10-Q 1 crt10q3q01.txt 3RD 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 September 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 46204 Indianapolis, Indiana (ZipCode) (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 1,749,042 shares Part 1. Financial Information Century Realty Trust and Subsidiaries Consolidated Balance Sheets September December 30, 2001 31, 2000 ___________ ___________ Unaudited See Note 1 Assets Real estate investments: Land $3,776,383 $3,776,383 Buildings 52,652,303 52,231,244 Equipment 1,409,125 1,301,796 Allowances for depreciation (14,318,672) (13,011,130) ___________ ___________ 43,519,139 44,298,293 Net investment in direct financing leases 201,384 229,698 ___________ ___________ 43,720,523 44,527,991 Cash and cash equivalents 1,502,019 781,215 Restricted cash 1,614,831 1,295,266 Accounts and accrued income receivable 201,231 130,998 Unamortized management contracts 401,049 449,826 Unamortized mortgage costs 511,308 441,906 Undeveloped land 99,675 99,675 Other assets 138,226 94,259 ___________ ___________ $48,188,862 $47,821,136 ___________ ___________ ___________ ___________ Liabilities and shareholders' equity Liabilities: Short-term debt $100,000 $3,000,000 Mortgage notes payable 34,542,430 31,013,235 Accounts payable and accrued liabilities 414,280 426,647 Interest 210,951 251,817 State income and property taxes 1,720,104 1,391,927 Security deposits and unearned income 612,074 503,952 ___________ ___________ 37,599,839 36,587,578 Minority interest in operating partnerships 857,360 1,149,187 Shareholders' equity: Shares of Beneficial Interest, no par value - authorized 5,000,000 shares, issued 1,761,841 shares (1,743,243 shares at December 31, 2000), including 19,207 shares (16,806 shares at December 31, 2000) in treasury 9,259,900 9,043,334 Overdistributed income other than from gain on the sale of real estate (645,923) (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) ___________ ___________ 9,731,663 10,084,371 ___________ ___________ $48,188,862 $47,821,136 ___________ ___________ ___________ ___________ See accompanying notes. Century Realty Trust and Subsidiaries Consolidated Statements of Income Three Months Nine Months Ended September 30 Ended September 30 _______________________ _______________________ 2001 2000 2001 2000 ___________ ___________ ___________ ___________ Income: Real estate operations: Rental Income $3,157,169 $3,244,211 $9,516,303 $9,710,700 Income from direct financing leases 7,086 8,286 21,258 24,857 Other income 74,386 84,926 214,009 214,458 __________ ___________ ___________ ___________ 3,238,641 3,337,423 9,751,570 9,950,015 Less: Operating expenses 1,557,036 1,401,673 4,394,836 4,032,741 Depreciation 454,727 454,119 1,363,455 1,358,466 Real estate taxes 342,594 335,326 1,017,670 1,007,089 __________ ___________ ___________ ___________ 2,354,357 2,191,118 6,775,961 6,398,296 __________ __________ __________ __________ 884,284 1,146,305 2,975,609 3,551,719 Interest 11,165 19,085 37,267 59,792 __________ ___________ ___________ ___________ 895,449 1,165,390 3,012,876 3,611,511 Expenses: Interest 683,754 729,106 2,068,062 2,207,626 State income taxes 24,139 32,596 85,245 96,364 General and administrative 134,739 125,526 431,941 415,254 __________ ___________ ___________ ___________ 842,632 887,228 2,585,248 2,719,244 ___________ ___________ ___________ ___________ Income before minority interest in operating partnerships 52,817 278,162 427,628 892,267 Minority interest in operating partnerships 16,212 (2,787) 55,885 (21,378) __________ ___________ ___________ ___________ Net income $69,029 $275,375 $483,513 $870,889 __________ __________ __________ __________ __________ __________ __________ __________ Per share data: Basic earnings $0.04 $0.16 $0.28 $0.51 Diluted earnings $0.04 $0.16 $0.28 $0.51 See accompanying notes. Century Realty Trust and Subsidiaries Consolidated Statements of Cash Flows Nine Months Ended September 30 2001 2000 __________ __________ Operating Activities Net income $483,513 $870,889 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,402,445 1,395,454 Minority interest (55,885) 21,378 Changes in operating assets and liabilities: Restricted cash (193,842) (268,232) Accounts and accrued income receivable (70,195) 259,893 Other assets (89,455) 7,912 Accounts payable and accrued liabilities 285,554 286,729 Tenants' security deposits and unearned income 108,122 51,407 __________ __________ Net cash provided by operating activities 1,870,257 2,625,430 Investing Activities: Purchase of property and improvements (528,388) (348,471) Lease principal payments received 28,314 24,715 __________ __________ Net cash used in investing activities (500,074) (323,756) Financing Activities: Net short-term bank borrowings (repayments) (2,900,000) - Net proceeds from long-term mortgage loans 3,708,589 - Principal payments on mortgage notes payable (390,806) (470,743) Sale of treasury shares 5,125 - Purchase of shares for treasury (33,362) (129,625) Dividends paid to shareholders (1,019,489) (1,036,814) Distributions to holders of minority interest (19,436) (57,839) __________ __________ Net cash used in financing activities (649,379) (1,695,021) __________ __________ Net increase in cash and cash equivalents 720,804 606,653 Balance at beginning of period 781,215 883,730 __________ __________ Balance at end of period $1,502,019 $1,490,383 __________ __________ __________ __________ Supplemental Data: Selected noncash activities related to investing and financing activities were as follows: Issued 18,498 shares in 2001 and 186,655 shares in 2000 in exchange for like numbers of operating partnership units of controlled partnerships $216,566 $2,218,092 __________ __________ __________ __________ See accompanying notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Century Realty Trust September 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 nine months ended September 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 nine months ended September 30, 2001, the Trust issued 18,498 shares of beneficial interest in exchange for partnership units. As of October 1, 2001, holders of 6,408 units elected to exchange units for shares. Including the exchanges exercised October 1, 2001, the Trust owns 217,693, or 75.1%, 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 $196,000, including interest at rates ranging from 6.97% to 9% per annum, and which mature from June 2, 2003 to August 17, 2011. Scheduled payments during the three and nine month periods ended September 30, 2001 decreased mortgage loan balances, in the aggregate, by $101,513 and $298,521 respectively. In August, 2001 the Trust obtained a new $5 million, ten-year, first mortgage loan on its Eagle Creek Park apartment property. The loan provides for repayment in monthly installments of $35,467 including principal and interest at the rate of 7.04%. The scheduled payments will leave a balance of $3,948,379 due at maturity in August, 2011. A portion of the loan proceeds was used to repay in full the $1,080,000 mortgage loan balance on one of the Trust's commercial properties, and to repay $2.9 million of the Trust's short-term bank borrowings. 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 nine months ended September 30, 2001 decreased mortgage loan balances, in the aggregate, by $31,138 and $92,285, respectively. Note 4 - Short-Term Debt As of September 30, 2001 and December 31, 2000, the Trust had borrowed $100,000 and $3,000,000, respectively, under its bank line of credit. The Trust's borrowing limit under its bank line of credit is $3,000,000. The line of credit rate of interest was 5.5% and 9.5% at September 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. 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 September 30, 2001 and 2000, and throughout the quarters and nine 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 in which the Trust has majority equity interests and over which it has exclusive control. A detailed listing of the investment real estate is contained on Page 2 of the Trust's 2000 annual report. At September 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 fourth quarter of 2001, and that operating income and expenses in the fourth quarter of 2001 will approximate the comparable amounts reported for the third quarter of 2001. Results Of Operations For the quarter and nine months ended September 30, 2001, the Trust reported decreases of 3% and 2%, respectively, in gross income from real estate operations from the comparable 2000 periods. Gross income from apartment operations accounted for 86% and 84% of the decreases for the quarter and nine month periods. Income from apartment operations decreased by 2.7% and 1.8% over the prior year quarter and nine month periods due to lower occupancy rates that more than offset .9% higher average rental rates. Economic occupancy for the third quarter of 2001 was 91.9%, down from 95% in the prior year quarter; and, for the nine months ended September 30, 2001, was 91.6%, down from 94.7% during the comparable period of 2000. Gross revenue from rental properties other than apartments accounted for 4.9% of total income from rental operations in the first nine months of 2001. Non-apartment revenue decreased by $10,800, or 2.2% compared to the comparable prior year period 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% and 95% during the first nine months of 2001 and 2000, respectively. Operating expenses, excluding interest and depreciation, for the apartment properties consumed 56.2% of gross possible income for the third quarter of 2001, up from 50.4% for the prior year period, and amounted to an increase of $166,345, or 9.8%. For the nine months ended September 30, 2001 and 2000, apartment operating expenses were 52.8% and 50.2%, respectively, of gross possible income, up $356,748, or 7.2%, from the comparable period of 2000. A comparatively severe winter season and a wetter than normal spring and summer following a moderate weather conditions a year ago resulted in significantly higher maintenance payroll costs and climate-related repair expenses during the nine months of 2001. Substantially higher costs for natural gas during the winter contributed to a 6.2% increase in utilities expenses, while termite treatment, air conditioning systems repairs and grounds maintenance increased significantly in the 2001 period. Due to a decrease in occupancy rates, advertising and marketing costs increased approximately $18,000 and $64,700 for the third quarter and first nine months of 2001 over the comparable periods of 2000. Also, as a result of its efforts to maintain and improve occupancy, the Trust incurred increases from the previous year of $52,700, 34% and $58,400, 14% in decorating costs during the quarter and nine month periods ended September 30, 2001, respectively. 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 three-fourths (nine 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. 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 7.3% and 4.0% in general and administrative expenses between the quarters and nine-month periods ended September 30, 2001 and 2000, respectively. Administrative salaries and related payroll taxes and benefits increased by 2.7% and 2.9% for the quarter and nine months ended September 30, 2001 from the prior year periods. In the nine months of 2001, general and administrative expenses consumed 4.4% of income from real estate operations, up from 4.2% in the first nine months of 2000. Interest expense related to loans outstanding throughout the third quarter and nine month periods of 2001 and 2000 declined by $35,000 and $94,400, respectively. Approximately 70% of the reductions resulted from lower interest rates on one variable rate loan with an unpaid balance totaling $4.95 million at September 30, 2001. Interest rates on the variable rate loan averaged 6.27% and 8.44% during the third quarters, and 6.92% and 8.79% during the first nine 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. In August, 2001 the Trust obtained a new $5 million, ten-year, 7.04% first mortgage loan to replace the loan that matured in December, 2000. Using the proceeds of the new mortgage loan, the Trust repaid $2.9 million of short-term debt and paid off the $1.08 million balance of a mortgage loan on one of its commercial properties. The net impact on interest expense related to loans that were obtained and/or repaid during 2000 and 2001 amounted to reductions of $10,400 and $45,100 for the quarter and nine months of 2001 compared with the same periods of 2000. Financial Condition And Liquidity As of October 1, 2001, the Trust declared a $.14 per share cash distribution payable November 19, 2001 to shareholders of record October 26, 2001. That distribution will require total disbursements of $244,866. One of the five controlled partnerships declared surplus cash distributions that, in the aggregate, will result in the payment of $1,300 to minority interest partners of record on October 26, 2001. During the third quarter of 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. Between August 1, 2001 and September 30, 2001 the Trust transferred title to seven rental properties, including four apartment properties, one restaurant property and two commercial properties to Century Realty Properties, L.P. On October 1, 2001 three additional apartment properties were transferred. The remaining rental properties destined for Century Realty Properties, L.P. 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 fourth quarter of 2001. Except for $100,000 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 with funds on hand or funds provided by future operations. No transactions or events have occurred to indicate that funds provided by operations during the fourth quarter of 2001 will differ disproportionately from the third quarter. At September 30, 2001, the Trust, its subsidiaries and controlled partnerships held, in the aggregate, approximately $1,502,000 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 September 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 September 30, 2001, and December 31, 2000, and the results of its operations and its cash flow for the three months and nine months ended September 30, 2001, and September 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__11/12/01__ By___S/____________________ John I. Bradshaw, Jr. President and Treasurer Date__11/12/01__ By___S/____________________ David F. White Controller