June 1997 real estate property sales.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1993 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE TRUST'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE SET FORTH IN FORWARD-LOOKING STATEMENTS. THOSE FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE THOSE SET FORTH UNDER "LIQUIDITY AND CAPITAL
RESOURCES" SECTION OF ITEM 2.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Trust filed a Current Report on Form 8-K dated June 24,
1997 under Item 2 and Item 7 of Form 8-K regarding the Trust's
disposition of three real estate properties during the current
quarter.
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Value Property Trust
/s/George R. Zoffinger
----------------------
George R. Zoffinger
President, Chief Executive
Officer and Trustee
(Principal Executive Officer)
/s/Robert T. English
--------------------
Robert T. English
Secretary, Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
DATE: August 14, 1997
ARTICLE 5
MULTIPLIER 1,000
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] JUN-30-1997
[CASH] 100,666
[SECURITIES] 0
[RECEIVABLES] 3,665
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 104,331
[PP&E] 34
[DEPRECIATION] 16
[TOTAL-ASSETS] 177,482
[CURRENT-LIABILITIES] 1,640
[BONDS] 42,882
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 11,226
[OTHER-SE] 121,734
[TOTAL-LIABILITY-AND-EQUITY] 177,482
[SALES] 0
[TOTAL-REVENUES] 21,231
[CGS] 0
[TOTAL-COSTS] 8,423
[OTHER-EXPENSES] 2,317
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 4,162
[INCOME-PRETAX] 6,329
[INCOME-TAX] 0
[INCOME-CONTINUING] 6,329
[DISCONTINUED] 0
[EXTRAORDINARY] 19,584
[CHANGES] 0
[NET-INCOME] 25,913
[EPS-PRIMARY] 2.31
[EPS-DILUTED] 2.31
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------------
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD
FROM ___________________ TO ___________________
COMMISSION FILE NUMBER 1-6613
VALUE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 23-1862664
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
120 ALBANY STREET, 8TH FLOOR 08901
NEW BRUNSWICK, NEW JERSEY (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 908-296-3080
--------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------
Common Shares, par value $1.00 per share New York Stock Exchange
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 the 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 the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ X ] No [ ]
The aggregate market value of the Common Shares held by non-affiliates
of the registrant at December 13, 1996, computed by reference to the closing
sale price of such shares as reported in the Consolidated Transaction Reporting
System, was $15,777,437. The number of Common Shares outstanding at December 13,
1996 was 11,226,310.
--------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Shareholder Meeting to be held February 25, 1997 are incorporated by reference
into Part III of this 10-K.
PART I
ITEM 1. BUSINESS.
GENERAL
Value Property Trust (the "Trust") is a self administered real estate
investment trust (a "REIT") engaged in the business of managing its portfolio of
real estate investments. The Trust was organized in 1970 under the laws of the
State of Maryland as PNB Mortgage and Realty Investors. In 1984, the Trust
changed its name to Mortgage and Realty Trust. In October 1995, the Trust
changed its name to Value Property Trust. The Trust is organized under an
Amended and Restated Declaration of Trust dated September 29, 1995 and as
amended through October 26, 1995 (the "Amended and Restated Declaration of
Trust"), and conducts its business in such a fashion as to qualify as a REIT
under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Code").
As of September 30, 1996, the Trust had: (1) cash and cash equivalents
of $29.5 million; (2) restricted cash of $12.2 million which is restricted as to
use under terms of various escrow and lease agreements and the New Indenture
(See "Developments During Fiscal 1996" below and "Liquidity and Capital
Resources" under Item 7); and (3) invested assets consisting of 7 mortgage loans
and 31 investments in real estate owned. Based upon the amounts of the Trust's
invested assets as of September 30, 1996, approximately 47.1% of the Trust's
portfolio was invested in California, 15.6% in Pennsylvania and 15.9% in New
England states. Nationally, 22.7% of the amounts of its invested assets are in
industrial or research and development properties, 27.0% in office buildings,
36.9% in shopping centers, 12.9% in apartments and 0.5% in other types of real
estate properties.
PREVIOUS CHAPTER 11 CASE AND 1991 PLAN OF REORGANIZATION
On April 12, 1990, the Trust filed a voluntary petition for
reorganization under Chapter 11 in the United States Bankruptcy Court for the
Central District of California (the "Bankruptcy Court"), commencing a bankruptcy
case, Bankruptcy Case No. LA 90-08976-SB (the "Prior Bankruptcy Case"). On
November 21, 1990, a Joint Plan of Reorganization (the "1991 Plan") proposed by
the Trust, the creditors' committee and the equity committee was filed with the
Bankruptcy Court pursuant to section 1121 of the Bankruptcy Code. The 1991 Plan
was confirmed by the Bankruptcy Court by an order entered February 27, 1991. The
Prior Bankruptcy Case was closed on November 4, 1994, pursuant to a final order
of the Bankruptcy Court.
The 1991 Plan provided that the holders of outstanding indebtedness were
to receive payments in installments over a period ending on June 30, 1995, with
the right of the Trust to defer payment of certain amounts for up to twenty-four
months or until December 31, 1995, when all deferred payments would be due.
Interest was payable initially at Bank of America N.T. & S.A.'s reference rate
plus one percent, increasing by 0.25% every six months, with interest on
deferred amounts accruing at the adjusted rate plus two percent. The 1991 Plan
also included certain financial, affirmative and negative covenants. The
forecast upon which the 1991 Plan was based assumed that the real estate markets
would begin to improve in fiscal 1992. However, the markets continued to
deteriorate materially. Despite these conditions, the Trust was able to make all
required interest payments and to exceed the required amortization payments
through December 31, 1991. These results were achieved through liquidating Trust
- 1 -
assets at substantial discounts from their acquisition cost. However, due to the
continued deterioration of the real estate markets, the Trust could not meet the
amortization payment at June 30, 1992, which required the Trust to reduce the
debt to $291,250,000, taking into account deferrals permitted under the 1991
Plan. This deterioration also precluded the Trust from maintaining compliance
with the financial covenants of the 1991 Plan. Thus, the Trust determined that
it was necessary to defer a portion of the principal payments on the outstanding
debt and limit certain future cash interest payments to allow sufficient time
for liquidity to return to the United States real estate market. Such deferral
was accomplished by an out-of-court modification to the 1991 Plan (the "1992
Restructuring").
THE 1992 RESTRUCTURING
Pursuant to the Trust's negotiations with the creditors' committee, on
June 15, 1992, the Trust commenced a solicitation of acceptances to certain
modifications (the "1992 Modifications") to the outstanding debt obligations of
the Trust and to a prepackaged plan of reorganization (the "Proposed 1992 Plan")
to effect the 1992 Modifications. The 1992 Modifications to the outstanding debt
obligations provided, among other things, for (i) an increased amount of
required principal payments that could be deferred (while retaining the final
payment date for deferred payments at December 31, 1995), (ii) an extension of
the permitted repayment period of such deferred amounts from 24 months to 30
months from the date a deferral is utilized, (iii) the establishment of a limit
on the maximum rate of interest to be paid in cash on a current basis at 9%
through June 30, 1994, with any excess being accrued and paid at December 31,
1995, (iv) changes in certain required financial covenants to reflect the
then-existing financial condition of the Trust and the then-existing real estate
market, (v) with the approval of the holders of 66-2/3% of the outstanding debt
obligations, the release of collateral for certain financings by the Trust, and
(vi) the payment of additional consideration to the holders of the outstanding
debt obligations equal to one percent of the principal amount of the outstanding
debt obligations, payable in four semi-annual installments commencing on the
date the 1992 Restructuring became effective. The Trust received 100% acceptance
of the 1992 Modifications and, on July 15, 1992, the Trust successfully
restructured its outstanding debt by issuance of new notes in accordance with
the proposed 1992 Modifications (the "Old Notes") and entered into an indenture
(the "Old Note Indenture") with Wilmington Trust Company, as trustee (the "Old
Note Trustee"), entered into a second amendment to the Trust's then outstanding
Collateral and Security Agreement dated as of February 21, 1991 (as amended, the
"Old Collateral Agreement") and amended the 1991 Plan (as amended pursuant to
the 1992 Restructuring, the "Prior Plan").
RECENT CHAPTER 11 CASE AND 1995 PREPACKAGED PLAN OF REORGANIZATION
The financial projections upon which the 1992 Restructuring was based
assumed that the real estate markets would stop or slow their decline by 1993
with some improvement in 1994. Instead, after the effective date of the 1992
Restructuring, these markets failed to improve materially. The Trust's business
operations, including its ongoing efforts to refinance and sell property, did
not generate cash flow sufficient to service the Old Notes during the fiscal
years ended September 30, 1993 and 1994. Because its operating income had
declined due to the continued deterioration of the real estate markets, the
Trust was not able to meet its scheduled June 30, 1993 principal payment on the
Old Notes of $20,000,000, and subsequently the Trust also failed to make
additional principal payments, constituting events of default under the Old Note
Indenture. The Trust also failed to make interest payments on the Old Notes. In
- 2 -
addition, the Trust failed to meet certain ratios set forth in the financial
covenants of the Old Note Indenture which constituted additional events of
default under the Old Note Indenture.
Throughout the second and third quarters of fiscal 1994, the Trust's
management and advisors continued discussions with certain principal holders of
the Old Notes and their representatives to explore various alternatives for
restructuring the Old Notes. In March 1994, the principal holders requested that
the Trust agree to pay certain fees and expenses of legal counsel to the
principal holders. The Trust agreed, and in March 1994, the principal holders
retained counsel to advise them in the Trust's financial restructuring.
Thereafter, in June 1994, the principal holders requested and the Trust agreed
to pay certain fees and expenses of a new financial advisor to the principal
holders. The negotiations among the Trust, the various creditor constituencies
and other interested parties in the Trust's financial restructuring continued
into the fourth quarter of fiscal 1994.
On November 17, 1994, the Trust announced that it had reached a
non-binding agreement in principle with the Old Note holders to restructure the
indebtedness represented by the Old Notes (the "1995 Restructuring").
Under the 1995 Restructuring, the Trust and the Board of Trustees
recommended to the Old Note holders that the Trust utilize a "prepackaged plan"
of reorganization (the "Prepackaged Plan") governed by Chapter 11 title 11 of
the United States Bankruptcy Code, as amended (the "Bankruptcy Code"). The use
of the Prepackaged Plan allowed the Trust, the Board of Trustees and holders of
the Old Notes to agree in advance on the method and course of restructuring
prior to the filing of the bankruptcy petition in Chapter 11. To this end, the
Trust and certain holders who had acquired a significant portion of the Old
Notes entered into an agreement of understanding (the "Agreement of
Understanding") pursuant to which the Trust agreed to distribute to the holders
of the Old Notes $25.0 million in cash prior to the Prepackaged Plan's petition
date. Under this agreement, the principal holders (who held in excess of 80% of
the Old Notes), among other things, agreed to vote in favor of the Prepackaged
Plan when solicited. On April 11, 1995, the Trust paid $25.0 million pursuant to
the Agreement of Understanding, with such payment to be credited against the
cash payment of at least $50.0 million to be made to the holders of the Old
Notes pursuant to the Prepackaged Plan.
On July 12, 1995, the Trust mailed to each holder of Old Notes,
outstanding common shares, other secured claims and unsecured claims
(collectively, the "Holders") as of the close of business on July 7, 1995 (the
"Record Date"), a copy of the Disclosure Statement and Proxy Statement for the
Solicitation of Votes for the Prepackaged Plan of Reorganization (the
"Disclosure Statement").
Pursuant to the Disclosure Statement, the solicitation of ballots in
favor of the Prepackaged Plan expired at midnight (New York time) on August 17,
1995. On August 18, 1995, the Trust filed a voluntary petition for
reorganization under Chapter 11 in the Bankruptcy Court commencing a bankruptcy
case, Bankruptcy Case No. LA 95-31101-SB. The Prepackaged Plan was confirmed by
the Bankruptcy Court by an order entered September 22, 1995. The Trust entered
into an amended and restated indenture (the "Prior Indenture") with Wilmington
Trust Company as trustee, an amended and restated collateral and security
agreement (the "Prior Security Agreement"), a pledge agreement (the "Prior
Pledge Agreement"), and a registration rights agreement (the "Registration
Rights Agreement"). The Prepackaged Plan became effective September 29, 1995
- 3 -
(the "Effective Date") and provided for, among other things, (i) a 1 for 33.33
reverse stock split of the outstanding common shares affecting the shareholders
of record as of September 29, 1995, and (ii) the issuance to holders of the
Trust's debt securities: (a) $110,000,000 principal amount of newly issued
11-1/8% Senior Secured Notes due 2002 (the "Prior Senior Notes"), (b)
$71,000,000 in cash and (c) approximately 10,889,430 new common shares, par
value $1.00 per share, representing, in the aggregate, approximately 97% of the
common shares outstanding after the Effective Date (all common shares
outstanding after the Effective Date hereinafter referred to as the "Common
Shares").
BUSINESS PLAN
After the emergence from bankruptcy on September 29, 1995, the Trust
determined that its strategic goals should focus on maximizing the Trust's
overall return to shareholders. The Trust conducted a thorough investigation of
its real estate properties in order to determine the future direction of the
Trust's operations. The Trust refinanced its outstanding long-term indebtedness
at a substantially lower rate of interest. The Trust also entered into an
engagement letter with Merrill Lynch & Co. on October 15, 1996 to advise the
Board with respect to options in achieving its strategic goals, including
possible business combinations or bulk sales of assets.
As a result of the property evaluations, the Trust will focus its
ongoing operating activities in the California (primarily San Francisco and Los
Angeles) and Mid-Atlantic markets. Specifically, the Trust believes an
opportunity exists to enhance the value of its portfolio of retail, industrial
and office properties in these geographic regions through active management,
improvement in occupancy levels and market appreciation. Generally, real estate
holdings outside these geographic regions and property types that are not
consistent with the strategic plan will be divested in an orderly manner.
Consistent with this policy, seven properties were transferred during
fiscal 1996 from Held for Investment to Held for Sale. At September 30, 1996,
the Trust owned 31 properties of which ten are classified as Held for Sale.
Management may, from time to time, determine to sell one or more
properties consistent with the Trust's strategic plan. In addition, the Trust
may receive unsolicited bids for one or more properties and will consider such
bids in light of management's assessment of such factors as the price offered
for the properties, their possibility for future appreciation, the current
return to the Trust from operating such properties, and the fit of such
properties with the then existing portfolio of properties.
As of September 30, 1996, the Trust had cash and marketable securities
valued at approximately $41.7 million of which $12.2 million was restricted as
to use under terms of various escrow and lease agreements and the New Indenture
(See "Developments During Fiscal 1996" below and "Liquidity and Capital
Resources" under Item 7). The Trust intends to use certain funds, together with
funds from operations and net proceeds from the sale of assets, to make
appropriate capital and tenant improvements to its properties. The Trust may
also use available funds to reduce leverage, to make other investments
(including investments in the Trust's Common Shares), or to make distributions
to its shareholders, in each case subject to the terms of its debt instruments
as in effect from time to time.
- 4 -
DEVELOPMENTS DURING FISCAL 1996
In March 1996, the Trust completed the disposition of substantially all
of its mortgage loan portfolio. The Trust received $55.5 million in net cash
proceeds through a series of transactions which included loan repayments and a
bulk sale of certain mortgage loans. The carrying value of the loans involved in
these transactions totaled $50.5 million.
On March 28, 1996, the Trust entered into a financing agreement with
BlackRock Capital Finance L.P. which provided for the issuance of $67.4 million
of new Floating Rate Notes ("Floating Rate Notes") to BlackRock Capital, which
issuance occurred April 30, 1996. The Floating Rate Notes bear interest at 30
day LIBOR + 1.375 percent, payable monthly, and have a stated maturity date of
May 1, 1999. The proceeds received from the Floating Rate Notes, together with
approximately $56.5 million of cash on hand, were used to prepay in full the
Trust's outstanding 11.125% Senior Secured Notes and Mortgage Payable. The face
amounts outstanding of the 11.125% Senior Secured Notes and the Mortgage Payable
at the time of repayment were $110.0 million and $13.9 million, respectively.
During the first quarter of fiscal 1996, the Trust received net proceeds
of $0.3 million from the sale of land located in California.
During the third quarter of fiscal 1996, the Trust received net proceeds
of $13.9 million from the sale of five real estate properties. The properties
comprised a total of 481,000 square feet of industrial or warehouse/office type
facilities. Two were located in Massachusetts and one each was located in
California, Minnesota and Pennsylvania.
During the fourth quarter of fiscal 1996, the Trust received net
proceeds of $12.4 million from the sale of three real estate properties.
Included in these sales were two industrial/office type facilities, representing
154,000 square feet, and a 168 unit apartment complex. The properties were
located in California, Pennsylvania and Indiana.
COMPETITION, REGULATION, AND OTHER FACTORS
The success of the Trust depends upon, among other factors, general
economic conditions and trends, including real estate trends, interest rates,
government regulations and legislation, income tax laws and zoning laws.
The Trust's real estate investments are located in markets in which they
face significant competition. Many of the Trust's investments, particularly the
office buildings, are located in markets which have an over-supply of available
space, resulting in intense competition for tenants and low rents.
GOVERNMENT REGULATION
The Trust's properties are subject to various federal, state and local
regulatory requirements such as local building codes and other similar
regulations. The Trust believes that the properties are currently in substantial
compliance with all applicable regulatory requirements, although expenditures at
properties owned by the Trust may be required to comply with changes in these
laws. No material expenditures are contemplated at this time in order to comply
with any such laws or regulations.
- 5 -
The Trust believes that it is in compliance in all material respects
with all federal, state and local laws regarding hazardous or toxic substances.
To date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Trust.
The Trust has made an application to the New Hampshire Department of
Environmental Protection for a ground water monitoring permit. The Trust
believes the cost of the monitoring program will not have a material adverse
effect on the business, financial condition or results of operations of the
Trust.
OTHER INFORMATION
As of September 30, 1996, the Trust employed 16 people. The Trust also
has engaged 19 independent property management firms to manage 27 of its
properties. The Trust's current business constitutes a single business segment.
The Trust is not dependent upon a single tenant or a limited number of tenants.
The Trust's principal offices are currently located at 120 Albany
Street, 8th Floor, New Brunswick, New Jersey 08901 and 22120 Clarendon Street,
Suite 230, Woodland Hills, California 91367; the Trust's telephone numbers are
(908) 296-3080 and (818) 594-8586, respectively.
FRESH START REPORTING
In connection with its emergence from Chapter 11 proceedings, the Trust
implemented Fresh Start Reporting as provided in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("Fresh Start Reporting"). As a result, as of September 30, 1995 all assets were
recorded at reorganization value and all liabilities were recorded to reflect
their fair value. For additional information on this reporting method, see Notes
to the Consolidated Financial Statements - Note 1 "Basis of Financial
Information and Plan of Reorganization."
ITEM 2. PROPERTIES.
INVESTED ASSETS
Although the Trust has continued to fund previously existing investment
commitments and to fund limited tenant improvements and similar investments
necessary to retain or obtain tenants, the Trust has not made any new
investments in loans or properties since its Prior Bankruptcy Case filing, but
it has continued to manage its investment portfolio.
Loans are secured by first or junior mortgages. Loans made by the Trust
were secured by mortgages on income-producing properties, including office
buildings, shopping centers, industrial projects, apartments and condominium
projects. When the Trust made investments, it abided by various restrictions
consisting principally of loan-to-value ratios, investment ranges and percentage
of total assets invested in loans to a single borrower.
- 6 -
The Trust has 38 assets under management consisting of 7 loans and 31
real estate investments. At September 30, 1996, the Trust has classified these
assets as follows:
INVESTED ASSETS
-----------------------------------
Number Carrying Value %
------ -----------------------------------
($000)
Assets Held for Sale:
Investments in partnerships ............................... 2 $ 10,219 8.1%
Real estate investments ................................... 8 38,171 30.4%
----- -------- -----
10 48,390 38.5%
----- -------- -----
Assets Held for Investment:
Mortgage loans ............................................ 7 663 0.5%
Investments in partnerships ............................... 3 13,486 10.7%
Real estate investments ................................... 18 63,196 50.3%
----- -------- -----
28 77,345 61.5%
----- -------- -----
Total Invested Assets ....................................... 38 $125,735 100.0%
===== ======== =====
The Trust's invested assets are primarily located in major metropolitan
areas throughout the United States. As of September 30, 1996, the Trust held
investments in mortgage loans, investments in real estate and other interests in
real properties located in 14 states.
The location, general character and occupancy information with respect
to the Trust's invested assets at September 30, 1996 are set forth in the
schedules contained on the following pages.
- 7 -
VALUE PROPERTY TRUST
REAL ESTATE INVESTMENTS
SEPTEMBER 30, 1996
DATE OCCUPANCY
ASSET NAME CITY ST ACQUIRED OWNERSHIP TOTAL SQ. FT. @ 9/30/96
---------- ---- -- -------- --------- ------------- ---------
Junipers Yarmouth ME Feb-92 100% 188,087 SF 97.0%
Villa del Cresta Florissant MO Feb-92 100% 333,038 SF 93.0%
---------
TOTAL APARTMENTS 521,125 SF 94.4%
--------- -----
Parkway Richmond CA Jan-89 100% 87,654 SF 60.2%
Bay City Holdings* Santa Monica CA Jan-95 85% 114,375 SF 100.0%
Moreno Valley Moreno Valley CA Nov-92 100% 251,090 SF 100.0%
Oaktree Industrial Park San Dimas CA Oct-95 100% 27,095 SF 69.9%
Chino Business Park Chino CA Oct-95 100% 94,527 SF 56.0%
Avenue Hall Valencia CA Jul-91 100% 86,980 SF 100.0%
900 Bldg.. Minneapolis MN Sep-93 100% 216,000 SF 94.8%
Keystone I Partnership* Bristol Twp. PA Jun-93 70% 100,725 SF 100.0%
Fife-TPIP II* Fife (Tacoma) WA Dec-92 15% 332,508 SF 100.0%
---------
TOTAL INDUSTRIAL 1,310,954 SF 92.7%
--------- -----
Stadium Towers Anaheim CA Aug-88 100% 64,574 SF 85.4%
Nash El Segundo CA Jan-94 100% 45,851 SF 74.0%
Clarewood Woodland Hills CA May-92 100% 38,568 SF 91.2%
Summer Street Boston MA Jan-90 100% 67,216 SF 81.9%
Turnpike Canton MA Jan-91 100% 43,157 SF 46.9%
Burtonsville Commerce Burtonsville MD Mar-95 100% 91,274 SF 91.9%
Keewaydin Salem NH Aug-92 100% 125,230 SF 84.2%
Hoes Lane Piscataway NJ Aug-91 100% 37,238 SF 84.4%
Two Executive Campus Cherry Hill NJ Oct-92 100% 102,310 SF 53.3%
Riverside Centre Portland OR Aug-89 100% 99,233 SF 100.0%
Chestnut Street Philadelphia PA Jan-91 100% 49,953 SF 75.6%
Pinebrook I King of Prussia PA May-87 100% 57,835 SF 88.7%
Pinebrook II King of Prussia PA May-87 100% 58,521 SF 95.1%
Six Sentry Parkway Blue Bell PA Jun-94 100% 89,781 SF 74.8%
---------
TOTAL OFFICE 970,741 SF 81.0%
--------- -----
(Continued)
- 8 -
VALUE PROPERTY TRUST
REAL ESTATE INVESTMENTS -- Continued
SEPTEMBER 30, 1996
DATE OCCUPANCY
ASSET NAME CITY ST ACQUIRED OWNERSHIP TOTAL SQ. FT. @ 9/30/96
---------- ---- -- -------- --------- ------------- ---------
Creekside Partnership* Vacaville CA Oct-94 80% 116,215 SF 72.9%
Newark Partnership* Newark CA Oct-94 90% 65,760 SF 80.4%
Paseo Padre Fremont CA Oct-90 100% 195,092 SF 91.1%
Arcade Square Sacramento CA Sep-93 100% 76,452 SF 89.1%
Berdon Plaza Fairhaven MA Apr-91 100% 112,478 SF 72.7%
Bradford Plaza West Chester PA Aug-95 100% 123,881 SF 80.0%
---------
TOTAL RETAIL 689,878 SF 81.8%
--------- -----
TOTAL PORTFOLIO 3,492,698 SF 87.5%
========= =====
*The Trust has a partnership interest in this property.
See Notes to the Consolidated Financial Statements - Note 5 "Borrowings" for a
discussion of encumbrances on real estate properties.
- 9 -
VALUE PROPERTY TRUST
GEOGRAPHIC DISTRIBUTION OF INVESTED ASSETS
SEPTEMBER 30, 1996
State Apartments Industrial Office Retail
- ----- ---------- ---------- ------ ------
California $ -- $ 18,217,670 $ 7,195,087 $33,811,522
Delaware -- -- -- --
Georgia -- -- -- --
Maine 7,815,525 -- -- --
Maryland -- -- 3,892,380 --
Massachusetts -- -- 2,647,607 6,912,007
Minnesota -- 2,187,439 -- --
Missouri 8,350,360 -- -- --
New Hampshire -- -- 2,635,815 --
New Jersey -- -- 2,020,401 --
Oregon -- -- 6,337,362 --
Pennsylvania -- 4,706,280 9,274,891 5,628,875
Virginia -- -- -- --
Washington -- 3,438,377 -- --
----------- ------------ ----------- -----------
Totals $16,165,885 $ 28,549,766 $34,003,543 $46,352,404
=========== ============ =========== ===========
Percentage 12.86% 22.71% 27.04% 36.86%
=========== ============ =========== ===========
Residential
State Mortgages Totals Percentage
- ----- --------- ------ ----------
California $ 39,442 $ 59,263,721 47.13%
Delaware 101,372 101,372 0.08%
Georgia 35,611 35,611 0.03%
Maine -- 7,815,525 6.22%
Maryland 401,255 4,293,635 3.41%
Massachusetts -- 9,559,614 7.60%
Minnesota -- 2,187,439 1.74%
Missouri -- 8,350,360 6.64%
New Hampshire -- 2,635,815 2.10%
New Jersey -- 2,020,401 1.61%
Oregon -- 6,337,362 5.04%
Pennsylvania -- 19,610,046 15.60%
Virginia 85,454 85,454 0.07%
Washington -- 3,438,377 2.73%
-------- ------------ -----
Totals $663,134 $125,734,732
======== ============
Percentage 0.53% 100.00%
======= ======
- 10 -
ITEM 3. LEGAL PROCEEDINGS.
A discussion of events surrounding the Trust's Prior Bankruptcy Case and
an explanation of the material terms of the Trust's reorganization under the
1991 Plan are set forth in the section entitled "Previous Chapter 11 Case and
1991 Plan of Reorganization" under Item 1 above. The Prior Bankruptcy Case was
closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.
A discussion of events surrounding the Trust's 1995 prepackaged
bankruptcy filing and an explanation of the material terms of the Trust's
reorganization under the Prepackaged Plan are set forth in the section entitled
"Recent Chapter 11 Case and 1995 Prepackaged Plan of Reorganization" under Item
1 above. Notwithstanding the confirmation of the Trust's Prepackaged Plan as of
September 29, 1995, the bankruptcy court continued to have jurisdiction among
other things, to resolve disputes that may arise under the Prepackaged Plan.
A third party has alleged the existence of a purchase contract with
respect to one of the Trust's properties which the Trust disputes. This dispute
has led to litigation. However, the Trust believes that this litigation, when
resolved, will not have a material adverse effect on the business, financial
condition or results of operations of the Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED
SHAREHOLDER MATTERS.
(a) MARKET INFORMATION
The Trust's Common Shares are listed for trading on the New York Stock
Exchange ("NYSE") under the symbol "VLP". Prior to October 27, 1995 they were
traded under the symbol "MRT". No dividends have been declared by the Trust in
the past two years. The following table shows the high and low sales prices of
the Trust's Common Shares as reported by the NYSE during each fiscal quarter for
the past two years. The fiscal 1995 stock prices are adjusted to give effect to
a 1 for 33.33 reverse stock split which occurred on October 2, 1995.
High Low
---- ---
1996
First Quarter $11 $10
Second Quarter $13 $10-1/2
Third Quarter $12-5/8 $12-1/8
Fourth Quarter $12-5/8 $11-3/4
1995
First Quarter $ 8-11/32 $ 4-5/32
Second Quarter $12-1/2 $ 6-1/4
Third Quarter $11-15/32 $ 7-9/32
Fourth Quarter $11-15/32 $ 9-3/8
- 11 -
Pursuant to the conditions of the Prepackaged Plan, on October 2, 1995,
the Trust directed the NYSE to effectuate a 1 for 33.33 reverse stock split of
the Trust's outstanding Common Shares which resulted in a reduction of the
Trust's outstanding Common Shares from approximately 11,226,215 to approximately
336,820. Simultaneously, and also pursuant to the conditions of the Prepackaged
Plan in exchange for the release of certain debt by the Trust's noteholders, the
Trust directed the NYSE to issue approximately 10,889,430 new Common Shares. The
combined result of these actions by the Trust on the NYSE is that, as of October
2, 1995, substantially the same amount of Common Shares are authorized and
outstanding as before the reverse stock split and issuance of new Common Shares
and on October 2, 1995 the Trust's Common Shares were trading at $10-1/2.
The Trust incurred net operating losses ("NOLs") for tax purposes from
fiscal 1991 to 1996. Beginning in fiscal 1997, NOLs available to offset taxable
income in future years will be approximately $102 million. These NOLs will be
subject to Internal Revenue Code Section 382 annual limitations on the use of
the NOLs. The Trust estimates this annual limitation to be approximately $6
million. Any portion of the NOLs not used in any taxable year can be carried
forward up to fifteen years.
(b) HOLDERS OF COMMON SHARES
There were approximately 4,050 record holders of the Trust's Common
Shares at December 4, 1996.
(c) DIVIDENDS
The Trust did not declare or pay any dividends during either the fiscal
year ended September 30, 1996 or the fiscal year ended September 30, 1995.
- 12 -
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
(dollars in thousands, except for per share data)
Post-Confirmation Pre-Confirmation
------------------------ -------------------------------------------------------
Year Ended September 30, Years Ended September 30,
------------------------ -------------------------------------------------------
1996 1995 1994 1993 1992
-------- | -------- -------- -------- --------
OPERATING DATA
Total revenue $ 35,066 | $ 39,464 $ 36,277 $ 38,342 $ 42,009
Interest and other operating expenses 25,746 | 52,120 47,668 43,967 42,077
Depreciation and amortization 2,347 | 7,306 5,839 5,500 4,470
Provision for losses -- | 3,000 2,000 37,000 32,000
-------- | -------- -------- -------- --------
Income (loss) from operations |
before reorganization items |
and extraordinary items 6,973 | (22,962) (19,230) (48,125) (36,538)
Reorganization items |
Professional fees and other |
expenses, net -- | 5,778 2,360 5,844 934
Write down of invested assets |
to reorganization value -- | 66,597 -- -- --
-------- | -------- -------- -------- --------
Income (loss) before |
extraordinary item 6,973 | (95,337) (21,590) (53,969) (37,472)
Extraordinary item - gain on |
extinguishment of debt -- | 75,304 -- -- --
-------- | -------- -------- -------- --------
Net income (loss) $ 6,973 | $(20,033) $(21,590) $(53,969) $(37,472)
======== | ======== ======== ======== ========
|
Net income per share* $ 0.62 |
======== |
|
OTHER DATA |
Funds from Operations (a): |
Net income (loss) $6,973 | $(20,033) $(21,590) $(53,969) $(37,472)
Depreciation and amortization 2,347 | 7,306 5,839 5,500 4,470
Reorganization expenses -- | 72,375 2,360 5,844 934
Extraordinary item-gain on |
the extinguishment of debt -- | (75,304) -- -- --
-------- | -------- -------- -------- --------
Total $ 9,320 | $(15,656) $(13,391) $(42,625) $(32,068)
======== | ======== ======== ======== ========
- 13 -
Post-Confirmation Pre-Confirmation
----------------------------- -------------------------------------------
September 30, September 30, September 30, September 30, September 30,
1996 1995 1994 1993 1992
------------- ------------- | ------------- ------------- -------------
BALANCE SHEET DATA |
Invested assets $125,735 $207,120 | $309,973 $347,526 $424,394
Total assets $172,411 $232,329 | $364,740 $353,874 $427,268
Allowance for losses $ -- $ -- | $ 13,430 $ 11,808 $ 19,353
Senior notes (due 1999) $ 63,226 $ -- | $ -- $ -- $ --
Senior notes (due 2002) $ -- $109,975 | $ -- $ -- $ --
Senior notes (due 1995) $ -- $ -- | $290,000 $290,000 $312,000
Mortgage payable $ -- $ 17,535 | $ 17,593 $ 17,572 $ 15,615
Shareholders' equity $107,047 $100,074 | $ 20,033 $ 41,623 $ 95,592
* Net income (loss) per share for all pre-confirmation periods is not
presented because this information is not meaningful as a result of the
Reorganization and the adoption of "Fresh Start Reporting". See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
(a) Funds From Operations ("FFO") is defined as net income, excluding gains and
losses from debt restructuring and sales of real estate, plus depreciation
and amortization of assets related to real estate and after adjustments for
unconsolidated partnerships and joint ventures.
- 14 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MANAGEMENT DISCUSSION
Value Property Trust is a Maryland REIT engaged in the business of
managing its portfolio of real estate investments. On October 26, 1995, the
Trust's name was changed from Mortgage and Realty Trust to Value Property Trust.
On September 29, 1995, the Trust's Prepackaged Plan of Reorganization was
declared effective by the United States Bankruptcy Court for the Central
District of California.
Under the Prepackaged Plan, holders of the Trust's $290,000,000
principal amount of Old Notes received: (i) $110,000,000 principal amount of
newly issued Senior Notes; (ii) $71,000,000 in cash; and (iii) approximately
10,889,430 new Common Shares representing in the aggregate approximately 97% of
the Common Shares outstanding after the Effective Date. In connection with the
Prepackaged Plan, the Trust effected a 1 for 33.33 reverse stock split of its
outstanding Common Shares.
In connection with its emergence from Chapter 11 proceedings, the Trust
implemented Fresh Start Reporting as of September 30, 1995. Fresh Start
Reporting was required because: (1) the reorganization value of the Trust's
assets immediately before the date of confirmation was less than the total of
all post-petition liabilities; (2) there was more than a 50% change in the
ownership of the Trust; and (3) there was a permanent and substantive loss of
control by existing shareholders. As a result, all assets and liabilities were
restated to reflect their appropriate value or fair value. The post-confirmation
financial statements and schedules amounts have been segregated by a black line
in order to signify that the financial statements and schedules are that of a
new reporting entity and have been prepared on a basis which is not comparable
to the pre-confirmation financial statements and schedules (See Notes to the
Consolidated Financial Statements - Note 1 "Basis of Financial Information and
Plan of Reorganization" for additional information concerning Fresh Start
Reporting).
The following section includes a discussion and analysis of the results
of operations for the years ended September 30, 1996, 1995 and 1994 and should
be read in conjunction with the consolidated financial statements and the notes
thereto. The Trust has, for the past several years, reported significant net
losses. As a result of the 1995 Restructuring, past results should not be
indicative of future operating performance. Future results of operations of the
Trust will not be comparable to the historical operating performance.
RESULTS OF OPERATIONS
The Trust reported net income for fiscal 1996 of $7.0 million or $0.62
per share compared to a net loss of $20.0 million for fiscal 1995 and a net loss
of $21.6 million for fiscal 1994. The 1995 loss includes: (1) reorganization
items for professional fees of $6.2 million, interest income of $0.4 million and
an adjustment that reduced invested assets by $66.6 million as a result of the
adoption of Fresh Start Reporting; and (2) an extraordinary item of $75.3
million reflecting the gain on extinguishment of debt. The Trust had income from
operations, before reorganization and extraordinary items of $7.0 million in
fiscal 1996 compared to the loss of $23.0 million for fiscal 1995 and a loss of
$19.2 million for fiscal 1994.
- 15 -
Rental income was $26.9 million for fiscal 1996 compared to $24.6
million for fiscal 1995 and $18.5 million for fiscal 1994. In addition to rental
income, the Trust received reimbursement of certain operating expenses totaling
$3.6 million, $2.3 million and $1.7 million for fiscal 1996, 1995 and 1994,
respectively. The increases in rental income and reimbursed expenses on rental
properties are the result of continued foreclosure on real estate properties and
improvement in occupancy levels. At September 30, 1996, the Trust owned 31 real
estate properties compared to 38 and 34 at September 30, 1995 and 1994,
respectively. Two properties were added early during fiscal 1996 as a result of
foreclosures. Nine properties were sold during fiscal 1996, of which eight
occurred during the last two quarters. Two of the eight property sales occurred
during the last month of fiscal 1996. As a result of the timing of the
foreclosures and the property sales, the Trust recorded operations on real
estate properties for a longer time period on a greater number of properties
during fiscal 1996 than fiscal 1995. Occupancy levels increased to 87.5% at
September 30, 1996 compared to 81.1% and 79.6% at September 30, 1995 and 1994,
respectively.
Interest and fee income on mortgage loans was $2.9 million for fiscal
1996 compared to $9.4 million in fiscal 1995. In March 1996, the Trust completed
the disposition of substantially all of its mortgage loan portfolio. The Trust
received $55.5 million in net cash proceeds through a series of transactions
which included loan repayments and a bulk sale of certain mortgage loans. As a
result, interest income earned on the mortgage loan portfolio will be
substantially reduced in the future. The Trust's remaining mortgage loan
portfolio is currently less than $0.7 million. Interest and fee income decreased
from $14.7 million in fiscal 1994 to $9.4 million in fiscal 1995. The fiscal
1995 decrease resulted primarily from a reduction in earning mortgage loans
which averaged $97.8 million for fiscal 1995 compared to $131.4 million for
fiscal 1994. During fiscal 1995, mortgage loans of approximately $10.9 million
were transferred to real estate and $22.7 million have been repaid.
Interest on short-term investments was $1.7 million for fiscal 1996
compared to $3.1 million and $1.2 million for fiscal years 1995 and 1994,
respectively. The decrease in fiscal 1996 is due to the reduction in cash
balances as a result of a $25.0 million payment made on April 11, 1995 and an
additional $46.0 million payment made on September 29, 1995 to the Old Note
Holders in conjunction with the 1995 Restructuring. Prior to these payments, the
Trust was continuing to accumulate cash and since September 30, 1993, had not
made payments of interest or principal on its indebtedness. Available cash
averaged $28.9 million for fiscal 1996 compared to $57.6 million and $32.0
million in fiscal years 1995 and 1994, respectively. At September 30, 1996, cash
and cash equivalents, including restricted cash, were $41.7 million compared to
$16.8 million at September 30, 1995.
Interest expense for fiscal 1996 totaled $10.5 million compared to $35.9
million and $33.0 million for fiscal years 1995 and 1994, respectively. The
Trust's average borrowing cost for fiscal 1996 was 10.6% compared to 13.3% and
10.7% for fiscal years 1995 and 1994, respectively. Included in interest expense
is the amortization of deferred costs incurred in obtaining debt financing which
are amortized over the term of the debt agreement.
- 16 -
Depreciation and amortization on rental properties for fiscal 1996 was
$2.3 million compared to $7.3 million and $5.8 million for fiscal 1995 and 1994,
respectively. The decrease in fiscal 1996 was primarily a result of the adoption
of Fresh Start Reporting. Prior to Fresh Start Reporting, the Trust depreciated
all real estate investments. At September 30, 1995, the Trust segregated the
real estate portfolio into two categories: Held for Sale and Held for
Investment. Additionally, all assets and liabilities of the Trust were restated
to reflect their respective reorganization value or fair value. The Trust
depreciates the Held for Investment category over the estimated useful lives of
the assets. The Held for Sale category is not depreciated. During fiscal 1996,
the Trust reclassified seven properties totaling $18.7 million to Held for Sale
from Held for Investment.
Operating expenses on rental properties increased to $12.1 million in
fiscal 1996 from $11.7 million for fiscal 1995 and $9.8 million for fiscal 1994.
The increases in expenses on rental properties are the result of continued
foreclosure of real estate properties and improvement in occupancy levels. At
September 30, 1996 the Trust owned 31 real estate properties compared to 38 and
34 at September 30, 1995 and 1994, respectively. A total of two properties were
added early during the year as a result of foreclosures. Nine properties were
sold during fiscal 1996, eight of which occurred during the last two quarters.
Occupancy levels increased to 87.5% at September 30, 1996 compared to 81.1% and
79.6% at September 30, 1995 and 1994, respectively.
Other operating expenses were $3.2 million for fiscal 1996 compared to
$4.5 million and $4.8 million for fiscal years 1995 and 1994, respectively. The
fiscal 1996 decrease was a result of reduced staffing, insurance premiums,
occupancy costs, Trustee fees and expenses and office and computer expense.
Partially offsetting the decline was an increase in professional fees which
includes legal and accounting fees. The decrease in fiscal 1995 from fiscal 1994
was primarily due to a decrease in professional fees and expenses.
The Trust, in fiscal 1995, recorded a $75.3 million extraordinary
item-gain on extinguishment of debt against interest and principal due of $331.4
million on the Old Notes.
As a result of implementing Fresh Start Reporting on September 30, 1995,
the Trust wrote down its real estate investments by $66.6 million to
reorganization value. In addition, net reorganization expenses incurred by the
Trust were $5.8 million in fiscal 1995, compared to $2.4 million in fiscal 1994.
These expenses reflected professional fees incurred by the representatives of
the creditors, shareholders and the Trust. The 1995 Restructuring was completed
in the fourth quarter of fiscal 1995.
The Trust did not provide for a provision for losses in fiscal 1996. The
provision for losses was $3.0 million and $2.0 million in fiscal 1995 and fiscal
1994, respectively. With the implementation of Fresh Start Reporting, as of
September 30, 1995, the allowance for losses was reset to zero. Further
provisions for losses on mortgage loans and related investments may be necessary
if there is deterioration in real estate markets, or there is a significant
increase in the Trust's cost of capital.
- 17 -
LIQUIDITY AND CAPITAL RESOURCES
Prior to its 1995 Restructuring, the Trust faced significant liquidity
problems. The Trust did not generate sufficient cash flow from normal operations
and was not able to liquidate mortgage loans and real estate investments in
order to meet scheduled amortization on its indebtedness. As a result of the
1995 Restructuring, management believes the cash flow from operating activities
will be sufficient to meet minimum debt service requirements. The Trust expects
to fund capital expenditures from available funds from operations and cash on
hand. However, the Trust's present liquidity, cash flow from operating
activities and ability to liquidate existing assets to meet its obligations can
be adversely impacted by a negative change in the economy, particularly as those
changes may relate to real estate assets.
Taxable income required to be distributed in order for the Trust to
maintain its REIT status will be less than income reported for financial
statement purposes under generally accepted accounting principles due to
differences related to depreciation, use of NOLs (subject to the Code Section
382 limitations) and timing differences related to bad debt deductions.
On March 28, 1996, the Trust entered into a financing agreement which
provided for the issuance of $67.4 million of Floating Rate Notes, which
issuance occurred on April 30, 1996. The Floating Rate Notes bear interest at 30
day LIBOR + 1.375 percent, payable monthly, and have a stated maturity date of
May 1, 1999.
The New Indenture generally requires that, on a monthly basis, the Trust
deposit into a Trapped Funds Account maintained by the New Indenture Trustee all
Cash Flow and Asset Sale Proceeds. Cash Flow from the Trapped Funds Account will
be distributed by the New Indenture Trustee to pay the New Indenture Trustee's
expenses, pay all accrued but unpaid interest on the Floating Rate Notes and
maintain a Debt Service Reserve Account before any funds are released to the
Trust. In the event of a sale of, or certain casualty or indemnification events
with respect to, any of the properties mortgaged under the terms of the debt
instruments, the proceeds therefrom will be used to retire up to 125% of a
portion of the Floating Rate Notes that has been allocated to such property
before any funds are released to the Trust. The New Indenture includes
affirmative covenants and negative covenants. At September 30, 1996, the Trust
was in compliance with the New Indenture.
The proceeds received from the Floating Rate Notes, together with
approximately $56.5 million of cash on hand, were used to prepay the Trust's
Senior Secured Notes and Mortgage Payable. The face amount outstanding of the
Senior Secured Notes and the Mortgage Payable at the time of repayment was
$110.0 million and $13.9 million, respectively. The Senior Secured Notes and
Mortgage Payable were repaid in full on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate
protection agreement (the "Cap") that serves to cap the floating interest
component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of
$377,000 to the counterparty to the Cap.
During fiscal 1996 the Trust reclassified seven properties totaling
$18.7 million to Real Estate Owned Held for Sale from Real Estate Owned Held for
Investment. During fiscal 1996 the Trust received $26.6 million in net proceeds
from the sale of nine properties with a carrying value of $19.2 million
classified as Real Estate Owned Held for Sale.
- 18 -
The Trust's cash flow is derived from operating, investing and financing
activities. Cash flow provided from operating activities increased to $9.4
million in fiscal 1996 compared to a decrease of $50.9 million in fiscal 1995.
In 1995, cash flow provided from operating activities decreased substantially as
a result of a $32.6 million reduction in interest payable. Interest payable
increased $32.2 million in fiscal 1994 from 1993 as the Trust did not generate
cash flow sufficient to service the Old Notes and was in default as to the
payment of principal and interest.
Cash provided by investing activities increased substantially to $79.8
million in fiscal 1996 compared to $12.1 million and $32.4 million in fiscal
1995 and 1994, respectively. Real estate sales activity increased in fiscal 1996
to $27.1 million from $3.3 million and $6.4 million in fiscal 1995 and 1994,
respectively. In fiscal 1996, the Trust completed the disposition of
substantially all of the its mortgage loan portfolio through a series of
transactions which contributed $55.5 million of the $79.8 million in cash
provided by investing activities. Repayments on mortgage loans declined in
fiscal 1996 to $0.3 million from $22.7 million and $34.3 million in fiscal 1995
and 1994, respectively. Prior to the 1995 Restructuring, the Trust had offered
discounts on the repayment of mortgage loans and had sold real estate in an
effort to generate cash to meet principal and interest payments on the Old
Notes.
Cash used in financing activities increased to $69.7 million in fiscal
1996 compared to $8.5 million and $3.0 million in fiscal 1995 and 1994,
respectively. The fiscal 1996 increase is primarily due to the repayment of
$114.1 million and $17.5 million on its indebtedness and Mortgage Payable,
respectively, offset by the issuance of $67.4 million in Floating Rate Notes.
The increase in fiscal 1995 is primarily a result of a $4.6 million principal
payment on the Old Notes. Principal payments were not made in 1994 as the Trust
was in default as to principal and interest payments on the Old Notes.
In fiscal 1994, as a result of being in default and not making scheduled
payments with respect to the Old Notes, cash and cash equivalents increased from
$11.5 million to $57.3 million. However, as a result of the Prepackaged Plan of
Reorganization, principal and interest payments were made in fiscal 1995 and
cash and cash equivalents decreased to $10.0 million at the end of fiscal 1995.
In fiscal 1996, cash and cash equivalents increased to $29.5 million as a result
of refinancing the Trust's indebtedness, the disposition of substantially all of
the mortgage loan portfolio and the sale of real estate properties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data are as set forth in the
"Index to Financial Statements."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Information with respect to the Changes In and Disagreements With
Accountants on Accounting and Financial Disclosure is incorporated by reference
under caption "Independent Auditors" of the Registrant's definitive Proxy
Statement for the Annual Shareholder Meeting to be held February 25, 1997.
Reference is also made in Exhibit 16.
- 19 -
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the Trust's Trustees and Executive Officers
is incorporated by reference under captions "Information Regarding Executive
Officers" and "Information Regarding Nominees for Election as Trustees" of the
Registrant's definitive Proxy Statement for the Annual Shareholder Meeting to be
held February 25, 1997.
ITEM 11. TRUSTEE AND EXECUTIVE COMPENSATION.
Information with respect to the Trust's Trustees and Executive
compensation is incorporated by reference under captions "Trustee Compensation",
"Executive Compensation" and "Option Grants in Fiscal Year 1996; Aggregated
Option Exercises in Fiscal Year 1996 and Fiscal Year-End 1996 Option Values" of
the Registrant's definitive Proxy Statement for the Annual Shareholder Meeting
to be held February 25, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to the Security Ownership of Certain Beneficial
Owners and Management is incorporated by reference under caption "Security
Ownership of Certain Beneficial Owners and Management" of the Registrant's
definitive Proxy Statement for the Annual Shareholder Meeting to be held
February 25, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information contained in Note 14 of the Notes
to the Consolidated Financial Statements which is incorporated herein by
reference.
- 20 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed as a Part of the Report.
The following documents are filed as part of this report.
1. Financial Statements. The financial statements of the Trust are set
forth in the "INDEX TO FINANCIAL STATEMENTS".
2. Financial Statement Schedules. See 3(d) below.
3. Exhibits.
(a) Exhibits are as set forth in the "INDEX TO EXHIBITS".
(b) REPORTS ON FORM 8-K. None.
(c) EXHIBITS, INCLUDING THOSE INCORPORATED BY REFERENCE. Exhibits
are set forth in the "INDEX TO EXHIBITS". Where so indicated by footnote in the
index, exhibits which were previously filed are incorporated by reference. For
exhibits incorporated by reference, the location of the exhibit in the previous
filing is indicated in parentheses. Copies of the exhibits are available to
shareholders upon payment of $0.25 per page fee to cover the Trust's expenses in
furnishing the exhibits. For copies contact: Value Property Trust, 120 Albany
Street, 8th floor, New Brunswick, New Jersey 08901.
(d) Financial Statement Schedules, except those indicated in the
"INDEX TO FINANCIAL STATEMENTS", have been omitted because the required
information is included in the financial statements or notes thereto, or the
amounts are not significant.
- 21 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
VALUE PROPERTY TRUST
By: /s/ George R. Zoffinger
--------------------------
George R. Zoffinger
President and Chief
Executive Officer
Date: December 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Each person in so signing also makes constitutes and appoints George R.
Zoffinger, President and Chief Executive Officer of Value Property Trust, and
each of them, his true and lawful attorney-in-fact, in his name, place and stead
to execute and cause to be filed with the Securities and Exchange Commission any
and all amendments to this report.
/s/ Jeffrey A. Altman Chairman and Trustee December 27, 1996
- --------------------------
Jeffrey A. Altman
/s/ George R. Zoffinger President, Chief Executive December 27, 1996
- -------------------------- Officer and Trustee
George R. Zoffinger (Principal Executive Officer)
/s/ Robert T. English Secretary, Treasurer and December 27, 1996
- -------------------------- Chief Financial Officer
Robert T. English (Principal Financial and
Accounting Officer)
- 22 -
/s/ Martin Bernstein Trustee December 27, 1996
- --------------------------
Martin Bernstein
/s/ Richard S. Frary Trustee December 27, 1996
- --------------------------
Richard S. Frary
/s/ Richard B. Jennings Trustee December 27, 1996
- --------------------------
Richard B. Jennings
/s/ John B. Levy Trustee December 27, 1996
- --------------------------
John B. Levy
/s/ Carl A. Mayer, Jr. Trustee December 27, 1996
- --------------------------
Carl A. Mayer, Jr.
- 23 -
VALUE PROPERTY TRUST
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Financial Statements
Consolidated Statement of Operations
(Years ended September 30, 1996, 1995 and 1994)
Consolidated Balance Sheet
(September 30, 1996 and 1995)
Consolidated Statement of Cash Flows
(Years ended September 30, 1996, 1995 and 1994)
Consolidated Statement of Shareholder's Equity
(Years ended September 30, 1996, 1995 and 1994)
Notes to the Consolidated Financial Statements
Financial Statements Schedules
Schedule XI -- Real Estate Accumulated
Depreciation and Amortization (September 30, 1996)
Schedule XII -- Mortgage Loans on Real Estate
(September 30, 1996)
- 24 -
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders of
Value Property Trust:
We have audited the consolidated financial statements and the financial
statement schedules of Value Property Trust listed in Item 14(a) of this Form
10-K as of and for the year ended September 30, 1996. These financial statements
and financial statement schedules are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audit. The
financial statements and financial statement schedules of Value Property Trust
as of September 30, 1995, and for the years ended September 30, 1995 and 1994,
were audited by other auditors whose report dated November 10, 1995, included an
emphasis of matter paragraph which described the reorganization and the
implementation of Fresh Start Reporting as discussed in Note 1 to the financial
statements.
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 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Value
Property Trust as of September 30, 1996, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
related 1996 financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material aspects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
November 27, 1996
- 25 -
REPORT OF INDEPENDENT AUDITORS
Trustees and Shareholders
Value Property Trust
We have audited the balance sheets of Value Property Trust (formerly
Mortgage and Realty Trust) at September 30, 1995 and 1994 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Trust'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.
As more fully described in the financial statements, on September 22,
1995, the Bankruptcy Court confirmed the Trust's plan of reorganization which
was consummated on September 29, 1995 permitting the Trust to emerge from
proceedings under the Bankruptcy Code. The Trust implemented the guidance as to
the accounting for entities emerging from Chapter 11 set forth in Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("Fresh Start Reporting") as of September 30, 1995. Due to the
reorganization and the implementation of Fresh Start Reporting, assets were
recorded at reorganization value, liabilities were recorded at fair values and
outstanding obligations were discharged primarily in exchange for cash, new
indebtedness and equity. As a result, the balance sheet at September 30, 1995
reflects a new basis of accounting and, accordingly, is not comparable to
balance sheets prior to that date.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Value Property
Trust, at September 30, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1995,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 10, 1995
- 26 -
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30
(amounts in thousands except per share)
POST- PRE-
CONFIRMATION CONFIRMATION
------------ ------------------------------
1996 1995 1994
------------ | -------- --------
Revenue: |
Rental properties: |
Rental income $ 26,925 | $ 24,608 $ 18,495
Operating expense reimbursement 3,557 | 2,286 1,705
Interest and fee income on mortgage loans 2,853 | 9,353 14,725
Interest on short-term investments 1,713 | 3,086 1,238
Other 18 | 131 114
-------- | -------- --------
35,066 | 39,464 36,277
-------- | -------- --------
Expenses: |
Interest 10,489 | 35,900 33,002
Rental properties: |
Depreciation and amortization 2,347 | 7,306 5,839
Operating 12,084 | 11,702 9,827
Other operating expenses 3,173 | 4,518 4,839
Provision for losses on mortgage loans and related investments -- | 3,000 2,000
-------- | -------- --------
28,093 | 62,426 55,507
-------- | -------- --------
Income (loss) from operations before reorganization items, |
and extraordinary item 6,973 | (22,962) (19,230)
-------- | -------- --------
Reorganization items: |
Professional fees and other -- | 6,219 2,360
Interest income -- | (441) --
Write down of invested assets to reorganization value -- | 66,597 --
-------- | -------- --------
Total reorganization items -- | 72,375 2,360
-------- | -------- --------
Income (loss) before extraordinary item 6,973 | (95,337) (21,590)
-------- | -------- --------
Extraordinary item-gain on extinguishment of debt -- | 75,304 --
-------- | -------- --------
Net income (loss) $ 6,973 | $(20,033) $(21,590)
======== | ======== ========
Net income per share* $ 0.62 |
======== |
Weighted average number of common shares outstanding 11,226 | 11,226 11,226
*Net income (loss) per share for all pre-confirmation periods is not presented
because this information is not meaningful as a result of the Reorganization
and the adoption of "Fresh Start Reporting". See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
See accompanying notes to consolidated financial statements.
- 27 -
VALUE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30
(dollars in thousands)
1996 1995
-------- --------
ASSETS
Assets Held For Sale:
Mortgage loans ........................................ $ -- $ 21,966
Investment in partnerships ............................ 10,219 5,220
Real estate owned ..................................... 38,171 42,059
-------- --------
48,390 69,245
-------- --------
Assets Held For Investment:
Mortgage loans ........................................ 663 35,013
Investment in partnerships ............................ 13,486 20,648
Real estate owned ..................................... 63,196 81,581
Notes receivable ...................................... -- 633
-------- --------
77,345 137,875
-------- --------
Total Invested Assets ...................................... 125,735 207,120
Cash and cash equivalents .................................. 29,501 9,977
Restricted cash ............................................ 12,213 6,791
Interest receivable and other assets ....................... 4,962 8,441
-------- --------
Total Assets ............................................... $172,411 $232,329
======== ========
LIABILITIES
Senior Secured Notes (Due 1999) ............................ $ 63,226 $--
Senior Secured Notes (Due 2002) ............................ -- 109,975
Mortgage payable ........................................... -- 17,535
Accounts payable and accrued expenses ...................... 1,804 4,745
Interest payable ........................................... 334 --
-------- --------
Total Liabilities .......................................... 65,364 132,255
-------- --------
Commitments and contingencies
(Continued)
- 28 -
VALUE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30 -- Continued
(dollars in thousands)
1996 1995
-------- --------
SHAREHOLDERS' EQUITY
Preferred Shares, $1 par value: 3,500,000 shares authorized,
none issued .............................................. -- --
Common Shares, $1 par value: 20,000,000 shares authorized,
11,226,310 and 11,226,215 shares issued and outstanding .. 11,226 11,226
Additional paid-in capital ................................. 88,848 88,848
Accumulated earnings ....................................... 6,973 --
-------- --------
Total Shareholders' Equity ................................. 107,047 100,074
-------- --------
Total Liabilities and Shareholders' Equity ................. $172,411 $232,329
======== ========
See accompanying notes to consolidated financial statements.
- 29 -
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30
(dollars in thousands)
POST- PRE-
CONFIRMATION CONFIRMATION
------------ ---------------------------
1996 1995 1994
------------ | --------- ---------
Net income (loss) ............................................................ $ 6,973 | $ (20,033) $ (21,590)
Adjustments to reconcile net income (loss) to net cash |
provided by (used in) operating activities: |
Write down of invested assets to reorganization value .................... -- | 66,597 --
Extraordinary item-gain on extinguishment of debt ........................ -- | (75,304) --
Depreciation and amortization on real estate ............................. 2,347 | 7,306 5,839
Provision for losses ..................................................... -- | 3,000 2,000
(Decrease) increase in accounts payable and accrued expenses ............... (2,942) | 199 (217)
Increase (decrease) in interest payable .................................... 334 | (32,568) 32,156
Decrease (increase) in receivables and other assets ........................ 2,675 | (576) (1,160)
Net change in interest reserves, deferred income ........................... -- | (162) (582)
Recoveries of charge-offs to allowance for losses .......................... -- | 631 1,019
Other ...................................................................... -- | -- (967)
--------- | --------- ---------
Total adjustments ............................................................ 2,414 | (30,877) 38,088
--------- | --------- ---------
Net cash provided by (used in) operating activities .......................... 9,387 | (50,910) 16,498
--------- | --------- ---------
|
Cash flows from investing activities: Investment in real estate: |
Real estate owned ........................................................ (4,550) | (11,283) (7,116)
Advances on mortgage loans ............................................... (73) | (733) (1,337)
Partnerships ............................................................. (344) | (2,211) --
Principal repayments on mortgage loan receivables .......................... 332 | 22,711 34,308
Proceeds from the sale of real estate ...................................... 27,093 | 3,350 6,360
Proceeds from the sale of mortgage loans and notes receivable .............. 57,047 | -- --
Repayments on notes receivable ............................................. 338 | 217 168
--------- | --------- ---------
Net cash provided by investing activities .................................... 79,843 | 12,051 32,383
--------- | --------- ---------
(Continued)
- 30 -
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30 -- Continued
(dollars in thousands)
POST- PRE-
CONFIRMATION CONFIRMATION
------------ ---------------------------
1996 1995 1994
------------ | --------- ---------
Cash flows from financing activities: |
Payment of mortgage payable ................................................ (17,535) | (58) --
Principal payment of senior secured notes (due 2002) ....................... (109,975) | (4,647) --
Principal payment of senior secured notes (due 1999) ....................... (4,153) | -- --
Borrowing of senior notes (due 1999) ....................................... 67,379 | -- --
Increase in restricted cash ................................................ (5,422) | (3,808) (2,983)
--------- | --------- ---------
Net cash used in financing activities ........................................ (69,706) | (8,513) (2,983)
--------- | --------- ---------
Net increase (decrease) in cash and cash equivalents ......................... 19,524 | (47,372) 45,898
Cash and cash equivalent and beginning of period ............................. 9,977 | 57,349 11,451
--------- | --------- ---------
Cash and cash equivalent at end of period .................................... $ 29,501 | $ 9,977 $ 57,349
--------- | --------- ---------
|
Supplemental schedule of non-cash investing activities: |
Charge-offs against allowance for losses ................................... $ -- | $ 5,515 $ 378
--------- | --------- ---------
Transfer of mortgage loans to real estate owned ............................ $ 5,120 | $ 10,900 $ 13,100
--------- | --------- ---------
|
Interest Paid ................................................................ $ 9,972 | $ -- $ --
--------- | --------- ---------
See accompanying notes to consolidated financial statements.
- 31 -
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(amounts in thousands)
ADDITIONAL ACCUMULATED TOTAL
COMMON SHARES PAID-IN (DEFICIT) SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- -------- -------- --------
Balance at September 30, 1993 11,226 $ 11,226 $182,375 $(151,978) $ 41,623
Net loss -- -- -- (21,590) (21,590)
------ -------- -------- -------- --------
Balance at September 30, 1994 11,226 11,226 182,375 (173,568) 20,033
Net loss -- -- -- (20,033) (20,033)
Reverse stock split (10,889) (10,889) (268,905) -- (279,794)
Issuance of Common Stock 10,889 10,889 175,378 -- 186,267
Adjustment to restate
accumulated deficit to zero -- -- -- 193,601 193,601
------ -------- -------- -------- --------
====================================================================================================================================
Balance at September 30, 1995 11,226 11,226 88,848 0 100,074
------ -------- -------- -------- --------
Net income -- -- -- 6,973 6,973
------ -------- -------- -------- --------
Balance at September 30, 1996 11,226 $ 11,226 $ 88,848 $ 6,973 $107,047
====== ======== ======== ======== ========
See accompanying notes to consolidated financial statements.
- 32 -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION
On September 29, 1995, the Trust's Prepackaged Plan of Reorganization
was declared effective by the United States Bankruptcy Court for the Central
District of California.
Under the Prepackaged Plan, holders of the Trust's $290,000,000
principal amount of Senior Secured Uncertificated Notes due 1995 received (i)
$110,000,000 principal amount of newly issued 11-1/8% Senior Secured Notes due
2002, (ii) $71,000,000 ($25,000,000 paid in April 1995) in cash and (iii)
approximately 10,889,430 newly issued Common Shares representing, in the
aggregate, approximately 97% of the Common Shares outstanding after the
effective date. In connection with the Prepackaged Plan, the Trust effected a 1
for 33.33 reverse stock split of all outstanding Common Shares.
In connection with its emergence from the Chapter 11 proceeding, the
Trust implemented Fresh Start Reporting as of September 30, 1995, as set forth
in Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code." The Trust adopted Fresh Start Reporting because (i)
the holders of existing voting shares immediately before filing and confirmation
of the Prepackaged Plan received less than 50% of the voting shares of the new
entity and (ii) the reorganization value immediately before the date of
confirmation was less than the total of all post-petition liabilities and
allowed claims, as shown below:
($ in 000)
---------
Total post-petition liabilities and allowed claims ........... $ 351,833
Reorganization value ......................................... (278,354)
---------
Excess of liabilities over reorganization value .............. $ 73,479
=========
The post-confirmation financial statements and schedules amounts have
been segregated by a black line in order to signify that the financial
statements and schedules are that of a new reporting entity and have been
prepared on a basis which is not comparable to the pre-confirmation financial
statements and schedules.
The Trust based the reorganization value of assets on the mid-point of
the range of values prepared by independent specialists in the field of real
estate valuation. The valuation of its real estate investments was prepared as
of March 31, 1995 and was adjusted to September 30, 1995 for various accounts
such as cash and cash equivalents, accounts receivable and accounts payable.
The Trust's liabilities were stated at their fair value. The difference
between reorganization value of the assets and the fair value of the liabilities
was recorded as an adjustment to shareholders' equity with the accumulated
deficit restated to zero.
- 33 -
The real estate valuation analysis reflected the selection of 26 assets
which represented 81% of the Trust's book value at March 31, 1995. The selection
was divided between east coast and west coast assets and generally represented
the highest dollar values in the portfolio.
The analysis factored in, among other things, (i) the most recent
property cash flow projections for the properties selected, (ii) where
applicable, the most recent operating rent roll and other financial information
relative to the assets selected, (iii) the most recent third party, independent
appraisals, where applicable and available, (iv) discussions with the respective
asset managers to determine loan status, property characteristics, current
occupancy, existing market rental rates, new leases, current payoff discussions
and asset sales, and (v) a review of limited market information for the
properties.
The valuation of the asset portfolio assumed continued operation of the
portfolio for several years. Sales and pay-offs of certain assets occurred
throughout the analysis period (six years) and no additional investments were
made. Property cash flows, loan payments and pay-offs, and reversion amounts
(based on normalized capital expenditures in the reversion year) were discounted
to present value at 12 percent per year. Amounts do not include extraordinary
expenses for reorganization or litigation.
The going concern value was reduced by other operating expenses that
would be incurred over a six year period. The present value of expenses was
calculated by applying a capitalization rate of 10 percent to Year 6 stabilized
other expenses and discounting both the capitalized, stabilized Year 6 expenses
and the annual expenses at 12 percent. The net present value of operating
expenses was $27.3 million.
- 34 -
The effect of the Fresh Start Reporting on the Trust's historical cost
balance sheet at September 30, 1995 is as follows:
PRE- REORGANIZATION FRESH START POST-
CONFIRMATION ADJUSTMENTS ADJUSTMENTS CONFIRMATION
------------ ----------- ----------- ------------
(dollars in thousands)
ASSETS
Assets held for sale:
Mortgage loans $ 30,225 ($ 8,259) (E) $ 21,966
Investments in partnerships 6,478 (1,258) (E) 5,220
Real estate owned 50,406 (8,347) (E) 42,059
-------- -------- --------- --------
87,109 0 (17,864) (E) 69,245
-------- -------- --------- --------
Assets held for investment:
Mortgage loans 46,721 (11,708) (E) 35,013
Investments in partnerships 26,249 (5,601) (E) 20,648
Notes receivable 700 (67) (E) 633
Real estate owned 124,484 (42,903) (E) 81,581
-------- -------- --------- --------
198,154 0 (60,279) (E) 137,875
-------- -------- --------- --------
285,263 0 (78,143) (E) 207,120
Less: allowance for losses (11,546) 11,546 (E) 0
-------- -------- --------- --------
273,717 0 (66,597) (E) 207,120
Cash and cash equivalents 56,002 (46,025) (A) 9,977
Restricted cash 6,791 6,791
Interest receivable and other assets 8,441 8,441
-------- -------- --------- --------
Total Assets $344,951 ($46,025) ($66,597) $232,329
-------- -------- --------- --------
LIABILITIES
Senior Notes Due 1995 $290,000 ($290,000) (B) $ 0
Senior Notes Due 2002 0 109,975 (B) 109,975
Mortgage payable 17,535 17,535
Interest payable 41,378 (41,378) (B) 0
Accounts payable and other 2,920 1,825 (C) 4,745
-------- -------- --------- --------
Total Liabilities 351,833 (219,578) 0 132,255
-------- -------- --------- --------
SHAREHOLDERS' EQUITY
Common Stock at par 11,226 11,226
Additional paid in capital 182,375 175,378 (D) (268,905) (F) 88,848
Accumulated deficit (200,483) (1,825) (C) 202,308 (F) 0
-------- -------- --------- --------
Total Shareholders' Equity (6,882) 173,553 (66,597) 100,074
-------- -------- --------- --------
Total Liabilities and
Shareholders' Equity $344,951 $(46,025) $ (66,597) $232,329
======== ======== ========= ========
- 35 -
ADJUSTMENTS TO REFLECT REORGANIZATION
(A) Reflects a $46,025 payment to creditors made at implementation of the plan.
(B) Reflects the cancellation of the Senior Secured Notes due 1995 in the face
amount of $290,000 and the related interest payable on these notes of
$41,378 and the recording of the new Senior Notes due 2002 in the face
amount of $109,975.
(C) Reflects the cost of the termination pay plan (See Note 9) ($1,325) and the
cost associated with the restructuring ($500).
(D) Reflects the conversion of amounts previously owed under the Senior Secured
Notes due 1995 converted to a 97% interest in the common shares of the
reorganized Trust as follows:
($ in 000)
---------
Face amount of Senior Notes due 1995 ......................... $ 290,000
Interest payable ............................................. 41,378
---------
Total amount payable to creditors ............................ 331,378
Less: Senior Notes due 2002 .................................. (109,975)
Less: Cash payment to creditors .............................. (46,025)
---------
Amount previously due creditors converted to equity .......... $ 175,378
=========
The following unaudited table reflects the ownership (as between holders
of Outstanding Common Shares and holders of Outstanding Notes) of the Trust's
Common Shares before and after consummation of the 1995 Restructuring.
COMMON SHARES BEFORE COMMON SHARES AFTER COMMON
REVERSE STOCK SPLIT REVERSE STOCK SPLIT BUT SHARES AFTER
OR CONSUMMATION BEFORE CONSUMMATION OF CONSUMMATION
OF THE RESTRUCTURING THE RESTRUCTURING OF THE RESTRUCTURING
------------------------------ ----------------------------- -------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES COMMON SHARES SHARES COMMON SHARES SHARES COMMON SHARES
--------- ------------- --------- ------------- --------- ---------------
(in 000)
Holders of Outstanding
Notes 0 0 0 0 10,889 97%
Holders of Outstanding
Common Shares 11,226 100% 337 100% 337 3%
- 36 -
ADJUSTMENT TO REFLECT FRESH START ACCOUNTING
(E) Reflects adjustment made to carrying value of loans and owned real estate to
adjust to reorganization values.
(F) Reflects an adjustment of the accumulated deficit to zero as a result of the
restructure and the adjustment of additional paid in capital as follows:
($ in 000)
---------
Adjust accumulated deficit to reset to zero ................. $(202,308)
Adjustment to carrying value of invested assets ............. (66,597)
---------
$(268,905)
=========
The following unaudited Pro Forma Statement of Operations is presented
as if the Prepackaged Plan of Reorganization and implementation of Fresh Start
Reporting had occurred as of October 1, 1994. Such pro forma information is
based upon the historical financial statements of Value Property Trust. In
management's opinion all adjustments necessary to reflect the effects of those
transactions have been made. The following unaudited Pro Forma Statement of
Operations is not necessarily indicative of what the actual results of
operations of the Trust would have been assuming such transaction had occurred
as of October 1, 1994, nor does it purport to represent the results of
operations for future periods.
- 37 -
PRO FORMA STATEMENT OF OPERATIONS
Year Ended September 30, 1995
(Unaudited)
(dollars in thousands except per share)
PRO FORMA
1995 ADJUSTMENTS PRO FORMA
-------- ----------- ---------
Revenue:
Income of rental properties:
Rental income ................................................... $ 24,608 $ -- $ 24,608
Operating expense reimbursements ................................ 2,286 -- 2,286
Interest and fee income on mortgage loans ............................ 9,353 -- 9,353
Interest on short-term investments ................................... 3,086 (2,586) (G) 500
Other ................................................................ 131 -- 131
-------- -------- --------
39,464 (2,586) 36,878
-------- -------- --------
Expenses:
Interest ............................................................. 35,900 (21,780) (H) 14,120
Expenses of rental properties:
Depreciation and amortization ................................... 7,306 (2,390) (J) 4,916
Operating ....................................................... 11,702 -- 11,702
Other operating expenses ............................................. 4,518 -- 4,518
Provision for losses on mortgage loans and related investments ....... 3,000 (3,000) (I) --
-------- -------- --------
62,426 (27,170) 35,256
-------- -------- --------
Income (loss) from operations before
reorganization items, and extraordinary item .................... (22,962) 24,584 1,622
Reorganization items:
Professional fees and other ..................................... (6,219) 6,219 (K) --
Interest income ................................................. 441 (441) (K) --
Write down of invested assets to
reorganization value ............................................ (66,597) 66,597 (K) --
-------- -------- --------
Total reorganization items ........................................... (72,375) 72,375 --
-------- -------- --------
Income (loss) before extraordinary item .............................. (95,337) 96,959 1,622
-------- -------- --------
Extraordinary item-gain on extinguishment of debt .................... 75,304 (75,304) (L) --
-------- -------- --------
Net income (loss) .................................................... $(20,033) $ 21,655 $ 1,622
======== ======== ========
Weighted average number of common shares outstanding ................. 11,226 11,226
Net income per share ................................................. * $ .14
*Net income (loss) per share is not presented because this information is not
meaningful as a result of the Reorganization and the adoption of "Fresh Start
Reporting". See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
- 38 -
Notes To Unaudited Pro Forma Statement of Operations
Pro Forma Adjustments
(G) Reflects an adjustment to investment income to reflect an average cash
position of approximately $10.0 million at an average investment rate of
5.0% for fiscal 1995.
(H) Reflects the reversal of interest expense related to the Outstanding Notes
($34.0 million) which were cancelled and the addition of interest expense
for the New Senior Notes ($12.2 million) which bear interest at a fixed rate
of 11.125%.
(I) Reflects the reversal of the $3.0 million provision for losses which would
be eliminated as a result of the adjustment of invested assets to
reorganization value.
(J) Reflects an adjustment to depreciation and amortization resulting from the
reduced basis in owned real estate as a result of the adjustment of invested
assets to reorganization value.
(K) Reflects the reversal of reorganization expenses based upon the assumption
that the Restructuring was completed and no non-recurring expenses related
to the Restructuring were incurred.
(L) Reflects the reversal of gain on extinguishment of debt based upon the
assumption that the Restructuring was completed October 1, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant of these estimates relate to the carrying
value of the assets held for sale and the estimated useful lives of assets held
for investment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accounts of the Trust and its wholly owned subsidiaries are
consolidated in the accompanying financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
INCOME TAXES
The Trust is a real estate investment trust (a "REIT") that has elected
to be taxed under Sections 856-860 of the Internal Revenue Code of 1986, as
amended. Accordingly, the Trust does not pay Federal income tax on income as
long as income distributed to shareholders is at least equal to real estate
investment trust taxable income, and pays no Federal income tax on capital gains
distributed to shareholders.
- 39 -
For the fiscal years ended September 30, 1996, 1995 and 1994, there were
significant differences between taxable net loss and net income (loss) as
reported in the financial statements. The differences were related to the
recognition of bad debt deductions and accounting for reorganization costs and
Fresh Start Reporting. For financial accounting purposes, these items are
expensed currently, while for tax purposes some portion of these items are
deferred to future periods or may not be deductible. In addition, the Fresh
Start Reporting discussed in Note 1 is not recognized for tax purposes, and will
result in future years financial reporting and tax basis differences.
The Trust has approximately $102 million in net operating losses (the
"NOLs") for tax purposes attributable to losses generated in fiscal years 1991
through 1996. The NOLs attributable to each year can be carried forward up to
fifteen years from the year the loss was generated. The use of NOLs in any
taxable year (together with any recognized losses that are economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation under Internal Revenue Code section 382. The Trust estimates that
this annual limitation is approximately $6 million.
INTEREST INCOME
Interest income on each loan is recorded as earned. Interest income is
not recognized if, in the opinion of the management, collection is doubtful. The
Trust generally considers loans as delinquent if payment of interest and/or
principal, as required by the terms of the note, is more than 60 days past due.
Accrual of interest income is generally terminated and foreclosure proceedings
are started if payment is more than 60 days past due.
ALLOWANCE FOR LOSSES
Prior to the implementation of Fresh Start Reporting, the allowance for
losses on mortgage loans and related investments was determined in accordance
with The American Institute of Certified Public Accountants Statement of
Position on Accounting Practices of Real Estate Investment Trusts 75-2 ("SOP
75-2"), as amended. This statement requires adjustment of the carrying value of
mortgage loans to the lower of their carrying value or estimated net realizable
value. Estimated net realizable value is the estimated selling price of a
property offered for sale in the open market allowing a reasonable time to find
a buyer, reduced by the estimated cost to complete and hold the property
(including the estimated cost of capital), net of estimated cash income. With
the implementation of Fresh Start Reporting, as of September 30, 1995, the
allowance for losses was reset to zero.
NET INCOME PER SHARE
Net income per share is computed using the weighted average common
shares outstanding during the period. Net loss per share for all
pre-confirmation periods is not presented because this information is not
meaningful as a result of the Reorganization and the implementation of "Fresh
Start Reporting". See Note 1.
- 40 -
DEPRECIATION AND AMORTIZATION
At September 30, 1995, as a result of Fresh Start Reporting, all assets
and liabilities of the Trust were restated to reflect their respective
reorganization value or fair value. The accumulated depreciation on real estate
owned was reset to zero as a result of the adoption of Fresh Start Reporting. At
September 30, 1995, the Trust segregated the real estate portfolio into two
categories: Held for Sale and Held for Investment. The Trust depreciates the
Held for Investment category over the estimated useful lives of the assets; 40
years for buildings, three to five years for other property and over the term of
the related lease for lease commissions and tenant improvements. The Held for
Sale category is not depreciated. During fiscal 1996, the Trust reclassified
seven properties totaling $18.7 million to real estate held for sale from real
estate held for investment and no longer depreciates these assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents and restricted cash include short-term
investments (high grade commercial paper, bank CDs and US Treasury Securities)
with original maturities not exceeding a term greater than 90 days.
INVESTMENT IN PARTNERSHIPS
Investment in partnerships represents the Trust's investment in real
estate partnerships. The Trust owns a majority percentage interest in most of
these partnerships and receives substantially all of the cash flow. The Trust
accounts for all of these partnerships, except one, in a similar manner as real
estate investments; the one partnership is accounted for using the equity
method.
REAL ESTATE OWNED
As of September 30, 1995, the Trust's invested assets were adjusted to
reorganization value which became the new historical cost basis. Subsequently,
real estate held for investment is carried at historical cost less depreciation.
Real estate held for sale is carried at the lower of cost or net realizable
value. In conjunction with the adoption of Fresh Start Reporting on September
30, 1995, all gains or losses for a period of one year after such adoption are
applied against the carrying value of long lived assets held for investment.
Through September 30, 1996, the Trust has reduced the carrying values of assets
Held for Investment by $12.6 million as a result of the net gains on both the
disposition of substantially all of its mortgage loan portfolio in March 1996
and the sale of nine properties classified as real estate held for sale. At
September 30, 1996, the Trust owned 31 properties of which ten are classified as
Held for Sale. The fiscal 1996 revenue and net operating income from these ten
properties were $10.3 million and $6.0 million, respectively.
DEFERRED COSTS
Included in other assets are costs incurred in obtaining debt financing
which are deferred and amortized over the term of the related debt agreement.
Amortization expense is included in interest expense in the accompanying
statement of operations for fiscal 1996. Net deferred financing costs included
in other assets in the accompanying balance sheet amounted to $2.2 million at
September 30, 1996.
- 41 -
REVENUE RECOGNITION
The Trust recognizes base rental revenue for financial statement
purposes ratably as earned over the term of the lease.
INTEREST RATE SWAP AGREEMENT
The Trust is a party to an interest rate protection agreement (the
"Cap") used to hedge its interest rate exposure on floating rate debt (See Note
5 "Borrowings"). The differential to be paid or received is recognized in the
period incurred and included in interest expense.
3. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE AND PARTNERSHIPS
The following table summarizes the Trust's mortgage loan portfolio:
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------- --------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF UNDERLYING SECURITY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- --------------------------- ----------- ------ ----------- ------
($000) ($000)
Apartments -- $ -- 1 $ 170
Residential/Condominium* 7 663 8 909
Office Buildings -- -- 3 4,579
Industrial Buildings -- -- 10 19,046
Research & Development Bldgs. -- -- 4 17,081
Retail Buildings -- -- 4 13,208
Hotel/Motels -- -- 1 1,986
---- ---- ---- --------
Total 7 $663 31 $ 56,979
==== ==== ==== ========
- ----------------
*Includes 71 mortgage end loans on 7 investments at September 30, 1996 and 80
mortgage end loans on 8 investments at September 30, 1995.
During the second quarter of fiscal 1996, the Trust completed the
disposition of substantially all of its mortgage loan portfolio. The Trust
received $55.5 million in net cash proceeds through a series of transactions
which included loan repayments and a bulk sale of certain mortgage loans. The
carrying value of the mortgage loans involved in these transactions totaled
$50.5 million. Early in fiscal 1996, the Trust foreclosed on the two non-earning
loans totaling $5.1 million and has obtained title to the related properties.
During fiscal 1995 loans totaling $38,834,000 were extended beyond their
original contractual maturity dates. In addition, seven loans totaling
$26,101,000 had interest rate reductions due to financial difficulties of the
borrower. Loan terms are extended or modified in the normal course of business
due to financial difficulties of the borrower.
At September 30, 1996 and 1995, mortgage loans outstanding consisted of
fixed rate loans of $663,000 and $41,050,000, floating rate loans of $-0- and
$15,929,000 and participating loans of $-0- and $1,529,000, respectively. At
September 30, 1996, the mortgage loan portfolio had interest rates ranging from
6.20% to 9.50% with maturities ranging from June 2000 to June 2009.
- 42 -
The following table summarizes the Trust's real estate owned, net of
accumulated depreciation of $1.9 million at September 30, 1996 and $-0- at
September 30, 1995:
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------- ----------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- ---------------- ----------- -------- ----------- ----------
($000) ($000)
Apartments 2 $ 16,166 3 $ 19,517
Office Buildings 14 34,004 14 38,352
Industrial Buildings 6 14,892 9 19,904
Retail Buildings 4 36,305 5 41,133
Research & Development Bldgs -- -- 2 4,734
---- -------- ---- --------
Total 26 $101,367 33 $123,640
==== ======== ==== ========
The following table summarizes the Trust's investment in partnerships,
net of accumulated depreciation of $0.3 million at September 30, 1996 and $-0-
at September 30, 1995:
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------- ----------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- ---------------- ----------- -------- ----------- ----------
($000) ($000)
Industrial Buildings 3 $ 13,658 3 $ 13,988
Retail Buildings 2 10,047 2 11,880
---- -------- ---- --------
Total 5 $ 23,705 5 $ 25,868
==== ======== ==== ========
The Trust may be liable for environmental problems on sold properties.
At September 30, 1996, the Trust was not aware of any environmental problems on
sold properties.
- 43 -
4. ALLOWANCE FOR LOSSES
The changes in the allowance for losses for the years ended September
30, 1995 and 1994 were as follows:
1995 1994
------- -------
(dollars in thousands)
Balance at beginning of year ......................... $13,430 $11,808
Provisions charged to expense ........................ 3,000 2,000
------- -------
16,430 13,808
Less charges against allowance, net of recoveries
or reorganization adjustments ...................... 16,430 378
------- -------
Balance at end of year ............................... $ -- $13,430
======= =======
For the year ended September 30, 1996, the Trust did not provide for an
allowance for losses.
Approximately $6,276,000 of the allowance for losses at September 30,
1994 is applicable to real estate properties acquired through foreclosure.
The Trust adjusted the balance of allowance for losses at September 30,
1995 as part of "Fresh Start Reporting" (See Note 1).
5. BORROWINGS
MORTGAGE PAYABLE
On April 30, 1996, the Trust prepaid the mortgage loan of $13.9 million
(the "Mortgage Payable"). See discussion below with respect to the Trust's
prepayment of the Prior Notes.
SENIOR SECURED NOTES
The Holders of the Prior Notes had a first priority lien on all of the
Trust's collateral. The Prior Notes were governed by the Prior Indenture between
the Trust and Wilmington Trust Co., as Trustee, dated as of the effective date
of the Trust's reorganization (September 29, 1995). Interest on the Prior Notes
accrued at 11-1/8% per annum and was payable semi-annually in arrears on each
June 30 and December 31. The Prior Indenture included affirmative covenants,
negative covenants and financial covenants.
On March 28, 1996, the Trust entered into a financing agreement which
provided for the issuance of $67.4 million of new Floating Rate Notes (the
"Floating Rate Notes"), which issuance occurred on April 30, 1996. The Floating
Rate Notes bear interest at 30 day LIBOR + 1.375 percent, payable monthly, and
have a stated maturity date of May 1, 1999.
- 44 -
The indenture relative to the Floating Rate Notes (the "New Indenture")
generally requires that, on a monthly basis, the Trust deposit into a Trapped
Funds Account, as defined, maintained by the indenture trustee (the "New
Indenture Trustee") for the Floating Rate Notes all Cash Flow and Asset Sale
Proceeds (each as defined in the New Indenture). Cash Flow from the Trapped
Funds Account will be distributed to pay the New Indenture Trustee's expenses,
pay all accrued but unpaid interest on the Floating Rate Notes and to maintain a
Debt Service Reserve Account before any funds are released to the Trust. In the
event of a sale of, or certain casualty, or indemnification events with respect
to any of the remaining twenty-one properties of the original twenty-four
properties mortgaged under the terms of the Floating Rate Notes (underlying
collateralized carrying value of $86.5 million at September 30, 1996), the
proceeds therefrom will be used to retire up to 125% of a portion of the
allocated debt of such property before any funds are released to the Trust. The
New Indenture includes affirmative covenants and negative covenants. At
September 30, 1996, the Trust was in compliance with the New Indenture.
The proceeds received from the Floating Rate Notes, together with
approximately $56.5 million of cash on hand, were used to prepay the Trust's
Prior Notes and Mortgage Payable. The face amount outstanding of the Prior Notes
and the Mortgage Payable at the time of repayment was $110.0 million and $13.9
million, respectively. The Prior Notes and Mortgage Payable were repaid in full
on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate
protection agreement (the "Cap") that serves to cap the floating interest
component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of
$377,000 to the counterparty to the Cap.
During fiscal 1996, the Trust sold nine real estate properties, three of
which were encumbered under the terms of the New Indenture. The Trust used a
portion of the net proceeds from the sale of the encumbered properties to prepay
a portion of the Floating Rate Notes, as required under the terms of the New
Indenture. In July of fiscal 1996, the Trust used $4.2 million of the net
proceeds and in October and November of fiscal 1997 used $2.6 million and $5.8
million, respectively of the fiscal 1996 net proceeds to prepay a portion of the
Floating Rate Notes.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board Statement No. 107 - Disclosure
of Fair Value of Financial Statements ("SFAS 107") requires disclosure of fair
value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques.
The carrying value of cash and cash equivalents approximates their fair
value because of the liquidity and short-term maturities of these instruments.
The carrying value and fair value of off-balance sheet derivative
financial instruments used to manage the interest rate sensitivity of the
Floating Rate Notes were $325,000 and $186,000 at September 30, 1996,
respectively.
- 45 -
Although the off-balance sheet derivative financial instrument does not
expose the Trust to credit risk equal to the notional amount of $67.4 million,
the Trust is exposed to credit risk equal to the extent of the fair value gain
of an off-balance sheet derivative financial instrument should the counterparty
fail to perform. The Trust minimized such credit risk by dealing only with a
high quality counterparty. In addition, the Trust's policy is to require that
the Cap be governed by an International Swaps and Derivatives Association Master
Agreement. Bilateral collateral arrangements are in place for the all dealer
counterparty.
The carrying value of the Floating Rate Notes at September 30, 1996
approximates their fair value because of the floating rate of these instruments.
7. SHARE OPTION PLAN
1984 SHARE OPTION PLAN
As part of the Plan of Reorganization, the 1984 Share Option Plan was
terminated and 348,500 common stock options were canceled.
1995 SHARE OPTION PLAN
On October 2, 1995, the Board of Trustees adopted a 1995 Share Option
Plan (the "1995 Plan") for Trustees, officers, employees and other key persons
of the Trust. On February 15, 1996, the Trust's shareholders approved the
adoption of the 1995 Plan at the Trust's 1996 Annual Meeting of Shareholders.
The 1995 Plan provides for the grant of options to purchase up to
870,000 common shares at not less than 100% of the fair market value of the
common shares, subject to adjustment for share splits, share dividends and
similar events. To the extent that awards under the 1995 Plan do not vest or
otherwise revert to the Trust, the common shares represented by such awards may
be the subject of subsequent awards.
The 1995 Plan provides for the grant of incentive stock options
("Incentive Options") which qualify under Section 422 of the Code and
non-qualified stock options ("Non-Qualified Options"). Holders of options also
receive dividend equivalent rights. Under the 1995 Plan, 894,000 shares were
granted with a price ranging from $10.00 to $12.25 per share and 55,000 shares
were forfeited at a price of $10.00 per share during fiscal 1996. The weighted
average exercise price is $10.13 per share. The options vest equally over a
three year period starting one year from the date of grant. The options expire
four years from the date of grant.
- 46 -
8. BENEFIT PLANS
PENSION PLANS
Effective September 30, 1989, the Trustees adopted an Employees'
Retirement Plan. On December 16, 1992, the Trustees amended and restated the
Employees' Retirement Plan effective January 1, 1992 (as amended on July 20,
1994, and effective January 1, 1994 and as may be further amended, the
"Retirement Plan"). In November 1995, the Trustees amended the Retirement Plan
effective January 1, 1996 to switch from the Pension Benefit Guaranty
Corporation ("PBGC") interest rate used for valuing lump sum distributions to
the new General Agreement on Tariffs and Trade interest rate and mortality table
for valuing lump sum distributions. As a result of this amendment, the current
market value of Retirement Plan assets approximates the current aggregate lump
sum amounts due to participants. In July 1996, the Trustees voted to terminate
the pension plan effective July 1, 1996.
All employees as of the termination date of the plan were eligible to
participate in the Retirement Plan provided that they were at least 21 years of
age and had been employed for twelve consecutive months, during which period the
employee completed at least 1000 hours of service. Under the Retirement Plan,
each eligible employee after completing five years of vesting service become
100% vested and entitled to a retirement pension.
The Trust has submitted the required applications to the PBGC to
formally terminate the plan. There were 15 former employees who received final
payouts under the plan in fiscal 1996. There are four current employees and one
former employee that are due benefits under the plan as of July 1, 1996. Upon
the formal termination of the plan, the Trust will distribute the remaining
benefits of approximately $100,000 to the remaining eligible employees.
SAVINGS AND INVESTMENT PLAN
The Trust also maintains a 401(k) profit sharing plan and trust.
Employer contributions are limited to 6% of participant's compensation, with a
maximum per year of $3,000 per participant. Profit sharing expense was $49,000,
$72,000 and $61,000 for years ended September 30, 1996, 1995 and 1994,
respectively.
INCENTIVE PLAN
During fiscal 1996, the Board of Trustees adopted the Performance
Incentive Bonus Plan (the "Bonus Plan"). All of the Trust's executive officers
and employees are eligible for an annual cash bonus under the Bonus Plan. In
determining the amount of annual cash bonuses, if any, to be paid, the
Compensation Committee, at the end of the fiscal year, reviews the performance
of the Trust to the performance measurement targeted by the Bonus Plan to
promote the long-term strategic growth of the Trust. The amount awarded under
the Bonus Plan for fiscal 1996 was $215,500.
- 47 -
EMPLOYMENT AGREEMENT
The Trust entered into an Employment Agreement (the "Employment
Agreement") with George R. Zoffinger on September 29, 1995. The original term of
the Employment Agreement is three years and is automatically renewed for
additional one-year periods unless otherwise terminated by the Trust or Mr.
Zoffinger. In addition, Mr. Zoffinger is eligible for compensation in the form
of bonuses under the Trust's Performance Incentive Bonus Plan and option grants
under the 1995 Share Option Plan. Mr. Zoffinger has agreed to devote
substantially all of his business time and efforts to the business and affairs
of the Trust.
If the employment of Mr. Zoffinger is terminated by the Trust without
cause or by Mr. Zoffinger upon occurrence of certain events such as a material
breach of the Employment Agreement by the Trust, Mr. Zoffinger will be entitled
to continue to receive the Base Salary at the same rate for six (6) months.
Additionally, any unexercised vested options will remain exercisable only to the
extent provided in the applicable share option plan and option agreement.
9. EMPLOYEE TERMINATION PLAN
A termination pay plan was established to cover termination of
employment without cause during the period that the Old Notes, as defined, were
outstanding. Employees were entitled to compensation ranging from a minimum of
twelve weeks to a maximum of eighteen months pay. In addition, certain health
benefits would continue to be paid by the Trust over a period of time equal to
the employee's severance period. At September 30, 1995, the Trust accrued the
$1.3 million cost of the Termination Pay Plan. After fiscal year end, the
majority of existing employees were terminated and the Trust commenced payments
to those employees. The Trust has liquidated the termination plan by payments to
those employees terminated and the repayment of the Old Notes.
- 48 -
10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The quarterly results of operations for fiscal 1996 (post-confirmation)
and 1995 (pre-confirmation) are summarized as follows:
QUARTER ENDED
----------------------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 1996
(Post-confirmation)
Total revenue $ 9,395 $ 9,438 $ 8,462 $ 7,771
Interest expense $ 3,565 $ 3,420 $ 2,064 $ 1,440
Net income $ 1,437 $ 1,450 $ 2,016 $ 2,070
======== ======== ======== ========
Net income per share $ 0.13 $ 0.13 $ 0.18 $ 0.18
======== ======== ======== ========
====================================================================================================================================
FISCAL 1995
(Pre-confirmation)
Total revenue $ 10,002 $ 9,774 $ 10,038 $ 9,650
Interest expense $ 9,559 $ 10,273 $ 10,378 $ 5,690
Provision for losses $ -- $ 3,000 $ -- $ --
Reorganization expense $ 370 $ 1,135 $ 1,063 $ 3,651
Write down of invested assets to
reorganization value $ -- $ -- $ -- $(66,597)
Gain on extinguishment
of debt $ -- $ -- $ -- $ 75,304
Net income (loss) $ (5,454) $(10,263) $ (7,326) $ 3,010
======== ======== ======== ========
Net income (loss) per share*
*Net income (loss) per share for all pre-confirmation periods is not presented
because this information is not meaningful as a result of the Reorganization
and the adoption of "Fresh Start Reporting". See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations on
Page 15.
- 49 -
11. ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. An estimate of the future cash flows expected to result from the
use of the asset and its eventual disposition should be performed during a
review for recoverability. An impairment loss, based on the estimated fair
value, is recognized if the sum of expected future undiscounted cash flows is
less than the carrying amount of the asset. In addition, SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. These
assets will continue to be reported at the lower of carrying amount or net
realizable value. This statement is required for fiscal years beginning after
December 15, 1995. The Trust will adopt Statement 121 in the first quarter of
fiscal 1997 and, based on current circumstances, does not believe the effect of
adoption will have a material effect on the Trust's financial condition or
results of operations.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which requires that the fair value of employee
stock-based compensation plans be recorded as a component of compensation
expense in the statement of income as of the date of grant of awards related to
such plans or that the impact of such fair value on net income and earnings per
share be disclosed on a pro-forma basis in a footnote to financial statements
for awards granted after December 14, 1994, if the accounting for such awards
continues to be in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). This statement is
required for fiscal years beginning after December 15, 1995. The Trust will
elect to provide footnote disclosure under the fair value method of SFAS 123.
Since the Trust expects to continue to account for employee stock compensation
under APB 25, the adoption of SFAS 123 is not expected to have a material effect
on the Trust's financial condition or results of operations.
12. LEGAL PROCEEDINGS
A discussion of events surrounding the Trust's Prior Bankruptcy Case and
an explanation of the material terms of the Trust's reorganization under the
1991 Plan are set forth in the section entitled "Previous Chapter 11 Case and
1991 Plan of Reorganization" under Item 1 above. The Prior Bankruptcy Case was
closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.
A discussion of events surrounding the Trust's 1995 prepackaged
bankruptcy filing and an explanation of the material terms of the Trust's
reorganization under the Prepackaged Plan are set forth in the section entitled
"Recent Chapter 11 Case and 1995 Prepackaged Plan of Reorganization" under Item
1 above. Notwithstanding the confirmation of the Trust's Prepackaged Plan, as of
September 29, 1995, the bankruptcy court continued to have jurisdiction among
other things, to resolve disputes that may arise under the Prepackaged Plan.
A third party has alleged the existence of a purchase contract with
respect to one of the Trust's properties which the Trust disputes. This dispute
has led to litigation. However, the Trust believes that this litigation, when
resolved, will not have a material adverse effect on the business, financial
condition or results of operations of the Trust.
- 50 -
13. LEASING ARRANGEMENTS
For real estate held for investment future minimum rentals to be
received under existing non-cancelable operating leases as of September 30, 1996
are as follows:
Amount
Year (dollars in thousands)
------ ----------------------
1997 $ 13,139
1998 11,634
1999 9,976
2000 7,593
2001 6,170
thereafter 40,664
--------
Total $ 89,176
========
14. RELATED PARTY TRANSACTIONS
The Trust is subleasing a portion of the 8th floor of 120 Albany Street
from the New Brunswick Development Authority, a not-for-profit 501(c)(3)
corporation for the benefit of the City of New Brunswick of which George R.
Zoffinger, C.E.O., President and Trustee of the Trust, is Chairman of the Board
of Trustees. The sublease covers 4000 square feet at an annual rental rate of
$75,000. The sublease is in effect until December 31, 1997, at which point the
Trust has the option to renew at the same rate for another year. The Trust has
three more subsequent options to renew the sublease at the current rental rate
in December 1997, 1998 and 1999.
- 51 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(Dollars in thousands)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
Apartments:
McLaughlin Apartments
Hammond, IN ............................... $3,552 $ 730 $2,929 $ 0 $ 68 $ 0
Junipers of Yarmouth
Yarmouth, ME .............................. 5,478 1,530 6,120 0 166 0
Villa Del Cresta
Florissant, MO ............................ 6,868 1,640 6,568 0 142 0
Industrial:
Parkway Business Center
Richmond, CA .............................. 2,056 430 1,730 0 43 (302)
North County
Yorba Linda, CA ........................... 0 850 3,380 0 122 0
Slauson
Whittier, CA .............................. 2,082 520 2,090 0 89 0
Moreno Valley
Moreno Valley, CA ......................... 2,490 950 3,820 0 1 (655)
Oaktree Industrial Park
San Dimas, CA ............................. 976 0 0 345 1,373 (235)
Chino Business Park
Chino, CA ................................. 1,983 0 0 670 2,818 0
Avenue Hall Executive Center
Valencia, CA .............................. 1,082 450 1,800 0 120 0
- 52 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(Dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
Apartments:
McLaughlin Apartments
Hammond, IN .......................... $ 0 $ 0 $ 0 $ 0 1970 N/A
Junipers of Yarmouth
Yarmouth, ME ......................... 1,530 6,286 7,816 0 1971 (b)
Villa Del Cresta
Florissant, MO ....................... 1,640 6,710 8,350 0 1967/1974 (b)
Industrial:
Parkway Business Center
Richmond, CA ......................... 430 1,471 1,901 47 1986 3-40 years
North County
Yorba Linda, CA ...................... 0 0 0 48 1987-1989 N/A
Slauson
Whittier, CA ......................... 0 0 0 48 1985 N/A
Moreno Valley
Moreno Valley, CA .................... 950 3,166 4,116 96 1993 3-40 years
Oaktree Industrial Park
San Dimas, CA ........................ 345 1,138 1,483 37 1985 3-40 years
Chino Business Park
Chino, CA ............................ 592 2,509 3,101 38 1992 (b)
Avenue Hall Executive Center
Valencia, CA ......................... 450 1,920 2,370 48 1988 (b)
- 53 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
Industrial:
(continued)
80 South Street
Hopkinton, MA ....................... 0 350 1,405 0 0 0
Mellen Street
Framingham, MA ...................... 0 110 430 0 49 0
900 Building
Minneapolis, MN ..................... 1,508 410 1,630 0 148 0
6950 Washington Avenue
Eden Prairie, MN .................... 0 480 1,914 0 0 0
Maryland Road
Willow Grove, PA .................... 0 310 1,220 0 9 0
Land:
L.A. Industrial
Los Angeles, CA ..................... 0 270 0 0 0 0
Office:
Stadium Towers
Anaheim, CA ......................... 1,842 700 2,810 0 403 (534)
615 Nash Street
El Segundo, CA ...................... 1,325 470 1,870 0 168 (340)
- 54 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
Industrial:
(continued)
80 South Street
Hopkinton, MA ...................... 0 0 0 0 1970-1974 N/A
Mellen Street
Framingham, MA ..................... 0 0 0 7 1915 N/A
900 Building
Minneapolis, MN .................... 410 1,778 2,188 0 1910 (b)
6950 Washington Avenue
Eden Prairie, MN ................... 0 0 0 0 1970 N/A
Maryland Road
Willow Grove, PA ................... 0 0 0 0 1962 N/A
Land:
L.A. Industrial
Los Angeles, CA .................... 0 0 0 0 N/A N/A
Office:
Stadium Towers
Anaheim, CA ........................ 700 2,679 3,379 100 1984 3-40 years
615 Nash Street
El Segundo, CA ..................... 470 1,698 2,168 80 1987 3-40 years
- 55 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
Office:
(continued)
Clarewood
Woodland Hills, CA ...................... 1,124 400 1,580 0 239 (298)
268 Summer Street
Boston, MA .............................. 823 330 1,327 0 59 (228)
250 Turnpike Street
Canton, MA .............................. 721 290 1,150 0 1 (198)
Burtonsville Commerce Center
Burtonsville, MD ........................ 2,745 920 3,670 0 33 (634)
Keewaydin Drive
Salem, NH ............................... 1,339 610 2,450 0 80 (429)
501 Hoes Lane
Piscataway, NJ .......................... 551 180 715 0 115 (136)
Two Executive Campus
Cherry Hill, NJ ......................... 894 240 939 0 27 0
Riverside Centre
Portland, OR ............................ 3,452 1,170 4,680 0 491 0
Pinebrook II
King of Prussia, PA ..................... 0 0 1,790 0 49 (251)
- 56 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
Office:
(continued)
Clarewood
Woodland Hills, CA ..................... 400 1,521 1,921 93 1980 3-40 years
268 Summer Street
Boston, MA ............................. 330 1,158 1,488 55 1897 3-40 years
250 Turnpike Street
Canton, MA ............................. 290 953 1,243 29 1980 3-40 years
Burtonsville Commerce Center
Burtonsville, MD ....................... 920 3,069 3,989 97 1989 3-40 years
Keewaydin Drive
Salem, NH .............................. 610 2,101 2,711 75 1973 3-40 years
501 Hoes Lane
Piscataway, NJ ......................... 180 694 874 36 1987 3-40 years
Two Executive Campus
Cherry Hill, NJ ........................ 240 966 1,206 23 1970 (b)
Riverside Centre
Portland, OR ........................... 1,170 5,171 6,341 3 1945 (b)
Pinebrook II
King of Prussia, PA .................... 0 1,588 1,588 49 1983 3-40 years
- 57 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
Office:
(continued)
421 Chestnut Street
Philadelphia, PA .................... 0 500 2,020 0 13 (347)
Southampton
Southampton, PA ..................... 0 390 1,561 0 63 0
Pinebrook I
King of Prussia, PA ................. 0 0 1,629 0 77 (232)
Six Sentry Parkway
Blue Bell, PA ....................... 0 920 3,670 0 398 (680)
Retail:
Gateway Plaza (Paseo)
Fremont, CA ......................... 14,287 4,320 17,280 300 264 (3,042)
Arcade Square
Sacramento, CA ...................... 3,384 1,120 4,460 0 544 (828)
Berdon Plaza
Fairhaven, MA ....................... 4,157 1,350 5,403 0 159 0
Bradford Plaza
West Chester, PA .................... 0 1,330 5,330 0 25 (917)
-------- -------- -------- -------- -------- --------
Total Real Estate Owned ................. $ 64,719 $ 24,270 $ 99,370 $ 1,237 $ 8,434 $(10,286)
======== ======== ======== ======== ======== ========
- 58 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
Office:
(continued)
421 Chestnut Street
Philadelphia, PA ................. 500 1,686 2,186 55 1857 3-40 years
Southampton
Southampton, PA .................. 0 0 0 0 1984 N/A
Pinebrook I
King of Prussia, PA .............. 0 1,474 1,474 48 1981 3-40 years
Six Sentry Parkway
Blue Bell, PA .................... 920 3,388 4,308 130 1990 3-40 years
Retail:
Gateway Plaza (Paseo)
Fremont, CA ...................... 4,620 14,502 19,122 442 1969 3-40 years
Arcade Square
Sacramento, CA ................... 1,120 4,176 5,296 212 1955 3-40 years
Berdon Plaza
Fairhaven, MA .................... 1,350 5,562 6,912 0 1968 (b)
Bradford Plaza
West Chester, PA ................. 1,330 4,438 5,768 139 1990 3-40 years
-------- -------- -------- --------
Total Real Estate Owned .............. $ 21,497 $ 81,802 $103,299 (c,d) $ 2,035
======== ======== ======== ========
- 59 -
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
NOTES:
(a) The encumbrances of Senior Notes due 1999 are collateralized by a first
priority Lien on 21 of the Trust's assets, including personal property and
real property held by the Trust or any subsidiary.
(b) See Note 2 "Significant Accounting Policies" to the consolidated financial
statements.
(c) Cost for federal income tax purposes is approximately $160,000,000.
(d) The changes in carrying amounts during the year ended September 30, 1996 are
summarized as follows:
Balance at September 30, 1995 ................ $123,640,000
Reclassification from foreclosure property ... 5,120,000
Additions during year:
Improvements .............................. 4,551,000
Deductions during year:
Sale of real estate ....................... $ 19,726,000
Adjustments for deferred gains ............ 10,286,000 30,012,000
------------ ------------
Balance at September 30, 1996 ................ $103,299,000
============
The changes in carrying amounts during the year ended September 30, 1995 are
summarized as follows:
Balance at September 30, 1994 ................ $ 66,880,000
Reclassification from foreclosure
property and mortgage loans ............... 109,565,000
Additions during year:
Improvements .............................. 11,283,000
Deductions during year:
Sale of real estate ....................... $ 3,350,000
Charge off against allowance for losses ... 2,881,000
Adjustments for fresh start reporting ..... 57,857,000 64,088,000
------------ ------------
Balance at September 30, 1995 ................ $123,640,000
============
- 61 -
The changes in carrying amounts during the year ended September 30, 1994 are
summarized as follows:
Balance at September 30, 1993 ................ $ 65,012,000
Additions during year:
Improvements .............................. $ 1,847,000
Loan advance by construction lender .......... 21,000 1,868,000
------------ ------------
Balance at September 30, 1994 ................ $ 66,880,000
============
The change in accumulated depreciation and amortization during the year
ended September 30, 1996 is summarized as follows:
Balance at September 30, 1995 ........................... $ -0-
Additions during year:
Charge to income ..................................... 2,035,000
Deductions during year:
Adjustment for sold properties ....................... 103,000
----------
Balance at September 30, 1996 ........................... $1,932,000
==========
The change in accumulated depreciation and amortization during the year
ended September 30, 1995 is summarized as follows:
Balance at September 30, 1994 ............................. $10,023,000
Reclassification from foreclosure property ................ 8,264,000
Additions during year:
Charge to income ....................................... 6,608,000
Deductions during year:
Adjustment for fresh start reporting ................... 24,895,000
-----------
Balance at September 30, 1995 ............................. $ -0-
===========
The change in accumulated depreciation and amortization during the year
ended September 30, 1994 is summarized as follows:
Balance at September 30, 1993 .......................... $ 7,799,000
Additions during year:
Charge to income .................................... 2,224,000
-----------
Balance at September 30, 1994 .......................... $10,023,000
===========
- 62 -
VALUE PROPERTY TRUST
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1996
PRINCIPAL
AMOUNT OF
LOANS SUBJECT
NUMBER CONTRACTUAL TO DELINQUENT
OF INTEREST FINAL AMOUNT OF PRINCIPAL
TYPE OF LOANS LOANS RATE MATURITY DATE MORTGAGES OR INTEREST
- ------------- ------ -------- ------------- ----------- --------------
ASSETS HELD FOR INVESTMENT:
Residential/Condominiums (a) 71 6.20%-9.50% June 2000-June 2009 1,008,000 --
---------- ------
Total contractual amount of mortgage loans 1,008,000 $ --
========== ======
Adjust contractual amount to
reorganization value of mortgage loans (237,000)
Adjust contractual amount to reallocate
unrealized gain on sale (108,000)
----------
Carrying value of mortgage loans and
investments $ 663,000 (b)(c)
==========
- 63 -
VALUE PROPERTY TRUST
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1996
NOTES:
(a) Consists of 71 mortgage end loans on 7 projects.
(b) The aggregate cost for federal income tax purposes is $1,008,000.
(c) The change in carrying value of mortgage loans during the year ended
September 30, 1996 were as follows:
Balance at September 30, 1995 ......................... $ 56,979,000
Advances on mortgage loans ............................ 100,000
------------
57,079,000
Collections of principal .............................. (51,188,000)
Transfer to real estate ............................... (5,120,000)
Adjustment for unrealized gains ....................... (108,000)
------------
$ 663,000
============
The change in carrying value of mortgage loans during the year ended
September 30, 1995 were as follows:
Balance at September 30, 1994 ......................... $ 69,322,000
Reclassification from in-substance foreclosure ........ 29,441,000
Advances on mortgage loans ............................ 733,000
Net change in interest reserves ....................... 162,000
------------
99,658,000
Collections of principal .............................. (22,711,000)
Adjustment for fresh start accounting ................. (19,968,000)
------------
$ 56,979,000
============
The change in carrying value of mortgage loans during the year ended
September 30, 1994 were as follows:
Balance at September 30, 1993 ......................... $104,193,000
Advances on mortgage loans ............................ --
Transfer of real estate to mortgage loans ............. 750,000
Net change in interest reserves, deferred income ...... 480,000
------------
105,423,000
Collections of principal .............................. (25,555,000)
Transfer to real estate ............................... (10,321,000)
Chargeoff against allowance for losses ................ (225,000)
------------
$ 69,322,000
============
- 64 -
VALUE PROPERTY TRUST
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1(a) Amended and Restated Declaration of Trust dated September 29,
1995 (1) (Exhibit 3.1).
3.1(b) October 26, 1995 Amendment to Amended and Restated Declaration
of Trust dated September 29, 1995. (2)
3.2 By-Laws, as amended through June 20, 1984 (3) (Exhibit 3.3).
4.1(a) Form of Certificate for Common Shares (2).
4.1(b) Indenture dated as of April 30, 1996 among certain
subsidiaries of Value Property Trust and LaSalle National
Bank, as trustee, governing the Floating Rate Senior Notes due
1999 (4).
4.2(a) Joint Plan of Reorganization Proposed by Debtor, Creditors'
Committee and Equity Security Holders Committee (5) (Exhibit
10.11).
4.2(b) Modification to Joint Plan of Reorganization Proposed by
Debtor, Creditors' Committee and Equity Security Holders
Committee (6) (Exhibit 2).
4.2(c) Amendment No. 1 and Consent to Plan of Reorganization dated as
of September 30, 1991 (7) (Exhibit 4.4(c)).
4.2(d) Amendment No. 2 to Plan of Reorganization, dated as of July
15, 1992 (8) (Exhibit 4.2(d)).
4.2(e) Prepackaged Plan of Reorganization as confirmed by the
Bankruptcy Court of the Central District of California (1)
(Exhibit 2.1).
4.2(f) Form of Mortgage, Assignment of Rents and Leases and Security
Agreement between certain subsidiaries of Value Property Trust
and LaSalle National Bank, as trustee and mortgagee (4).
4.3(a) Indenture dated as of July 15, 1992 between Mortgage and
Realty Trust (predecessor to Value Property Trust) and
Wilmington Trust Company, as trustee, governing the
registrant's Senior Secured Uncertificated Notes due 1995 (8)
(Exhibit 4.3).
4.3(b) Indenture dated as of September 29, 1995 between Mortgage and
Realty Trust (predecessor to Value Property Trust) and
Wilmington Trust Company, as trustee, governing the
registrants 11-1/8% Senior Secured Notes due 2002. (1)
(Exhibit 4.1).
- 65 -
4.3(c) Amended and Restated Collateral and Security Agreement between
Mortgage and Realty Trust (predecessor to Value Property
Trust), its Subsidiaries, its Lenders and Wilmington Trust
Company and William J. Wade as Collateral Agent, dated as of
September 29, 1995 (1) (Exhibit 4.2).
4.3(d) Letter of Agreement between Mortgage and Realty Trust
(predecessor to Value Property Trust) and Wilmington Trust
Company and William J. Wade as Collateral Agent, dated as of
September 29, 1995 (1) (Exhibit 4.3).
4.3(e) Pledge Agreement between Mortgage and Realty Trust
(predecessor to Value Property Trust) and Wilmington Trust
Company as Collateral Agent, dated as of September 29, 1995
(1) (Exhibit 4.5).
4.3(f) Form of Security Agreement between certain subsidiaries of
Value Property Trust and LaSalle National Bank, as trustee
(4).
10.1(a) 1984 Share Option Plan (9) (Exhibit 19.1).
10.1(b) Interest Rate Swap Agreement among certain subsidiaries of
Value Property Trust and Merrill Lynch Derivatives Products AG
dated April 24, 1996, and effective April 30, 1996 (4).
10.2 Form of Incentive Stock Option Agreement under the 1984 Share
Option Plan (10) (Exhibit 10.9).
10.3 Form of Non-Qualified Stock Option Agreement under the 1984
Share Option Plan (3) (Exhibit 10.19).
10.4 Amended and Restated Savings Incentive Plan effective January
1, 1992 (8) (Exhibit 10.7).
10.5 Amended and Restated Employees' Retirement Plan effective
January 1, 1992 (8) (Exhibit 10.8).
10.6 Pension Plan for Trustees dated October 1, 1989 (11) (Exhibit
10.13).
10.7 Employee' Retention Plan dated October 17, 1990 as amended
January 16, 1991 and March 10, 1991 (12) (Exhibit 19.1).
10.8 Resolutions of Amendment to Amended and Restated Employees'
Retirement Plan (13) (Exhibit 10.8).
10.9 Registration Rights Agreement between Mutual Series Fund Inc.,
Intermarket Corporation, Angelo, Gordon & Co., L.P., Emerald
Partners, Strome-Susskind & Co. and Mortgage and Realty Trust
(predecessor to Value Property Trust), dated September 29,
1995 (1) (Exhibit 10.1) November 28, 1995 Amendment to
Registration.
10.10 Rights Agreement dated September 29, 1995 (2).
- 66 -
10.11 Form of 1995 Share Option Plan (14) (Exhibit A).
10.12(*) Employment contract dated September 29, 1995 between the Trust
and Mr. Zoffinger.
16 Change in certifying accountants (15).
20.1 Press Release (16) (Exhibit 20.1).
20.2 Term Sheet (16) (Exhibit 20.2).
21 Subsidiaries (13) (Exhibit 21).
22 Press Release (17).
23.1(*) Consent of Ernst & Young LLPdated December 27, 1996.
23.2(*) Consent of Coopers & Lybrand L.L.P.dated December 27, 1996.
27(*) Financial Data Schedule.
- ---------------
(1) Filed on October 13, 1995 as an exhibit to the Current Report on Form 8-K
(No. 1-6613) and incorporated herein by reference.
(2) Filed on December 29, 1995 as an exhibit to the Annual Report on Form 10-K
(No. 1-6613) and incorporated herein by reference.
(3) Filed on December 6, 1984 as an exhibit to the Annual Report on Form 10-K
(No. 1-6613) and incorporated herein by reference.
(4) Filed on August 14, 1996 as an exhibit to the Quarterly Report on Form 10-Q
(No. 1-6613) and incorporated herein by reference.
(5) Filed on December 28, 1990 as an exhibit to the Annual Report on Form 10-K
(No. 1-6613) and incorporated herein by reference.
(6) Filed on March 14, 1991 as an exhibit to the Current Report on Form 8-K
(No. 1-6613) and incorporated herein by reference.
(7) Filed on December 27, 1991 as an exhibit to the Annual Report on Form 10-K
(No. 1-6613) and incorporated herein by reference.
(8) Filed on December 22, 1992 as an exhibit to the Annual Report on Form 10-K
(No. 1-6613) and incorporated herein by reference.
(9) Filed on August 13, 1987 as an exhibit to the Quarterly Report on Form 10-Q
(No. 1-6613) and incorporated herein by reference.
(10) Filed on December 29, 1987 as an exhibit to the Annual Report on Form 10-K
(No. 1-6613) and incorporated herein by reference.
(11) Filed on December 21, 1989 as an exhibit to the Annual Report on Form 10-K
(No. 1-6613) and incorporated herein by reference.
(12) Filed on May 14, 1991 as an exhibit to the Quarterly Report on Form 10-Q
(No. 1-6613) and incorporated herein by reference.
(13) Filed on December 29, 1994 as an exhibit to the Annual Report on Form 10-K
(No. 1-6613) and incorporated herein by reference.
(14) Filed on December 12, 1995 as an Exhibit to the 1995 Proxy Statement for
fiscal year ended September 30, 1995.
(15) Filed on April 16, 1996 as an exhibit to the Current Report on Form 8-K
(No. 1-6613) and incorporated herein by reference.
(16) Filed on November 28, 1994 as an exhibit to the Current Report on Form 8-K
(No. 1-6613) and incorporated herein by reference.
(17) Filed on February 26, 1996 as an exhibit to the Current Report on Form 8-K
(No. 1-6613) and incorporated herein by reference.
(*) Exhibit filed with this Form 10-K.
- 67 -
Exhibit 10.12 Employment contract dated September 29, 1995 between the Trust
and Mr. Zoffinger.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
September 29, 1995, by and between Value Property Trust (formerly known as
Mortgage and Realty Trust), a Maryland business trust having its principal place
of business at 120 Albany Street Plaza, New Brunswick, New Jersey 08901 (the
"Trust"), and George R. Zoffinger, an individual residing at the address set
forth below his name on the signature page hereof ("Executive").
WHEREAS, the Trust desires to employ Executive as the President and
Chief Executive Officer of the Trust, and Executive has agreed to become the
President and Chief Executive Officer of the Trust, on the terms set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Trust and Executive agree as follows:
1. Term. The Trust agrees to employ Executive, and Executive hereby
agrees to work for the Trust as a full-time employee, for a period commencing on
the date first set forth above and ending on the third anniversary of such date
(the "Original Term"). The Original Term shall be extended automatically for
additional one-year periods (each a "Renewal Term") unless notice that this
Agreement will not be extended is given by either party to the other 30 days
prior to the expiration of the Original Term or any Renewal Term. (The period of
Executive's employment hereunder within the Original Term and any Renewal Term
is herein referred to as the "Employment Period".)
2. Employment. During the Employment Period, Executive shall be employed
as the President and Chief Executive Officer of the Trust. In the performance of
his duties, Executive shall be subject to the direction of the Board of Trustees
of the Trust (the "Board of Trustees") and shall not be required to take
direction from or report to any other person. Executive's duties and authority
shall be commensurate with his title and position with the Trust. Executive
agrees to his employment as described in this Section 2 and agrees to devote
substantially all of his business time and efforts to the business and affairs
of the Trust. Executive agrees to serve the Trust faithfully and to the best of
his ability, and to perform such services and duties in connection with the
business, affairs and operations of the Trust as may be assigned or delegated to
him from time to time by or under, and in accordance with, the authority and
direction of the Board of Trustees, and to use his reasonable best efforts in
the promotion and advancement of the Trust and its welfare.
3. Noncompetition During Employment Period. Because Executive's services
to the Trust are essential and because Executive has access to the Trust's
confidential information, Executive covenants and agrees that during the
Employment Period, Executive will be a full-time employee of the Trust as
provided in Section 2 hereof and Executive will not, without the express prior
written consent of the Board of Trustees, invest in any real estate in which the
Trust has an investment or has reviewed as a possible investment or become
actively involved in any business or venture which competes, directly or
indirectly, with the Trust or which would materially impair Executive's ability
to perform fully his obligations under this Agreement. Notwithstanding anything
contained herein to the contrary, Executive is not prohibited by this Section 3
from (a) making investments in any entity that owns, invests in, refurbishes,
manages, leases or markets real estate if the shares of such entity are publicly
traded and Executive's aggregate investments in such entity's constitute less
than 5% of the equity ownership or $250,000, whichever is greater, of such
entities, (b) participating as an officer, director or advisor to any charitable
or tax-exempt organization, or (c) making investments of up to $100,000 in any
private real estate investment (other than real estate in which the Trust has an
investment or has reviewed as a possible investment) after the Board of Trustees
has been duly informed of such Proposed investment.
4. Base Salary. During the Employment Period, Executive's salary will be
at the rate of $200,000 per year ("Base Salary"). Base Salary shall be payable
in accordance with the Trust's normal business practices for senior executive
officers, but no less frequently than monthly. Executive's Base Salary shall be
reviewed no less frequently than annually by the Compensation and Nominating
Committee of the Board of Trustees and may be increased, but not decreased,
during the Employment Period.
5. Performance Incentive Bonus Plan and Share Option Plan. Executive
will be eligible for annual bonus compensation pursuant to the Trust's
Performance Incentive Bonus Plan (the "Bonus Plan") and the 1995 Share Option
Plan and any other share option or incentive compensation plan that is adopted
by the Trust and in which the Trust's executive officers generally participate
(the "Other Plans"). Awards, if any, made under the Bonus Plan or the Other
Plans shall be determined in the discretion of the Compensation and Nominating
Committee of the Board of Trustees. Upon commencement of the Employment Period,
Executive will receive share options to purchase 244,000 shares of beneficial
interest of the Trust, subject to vesting at a rate of 33 1/3% per year over
three years, pursuant to the Trust's 1995 Share Option Plan. The exercise price
and other terms applicable to such options will be determined by the
Compensation and Nominating Committee of the Board of Trustees in its discretion
pursuant to the 1995 Share Option Plan.
6. Other Benefits. During the Employment Period, Executive shall have
the right to participate in the Trust's 401 (k) Savings Plan, and any health,
dental, retirement, pension or other benefit plans that are made generally
available to the executive officers of the Trust from time to time. Executive
shall be entitled to reasonable paid vacation time in accordance with the then
regular procedures of the Trust for senior executive officers.
7. Termination.
(a) Employment. Executive's employment hereunder may be
terminated by the Trust at any time for other than Good Reason (as
defined in Section 7 (c)), by a majority vote of all of the members of
the Board of Trustees upon written notice to Executive. In the event of
such termination, all compensation and benefits provided to Executive
under this Agreement shall cease except that the Trust shall continue to
pay only the Executive's Base Salary at the same rate for six (6)
months. Any unexercised vested options shall remain exercisable only to
the extent provided in the applicable share option plan and option
agreements.
(b) Termination by Executive Under Certain Circumstances.
Executive's employment hereunder may be terminated effective immediately
by Executive by written notice to the Board of Trustees in the event of
(i) a failure by the Board of Trustees to elect Executive to offices
with the same or substantially the same duties and responsibilities as
set forth in Section 2, (ii) a failure by the Trust to comply with the
provisions of Sections 4, 5 or 6 or a material breach by the Trust of
any other provision of this Agreement, or (iii) personal health
problems. In the event of such termination, all compensation and
benefits provided to Executive under this Agreement shall cease except
that the Trust shall continue to pay only the Executive's Base Salary at
the same rate for six (6) months. Any unexercised vested options shall
remain exercisable only to the extent provided in the applicable share
option plan and option agreements.
(c) Termination by the Trust for Good Reason or by Executive
Without Cause. If (A) Executive is terminated for Good Reason (as
defined below) or (B) if Executive shall voluntarily terminate his
employment hereunder (other than pursuant to Section 7 (b) hereof), then
the Employment Period shall terminate as of the effective date set forth
in the written notice of such termination (the "Termination Date") and
Executive shall be entitled to receive only his Base Salary at the rate
provided pursuant to Section 4 which is payable prior to the Termination
Date. Any unexercised vested options shall remain exercisable only to
the extent provided in the applicable share option plan and option
agreements. "Good Reason" shall mean a finding by the Board of Trustees
that the Executive has (i) acted with gross negligence or willful
misconduct in connection with the performance of his material duties
hereunder and has not corrected such action within fifteen (15) days of
receipt of written notice thereof; (ii) defaulted in the performance of
his material duties hereunder and has not corrected such action within
fifteen (15) days of receipt of written notice thereof; (iii) committed
a material act of common law fraud against the Trust or its employees,
which act has had an adverse impact on the financial affairs of the
Trust; or (iv) been convicted of a felony and such conviction has had an
adverse effect on the interests of the Trust. In the case of a
termination pursuant to Section 7(c)(B), the Executive shall continue to
comply with the provisions of Section 3 until the first anniversary of
the Termination Date.
(d) Termination by Reason of Death. The Employment Period shall
terminate upon Executive's death and in such event, the Trust will pay
Executive's Base Salary for a period of three (3) months from the date
of his death or such other period as the Board of Trustees may
determine, to Executive's estate or a beneficiary designated by
Executive in writing prior to his death. Any unexercised or unvested
options shall remain exercisable or vest upon Executive's death only to
the extent provided in the applicable share option plan and option
agreements.
(e) Termination by Reason of Disability. In the event that
Executive shall become unable to efficiently perform his duties
hereunder because of any physical or mental disability or illness,
Executive shall be entitled to be paid his Base Salary until the earlier
of such time when (i) the period of disability or illness (whether or
not the same disability or illness) shall exceed 180 consecutive days
during the Employment Period or (ii) Executive becomes eligible to
receive benefits under a comprehensive disability insurance policy
obtained by the Trust (the "Disability Period"). Following the
expiration of the Disability Period, the Trust may terminate this
Agreement upon written notice of such termination. Any unexercised or
unvested share options shall remain exercisable or vest upon such
termination only to the extent provided in the applicable share option
plan and option agreements.
8. Remedies For Breach. If Executive breaches the terms of this
Agreement, in addition to any other remedies which it may have, the Trust may
terminate Executive's employment and any further participation in any employee
plan in accordance with employment policies of the Trust, as in effect from time
to time, and Executive shall forfeit any further compensation. In addition, the
provisions of Sections 3 and 9 of this Agreement may be specifically enforced if
not performed according to their terms. Without limiting the generality of the
foregoing, the parties acknowledge that the Trust would be irreparably damaged
and there would be no adequate remedy at law for Executive's breach of Sections
3 and 9 hereof and, accordingly, Executive hereby consents to the entry of any
temporary restraining order or preliminary or ex parte injunction, in addition
to any other remedies available at law or in equity, to enforce the provisions
thereof. This Section shall survive the termination of this Agreement.
9. Records and Nondisclosure of Confidential Information. All records,
financial statements and similar documents obtained, reviewed or compiled by
Executive in the course of the performance by him of services for the Trust,
whether or not confidential information or trade secrets, shall be the exclusive
property of the Trust. Executive shall have no rights in such documents upon any
termination of this Agreement. The agreement set forth in this Section 9 shall
survive the expiration of the Employment Period and any termination of this
Agreement.
10. Waiver. The failure of the Trust to require the performance of any
term or obligation provided for herein, or the waiver by the Trust of any breach
of this Agreement, shall not prevent enforcement of such term or obligation or
be deemed a waiver of any subsequent breach.
11. Conflicting Agreements. Executive hereby represents and warrants
that the execution of this Agreement and the performance of his duties and
obligations hereunder will not breach or be in conflict with any other agreement
to which he is a party or is bound, and that he is not now subject to any
covenants against competition or similar covenants in favor of any other person
or entity which could affect the performance of his duties hereunder.
12. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof. This
Agreement supersedes and replaces any prior agreement or arrangement relative to
Executive's employment by the Trust, and all such prior agreements and
arrangements are hereby terminated.
13. Governing Law and Severability. This Agreement shall be governed by
and construed under the laws of the State of New Jersey and shall not be
modified or discharged in whole or in part except by an agreement in writing
signed by the parties hereto. In case any one or more of the provisions or parts
of a provision contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, but this Agreement shall be construed as if such invalid or
illegal or unenforceable provision or part of a provision had been limited or
modified (consistent with its general intent) to the extent necessary so that it
shall be valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part of a provision had never been contained herein,
and the parties will use their best efforts to substitute a valid, legal and
enforceable provision which, insofar as practicable, implements the purpose and
intent of the provision or part of such provision originally contained herein.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns; provided, however, that this Agreement may not be assigned by
Executive without the prior written consent of the Trust. The Trust shall
require any successor of the Trust which shall acquire, directly or indirectly,
by merger, consolidation, purchase or otherwise, all or substantially all of the
assets of the Trust, by an agreement in form and substance satisfactory to
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as the Trust would be required to perform if no
such succession had taken place.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as an instrument under seal as of the date first set forth above.
VALUE PROPERTY TRUST
By: Martin Bernstein
Compensation and Nominating Committee
Value Propert Trust
/s/ George R. Zoffinger
-----------------------
GEORGE R. ZOFFINGER
Signed 9/29/95
ARTICLE 5
MULTIPLIER 1,000
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1996
[PERIOD-END] SEP-30-1996
[CASH] 41,714
[SECURITIES] 0
[RECEIVABLES] 4,936
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 46,650
[PP&E] 34
[DEPRECIATION] 8
[TOTAL-ASSETS] 172,411
[CURRENT-LIABILITIES] 2,138
[BONDS] 63,226
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 11,226
[OTHER-SE] 95,821
[TOTAL-LIABILITY-AND-EQUITY] 172,411
[SALES] 0
[TOTAL-REVENUES] 35,066
[CGS] 0
[TOTAL-COSTS] 14,431
[OTHER-EXPENSES] 3,173
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 10,489
[INCOME-PRETAX] 6,973
[INCOME-TAX] 0
[INCOME-CONTINUING] 6,973
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 6,973
[EPS-PRIMARY] .62
[EPS-DILUTED] .62
- ------------------------------------------------------------------------------
Wellsford Real Properties, Inc. and Subsidiaries Proforma Financial Statements:
Pro Forma Consolidated Balance Sheet as of June 30, 1997 (unaudited).
Pro Forma Consolidated Income Statement for the six months ended June
30, 1997 (unaudited).
Pro Forma Consolidated Income Statement for the year ended December
31, 1996 (unaudited).
- ------------------------------------------------------------------------------
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1997
(In Thousands)
(Unaudited)
This unaudited Pro Forma Consolidated Balance Sheet is presented as if the
Wellsford/Whitehall Properties, L.L.C. ("Wellsford Office") joint venture
transaction, the origination of a $70 million secured credit facility with an
owner and operator of properties in Southern California (the "Abbey Credit
Facility"), the merger (the "Value Merger") of a wholly-owned subsidiary of the
registrant (the "Company") with Value Property Trust ("Value"), the sale of
certain Value assets to Whitehall Street Real Estate Limited Partnership VII
("Whitehall Property Buyer") and the acquisition of certain properties (600
Atrium Drive, 700 Atrium Drive and 15 Broad Street) by Wellsford Office had
been consummated on June 30, 1997.
This unaudited Pro Forma Consolidated Balance Sheet is presented for
comparative purposes only, and is not necessarily indicative of what the actual
consolidated financial position of the Company would have been at June 30,
1997; nor does it purport to represent the future consolidated financial
position of the Company. This unaudited Pro Forma Consolidated Balance Sheet
should be read in conjunction with, and is qualified in its entirety by, the
consolidated financial statements of the Company included in the Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1997.
Wellsford Real Properties, Inc.
Pro Forma Consolidated Balance Sheet
June 30, 1997
(In thousands)
(Unaudited)
Joint Venture Value Other
Pro Forma Pro Forma Pro Forma
Historical Adjustments Adjustments Adjustments Pro Forma
---------- -------------- ------------ ----------- ---------
ASSETS
Real estate assets, at cost:
Land $3,375 ($3,375) $5,453 $0 $5,453
Buildings and improvements 20,341 (20,341) 30,902 30,902
------------------------- -------- ------- --------
23,716 (23,716) 36,355 0 36,355
Less, accumulated depreciation (106) 106 0
------------------------- -------- ------- --------
23,610 (23,610) 36,355 0 36,355
Construction in process 50,157 (27,870) 22,287
------------------------- -------- ------- --------
73,767 (51,480) (A) 36,355 (J) 0 58,642
Notes receivable 42,800 61,699 (B) 24,181 (Q) 153,280
17,200 (C)
7,400 (D)
Investment in joint venture 55,476 (A) 31,248
(30,426) (E)
6,198 (F)
------------------------- -------- ------- --------
Total real estate assets 116,567 66,067 36,355 24,181 243,170
Cash and cash equivalents 69,960 (3,041) (A) (130,000) (K) (24,181) (Q) 1,831
(934) (A) 64,000 (L)
(31,273) (G) 65,000 (M)
(7,200) (H) (500) (N)
Restricted cash 7,078 7,078
Deferred tax asset 4007 (O) 4007
Other assets 1,946 (45) (A) 1,901
------------------------- -------- ------- --------
Total Assets $195,551 $23,574 $38,862 $0 $257,987
========================= ======== ======= ========
LIABILITIES AND EQUITY
Liabilities:
Tax exempt mortgage note payable $14,755 $14,755
Credit facility 10,000 (H) 17,400
7,400 (I)
Other liabilities 4,735 (24) (A) 4,711
------------------------- -------- ------- --------
Total Liabilities 19,490 17,376 0 0 36,866
------------------------- -------- ------- --------
Commitments and contingencies -- -- -- -- --
Minority Interest 3,045 3,045
Equity:
Common Stock, 197,650,000
shares authorized-19,922,043
shares, $.01 par value per
share, issued and outstanding
as adjusted 166 33 199
Class A Common Stock,
350,000 shares authorized-339,806,
$.01 par value per share,
issued and outstanding
as adjusted 3 3
Series A 8% Convertible
Redeemable Preferred Stock,
2,000,000 shares authorized-
no shares, $.01 par value per
share, issued and outstanding -- --
Paid in capital in excess
of par value 172,435 6,198 (F) 38,829 217,462
Retained earnings 412 412
------------------------- -------- ------- --------
Total Equity 173,016 6,198 38,862 (P) 0 218,076
------------------------- -------- ------- --------
Total Liabilities and Equity $195,551 $23,574 $38,862 $0 $257,987
========================= ======== ======= ========
/TABLE
Wellsford Real Properties, Inc.
Notes to Pro Forma Consolidated Balance Sheet
June 30, 1997
(In thousands)
(Unaudited)
(A) Represents the transfer of assets to Wellsford/Whitehall Properties,
L.L.C. at their 8/25/97 historical costs (including $3 million in cash
spent on renovations for such assets from 7/1-8/25) as follows:
Real Estate $54,521
Cash - corp. 750
Cash - prop. 184
Other assets 45
Other liab. (24)
-------
$55,476
=======
(B) Represents the bridge loan made to Wellsford/Whitehall Properties, L.L.C.
at closing at LIBOR + 3%.
(C) Represents an additional advance under the bridge loan to
Wellsford/Whitehall Properties, L.L.C. at LIBOR + 3%, in relation to the
purchase of 700 Atrium Drive.
(D) Represents an additional advance under the bridge loan to
Wellsford/Whitehall Properties, L.L.C. at LIBOR + 3%, in relation to the
purchase of 15 Broad Street and 600 Atrium Drive.
(E) Represents the portion of the bridge loan (pursuant to (B) above) related
to the Company-contributed assets.
(F) Represents the value of the warrants issued to WHWEL Real Estate Limited
Partnership ("Whitehall Partner") in connection with the formation of
Wellsford/Whitehall Properties, L.L.C.
(G) Represents funding of the portion of the bridge loan (pursuant to (B)
above) related to the Whitehall Partner-contributed assets.
(H) Represents funding of the additional advance under the bridge loan
(pursuant to (C) above).
(I) Represents funding of the additional advance under the bridge loan
(pursuant to (D) above).
(J) Represents real estate assets (which are not under contract to be sold)
to be acquired in the Value transaction.
Gross real estate assets to be acquired $101,355
Real estate assets to be sold
(pursuant to (M) below) (65,000)
--------
$36,355
========
(K) Represents cash to be paid to the Value shareholders in the Value
transaction.
(L) Represents Value cash to be received in the Value transaction.
(M) Represents proceeds from the sale of certain Value real estate assets
which are under contract to be sold to Whitehall Property Buyer.
(N) Represents estimated stock issuance costs to be paid in connection with
the Value transaction.
(O) Represents the net deferred tax asset to be acquired in the Value
transaction, $34,927 net of allowance of $29,319 and deferred tax
liability of $1,601 (related to the Value NOL carryforward).
(P) Represents 3,350,000 Company common shares to be issued at $11.75 per
share in connection with the Value transaction, less $0.5 million of stock
issuance costs.
(Q) Represents advances made under the Abbey Credit Facility at LIBOR + 4%.
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT
For the Six Months Ended June 30, 1997
(In Thousands Except Per Share Data)
(Unaudited)
During the period from January 1, 1997 to September 30, 1997, the Company
consummated the Wellsford Office joint venture transaction, participated in the
Abbey Credit Facility and executed a definitive Agreement and Plan of Merger
with Value and a Purchase and Sale Agreement with Whitehall Property Buyer, and
Wellsford Office purchased 700 Atrium Drive, a commercial office property.
The unaudited Pro Forma Consolidated Income Statement for the six months
ended June 30, 1997 is presented as if the Company's transactions, each as
referred to above, as well as the acquisition of certain properties (600 Atrium
Drive and 15 Broad Street) by Wellsford Office had been consummated on January
1, 1997. All of the pro forma adjustments shown are solely attributed to the
transactions described. In the opinion of the Company's management, all
adjustments necessary to reflect the effects of these transactions have been
made.
This unaudited Pro Forma Consolidated Income Statement is presented for
comparative purposes only, and is not necessarily indicative of what the actual
consolidated results of operations of the Company would have been for the
period presented; nor does it purport to represent the results for future
periods. This unaudited Pro Forma Consolidated Income Statement should be read
in conjunction with, and is qualified in its entirety by, the consolidated
financial statements of the Company included in the Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997.
Wellsford Real Properties, Inc.
Wellsford Real Properties, Inc.
Pro Forma Consolidated Income Statement
Six Months Ended June 30, 1997
(In thousands except per share data)
(Unaudited)
Joint Venture Value Other
Pro Forma Pro Forma Pro Forma
Historical Adjustments Adjustments Adjustments Pro Forma
---------- -------------- ------------ ----------- ---------
REVENUE
Rental income $530 ($530) (A) $2,466 (E) $2,466
Other income 58 (58) (A) 0
Interest income 1,588 $3,883 (B) 25 (E) $1,209 (G) 6,705
Joint venture income (659) (C) (659)
------------------------- -------- ------- ---------
Total Revenue 2,176 2,636 2,491 1,209 8,512
------------------------- -------- ------- ---------
EXPENSES
Property operating and maintenance 65 (65) (A) 681 (E) 681
Real estate taxes 35 (35) (A) 297 (E) 297
General and administrative 255 255
Depreciation 114 (106) (A) 386 (F) 394
Interest 287 (D) 287
Property management 7 (7) (A) 75 (E) 75
------------------------- -------- ------- ---------
Total Expenses 476 74 1,439 0 1,989
------------------------- -------- ------- ---------
Income before income taxes 1,700 2,562 1,052 1,209 6,523
Provision for income taxes 284 1,047 430 494 2,255 (H)
------------------------- -------- ------- ---------
Net income $1,416 $1,515 $622 $715 $4,268
========================= ======== ======= =========
Net income per common share $0.08 $0.21 (I)
=========== ==========
Weighted average common
shares outstanding 16,911 20,261 (I)
=========== ==========
Wellsford Real Properties, Inc.
Notes to Pro Forma Consolidated Income Statement
Six Months Ended June 30, 1997
(Unaudited)
(A) Represents the reclassification of the historical operating revenues and
expenses of Greenbrook Corporate Center to joint venture income.
(B) Represents interest income on the $86.3 million bridge loan to
Wellsford/Whitehall Properties, L.L.C. for six months at 9% (LIBOR + 3%).
(C) Represents six months of operations of Wellsford/Whitehall Properties,
L.L.C. as follows:
(In thousands)
Pointview, 1700 Valley Road,
1800 Valley Road, Chatham $0 Under construction during this
period.
Greenbrook Corporate Center 1,081 *
300/400/500 Atrium Drive 2,823 *
1275 K Street 1,139 *
700 Atrium Drive 904 *
15 Broad Street 251 *
600 Atrium Drive (22) *
General and administrative exp. (1,223) Represents the estimated
general and administrative
costs of Wellsford/Whitehall
Properties, L.L.C. for six
months.
Depreciation expense (1,590) Represents depreciation on the
assets marked * above for six
months utilizing a 40 year
estimated useful life.
Interest expense - Atrium loan (2,164) Represents interest on the
$48.1 million Atrium mortgage
loan for six months at 9%
(LIBOR + 3%).
Interest exp. - Company
bridge loan (3,883) Represents interest on the
$86.3 million Company bridge
loan for six months at 9%
(LIBOR + 3%).
Capitalized interest 1,369
_________
(1,315)
Company interest through
Wellsford Commercial
Properties Trust 50.10%
---------
($659)
=========
* Represents historical operating revenues
and expenses of these assets (historical
real estate taxes in the case of 600 Atrium
Drive) for the six months ended June 30,
1997.
(D) Represents interest on the portion of the credit facility draws which is
not capitalizable at 7.75% (LIBOR + 1.75%) for six months.
(E) Represents historical operating revenues and expenses of the Value assets
(which are not under contract to be sold) for the six months ended June
30, 1997.
(F) Represents depreciation on the Value assets for six months utilizing a 40
year estimated useful life.
(G) Represents interest income on the $24.2 million Abbey Credit Facility for
six months at 10% (LIBOR + 4%).
(H) Represents WRP's estimated provision for federal and state income taxes at
rates of 35% and 9%, respectively.
(I) Reflects the issuance of 3.35 million common shares in connection with the
Value transaction.
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT
For the Year Ended December 31, 1996
(In Thousands Except Per Share Data)
(Unaudited)
During the period from January 1, 1997 to September 30, 1997, the Company
consummated the Wellsford Office joint venture transaction, participated in the
Abbey Credit Facility and executed a definitive Agreement and Plan of Merger
with Value and a Purchase and Sale Agreement with Whitehall Property Buyer, and
Wellsford Office purchased 700 Atrium Drive, a commercial office property.
The unaudited Pro Forma Consolidated Income Statements for the Year ended
December 31, 1996 is presented as if the Company's transactions, each as
referred to above, as well as the acquisition of certain properties (600 Atrium
Drive and 15 Broad Street) by Wellsford Office had been consummated on January
1, 1996. All of the pro forma adjustments shown are solely attributed to the
transactions described. In the opinion of the Company's management, all
adjustments necessary to reflect the effects of these transactions have been
made.
This unaudited Pro Forma Consolidated Income Statement is presented for
comparative purposes only, and is not necessarily indicative of what the actual
consolidated results of operations of the Company would have been for the
period presented; nor does it purport to represent the results for future
periods. This unaudited Pro Forma Consolidated Income Statement should be read
in conjunction with, and is qualified in its entirety by, the consolidated
financial statements of the Company's predecessor included in the Form 10 for
the year ended December 31, 1996.
Wellsford Real Properties, Inc.
Pro Forma Consolidated Income Statement
Year Ended December 31, 1996
(In thousands except per share data)
(Unaudited)
Joint Venture Value Other
Pro Forma Pro Forma Pro Forma
Historical Adjustments Adjustments Adjustments Pro Forma
---------- -------------- ------------ ----------- ---------
REVENUE
Rental income $4,547 (D) $4,547
Other income 0
Interest income $757 $7,767 (A) 50 (D) $2,418 (F) 10,992
Joint venture income (3,656) (B) (3,656)
----------------------------- -------- ------- ---------
Total Revenue 757 4,111 4,597 2,418 11,883
----------------------------- -------- ------- ---------
EXPENSES
Property operating and maintenance 1,490 (D) 1,490
Real estate taxes 572 (D) 572
General and administrative 0
Depreciation 773 (E) 773
Interest 574 (C) 574
Property management 199 (D) 199
----------------------------- -------- ------- ---------
Total Expenses 0 574 3,034 0 3,608
----------------------------- -------- ------- ---------
Income before income taxes 757 3,537 1,563 2,418 8,275
Provision for income taxes 1,445 638 988 3,071 (G)
----------------------------- -------- ------- ---------
Net income $757 $2,092 $925 $1,430 $5,204
============================= ======== ======= =========
/TABLE
Wellsford Real Properties, Inc.
Notes to Pro Forma Consolidated Income Statement
Year Ended December 31, 1996
(Unaudited)
(A) Represents interest income on the $86.3 million bridge loan to
Wellsford/Whitehall Properties, L.L.C. for one year at 9% (LIBOR + 3%).
(B) Represents one year of operations of Wellsford/Whitehall Properties,
L.L.C. as follows:
(In thousands)
Pointview, 1700 Valley Road,
1800 Valley Road, Chatham $0 Under construction during
this period.
Greenbrook Corporate Center 2,420 *
300/400/500 Atrium Drive (793) *
1275 K Street 3,916 *
700 Atrium Drive 1,860 *
15 Broad Street 320 *
600 Atrium Drive (38) *
General and administrative exp. (2,446) Represents the estimated
general and administrative
costs of
Wellsford/Whitehall
Properties, L.L.C. for one
year.
Depreciation expense (3,180) Represents depreciation on
the assets marked * above
for one year utilizing a 40
year estimated useful life.
Interest expense - Atrium loan (4,328) Represents interest on the
$48.1 million Atrium
mortgage loan for one year
at 9% (LIBOR + 3%).
Interest exp. - Company bridge loan (7,767) Represents interest on the
$86.3 million Company
bridge loan for one year at
9% (LIBOR + 3%).
Capitalized interest 2,738
--------
(7,298)
--------
Company interest through
Wellsford Commercial
Properties Trust 50.10%
--------
($3,656)
========
* Represents historical operating
revenues and expenses of these assets
(historical real estate taxes in the
case of 600 Atrium Drive) for the year
ended December 31, 1996.
(C) Represents interest on the portion of the credit facility draws which is
not capitalizable at 7.75% (LIBOR + 1.75%) for one year.
(D) Represents historical operating revenues and expenses of the Value assets
(which are not under contract to be sold) for the year ended December 31,
1996.
(E) Represents depreciation on the Value assets for one year utilizing a 40
year estimated useful life.
(F) Represents interest income on the $24.2 million Abbey Credit Facility for
one year at 10% (LIBOR + 4%).
(G) Represents WRP's estimated provision for federal and state income taxes at
rates of 35% and 9%, respectively.
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 .
Wellsford Real Properties, Inc.
------------------------------------------
(Registrant)
Date: November 11, 1997 By: /s/Gregory F. Hughes
---------------------------
Gregory F. Hughes
Chief Financial Officer