10-Q 1 crt10q2q01.txt 2ND QUARTER SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 2001 Commission File Number 0-7716 CENTURY REALTY TRUST (Exact name of Registrant as specified in its charter) INDIANA 35-1284316 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 823 Chamber of Commerce Building (ZipCode) Indianapolis, Indiana 46204 (Address of principal executive offices) Registrant's telephone number, including area code (317)632-5467 Indicate by check mark whether this registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days. YES X NO __. Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Shares of Beneficial Interest, no par value 1,742,634 shares Part I. Financial Information Century Realty Trust and Subsidiaries Consolidated Balance Sheets June December 30, 2001 31, 2000 ___________ ___________ Unaudited See Note 1 Assets Real estate investments: Land $3,776,383 $3,776,383 Buildings 52,351,274 52,231,244 Equipment 1,364,058 1,301,796 Allowances for depreciation (13,882,583) (13,011,130) ___________ ___________ 43,609,132 44,298,293 Net investment in direct financing leases 210,822 229,698 ___________ ___________ 43,819,954 44,527,991 Cash and cash equivalents 901,307 781,215 Restricted cash 1,284,128 1,295,266 Accounts and accrued income receivable 235,323 130,998 Unamortized management contracts 417,308 449,826 Unamortized mortgage costs 433,931 441,906 Undeveloped land 99,675 99,675 Other assets 75,358 94,259 ___________ ___________ $47,266,984 $47,821,136 ___________ ___________ ___________ ___________ Liabilities and shareholders' equity Liabilities: Short-term debt $3,000,000 $3,000,000 Mortgage notes payable 30,755,080 31,013,235 Accounts payable and accrued liabilities 405,114 426,647 Interest 222,493 251,817 State income and property taxes 1,394,972 1,391,927 Tenants' security deposits and unearned income 619,067 503,952 ___________ ___________ 36,396,726 36,587,578 Minority interest in operating partnerships 926,079 1,149,187 Shareholders' equity: Shares of Beneficial Interest, no par value - authorized 5,000,000 shares, issued 1,757,239 shares (1,743,243 shares at December 31, 2000), including 19,207 shares (16,806 shares at December 31, 2000) in treasury 9,210,344 9,043,334 Overdistributed income other than from gain on the sale of real estate (383,851) (104,950) Undistributed net realized gain from the sale of real estate 1,316,078 1,316,078 Cost of treasury shares (198,392) (170,091) ___________ ___________ 9,944,179 10,084,371 ___________ ___________ $47,266,984 $47,821,136 ___________ ___________ ___________ ___________ See accompanying notes. Century Realty Trust and Subsidiaries Consolidated Statements of Income Three Months Six Months Ended June 30 Ended June 30 _______________________ _______________________ 2001 2000 2001 2000 ___________ ___________ ___________ ___________ Income: Real estate operations: Rental Income $3,177,590 $3,277,125 $6,359,134 $6,466,489 Income from direct financing leases 7,086 8,285 14,172 16,571 Other income 67,732 56,077 139,623 129,532 __________ ___________ ___________ ___________ 3,252,408 3,341,487 6,512,929 6,612,592 Less: Operating expenses 1,437,430 1,359,950 2,837,800 2,631,068 Depreciation 476,201 452,248 908,728 904,347 Real estate taxes 316,684 314,479 675,076 671,763 __________ ___________ ___________ ___________ 2,230,315 2,126,677 4,421,604 4,207,178 __________ __________ __________ __________ 1,022,093 1,214,810 2,091,325 2,405,414 Interest 11,449 21,312 26,102 40,707 __________ ___________ ___________ ___________ 1,033,542 1,236,122 2,117,427 2,446,121 Expenses: Interest 669,951 729,583 1,384,308 1,478,520 State income taxes 30,453 32,092 61,106 63,768 General and administrative 146,831 138,649 297,202 289,728 __________ ___________ ___________ ___________ 847,235 900,324 1,742,616 1,832,016 ___________ ___________ ___________ ___________ Income before minority interest in operating partnerships 186,307 335,798 374,811 614,105 Minority interest in operating partnerships 24,139 (33,018) 39,673 (18,591) __________ ___________ ___________ ___________ Net income $210,446 $302,780 $414,484 $595,514 __________ __________ __________ __________ __________ __________ __________ __________ Per share data: Basic earnings $0.12 $0.18 $0.24 $0.35 Diluted earnings $0.12 $0.18 $0.24 $0.35 See accompanying notes. Century Realty Trust and Subsidiaries Consolidated Statements of Cash Flows Six Months Ended June 30 2001 2000 __________ __________ Operating Activities Net income $414,484 $595,514 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 931,702 929,005 Minority interest (39,673) 18,591 Changes in operating assets and liabilities: Restricted cash 11,138 16,190 Accounts and accrued income receivable (104,325) 147,612 Other assets (857) 58,851 Accounts payable and accrued liabilities (52,775) (60,602) Tenants' security deposits and unearned income 115,115 77,484 __________ __________ Net cash provided by operating activities 1,274,809 1,782,645 Investing Activities: Purchase of property and improvements (182,294) (181,339) Lease principal payments received 18,876 16,477 __________ __________ Net cash used in investing activities (163,418) (164,862) Financing Activities: Principal payments on mortgage notes payable (258,155) (312,117) Sale of treasury shares 5,125 - Purchase of shares for treasury (33,361) (129,625) Dividends paid to shareholders (688,421) (677,852) Distributions to holders of minority interest (16,487) (39,910) __________ __________ Net cash used in financing activities (991,299) (1,159,504) __________ __________ Net increase in cash and cash equivalents 120,092 458,279 Balance at beginning of period 781,215 883,730 __________ __________ Balance at end of period $901,307 $1,342,009 __________ __________ __________ __________ Supplemental Data: Selected noncash activities related to investing and financing activities were as follows: Issued 13,896 shares in 2001 and 181,609 shares in 2000 in exchange for like numbers of operating partnership units of controlled partnerships $166,947 $2,154,223 __________ __________ __________ __________ See accompanying notes. Notes to Consolidated Financial Statements Century Realty Trust and Subsidiaries June 30, 2001 Unaudited Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Trust's annual report on Form 10-K for the year ended December 31, 2000. Note 2 - Interest in Operating Partnerships The Trust, through its wholly-owned subsidiary, CR Management, Inc., is the general partner in five limited partnerships each of which owns, as its principal asset, a single apartment property. CR Management, Inc. owns 2,972 partnership units. Effective January 1, 2000, the Trust granted to each of the beneficial owners of the remaining 286,908 partnership units the right to exchange their units for an equal number of shares of the Trust. Exchanges are exercised effective on the first day of each calendar quarter. At December 31, 2000 the Trust owned, in the aggregate 192,687, or 66.5%, of the 289,880 outstanding partnership units. During the six months ended June 30, 2001, the Trust issued 13,896 shares of beneficial interest in exchange for partnership units. As of July 1, 2001, holders of 4,602 units elected to exchange units for shares. Including the exchanges exercised July 1, 2001, the Trust owns 211,285, or 72.9%, of the 289,880 outstanding operating partnership units. The equity interest that the Trust does not own is described in the consolidated financial statements as the minority interest in operating partnerships. Note 3 - Mortgage Notes Payable Nine of the fifteen properties owned by the Trust are encumbered by mortgage loans that are payable in monthly installments totaling approximately $175,000, including interest at rates ranging from 6.97% to 8.88% per annum, and which mature from December 1, 2002 to August 1, 2008. Scheduled payments during the three and six month periods ended June 30, 2001 decreased mortgage loan balances, in the aggregate, by $97,794 and $197,008, respectively. The five apartment properties owned by the operating partnerships controlled by the Trust have long-term mortgage loans that are payable in monthly installments totaling approximately $76,000. The loans have interest rates ranging from 8 1/8% to 8 7/8%, and mature from June 1, 2006 to May 1, 2030. Scheduled payments during the three months and six months ended June 30, 2001 decreased mortgage loan balances, in the aggregate, by $29,755 and $61,147, respectively. Note 4 - Short-Term Debt As of June 30, 2001 and December 31, 2000, the Trust had borrowed $3,000,000, the maximum borrowing limit, under its bank line of credit. The Trust expects to repay the current balance late in the third quarter of 2001 with proceeds from a long-term mortgage loan on one of its apartment properties. The line of credit rate of interest was 6.3% and 9.5% at June 30, 2001 and December 31, 2000, respectively. Note 5 - Federal Income Taxes The Trust intends to continue as a real estate investment trust as defined in the Internal Revenue Code and to distribute its taxable income. Assuming compliance with other requirements of the Code, income distributed will not be taxable to the Trust. Accordingly, no provision for federal income taxes is made in the financial statements. Distributions, however, to the extent that such payments are from earnings and profits of the Trust, are taxable to the shareholder recipients as dividend income. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Contained in this discussion are forward-looking statements which management believe to be reasonable and informative. Such statements are based on assumptions which may not prove to be correct for reasons management cannot predict. Consequently, the inclusion of forward-looking statements should not be considered as representations by the Trust or its management that expected results will be achieved or that stated objectives will be attained. At June 30, 2001 and 2000, and throughout the quarters and six month periods then ended, the Trust owned or controlled fifteen apartment communities containing 2,136 apartment units, three multi-tenant commercial properties containing 89,000 rentable square feet, and two restaurant properties leased to operators under net leases. Five of the fifteen apartment communities containing a total of 586 units are owned by partnerships over which the Trust has exclusive control. A detailed listing of the investment real estate is contained on Page 2 of the Trust's 2000 annual report. At June 30, 2001 and 2000 the Trust's net investment in real estate consisted of apartment properties (94%), commercial properties (5%) and net-leased restaurant properties (1%). Except for one restaurant property in Orlando, Florida, the Trust's real estate investments are located in Indiana. The apartment communities, which comprise 94% of the Trust's investment property, also account for most of the rental income and expenses reported. Management expects the real estate portfolio will be unchanged during the third quarter of 2001, and that operating income and expenses in the third quarter of 2001 will approximate the comparable amounts reported for the second quarter of 2001. Results of Operation For the quarter and six months ended June 30, 2001, the Trust reported decreases of 2.7% and 1.6%, respectively, in gross income from real estate operations from the comparable 2000 periods. Gross income from apartment operations accounted for 91% and 76% of the decreases for the quarter and six month periods. Income from apartment operations decreased by 2.6% and 1.3% over the prior year quarter and six month periods due to lower occupancy rates that more than offset 1.1% higher average rental rates. Economic occupancy for the second quarter of 2001 was 91.6%, down from 94.8% in the prior year quarter; and, for the six months ended June 30, 2001, was 91.3%, down from 93.8% during the comparable period of 2000. Gross revenue from rental properties other than apartments accounted for 5.4% of total income from rental operations in the first half of 2001. Non-apartment revenue decreased by $25,200, or 6.7% compared to the prior year half due entirely to the absence of $22,900 of rental income from the Florida restaurant property that was closed during the first five months of 2001. The restaurant property was leased to a new operator in May, 2001. Occupancy rates for the office and warehouse properties were 94% during the first half of 2001 and 2000. Operating expenses, excluding interest and depreciation, for the apartment properties consumed 51.7% of gross possible income for the second quarter of 2001, up from 49.8% for the prior year period, and amounted to an increase of $75,800, or 4.6%. For the six months ended June 30, 2001 and 2000, apartment operating expenses were 51.1% and 48.9%, respectively, of gross possible income, up $190,600, or 5.9%, from the comparable period of 2000. A comparatively severe winter season following a moderate winter a year ago resulted in significantly higher maintenance payroll costs and winter-related repair expenses during the first half of 2001. Substantially higher costs for natural gas during the winter contributed to a 6.2% increase in utilities expenses in the 2001 period. Due to a decrease in occupancy rates, advertising and marketing costs increased approximately $20,000 and $45,000 for the second quarter and first half of 2001 over the comparable periods of 2000. Real estate taxes on Indiana property are assessed on March 1 each year and are payable in two installments in the following calendar year. Real estate tax expense for the current year periods represents one-fourth (quarter) and one-half (six months) of the estimated real estate taxes payable during the next calendar year. Estimates are based on actual tax payments during the current year with allowances for anticipated rate increases comparable with past experience. Real estate tax expense increased by less than one percent in the 2001 periods from the prior year periods. Increases in trustee fees resulting from the addition of three board members in 2000 and increases in legal, accounting and other professional fees accounted for the increases of 5.9% and 2.6% in general and administrative expenses between the quarters and six-month periods ended June 30, 2001 and 2000, respectively. Administrative salaries and related payroll taxes and benefits increased by 3.5% and 2.9% for the quarter and six months ended June 30, 2000 from the prior year periods. In the first half of 2001, general and administrative expenses consumed 4.6% of income from real estate operations, up from 4.4% in the first half of 2000. Interest expense related to loans outstanding throughout the second quarter and six month periods of 2001 and 2000 declined by $39,000 and $62,300, respectively. Approximately 70% of the reductions resulted from lower interest rates on two variable rate loans with unpaid balances totaling $6.05 million at June 30, 2001. Interest rates on the variable rate loans averaged 6.15% and 7.97% during the second quarters, and 7.30% and 8.56% during the first six months of 2001 and 2000, respectively. In December, 2000, the Trust borrowed $2.9 million on its bank line of credit and used the proceeds, together with cash on hand, to repay the $3.4 million balance on a mortgage loan that matured. The net impact on interest expense amounted to reductions of $19,700 and $30,100 for the quarter and six months of 2001 compared with the same periods of 2000. Financial Condition and Liquidity On July 5, 2001, the Trust declared a $.19 per share cash distribution payable August 20, 2001 to shareholders of record July 27, 2001. That distribution will require total disbursements of $331,100. Two of the five controlled partnerships declared surplus cash distributions that, in the aggregate, will result in the payment of $4,700 to minority interest partners of record on July 27, 2001. Subsequent to June 30, 2001, the Trust embarked on a restructuring program which, when completed, will convert the Trust to an "UPREIT" format, under which properties owned by the Trust will be transferred to Century Realty Properties, L.P., a partnership in which the Trust is the sole general partner, with a wholly-owned subsidiary, CRT Investments, Inc., as the sole limited partner. On August 1, 2001, the Trust transferred title to four unencumbered rental properties, including three apartment properties and one office building to Century Realty Properties, L.P. Properties encumbered by mortgage loans will be transferred upon approval by the various mortgage lenders. In connection with that restructuring, legal and other fees, including those expected to be assessed by mortgage lenders, may amount to $100,000, the majority of which will be incurred before the end of 2001. Other than the requirement for declared, but unpaid distributions, and the cost to complete the restructuring, management is not aware of any significant transactions or events that would require material expenditures in the second half of 2001. Except for $3,000,000 of short-term debt, the Trust has no obligations, nor has it made any commitments, which will require expenditures in excess of funds anticipated to be provided by operations during the remainder of 2001. The Trust expects to repay the short-term debt in August with proceeds of a long-term mortgage loan on one of its presently unencumbered apartment properties. No transactions or events have occurred to indicate that funds provided by operations during the second half of 2001 will differ disproportionately from the first half of the year. At June 30, 2001, the Trust, its subsidiaries and controlled partnerships held, in the aggregate, approximately $901,000 in unrestricted cash which management believes is sufficient to meet anticipated working capital requirements. Inflation Management believes that the direct effects of inflation on the Trust's quarterly operations have been insignificant during 2001 and 2000. PART II. Other Information Item 6(b). No events occurred during the three months ended June 30, 2001, which would have necessitated the filing of a report on Form 8K. MANAGEMENT REPRESENTATIONS The information furnished in this report, while not audited, includes all adjustments, in the opinion of management, necessary for a fair representation of the financial position of Century Realty Trust at June 30, 2001, and December 31, 2000, and the results of its operations and its cash flow for the three months and six months ended June 30, 2001, and June 30, 2000, in accordance with accounting principles generally accepted in the United States consistently applied. The interim results reported are not necessarily indicative of expected results for the full year, and should be considered in conjunction with the audited financial statements contained in the Trust's 2000 annual report. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTURY REALTY TRUST Date__8/10/2001__ By___S/______________________ John I. Bradshaw, Jr. President and Treasurer Date__8/10/2001__ By___S/______________________ David F. White Controller