-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MAtI0uR03CVc382Xr0CM5YE70IBWMGUkspDcJdsDpZrMjfyoGvGufO+tfrGZy5EF TwpbZjYkAvrTze245kxU1w== 0000950148-95-000794.txt : 19951130 0000950148-95-000794.hdr.sgml : 19951130 ACCESSION NUMBER: 0000950148-95-000794 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA REAL ESTATE INVESTMENT TRUST CENTRAL INDEX KEY: 0000016387 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 946181186 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08063 FILM NUMBER: 95592139 BUSINESS ADDRESS: STREET 1: 1300 ETHAN WAY STREET 2: STE 200 CITY: SACRAMENTO STATE: CA ZIP: 95825-6727 BUSINESS PHONE: 9169298244 MAIL ADDRESS: STREET 1: 1300 ETHAN WAY STREET 2: SUITE 200 CITY: SACRAMENTO STATE: CA ZIP: 95825 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDING 9/30/95 1 UNITED STATES 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 September 30, 1995 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 From the transition period from to --------------- --------------- Commission file number 1-8063 California Real Estate Investment Trust ------------------------------------------------------ (Exact name of registrant as specified in its charter) California 94-6181186 - - --------------------------------------- ----------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.)
131 Steuart Street, Suite 200, San Francisco, CA ------------------------------------------------ (Address of principal executive offices) 94105 ---------- (Zip Code) (415) 905-0288 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at September 30, 1995 - - ------------------------------------ --------------------------------- Common Shares of Beneficial Interest 9,156,959 $1.00 par value ("Common Shares")
PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Item 2. Management's Discussion and Analysis Provide the Information required by Rule 10-01 of Financial Condition and Results of Operations. Of Regulation S-X (17 CFR Part 210). Furnish the information required by Item 303 of Regulation S-K (Section 229.303 of this chapter).
2 CALIFORNIA REAL ESTATE INVESTMENT TRUST
INDEX PAGE PART I. FINANCIAL INFORMATION Item 1: Financial Statements Consolidated Balance Sheets - September 30, 1995 and December 31, 1994 1 Consolidated Statements of Operations - For the Three Months and Nine Months Ended September 30, 1995 and 1994 2 Consolidated Statements of Cash Flows - For the Nine Months Ended September 30, 1995 and 1994 3 Notes to Consolidated Financial Statements 4 - 7 Item 2: Management's Discussion and Analysis of the Financial Condition and Results of Operations 8 - 11 PART II. OTHER INFORMATION Item 1: Legal Proceedings 12 Item 2: Changes in Securities 12 Item 3: Defaults Upon Senior Securities 12 Item 4: Submission of Matters to a Vote of Security Holders 12 Item 5: Other Information 12 Item 6: Exhibits and Reports on Form 8-K 12
3 PART I. FINANCIAL INFORMATION CALIFORNIA REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1995 1994 (UNAUDITED) (AUDITED) ------------ ------------- ASSETS INVESTMENTS: Rental properties, less accumulated depreciation of $2,655,000 and $2,229,000 at September 30, 1995 and December 31, 1994, respectively, and valuation allowance of $5,863,000 at September 30, 1995 and December 31, 1994 $ 18,238,000 $ 18,391,000 Notes receivable, net of valuation allowances and deferred gains of $7,116,000 and $7,182,000 at September 30, 1995 and December 31, 1994, respectively 12,758,000 13,532,000 ------------ ------------ 30,996,000 31,923,000 Cash 4,273,000 3,366,000 Receivables, net of allowance of $636,000 and $323,000 at September 30, 1995 and December 31, 1994, respectively 852,000 974,000 Other assets, net of valuation allowance of $310,000 at September 30, 1995 and December 31, 1994 577,000 277,000 ------------ ------------ Total Assets $ 36,698,000 $ 36,540,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Long-term notes payable, collateralized by deeds of trust on rental properties $ 8,348,000 $ 8,740,000 Accounts payable and accrued expenses 200,000 43,000 Other liabilities 79,000 72,000 ------------ ------------ Total Liabilities 8,627,000 8,855,000 ------------ ------------ Commitments SHAREHOLDERS' EQUITY: Shares of beneficial interest, par value $1 a share; unlimited authorization, 9,157,000 shares outstanding at September 30, 1995 and December 31, 1994 9,157,000 9,157,000 Additional paid-in capital 55,098,000 55,098,000 Accumulated deficit (36,184,000) (36,570,000) ------------ ------------ Total Shareholders' Equity 28,071,000 27,685,000 ------------ ------------ Total Liabilities and Shareholders' Equity $ 36,698,000 $ 36,540,000 ============ ============
See accompanying notes to consolidated financial statements. 1 4 CALIFORNIA REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 1995 1994 ---------- ---------- ----------- ----------- REVENUES: Rent $ 537,000 $ 551,000 $ 1,572,000 $ 1,909,000 Interest 361,000 722,000 1,041,000 1,384,000 Hotel 44,000 80,000 44,000 459,000 ---------- ---------- ----------- ----------- 942,000 1,353,000 2,657,000 3,752,000 ---------- ---------- ----------- ----------- EXPENSES: Operating expenses 149,000 184,000 433,000 643,000 Hotel operating expenses -- -- -- 808,000 Property management 27,000 15,000 71,000 241,000 Depreciation and amortization 163,000 134,000 474,000 460,000 Interest 220,000 265,000 648,000 834,000 General and administrative 283,000 70,000 711,000 523,000 ---------- ---------- ----------- ----------- 842,000 668,000 2,337,000 3,509,000 ---------- ---------- ----------- ----------- Income before gain (loss) on foreclosure or sale of investments 100,000 685,000 320,000 243,000 Gain (loss) on foreclosure or sale of investments -- (344,000) 66,000 (230,000) ---------- ---------- ----------- ----------- Net income $ 100,000 $ 341,000 $ 386,000 $ 13,000 ========= ========== =========== =========== Net income per share of beneficial interest $ 0.01 $ 0.04 $ 0.04 $ 0.00 ========= ========== =========== ===========
See accompanying notes to consolidated financial statements. 2 5 CALIFORNIA REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 386,000 $ 13,000 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 474,000 460,000 (Gain) loss on foreclosure or sale of investments (66,000) 230,000 Amortization of discount -- (30,000) Changes in assets and liabilities: Increase in receivables, net (80,000) (147,000) (Increase) decrease in other assets (215,000) 73,000 Increase in accounts payable and accrued expenses 243,000 113,000 Increase (decrease) in other liabilities 7,000 (3,000) ----------- ----------- Total adjustments to net income 363,000 696,000 ----------- ----------- Net cash provided by operating activities 749,000 709,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Payment as result of sale of investments -- (68,000) Payments made to The Peregrine Real Estate Trust (86,000) -- Loans made to The Peregrine Real Estate Trust -- (5,000) Improvements to investments (204,000) (126,000) Collections on notes receivable 840,000 335,000 ----------- ----------- Net cash provided by investing activities 550,000 136,000 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term notes payable (392,000) (58,000) Distributions paid -- (891,000) ----------- ----------- Net cash used in financing activities (392,000) (949,000) ----------- ----------- Net increase (decrease) in cash 907,000 (104,000) Cash, beginning of period 3,366,000 3,451,000 ----------- ----------- Cash, end of period $ 4,273,000 $ 3,347,000 =========== ===========
See accompanying notes to consolidated financial statements. 3 6 CALIFORNIA REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation: Organization California Real Estate Investment Trust (Trust) was organized under the laws of the State of California pursuant to a Declaration of Trust dated September 15, 1966. The Trust became a partner of Totem Square, L. P. (Totem), a Washington Limited Partnership in which the Trust owns a 59% interest, on November 30, 1990. The Trust also formed CalREIT Totem Square, Inc. (Cal-CORP) to act as general partner of Totem. Cal-CORP has a 1% interest in Totem, and Totem Square Associates, an unrelated party, has the remaining 40%. On April 14, 1994, The Peregrine Real Estate Trust (formerly Commonwealth Equity Trust) as majority shareholder owning 76% of the Trust's outstanding Shares of Beneficial Interest, voted its shares to replace the Board of Trustees. At that time, the Trust elected a new Board of Trustees all of whom were key management personnel of The Peregrine Real Estate Trust (Peregrine). Subsequently, the Board was changed and is now comprised of five Trustees. Two are independent Trustees. Of the three remaining Trustees, one is an Executive Officer and Trustee of Peregrine, one a Peregrine Trustee and one a Peregrine Executive Officer. The Trust currently owns a hotel and four other commercial/retail properties located in five market areas in the Western United States. The Trust also owns a mortgage note portfolio comprised of approximately $20 million in loans, with an aggregate book value of approximately $12.8 million. These loans bear interest at an overall effective rate of approximately 8%. They are collateralized by mortgages on real property. Most of the investments in the eight loans were originated by the Trust in connection with the disposition of Trust properties prior to 1994. Basis of Presentation The accompanying financial statements are unaudited. However, they have been prepared in accordance with generally accepted accounting principles for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. As such, they do not include all of the disclosures 4 7 CALIFORNIA REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation, continued: required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. The results for the interim period ended September 30, 1995 are not necessarily indicative of the results to be obtained for the full fiscal year. These financial statements should be read in conjunction with the December 31, 1994 audited financial statements and notes thereto, included in the California Real Estate Investment Trust Annual Report on Form 10-K. The accompanying unaudited consolidated financial statements of California Real Estate Investment Trust include the accounts of the Trust and Totem. 2. Income Taxes: The Trust has elected to be taxed as a real estate investment trust and as such, is not taxed on that portion of its taxable income which is distributed to shareholders, provided that at least 95% of its real estate trust taxable income is distributed and that the Trust meets certain other REIT requirements. Due to tax operating loss carryforwards, the Trust does not have taxable income for the three months and nine months ended September 30, 1995. 3. Related-Party Transactions: The Trust and Peregrine are both self-administered. However, they share certain costs, including personnel costs, for which the Trust reimburses Peregrine pursuant to a cost allocation agreement based on each trust's respective asset values (real property and notes receivable) that is negotiated annually. During the nine months ended September 30, 1995, reimbursable costs charged to the Trust by Peregrine approximated $319,000. This amount was partially offset against $202,000 (net of valuation allowance of $141,000) which was due from Peregrine at December 31, 1994. At September 30, 1995, the Trust had $32,000 due to Peregrine. 5 8 CALIFORNIA REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Cash Flow Information: Cash paid for interest during the periods reported was as follows:
For the Three Months Ended For the Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ---- ---- ---- ---- Interest $165,000 $265,000 $591,000 $871,000 ======== ======== ======== ========
5. Per Share Data: Per share data is based on the weighted average number of shares of beneficial interest outstanding during the nine months ended September 30, 1995 and 1994. The weighted average number of shares used in the computation were 9,157,000 and 9,148,000 for the nine months ended September 30, 1995 and September 30, 1994, respectively. At September 30, 1995, there were no outstanding stock options. 6. Hotel Management Agreement: On June 1, 1994, a professional hotel management company was signed to lease the Trust's hotel. That lease agreement provided the Trust and the hotel management company the opportunity to renegotiate its terms. The lease terms have been renegotiated. Management of the Trust has reached an agreement under which the Trust will earn base lease revenue of approximately $111,000 for the twelve months ended May 31, 1996. 7. Historical Funds from Operations and Funds Available for Distribution: Equity REIT analysts generally consider Funds From Operations (FFO) an appropriate measure of performance in comparing the results of operations of REITs. FFO is defined by the National Association of Real Estate Investment Trusts as net income computed in accordance with generally accepted accounting principles before gains and losses on sales of property and from debt restructuring plus depreciation and amortization. Funds Available for Distribution (FAD) is defined as FFO less capital expenditures funded by operations and loan amortization. The Trust believes that in order to facilitate a clear understanding of the historical operating 6 9 CALIFORNIA REAL ESTATE INVESTMENT TRUST AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Historical Funds from Operations and Funds Available for Distribution, continued: results of the Trust, FFO and FAD should be examined in conjunction with net income (loss) as presented in this report. FFO and FAD should not be considered as an alternative to net income (loss) as an indication of the Trust's performance or to cash flow as a measure of liquidity. Funds From Operations and Funds Available for Distribution for the three months and nine months ended September 30, 1995 and 1994 are summarized as follows: Calculation of Funds From Operations and Funds Available for Distribution
For the Three Months Ended For the Nine Months Ended September 30, September 30, 1995 1994 1995 1994 --------- ---------- --------- --------- Net income before gain on foreclosure or sale of investments $ 100,000 $ 685,000 $ 320,000 $ 243,000 Depreciation and amortization 163,000 134,000 474,000 460,000 --------- ---------- --------- --------- Funds from operations 263,000 819,000 794,000 703,000 Capital improvements (113,000) (48,000) (204,000) (126,000) Loan principal payments (15,000) (24,000) (52,000)(1) (58,000) --------- ---------- --------- --------- Funds available for distribution $ 135,000 $ 747,000 $ 538,000 $ 519,000 ========= ========= ========= =========
(1) These amounts include only regular principal payments and exclude the Fulton Square loan payoff of $340,000, which was made in May 1995 from available cash reserves. 7 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. Historical results set forth are not necessarily indicative of future financial position and results of operations of the Trust. Since the beginning of this year, CalREIT has explored alternative strategies to grow the Trust through acquisitions, joint-venture arrangements and possibly through a new infusion of capital. The Board explored growth opportunities in single and multi-tenant industrial buildings, retail centers and hotel properties. Early research indicated the most favorable prospects for growth were within the lodging industry. As a result of additional research which continued throughout the third quarter, the Trust now believes that there would be benefit to developing CalREIT into a hotel real estate investment trust. By realigning its assets to focus on one asset class, the Trust will have positioned itself to both achieve better operating efficiencies and for potential expansion. In pursuing this goal, management has initiated both a search for additional hotel properties to add to its portfolio and the monetization of its non-hotel assets. The search to acquire other hotel properties has included discussions with several independent hotel owners, operators and management companies as well as with Peregrine which owns four hotel properties. This search has simultaneously included discussions with outside financing sources, including investment banking companies to provide either debt or equity funding for CalREIT's potential expansion into a hotel REIT. Meetings with Peregrine have included discussions about a potential exchange of assets, a joint-venture redevelopment project as well as a direct purchase of all Peregrine's hotel properties. Recently these discussions culminated in an offer through a letter of intent from CalREIT to Peregrine to purchase Peregrine's hotels outright. The offer was rejected by Peregrine although CalREIT was invited to submit revised offers in the future. The Board is currently determining if and when to submit another offer to Peregrine while it continues to pursue acquisitions from or alliances with other independent hotel owners and operators. As part of its hotel REIT business plan, the Trust is further examining the current and prospective contribution of its Best Western Casa Grande Motor Inn in Arroyo Grande, California. As a result of the installation of a professional hotel management company, the Trust believes the property is currently operating at peak capacity given its location and size. However, despite significant improvements in operations, the hotel's financial results remain insufficient to cover the property's debt service requirements. Therefore, the Trust has suspended debt service payments and has contacted the lender on the property with a proposal to renegotiate the debt structure or, if the proposal is refused by the lender, to allow foreclosure to occur. 8 11 Results of Operations The Trust believes that to facilitate a clear understanding of the operating results of the Trust, Funds From Operations should be examined in conjunction with net income (loss). Industry analysts generally define Funds From Operations as net income (loss) adjusted for certain non-cash expenses, primarily depreciation and amortization. Funds From Operations should not be considered as a substitute for net income as an indication of the Trust's performance or as a substitute for cash flow as a measure of its liquidity. Comparison of the Nine Months and Three Months Ended September 30, 1995 to the Nine Months and Three Months Ended September 30, 1994 Net Income of $386,000 was reported by the Trust for the nine months ended September 30, 1995, an improvement of $373,000 over the net income of $13,000 for the nine months ended September 30, 1994. This increase was a result of significant decreases in total expenses for the Trust for the nine months ended September 30, 1995. Net income of $100,000 was reported by the Trust for the three months ended September 30, 1995, a decrease of $241,000 from the net income of $341,000 reported for the three months ended September 30, 1994. This decrease is due primarily to decreased interest income. The decrease in interest income is due to the collection in September 1994 of $491,000 of prior period interest which had previously been reserved. Operating income increased by $77,000 for the nine months ended September 30, 1995 as compared to the nine months ended September 30, 1994. Although total revenues decreased, as discussed below, the Trust's expenses, in the aggregate, decreased by a greater amount, causing the increase in operating income. Expenses decreased in most categories, the most significant decrease related to the hotel as discussed below, for the nine months ended September 30, 1995. Operating income decreased $585,000 for the three months ended September 30, 1995 as compared to the three months ended September 30, 1994. This decrease is due primarily to decreased interest income. Total Revenues decreased $1,095,000, or 29%, to $2,657,000 for the nine months ended September 30, 1995, down from $3,752,000 for the nine months ended September 30, 1994. Total revenues decreased by $411,000, or 30%, to $942,000 for the three months ended September 30, 1995, down from $1,353,000 for the three months ended September 30, 1994. These decreases were primarily attributable to the sale of the Imperial Canyon Shopping Center in April 1994, decreased revenues from the Casa Grande Motor Inn, decreased revenues at the Fulton Square Shopping Center and Totem Square, and decreased interest income. Rental revenues decreased by $337,000, or 18%, to $1,572,000 for the nine months ended September 30, 1995, down from $1,909,000 for the nine months ended September 30, 1994. Rent revenues decreased by $14,000, or 3%, to $537,000 for the three months ended September 30,1995, down from $551,000 for the three months ended September 30, 1994. These decreases were due primarily to the absence of $196,000 and $0 in rents collected in the nine months and 9 12 three months ended September 30, 1994, respectively, by the Imperial Canyon Shopping Center, and to a decrease of $167,000 and $11,000 in rents collected in the nine months and three months ended September 30, 1995, respectively, by Fulton Square and Totem Square (attributable to a decrease in occupancy). Hotel revenues decreased by $415,000, or 90%, to $44,000 for the nine months ended September 30, 1995, down from $459,000 for the nine months ended September 30, 1994. Hotel revenues decreased by $36,000, or 45%, to $44,000 for the three months ended September 30, 1995, down from $80,000 for the three months ended September 30, 1994. Revenue generated from hotel operations for the nine and three months ended September 30, 1995 was comprised of lease revenue from CapStar, the professional hotel management company that leases the Trust's hotel. The lease agreement provides the Trust and CapStar the opportunity to renegotiate its terms and certain lease terms have been renegotiated. CapStar has taken a number of steps to improve the property's earning capacity. These steps include increasing the number of group and tour bookings, implementing a local marketing program and closing the property's food and beverage operations. In July 1995, the food and beverage operation was leased by CapStar to a third party. During the nine months ended September 30, 1995, while the renegotiations were taking place, CapStar did not make the payments called for by the lease which were fully reserved by the Trust. Management of the Trust has reached an agreement under which CapStar will continue to lease the hotel, producing base lease revenues of approximately $111,000 for the twelve months ending May 31, 1996. Interest revenues decreased by $343,000, or 25%, from $1,384,000 for the nine months ended September 30, 1994 to $1,041,000 for the nine months ended September 30, 1995. Interest revenues decreased by $361,000, or 50%, from $722,000 for the three months ended September 30, 1994 to $361,000 for the three months ended September 30, 1995. These decreases are due primarily to the prior period collection of interest which had been reserved offset by an increase during the current period in interest earned on cash. Total Expenses decreased by $1,172,000 or 33%, to $2,337,000 for the nine months ended September 30, 1995, down from $3,509,000 for the nine months ended September 30, 1994. Much of this improvement resulted from the reduction in operating expenses, property management fees, depreciation and amortization expense and interest expense related to Imperial Canyon Shopping Center. In the aggregate, these expenses were $263,000 less for the nine months ended September 30, 1995 than for the nine months ended September 30, 1994, due to the property's sale. A decrease of $808,000 for the nine months ended September 30, 1995 in hotel operating expenses was attributable to the leasing of the property to a third party hotel management company. An additional decrease of $170,000 for the nine months ended September 30, 1995 in property management fees was attributable to the decrease in the monthly property management fee from 5% to 3% of collected rents, which the Trust negotiated with its new property management firm and to the absence of an additional management fee paid to the Trust's former advisor. Total expenses increased $174,000, or 26%, to $842,000 for the three months ended September 30, 1995, up from $668,000 for the three months ended September 30, 1994. This increase is primarily due to an increase in general and administrative expenses as discussed below. 10 13 General and administrative expenses increased by $188,000, or 36%, from $523,000 for the nine months ended September 30, 1994 to $711,000 for the nine months ended September 30, 1995 and increased by $213,000, or 304%, from $70,000, for the three months ended September 30, 1994 to $283,000 for the three months ended September 30, 1995. These changes were due to the interaction of increases and decreases in several categories. The most notable increase arose from the reimbursement of certain shared administrative costs (which sharing arrangement commenced October 1, 1994 and will be ongoing), and from certain proxy, annual report and annual meeting costs which should not recur in the remaining three months of 1995. Liquidity and Capital Resources At September 30, 1995, the Trust had $4,273,000 in cash. Its five properties had a net book value of approximately $18,238,000 at that date with collateralized indebtedness against rental properties totaling $8,348,000 (46%). CalREIT's $19,874,000 note portfolio is carried at a book value of $12,758,000 due primarily to cumulative write downs in valuation. Management believes that its cash on hand, cash generated from operations and interest payments on its notes will be sufficient to meet its normal operational requirements. The primary demands on the Trust's capital resources will be debt service payments, the funding of capital improvements to the Trust's properties and the funding of the Trust's potential development into a hotel REIT. The Trust may seek additional capital to implement its hotel REIT strategy. Because of the anticipated cash requirements of implementing this strategy, the Trust does not now anticipate making a dividend distribution. The Trust's cash flows for the nine months ended September 30, 1995 produced an increase in cash of $907,000 compared to the cash flows for the nine months ended September 30, 1994, which yielded a decrease in cash of ($104,000), an improvement of $1,011,000. For the nine months ended September 30, 1995 compared to the nine months ended September 30, 1994, cash provided by operating activities increased by $40,000 to $749,000 from $709,000; cash from investing activities increased by $414,000 to $550,000 (which resulted from collections on notes receivable) from $136,000; and cash used in financing activities decreased by $557,000 to $392,000, down from $949,000 due to paying no dividend in 1995. The Trust's debt-to-equity ratio was 3:1 at September 30, 1995 and 1994. The Trust's current ratio at September 30, 1995 (cash, accounts receivable in the next 12 months and prepaid expenses; divided by accounts payable and other liabilities due within the next 12 months) is in excess of 5:1. 11 14 PART II. OTHER INFORMATION Item 1: Legal Proceedings None Item 2: Changes in Securities None Item 3: Defaults Upon Senior Securities None Item 4: Submission of Matters to a Vote of Security Holders None Item 5: Other Information None Item 6: Exhibits and Reports on Form 8-K None 12 15 SIGNATURES Pursuant to the requirement 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. CALIFORNIA REAL ESTATE INVESTMENT TRUST November 14, 1995 /s/ Frank A. Morrow - - ----------------- -------------------------------------- Date Frank A. Morrow, Chairman of the Board and Chief Executive Officer November 14, 1995 /s/ Arnold E. Brown - - ----------------- -------------------------------------- Date Arnold E. Brown Chief Financial Officer and Trustee EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1994 JAN-01-1995 SEP-30-1995 4,273 0 22,249 (13,925) 0 12,597 26,756 (2,655) 36,698 279 8,348 9,157 0 0 18,914 36,698 0 942 0 176 446 0 220 100 0 0 0 0 0 100 0.01 0.01 Shares of beneficial interest equivalents were auto-dilutive. The figures presented above are simple EPS.
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