ITEM 1. BUSINESS.
GENERAL
Value Property Trust (the "Trust") is a self administered real estate investment trust (a "REIT") engaged in the business of managing its portfolio of real estate investments. The Trust was organized in 1970 under the laws of the State of Maryland as PNB Mortgage and Realty Investors. In 1984, the Trust changed its name to Mortgage and Realty Trust. In October 1995, the Trust changed its name to Value Property Trust. The Trust is organized under an Amended and Restated Declaration of Trust dated September 29, 1995 and as amended through October 26, 1995 (the "Amended and Restated Declaration of Trust"), and conducts its business in such a fashion as to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").
As of September 30, 1996, the Trust had: (1) cash and cash equivalents of $29.5 million; (2) restricted cash of $12.2 million which is restricted as to use under terms of various escrow and lease agreements and the New Indenture (See "Developments During Fiscal 1996" below and "Liquidity and Capital Resources" under Item 7); and (3) invested assets consisting of 7 mortgage loans and 31 investments in real estate owned. Based upon the amounts of the Trust's invested assets as of September 30, 1996, approximately 47.1% of the Trust's portfolio was invested in California, 15.6% in Pennsylvania and 15.9% in New England states. Nationally, 22.7% of the amounts of its invested assets are in industrial or research and development properties, 27.0% in office buildings, 36.9% in shopping centers, 12.9% in apartments and 0.5% in other types of real estate properties.
PREVIOUS CHAPTER 11 CASE AND 1991 PLAN OF REORGANIZATION
On April 12, 1990, the Trust filed a voluntary petition for reorganization under Chapter 11 in the United States Bankruptcy Court for the Central District of California (the "Bankruptcy Court"), commencing a bankruptcy case, Bankruptcy Case No. LA 90-08976-SB (the "Prior Bankruptcy Case"). On November 21, 1990, a Joint Plan of Reorganization (the "1991 Plan") proposed by the Trust, the creditors' committee and the equity committee was filed with the Bankruptcy Court pursuant to section 1121 of the Bankruptcy Code. The 1991 Plan was confirmed by the Bankruptcy Court by an order entered February 27, 1991. The Prior Bankruptcy Case was closed on November 4, 1994, pursuant to a final order of the Bankruptcy Court.
The 1991 Plan provided that the holders of outstanding indebtedness were to receive payments in installments over a period ending on June 30, 1995, with the right of the Trust to defer payment of certain amounts for up to twenty-four months or until December 31, 1995, when all deferred payments would be due. Interest was payable initially at Bank of America N.T. & S.A.'s reference rate plus one percent, increasing by 0.25% every six months, with interest on deferred amounts accruing at the adjusted rate plus two percent. The 1991 Plan also included certain financial, affirmative and negative covenants. The forecast upon which the 1991 Plan was based assumed that the real estate markets would begin to improve in fiscal 1992. However, the markets continued to deteriorate materially. Despite these conditions, the Trust was able to make all required interest payments and to exceed the required amortization payments through December 31, 1991. These results were achieved through liquidating Trust
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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
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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
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(the "Effective Date") and provided for, among other things, (i) a 1 for 33.33 reverse stock split of the outstanding common shares affecting the shareholders of record as of September 29, 1995, and (ii) the issuance to holders of the Trust's debt securities: (a) $110,000,000 principal amount of newly issued 11-1/8% Senior Secured Notes due 2002 (the "Prior Senior Notes"), (b) $71,000,000 in cash and (c) approximately 10,889,430 new common shares, par value $1.00 per share, representing, in the aggregate, approximately 97% of the common shares outstanding after the Effective Date (all common shares outstanding after the Effective Date hereinafter referred to as the "Common Shares").
BUSINESS PLAN
After the emergence from bankruptcy on September 29, 1995, the Trust determined that its strategic goals should focus on maximizing the Trust's overall return to shareholders. The Trust conducted a thorough investigation of its real estate properties in order to determine the future direction of the Trust's operations. The Trust refinanced its outstanding long-term indebtedness at a substantially lower rate of interest. The Trust also entered into an engagement letter with Merrill Lynch & Co. on October 15, 1996 to advise the Board with respect to options in achieving its strategic goals, including possible business combinations or bulk sales of assets.
As a result of the property evaluations, the Trust will focus its ongoing operating activities in the California (primarily San Francisco and Los Angeles) and Mid-Atlantic markets. Specifically, the Trust believes an opportunity exists to enhance the value of its portfolio of retail, industrial and office properties in these geographic regions through active management, improvement in occupancy levels and market appreciation. Generally, real estate holdings outside these geographic regions and property types that are not consistent with the strategic plan will be divested in an orderly manner.
Consistent with this policy, seven properties were transferred during fiscal 1996 from Held for Investment to Held for Sale. At September 30, 1996, the Trust owned 31 properties of which ten are classified as Held for Sale.
Management may, from time to time, determine to sell one or more properties consistent with the Trust's strategic plan. In addition, the Trust may receive unsolicited bids for one or more properties and will consider such bids in light of management's assessment of such factors as the price offered for the properties, their possibility for future appreciation, the current return to the Trust from operating such properties, and the fit of such properties with the then existing portfolio of properties.
As of September 30, 1996, the Trust had cash and marketable securities valued at approximately $41.7 million of which $12.2 million was restricted as to use under terms of various escrow and lease agreements and the New Indenture (See "Developments During Fiscal 1996" below and "Liquidity and Capital Resources" under Item 7). The Trust intends to use certain funds, together with funds from operations and net proceeds from the sale of assets, to make appropriate capital and tenant improvements to its properties. The Trust may also use available funds to reduce leverage, to make other investments (including investments in the Trust's Common Shares), or to make distributions to its shareholders, in each case subject to the terms of its debt instruments as in effect from time to time.
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DEVELOPMENTS DURING FISCAL 1996
In March 1996, the Trust completed the disposition of substantially all of its mortgage loan portfolio. The Trust received $55.5 million in net cash proceeds through a series of transactions which included loan repayments and a bulk sale of certain mortgage loans. The carrying value of the loans involved in these transactions totaled $50.5 million.
On March 28, 1996, the Trust entered into a financing agreement with BlackRock Capital Finance L.P. which provided for the issuance of $67.4 million of new Floating Rate Notes ("Floating Rate Notes") to BlackRock Capital, which issuance occurred April 30, 1996. The Floating Rate Notes bear interest at 30 day LIBOR + 1.375 percent, payable monthly, and have a stated maturity date of May 1, 1999. The proceeds received from the Floating Rate Notes, together with approximately $56.5 million of cash on hand, were used to prepay in full the Trust's outstanding 11.125% Senior Secured Notes and Mortgage Payable. The face amounts outstanding of the 11.125% Senior Secured Notes and the Mortgage Payable at the time of repayment were $110.0 million and $13.9 million, respectively.
During the first quarter of fiscal 1996, the Trust received net proceeds of $0.3 million from the sale of land located in California.
During the third quarter of fiscal 1996, the Trust received net proceeds of $13.9 million from the sale of five real estate properties. The properties comprised a total of 481,000 square feet of industrial or warehouse/office type facilities. Two were located in Massachusetts and one each was located in California, Minnesota and Pennsylvania.
During the fourth quarter of fiscal 1996, the Trust received net proceeds of $12.4 million from the sale of three real estate properties. Included in these sales were two industrial/office type facilities, representing 154,000 square feet, and a 168 unit apartment complex. The properties were located in California, Pennsylvania and Indiana.
COMPETITION, REGULATION, AND OTHER FACTORS
The success of the Trust depends upon, among other factors, general economic conditions and trends, including real estate trends, interest rates, government regulations and legislation, income tax laws and zoning laws.
The Trust's real estate investments are located in markets in which they face significant competition. Many of the Trust's investments, particularly the office buildings, are located in markets which have an over-supply of available space, resulting in intense competition for tenants and low rents.
GOVERNMENT REGULATION
The Trust's properties are subject to various federal, state and local regulatory requirements such as local building codes and other similar regulations. The Trust believes that the properties are currently in substantial compliance with all applicable regulatory requirements, although expenditures at properties owned by the Trust may be required to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations.
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The Trust believes that it is in compliance in all material respects with all federal, state and local laws regarding hazardous or toxic substances. To date, compliance with federal, state and local environmental protection regulations has not had a material effect upon the Trust.
The Trust has made an application to the New Hampshire Department of Environmental Protection for a ground water monitoring permit. The Trust believes the cost of the monitoring program will not have a material adverse effect on the business, financial condition or results of operations of the Trust.
OTHER INFORMATION
As of September 30, 1996, the Trust employed 16 people. The Trust also has engaged 19 independent property management firms to manage 27 of its properties. The Trust's current business constitutes a single business segment. The Trust is not dependent upon a single tenant or a limited number of tenants.
The Trust's principal offices are currently located at 120 Albany Street, 8th Floor, New Brunswick, New Jersey 08901 and 22120 Clarendon Street, Suite 230, Woodland Hills, California 91367; the Trust's telephone numbers are (908) 296-3080 and (818) 594-8586, respectively.
FRESH START REPORTING
In connection with its emergence from Chapter 11 proceedings, the Trust implemented Fresh Start Reporting as provided in Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("Fresh Start Reporting"). As a result, as of September 30, 1995 all assets were recorded at reorganization value and all liabilities were recorded to reflect their fair value. For additional information on this reporting method, see Notes to the Consolidated Financial Statements - Note 1 "Basis of Financial Information and Plan of Reorganization."
ITEM 2.

ITEM 2. PROPERTIES.
INVESTED ASSETS
Although the Trust has continued to fund previously existing investment commitments and to fund limited tenant improvements and similar investments necessary to retain or obtain tenants, the Trust has not made any new investments in loans or properties since its Prior Bankruptcy Case filing, but it has continued to manage its investment portfolio.
Loans are secured by first or junior mortgages. Loans made by the Trust were secured by mortgages on income-producing properties, including office buildings, shopping centers, industrial projects, apartments and condominium projects. When the Trust made investments, it abided by various restrictions consisting principally of loan-to-value ratios, investment ranges and percentage of total assets invested in loans to a single borrower.
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The Trust has 38 assets under management consisting of 7 loans and 31 real estate investments. At September 30, 1996, the Trust has classified these assets as follows:
The Trust's invested assets are primarily located in major metropolitan areas throughout the United States. As of September 30, 1996, the Trust held investments in mortgage loans, investments in real estate and other interests in real properties located in 14 states.
The location, general character and occupancy information with respect to the Trust's invested assets at September 30, 1996 are set forth in the schedules contained on the following pages.
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*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.
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ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
A discussion of events surrounding the Trust's Prior Bankruptcy Case and an explanation of the material terms of the Trust's reorganization under the 1991 Plan are set forth in the section entitled "Previous Chapter 11 Case and 1991 Plan of Reorganization" under Item 1 above. The Prior Bankruptcy Case was closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.
A discussion of events surrounding the Trust's 1995 prepackaged bankruptcy filing and an explanation of the material terms of the Trust's reorganization under the Prepackaged Plan are set forth in the section entitled "Recent Chapter 11 Case and 1995 Prepackaged Plan of Reorganization" under Item 1 above. Notwithstanding the confirmation of the Trust's Prepackaged Plan as of September 29, 1995, the bankruptcy court continued to have jurisdiction among other things, to resolve disputes that may arise under the Prepackaged Plan.
A third party has alleged the existence of a purchase contract with respect to one of the Trust's properties which the Trust disputes. This dispute has led to litigation. However, the Trust believes that this litigation, when resolved, will not have a material adverse effect on the business, financial condition or results of operations of the Trust.
ITEM 4.

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.

ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS.
(a) MARKET INFORMATION
The Trust's Common Shares are listed for trading on the New York Stock Exchange ("NYSE") under the symbol "VLP". Prior to October 27, 1995 they were traded under the symbol "MRT". No dividends have been declared by the Trust in the past two years. The following table shows the high and low sales prices of the Trust's Common Shares as reported by the NYSE during each fiscal quarter for the past two years. The fiscal 1995 stock prices are adjusted to give effect to a 1 for 33.33 reverse stock split which occurred on October 2, 1995.
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Pursuant to the conditions of the Prepackaged Plan, on October 2, 1995, the Trust directed the NYSE to effectuate a 1 for 33.33 reverse stock split of the Trust's outstanding Common Shares which resulted in a reduction of the Trust's outstanding Common Shares from approximately 11,226,215 to approximately 336,820. Simultaneously, and also pursuant to the conditions of the Prepackaged Plan in exchange for the release of certain debt by the Trust's noteholders, the Trust directed the NYSE to issue approximately 10,889,430 new Common Shares. The combined result of these actions by the Trust on the NYSE is that, as of October 2, 1995, substantially the same amount of Common Shares are authorized and outstanding as before the reverse stock split and issuance of new Common Shares and on October 2, 1995 the Trust's Common Shares were trading at $10-1/2.
The Trust incurred net operating losses ("NOLs") for tax purposes from fiscal 1991 to 1996. Beginning in fiscal 1997, NOLs available to offset taxable income in future years will be approximately $102 million. These NOLs will be subject to Internal Revenue Code Section 382 annual limitations on the use of the NOLs. The Trust estimates this annual limitation to be approximately $6 million. Any portion of the NOLs not used in any taxable year can be carried forward up to fifteen years.
(b) HOLDERS OF COMMON SHARES
There were approximately 4,050 record holders of the Trust's Common Shares at December 4, 1996.
(c) DIVIDENDS
The Trust did not declare or pay any dividends during either the fiscal year ended September 30, 1996 or the fiscal year ended September 30, 1995.
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* 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.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
MANAGEMENT DISCUSSION
Value Property Trust is a Maryland REIT engaged in the business of managing its portfolio of real estate investments. On October 26, 1995, the Trust's name was changed from Mortgage and Realty Trust to Value Property Trust. On September 29, 1995, the Trust's Prepackaged Plan of Reorganization was declared effective by the United States Bankruptcy Court for the Central District of California.
Under the Prepackaged Plan, holders of the Trust's $290,000,000 principal amount of Old Notes received: (i) $110,000,000 principal amount of newly issued Senior Notes; (ii) $71,000,000 in cash; and (iii) approximately 10,889,430 new Common Shares representing in the aggregate approximately 97% of the Common Shares outstanding after the Effective Date. In connection with the Prepackaged Plan, the Trust effected a 1 for 33.33 reverse stock split of its outstanding Common Shares.
In connection with its emergence from Chapter 11 proceedings, the Trust implemented Fresh Start Reporting as of September 30, 1995. Fresh Start Reporting was required because: (1) the reorganization value of the Trust's assets immediately before the date of confirmation was less than the total of all post-petition liabilities; (2) there was more than a 50% change in the ownership of the Trust; and (3) there was a permanent and substantive loss of control by existing shareholders. As a result, all assets and liabilities were restated to reflect their appropriate value or fair value. The post-confirmation financial statements and schedules amounts have been segregated by a black line in order to signify that the financial statements and schedules are that of a new reporting entity and have been prepared on a basis which is not comparable to the pre-confirmation financial statements and schedules (See Notes to the Consolidated Financial Statements - Note 1 "Basis of Financial Information and Plan of Reorganization" for additional information concerning Fresh Start Reporting).
The following section includes a discussion and analysis of the results of operations for the years ended September 30, 1996, 1995 and 1994 and should be read in conjunction with the consolidated financial statements and the notes thereto. The Trust has, for the past several years, reported significant net losses. As a result of the 1995 Restructuring, past results should not be indicative of future operating performance. Future results of operations of the Trust will not be comparable to the historical operating performance.
RESULTS OF OPERATIONS
The Trust reported net income for fiscal 1996 of $7.0 million or $0.62 per share compared to a net loss of $20.0 million for fiscal 1995 and a net loss of $21.6 million for fiscal 1994. The 1995 loss includes: (1) reorganization items for professional fees of $6.2 million, interest income of $0.4 million and an adjustment that reduced invested assets by $66.6 million as a result of the adoption of Fresh Start Reporting; and (2) an extraordinary item of $75.3 million reflecting the gain on extinguishment of debt. The Trust had income from operations, before reorganization and extraordinary items of $7.0 million in fiscal 1996 compared to the loss of $23.0 million for fiscal 1995 and a loss of $19.2 million for fiscal 1994.
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Rental income was $26.9 million for fiscal 1996 compared to $24.6 million for fiscal 1995 and $18.5 million for fiscal 1994. In addition to rental income, the Trust received reimbursement of certain operating expenses totaling $3.6 million, $2.3 million and $1.7 million for fiscal 1996, 1995 and 1994, respectively. The increases in rental income and reimbursed expenses on rental properties are the result of continued foreclosure on real estate properties and improvement in occupancy levels. At September 30, 1996, the Trust owned 31 real estate properties compared to 38 and 34 at September 30, 1995 and 1994, respectively. Two properties were added early during fiscal 1996 as a result of foreclosures. Nine properties were sold during fiscal 1996, of which eight occurred during the last two quarters. Two of the eight property sales occurred during the last month of fiscal 1996. As a result of the timing of the foreclosures and the property sales, the Trust recorded operations on real estate properties for a longer time period on a greater number of properties during fiscal 1996 than fiscal 1995. Occupancy levels increased to 87.5% at September 30, 1996 compared to 81.1% and 79.6% at September 30, 1995 and 1994, respectively.
Interest and fee income on mortgage loans was $2.9 million for fiscal 1996 compared to $9.4 million in fiscal 1995. In March 1996, the Trust completed the disposition of substantially all of its mortgage loan portfolio. The Trust received $55.5 million in net cash proceeds through a series of transactions which included loan repayments and a bulk sale of certain mortgage loans. As a result, interest income earned on the mortgage loan portfolio will be substantially reduced in the future. The Trust's remaining mortgage loan portfolio is currently less than $0.7 million. Interest and fee income decreased from $14.7 million in fiscal 1994 to $9.4 million in fiscal 1995. The fiscal 1995 decrease resulted primarily from a reduction in earning mortgage loans which averaged $97.8 million for fiscal 1995 compared to $131.4 million for fiscal 1994. During fiscal 1995, mortgage loans of approximately $10.9 million were transferred to real estate and $22.7 million have been repaid.
Interest on short-term investments was $1.7 million for fiscal 1996 compared to $3.1 million and $1.2 million for fiscal years 1995 and 1994, respectively. The decrease in fiscal 1996 is due to the reduction in cash balances as a result of a $25.0 million payment made on April 11, 1995 and an additional $46.0 million payment made on September 29, 1995 to the Old Note Holders in conjunction with the 1995 Restructuring. Prior to these payments, the Trust was continuing to accumulate cash and since September 30, 1993, had not made payments of interest or principal on its indebtedness. Available cash averaged $28.9 million for fiscal 1996 compared to $57.6 million and $32.0 million in fiscal years 1995 and 1994, respectively. At September 30, 1996, cash and cash equivalents, including restricted cash, were $41.7 million compared to $16.8 million at September 30, 1995.
Interest expense for fiscal 1996 totaled $10.5 million compared to $35.9 million and $33.0 million for fiscal years 1995 and 1994, respectively. The Trust's average borrowing cost for fiscal 1996 was 10.6% compared to 13.3% and 10.7% for fiscal years 1995 and 1994, respectively. Included in interest expense is the amortization of deferred costs incurred in obtaining debt financing which are amortized over the term of the debt agreement.
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Depreciation and amortization on rental properties for fiscal 1996 was $2.3 million compared to $7.3 million and $5.8 million for fiscal 1995 and 1994, respectively. The decrease in fiscal 1996 was primarily a result of the adoption of Fresh Start Reporting. Prior to Fresh Start Reporting, the Trust depreciated all real estate investments. At September 30, 1995, the Trust segregated the real estate portfolio into two categories: Held for Sale and Held for Investment. Additionally, all assets and liabilities of the Trust were restated to reflect their respective reorganization value or fair value. The Trust depreciates the Held for Investment category over the estimated useful lives of the assets. The Held for Sale category is not depreciated. During fiscal 1996, the Trust reclassified seven properties totaling $18.7 million to Held for Sale from Held for Investment.
Operating expenses on rental properties increased to $12.1 million in fiscal 1996 from $11.7 million for fiscal 1995 and $9.8 million for fiscal 1994. The increases in expenses on rental properties are the result of continued foreclosure of real estate properties and improvement in occupancy levels. At September 30, 1996 the Trust owned 31 real estate properties compared to 38 and 34 at September 30, 1995 and 1994, respectively. A total of two properties were added early during the year as a result of foreclosures. Nine properties were sold during fiscal 1996, eight of which occurred during the last two quarters. Occupancy levels increased to 87.5% at September 30, 1996 compared to 81.1% and 79.6% at September 30, 1995 and 1994, respectively.
Other operating expenses were $3.2 million for fiscal 1996 compared to $4.5 million and $4.8 million for fiscal years 1995 and 1994, respectively. The fiscal 1996 decrease was a result of reduced staffing, insurance premiums, occupancy costs, Trustee fees and expenses and office and computer expense. Partially offsetting the decline was an increase in professional fees which includes legal and accounting fees. The decrease in fiscal 1995 from fiscal 1994 was primarily due to a decrease in professional fees and expenses.
The Trust, in fiscal 1995, recorded a $75.3 million extraordinary item-gain on extinguishment of debt against interest and principal due of $331.4 million on the Old Notes.
As a result of implementing Fresh Start Reporting on September 30, 1995, the Trust wrote down its real estate investments by $66.6 million to reorganization value. In addition, net reorganization expenses incurred by the Trust were $5.8 million in fiscal 1995, compared to $2.4 million in fiscal 1994. These expenses reflected professional fees incurred by the representatives of the creditors, shareholders and the Trust. The 1995 Restructuring was completed in the fourth quarter of fiscal 1995.
The Trust did not provide for a provision for losses in fiscal 1996. The provision for losses was $3.0 million and $2.0 million in fiscal 1995 and fiscal 1994, respectively. With the implementation of Fresh Start Reporting, as of September 30, 1995, the allowance for losses was reset to zero. Further provisions for losses on mortgage loans and related investments may be necessary if there is deterioration in real estate markets, or there is a significant increase in the Trust's cost of capital.
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LIQUIDITY AND CAPITAL RESOURCES
Prior to its 1995 Restructuring, the Trust faced significant liquidity problems. The Trust did not generate sufficient cash flow from normal operations and was not able to liquidate mortgage loans and real estate investments in order to meet scheduled amortization on its indebtedness. As a result of the 1995 Restructuring, management believes the cash flow from operating activities will be sufficient to meet minimum debt service requirements. The Trust expects to fund capital expenditures from available funds from operations and cash on hand. However, the Trust's present liquidity, cash flow from operating activities and ability to liquidate existing assets to meet its obligations can be adversely impacted by a negative change in the economy, particularly as those changes may relate to real estate assets.
Taxable income required to be distributed in order for the Trust to maintain its REIT status will be less than income reported for financial statement purposes under generally accepted accounting principles due to differences related to depreciation, use of NOLs (subject to the Code Section 382 limitations) and timing differences related to bad debt deductions.
On March 28, 1996, the Trust entered into a financing agreement which provided for the issuance of $67.4 million of Floating Rate Notes, which issuance occurred on April 30, 1996. The Floating Rate Notes bear interest at 30 day LIBOR + 1.375 percent, payable monthly, and have a stated maturity date of May 1, 1999.
The New Indenture generally requires that, on a monthly basis, the Trust deposit into a Trapped Funds Account maintained by the New Indenture Trustee all Cash Flow and Asset Sale Proceeds. Cash Flow from the Trapped Funds Account will be distributed by the New Indenture Trustee to pay the New Indenture Trustee's expenses, pay all accrued but unpaid interest on the Floating Rate Notes and maintain a Debt Service Reserve Account before any funds are released to the Trust. In the event of a sale of, or certain casualty or indemnification events with respect to, any of the properties mortgaged under the terms of the debt instruments, the proceeds therefrom will be used to retire up to 125% of a portion of the Floating Rate Notes that has been allocated to such property before any funds are released to the Trust. The New Indenture includes affirmative covenants and negative covenants. At September 30, 1996, the Trust was in compliance with the New Indenture.
The proceeds received from the Floating Rate Notes, together with approximately $56.5 million of cash on hand, were used to prepay the Trust's Senior Secured Notes and Mortgage Payable. The face amount outstanding of the Senior Secured Notes and the Mortgage Payable at the time of repayment was $110.0 million and $13.9 million, respectively. The Senior Secured Notes and Mortgage Payable were repaid in full on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate protection agreement (the "Cap") that serves to cap the floating interest component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of $377,000 to the counterparty to the Cap.
During fiscal 1996 the Trust reclassified seven properties totaling $18.7 million to Real Estate Owned Held for Sale from Real Estate Owned Held for Investment. During fiscal 1996 the Trust received $26.6 million in net proceeds from the sale of nine properties with a carrying value of $19.2 million classified as Real Estate Owned Held for Sale.
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The Trust's cash flow is derived from operating, investing and financing activities. Cash flow provided from operating activities increased to $9.4 million in fiscal 1996 compared to a decrease of $50.9 million in fiscal 1995. In 1995, cash flow provided from operating activities decreased substantially as a result of a $32.6 million reduction in interest payable. Interest payable increased $32.2 million in fiscal 1994 from 1993 as the Trust did not generate cash flow sufficient to service the Old Notes and was in default as to the payment of principal and interest.
Cash provided by investing activities increased substantially to $79.8 million in fiscal 1996 compared to $12.1 million and $32.4 million in fiscal 1995 and 1994, respectively. Real estate sales activity increased in fiscal 1996 to $27.1 million from $3.3 million and $6.4 million in fiscal 1995 and 1994, respectively. In fiscal 1996, the Trust completed the disposition of substantially all of the its mortgage loan portfolio through a series of transactions which contributed $55.5 million of the $79.8 million in cash provided by investing activities. Repayments on mortgage loans declined in fiscal 1996 to $0.3 million from $22.7 million and $34.3 million in fiscal 1995 and 1994, respectively. Prior to the 1995 Restructuring, the Trust had offered discounts on the repayment of mortgage loans and had sold real estate in an effort to generate cash to meet principal and interest payments on the Old Notes.
Cash used in financing activities increased to $69.7 million in fiscal 1996 compared to $8.5 million and $3.0 million in fiscal 1995 and 1994, respectively. The fiscal 1996 increase is primarily due to the repayment of $114.1 million and $17.5 million on its indebtedness and Mortgage Payable, respectively, offset by the issuance of $67.4 million in Floating Rate Notes. The increase in fiscal 1995 is primarily a result of a $4.6 million principal payment on the Old Notes. Principal payments were not made in 1994 as the Trust was in default as to principal and interest payments on the Old Notes.
In fiscal 1994, as a result of being in default and not making scheduled payments with respect to the Old Notes, cash and cash equivalents increased from $11.5 million to $57.3 million. However, as a result of the Prepackaged Plan of Reorganization, principal and interest payments were made in fiscal 1995 and cash and cash equivalents decreased to $10.0 million at the end of fiscal 1995. In fiscal 1996, cash and cash equivalents increased to $29.5 million as a result of refinancing the Trust's indebtedness, the disposition of substantially all of the mortgage loan portfolio and the sale of real estate properties.
ITEM 8.

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.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Information with respect to the Changes In and Disagreements With Accountants on Accounting and Financial Disclosure is incorporated by reference under caption "Independent Auditors" of the Registrant's definitive Proxy Statement for the Annual Shareholder Meeting to be held February 25, 1997. Reference is also made in Exhibit 16.
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PART III
ITEM 10.

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the Trust's Trustees and Executive Officers is incorporated by reference under captions "Information Regarding Executive Officers" and "Information Regarding Nominees for Election as Trustees" of the Registrant's definitive Proxy Statement for the Annual Shareholder Meeting to be held February 25, 1997.
ITEM 11.

ITEM 11. TRUSTEE AND EXECUTIVE COMPENSATION.
Information with respect to the Trust's Trustees and Executive compensation is incorporated by reference under captions "Trustee Compensation", "Executive Compensation" and "Option Grants in Fiscal Year 1996; Aggregated Option Exercises in Fiscal Year 1996 and Fiscal Year-End 1996 Option Values" of the Registrant's definitive Proxy Statement for the Annual Shareholder Meeting to be held February 25, 1997.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to the Security Ownership of Certain Beneficial Owners and Management is incorporated by reference under caption "Security Ownership of Certain Beneficial Owners and Management" of the Registrant's definitive Proxy Statement for the Annual Shareholder Meeting to be held February 25, 1997.
ITEM 13.

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.
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PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed as a Part of the Report.
The following documents are filed as part of this report.
1. Financial Statements. The financial statements of the Trust are set forth in the "INDEX TO FINANCIAL STATEMENTS".
2. Financial Statement Schedules. See 3(d) below.
3. Exhibits.
(a) Exhibits are as set forth in the "INDEX TO EXHIBITS".
(b) REPORTS ON FORM 8-K. None.
(c) EXHIBITS, INCLUDING THOSE INCORPORATED BY REFERENCE. Exhibits are set forth in the "INDEX TO EXHIBITS". Where so indicated by footnote in the index, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses. Copies of the exhibits are available to shareholders upon payment of $0.25 per page fee to cover the Trust's expenses in furnishing the exhibits. For copies contact: Value Property Trust, 120 Albany Street, 8th floor, New Brunswick, New Jersey 08901.
(d) Financial Statement Schedules, except those indicated in the "INDEX TO FINANCIAL STATEMENTS", have been omitted because the required information is included in the financial statements or notes thereto, or the amounts are not significant.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
VALUE PROPERTY TRUST
By: /s/ George R. Zoffinger -------------------------- George R. Zoffinger President and Chief Executive Officer Date: December 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Each person in so signing also makes constitutes and appoints George R. Zoffinger, President and Chief Executive Officer of Value Property Trust, and each of them, his true and lawful attorney-in-fact, in his name, place and stead to execute and cause to be filed with the Securities and Exchange Commission any and all amendments to this report.
/s/ Jeffrey A. Altman Chairman and Trustee December 27, 1996 - -------------------------- Jeffrey A. Altman
/s/ George R. Zoffinger President, Chief Executive December 27, 1996 - -------------------------- Officer and Trustee George R. Zoffinger (Principal Executive Officer)
/s/ Robert T. English Secretary, Treasurer and December 27, 1996 - -------------------------- Chief Financial Officer Robert T. English (Principal Financial and Accounting Officer)
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/s/ Martin Bernstein Trustee December 27, 1996 - -------------------------- Martin Bernstein
/s/ Richard S. Frary Trustee December 27, 1996 - -------------------------- Richard S. Frary
/s/ Richard B. Jennings Trustee December 27, 1996 - -------------------------- Richard B. Jennings
/s/ John B. Levy Trustee December 27, 1996 - -------------------------- John B. Levy
/s/ Carl A. Mayer, Jr. Trustee December 27, 1996 - -------------------------- Carl A. Mayer, Jr.
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VALUE PROPERTY TRUST
Report of Independent Auditors
Consolidated Financial Statements
Consolidated Statement of Operations (Years ended September 30, 1996, 1995 and 1994)
Consolidated Balance Sheet (September 30, 1996 and 1995)
Consolidated Statement of Cash Flows (Years ended September 30, 1996, 1995 and 1994)
Consolidated Statement of Shareholder's Equity (Years ended September 30, 1996, 1995 and 1994)
Notes to the Consolidated Financial Statements
Financial Statements Schedules
Schedule XI -- Real Estate Accumulated Depreciation and Amortization (September 30, 1996)
Schedule XII -- Mortgage Loans on Real Estate (September 30, 1996)
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REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders of Value Property Trust:
We have audited the consolidated financial statements and the financial statement schedules of Value Property Trust listed in Item 14(a) of this Form 10-K as of and for the year ended September 30, 1996. These financial statements and financial statement schedules are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audit. The financial statements and financial statement schedules of Value Property Trust as of September 30, 1995, and for the years ended September 30, 1995 and 1994, were audited by other auditors whose report dated November 10, 1995, included an emphasis of matter paragraph which described the reorganization and the implementation of Fresh Start Reporting as discussed in Note 1 to the financial statements.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Value Property Trust as of September 30, 1996, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. In addition, in our opinion, the related 1996 financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material aspects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York November 27, 1996
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REPORT OF INDEPENDENT AUDITORS
Trustees and Shareholders Value Property Trust
We have audited the balance sheets of Value Property Trust (formerly Mortgage and Realty Trust) at September 30, 1995 and 1994 and the related statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As more fully described in the financial statements, on September 22, 1995, the Bankruptcy Court confirmed the Trust's plan of reorganization which was consummated on September 29, 1995 permitting the Trust to emerge from proceedings under the Bankruptcy Code. The Trust implemented the guidance as to the accounting for entities emerging from Chapter 11 set forth in Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("Fresh Start Reporting") as of September 30, 1995. Due to the reorganization and the implementation of Fresh Start Reporting, assets were recorded at reorganization value, liabilities were recorded at fair values and outstanding obligations were discharged primarily in exchange for cash, new indebtedness and equity. As a result, the balance sheet at September 30, 1995 reflects a new basis of accounting and, accordingly, is not comparable to balance sheets prior to that date.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Value Property Trust, at September 30, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania November 10, 1995
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*Net income (loss) per share for all pre-confirmation periods is not presented because this information is not meaningful as a result of the Reorganization and the adoption of "Fresh Start Reporting". See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
See accompanying notes to consolidated financial statements.
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(Continued)
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See accompanying notes to consolidated financial statements.
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(Continued)
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See accompanying notes to consolidated financial statements.
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See accompanying notes to consolidated financial statements.
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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.
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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.
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The effect of the Fresh Start Reporting on the Trust's historical cost balance sheet at September 30, 1995 is as follows:
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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.
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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.
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*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.
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Notes To Unaudited Pro Forma Statement of Operations Pro Forma Adjustments
(G) Reflects an adjustment to investment income to reflect an average cash position of approximately $10.0 million at an average investment rate of 5.0% for fiscal 1995.
(H) Reflects the reversal of interest expense related to the Outstanding Notes ($34.0 million) which were cancelled and the addition of interest expense for the New Senior Notes ($12.2 million) which bear interest at a fixed rate of 11.125%.
(I) Reflects the reversal of the $3.0 million provision for losses which would be eliminated as a result of the adjustment of invested assets to reorganization value.
(J) Reflects an adjustment to depreciation and amortization resulting from the reduced basis in owned real estate as a result of the adjustment of invested assets to reorganization value.
(K) Reflects the reversal of reorganization expenses based upon the assumption that the Restructuring was completed and no non-recurring expenses related to the Restructuring were incurred.
(L) Reflects the reversal of gain on extinguishment of debt based upon the assumption that the Restructuring was completed October 1, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant of these estimates relate to the carrying value of the assets held for sale and the estimated useful lives of assets held for investment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accounts of the Trust and its wholly owned subsidiaries are consolidated in the accompanying financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.
INCOME TAXES
The Trust is a real estate investment trust (a "REIT") that has elected to be taxed under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Accordingly, the Trust does not pay Federal income tax on income as long as income distributed to shareholders is at least equal to real estate investment trust taxable income, and pays no Federal income tax on capital gains distributed to shareholders.
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For the fiscal years ended September 30, 1996, 1995 and 1994, there were significant differences between taxable net loss and net income (loss) as reported in the financial statements. The differences were related to the recognition of bad debt deductions and accounting for reorganization costs and Fresh Start Reporting. For financial accounting purposes, these items are expensed currently, while for tax purposes some portion of these items are deferred to future periods or may not be deductible. In addition, the Fresh Start Reporting discussed in Note 1 is not recognized for tax purposes, and will result in future years financial reporting and tax basis differences.
The Trust has approximately $102 million in net operating losses (the "NOLs") for tax purposes attributable to losses generated in fiscal years 1991 through 1996. The NOLs attributable to each year can be carried forward up to fifteen years from the year the loss was generated. The use of NOLs in any taxable year (together with any recognized losses that are economically attributable to the period up to the Restructuring) will be subject to an annual limitation under Internal Revenue Code section 382. The Trust estimates that this annual limitation is approximately $6 million.
INTEREST INCOME
Interest income on each loan is recorded as earned. Interest income is not recognized if, in the opinion of the management, collection is doubtful. The Trust generally considers loans as delinquent if payment of interest and/or principal, as required by the terms of the note, is more than 60 days past due. Accrual of interest income is generally terminated and foreclosure proceedings are started if payment is more than 60 days past due.
ALLOWANCE FOR LOSSES
Prior to the implementation of Fresh Start Reporting, the allowance for losses on mortgage loans and related investments was determined in accordance with The American Institute of Certified Public Accountants Statement of Position on Accounting Practices of Real Estate Investment Trusts 75-2 ("SOP 75-2"), as amended. This statement requires adjustment of the carrying value of mortgage loans to the lower of their carrying value or estimated net realizable value. Estimated net realizable value is the estimated selling price of a property offered for sale in the open market allowing a reasonable time to find a buyer, reduced by the estimated cost to complete and hold the property (including the estimated cost of capital), net of estimated cash income. With the implementation of Fresh Start Reporting, as of September 30, 1995, the allowance for losses was reset to zero.
NET INCOME PER SHARE
Net income per share is computed using the weighted average common shares outstanding during the period. Net loss per share for all pre-confirmation periods is not presented because this information is not meaningful as a result of the Reorganization and the implementation of "Fresh Start Reporting". See Note 1.
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DEPRECIATION AND AMORTIZATION
At September 30, 1995, as a result of Fresh Start Reporting, all assets and liabilities of the Trust were restated to reflect their respective reorganization value or fair value. The accumulated depreciation on real estate owned was reset to zero as a result of the adoption of Fresh Start Reporting. At September 30, 1995, the Trust segregated the real estate portfolio into two categories: Held for Sale and Held for Investment. The Trust depreciates the Held for Investment category over the estimated useful lives of the assets; 40 years for buildings, three to five years for other property and over the term of the related lease for lease commissions and tenant improvements. The Held for Sale category is not depreciated. During fiscal 1996, the Trust reclassified seven properties totaling $18.7 million to real estate held for sale from real estate held for investment and no longer depreciates these assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents and restricted cash include short-term investments (high grade commercial paper, bank CDs and US Treasury Securities) with original maturities not exceeding a term greater than 90 days.
INVESTMENT IN PARTNERSHIPS
Investment in partnerships represents the Trust's investment in real estate partnerships. The Trust owns a majority percentage interest in most of these partnerships and receives substantially all of the cash flow. The Trust accounts for all of these partnerships, except one, in a similar manner as real estate investments; the one partnership is accounted for using the equity method.
REAL ESTATE OWNED
As of September 30, 1995, the Trust's invested assets were adjusted to reorganization value which became the new historical cost basis. Subsequently, real estate held for investment is carried at historical cost less depreciation. Real estate held for sale is carried at the lower of cost or net realizable value. In conjunction with the adoption of Fresh Start Reporting on September 30, 1995, all gains or losses for a period of one year after such adoption are applied against the carrying value of long lived assets held for investment. Through September 30, 1996, the Trust has reduced the carrying values of assets Held for Investment by $12.6 million as a result of the net gains on both the disposition of substantially all of its mortgage loan portfolio in March 1996 and the sale of nine properties classified as real estate held for sale. At September 30, 1996, the Trust owned 31 properties of which ten are classified as Held for Sale. The fiscal 1996 revenue and net operating income from these ten properties were $10.3 million and $6.0 million, respectively.
DEFERRED COSTS
Included in other assets are costs incurred in obtaining debt financing which are deferred and amortized over the term of the related debt agreement. Amortization expense is included in interest expense in the accompanying statement of operations for fiscal 1996. Net deferred financing costs included in other assets in the accompanying balance sheet amounted to $2.2 million at September 30, 1996.
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REVENUE RECOGNITION
The Trust recognizes base rental revenue for financial statement purposes ratably as earned over the term of the lease.
INTEREST RATE SWAP AGREEMENT
The Trust is a party to an interest rate protection agreement (the "Cap") used to hedge its interest rate exposure on floating rate debt (See Note 5 "Borrowings"). The differential to be paid or received is recognized in the period incurred and included in interest expense.
3. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE AND PARTNERSHIPS
The following table summarizes the Trust's mortgage loan portfolio:
- ---------------- *Includes 71 mortgage end loans on 7 investments at September 30, 1996 and 80 mortgage end loans on 8 investments at September 30, 1995.
During the second quarter of fiscal 1996, the Trust completed the disposition of substantially all of its mortgage loan portfolio. The Trust received $55.5 million in net cash proceeds through a series of transactions which included loan repayments and a bulk sale of certain mortgage loans. The carrying value of the mortgage loans involved in these transactions totaled $50.5 million. Early in fiscal 1996, the Trust foreclosed on the two non-earning loans totaling $5.1 million and has obtained title to the related properties. During fiscal 1995 loans totaling $38,834,000 were extended beyond their original contractual maturity dates. In addition, seven loans totaling $26,101,000 had interest rate reductions due to financial difficulties of the borrower. Loan terms are extended or modified in the normal course of business due to financial difficulties of the borrower.
At September 30, 1996 and 1995, mortgage loans outstanding consisted of fixed rate loans of $663,000 and $41,050,000, floating rate loans of $-0- and $15,929,000 and participating loans of $-0- and $1,529,000, respectively. At September 30, 1996, the mortgage loan portfolio had interest rates ranging from 6.20% to 9.50% with maturities ranging from June 2000 to June 2009.
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The following table summarizes the Trust's real estate owned, net of accumulated depreciation of $1.9 million at September 30, 1996 and $-0- at September 30, 1995:
The following table summarizes the Trust's investment in partnerships, net of accumulated depreciation of $0.3 million at September 30, 1996 and $-0- at September 30, 1995:
The Trust may be liable for environmental problems on sold properties. At September 30, 1996, the Trust was not aware of any environmental problems on sold properties.
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4. ALLOWANCE FOR LOSSES
The changes in the allowance for losses for the years ended September 30, 1995 and 1994 were as follows:
For the year ended September 30, 1996, the Trust did not provide for an allowance for losses.
Approximately $6,276,000 of the allowance for losses at September 30, 1994 is applicable to real estate properties acquired through foreclosure.
The Trust adjusted the balance of allowance for losses at September 30, 1995 as part of "Fresh Start Reporting" (See Note 1).
5. BORROWINGS
MORTGAGE PAYABLE
On April 30, 1996, the Trust prepaid the mortgage loan of $13.9 million (the "Mortgage Payable"). See discussion below with respect to the Trust's prepayment of the Prior Notes.
SENIOR SECURED NOTES
The Holders of the Prior Notes had a first priority lien on all of the Trust's collateral. The Prior Notes were governed by the Prior Indenture between the Trust and Wilmington Trust Co., as Trustee, dated as of the effective date of the Trust's reorganization (September 29, 1995). Interest on the Prior Notes accrued at 11-1/8% per annum and was payable semi-annually in arrears on each June 30 and December 31. The Prior Indenture included affirmative covenants, negative covenants and financial covenants.
On March 28, 1996, the Trust entered into a financing agreement which provided for the issuance of $67.4 million of new Floating Rate Notes (the "Floating Rate Notes"), which issuance occurred on April 30, 1996. The Floating Rate Notes bear interest at 30 day LIBOR + 1.375 percent, payable monthly, and have a stated maturity date of May 1, 1999.
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The indenture relative to the Floating Rate Notes (the "New Indenture") generally requires that, on a monthly basis, the Trust deposit into a Trapped Funds Account, as defined, maintained by the indenture trustee (the "New Indenture Trustee") for the Floating Rate Notes all Cash Flow and Asset Sale Proceeds (each as defined in the New Indenture). Cash Flow from the Trapped Funds Account will be distributed to pay the New Indenture Trustee's expenses, pay all accrued but unpaid interest on the Floating Rate Notes and to maintain a Debt Service Reserve Account before any funds are released to the Trust. In the event of a sale of, or certain casualty, or indemnification events with respect to any of the remaining twenty-one properties of the original twenty-four properties mortgaged under the terms of the Floating Rate Notes (underlying collateralized carrying value of $86.5 million at September 30, 1996), the proceeds therefrom will be used to retire up to 125% of a portion of the allocated debt of such property before any funds are released to the Trust. The New Indenture includes affirmative covenants and negative covenants. At September 30, 1996, the Trust was in compliance with the New Indenture.
The proceeds received from the Floating Rate Notes, together with approximately $56.5 million of cash on hand, were used to prepay the Trust's Prior Notes and Mortgage Payable. The face amount outstanding of the Prior Notes and the Mortgage Payable at the time of repayment was $110.0 million and $13.9 million, respectively. The Prior Notes and Mortgage Payable were repaid in full on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate protection agreement (the "Cap") that serves to cap the floating interest component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of $377,000 to the counterparty to the Cap.
During fiscal 1996, the Trust sold nine real estate properties, three of which were encumbered under the terms of the New Indenture. The Trust used a portion of the net proceeds from the sale of the encumbered properties to prepay a portion of the Floating Rate Notes, as required under the terms of the New Indenture. In July of fiscal 1996, the Trust used $4.2 million of the net proceeds and in October and November of fiscal 1997 used $2.6 million and $5.8 million, respectively of the fiscal 1996 net proceeds to prepay a portion of the Floating Rate Notes.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board Statement No. 107 - Disclosure of Fair Value of Financial Statements ("SFAS 107") requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.
The carrying value of cash and cash equivalents approximates their fair value because of the liquidity and short-term maturities of these instruments.
The carrying value and fair value of off-balance sheet derivative financial instruments used to manage the interest rate sensitivity of the Floating Rate Notes were $325,000 and $186,000 at September 30, 1996, respectively.
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Although the off-balance sheet derivative financial instrument does not expose the Trust to credit risk equal to the notional amount of $67.4 million, the Trust is exposed to credit risk equal to the extent of the fair value gain of an off-balance sheet derivative financial instrument should the counterparty fail to perform. The Trust minimized such credit risk by dealing only with a high quality counterparty. In addition, the Trust's policy is to require that the Cap be governed by an International Swaps and Derivatives Association Master Agreement. Bilateral collateral arrangements are in place for the all dealer counterparty.
The carrying value of the Floating Rate Notes at September 30, 1996 approximates their fair value because of the floating rate of these instruments.
7. SHARE OPTION PLAN
1984 SHARE OPTION PLAN
As part of the Plan of Reorganization, the 1984 Share Option Plan was terminated and 348,500 common stock options were canceled.
1995 SHARE OPTION PLAN
On October 2, 1995, the Board of Trustees adopted a 1995 Share Option Plan (the "1995 Plan") for Trustees, officers, employees and other key persons of the Trust. On February 15, 1996, the Trust's shareholders approved the adoption of the 1995 Plan at the Trust's 1996 Annual Meeting of Shareholders.
The 1995 Plan provides for the grant of options to purchase up to 870,000 common shares at not less than 100% of the fair market value of the common shares, subject to adjustment for share splits, share dividends and similar events. To the extent that awards under the 1995 Plan do not vest or otherwise revert to the Trust, the common shares represented by such awards may be the subject of subsequent awards.
The 1995 Plan provides for the grant of incentive stock options ("Incentive Options") which qualify under Section 422 of the Code and non-qualified stock options ("Non-Qualified Options"). Holders of options also receive dividend equivalent rights. Under the 1995 Plan, 894,000 shares were granted with a price ranging from $10.00 to $12.25 per share and 55,000 shares were forfeited at a price of $10.00 per share during fiscal 1996. The weighted average exercise price is $10.13 per share. The options vest equally over a three year period starting one year from the date of grant. The options expire four years from the date of grant.
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8. BENEFIT PLANS
PENSION PLANS
Effective September 30, 1989, the Trustees adopted an Employees' Retirement Plan. On December 16, 1992, the Trustees amended and restated the Employees' Retirement Plan effective January 1, 1992 (as amended on July 20, 1994, and effective January 1, 1994 and as may be further amended, the "Retirement Plan"). In November 1995, the Trustees amended the Retirement Plan effective January 1, 1996 to switch from the Pension Benefit Guaranty Corporation ("PBGC") interest rate used for valuing lump sum distributions to the new General Agreement on Tariffs and Trade interest rate and mortality table for valuing lump sum distributions. As a result of this amendment, the current market value of Retirement Plan assets approximates the current aggregate lump sum amounts due to participants. In July 1996, the Trustees voted to terminate the pension plan effective July 1, 1996.
All employees as of the termination date of the plan were eligible to participate in the Retirement Plan provided that they were at least 21 years of age and had been employed for twelve consecutive months, during which period the employee completed at least 1000 hours of service. Under the Retirement Plan, each eligible employee after completing five years of vesting service become 100% vested and entitled to a retirement pension.
The Trust has submitted the required applications to the PBGC to formally terminate the plan. There were 15 former employees who received final payouts under the plan in fiscal 1996. There are four current employees and one former employee that are due benefits under the plan as of July 1, 1996. Upon the formal termination of the plan, the Trust will distribute the remaining benefits of approximately $100,000 to the remaining eligible employees.
SAVINGS AND INVESTMENT PLAN
The Trust also maintains a 401(k) profit sharing plan and trust. Employer contributions are limited to 6% of participant's compensation, with a maximum per year of $3,000 per participant. Profit sharing expense was $49,000, $72,000 and $61,000 for years ended September 30, 1996, 1995 and 1994, respectively.
INCENTIVE PLAN
During fiscal 1996, the Board of Trustees adopted the Performance Incentive Bonus Plan (the "Bonus Plan"). All of the Trust's executive officers and employees are eligible for an annual cash bonus under the Bonus Plan. In determining the amount of annual cash bonuses, if any, to be paid, the Compensation Committee, at the end of the fiscal year, reviews the performance of the Trust to the performance measurement targeted by the Bonus Plan to promote the long-term strategic growth of the Trust. The amount awarded under the Bonus Plan for fiscal 1996 was $215,500.
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EMPLOYMENT AGREEMENT
The Trust entered into an Employment Agreement (the "Employment Agreement") with George R. Zoffinger on September 29, 1995. The original term of the Employment Agreement is three years and is automatically renewed for additional one-year periods unless otherwise terminated by the Trust or Mr. Zoffinger. In addition, Mr. Zoffinger is eligible for compensation in the form of bonuses under the Trust's Performance Incentive Bonus Plan and option grants under the 1995 Share Option Plan. Mr. Zoffinger has agreed to devote substantially all of his business time and efforts to the business and affairs of the Trust.
If the employment of Mr. Zoffinger is terminated by the Trust without cause or by Mr. Zoffinger upon occurrence of certain events such as a material breach of the Employment Agreement by the Trust, Mr. Zoffinger will be entitled to continue to receive the Base Salary at the same rate for six (6) months. Additionally, any unexercised vested options will remain exercisable only to the extent provided in the applicable share option plan and option agreement.
9. EMPLOYEE TERMINATION PLAN
A termination pay plan was established to cover termination of employment without cause during the period that the Old Notes, as defined, were outstanding. Employees were entitled to compensation ranging from a minimum of twelve weeks to a maximum of eighteen months pay. In addition, certain health benefits would continue to be paid by the Trust over a period of time equal to the employee's severance period. At September 30, 1995, the Trust accrued the $1.3 million cost of the Termination Pay Plan. After fiscal year end, the majority of existing employees were terminated and the Trust commenced payments to those employees. The Trust has liquidated the termination plan by payments to those employees terminated and the repayment of the Old Notes.
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10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The quarterly results of operations for fiscal 1996 (post-confirmation) and 1995 (pre-confirmation) are summarized as follows:
*Net income (loss) per share for all pre-confirmation periods is not presented because this information is not meaningful as a result of the Reorganization and the adoption of "Fresh Start Reporting". See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations on Page 15.
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11. ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An estimate of the future cash flows expected to result from the use of the asset and its eventual disposition should be performed during a review for recoverability. An impairment loss, based on the estimated fair value, is recognized if the sum of expected future undiscounted cash flows is less than the carrying amount of the asset. In addition, SFAS 121 requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. These assets will continue to be reported at the lower of carrying amount or net realizable value. This statement is required for fiscal years beginning after December 15, 1995. The Trust will adopt Statement 121 in the first quarter of fiscal 1997 and, based on current circumstances, does not believe the effect of adoption will have a material effect on the Trust's financial condition or results of operations.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation," which requires that the fair value of employee stock-based compensation plans be recorded as a component of compensation expense in the statement of income as of the date of grant of awards related to such plans or that the impact of such fair value on net income and earnings per share be disclosed on a pro-forma basis in a footnote to financial statements for awards granted after December 14, 1994, if the accounting for such awards continues to be in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). This statement is required for fiscal years beginning after December 15, 1995. The Trust will elect to provide footnote disclosure under the fair value method of SFAS 123. Since the Trust expects to continue to account for employee stock compensation under APB 25, the adoption of SFAS 123 is not expected to have a material effect on the Trust's financial condition or results of operations.
12. LEGAL PROCEEDINGS
A discussion of events surrounding the Trust's Prior Bankruptcy Case and an explanation of the material terms of the Trust's reorganization under the 1991 Plan are set forth in the section entitled "Previous Chapter 11 Case and 1991 Plan of Reorganization" under Item 1 above. The Prior Bankruptcy Case was closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.
A discussion of events surrounding the Trust's 1995 prepackaged bankruptcy filing and an explanation of the material terms of the Trust's reorganization under the Prepackaged Plan are set forth in the section entitled "Recent Chapter 11 Case and 1995 Prepackaged Plan of Reorganization" under Item 1 above. Notwithstanding the confirmation of the Trust's Prepackaged Plan, as of September 29, 1995, the bankruptcy court continued to have jurisdiction among other things, to resolve disputes that may arise under the Prepackaged Plan.
A third party has alleged the existence of a purchase contract with respect to one of the Trust's properties which the Trust disputes. This dispute has led to litigation. However, the Trust believes that this litigation, when resolved, will not have a material adverse effect on the business, financial condition or results of operations of the Trust.
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13. LEASING ARRANGEMENTS
For real estate held for investment future minimum rentals to be received under existing non-cancelable operating leases as of September 30, 1996 are as follows:
Amount Year (dollars in thousands) ------ ---------------------- 1997 $ 13,139 1998 11,634 1999 9,976 2000 7,593 2001 6,170 thereafter 40,664 -------- Total $ 89,176 ========
14. RELATED PARTY TRANSACTIONS
The Trust is subleasing a portion of the 8th floor of 120 Albany Street from the New Brunswick Development Authority, a not-for-profit 501(c)(3) corporation for the benefit of the City of New Brunswick of which George R. Zoffinger, C.E.O., President and Trustee of the Trust, is Chairman of the Board of Trustees. The sublease covers 4000 square feet at an annual rental rate of $75,000. The sublease is in effect until December 31, 1997, at which point the Trust has the option to renew at the same rate for another year. The Trust has three more subsequent options to renew the sublease at the current rental rate in December 1997, 1998 and 1999.
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VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
NOTES:
(a) The encumbrances of Senior Notes due 1999 are collateralized by a first priority Lien on 21 of the Trust's assets, including personal property and real property held by the Trust or any subsidiary.
(b) See Note 2 "Significant Accounting Policies" to the consolidated financial statements.
(c) Cost for federal income tax purposes is approximately $160,000,000.
(d) The changes in carrying amounts during the year ended September 30, 1996 are summarized as follows:
Balance at September 30, 1995 ................ $123,640,000 Reclassification from foreclosure property ... 5,120,000 Additions during year: Improvements .............................. 4,551,000 Deductions during year: Sale of real estate ....................... $ 19,726,000 Adjustments for deferred gains ............ 10,286,000 30,012,000 ------------ ------------ Balance at September 30, 1996 ................ $103,299,000 ============
The changes in carrying amounts during the year ended September 30, 1995 are summarized as follows:
Balance at September 30, 1994 ................ $ 66,880,000 Reclassification from foreclosure property and mortgage loans ............... 109,565,000 Additions during year: Improvements .............................. 11,283,000 Deductions during year: Sale of real estate ....................... $ 3,350,000 Charge off against allowance for losses ... 2,881,000 Adjustments for fresh start reporting ..... 57,857,000 64,088,000 ------------ ------------ Balance at September 30, 1995 ................ $123,640,000 ============
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The changes in carrying amounts during the year ended September 30, 1994 are summarized as follows:
Balance at September 30, 1993 ................ $ 65,012,000 Additions during year: Improvements .............................. $ 1,847,000 Loan advance by construction lender .......... 21,000 1,868,000 ------------ ------------ Balance at September 30, 1994 ................ $ 66,880,000 ============
The change in accumulated depreciation and amortization during the year ended September 30, 1996 is summarized as follows:
Balance at September 30, 1995 ........................... $ -0- Additions during year: Charge to income ..................................... 2,035,000 Deductions during year: Adjustment for sold properties ....................... 103,000 ----------
Balance at September 30, 1996 ........................... $1,932,000 ==========
The change in accumulated depreciation and amortization during the year ended September 30, 1995 is summarized as follows:
Balance at September 30, 1994 ............................. $10,023,000 Reclassification from foreclosure property ................ 8,264,000 Additions during year: Charge to income ....................................... 6,608,000 Deductions during year: Adjustment for fresh start reporting ................... 24,895,000 ----------- Balance at September 30, 1995 ............................. $ -0- ===========
The change in accumulated depreciation and amortization during the year ended September 30, 1994 is summarized as follows:
Balance at September 30, 1993 .......................... $ 7,799,000 Additions during year: Charge to income .................................... 2,224,000 ----------- Balance at September 30, 1994 .......................... $10,023,000 ===========
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VALUE PROPERTY TRUST
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1996
NOTES:
(a) Consists of 71 mortgage end loans on 7 projects.
(b) The aggregate cost for federal income tax purposes is $1,008,000.
(c) The change in carrying value of mortgage loans during the year ended September 30, 1996 were as follows:
Balance at September 30, 1995 ......................... $ 56,979,000 Advances on mortgage loans ............................ 100,000 ------------ 57,079,000 Collections of principal .............................. (51,188,000) Transfer to real estate ............................... (5,120,000) Adjustment for unrealized gains ....................... (108,000) ------------ $ 663,000 ============
The change in carrying value of mortgage loans during the year ended September 30, 1995 were as follows:
Balance at September 30, 1994 ......................... $ 69,322,000 Reclassification from in-substance foreclosure ........ 29,441,000 Advances on mortgage loans ............................ 733,000 Net change in interest reserves ....................... 162,000 ------------ 99,658,000 Collections of principal .............................. (22,711,000) Adjustment for fresh start accounting ................. (19,968,000) ------------ $ 56,979,000 ============
The change in carrying value of mortgage loans during the year ended September 30, 1994 were as follows:
Balance at September 30, 1993 ......................... $104,193,000 Advances on mortgage loans ............................ -- Transfer of real estate to mortgage loans ............. 750,000 Net change in interest reserves, deferred income ...... 480,000 ------------ 105,423,000 Collections of principal .............................. (25,555,000) Transfer to real estate ............................... (10,321,000) Chargeoff against allowance for losses ................ (225,000) ------------ $ 69,322,000 ============
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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).
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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).
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10.11 Form of 1995 Share Option Plan (14) (Exhibit A).
10.12(*) Employment contract dated September 29, 1995 between the Trust and Mr. Zoffinger.
16 Change in certifying accountants (15).
20.1 Press Release (16) (Exhibit 20.1).
20.2 Term Sheet (16) (Exhibit 20.2).
21 Subsidiaries (13) (Exhibit 21).
22 Press Release (17).
23.1(*) Consent of Ernst & Young LLPdated December 27, 1996.
23.2(*) Consent of Coopers & Lybrand L.L.P.dated December 27, 1996.
27(*) Financial Data Schedule. - --------------- (1) Filed on October 13, 1995 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (2) Filed on December 29, 1995 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (3) Filed on December 6, 1984 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (4) Filed on August 14, 1996 as an exhibit to the Quarterly Report on Form 10-Q (No. 1-6613) and incorporated herein by reference. (5) Filed on December 28, 1990 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (6) Filed on March 14, 1991 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (7) Filed on December 27, 1991 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (8) Filed on December 22, 1992 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (9) Filed on August 13, 1987 as an exhibit to the Quarterly Report on Form 10-Q (No. 1-6613) and incorporated herein by reference. (10) Filed on December 29, 1987 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (11) Filed on December 21, 1989 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (12) Filed on May 14, 1991 as an exhibit to the Quarterly Report on Form 10-Q (No. 1-6613) and incorporated herein by reference. (13) Filed on December 29, 1994 as an exhibit to the Annual Report on Form 10-K (No. 1-6613) and incorporated herein by reference. (14) Filed on December 12, 1995 as an Exhibit to the 1995 Proxy Statement for fiscal year ended September 30, 1995. (15) Filed on April 16, 1996 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (16) Filed on November 28, 1994 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (17) Filed on February 26, 1996 as an exhibit to the Current Report on Form 8-K (No. 1-6613) and incorporated herein by reference. (*) Exhibit filed with this Form 10-K.
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