-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qpb3PEwQAA7XDtwgRt8RNFfO5MkruDMboHMCzLGroBSVDJsL9FCah3dFwPJg1CoO xBtyNPsUc7o8qAXr8TVJ5g== /in/edgar/work/20000809/0000731245-00-000011/0000731245-00-000011.txt : 20000921 0000731245-00-000011.hdr.sgml : 20000921 ACCESSION NUMBER: 0000731245-00-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRESIDENTIAL REALTY CORP/DE/ CENTRAL INDEX KEY: 0000731245 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 131954619 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08594 FILM NUMBER: 689489 BUSINESS ADDRESS: STREET 1: 180 S BROADWAY CITY: WHITE PLAINS STATE: NY ZIP: 10605 BUSINESS PHONE: 9149481300 MAIL ADDRESS: STREET 1: 180 SOUTH BROADWAY CITY: WHITE PLAINS STATE: NY ZIP: 10605 10-Q 1 0001.txt QUARTERLY REPORT FOR PRESIDENTIAL REALTY CORP. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 ---------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8594 ------- PRESIDENTIAL REALTY CORPORATION ------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-1954619 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 180 South Broadway, White Plains, New York 10605 ------------------------------------------ ------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, indicating area code 914-948-1300 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ------ ------ The number of shares outstanding of each of the issuer's classes of common stock as of the close of business on August 7, 2000 was 478,940 shares of Class A common and 3,221,222 shares of Class B common. PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES Index to Form 10-Q For the Six Months Ended June 30, 2000 Part I - Financial Information (Unaudited) Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Part II - Other Information Item 6. Exhibits and Reports on Form 8-K PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
Assets June 30, December 31, 2000 1999 ------------------- -------------------- Real estate (Note 2) $63,206,764 $35,647,633 Less: accumulated depreciation 8,934,748 8,231,480 ------------------- -------------------- Net real estate 54,272,016 27,416,153 ------------------- -------------------- Mortgage portfolio (Note 3): Sold properties 28,410,306 28,481,797 Related parties 1,541,660 1,574,028 ------------------- -------------------- Total mortgage portfolio 29,951,966 30,055,825 ------------------- -------------------- Less discounts: Sold properties 1,729,574 1,837,722 Related parties 127,048 132,073 ------------------- -------------------- Total discounts 1,856,622 1,969,795 ------------------- -------------------- Less deferred gains: Sold properties 11,320,373 11,320,373 Related parties 896,648 908,343 ------------------- -------------------- Total deferred gains 12,217,021 12,228,716 ------------------- -------------------- Net mortgage portfolio (of which $817,522 in 2000 and $127,803 in 1999 are due within one year) 15,878,323 15,857,314 ------------------- -------------------- Minority partners' interest (Note 4) 7,858,503 7,904,533 Prepaid expenses and deposits in escrow 2,055,245 1,434,079 Other receivables (net of valuation allowance of $123,969 in 2000 and $139,822 in 1999) 752,347 494,220 Securities available for sale (Note 5) 5,137 2,299,494 Cash and cash equivalents 2,032,185 7,014,542 Other assets 2,028,669 1,641,095 ------------------- -------------------- Total Assets $84,882,425 $64,061,430 =================== ==================== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
Liabilities and Stockholders' Equity June 30, December 31, 2000 1999 ------------------ ------------------ Liabilities: Mortgage debt (of which $599,558 in 2000 and $1,338,491 in 1999 are due within one year) (Note 6) $60,132,441 $39,379,458 Executive pension plan liability 1,506,367 1,479,185 Accrued liabilities 2,055,938 1,637,069 Accrued taxes payable 220,500 Accrued postretirement costs 522,809 538,398 Deferred income 156,538 46,533 Accounts payable 376,294 414,195 Other liabilities 878,228 799,490 ------------------ ------------------ Total Liabilities 65,628,615 44,514,828 ------------------ ------------------ Stockholders' Equity: Common stock; par value $.10 per share Class A, authorized 700,000 shares, issued and outstanding 478,940 shares 47,894 47,894 Class B June 30, 2000 December 31, 1999 322,244 321,240 ----------- ----------------- ----------------- Authorized: 10,000,000 10,000,000 Issued: 3,222,436 3,212,402 Treasury: 1,258 1,258 Additional paid-in capital 2,633,192 2,573,281 Retained earnings 16,633,266 17,209,589 Net unrealized gain (loss) on securities available for sale (Notes 5 and 8) 1,542 (221,074) Class B, treasury stock (at cost) (16,828) (16,828) Notes receivable for exercise of stock options (367,500) (367,500) ------------------ ------------------ Total Stockholders' Equity 19,253,810 19,546,602 ------------------ ------------------ Total Liabilities and Stockholders' Equity $84,882,425 $64,061,430 ================== ================== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30, --------------------------------------- 2000 1999 ----------------- ----------------- Income: Rental $6,743,471 $5,216,605 Interest on mortgages - sold properties 1,489,646 1,423,048 Interest on wrap mortgages 528,173 Interest on mortgages - related parties 89,921 144,987 Investment income 164,067 338,052 Other 24,701 53,468 ----------------- ----------------- Total 8,511,806 7,704,333 ----------------- ----------------- Costs and Expenses: General and administrative 1,379,867 1,365,350 Interest on note payable and other 215,090 Interest on wrap mortgage debt 54,586 Amortization of loan acquisition costs 3,128 Depreciation on non-rental property 11,460 12,723 Rental property: Operating expenses 2,832,419 2,291,040 Interest on mortgages 1,932,087 1,483,639 Real estate taxes 568,306 430,726 Depreciation on real estate 704,129 491,622 Amortization of mortgage costs 43,326 239,970 Minority interest share of partnership income 320,767 257,449 ----------------- ----------------- Total 7,792,361 6,845,323 ----------------- ----------------- Income before net gain (loss) from sales of properties, notes and securities 719,445 859,010 Net gain (loss) from sales of properties, notes and securities (includes a provision for Federal and State taxes of $1,566,474 in 1999) (113,320) 7,798,999 ----------------- ----------------- Net Income $606,125 $8,658,009 ================= ================= Earnings per Common Share (basic and diluted) (Note 1-C): Income before net gain (loss) from sales of properties, notes and securities $0.19 $0.24 Net gain (loss) from sales of properties, notes and securities (0.03) 2.16 ----------------- ----------------- Net Income per Common Share $0.16 $2.40 ================= ================= Cash Distributions per Common Share $0.32 $0.32 ================= ================= Weighted Average Number of Shares Outstanding 3,694,556 3,612,942 ================= ================= See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED JUNE 30, --------------------------------------- 2000 1999 ----------------- ----------------- Income: Rental $3,862,939 $2,612,844 Interest on mortgages - sold properties 745,481 581,995 Interest on wrap mortgages 228,786 Interest on mortgages - related parties 44,712 89,535 Investment income 37,314 226,645 Other 4,387 42,770 ----------------- ----------------- Total 4,694,833 3,782,575 ----------------- ----------------- Costs and Expenses: General and administrative 658,698 698,483 Interest on note payable and other 29,241 Interest on wrap mortgage debt 23,264 Depreciation on non-rental property 5,785 6,468 Rental property: Operating expenses 1,674,149 1,122,281 Interest on mortgages 1,166,038 737,334 Real estate taxes 320,914 209,151 Depreciation on real estate 433,545 248,181 Amortization of mortgage costs 22,585 18,199 Minority interest share of partnership income 152,572 128,796 ----------------- ----------------- Total 4,434,286 3,221,398 ----------------- ----------------- Income before net gain (loss) from sales of properties, notes and securities 260,547 561,177 Net gain (loss) from sales of properties, notes and securities (126,023) 1,080,031 ----------------- ----------------- Net Income $134,524 $1,641,208 ================= ================= Earnings per Common Share (basic and diluted) (Note 1-C): Income before net gain (loss) from sales of properties, notes and securities $0.06 $0.16 Net gain (loss) from sales of properties, notes and securities (0.03) 0.30 ----------------- ----------------- Net Income per Common Share $0.03 $0.46 ================= ================= Cash Distributions per Common Share $0.16 $0.16 ================= ================= See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, -------------------------------------------- 2000 1999 ---------------- ---------------- Cash Flows from Operating Activities: Cash received from rental properties $6,722,320 $5,268,840 Interest received 1,643,806 2,118,885 Miscellaneous income 23,453 55,448 Interest paid on rental property mortgages (1,849,707) (1,493,243) Interest paid on wrap mortgage debt (54,586) Interest paid on note payable and other (200,609) Cash disbursed for rental property operations (3,744,260) (2,522,018) Cash disbursed for general and administrative costs (1,474,500) (1,506,057) ---------------- ---------------- Net cash provided by operating activities 1,321,112 1,666,660 ---------------- ---------------- Cash Flows from Investing Activities: Payments received on notes receivable 103,859 1,897,826 Proceeds from sale of notes receivable 20,331,599 Payments disbursed for deferred sales commission (1,000,000) Payments of taxes payable on gain from sale of notes (220,500) Payments disbursed for additions and improvements (300,434) (533,114) Purchase of property (27,275,886) Proceeds from sale of property 69,979 91,452 Purchases of securities (7,995,738) Proceeds from sales of securities 2,331,119 ---------------- ---------------- Net cash (used in) provided by investing activities (25,291,863) 12,792,025 ---------------- ---------------- Cash Flows from Financing Activities: Principal payments on mortgage debt: Properties owned (1,147,017) (206,090) Wrap mortgage debt on sold properties (156,222) Mortgage debt payment from proceeds of mortgage refinancing (3,120,190) Mortgage proceeds 21,900,000 3,195,500 Repayment of wrap mortgage debt (2,300,000) Mortgage costs (350,094) (82,824) Principal payments on note payable (10,395,361) Cash distributions on common stock (1,182,448) (1,155,486) Proceeds from dividend reinvestment and share purchase plan 42,690 45,795 Distributions to minority partners (274,737) (405,674) ---------------- ---------------- Net cash provided by (used in) financing activities 18,988,394 (14,580,552) ---------------- ---------------- Net Decrease in Cash and Cash Equivalents (4,982,357) (121,867) Cash and Cash Equivalents, Beginning of Period 7,014,542 1,764,465 ---------------- ---------------- Cash and Cash Equivalents, End of Period $2,032,185 $1,642,598 ================ ================ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, ---------------------------------------------- 2000 1999 ----------------- ----------------- Reconciliation of Net Income to Net Cash Provided by Operating Activities Net Income $606,125 $8,658,009 ----------------- ----------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 758,915 747,443 Losses (gains) from sales of properties, notes and securities 113,320 (7,798,999) Issuance of treasury stock for fees and expenses 10,755 Amortization of discounts on notes and fees (184,954) (455,484) Minority share of partnership income 320,767 257,449 Changes in assets and liabilities: Increase in accounts receivable (186,346) (101,640) Increase in accounts payable and accrued liabilities 392,561 344,926 Increase (decrease) in deferred income 110,005 (13,725) Decrease (increase) in prepaid expenses, deposits in escrow and deferred charges (605,913) 17,682 Decrease in security deposit liabilities (11,233) (1,478) Other 7,865 1,722 ----------------- ----------------- Total adjustments 714,987 (6,991,349) ----------------- ----------------- Net cash provided by operating activities $1,321,112 $1,666,660 ================= ================= See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General - Presidential Realty Corporation ("Presidential" or the "Company"), a Real Estate Investment Trust ("REIT"), is engaged principally in the holding of notes and mortgages secured by real estate and in the ownership of income producing real estate. Presidential operates in a single business segment, investments in real estate related assets. B. Principles of Consolidation - The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, the consolidated financial statements include 100% of the account balances of UTB Associates and PDL, Inc. and Associates Limited Co-Partnership ("Home Mortgage Partnership"), partnerships in which Presidential or PDL, Inc., a wholly owned subsidiary of Presidential, is the General Partner. All significant intercompany balances and transactions have been eliminated. C. Net Income Per Share - Basic net income per share data is computed by dividing the net income by the weighted average number of shares of Class A and Class B common stock outstanding during each period. Basic net income per share and diluted income per share are the same for the six months ended June 30, 2000 and 1999. The dilutive effect of stock options is calculated using the treasury stock method. D. Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected. These consolidated financial statements and accompanying notes should be read in conjunction with the Company's Form 10-K for the year ended December 31, 1999. E. Management Estimates - In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates. 2. REAL ESTATE Real estate is comprised of the following: June 30, December 31, 2000 1999 ----------- ------------ Land $ 9,599,970 $ 5,461,173 Buildings and leaseholds 53,277,559 29,909,205 Furniture and equipment 329,235 277,255 ----------- ----------- Total real estate $63,206,764 $35,647,633 =========== =========== In March, 2000, the Company purchased two apartment properties, Farrington Apartments, a 224 unit garden apartment property in Clearwater, Florida and Preston Lake Apartments, a 320 unit garden apartment property in Tucker, Georgia. The purchase price for the Farrington Apartments property was $9,630,950 and the purchase price for the Preston Lake Apartments property was $17,450,000. Additional acquisition costs for these properties were $165,471 and $29,465, respectively. In connection with the purchase of these two apartment properties, the Company obtained first mortgage loans of $7,900,000 and $14,000,000, respectively. 3. MORTGAGE PORTFOLIO The Company's mortgage portfolio includes notes receivable - sold properties and notes receivable - related parties. Notes receivable - sold properties consist of: (1) Long-term purchase money notes from sales of properties previously owned by the Company or notes purchased by the Company. These purchase money notes have varying interest rates with balloon payments due at maturity. (2) Notes receivable from sales of cooperative apartment units. These notes generally have market interest rates and the majority of these notes amortize monthly with balloon payments due at maturity. Notes receivable - related parties are all due from Ivy Properties, Ltd. or its affiliates (collectively "Ivy") and consist of: (1) Purchase money notes resulting from sales of property or partnership interests to Ivy. (2) Notes receivable relating to loans made by the Company to Ivy in connection with Ivy's cooperative conversion business. At June 30, 2000, all of the notes in the Company's mortgage portfolio are current. 4. MINORITY PARTNERS' INTEREST Presidential is the General Partner of UTB Associates and PDL, Inc. (a wholly owned subsidiary of Presidential) is the General Partner of Home Mortgage Partnership. Presidential has a 66-2/3% interest in UTB Associates, and Presidential and PDL, Inc. have an aggregate 26% interest in Home Mortgage Partnership. As the General Partner of these partnerships, Presidential and PDL, Inc., respectively, exercise effective control over the business of these partnerships, and, accordingly, Presidential consolidates these partnerships in the accompanying financial statements. The minority partners' interest reflects the minority partners' equity in the partnerships. The minority partners' interest in the Home Mortgage Partnership is a negative interest and therefore, minority partners' interest is a net asset on the Company's financial statements. The negative basis for each partner's interest in the Home Mortgage Partnership is due to the refinancing of the mortgage on the property and the distribution of the proceeds to the partners. The mortgage debt, which is included in the Company's financial statements, is substantially in excess of the net carrying amount of the property, but the estimated fair value of the property is significantly greater than the mortgage debt. Thus, the asset recorded as minority partners' interest should be realized upon sale of the property. Minority partners' interest is comprised of the following: June 30, December 31, 2000 1999 ---------- ----------- Home Mortgage Partnership $8,075,852 $8,112,127 UTB Associates (217,349) (207,594) ---------- ---------- Total minority partners' interest $7,858,503 $7,904,533 ========== ========== 5. SECURITIES AVAILABLE FOR SALE The cost and fair value of securities available for sale are as follows: June 30, December 31, 2000 1999 ------- ----------- Cost $3,595 $2,520,568 Gross unrealized gains 1,580 1,824 Gross unrealized losses (38) (222,898) ------ ---------- Fair value $5,137 $2,299,494 ====== ========== During the six months ended June 30, 2000, the Company sold securities available for sale for gross proceeds of $2,331,119 and a net loss of $185,854. This net loss was composed of a gross loss of $188,160 and a gross gain of $2,306. During the six months ended June 30, 1999, there were no sales of securities available for sale. 6. MORTGAGE DEBT In connection with the purchase of Farrington Apartments and Preston Lake Apartments in March, 2000, the Company obtained first mortgage loans collateralized by the properties as follows: Mortgage Interest Monthly Maturity Balloon Property Loan Rate Payment Date Payment - -------- -------- -------- ------- -------- ------- Farrington Apartments $ 7,900,000 8.25% $ 59,350 5/1/2010 $ 7,106,299 Preston Lake Apartments 14,000,000 8.15% 104,195 5/1/2010 12,564,077 In May, 2000, the mortgage on the Company's Building Industries Center property became due and the Company made a $901,689 balloon payment to repay the mortgage. 7. INCOME TAXES Presidential has elected to qualify as a Real Estate Investment Trust under the Internal Revenue Code. A REIT which distributes at least 95% of its real estate investment trust taxable income to its shareholders each year by the end of the following year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. For the year ended December 31, 1999, the Company had taxable income (before distributions to stockholders) of approximately $3,711,000 ($1.01 per share), which included approximately $2,836,000 ($.77 per share) of capital gains. The $3,711,000 was reduced by the $630,000 ($.17 per share) of undistributed capital gains designated as paid under Section 857(b)(3)(D). At December 31, 1999, the Company accrued $220,500 for income taxes on the $630,000 undistributed capital gain, which tax was paid in January, 2000. The $3,081,000 balance of taxable income will be reduced by the $801,000 ($.22 per share) of its 1999 distributions that were not utilized in reducing the Company's 1998 taxable income. In addition, the Company may elect to apply any eligible year 2000 distributions to reduce its 1999 taxable income. In order to retain REIT status, Presidential is required to distribute 95% of its REIT taxable income (exclusive of capital gains). As of June 30, 2000, Presidential has distributed all of the required 95% ($.23 per share) of its 1999 REIT taxable income. In addition, although no assurances can be given, it is the Company's present intention to distribute all of its 1999 taxable income (after the $630,000 retained capital gain) and, therefore, no provision for income taxes was made for the $3,081,000 of taxable income at December 31, 1999. Furthermore, the Company had taxable income (before distributions to stockholders) for the six months ended June 30, 2000 of approximately $398,000 ($.11 per share), which is net of capital losses of approximately $113,000 ($.03 per share). This amount will be reduced by 2000 distributions that were not utilized in reducing the Company's 1999 taxable income and by any eligible 2001 distributions that the Company may elect to utilize as a reduction of its 2000 taxable income. Presidential intends to continue to maintain its REIT status. Presidential has, for tax purposes, reported the gain from the sale of certain of its properties using the installment method. 8. COMPREHENSIVE INCOME The Company's only element of other comprehensive income is the change in the unrealized gain (loss) on the Company's securities available for sale. Thus, comprehensive income, which consists of net income plus or minus other comprehensive income, for the six months ended June 30, 2000 and 1999 was $828,741 and $8,232,611, respectively. 9. COMMITMENTS AND CONTINGENCIES Presidential is not a party to any material legal proceedings except as noted below. UTB Associates, a partnership in which the Company holds a 66-2/3% interest, is a tenant under a lease (the "Professional Space Lease") of 24,400 square feet of professional office space at University Towers, a cooperative apartment building in New Haven, Connecticut. UTB Associates sublets the professional space to unrelated parties. In June, 1999, University Towers Owners Corp., the cooperative corporation, filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Connecticut, New Haven division. As part of the bankruptcy proceedings, in July, 1999 the cooperative corporation filed an Adversary Proceeding against UTB Associates for termination of the Professional Space Lease and damages primarily based on claims arising under Connecticut law. The Company has been advised by its litigation counsel that there are meritorious defenses to the claim raised by the cooperative corporation and that if these defenses are successful, it is unlikely that the Professional Space Lease will be terminated or that any damages will be assessed against UTB Associates. However, in light of the uncertainties of litigation, no assurances can be given as to the outcome of the litigation. The Company's financial statements reflect approximately $12,000 of income from the Professional Space Lease for the period ended June 30, 2000 and $37,000 for the period ended June 30, 1999. In addition, the Company may be a party to routine litigation incidental to the ordinary course of its business. In the opinion of management, all of the Company's properties are adequately covered by insurance in accordance with normal insurance practices. The Company is not aware of any environmental issues at any of its properties. The presence, with or without the Company's knowledge, of hazardous substances at any of its properties could have an adverse effect on the Company's operating results and financial condition. PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999 Results of Operations Financial Information for the six months ended June 30, 2000 and 1999: - ---------------------------------------------------------------------------- Revenue increased by $807,473 primarily as a result of increases in rental income, offset by decreases in interest on wrap mortgages, interest on mortgages-related parties and investment income. Rental income increased by $1,526,866 primarily as a result of the purchase of Farrington Apartments and Preston Lake Apartments in March, 2000, which increased rental income by $1,193,918. In addition, rental income increased by $147,112 at the Home Mortgage Plaza property and by $185,836 at all other properties. Interest on wrap mortgages decreased by $528,173 as a result of the modification of the New Haven wraparound mortgage notes in 1999 and the sale of the Grant House wraparound mortgage note in 1999. As a result of these transactions, the Company no longer holds any wraparound mortgage notes. Interest on mortgages-related parties decreased by $55,066 primarily as a result of the $49,582 decrease in interest received on the Consolidated Loans. Investment income decreased by $173,985 primarily as a result of the sale of securities in the fourth quarter of 1999 and during 2000. Costs and expenses increased by $947,038 primarily due to increases in all categories of rental property operations. The increases were due to the acquisitions of Farrington Apartments and Preston Lake Apartments in March, 2000. These increases were partially offset by a decrease in amortization of mortgage costs, a decrease in interest expense on note payable and other and a decrease in interest expense on wrap mortgage debt. Interest on note payable and other decreased by $215,090 primarily as a result of the repayment of the note payable in February, 1999. Interest on wrap mortgage debt decreased by $54,586 as a result of the repayment and sale of the wrap mortgage debts in 1999. Rental property operating expenses increased by $541,379. Rental property operating expenses for Farrington Apartments and Preston Lake Apartments were $497,067. In addition, operating expenses increased by $47,601 at University Towers Professional Space resulting from increased legal and professional fees incurred in connection with the litigation with University Towers Owners Corp. Interest on mortgages increased by $448,448. Mortgage interest expense for Farrington Apartments and Preston Lake Apartments was $488,214. Real estate tax expense increased by $137,580. Real estate tax expense for Farrington Apartments and Preston Lake Apartments was $87,594. Real estate tax expense increased by $27,568 at the Continental Gardens property as a result of refunds for prior years' real estate taxes which were received in 1999 thereby reducing 1999 expenses below that which was expected to recur. In addition, real estate taxes at the Sunwood Apartments and Mapletree Industrial Center properties increased by $20,193. Depreciation on real estate increased by $212,507. Depreciation expense for Farrington Apartments and Preston Lake Apartments was $177,120. Depreciation expense increased by $35,387 at all other properties as a result of additions and improvements made to the properties. Amortization of mortgage costs decreased by $196,644 primarily as a result of the write-off in 1999 of unamortized mortgage costs of $166,756 and the $31,200 prepayment penalty fee associated with the prior mortgage on the Cambridge Green property which was refinanced in 1999. Minority interest share of partnership income increased by $63,318 as a result of an increase in partnership income on the Home Mortgage Plaza property. Net gain from sales of properties, notes and securities are sporadic (as they depend on the timing of sales or the receipt of installments or prepayments on purchase money notes). In 2000, the net loss from sales of properties, notes and securities was $113,320 compared with a net gain of $7,798,999 in 1999: Gain (loss) from sales recognized at June 30, 2000 1999 ---- ---- Sales of mortgage notes: Fairfield Towers First and Second Mortgages (net of taxes of $1,566,474) $6,050,740 Grant House wraparound mortgage note 425,000 Deferred gains recognized upon receipt of principal payments on notes: New Haven - $1,000,000 principal payment 1,000,000 Pinewood - $317,662 principal prepayment 218,534 Overlook $ 11,695 10,587 Fairfield Towers Second Mortgage 19,466 Sales of property: Sherwood House 74,672 Broad Park Lodge 60,839 Sales of securities (185,854) ---------- ---------- Net gain (loss) $(113,320) $7,798,999 ========== ========== Financial Information for the three months ended June 30, 2000 and 1999: - ---------------------------------------------------------------------------- Revenue increased by $912,258 primarily as a result of increases in rental income and interest on mortgages-sold properties. These increases were offset by decreases in interest on wrap mortgages, interest on mortgages-related parties, investment income, and other income. Rental income increased by $1,250,095 primarily as a result of the acquisition of Farrington Apartments and Preston Lake Apartments, which increased rental income by $1,100,714. In addition, rental income increased by $75,305 at the Home Mortgage Plaza property and by $33,021 at the Cambridge Green property. Rental income at all other properties increased by $41,055. Interest on mortgages-sold properties increased by $163,486 primarily as a result of mortgage modifications and rate increases, which increased interest for the period by $268,178. These increases were partially offset by a $104,692 decrease in amortization of discounts on notes. The majority of the discounts on the notes held by Presidential were fully amortized as the notes matured, or when a particular note was paid off or sold. Interest on wrap mortgages decreased by $228,786 as a result of the modification of the New Haven wraparound mortgage notes in 1999 and the sale of the Grant House wraparound mortgage note in 1999. Interest on mortgages-related parties decreased by $44,823 primarily as a result of the $42,568 decrease in interest received on the Consolidated Loans. Investment income decreased by $189,331 as a result of the sale of securities in the fourth quarter of 1999 and during 2000. Other income decreased by $38,383 primarily as a result of a $30,750 fee received in the 1999 period from the modification of the New Haven notes. Costs and expenses increased by $1,212,888 primarily due to increases in all categories of rental property operating expenses. These increases were offset by decreases in general and administrative expenses, decreases in interest expense on note payable and other and decreases in interest expense on wrap mortgage debt. General and administrative expenses decreased by $39,785 primarily as a result of a $46,140 decrease in professional fee expenses. Interest on note payable and other decreased by $29,241 as a result of the discounts on commissions payable which were fully amortized in 1999. Interest on wrap mortgage debt decreased by $23,264 as a result of the repayments and sale of the wrap mortgage debts in 1999. Rental property operating expenses increased by $551,868 primarily as a result of the addition of Farrington Apartments and Preston Lake Apartments which increased operating expenses by $457,925. In addition, rental property operating expenses increased by $39,680 at the University Towers Professional Space property as a result of increased legal and professional fees. Electric expenses increased at the Home Mortgage Plaza property by $22,518 and expenses at the Building Industries Center property increased by $20,020 as a result of increases in repairs and maintenance and bad debts. Interest on mortgages increased by $428,704 primarily as a result of the addition of Farrington Apartments and Preston Lake Apartments which increased mortgage interest expense by $452,908. Real estate tax expense increased by $111,763 primarily as a result of the addition of Farrington Apartments and Preston Lake Apartments, which increased real estate tax expense by $81,188. Real estate tax expense at the Continental Gardens property increased by $23,236 as a result of refunds of prior years' taxes received in 1999 thereby reducing the 1999 expenses below that which was expected to recur. Depreciation on real estate increased by $185,364 primarily as a result of the addition of Farrington Apartments and Preston Lake Apartments which increased depreciation expense by $167,599. Depreciation expense increased by $17,765 at all other properties. Minority interest share of partnership income increased by $23,776 as a result of an increase in partnership income on the Home Mortgage Plaza property. Net gain from sales of properties, notes and securities are sporadic (as they depend on the timing of sales or the receipt of installments or prepayments on purchase money notes). In 2000, the net loss from sales of properties, notes and securities was $126,023 compared with a net gain of $1,080,031 in 1999: Gain (loss) from sales recognized at June 30, 2000 1999 ---- ---- Deferred gains recognized upon receipt of principal payments on notes: New Haven - $1,000,000 principal payment $1,000,000 Overlook 5,920 5,359 Sale of property: Sherwood House 74,672 Sales of securities (131,943) ---------- ---------- Net gain (loss) $(126,023) $1,080,031 ========== ========== Balance Sheet Real estate increased by $27,559,131 as a result of the purchase of Farrington Apartments and Preston Lake Apartments in March, 2000. The capitalized costs for Farrington Apartments, a 224 unit garden apartment property in Clearwater, Florida was $1,900,000 for land and $7,896,421 for buildings and improvements. The capitalized costs for Preston Lake Apartments, a 320 unit garden apartment property in Tucker, Georgia, was $2,240,000 for land and $15,239,465 for buildings and improvements. In addition, net additions and improvements to properties were $283,245. Prepaid expenses and deposits in escrow increased by $621,166 as a result of the purchase of Farrington Apartments and Preston Lake Apartments. Other receivables increased by $258,127 as a result of increases of $26,733 in tenants accounts receivables, increases of $172,503 in miscellaneous receivables and an increase of $58,891 in accrued interest receivable. Securities available for sale decreased by $2,294,357 as a result of the sale of $2,516,973 in marketable equity securities, primarily interest-bearing corporate preferred stocks, offset by a $222,616 increase in the fair value of securities available for sale. Cash and cash equivalents decreased by $4,982,357 primarily as a result of the cash utilized for the purchase of Farrington Apartments and Preston Lake Apartments. In addition, in the second quarter of 2000, the Company repaid the $901,689 outstanding mortgage debt on its Building Industries Center property. Mortgage debt increased by $20,752,983 primarily due to the $7,900,000 mortgage on Farrington Apartments and the $14,000,000 mortgage on Preston Lake Apartments. This increase was partially offset by the $901,689 repayment of the mortgage on the Building Industries Center property. Deferred income increased by $110,005 primarily as a result of an increase of $72,237 in deferred interest income and an increase of $40,318 in prepaid rents. In March, 2000, three directors of the Company were each given 1,000 shares of the Company's Class B common stock as partial payment for directors fees for the 2000 year. The average market value for the previous month of the Class B common stock, on which the fees were based, was $6.075 per share. As a result of this transaction, the Company recorded $18,225 in prepaid directors fees (to be amortized during 2000) based on the average market value of the stock. The Company recorded additions to the Company's Class B common stock of $300 at par value of $.10 per share and $17,925 to additional paid-in capital. Net unrealized gain (loss) on securities available for sale decreased by $222,616 primarily as a result of the sales of securities in the six month period and an increase in the fair value of securities available for sale. Forward-Looking Statements Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions, which will, among other things affect the demand for apartments or commercial space, availability and creditworthiness of prospective tenants, lease rents and the terms and availability of financing; adverse changes in the real estate markets including, among other things, competition with other companies; risks of real estate development and acquisition; governmental actions and initiatives; and environment/safety requirements. Liquidity and Capital Resources Management believes that the Company has sufficient liquidity and capital resources to carry on its existing business and, barring any unforeseen circumstances, to pay the dividends required to maintain REIT status in the foreseeable future. In March, 2000, the Company purchased two new properties and utilized a substantial portion of its available funds, as well as obtaining mortgage financing for the purchase of these properties. Except as discussed herein, management is not aware of any other trends, events, commitments or uncertainties that will have a significant effect on liquidity. Presidential obtains funds for working capital and investment from its available cash and cash equivalents, from securities available for sale, from operating activities, from refinancing of mortgage loans on its real estate equities, and from the sales of or repayments on its mortgage portfolio. The Company also has at its disposal a $250,000 unsecured line of credit from a lending institution. At June 30, 2000, Presidential had $2,032,185 in available cash and cash equivalents, a decrease of $4,982,357 from the $7,014,542 at December 31, 1999. This decrease in cash and cash equivalents was due to cash used in investing activities of $25,291,863, offset by cash provided by operating activities of $1,321,112 and financing activities of $18,988,394. Operating Activities Presidential's principal source of cash from operating activities is from interest on its mortgage portfolio, which was $1,643,806 in 2000. In 2000, net cash received from rental property operations was $853,616, which is net of distributions from partnership operations to minority partners but before additions and improvements and mortgage amortization. Investing Activities Presidential holds a portfolio of mortgage notes receivable, which consist primarily of notes arising from sales of real properties previously owned by the Company. During 2000, the Company received principal payments of $103,859 on its mortgage portfolio of which $30,395 represented prepayments, which are sporadic and cannot be relied upon as a regular source of liquidity. In March, 2000, the Company purchased Farrington Apartments and Preston Lake Apartments for a purchase price of $9,630,950 and $17,450,000, respectively. The Company obtained first mortgage loans of $7,900,000 and $14,000,000, respectively, which are collateralized by the properties. During 2000, the Company invested $300,434 in additions and improvements to its properties. Financing Activities The Company's indebtedness at June 30, 2000, consisted of $60,132,441 of mortgage debt. The mortgage debt, which is collateralized by individual properties, is nonrecourse to the Company with the exception of the $251,942 Mapletree Industrial Center mortgage, which is collateralized by the property and a guarantee of repayment by Presidential. In addition, some of the Company's mortgages provide for personal liability for damages resulting from specified acts or circumstances, such as for environmental liabilities and fraud. Generally, mortgage debt repayment is serviced with cash flow from the operations of the individual properties. During 2000, the Company made $1,147,017 of principal payments on mortgage debt. Included in the $1,147,017 principal payments on mortgage debt was a balloon payment of $901,689 that the Company paid in May, 2000 on the outstanding mortgage on its Building Industries Center property. In connection with the purchase of Farrington Apartments and Preston Lake Apartments in March, 2000, the Company obtained first mortgage loans collateralized by the properties as follows: Mortgage Interest Monthly Maturity Balloon Property Loan Rate Payment Date Payment - -------- -------- -------- ------- -------- ------- Farrington Apartments $ 7,900,000 8.25% $ 59,350 5/1/2010 $ 7,106,299 Preston Lake Apartments 14,000,000 8.15% 104,195 5/1/2010 12,564,077 In addition, the Company paid mortgage costs of $350,094 for the mortgages obtained for the new properties. These mortgage costs were capitalized to other assets and will be amortized over the life of the mortgages applying the interest method. The mortgages on the Company's properties are at fixed rates of interest. The majority of the mortgages have balloon payments due at maturity with the exception of four mortgages which are self-liquidating. During 2000, Presidential declared and paid cash distributions of $1,182,448 to its shareholders and received proceeds from its dividend reinvestment and share purchase plan of $42,690. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 27. Financial Data Schedule. (b) During the calendar quarter ended June 30, 2000, the Company filed a Form 8-K/A on May 25, 2000 which disclosed under Item 2 - Acquisition or Disposition of Assets and Item 7 - Financial Statements and Exhibits the purchase of Farrington Apartments and the purchase of Preston Lake Apartments. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRESIDENTIAL REALTY CORPORATION (Registrant) DATE: August 9, 2000 By: /s/ Jeffrey F. Joseph --------------------- Jeffrey F. Joseph President DATE: August 9, 2000 By: /s/ Elizabeth Delgado --------------------- Elizabeth Delgado Treasurer EX-27 2 0002.txt FINACIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 JUN-30-2000 2,032,185 5,137 16,754,639 123,969 0 5,662,436 63,206,764 8,934,748 84,882,425 3,188,328 59,532,883 0 0 370,138 18,883,672 84,882,425 0 8,511,806 0 4,468,947 0 0 1,932,087 606,125 0 606,125 0 0 0 606,125 0.16 0.16
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