-----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, FZB1pt8uvgt1SPHYRm7zVY3l409nVLZ9w8BwLeAV2WorzlIdPP1CLhOtPkJt9lHJ yzgihVT6sIRW2feQzzNvQg== 0000914317-97-000608.txt : 19971216 0000914317-97-000608.hdr.sgml : 19971216 ACCESSION NUMBER: 0000914317-97-000608 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971215 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALUE PROPERTY TRUST CENTRAL INDEX KEY: 0000079259 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 231862664 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06613 FILM NUMBER: 97738120 BUSINESS ADDRESS: STREET 1: 120 ALBANY STREET STREET 2: 8TH FLOOR CITY: NEW BRUNSWICK STATE: NJ ZIP: 08901-2163 BUSINESS PHONE: 9082963080 FORMER COMPANY: FORMER CONFORMED NAME: MORTGAGE & REALTY TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PNB MORTGAGE & REALTY INVESTORS DATE OF NAME CHANGE: 19850102 10-K 1 ================================================================================ 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, 1997 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: 732-296-3080 -------------------------------------------------- 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 2, 1997, computed by reference to the closing sale price of such shares as reported in the Consolidated Transaction Reporting System, was $24,698,928. The number of Common Shares outstanding at December 2, 1997 was 11,226,310. 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 disclosed previously on Form 8-K filed on September 22, 1997 with the Securities and Exchange Commission ("SEC"), the Trust entered into a definitive agreement on September 18, 1997 to be acquired by Wellsford Real Properties, Inc. ("Wellsford") in a merger transaction for cash and stock. The proposed transaction, which will be accounted for by Wellsford as a purchase, is subject to certain closing conditions and is expected to be completed in early 1998. Franklin Mutual Advisors, Inc., whose advisory clients currently hold approximately 50% of the Trust's outstanding shares, has agreed to vote the shares of the Trust over which it has voting power in favor of the proposed transaction. The proposed transaction, if consummated, will result in a change of control of the Trust. As of September 30, 1997, the Trust had: (1) cash and cash equivalents of $81.4 million; (2) restricted cash of $1.7 million which is restricted as to use under terms of various escrow and lease agreements and the New Indenture (See "Liquidity and Capital Resources" under Item 7); and (3) invested assets consisting of eight mortgage investments (consisting of one commercial mortgage loan and 111 residential mortgage loans) and 21 investments in real estate owned. Based upon the amounts of the Trust's invested assets as of September 30, 1997, approximately 36.96% of the Trust's portfolio was invested in California, 20.91% in Pennsylvania and 17.95% in New England states. Nationally, 21.52% of the amounts of its invested assets are in industrial or research and development properties, 39.47% in office buildings, 26.57% in shopping centers, 11.67% in apartments and 0.77% in other types of real estate properties. On November 3, 1997, the Trust utilized a portion of available cash on hand to retire its senior indebtedness in full. The face amount outstanding of the Floating Rate Notes at the time of repayment was $18.2 million. 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 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 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 (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 evaluation 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 and sold substantially all of its mortgage loan portfolio. The Trust 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 focused its ongoing operating activities in the California (primarily San Francisco and Los Angeles) and Mid-Atlantic markets. Specifically, the Trust believed an opportunity existed 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 those geographic regions and property types that were not consistent with the strategic plan were to be divested in an orderly manner. Consistent with this policy, the Trust sold nineteen real estate properties, three of nine buildings in an industrial park and a 7.6 acre parcel of unimproved land from October 1, 1995 through September 30, 1997. During fiscal 1996 and fiscal 1997, seven and six real estate properties, respectively, were transferred from Held for Investment to Held for Sale. At September 30, 1997, the Trust owned 21 properties of which six are classified as Held for Sale. In March of fiscal 1996, the Trust completed the disposition of substantially all of its mortgage loan portfolio. On April 30, 1996, the Trust issued $67.4 million of Floating Rate Notes which were used with $56.5 million of available cash on hand to prepay the Trust's Senior Secured Notes and Mortgage Payable. The face amount outstanding of the Senior Secured Notes and Mortgage Payable at the time of repayment was $110.0 million and $13.9 million, respectively. Beginning in November 1996, Merrill Lynch contacted potential investors regarding the possible acquisition of some or all of the assets of the Trust. The Board of Trustees considered and discussed various alternative transactions and concluded that none were likely to realize as much value for the shareholders of the Trust as a business combination or the sale of substantially all of the Trust's assets and most would take longer to be consummated. Among the alternatives considered were the refinancing of the Trust's indebtedness and the subsequent sale of the assets of the Trust during a period of 12 to 18 months together with a liquidation of the Trust. On September 18, 1997 the Trust entered into a definitive agreement to be acquired by Wellsford Real Properties, Inc. ("Wellsford") in a merger transaction for cash and stock. The proposed transaction is subject to certain closing conditions and is expected to be completed in early 1998. Pursuant to the terms of the Merger Agreement, Wellsford will pay to the the Trust's shareholders approximately $130 million in cash and issue an aggregate of 3.35 million shares of its common stock resulting in each Trust shareholder receiving $11.58 in cash and 0.2984 common shares of Wellsford for each share of the Trust. 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. 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 received a ground water monitoring permit from the New Hampshire Department of Environmental Protection. 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, 1997, the Trust employed 12 people. The Trust also has engaged 11 independent property management firms to manage 17 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 (732) 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, except for one occasion in fiscal 1997. In July 1997, The Trust made a $6.2 million loan to facilitate the sale of a retail property located in California. The Trust continues to actively manage its investment portfolio. Loans are guaranteed by a first or junior mortgage on residential properties and the one commercial mortgage is guaranteed by a shopping center. 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. The Trust has 29 assets under management consisting of eight mortgage investments (consisting of one commercial mortgage loan and 111 residential mortgage loans) and 21 real estate investments. At September 30, 1997, the Trust has classified these assets as follows:
INVESTED ASSETS ------------------------ Number Carrying Value Percent ------ --------------- ------- (dollars in thousands) Assets Held for Sale: Investments in partnerships .......... 1 $ 5,869 8.1% Real estate investments .............. 5 22,001 30.3% ----- -------- ----- 6 27,870 38.4% ----- -------- ----- Assets Held for Investment: Mortgage loans ....................... 8 6,805 9.4% Real estate investments .............. 15 37,934 52.2% ----- -------- ----- 23 44,739 61.6% ----- -------- ----- Total Invested Assets .................. 29 $ 72,609 100.0% ===== ======== =====
The Trust's invested assets are primarily located in major metropolitan areas throughout the United States. As of September 30, 1997, the Trust held investments in mortgage loans, investments in real estate and other interests in real properties located in eleven states. The location, general character and occupancy information with respect to the Trust's invested assets at September 30, 1997 are set forth in the schedules contained on the following pages.
VALUE PROPERTY TRUST REAL ESTATE INVESTMENTS SEPTEMBER 30, 1997 DATE OCCUPANCY ASSET NAME CITY ST ACQUIRED OWNERSHIP TOTAL SQ. FT. @ 9/30/97 ---------- ---- -- -------- --------- ------------- --------- Villa del Cresta Florissant MO Feb-92 100% 333,038 SF 91.80% --------- TOTAL APARTMENTS 333,038 SF 91.80% --------- ------ Bay City Holdings* Santa Monica CA Jan-95 85% 114,375 SF 100.00% Moreno Valley Moreno Valley CA Nov-92 100% 251,090 SF 100.00% Oaktree Industrial Park San Dimas CA Oct-95 100% 27,095 SF 86.19% Chino Business Park Chino CA Oct-95 100% 64,496 SF 64.36% 900 Bldg. Minneapolis MN Sep-93 100% 216,000 SF 75.57% --------- TOTAL INDUSTRIAL 673,056 SF 88.19% --------- ------ Stadium Towers Anaheim CA Aug-88 100% 64,574 SF 91.99% Nash El Segundo CA Jan-94 100% 45,851 SF 86.64% Clarewood Woodland Hills CA May-92 100% 38,568 SF 93.67% Summer Street Boston MA Jan-90 100% 67,216 SF 100.00% Turnpike Canton MA Jan-91 100% 43,157 SF 100.00% Burtonsville Commerce Burtonsville MD Mar-95 100% 91,274 SF 99.63% Keewaydin Salem NH Aug-92 100% 125,230 SF 53.69% Hoes Lane Piscataway NJ Aug-91 100% 37,238 SF 86.94% Two Executive Campus Cherry Hill NJ Oct-92 100% 102,310 SF 72.20% Chestnut Street Philadelphia PA Jan-91 100% 49,953 SF 83.31% Pinebrook I King of Prussia PA May-87 100% 57,835 SF 100.00% Pinebrook II King of Prussia PA May-87 100% 58,521 SF 96.90% Six Sentry Parkway Blue Bell PA Jun-94 100% 89,781 SF 98.70% --------- TOTAL OFFICE 871,508 SF 86.61% --------- ----- Berdon Plaza Fairhaven MA Apr-91 100% 113,482 SF 91.61% Bradford Plaza West Chester PA Aug-95 100% 123,881 SF 88.19% --------- TOTAL RETAIL 237,363 SF 89.83% --------- ------ TOTAL PORTFOLIO 2,114,965 SF 88.29% ========= ======
*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.
VALUE PROPERTY TRUST GEOGRAPHIC DISTRIBUTION OF INVESTED ASSETS SEPTEMBER 30, 1997 State Apartments Industrial Office Retail - ----- ---------- ---------- ------ ------ California $ -- $ 13,381,123 $ 7,176,637 $ 6,241,816 Delaware -- -- -- -- Georgia -- -- -- -- Maryland -- -- 3,865,623 -- Massachusetts -- -- 2,796,317 7,638,819 Minnesota -- 2,243,444 -- -- Missouri 8,474,206 -- -- -- New Hampshire -- -- 2,596,116 -- New Jersey -- -- 2,448,773 -- Pennsylvania -- -- 9,772,980 5,410,459 Virginia -- -- -- -- ----------- ------------ ----------- ----------- Totals $ 8,474,206 $ 15,624,567 $28,656,446 $19,291,094 =========== ============ =========== =========== Percentage 11.67% 21.52% 39.47% 26.57% =========== ============ =========== =========== Residential State Mortgages Totals Percentage - ----- --------- ------ ---------- California $ 33,430 $ 26,833,006 36.96% Delaware 63,214 63,214 0.09% Georgia 31,317 31,317 0.04% Maryland 356,489 4,222,112 5.81% Massachusetts -- 10,435,136 14.37% Minnesota -- 2,243,444 3.09% Missouri -- 8,474,206 11.67% New Hampshire -- 2,596,116 3.58% New Jersey -- 2,448,773 3.37% Pennsylvania -- 15,183,439 20.91% Virginia 79,082 79,082 0.11% -------- ------------ ----- Totals $563,532 $ 72,609,845 ======== ============ Percentage 0.77% 100.00% ======= ======
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 Joint Plan of Reorganization confirmed by the Bankruptcy Court by an order entered February 27, 1991 are set forth in the section entitled "Previous Chapter 11 Case and 1991 Plan of Reorganization." 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 which became effective September 29, 1995 (the "Prepackaged Plan") are set forth in the section entitled "Recent Chapter 11 Case and 1995 Prepackaged Plan of Reorganization." 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. Neither the Trust nor any of its properties are presently subject to any material litigation nor, to the Trust's knowledge, is any material litigation threatened against the Trust or any of its properties, other than routine litigation arising in the ordinary course of business and which is expected to be covered by liability insurance. 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". 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.
High Low ---- --- 1997 First Quarter $11-7/8 $11 Second Quarter $13-3/8 $11-3/8 Third Quarter $13-1/4 $12 Fourth Quarter $15-7/8 $12-3/4 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
The Trust has net operating losses ("NOLs") from fiscal 1992 through 1996 that can be carried forward for tax purposes. Beginning in fiscal 1998, NOLs available to offset taxable income in future years will be approximately $107 million. 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 currently approximately $6 million. (b) HOLDERS OF COMMON SHARES There were approximately 3,800 record holders of the Trust's Common Shares at September 30, 1997. (c) DIVIDENDS The Trust did not declare or pay any dividends during either the fiscal year ended September 30, 1997 or the fiscal year ended September 30, 1996. 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, ----------------------------- ---------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Total revenue $ 26,736 $ 35,066 | $ 39,464 $ 36,277 $ 38,342 Interest and other operating expenses 17,415 25,746 | 52,120 47,668 43,967 Depreciation and amortization 1,717 2,347 | 7,306 5,839 5,500 Provision for losses -- -- | 3,000 2,000 37,000 -------- -------- | -------- -------- -------- Income (loss) from operations, before | reorganization items, gain on sale of | real estate and extraordinary items 7,604 6,973 | (22,962) (19,230) (48,125) | Reorganization items | Professional fees and other | expenses, net -- -- | 5,778 2,360 5,844 Write down of invested assets | to reorganization value -- -- | 66,597 -- -- -------- -------- | -------- -------- -------- Income (loss) before gain on sale of | real estate and extraordinary item 7,604 6,973 | (95,337) (21,590) (53,969) Gain on sale of real estate 24,861 -- | -- -- -------- -------- | -------- -------- -------- | Income (loss) before extraordinary item 32,465 6,973 | (95,337) (21,590) (53,969) Extraordinary item - gain on | extinguishment of debt -- -- | 75,304 -- -- -------- -------- | -------- -------- -------- Net income (loss) $ 32,465 $ 6,973 | $(20,033) $(21,590) $(53,969) ======== ======== | ======== ======== ======== Per share: * | Income from operations before | reorganization items, gain on sale of | real estate and extraordinary items * $ 0.68 $ 0.62 | Gain on sale of real estate * $ 2.21 $ -- | -------- -------- | Net income * $ 2.89 $ 0.62 | ======== ======== | OTHER DATA | Funds from Operations (a): | Net income (loss) $ 32,465 $ 6,973 | $(20,033) $(21,590) $(53,969) Depreciation and amortization 1,717 2,347 | 7,306 5,839 5,500 Reorganization expenses -- -- | 72,375 2,360 5,844 Gain on sale of real estate (24,861) -- | -- -- -- Extraordinary item-gain on | the extinguishment of debt -- -- | (75,304) -- -- -------- -------- | -------- -------- -------- Total $ 9,321 $ 9,320 | $(15,656) $(13,391) $(42,625) ======== ======== | ======== ======== ========
Post-Confirmation Pre-Confirmation -------------------------------------------- ---------------------------- September 30, September 30, September 30, September 30, September 30, 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- BALANCE SHEET DATA | Invested assets $ 72,609 $125,735 $207,120 | $309,973 $347,526 Total assets $159,082 $172,411 $232,329 | $364,740 $353,874 Allowance for losses $ -- $ -- $ -- | $ 13,430 $ 11,808 Senior notes (due 1999) $ 18,222 $ 63,226 $ -- | $ -- $ -- Senior notes (due 2002) $ -- $ -- $109,975 | $ -- $ -- Senior notes (due 1995) $ -- $ -- $ -- | $290,000 $290,000 Mortgage payable $ -- $ -- $ 17,535 | $ 17,593 $ 17,572 Shareholders' equity $139,512 $107,047 $100,074 | $ 20,033 $ 41,623
* 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) The definition of Funds From Operations ("FFO") was clarified in the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") White Paper, adopted by the NAREIT Board of Governors on March 3, 1995, as net income (computed in accordance with generally accepted accounting principles ("GAAP")), excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization (in each case only on real estate related assets), less preferred dividends, and after adjustments for uncolsolidated partnerships and joint ventures. The Trust's FFO is not comparable to FFO reported by other real estate investment trusts (REITs) that do not define FFO using the current NAREIT definition or that interpret the current NAREIT definition differently than the Trust. The Trust believes that to facilitate a clear understanding of the historical operating results of the Trust, FFO should be examined in conjunction with income as presented in the Consolidated Statements of Operations. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Trust's financial performance, or cash flows from operating activity (determined in accordance with GAAP) as a measure of the Trust's liquidity, nor is it indicative of funds available to fund the Trust's cash needs, including its ability to make distributions. 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, 1997, 1996 and 1995 and should be read in conjunction with the consolidated financial statements and the notes thereto. The Trust has, for the past several years prior to fiscal 1996, reported significant net losses. As a result of the 1995 Restructuring, past results should not be deemed 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's net income for fiscal 1997 was $32.5 million, or $2.89 per share, compared to $7.0 million, or $0.62 per share, for fiscal 1996 and a net loss of $20.0 million for fiscal 1995. The 1995 loss included: (1) reorganization items of $5.8 million which included professional fees of $6.2 million and interest income of $0.4 million; (2) an adjustment that reduced invested assets by $66.6 million as a result of the adoption of Fresh Start Reporting; and (3) an extraordinary item of $75.3 million reflecting the gain on extinguishment of debt. The Trust's income from operations, before reorganization items, gain on sale of real estate and extraordinary item for fiscal 1997 was $7.6 million, or $0.68 per share, compared to $7.0 million, or $0.62 per share, for fiscal 1996 and the loss of $23.0 million for fiscal 1995. Rental income was $20.5 million for fiscal 1997 compared to $26.9 million for fiscal 1996 and $24.6 million for fiscal 1995. In addition to rental income, the Trust received reimbursement of certain operating expenses totaling $3.0 million, $3.6 million and $2.3 million for fiscal 1997, 1996 and 1995, respectively. Rental income and reimbursement of certain operating expenses decreased in fiscal 1997 compared to fiscal 1996 as a result of a reduced number of owned properties. At September 30, 1997, the Trust owned 21 real estate properties compared to 31 and 38 at September 30, 1996 and 1995, respectively. Rental income and reimbursement of certain operating expenses for fiscal 1997 adjusted for sales increased to $14.4 million and $1.6 million, respectively from $13.9 million and $1.5 million, respectively for fiscal 1996. The increases in rental income and reimbursed expenses on rental properties for fiscal 1996 from fiscal 1995 were the result of continued foreclosure on real estate properties and improvement in occupancy levels. In the first month of fiscal 1996, two properties were added 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. During fiscal 1997, the Trust sold ten real estate properties and three of nine buildings owned by the Trust in an industrial park. Occupancy levels increased to 88.3% at September 30, 1997 compared to 87.5% and 81.1% at September 30, 1996 and 1995, respectively. Occupancy levels, adjusted for sales increased to 88.3% at September 30, 1997 compared to 84.8% at September 30, 1996. Interest and fee income on mortgage loans was $0.2 million for fiscal 1997 compared to $2.9 million in fiscal 1996 and $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 is substantially less than that recorded in prior years. During the fourth quarter of fiscal 1997, the Trust provided mortgage financing of $6.2 million to facilitate the sale of a real estate property. Interest on short-term investments was $3.1 million for fiscal 1997 compared to $1.7 million and $3.1 million for fiscal years 1996 and 1995, respectively. The increase in fiscal 1997 compared to fiscal 1996 is due to an increase in available cash balances as a result of property sales. The decrease in fiscal 1996 compared to fiscal 1995 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 $60.9 million for fiscal 1997 compared to $28.9 million and $57.6 million in fiscal years 1996 and 1995, respectively. At September 30, 1997, cash and cash equivalents, including restricted cash, were $83.1 million compared to $41.7 million at September 30, 1996. Interest expense for fiscal 1997 totaled $4.6 million compared to $10.5 million and $35.9 million for fiscal years 1996 and 1995, respectively. During the first quarter of fiscal 1997, the Trust used $7.0 million from the net proceeds from the sale of two encumbered properties sold in September of fiscal 1996, and $1.4 million from the net proceeds from the sale of an encumbered property sold in October of fiscal 1997 to prepay the Trust's senior indebtedness. During the remainder of fiscal 1997, the Trust used $36.6 million from the fiscal 1997 net proceeds from the sale of six encumbered properties and three of nine encumbered buildings in an industrial park, to prepay the Trust's senior indebtedness. The Trust's average borrowing cost for fiscal 1997 was 10.8% compared to 10.6% and 13.3% for fiscal years 1996 and 1995, 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. Operating expenses on rental properties decreased to $9.0 million in fiscal 1997 from $12.1 million for fiscal 1996 and from $11.7 million for fiscal 1995. At September 30, 1997 the Trust owned 21 real estate properties compared to 31 and 38 at September 30, 1996 and 1995, respectively. In the first month of fiscal 1996, two properties were added 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. The decrease in operating expenses on rental properties is the result of fiscal 1997 and fiscal 1996 property sales. During fiscal 1997, ten properties and three of nine buildings in an industrial park were sold, of which seven properties were sold during the second and third quarters of fiscal 1997. During fiscal 1996 the Trust sold nine real estate properties, eight of which occurred during the last two quarter of fiscal 1996. Therefore the Trust recorded operations for a longer period of time on a greater number of properties in fiscal 1996 than fiscal 1997. Operating expenses on rental properties, adjusted for sales decreased slightly to $6.4 million in fiscal 1997 from $6.8 million for fiscal 1996 as a result of lower repairs and maintenance expenses. The increase in expenses on rental properties in fiscal 1996 from fiscal 1995 are the result of continued foreclosure of real estate properties and improvement in occupancy levels. Occupancy levels increased to 88.3% at September 30, 1997 compared to 87.5% and 81.1% at September 30, 1996 and 1995, respectively. Occupancy levels, adjusted for sales increased to 88.3% at September 30, 1997 compared to 84.8% at September 30, 1996. Depreciation and amortization on rental properties for fiscal 1997 was $1.7 million compared to $2.3 million and $7.3 million for fiscal 1996 and 1995, respectively. The decrease is a result of (1) $12.6 million applied against the carrying values of assets Held For Investment at September 30, 1996, and (2) properties transferred to Held For Sale. During fiscal 1996, the Trust reduced the carrying values of long lived assets by $12.6 million as a result of the adoption of Fresh Start Reporting on September 30, 1995. All gains and losses for a period of one year after such adoption are applied against the carrying values of long lived assets held for investment. During fiscal 1997, the Trust reclassified six properties totaling $35.7 million to Held for Sale from Held for Investment. 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. The decrease in fiscal 1996 compared to fiscal 1995 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. Other operating expenses were $3.1 million for fiscal 1997 compared to $3.2 million and $4.5 million for fiscal years 1996 and 1995, respectively. The fiscal 1996 decrease from fiscal 1995 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 fees and accounting fees. Liquidation settlement expense for fiscal 1997, represents the negotiated settlement of a suit filed against the Trust. A third party alleged the existence of a purchase contract with respect to one of the Trust's properties which the Trust disputed. This dispute led to litigation. However, the Trust believed that this litigation, when resolved, would not have a material adverse effect on the business, financial condition or results of operations of the Trust. The Trust negotiated and paid $743,000 to settle the suit. The Trust also paid $8,000 to settle a lawsuit that occurred from the bulk sale of the mortgage loan portfolio in March of fiscal 1996. The Trust did not provide for a provision for losses in fiscal 1997 or fiscal 1996. The provision for losses was $3.0 million in fiscal 1995. 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. 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. 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. 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, cash flow from operating activities has been sufficient to meet minimum debt service requirements and commitments for capital expenditures. The Trust expects to continue 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 proceeds received from the issuance of 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 eight percent. The Trust paid a one-time fee of $377,000 to the counterparty to the Cap. 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, 1997, the Trust was in compliance with the New Indenture. On November 3, 1997, the Trust utilized a portion of available cash on hand to retire its senior indebtedness in full. The face amount outstanding of the Floating Rate Notes at the time of repayment was $18.2 million. During fiscal 1997, the Trust reclassified six properties totaling $35.7 million to Real Estate Owned Held for Sale from Real Estate Owned Held for Investment. During fiscal 1997, the Trust received $80.1 million in net cash proceeds from the sale of ten real estate properties, three of nine buildings in an industrial park and a 7.6 acre parcel of unimproved land with a carrying value of $61.9 million classified as Real Estate Owned Held for Sale. 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. The Trust's cash flow is derived from operating, investing and financing activities. Cash flow provided from operating activities increased to $10.6 million in fiscal 1997 compared to an increase of $9.4 million in fiscal 1996. In 1995, cash flow provided from operating activities decreased substantially as a result of a $32.6 million reduction in interest payable. Cash provided by investing activities decreased to $75.7 million in fiscal 1997 compared to $79.8 million in fiscal 1996 and increased substantially compared to $12.1 million in fiscal 1995 Real estate sales activity increased in fiscal 1997 to $86.4 million from $27.1 million and $3.3 million in fiscal 1996 and 1995, respectively. In fiscal 1996, the Trust completed the disposition of substantially all of 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 1997 to $115,000 from $332,000 and $22.7 million in fiscal 1996 and 1995, respectively. Prior to the 1995 Restructuring, the Trust had offered discounts on the repayment of mortgage loans and had sold real estate properties in an effort to generate cash to meet principal and interest payments on the Old Notes. Cash used in financing activities decreased to $34.5 million in fiscal 1997 compared to a decrease of $69.7 million and $8.5 million in fiscal 1996 and 1995, respectively. The fiscal 1997 decrease from fiscal 1996 is a result of the reduction in indebtedness repayments. During fiscal 1996, the Trust used the proceeds from the issuance of new Floating Rate Notes along with approximately $56.5 million to repay its indebtedness of $123.9 million. The fiscal 1996 increase from fiscal 1995 was 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. Cash and cash equivalents increased to $81.4 million in fiscal 1997 from $29.5 million and $10.0 million in fiscal 1996 and 1995, respectively as a result of increased property sales. 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. None. PART III ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT. Executive Officers of the Registrant The names and ages of all executive officers of the Trust and principal occupation and business experience during at least the last five years for each are set forth below:
Name Age Position(1) - ----- --- ----------- George R. Zoffinger 49 President, Chief Executive Officer and Trustee Paul I. McArthur 45 Executive Vice President Robert T. English 42 Secretary, Treasurer and Chief Financial Officer - --------------------
(1) The officers of the Trust serve a one-year term of office and are elected to their positions each year by the Trustees at the annual organization meeting of Trustees which normally immediately follows the Annual Meeting of the Shareholders. Mr. Zoffinger has held the position of President, Chief Executive Officer, and Trustee since September, 1995. For information about Mr. Zoffinger's professional background, see "Trustees of the Registrant." Mr. McArthur became the Executive Vice President of the Trust in January 1996. From 1995 to 1996, he served as Vice President of Corporate Real Estate Services for Bushman Jackson-Cross. From 1985 to 1994, Mr. McArthur served DKM Properties Corp., a privately held real estate management and development firm in various capacities, including as Vice President of Development and Senior Vice President of Operations. Mr. English became the Secretary, Treasurer and Chief Financial Officer of the Trust in January 1996. Prior to January 1996, Mr. English was Senior Vice President and Chief Financial Officer of Garden State Bancshares. From 1982 until 1994, Mr. English served Constellation Bancorp and Constellation Bank in various capacities, including as Senior Vice President and Comptroller from 1988 to 1994. Trustees of the Registrant The following table and biographical descriptions set forth certain information with respect to the seven Trustees based on information furnished to the Trust by each Trustee. There is no family relationship between any Trustee or executive officer of the Trust.
Positions Name, Age and Year With the First Became Trustee Trust Principal Occupation and Other Directorships(1) - --------------------- --------- ------------------------------------------------------------------------------------- Jeffrey A. Altman Chairman, Chairman of the Board of Trustees of the Trust since October 1995. Senior Vice 31 years Trustee President of Franklin Mutual Advisers, Inc. and Vice President of Franklin Mutual September, 1995 Series Fund Inc. since November 1, 1996. Vice President of Mutual Series Fund Inc. from May 1995 to October 1996. Analyst with Heine Securities Corp. from August 1988 to October 1996. Director of Resurgence Properties Inc. Martin Bernstein Trustee A private investor who has been managing family funds since 1988. Prior to this 60 years period, Mr. Bernstein served as a founding General Partner of Halcyon Investments and September, 1995 Alan B. Slifka & Co. (investments). Mr. Bernstein also currently serves on the Board of Directors of Astro Communications and MBO Properties, Inc. Richard S. Frary Trustee The founding partner and majority shareholder of Tallwood Associates, Inc., a 50 years private merchant banking firm specializing in corporate restructurings and real September, 1995 estate, and has served in that capacity since March 1990. Co-founder in 1993 and a member of the Board of Directors of Brookwood Financial Co. Inc., a real estate syndication company. Mr. Frary currently serves on the Board of Directors of Washington Homes, Inc.
Positions Name, Age and Year With the First Became Trustee Trust Principal Occupation and Other Directorships(1) - --------------------- --------- ------------------------------------------------------------------------------------- Richard B. Jennings Trustee Currently the President of Realty Capital International Inc., a real estate 54 years investment banking firm, and has served in that capacity since March 1991. Mr. September, 1995 Jennings has also been President of Jennings Securities Corporation since July 1995. Mr. Jennings currently serves on the Board of Directors of MBO Properties, Inc. John B. Levy Trustee Currently the President of John B. Levy & Company, Inc., a real estate investment 50 years banking firm based in Richmond, Virginia, and has served in that capacity since June September, 1995 1995. Mr. Levy was an Executive Vice President of Republic Realty Mortgage Corporation from 1993 to June 1995. Prior to 1993, Mr. Levy acted as Senior Vice President of NationsBanc Mortgage Corporation, and was charged with lender relations, production of new income property loans and management of the production offices. Carl A. Mayer, Jr. Trustee A real estate investment banker who founded The Mayer Group in 1990, an advisor group 60 years offering consulting and marketing expertise and services to real estate investment September, 1995 companies who are seeking investment capital from the pension fund community. Mr. Mayer continues to serve as a principal of The Mayer Group. From August 1995 to the present, Mr. Mayer has sesrved as Chairman of Mayer-Bialer and Associates, Inc. George R. Zoffinger President, President, Chief Executive Officer and Trustee of the Trust since October 1995. 49 years Chief Executive Served as the Chairman of CoreStates New Jersey National Bank from April 1994 to September, 1995 Officer, and December 1996 and a member of the Board of Directors of Corestates Bank, N.A. from Trustee April 1994 to April 1997. From December 1991 to April 1994, Mr. Zoffinger served as President and Chief Executive Officer of Constellation Bancorp and Constellation Bank. He has served on the Board of Directors of the Multicare Companies, Inc. from April 1995 until October, 1997 and as a member of the Board of Directors of New Jersey Resources, Inc. since May 1996.
- ------------------ (1) Included are only directorships in companies with a class of equity securities registered pursuant to Section 12 or subject to the requirements of Section 15(d) of the Securities Exchange Act of 1934 and in financial institutions and insurance companies. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Exchange Act requires the Trust's executive officers and Trustees, and persons who own more than 10% of a registered class of the Trust's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "SEC") and the New York Stock Exchange (the "NYSE"). Officers, Trustees and greater than 10% shareholders are required by SEC regulation to furnish the Trust with copies for all Section 16(a) forms they file. To the Trust's knowledge, based solely on review of the copies of such reports furnished to the Trust and written representations that no other reports were required during the fiscal year ended September 30, 1997, all Section 16(a) filing requirements applicable to its executive officers, Trustees and greater than 10% beneficial owners were satisfied. ITEM 11. TRUSTEE AND EXECUTIVE COMPENSATION. During the fiscal years ended September 30, 1997 and September 30, 1996, the Trustees received as compensation for their services as Trustees $750 for any Trustee or committee meeting attended in person or conducted by telephone conference except that no additional compensation was paid for attendance at any additional Trustee or committee meeting held on the same day as any Trustee or committee meeting. Non-local Trustees were reimbursed for hotel, airfare and automobile expenses. In lieu of an annual retainer, each of the non-officer Trustees was granted options in October of fiscal 1996 to purchase 35,000 Trust Shares under the 1995 Share Option Plan. 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. Pursuant to the Employment Agreement, Mr. Zoffinger serves as the President and Chief Executive Officer of the Trust, and he receives an annual base salary at a rate of $200,000 ("Base Salary") per year. The Employment Agreement provides that the Base Salary may be increased, but not decreased, at the discretion of the Compensation and Nominating Committee of the Board of Trustees. 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. The Employment Agreement includes a non-competition provision which provides that during the term of employment Mr. Zoffinger is prohibited, without written consent of the Board of Trustees, from investing in any property or any business venture which competes, directly or indirectly, with the Trust or which investment would require Mr. Zoffinger's active involvement in such business or venture or would materially impair his ability to perform fully his obligations under the Employment Agreement. If Mr. Zoffinger terminates his employment without cause, as defined in the Employment Agreement, he must continue to comply with the non-competition provision until the first anniversary of such termination date. 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. The consummation of the proposed transaction with Wellsford will cause the occurrence of a certain event under the employment agreement. Mr. Zoffinger would continue to receive his base salary at the same rate for six months. Executive Compensation Summary Compensation. The following table shows for the fiscal years ended September 30, 1997, 1996, 1995, the annual compensation paid by the Trust to the Chief Executive Officer and the four other most highly compensated executive officers of the Trust who earned more than $100,000 during fiscal 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE Annual Compensation(1) Awards Payouts --------------------------------- -------------------- ------- Other Annual Restricted Options/ All Other Fiscal Salary Bonus Compensation Shares SARs(3) LTIP Compensation Name and Principal Position Year ($)(2) ($) ($) ($) (#) Payouts ($) - ---------------------------- ------ ------ ----- ------------ ---------- -------- ------- ------------- George R. Zoffinger, 1997 $200,000 $50,000 - - - - $4,080(4) President and Chief 1996 $200,000 $50,000 - - 244,000 - $7,080(5) Executive Officer 1995(6) - - - - - - - Paul I. McArthur, Executive 1997 $130,000 $59,459 - - - - $3,842(7) Vice President 1996 $97,500 $53,545 - - 100,000 - $3,842(8) 1995 - - - - - - - Robert T. English, Secretary, 1997 $111,904 $15,000 - - - - $3,728(9) Treasurer and Chief 1996 $96,918 $15,000 - - 25,000 - $6,195(10) Financial Officer 1995 - - - - - - -
- ----------------- (1) In the fiscal year ended September 30, 1997 and September 30, 1996, the Trust provided certain personal benefits to its executive officers. The amount of such benefits to each of the Named Executive Officers did not exceed the lesser of $50,000 or 10% of salary and bonus for such fiscal year. (2) Includes salary deferrals and employee contributions under the Trust's 401(k) plan. (3) These options were granted under the 1995 Share Option Plan, as described in the Report of the Compensation and Nominating Committee. (4) $1,080 of this amount represents the full dollar value of insurance premiums paid by the Trust during fiscal 1997 on behalf of Mr. Zoffinger with respect to term life insurance. $3,000 of this amount represents matching contributions made by the Trust on Mr. Zoffinger's behalf under the Trust's 401(k) plan. (5) $1,080 of this amount represents the full dollar value of insurance premiums paid by the Trust during fiscal 1996 on behalf of Mr. Zoffinger with respect to term life insurance. $6,000 of this amount represents matching contributions made by the Trust on Mr. Zoffinger's behalf under the Trust's 401(k) plan. (6) Between April 24, 1995 and September 29, 1995, the Trust paid a monthly consulting fee of $17,667 to GRZ, Inc. for the consulting services of George R. Zoffinger. Mr. Zoffinger became the President and Chief Executive Officer of the Trust on September 29, 1995, but he received no salary in fiscal 1995. (7) $842 of this amount represents the full dollar value of insurance premiums paid by the Trust during fiscal 1997 on behalf of Mr. McArthur with respect to term life insurance. $3,000 of this amount represents matching contributions made by the Trust on Mr. McArthur's behalf under the Trust's 401(k) plan. (8) $842 of this amount represents the full dollar value of insurance premiums paid by the Trust during fiscal 1996 on behalf of Mr. McArthur with respect to term life insurance. $3,000 of this amount represents matching contributions made by the Trust on Mr. McArthur's behalf under the Trust's 401(k) plan. (9) $728 of this amount represents the full dollar value of insurance premiums paid by the Trust during fiscal 1997 on behalf of Mr. English with respect to term life insurance. $3,000 of this amount represents matching contributions made by the Trust on Mr. English's behalf under the Trust's 401(k) plan. (10) $695 of this amount represents the full dollar value of insurance premiums paid by the Trust during fiscal 1996 on behalf of Mr. English with respect to term life insurance. $5,500 of this amount represents matching contributions made by the Trust on Mr. English's behalf under the Trust's 401(k) plan. Option Exercises and Holdings The following table sets forth certain information concerning exercises of stock options during fiscal 1996 by each of the Named Executive Officers and the number and value of options held by each of the Named Executive Officers on September 30, 1996.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Number of Value of Securities Unexercised Underlying Unexercised In-the-Money Options at Options at Number of Fiscal YE Fiscal YE (1) Shares ---------------------- ------------------- Acquired on Value Exercisable/ Exercisable/ Exercise Realized Unexercisable Unexercisable ------------ -------- ---------------------- ------------------- George R. Zoffinger -0- -0- 81,333 / 162,667 $447,831 / $955,669 Paul I. McArthur -0- -0- 33,333 / 66,667 $174,998 / $350,002 Robert T. English -0- -0- 8,333 / 16,667 $48,956 / $ 97,919 - --------------------
(1) Based on the fair market value of the Shares on September 30, 1997, $15.875 per share, less the option exercise price. Board of Trustees The Trust is managed by a seven member Board of Trustees, a majority of whom are independent of the Trust's management. The Board of Trustees held nine meetings during fiscal 1997. Each of the Trustees attended at least 75% of the total number of meetings of the Board of Trustees and of the committees of the Trust of which he was a member. The Board of Trustees has appointed an Audit Committee and a Compensation and Nominating Committee. Descriptions of the Audit Committee and the Compensation and Nominating Committee follow. Audit Committee The Audit Committee, which currently consists of Messrs. Jennings (Chairman), Bernstein and Mayer, makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the plans and results of the audit engagement, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of the Trust's internal accounting controls. The Audit Committee met one time in fiscal 1997. Compensation and Nominating Committee The Compensation and Nominating Committee, which currently consists of Messrs. Bernstein, Chairman, Frary and Levy makes recommendations and exercises all powers of the Board of Trustees in connection with certain compensation matters, including incentive compensation and benefit plans. The Compensation and Nominating Committee administers, and has authority to grant awards under, the 1995 Share Option Plan to the employee Trustees and management of the Trust and its subsidiaries and other key employees. The Compensation and Nominating Committee is also responsible for recommending to the shareholders and the Board of Trustees individuals to serve as Trustees and officers of the Trust. The Compensation and Nominating Committee met three times in fiscal 1997. Recommendations from shareholders for nominees for election as Trustees may be directed to Mr. Martin Bernstein, Chairman of the Compensation and Nominating Committee, Value Property Trust, 120 Albany Street, 8th Floor, New Brunswick, New Jersey 08901. 1995 Stock Option Plan Reference is made to the information contained in Note 7 of the Notes to the Consolidated Financial Statements which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Security Ownership of Certain Beneficial Owners The table below sets forth information concerning the only persons, entities or groups which the Trust believes are the beneficial owners of five percent or more of the outstanding shares of the Trust's Shares as of October 30, 1997.
Name and Address of Amount and nature of Beneficial Owner Beneficial Ownership Percent of Class - -------------------- -------------------- ---------------- Franklin Mutual Advisers, Inc.(1) 5,631,827 50.05% 51 JFK Parkway Short Hills, New Jersey 07078 Intermarket Corporation 2,788,827 24.84% 667 Madison Avenue 20th Floor New York, New York 10021 Angelo Gordon & Co., L.P. 1,215,232 10.82% 245 Park Avenue New York, New York 10167 Strome Susskind & Co. 562,138 5.01% 1250 Fourth Street Santa Monica, California 90401 - ----------------
(1) Franklin Mutual Advisers, Inc. ("FMAI"), is an investment adviser registered under the Investment Advisers Act of 1940. One or more of FMAI's advisory clients are the beneficial owners of 5,631,827 shares of the Trust's common stock. Includes 25,000 of the Trust's common stock beneficially owned by Franklin's advisory clients pursuant to an agreement between Mr. Altman and FMAI. Pursuant to investment advisory agreements with its advisory clients, FMAI has sole investment discretion and voting authority with respect to such securities. FMAI has no interest in dividends or proceeds from the sale of such securities and disclaims beneficial ownership of all the securities owned by FMAI's advisory clients. Security Ownership of Management The following table sets forth information as of October 30, 1997, with respect to the beneficial ownership of Shares by each Named Executive Officer and Trustee of the Trust and by all Trustees and executive officers as a group. The information set forth below is based upon filings with the Securities and Exchange Commission, the Trust's Share records, and information obtained by the Trust from the persons named below. As of October 30, 1997, one individual Trustee or officer had beneficial ownership of 1% or more of the outstanding Shares and all Trustees and executive officers as a group beneficially owned 3.64% of the outstanding Shares.
Amount and Nature of Percent Name of Beneficial Owner(1) Beneficial Ownership of Class - ---------------------------- -------------------- -------- Jeffrey A. Altman 25,000(2) * Martin Bernstein 53,162(3) * Robert T. English 16,666 * Richard S. Frary 43,775 * Richard B. Jennings 25,000 * John B. Levy 29,206(4) * Carl A. Mayer, Jr. 25,000 * Paul I. McArthur 33,333 * George R. Zoffinger 171,109 1.50% Trustees and executive officers as a group (9 persons) 422,251 3.64% - -----------------
* Less than one percent. (1) The address of all Named Executive Officers is in care of the Trust. (2) Beneficial ownership of 25,000 of the Common Shares reported as beneficially owned by Mr. Altman are beneficially owned by Franklin Mutual Advisers, Inc.'s advisory clients pursuant to an agreement between Mr. Altman and Franklin Mutual Advisers, Inc. (3) Includes 18,775 Common Shares owned by Evelyn Bernstein, Mr. Bernstein's wife. Mr. Bernstein disclaims beneficial ownership of such Shares. (4) Includes 4,206 Common Shares owned by Judith Brown Levy, Mr. Levy's wife. Mr. Levy disclaims beneficial ownership of such Shares. Change of Control On September 18, 1997, the Trust entered into a definitive agreement to be acquired by Wellsford Real Properties, Inc. ("Wellsford") in a merger transaction for cash and stock. The proposed transaction, which will be accounted for by Wellsford as a purchase, is subject to certain closing conditions and is expected to be completed in early 1998. Franklin Mutual Advisors, Inc., whose advisory clients currently hold approximately 50% of the Trust's outstanding shares, has agreed to vote the shares of the Trust over which it has voting power in favor of the proposed transaction. The proposed transaction, if consummated, will result in a change of control of the Trust. 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. 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. 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 prior quarter. The Trust filed a Current Report on Form 8-K dated July 11, 1997 under Item 2 and Item 7 of Form 8-K regarding the Trust's disposition of two real estate properties during the current quarter and the mortgage financing provided in one of the transactions. The Trust filed a Current Report on Form 8-K dated September 18, 1997 under Item 5 and Item 7 of Form 8-K regarding the Trust's entering into a definitive merger agreement to be acquired by Wellsford Real Properties, Inc. in a merger transaction for cash and stock valued at approximately $169 million. (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. OTHER INFORMATION THIS FORM 10-K 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 7. 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 15, 1997 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 15, 1997 - -------------------------- Jeffrey A. Altman /s/ George R. Zoffinger President, Chief Executive December 15, 1997 - -------------------------- Officer and Trustee George R. Zoffinger (Principal Executive Officer) /s/ Robert T. English Secretary, Treasurer and December 15, 1997 - -------------------------- Chief Financial Officer Robert T. English (Principal Financial and Accounting Officer) /s/ Martin Bernstein Trustee December 15, 1997 - -------------------------- Martin Bernstein /s/ Richard S. Frary Trustee December 15, 1997 - -------------------------- Richard S. Frary /s/ Richard B. Jennings Trustee December 15, 1997 - -------------------------- Richard B. Jennings /s/ John B. Levy Trustee December 15, 1997 - -------------------------- John B. Levy /s/ Carl A. Mayer, Jr. Trustee December 15, 1997 - -------------------------- Carl A. Mayer, Jr. VALUE PROPERTY TRUST INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors Consolidated Financial Statements Consolidated Statements of Operations (Years ended September 30, 1997, 1996 and 1995) Consolidated Balance Sheets (September 30, 1997 and 1996) Consolidated Statements of Cash Flows (Years ended September 30, 1997, 1996 and 1995) Consolidated Statements of Shareholders' Equity (Years ended September 30, 1997, 1996 and 1995) Notes to the Consolidated Financial Statements Financial Statements Schedules Schedule III -- Real Estate Accumulated Depreciation and Amortization (September 30, 1997) Schedule XII -- Mortgage Loans on Real Estate (September 30, 1997) REPORT OF INDEPENDENT AUDITORS To the Trustees and Shareholders of Value Property Trust: We have audited the accompanying consolidated balance sheets of Value Property Trust as of September 30, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended and related financial statement schedules. These financial statements and financial statement schedules are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. The financial statements and financial statement schedules of Value Property Trust as of September 30, 1995, and for the year then ended, were audited by other auditors whose report dated November 10, 1995, included an emphasis of matter paragraph which described the reorganiation and the implementation of Fresh Start Reporting as discussed in Note 1 to the financial statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1997 and 1996 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Value Property Trust as of September 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. In addition, in our opinion, the related 1997 and 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. /s/COOPERS & LYBRAND L.L.P. --------------------------- COOPERS & LYBRAND L.L.P. New York, New York November 28, 1997 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. /s/ERNST & YOUNG LLP - -------------------- ERNST & YOUNG LLP Philadelphia, Pennsylvania November 10, 1995
VALUE PROPERTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30 (dollars in thousands except per share) POST- PRE- CONFIRMATION CONFIRMATION ----------------------------------- ------------ 1997 1996 1995 ------------ ------------ ---------- Revenue: | Rental properties: | Rental income $ 20,486 $ 26,925 | $ 24,608 Operating expense reimbursement 2,975 3,557 | 2,286 Interest and fee income on mortgage loans 202 2,853 | 9,353 Interest on short-term investments 3,064 1,713 | 3,086 Other 9 18 | 131 -------- -------- | -------- Total Revenue 26,736 35,066 | 39,464 -------- -------- | -------- Expenses: | Interest 4,640 10,489 | 35,900 Rental properties: | Operating 8,971 12,084 | 11,702 Depreciation and amortization 1,717 2,347 | 7,306 Other operating expenses 3,053 3,173 | 4,518 Litigation settlement 751 -- | -- Provision for losses on mortgage loans and related investments -- -- | 3,000 -------- -------- | -------- Total Expenses 19,132 28,093 | 62,426 -------- -------- | -------- Income (loss) from operations before reorganization items, | and gain on sale of real estate and extraordinary item 7,604 6,973 | (22,962) -------- -------- | -------- Reorganization items: | Professional fees and other -- -- | 6,219 Interest income -- -- | (441) Write down of invested assets to reorganization value -- -- | 66,597 -------- -------- | -------- Total reorganization items -- -- | 72,375 -------- -------- | -------- Income (loss) before gain on sale of real estate and | extraordinary item 7,604 6,973 | (95,337) -------- -------- | -------- Gain on sale of real estate 24,861 -- | -- -------- -------- | -------- Income (loss) from operations before extraordinary item 32,465 6,973 | (95,337) Extraordinary item-gain on extinguishment of debt -- -- | 75,304 -------- -------- | -------- Net income (loss) $ 32,465 $ 6,973 | $(20,033) ======== ======== | ========
VALUE PROPERTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30 (dollars in thousands except per share) (continued) POST- PRE- CONFIRMATION CONFIRMATION ----------------------------------- ------------ 1997 1996 1995 ------------ ------------ ---------- Per share: | Income from operations before reorganization items, | gain on sale of real estate and extraordinary item * $ 0.68 $ 0.62 | Gain on sale of real estate * $ 2.21 $ 0.00 | -------- -------- | Net income * $ 2.89 $ 0.62 | ======== ======== | | Weighted average number of common shares outstanding 11,226 11,226 | 11,226
* Net income (loss) per share for the pre-confirmation period 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.
VALUE PROPERTY TRUST CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30 (dollars in thousands) 1997 1996 -------- -------- ASSETS Assets Held For Sale: Investment in partnerships ............................ $ 5,869 $ 10,219 Real estate owned ..................................... 22,001 38,171 -------- -------- Total Assets Held For Sale 27,870 48,390 -------- -------- Assets Held For Investment: Mortgage loans ........................................ 6,805 663 Investment in partnerships ............................ -- 13,486 Real estate owned ..................................... 37,934 63,196 -------- -------- Total Assets Held For Investment 44,739 77,345 -------- -------- Total Invested Assets ...................................... 72,609 125,735 Cash and cash equivalents .................................. 81,409 29,501 Restricted cash ............................................ 1,673 12,213 Interest receivable and other assets ....................... 3,391 4,962 -------- -------- Total Assets ............................................... $159,082 $172,411 ======== ======== LIABILITIES Senior Secured Notes (Due 1999) ............................ $ 18,222 $ 63,226 Accounts payable and accrued expenses ...................... 1,245 1,804 Interest payable ........................................... 103 334 -------- -------- Total Liabilities .......................................... 19,570 65,364 -------- -------- Commitments and contingencies
VALUE PROPERTY TRUST CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30 (dollars in thousands) (continued) 1997 1996 -------- -------- 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 in fiscal 1997 and fiscal 1996 shares issued and outstanding........................................... 11,226 11,226 Additional paid-in capital ................................. 88,848 88,848 Accumulated earnings ....................................... 39,438 6,973 -------- -------- Total Shareholders' Equity ................................. 139,512 107,047 -------- -------- Total Liabilities and Shareholders' Equity ................. $159,082 $172,411 ======== ========
See accompanying notes to consolidated financial statements.
VALUE PROPERTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30 (dollars in thousands) POST- PRE- CONFIRMATION CONFIRMATION ---------------------------- ------------ 1997 1996 1995 ------------ --------- --------- Cash flows from operating activities: | Net income (loss) ........................................................... $ 32,465 $ 6,973 | $ (20,033) 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 ............................. 1,717 2,347 | 7,306 Provision for losses ..................................................... -- -- | 3,000 (Decrease) increase in accounts payable and accrued expenses ................ (559) (2,942) | 199 (Decrease) increase in interest payable ..................................... (231) 334 | (32,568) Decrease (increase) in receivables and other assets ......................... 2,095 2,675 | (576) Net change in interest reserves, deferred income ............................ -- -- | (162) Recoveries of charge-offs to allowance for losses ........................... -- -- | 631 Gain on sale of real estate.................................................. (24,861) -- | -- --------- --------- | --------- Total adjustments ............................................................ (21,839) 2,414 | (30,877) --------- --------- | --------- Net cash provided by (used in) operating activities .......................... 10,626 9,387 | (50,910) --------- --------- | --------- Cash flows from investing activities: | Investment in real estate: | Real estate owned ........................................................ (3,716) (4,550) | (11,283) Advances on mortgage loans ............................................... (6,257) (73) | (733) Partnerships ............................................................. (813) (344) | (2,211) Principal repayments on mortgage loan receivables ........................... 115 332 | 22,711 Proceeds from the sale of real estate ....................................... 86,417 27,093 | 3,350 Proceeds from the sale of mortgage loans and notes receivable ............... -- 57,047 | -- Repayments on notes receivable .............................................. -- 338 | 217 --------- --------- | --------- Net cash provided by investing activities .................................... 75,746 79,843 | 12,051 --------- --------- | ---------
VALUE PROPERTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30 (dollars in thousands) (continued) POST- PRE- CONFIRMATION CONFIRMATION ---------------------------- ------------ 1997 1996 1995 ------------ --------- --------- 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) ........................ (45,004) (4,153) | -- Borrowing of senior notes (due 1999) ........................................ -- 67,379 | -- Decrease (increase) in restricted cash ...................................... 10,540 (5,422) | (3,808) --------- --------- | --------- Net cash used in financing activities ........................................ (34,464) (69,706) | (8,513) --------- --------- | --------- Net increase (decrease) in cash and cash equivalents ......................... 51,908 19,524 | (47,372) Cash and cash equivalent at beginning of period .............................. 29,501 9,977 | 57,349 --------- --------- | --------- Cash and cash equivalent at end of period .................................... $ 81,409 $ 29,501 | $ 9,977 --------- --------- | --------- | Supplemental schedule of non-cash investing activities: | Charge-offs against allowance for losses ................................... $ -- $ -- | $ 5,515 Transfer of mortgage loans to real estate owned ............................ $ -- $ 5,120 | $ 10,900 | Interest Paid ................................................................ $ 3,230 $ 9,972 | $ --
See accompanying notes to consolidated financial statements.
VALUE PROPERTY TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (Dollars in thousands except number of shares) ADDITIONAL ACCUMULATED TOTAL COMMON SHARES PAID-IN (DEFICIT) SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ------ -------- -------- -------- -------- 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 Net income -- -- -- 32,465 32,465 ------ -------- -------- -------- -------- Balance at September 30, 1997 11,226 $ 11,226 $ 88,848 $ 39,438 $139,512 ====== ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 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. 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. 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 -------- -------- --------- --------
PRE- REORGANIZATION FRESH START POST- CONFIRMATION ADJUSTMENTS ADJUSTMENTS CONFIRMATION ------------ ----------- ----------- ------------ (dollars in thousands) 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 ======== ======== ========= ========
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%
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.
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. 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 ("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. 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 and 1995, 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 $107 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 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 required adjustment of the carrying value of mortgage loans to the lower of their carrying value or estimated net realizable value. Estimated net realizable value was 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. Effective October 1, 1995, the Trust adopted the Financial Accounting Standards Board SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", which requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Adoption of this statement did not have a significant impact on the Trust's financial position or results of operations. 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. 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 1997, the Trust reclassified six properties totaling $35.7 million to real estate held for sale from real estate held for investment and no longer depreciates these assets. 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 The investment in partnership represents the Trust's investment in a real estate partnership. The Trust owns a majority percentage interest in the partnership and receives substantially all of the cash flow. The Trust accounts for the partnership in a similar manner as real estate investments. REAL ESTATE OWNED Real estate and leasehold improvements are stated at cost. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," the Trust records impairment writedowns on long-lived assets, when events and circumstances indicate that the assets might be impaired and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amounts of those assets. No such impairment losses have been recognized in these financial statements. 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, 1997, the Trust owned 21 properties of which six are classified as Held for Sale. The fiscal 1997 revenue and net operating income from these six properties were $5.8 million and $3.4 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 1997 and fiscal 1996. Net deferred financing costs included in other assets in the accompanying balance sheet amounted to $0.5 million and $2.2 million at September 30, 1997 and September 30, 1996, respectively. REVENUE RECOGNITION The Trust recognizes base rental revenue for financial statement purposes 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, 1997 SEPTEMBER 30, 1996 -------------------------------- -------------------------------- NUMBER OF CARRYING NUMBER OF CARRYING TYPE OF UNDERLYING SECURITY INVESTMENTS AMOUNT INVESTMENTS AMOUNT - --------------------------- ----------- ------ ----------- ------ (Dollars in thousands) (Dollars in thousands) Residential/Condominium* 7 $ 563 7 $ 663 Retail Buildings 1 6,242 - -- ---- ------- ---- ------ Total 8 $ 6,805 7 $ 663 ==== ======= ==== ====== - ----------------
*Includes 111 residential mortgage loans on 7 mortgage investments at September 30, 1997 and 117 residential mortgage loans on 7 mortgage investments at September 30, 1996. During the fourth quarter of fiscal 1997, the Trust provided mortgage financing in the amount of $6.2 million in conjunction with the sale one real estate property. 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, 1997 and 1996, mortgage loans outstanding consisted solely of fixed rate loans of $6.8 million and $0.7 million. At September 30, 1997, the mortgage loan portfolio had interest rates ranging from 6.75% to 9.50% with maturities ranging from June 2000 to June 2009. 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. The following table summarizes the Trust's real estate owned, net of accumulated depreciation of $2.5 million at September 30, 1997 and $1.9 million at September 30, 1996:
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 -------------------------------- ---------------------------------- NUMBER OF CARRYING NUMBER OF CARRYING TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT - ---------------- ----------- -------- ----------- ---------- (Dollars in thousands) (Dollars in thousands) Apartments 1 $ 8,474 2 $ 16,166 Office Buildings 13 28,657 14 34,004 Industrial Buildings 4 9,755 6 14,892 Retail Buildings 2 13,049 4 36,305 ---- -------- ---- -------- Total 20 $ 59,935 26 $101,367 ==== ======== ==== ========
The following table summarizes the Trust's investment in partnerships, net of accumulated depreciation of $26,000 at September 30, 1997 and $311,000 at September 30, 1996:
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 -------------------------------- ---------------------------------- NUMBER OF CARRYING NUMBER OF CARRYING TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT - ---------------- ----------- -------- ----------- ---------- (Dollars in thousands) (Dollars in thousands) Industrial Buildings 1 $ 5,869 3 $ 13,658 Retail Buildings - -- 2 10,047 ---- -------- ---- -------- Total 1 $ 5,869 5 $ 23,705 ==== ======== ==== ========
The Trust may be liable for environmental problems on sold properties. At September 30, 1997, the Trust was not aware of any environmental problems on sold properties. 4. ALLOWANCE FOR LOSSES The change in the allowance for losses for the year ended September 30, 1995 is as follows:
1995 ------- (dollars in thousands) Balance at beginning of year .................... $13,430 Provisions charged to expense ................... 3,000 ------- 16,430 Less charges against allowance, net of recoveries or reorganization adjustments ...... 16,430 ------- Balance at end of year .......................... $ -- =======
For the years ended September 30, 1997 and 1996, the Trust did not provide for an allowance for losses. 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. 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. 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 fifteen properties of the original twenty-four properties mortgaged under the terms of the Floating Rate Notes (underlying collateralized carrying value of $44.7 million at September 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 September 30, 1996, the Trust was in compliance with the New Indenture. During fiscal 1997, the Trust sold ten real estate properties, three of the nine buildings owned in an industrial park and a 7.6 acre parcel of unimproved land. Six of the real estate properties and the three of the nine buildings sold in fiscal 1997 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. During the first quarter of fiscal 1997, the Trust used $7.0 million from the net proceeds from the sale of two encumbered properties sold in September of fiscal 1996, and $1.4 million from the net proceeds from the sale of an encumbered property sold in October of fiscal 1997 to prepay the Trust's senior indebtedness. During the remainder of fiscal 1997, the Trust used $36.6 million from the fiscal 1997 net proceeds from the sale of six encumbered properties and three of nine encumbered buildings in an industrial park, to prepay the Trust's senior indebtedness. On November 3, 1997, the Trust utilized a portion of available cash on hand to retire its senior indebtedness in full. The face amount outstanding of the Floating Rate Notes at the time of repayment was $18.2 million. 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 $199,000 and $2,000 at September 30, 1997, respectively. 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. During fiscal 1997, no shares were issued or forfeited. 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. The Trust accounts for the 1995 Plan using APB Opinion 25, accordingly, no compensation costs have been recognized for the 1995 Plan. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-price model. The expected volatility and risk-free interest rate weighted average assumptions for the 1995 Plan grants were 25.0% and 5.625%, respectively. The Trust has elected the disclosures only requirements of SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation cost has been recognized for the Stock Incentive Plan. Had compensation cost for the Trust's Stock Incentive Plan been determined based on the fair value at the grant date for awards in fiscal 1997 consistent with the provisions of SFAS No.123, the effect on the Trust's earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
Year ended September 30, (Dollars in thousands, except per share) Post-Confirmation Pre- Confirmation ------------------- ----------------- 1997 1996 1995 ---- ---- ---- Net Earnings (loss) - as reported $32,465 $6,673 ($20,033) Net Earnings (loss) - pro forma $31,651 $5,859 ($20,033) Earnings (loss) per share as reported $ 2.89 $ 0.62 -* Earnings (loss) per share - pro forma $ 2.78 $ 0.52 -*
* Net earnings (loss) per share for the pre-confirmation period is not presented because this information is not meaningful as a result of the Reorganization and the adoption of "Fresh Start Reporting". All the outstanding options of 1995 Plan will fully vest and be cancelled upon the consummation of the definitive merger agreement with Wellsford in early 1998. Under the merger agreement the options under the 1995 Plan will be cancelled for the aggregate payment to the optionee holders for approximately $4.7 million, which will be treated as compensation at the time of closing. 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. 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 were four current employees and one former employee that were due benefits under the plan as of July 1, 1996. Upon the formal termination of the plan, the Trust distributed the remaining benefits 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 $32,000, $49,000 and $72,000 for years ended September 30, 1997, 1996 and 1995, 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 1997 and fiscal 1996 were $217,000 and $215,500, respectively. The maximum potential payout under the Performance Incentive Bonus Plan, which is at the discretion of the Board of Trustees, is $3.1 million. Any award under the Bonus Plan as a result of the definitive merger agreement with Wellsford will be determined and paid immediately prior to the closing of the proposed transaction. 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. The consummation of the proposed transaction with Wellsford will cause the occurrence of a certain event under the employment agreement. Mr. Zoffinger would continue to receive his base salary at the same rate for six months. 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 the 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 on April 30, 1996. 10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The quarterly results of operations for fiscal 1997 and 1996 are summarized as follows:
QUARTER ENDED ---------------------------------------------------------------------------------- DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 ----------- -------- ------- ------------ (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL 1997 Total revenue $ 7,309 $ 7,179 $ 6,743 $ 5,505 Interest expense $ 1,382 $ 1,391 $ 1,389 $ 478 Net income $ 3,974 $ 8,223 $ 13,716 $ 6,552 ======== ======== ======== ======== Net income per share $ 0.35 $ 0.74 $ 1.22 $ 0.58 ======== ======== ======== ======== FISCAL 1996 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 ======== ======== ======== ========
11. 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." SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share ("EPS"). It will require the Trust to present both basic and diluted EPS amounts from income for continuing operations and net income on the face of the income statement. The statement will be effective for financial statements issued for periods ending after December 15, 1997, including interim periods. SFAS No. 129 requires 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. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 130 is effective for financial statements issued for periods beginning after December 15, 1997. The Trust is currently evaluating the above statements and believes that their adoption will not have a significant impact on the disclosures in the financial statements of the Trust. 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 Joint Plan of Reorganization confirmed by the Bankruptcy Court by an order entered February 27, 1991 are set forth in the section entitled "Previous Chapter 11 Case and 1991 Plan of Reorganization." 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 which became effective September 29, 1995 (the "Prepackaged Plan") are set forth in the section entitled "Recent Chapter 11 Case and 1995 Prepackaged Plan of Reorganization." 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. Neither the Trust nor any of its properties are presently subject to any material litigation nor, to the Trust's knowledge, is any material litigation threatened against the Trust or any of its properties, other than routine litigation arising in the ordinary course of business and which is expected to be covered by liability insurance. 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, 1997 are as follows: Amount Year (dollars in thousands) ------ ---------------------- 1998 $ 8,893 1999 7,738 2000 5,538 2001 4,172 2002 2,507 thereafter 5,506 -------- Total $ 34,354 ======== 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. 15. SIGNIFICANT EVENTS. As disclosed previously on Form 8-K filed on September 22, 1997 with the Securities and Exchange Commission ("SEC"), the Trust entered into a definitive agreement on September 18, 1997 to be acquired by Wellsford Real Properties, Inc. ("Wellsford") in a merger transaction for cash and stock. The proposed transaction, which will be accounted for by Wellsford as a purchase, is subject to certain closing conditions and is expected to be completed in early 1998. Franklin Mutual Advisors, Inc., whose advisory clients currently hold approximately 50% of the Trust's outstanding shares, has agreed to vote the shares of the Trust over which it has voting power in favor of the proposed transaction. The proposed transaction, if consummated, will result in a change of control of the Trust.
VALUE PROPERTY TRUST SCHEDULE III REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1997 (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: Junipers of Yarmouth Yarmouth, ME .............................. 0 1,530 6,120 0 199 0 Villa Del Cresta Florissant, MO ............................ 6,868 1,640 6,568 0 266 0 Industrial: Parkway Business Center Richmond, CA .............................. 0 430 1,730 0 87 (302) Moreno Valley Moreno Valley, CA ......................... 2,490 950 3,820 0 1 (655) Oaktree Industrial Park San Dimas, CA ............................. 976 0 0 345 1,458 (235) Chino Business Park Chino, CA ................................. 1,353 0 0 670 2,829 0 Avenue Hall Executive Center Valencia, CA .............................. 0 450 1,800 0 145 0 900 Building Minneapolis, MN ........................... 1,508 410 1,630 0 204 0 Office: Stadium Towers Anaheim, CA ............................... 1,842 700 2,810 0 482 (534) 615 Nash Street El Segundo, CA ............................ 1,325 470 1,870 0 276 (340) Clarewood Woodland Hills, CA ........................ 1,124 400 1,580 0 362 (298)
VALUE PROPERTY TRUST SCHEDULE III REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1997 (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) 268 Summer Street Boston, MA ................................ 823 330 1,327 0 229 (228) 250 Turnpike Street Canton, MA ................................ 721 290 1,150 0 73 (198) Burtonsville Commerce Center Burtonsville, MD .......................... 2,745 920 3,670 0 101 (634) Keewaydin Drive Salem, NH ................................. 1,339 610 2,450 0 114 (429) 501 Hoes Lane Piscataway, NJ ............................ 551 180 715 0 238 (136)
VALUE PROPERTY TRUST SCHEDULE III REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1997 (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: Junipers of Yarmouth Yarmouth, ME ......................... 0 0 0 0 1971 (b) Villa Del Cresta Florissant, MO ....................... 1,640 6,834 8,474 0 1967/1974 (b) Industrial: Parkway Business Center Richmond, CA ......................... 0 0 0 0 1986 3-40 years Moreno Valley Moreno Valley, CA .................... 950 3,166 4,116 175 1993 3-40 years Oaktree Industrial Park San Dimas, CA ........................ 345 1,223 1,568 86 1985 3-40 years Chino Business Park Chino, CA ............................ 405 1,712 2,117 28 1992 (b) Avenue Hall Executive Center Valencia, CA ......................... 0 0 0 0 1988 (b) 900 Building Minneapolis, MN ...................... 410 1,834 2,244 1 1910 (b) Office: Stadium Towers Anaheim, CA .......................... 700 2,758 3,458 238 1984 3-40 years 615 Nash Street El Segundo, CA ....................... 470 1,806 2,276 166 1987 3-40 years Clarewood Woodland Hills, CA ................... 400 1,644 2,044 197 1980 3-40 years
VALUE PROPERTY TRUST SCHEDULE III REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1997 (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) 268 Summer Street Boston, MA ........................... 330 1,328 1,658 121 1897 3-40 years 250 Turnpike Street Canton, MA ........................... 290 1,025 1,315 56 1980 3-40 years Burtonsville Commerce Center Burtonsville, MD ..................... 920 3,137 4,057 191 1989 3-40 years Keewaydin Drive Salem, NH ............................ 610 2,135 2,745 149 1973 3-40 years 501 Hoes Lane Piscataway, NJ ....................... 180 817 997 104 1987 3-40 years
VALUE PROPERTY TRUST SCHEDULE III REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1997 (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) Two Executive Campus Cherry Hill, NJ ...................... 894 240 939 0 413 0 Riverside Centre Portland, OR ......................... 0 1,170 4,680 0 557 0 Pinebrook II King of Prussia, PA .................. 0 0 1,790 0 161 (251) 421 Chestnut Street Philadelphia, PA ..................... 0 500 2,020 0 140 (347) Pinebrook I King of Prussia, PA .................. 0 0 1,629 0 168 (232) Six Sentry Parkway Blue Bell, PA ........................ 0 920 3,670 0 990 (680) Retail: Gateway Plaza (Paseo) Fremont, CA .......................... 0 4,320 17,280 300 516 (3,042) Arcade Square Sacramento, CA ....................... 0 1,120 4,460 0 563 (828) Berdon Plaza Fairhaven, MA ........................ 4,157 1,350 5,403 0 891 0 Bradford Plaza West Chester, PA ..................... 0 1,330 5,081 0 187 (917) -------- -------- -------- -------- -------- -------- Total Real Estate Owned .................. $ 28,716 $ 20,260 $ 84,192 $ 1,315 $ 11,650 $(10,286) ======== ======== ======== ======== ======== ========
VALUE PROPERTY TRUST SCHEDULE III REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1997 (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) Two Executive Campus Cherry Hill, NJ ...................... 240 1,352 1,592 36 1970 (b) Riverside Centre Portland, OR ......................... 0 0 0 0 1945 (b) Pinebrook II King of Prussia, PA .................. 0 1,700 1,700 116 1983 3-40 years 421 Chestnut Street Philadelphia, PA ..................... 500 1,813 2,313 116 1857 3-40 years Pinebrook I King of Prussia, PA .................. 0 1,565 1,565 119 1981 3-40 years Six Sentry Parkway Blue Bell, PA ........................ 920 3,980 4,900 354 1990 3-40 years Retail: Gateway Plaza (Paseo) Fremont, CA .......................... 0 0 0 0 1969 3-40 years Arcade Square Sacramento, CA ....................... 0 0 0 0 1955 3-40 years Berdon Plaza Fairhaven, MA ........................ 1,350 6,294 7,644 5 1968 (b) Bradford Plaza West Chester, PA ..................... 1,330 4,351 5,681 271 1990 3-40 years -------- -------- -------- -------- Total Real Estate Owned .................. $ 11,990 $ 50,474 $ 62,464 (c,d) $ 2,529 ======== ======== ======== ========
VALUE PROPERTY TRUST SCHEDULE III REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1997 (Dollars in thousands) NOTES: (a) The encumbrances of Senior Notes due 1999 are collateralized by a first priority Lien on 15 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 $96,000. (d) The changes in carrying amounts during the year ended September 30, 1997 are summarized as follows:
Balance at September 30, 1996................. $103,299 Additions during the year: Improvements .............................. 3,443 Deductions during the year: Sale of real estate ....................... 44,278 -------- Balance at September 30, 1997 ................ $ 62,464 ========
The changes in carrying amounts during the year ended September 30, 1996 are summarized as follows:
Balance at September 30, 1995 ................ $123,640 Reclassification from foreclosure property ... 5,120 Additions during year: Improvements .............................. 4,551 Deductions during year: Sale of real estate ....................... $ 19,726 Adjustments for deferred gains ............ 10,286 30,012 -------- -------- Balance at September 30, 1996 ................ $103,299 ========
The changes in carrying amounts during the year ended September 30, 1995 are summarized as follows:
Balance at September 30, 1994 ................ $ 66,880 Reclassification from foreclosure property and mortgage loans ............... 109,565 Additions during year: Improvements .............................. 11,283 Deductions during year: Sale of real estate ....................... $ 3,350 Charge off against allowance for losses ... 2,881 Adjustments for fresh start reporting ..... 57,857 64,088 -------- -------- Balance at September 30, 1995 ................ $123,640 ========
VALUE PROPERTY TRUST SCHEDULE III REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION SEPTEMBER 30, 1997 (Dollars in thousands) The change in accumulated depreciation and amortization during the year ended September 30, 1997 is summarized as follows:
Balance at September 30, 1996 ........................... $1,932 Additions during year: Charge to income ..................................... 1,601 Deductions during year: Adjustment for sold properties ....................... 1,004 ------ Balance at September 30, 1997 ........................... $2,529 ======
The change in accumulated depreciation and amortization during the year ended September 30, 1996 is summarized as follows:
Balance at September 30, 1995 ........................... $ -- Additions during year: Charge to income ..................................... 2,035 Deductions during year: Adjustment for sold properties ....................... 103 ------ Balance at September 30, 1996 ........................... $1,932 ======
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 Reclassification from foreclosure property ................ 8,264 Additions during year: Charge to income ....................................... 6,608 Deductions during year: Adjustment for fresh start reporting ................... 24,895 ------- Balance at September 30, 1995 ............................. $ -- =======
VALUE PROPERTY TRUST SCHEDULE XII MORTGAGE LOANS ON REAL ESTATE SEPTEMBER 30, 1997 (Dollars in thousands) 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) 111 6.75%-9.50% June 2000-June 2009 904 -- Commercial Mortgage 1 9.00% July 1998 6,242 ------ ------ Total contractual amount of mortgage loans 7,146 $ -- ====== ====== Adjust contractual amount to reorganization value of mortgage loans (234) Adjust contractual amount to reallocate unrealized gain on sale (107) ------ Carrying value of mortgage loans and investments $ 6,805 (b)(c) =======
VALUE PROPERTY TRUST SCHEDULE XII MORTGAGE LOANS ON REAL ESTATE SEPTEMBER 30, 1997 (Dollars in thousands) NOTES: (a) Consists of 111 residential mortgage loans on 7 mortgage investments. (b) The aggregate cost for federal income tax purposes is $7,146. (c) The change in carrying value of mortgage loans during the year ended September 30, 1997 were as follows:
Balance at September 30, 1996 ......................... $ 663 New commercial mortgage loan .......................... 6,257 -------- 6,920 Collections of principal .............................. (115) -------- Balance at September 30, 1997 ......................... $ 6,805 ========
The change in carrying value of mortgage loans during the year ended September 30, 1995 were as follows:
Balance at September 30, 1995 ......................... $ 56,979 Advances on mortgage loans ............................ 100 -------- 57,079 Collections of principal .............................. (51,188) Transfer to real estate ............................... (5,120) Adjustment for unrealized gains ....................... (108) -------- Balance at September 30, 1996 ......................... $ 663 ========
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 Reclassification from in-substance foreclosure ........ 29,441 Advances on mortgage loans ............................ 733 Net change in interest reserves ....................... 162 -------- 99,658 Collections of principal .............................. (22,711) Adjustment for fresh start accounting ................. (19,968) -------- Balance at September 30, 1995 ......................... $ 56,979 ========
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). 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). 10.11 Employment contract dated September 29, 1995 between the Trust and Mr. Zoffinger. (18) 10.12 Agreement and Plan of Merger among Value Property Trust, Wellsford Real Properties, Inc. and Wellsford Capital Corporation dated September 18, 1997. (19) 10.13 1995 Share Option Plan (20) 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 LLP dated December 15, 1997. 23.2(*) Consent of Coopers & Lybrand L.L.P. dated December 15, 1997. 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. (18) Filed on December 27, 1996 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (19) Filed on September 22, 1997 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (20) Filed on February 7, 1997 on Form S-8 (No. 1-6613) and incorporated herein by reference. (*) Exhibit filed with this Form 10-K. EX-27 2
5 1,000 YEAR SEP-30-1997 SEP-30-1997 83,082 0 3,376 0 0 86,457 34 19 159,082 1,348 18,222 0 0 11,226 128,286 159,082 0 26,736 0 10,688 3,804 0 4,640 7,604 0 7,604 0 24,861 0 32,465 2.89 2.89
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