-----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, HRLElRIseFEiFCph2f6IvNM5XuQM/TRb6er0WfWkzTbL4vTxvl9pBzRjk4ab/LrO jLa08Mks580nhkY32/nGhQ== 0000731245-01-500011.txt : 20010813 0000731245-01-500011.hdr.sgml : 20010813 ACCESSION NUMBER: 0000731245-01-500011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRESIDENTIAL REALTY CORP/DE/ CENTRAL INDEX KEY: 0000731245 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 131954619 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08594 FILM NUMBER: 1703605 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 jun01q.txt 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, 2001 ---------------- 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 8, 2001 was 478,840 shares of Class A common and 3,238,613 shares of Class B common. PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES Index to Form 10-Q For the Six Months Ended June 30, 2001 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, 2001 2000 -------------- -------------- Real estate (Note 2) $63,821,840 $63,537,365 Less: accumulated depreciation 10,702,626 9,818,165 -------------- -------------- Net real estate 53,119,214 53,719,200 -------------- -------------- Mortgage portfolio (Note 3): Sold properties 27,654,238 28,191,380 Related parties 1,414,248 1,447,959 -------------- -------------- Total mortgage portfolio 29,068,486 29,639,339 -------------- -------------- Less discounts: Sold properties 1,311,352 1,621,104 Related parties 110,582 114,794 -------------- -------------- Total discounts 1,421,934 1,735,898 -------------- -------------- Less deferred gains: Sold properties 10,258,695 11,224,373 Related parties 871,435 884,355 -------------- -------------- Total deferred gains 11,130,130 12,108,728 -------------- -------------- Net mortgage portfolio (of which $434,589 in 2001 and $362,992 in 2000 are due within one year) 16,516,422 15,794,713 -------------- -------------- Minority partners' interest (Note 4) 7,760,019 7,838,643 Prepaid expenses and deposits in escrow 2,039,422 1,691,013 Other receivables (net of valuation allowance of $176,311 in 2001 and $181,838 in 2000) 764,878 732,655 Cash and cash equivalents 2,454,282 2,159,661 Other assets 1,979,548 2,002,155 -------------- -------------- Total Assets $84,633,785 $83,938,040 ============== ============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
Liabilities and Stockholders' Equity June 30, December 31, 2001 2000 ------------- -------------- Liabilities: Mortgage debt (of which $647,326 in 2001 and $624,439 in 2000 are due within one year) $59,534,342 $59,846,143 Executive pension plan liability 1,575,039 1,530,148 Accrued liabilities 2,190,360 1,868,547 Accrued postretirement costs 512,538 518,334 Deferred income 149,854 120,025 Accounts payable 346,344 419,290 Other liabilities 942,122 919,256 ------------- -------------- Total Liabilities 65,250,599 65,221,743 ------------- -------------- Stockholders' Equity: Common stock; par value $.10 per share Class A, authorized 700,000 shares, issued 478,940 shares and 100 shares held in treasury 47,894 47,894 Class B June 30, 2001 December 31, 2000 324,046 323,015 ----------- ------------------ ----------------------- Authorized: 10,000,000 10,000,000 Issued: 3,240,463 3,230,148 Treasury: 1,850 1,850 Additional paid-in capital 2,737,025 2,677,126 Retained earnings 16,660,758 16,055,448 Accumulated other comprehensive income (Note 6) 2,051 1,402 Treasury stock (at cost) (21,088) (21,088) Notes receivable for exercise of stock options (367,500) (367,500) ------------- -------------- Total Stockholders' Equity 19,383,186 18,716,297 ------------- -------------- Total Liabilities and Stockholders' Equity $84,633,785 $83,938,040 ============= ============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30, ----------------------------------- 2001 2000 --------------- ---------------- Income: Rental $7,989,033 $6,743,471 Interest on mortgages - sold properties 1,683,016 1,489,646 Interest on mortgages - related parties 97,582 89,921 Investment income 72,874 164,067 Other 18,716 24,701 --------------- ---------------- Total 9,861,221 8,511,806 --------------- ---------------- Costs and Expenses: General and administrative 1,581,961 1,379,867 Depreciation on non-rental property 11,373 11,460 Rental property: Operating expenses 3,182,972 2,832,419 Interest on mortgage debt 2,291,798 1,932,087 Real estate taxes 652,709 568,306 Depreciation on real estate 884,687 704,129 Amortization of mortgage costs 55,030 43,326 Minority interest share of partnership income 385,923 320,767 --------------- ---------------- Total 9,046,453 7,792,361 --------------- ---------------- Income before net gain (loss) from sales of properties, notes and securities 814,768 719,445 Net gain (loss) from sales of properties, notes and securities 978,598 (113,320) --------------- ---------------- Net Income $1,793,366 $606,125 =============== ================ Earnings per Common Share (basic and diluted) (Note 1-C): Income before net gain (loss) from sales of properties, notes and securities $0.22 $0.19 Net gain (loss) from sales of properties, notes and securities 0.26 (0.03) --------------- ---------------- Net Income per Common Share $0.48 $0.16 =============== ================ Cash Distributions per Common Share $0.32 $0.32 =============== ================ Weighted Average Number of Shares Outstanding 3,712,317 3,694,556 =============== ================ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED JUNE 30, ----------------------------------- 2001 2000 --------------- ---------------- Income: Rental $3,952,020 $3,862,939 Interest on mortgages - sold properties 721,386 745,481 Interest on mortgages - related parties 56,595 44,712 Investment income 33,358 37,314 Other 4,502 4,387 --------------- ---------------- Total 4,767,861 4,694,833 --------------- ---------------- Costs and Expenses: General and administrative 757,048 658,698 Depreciation on non-rental property 5,764 5,785 Rental property: Operating expenses 1,608,802 1,674,149 Interest on mortgage debt 1,148,700 1,166,038 Real estate taxes 329,090 320,914 Depreciation on real estate 444,671 433,545 Amortization of mortgage costs 25,002 22,585 Minority interest share of partnership income 194,009 152,572 --------------- ---------------- Total 4,513,086 4,434,286 --------------- ---------------- Income before net gain (loss) from sales of properties, notes and securities 254,775 260,547 Net gain (loss) from sales of properties, notes and securities 134,540 (126,023) --------------- ---------------- Net Income $389,315 $134,524 =============== ================ Earnings per Common Share (basic and diluted) (Note 1-C): Income before net gain (loss) from sales of properties, notes and securities $0.07 $0.06 Net gain (loss) from sales of properties, notes and securities 0.03 (0.03) --------------- ---------------- Net Income per Common Share $0.10 $0.03 =============== ================ Cash Distributions per Common Share $0.16 $0.16 =============== ================ Weighted Average Number of Shares Outstanding 3,714,926 3,697,449 =============== ================ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, -------------------------------------- 2001 2000 ---------------- -------------- Cash Flows from Operating Activities: Cash received from rental properties $7,914,696 $6,722,320 Interest received 1,578,945 1,643,806 Miscellaneous income 17,469 23,453 Interest paid on rental property mortgage debt (2,302,630) (1,849,707) Cash disbursed for rental property operations (3,909,431) (3,744,260) Cash disbursed for general and administrative costs (1,521,265) (1,474,500) ---------------- -------------- Net cash provided by operating activities 1,777,784 1,321,112 ---------------- -------------- Cash Flows from Investing Activities: Payments received on notes receivable 1,670,853 103,859 Payments disbursed for investments in notes receivable (1,100,000) Payments of taxes payable on gain from sale of notes (220,500) Payments disbursed for additions and improvements (290,855) (300,434) Purchase of property (27,275,886) Proceeds from sales of securities 2,331,119 Other 69,979 ---------------- -------------- Net cash provided by (used in) investing activities 279,998 (25,291,863) ---------------- -------------- Cash Flows from Financing Activities: Principal payments on mortgage debt (311,801) (1,147,017) Mortgage proceeds 21,900,000 Mortgage costs paid (350,094) Cash distributions on common stock (1,188,056) (1,182,448) Proceeds from dividend reinvestment and share purchase plan 43,995 42,690 Distributions to minority partners (307,299) (274,737) ---------------- -------------- Net cash (used in) provided by financing activities (1,763,161) 18,988,394 ---------------- -------------- Net Increase (Decrease) in Cash and Cash Equivalents 294,621 (4,982,357) Cash and Cash Equivalents, Beginning of Period 2,159,661 7,014,542 ---------------- -------------- Cash and Cash Equivalents, End of Period $2,454,282 $2,032,185 ================ ============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, --------------------------------- 2001 2000 ------------- ------------ Reconciliation of Net Income to Net Cash Provided by Operating Activities Net Income $1,793,366 $606,125 ------------- ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 951,090 758,915 Losses (gains) from sales of properties, notes and securities (978,598) 113,320 Issuance of stock for fees and expenses 8,467 9,113 Amortization of discounts on notes and fees (361,483) (184,954) Minority share of partnership income 385,923 320,767 Changes in assets and liabilities: Decrease (increase) in accounts receivable 15,297 (186,346) Increase in accounts payable and accrued liabilities 287,962 392,561 Increase in deferred income 29,829 110,005 Increase in prepaid expenses, deposits in escrow and deferred charges (339,941) (605,913) Decrease in security deposit liabilities (14,917) (11,233) Other 789 (1,248) ------------- ------------ Total adjustments (15,582) 714,987 ------------- ------------ Net cash provided by operating activities $1,777,784 $1,321,112 ============= ============ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2001 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 ownership of income producing real estate and in the holding of notes and mortgages secured by 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, 2001 and 2000. 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. The results for such interim periods are not necessarily indicative of the results to be expected for the year. 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, 2000. 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. F. Derivative Instruments - The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", on January 1, 2001. Company management has determined that the Company has no derivative financial instruments; therefore, implementation of this standard had no impact on the Company. G. Recent Accounting Pronouncements - In July, 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". These statements establish new standards for accounting and reporting for business combinations and for goodwill and intangible assets resulting from business combinations. SFAS No. 141 applies to all business combinations initiated after June 30, 2001;the Company is required to implement SFAS No. 142 on January 1,2002. Management believes that implementation of these statements will not have a material impact on the Company's financial statements. 2. REAL ESTATE Real estate is comprised of the following: June 30, December 31, 2001 2000 ----------- ------------ Land $ 9,599,970 $ 9,599,970 Buildings and leaseholds 53,854,978 53,595,647 Furniture and equipment 366,892 341,748 ----------- ------------ Total real estate $63,821,840 $63,537,365 =========== ============ For the six months ended June 30, 2001, four of the properties owned by the Company represented 26%, 17%, 12% and 10% of total rental income. Three properties represented 30%, 14% and 10% of total rental income for the six months ended June 30, 2000. 3. MORTGAGE PORTFOLIO In January, 2001, the Company received payment in full on its $1,175,500 Woodgate note receivable that had been secured by the Windsor at Arbors property in Alexandria, Virginia. As a result, the Company recognized $255,281 of unamortized discount and $684,991 of deferred gain. During the six months ended June 30, 2001, the Company received $256,000 in principal payments on its Mark Terrace note resulting in the recognition of a deferred gain of $256,000. In February, 2001, the Company made a $1,100,000 loan secured by three apartment properties located in New Jersey and by a $750,000 personal guarantee by one of the borrower's principals. These properties also secure the $4,000,000 Fairfield Towers loan. The loan requires monthly interest payments at the rate of 13% per annum and the entire principal amount is due at maturity in February, 2009. At June 30, 2001, 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, 2001 2000 ---------- ------------ Home Mortgage Partnership $7,980,625 $8,040,310 UTB Associates (220,606) (201,667) ---------- ------------ Total minority partners' interest $7,760,019 $7,838,643 ========== ============ 5. 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, 2000, the Company had taxable income (before distributions to stockholders) of approximately $850,000 ($.23 per share) and capital losses of approximately $32,000 ($.01 per share) which will be carried forward to the 2001 tax year. The $850,000 taxable income will be reduced by the $92,000 ($.02 per share) of its 2000 distributions that were not utilized in reducing the Company's 1999 taxable income. In addition, the Company intends to elect to apply any eligible year 2001 distributions to reduce its taxable income for 2000 to zero. Furthermore, the Company had taxable income (before distributions to stockholders) for the six months ended June 30, 2001 of approximately $1,772,000 ($.48 per share), which included approximately $1,283,000 ($.35 per share) of capital gains. This amount will be reduced by 2001 distributions that were not utilized in reducing the Company's 2000 taxable income and by any eligible 2002 distributions that the Company may elect to utilize as a reduction of its 2001 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. 6. 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, 2001 and 2000 was $1,794,015 and $828,741, respectively. 7. 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. 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. During 2000, a court trial was held in this matter, but no decision has yet been rendered by the court. 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 $34,000 and $12,000 of income from the Professional Space Lease for the six months ended June 30, 2001 and 2000, respectively. 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 MONTHS ENDED JUNE 30, 2001 AND 2000 Results of Operations Financial Information for the six months ended June 30, 2001 and 2000: - ---------------------------------------------------------------------------- Revenue increased by $1,349,415 primarily as a result of increases in rental income and interest income on mortgages-sold properties. These increases were partially offset by a decrease in investment income. Rental income increased by $1,245,562 primarily as a result of the purchase of Farrington Apartments and Preston Lake Apartments in March, 2000. Rental income increased by $998,270 for these two properties. In addition, rental income increased by $106,581 at the Sunwood Apartments property and by $140,711 at all other properties. Interest on mortgages-sold properties increased by $193,370 primarily due to the $255,281 amortization of discount on notes, which resulted from the $1,175,500 principal payment received on the Woodgate note receivable that had been secured by the Windsor at Arbors property in Alexandria, Virginia. This increase was partially offset by decreases of $77,938 in amortization of discounts on notes receivable. Interest income increased by $16,027 on the sold property mortgage portfolio. Investment income decreased by $91,193 primarily as a result of the sale of securities during 2000. Costs and expenses increased by $1,254,092 primarily due to increases in a majority of all categories of costs and expenses. General and administrative expenses increased by $202,094 primarily as a result of increases in salary expense of $124,895 (of which, $101,410 pertains to increases in executive bonuses), increases in executive and employee pension plan expenses of $50,873 and increases in insurance expense of $26,796. Rental property operating expenses increased by $350,553 primarily as a result of the purchase of Farrington Apartments and Preston Lake Apartments, which increased rental property operating expenses by $295,566. In addition, at other properties, insurance expense increased by $49,694 and snow removal expense increased by $24,026. Interest expense on mortgage debt increased by $359,711. The increase in interest expense on mortgage debt for Farrington Apartments and Preston Lake Apartments was $407,285. This increase was partially offset by a $29,246 decrease in interest expense on mortgage debt as a result of the repayment of the mortgage on the Building Industries Center property in May of 2000. Real estate tax expense increased by $84,403. The increase in real estate tax expense for Farrington Apartments and Preston Lake Apartments was $88,517. Depreciation expense on real estate increased by $180,558. The increase in depreciation expense for Farrington Apartments and Preston Lake Apartments was $174,421. Amortization of mortgage costs increased by $11,704. The increase in amortization of mortgage costs for Farrington Apartments and Preston Lake Apartments was $8,157. In addition, amortization of mortgage costs increased by $4,600 on the Home Mortgage Plaza property. Minority interest share of partnership income increased by $65,156 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 2001, the net gain from sales of properties, notes and securities was $978,598 compared with a net loss of $113,320 in 2000: Gain from sales recognized at June 30, 2001 2000 Deferred gains recognized upon receipt of ---- ---- principal payments on notes: Woodgate - $1,175,500 principal payment $684,991 Mark Terrace 256,000 Overlook 12,920 $ 11,695 330 West 72nd St. - co-op apt. note 24,687 Sale of property: Broad Park Lodge apartment units 60,839 Sales of securities (185,854) -------- --------- Net gain (loss) $978,598 $(113,320) ======== ========= Financial Information for the three months ended June 30, 2001 and 2000: - ---------------------------------------------------------------------------- Revenue increased by $73,028 primarily as a result of increases in rental income and interest income on mortgages-related parties. These increases were partially offset by decreases in interest income on mortgages-sold properties and in investment income. Rental income increased by $89,081 primarily as a result of increased rental income of $38,966 at the Home Mortgage Plaza property and $38,495 at the Sunwood Apartments property. In addition, rental income at other properties increased by $53,310. These increases were partially offset by decreases of $41,690 at the Farrington Apartments and Preston Lake Apartments properties. Interest on mortgages-sold properties decreased by $24,095 primarily due to a $38,551 decrease in amortization of discounts on notes receivable, which was partially offset by a $14,456 increase in interest income on the sold property mortgage portfolio. Interest on mortgages-related parties increased by $11,883 primarily as a result of a $16,000 interest payment received on the Consolidated Loans. This increase was offset by decreases of $4,117 in interest income on the related parties mortgage portfolio. Investment income decreased by $3,956 primarily as a result of the sale of securities during 2000. Costs and expenses increased by $78,800 primarily due to increases in general and administrative expenses and minority interest share of partnership income. These increases were partially offset by decreases in rental property operating expenses. General and administrative expenses increased by $98,350 primarily as a result of increases in salary expense of $65,986 (of which, $51,696 pertains to increases in executive bonuses), increases in executive and employee pension plan expenses of $25,437 and increases in insurance expense of $9,148. Rental property operating expenses decreased by $65,347 primarily as a result of decreases in repairs and maintenance expenses of $96,390, decreases in bad debt expenses of $40,363 and decreases in legal and professional fee expenses of $40,599. These decreases were partially offset by increases of $51,519 in utility expenses, increases of $42,145 in insurance expense and an $18,830 increase in payroll expenses. Minority interest share of partnership income increased by $41,437 primarily 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 2001, the net gain from sales of properties, notes and securities was $134,540 compared with a net loss of $126,023 in 2000: Gain from sales recognized at June 30, 2001 2000 Deferred gains recognized upon receipt of ---- ---- principal payments on notes: Mark Terrace $128,000 Overlook 6,540 $ 5,920 Sales of securities (131,943) -------- --------- Net gain (loss) $134,540 $(126,023) ======== ========= Funds From Operations Funds from operations ("FFO") represents net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (losses) from sales of properties, notes and securities, plus depreciation and amortization on real estate. FFO is calculated in accordance with the National Association of Real Estate Investment Trusts ("NAREIT") definition. FFO does not represent cash generated from operating activities in accordance with GAAP, which is disclosed in the Consolidated Statements of Cash Flows included in the financial statements, and is not necessarily indicative of cash available to fund cash requirements. There are no material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. Management considers FFO a supplemental measure of operating performance and along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash requirements. FFO, as calculated in accordance with the NAREIT definition, is summarized in the following table: Six months ended Three months ended June 30, June 30, ---------------- ------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Income before net gain (loss) from sales of properties, notes and securities $ 814,768 $ 719,445 $ 254,775 $ 260,547 Depreciation and amortization on real estate 884,687 704,129 444,671 433,545 ---------- ---------- --------- --------- Funds From Operations $1,699,455 $1,423,574 $699,446 $694,092 ========== ========== ========= ========= Distributions paid to shareholders $1,188,056 $1,182,448 ========== ========== FFO payout ratio 69.9% 83.1% ========== ========== Cash flows from: Operating activities $ 1,777,784 $ 1,321,112 =========== ============ Investing activities $ 279,998 $(25,291,863) =========== ============ Financing activities $(1,763,161) $ 18,988,394 =========== ============ Balance Sheet Net mortgage portfolio increased by $721,709 primarily as a result of a $1,100,000 loan made in February, 2001. The $1,100,000 loan is secured by three apartment properties located in New Jersey and by a $750,000 personal guarantee by one of the borrower's principals. This increase was offset by the receipt of the $1,175,500 principal payment on the Woodgate note receivable. In connection with that payment, the Company recognized an unamortized discount of $255,281 and a deferred gain of $684,991 which resulted in a net decrease of $235,228. Prepaid expenses and deposits in escrow increased by $348,409 as a result of increases of $57,371 in prepaid expenses (primarily insurance) and increases of $291,038 in deposits in escrow. Cash and cash equivalents increased by $294,621 primarily as a result of the $256,000 principal payments received on the Mark Terrace note. Accrued liabilities increased by $321,813 as a result of a $321,175 increase in accrued real estate taxes. These taxes are paid from escrow accounts when the real estate taxes become due. Deferred income increased by $29,829 primarily as a result of increases of $64,580 in deferred interest income, offset by decreases of $34,751 in prepaid rents and other income. In February, 2001, 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 2001 year. The shares were valued at $5.645 per share, which was the average market value for the previous month of the Class B common stock, and, accordingly, the Company recorded $16,935 in prepaid directors fees (to be amortized during 2001) 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 $16,635 to additional paid-in capital. 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. 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 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, 2001, Presidential had $2,454,282 in available cash and cash equivalents, an increase of $294,621 from the $2,159,661 at December 31, 2000. This increase in cash and cash equivalents was due to cash provided by operating activities of $1,777,784 and investing activities of $279,998, offset by cash used in financing activities of $1,763,161. Operating Activities Cash from operating activities includes interest on the Company's mortgage portfolio and net cash received from rental property operations, which were $1,578,945 and $1,395,336 in 2001, respectively. Net cash received from rental property operations 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. During 2001, the Company received principal payments of $1,670,853 on its mortgage portfolio of which $420,322 represented prepayments and $1,175,500 is the balloon payment received on the Woodgate note. Prepayments and balloon payments are sporadic and cannot be relied upon as a regular source of liquidity. Presidential made a $1,100,000 mortgage loan in February, 2001. The loan has an annual interest rate of 13% and the entire principal is due at maturity in February, 2009. During 2001, the Company invested $290,855 in additions and improvements to its properties. Financing Activities The Company's indebtedness at June 30, 2001, consisted of $59,534,342 of mortgage debt. The mortgage debt, which is collateralized by individual properties, is nonrecourse to the Company with the exception of the $238,291 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 2001, the Company made $311,801 of principal payments on mortgage debt. 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 2001, Presidential declared and paid cash distributions of $1,188,056 to its shareholders and received proceeds from its dividend reinvestment and share purchase plan of $43,955. Consolidated Loans Presidential holds two nonrecourse loans (the "Consolidated Loans") which were collateralized by substantially all of the remaining assets of Ivy Properties, Ltd. and its affiliates ("Ivy"). At June 30, 2001, the Consolidated Loans have an outstanding principal balance of $4,786,943 and a net carrying value of $16,893. Pursuant to existing agreements between the Company and two of the Ivy principals (Steven Baruch, Executive Vice President of Presidential, and Thomas Viertel, Executive Vice President and Chief Financial Officer of Presidential), the Company is entitled to receive, as payments of principal and interest on the Consolidated Loans, 25% of the cash flow of Scorpio Entertainment, Inc. ("Scorpio"), a company owned by Messrs. Baruch and Viertel to carry on theatrical productions. Scorpio is one of the producers of "The Producers", a show which opened on Broadway in April of this year to extremely positive reviews, won a record 12 Tony(R) Awards and now has an advance ticket sale of approximately $37,500,000. Since Scorpio has a 5.95% interest in profits from this production (after investors are repaid in full) and will receive additional royalties and other fees from the production, Presidential has a substantial indirect interest in "The Producers". If the show generates sufficient profits to repay the investors (as it is expected to do by the end of 2001), Presidential could then receive from Scorpio approximately $210,000 per year for as long as "The Producers" continues to run at capacity on Broadway, which amount will be applied to unpaid and unaccrued interest. The $210,000 projected amount is an estimate only and assumes that the cash flow from Scorpio's other activities continues to be sufficient to satisfy its overhead requirements. While the continued profitability of any Broadway production is by its nature uncertain and any estimate of Presidential's future cash flow from "The Producers" must be viewed as speculative, it is also possible that Presidential could receive substantially more than $210,000 per year from Scorpio as a result of Scorpio's interest in future tours and overseas productions of the show, although any income from these sources is too speculative to project. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (b) No reports on Form 8-K have been filed during the quarter ended June 30, 2001. 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, 2001 By: /s/ Jeffrey F. Joseph ----------------------- Jeffrey F. Joseph President DATE: August 9, 2001 By: /s/ Elizabeth Delgado ----------------------- Elizabeth Delgado Treasurer -----END PRIVACY-ENHANCED MESSAGE-----