-----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, IJeh6Y5+yFFwjlOKIVG7nKFR6NgbtCqtcGkpgLUjw739g5jXw05f1bwYqHAmMYWz dM8Geou3Jmaf2BTPxr7hKA== 0000731245-01-500016.txt : 20020410 0000731245-01-500016.hdr.sgml : 20020410 ACCESSION NUMBER: 0000731245-01-500016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 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: 1779363 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 sepq01.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 September 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 November 6, 2001 was 478,840 shares of Class A common and 3,241,891 shares of Class B common. PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES Index to Form 10-Q For the Nine Months Ended September 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 September 30, December 31, 2001 2000 --------------- --------------- Real estate (Note 2) $64,080,422 $63,537,365 Less: accumulated depreciation 11,151,276 9,818,165 --------------- --------------- Net real estate 52,929,146 53,719,200 --------------- --------------- Mortgage portfolio (Note 3): Sold properties - net 16,082,253 15,345,903 Related parties - net 423,584 448,810 --------------- --------------- Net mortgage portfolio (of which $476,788 in 2001 and $362,992 in 2000 are due within one year) 16,505,837 15,794,713 --------------- --------------- Minority partners' interest (Note 4) 7,662,066 7,838,643 Prepaid expenses and deposits in escrow 2,085,676 1,691,013 Other receivables (net of valuation allowance of $154,872 in 2001 and $181,838 in 2000) 771,149 732,655 Cash and cash equivalents 2,448,166 2,159,661 Other assets 1,998,006 2,002,155 --------------- --------------- Total Assets $84,400,046 $83,938,040 =============== =============== Liabilities and Stockholders' Equity Liabilities: Mortgage debt (of which $658,607 in 2001 and $624,439 in 2000 are due within one year) $59,382,804 $59,846,143 Executive pension plan liability 1,595,739 1,530,148 Accrued liabilities 2,218,544 1,868,547 Accrued postretirement costs 511,599 518,334 Accounts payable 290,417 419,290 Other liabilities 1,078,925 1,039,281 --------------- --------------- Total Liabilities 65,078,028 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 September 30, 2001 December 31, 2000 324,376 323,015 ----------- ------------------- ------------------- Authorized: 10,000,000 10,000,000 Issued: 3,243,758 3,230,148 Treasury: 1,897 1,850 Additional paid-in capital 2,758,162 2,677,126 Retained earnings 16,577,852 16,055,448 Accumulated other comprehensive income (Note 6) 2,642 1,402 Treasury stock (at cost) (21,408) (21,088) Notes receivable for exercise of stock options (367,500) (367,500) --------------- --------------- Total Stockholders' Equity 19,322,018 18,716,297 --------------- --------------- Total Liabilities and Stockholders' Equity $84,400,046 $83,938,040 =============== =============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 2001 2000 --------------- --------------- Income: Rental $11,900,490 $10,619,587 Interest on mortgages - sold properties 2,408,673 2,255,466 Interest on mortgages - related parties 164,021 155,460 Investment income 104,359 202,697 Other 22,899 33,707 --------------- --------------- Total 14,600,442 13,266,917 --------------- --------------- Costs and Expenses: General and administrative 2,341,534 2,037,887 Depreciation on non-rental property 20,283 17,615 Rental property: Operating expenses 4,651,172 4,631,845 Interest on mortgage debt 3,445,129 3,098,629 Real estate taxes 986,428 885,539 Depreciation on real estate 1,333,336 1,143,703 Amortization of mortgage costs 78,015 65,037 Minority interest share of partnership income 552,567 447,737 --------------- --------------- Total 13,408,464 12,327,992 --------------- --------------- Income before net gain (loss) from sales of properties, notes and securities 1,191,978 938,925 Net gain (loss) from sales of properties, notes and securities 1,113,303 (91,250) --------------- --------------- Net Income $2,305,281 $847,675 =============== =============== Earnings per Common Share (basic and diluted) (Note 1-C): Income before net gain (loss) from sales of properties, notes and securities $0.32 $0.25 Net gain (loss) from sales of properties, notes and securities 0.30 (0.02) --------------- --------------- Net Income per Common Share $0.62 $0.23 =============== =============== Cash Distributions Declared per Common Share (Note 7) $0.48 $0.64 =============== =============== Weighted Average Number of Shares Outstanding 3,714,157 3,696,605 =============== =============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 2001 2000 --------------- --------------- Income: Rental $3,911,457 $3,876,116 Interest on mortgages - sold properties 725,657 765,820 Interest on mortgages - related parties 66,439 65,539 Investment income 31,485 38,630 Other 4,183 9,006 --------------- --------------- Total 4,739,221 4,755,111 --------------- --------------- Costs and Expenses: General and administrative 759,573 658,020 Depreciation on non-rental property 8,910 6,155 Rental property: Operating expenses 1,468,200 1,799,426 Interest on mortgage debt 1,153,331 1,166,542 Real estate taxes 333,719 317,233 Depreciation on real estate 448,649 439,574 Amortization of mortgage costs 22,985 21,711 Minority interest share of partnership income 166,644 126,970 --------------- --------------- Total 4,362,011 4,535,631 --------------- --------------- Income before net gain from sales of properties, notes and securities 377,210 219,480 Net gain from sales of properties, notes and securities 134,705 22,070 --------------- --------------- Net Income $511,915 $241,550 =============== =============== Earnings per Common Share (basic and diluted) (Note 1-C): Income before net gain from sales of properties, notes and securities $0.10 $0.06 Net gain from sales of properties, notes and securities 0.04 0.01 --------------- --------------- Net Income per Common Share $0.14 $0.07 =============== =============== Cash Distributions Declared per Common Share (Note 7) $0.16 $0.32 =============== =============== Weighted Average Number of Shares Outstanding 3,718,129 3,700,994 =============== =============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- 2001 2000 ---------------- --------------- Cash Flows from Operating Activities: Cash received from rental properties $11,822,003 $10,664,890 Interest received 2,317,449 2,342,276 Miscellaneous income 21,027 31,836 Interest paid on rental property mortgage debt (3,456,806) (3,016,951) Cash disbursed for rental property operations (5,831,807) (5,811,081) Cash disbursed for general and administrative costs (2,202,445) (1,518,723) ---------------- --------------- Net cash provided by operating activities 2,669,421 2,692,247 ---------------- --------------- Cash Flows from Investing Activities: Payments received on notes receivable 1,845,174 253,301 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 (411,211) (504,290) Purchase of property (27,275,886) Proceeds from sales of securities 2,331,119 Other (50,319) 69,979 ---------------- --------------- Net cash provided by (used in) investing activities 283,644 (25,346,277) ---------------- --------------- Cash Flows from Financing Activities: Principal payments on mortgage debt (463,339) (1,286,989) Mortgage proceeds 21,900,000 Mortgage costs paid (350,094) Cash distributions on common stock (1,782,877) (2,367,120) Proceeds from dividend reinvestment and share purchase plan 65,463 64,295 Distributions to minority partners (483,807) (407,933) ---------------- --------------- Net cash (used in) provided by financing activities (2,664,560) 17,552,159 ---------------- --------------- Net Increase (Decrease) in Cash and Cash Equivalents 288,505 (5,101,871) Cash and Cash Equivalents, Beginning of Period 2,159,661 7,014,542 ---------------- --------------- Cash and Cash Equivalents, End of Period $2,448,166 $1,912,671 ================ =============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- 2001 2000 ---------------- ---------------- Reconciliation of Net Income to Net Cash Provided by Operating Activities Net Income $2,305,281 $847,675 ---------------- ---------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,431,634 1,226,355 Losses (gains) from sales of properties, notes and securities (1,113,303) 91,250 Issuance of stock for fees and expenses 12,701 13,669 Amortization of discounts on notes and fees (414,273) (299,927) Minority interest share of partnership income 552,567 447,737 Changes in assets and liabilities: Decrease (increase) in accounts receivable 32,784 (135,360) Increase in accounts payable and accrued liabilities 279,980 460,353 Increase (decrease) in deferred income (7,481) 99,439 Increase in prepaid expenses, deposits in escrow and deferred charges (390,645) (661,268) Increase (decrease) in security deposit liabilities (19,989) 11,608 Distribution payable on common stock 592,588 Other 165 (1,872) ---------------- ---------------- Total adjustments 364,140 1,844,572 ---------------- ---------------- Net cash provided by operating activities $2,669,421 $2,692,247 ================ ================ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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 ("FASB") 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. In August of 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (effective January 1, 2003) and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (effective January 1, 2002). SFAS No. 143 requires the recording of the fair value of a liability for an asset retirement obligation in the period in which it is incurred. SFAS No. 144 supersedes existing accounting literature dealing with impairment and disposal of long-lived assets, including discontinued operations. It addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of, and expands current reporting for discontinued operations to include disposals of a "component" of an entity that has been disposed of or is classified as held for sale. The Company is in the process of evaluating the financial statement impact of the adoption of these two standards. 2. REAL ESTATE Real estate is comprised of the following: September 30, December 31, 2001 2000 ------------- ------------ Land $ 9,599,970 $ 9,599,970 Buildings and leaseholds 54,100,108 53,595,647 Furniture and equipment 380,344 341,748 ------------- ------------ Total real estate $64,080,422 $63,537,365 ============= ============ For the nine months ended September 30, 2001, four of the properties owned by the Company represented 26%, 17%, 12% and 10% of total rental income. Three properties represented 29%, 14% and 13% of total rental income for the nine months ended September 30, 2000. 3. MORTGAGE PORTFOLIO The components of the net mortgage portfolio at September 30, 2001 and December 31, 2000 are as follows: Sold Related September 30, 2001 Properties Parties Total - ------------------ ----------- ----------- ----------- Notes receivable $27,497,345 $1,396,820 $28,894,165 Less: Discounts 1,284,398 108,506 1,392,904 Deferred gains 10,130,694 864,730 10,995,424 ----------- ----------- ----------- Net mortgage portfolio $16,082,253 $ 423,584 $16,505,837 =========== =========== =========== December 31, 2000 - ----------------- Notes receivable $28,191,380 $1,447,959 $29,639,339 Less: Discounts 1,621,104 114,794 1,735,898 Deferred gains 11,224,373 884,355 12,108,728 ----------- ---------- ----------- Net mortgage portfolio $15,345,903 $ 448,810 $15,794,713 =========== ========== =========== 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 nine months ended September 30, 2001, the Company received $384,000 in principal payments on its Mark Terrace note resulting in the recognition of a deferred gain of $384,000. 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 September 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. Presidential and PDL, Inc. had an aggregate 26% interest in Home Mortgage Partnership until September, 2001, which interest was increased to 27% when Presidential acquired an additional 1% interest for $50,000. 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: Septmber 30, December 31, 2001 2000 ----------- ------------ Home Mortgage Partnership $7,870,647 $8,040,310 UTB Associates (208,581) (201,667) ----------- ------------ Total minority partners' interest $7,662,066 $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. Upon filing the Company's income tax return for the year ended December 31, 2000, Presidential applied its available 2000 stockholders' distributions and elected to apply (under Section 858 of the Internal Revenue Code) approximately $758,000 of its year 2001 stockholders' distributions to reduce its taxable income for 2000 to zero. Furthermore, the Company had taxable income (before distributions to stockholders) for the nine months ended September 30, 2001 of approximately $2,179,000 ($.59 per share), which included approximately $1,353,000 ($.36 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 and although no assurances can be given at this time, the Company expects that it will not have to pay Federal income taxes for 2001 because its present intention is to distribute all of its 2001 taxable income during 2001 and 2002. Therefore, no provision for income taxes has been made at September 30, 2001. 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 nine months ended September 30, 2001 and 2000 was $2,306,521 and $1,070,266, respectively. 7. CASH DISTRIBUTIONS PER COMMON SHARE Distributions paid for each of the three quarters ended September 30, 2001 and September 30, 2000 were $.16 per quarter. The $.16 distribution paid for the fourth quarter ending December 31, 2000, was declared in the third quarter of 2000 to enable the Company to deduct the distribution from its 1999 taxable income in accordance with the provisions of the Internal Revenue Code applicable to Real Estate Investment Trusts. The $.16 distribution for the fourth quarter of 2001 was declared in the fourth quarter of 2001. 8. 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. A trial was held during the year 2000 and in October of 2001 the Court held that the cooperative corporation was entitled to terminate the Professional Space Lease but was not entitled to any damages. The Company has appealed the decision. However, during the pendency of the appeal the Company and the cooperative corporation have agreed in principle to settle the various issues involved in the litigation. Under the proposed settlement, which is subject to the execution of a formal Settlement Agreement and the approval of the Bankruptcy Court, the Company would drop its appeal and agree to the cancellation of the Professional Space Lease and in return would receive payments from the cooperative corporation over a nine year period in the amount of $70,000 per year for the first three years and $75,000 per year for the last six years. In addition, the cooperative corporation would release the Company from any claims for damages. The Company's financial statements reflect income of approximately $33,000 from the Professional Space Lease for the period ended September 30, 2001 and a loss of approximately $44,000 from the Professional Space Lease for the period ended September 30, 2000. 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 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 Results of Operations Financial Information for the nine months ended September 30, 2001 and 2000: - ---------------------------------------------------------------------------- Revenue increased by $1,333,525 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 $1,280,903 primarily as a result of the purchase of Farrington Apartments and Preston Lake Apartments in March, 2000. Rental income increased by $982,162 for these two properties. In addition, rental income increased by $142,254 at the Sunwood Apartments property and by $156,487 at all other properties. Interest on mortgages-sold properties increased by $153,207 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 $117,025 in amortization of discounts on notes receivable. Interest income increased by $14,951 on the sold property mortgage portfolio. Investment income decreased by $98,338 primarily as a result of the sale of securities during 2000. Costs and expenses increased by $1,080,472 primarily due to increases in a majority of all categories of costs and expenses as set forth below. General and administrative expenses increased by $303,647 primarily as a result of increases in salary expense of $159,090 (of which, $128,813 pertains to increases in executive bonuses pursuant to existing contracts), increases in executive and employee pension plan expenses of $84,526, increases in insurance expense of $36,479 and increases of $23,554 in professional fees and computer expenses. Rental property operating expenses increased by $19,327 primarily as a result of the purchase of Farrington Apartments and Preston Lake Apartments, which increased rental property operating expenses by $109,643. In addition, at other properties, insurance expense increased by $77,855 and snow removal expense increased by $24,026. These increases were partially offset by decreases of $84,589 in bad debt expense and decreases of $130,381 in professional fees. In connection with the litigation between UTB Associates and University Towers Owners Corp., the Company incurred professional fees of $47,025 in 2001 compared to $161,331 in 2000, a decrease of $114,306. Interest expense on mortgage debt increased by $346,500. The increase in interest expense on mortgage debt for Farrington Apartments and Preston Lake Apartments was $404,052. 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 $100,889. The increase in real estate tax expense which is attributable to the acquisition of Farrington Apartments and Preston Lake Apartments was $100,416. Depreciation expense on real estate increased by $189,633. The increase in depreciation expense which is attributable to the acquisition of Farrington Apartments and Preston Lake Apartments was $179,430. Amortization of mortgage costs increased by $12,978. The increase in amortization of mortgage costs which is attributable to the acquisition of Farrington Apartments and Preston Lake Apartments was $8,605. In addition, amortization of mortgage costs increased by $5,218 on the Home Mortgage Plaza property. Minority interest share of partnership income increased by $104,830 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 $1,113,303 compared with a net loss of $91,250 in 2000: Gain from sales recognized at September 30, 2001 2000 Deferred gains recognized upon receipt of ---- ---- principal payments on notes: Woodgate - $1,175,500 principal payment $ 684,991 Mark Terrace 384,000 $ 16,000 Overlook 19,625 17,765 330 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) $1,113,303 $( 91,250) ========== ========== Financial Information for the three months ended September 30, 2001 and 2000: - ---------------------------------------------------------------------------- Revenue decreased by $15,890 primarily as a result of decreases in interest income on mortgages-sold properties and in investment income. These decreases were partially offset by an increase in rental income. Rental income increased by $35,341 primarily as a result of increased rental income of $35,672 at the Sunwood Apartments property. Interest on mortgages-sold properties decreased by $40,163 primarily due to a $39,088 decrease in amortization of discounts on notes receivable. Investment income decreased by $7,145 as a result of lower interest rates. Costs and expenses decreased by $173,620 primarily due to decreases in rental property operating expenses, partially offset by increases in general and administrative expenses, real estate tax expense and minority interest share of partnership income. General and administrative expenses increased by $101,553 primarily as a result of increases in salary expense of $34,195 (of which, $27,403 pertains to increases in executive bonuses pursuant to existing contracts), increases in executive and employee pension plan expenses of $28,177, increases in insurance expense of $9,683, increases of $12,881 in professional fees and directors fees and an increase of $16,617 in all other categories of general and administrative expenses. Rental property operating expenses decreased by $331,226 primarily as a result of decreases in repairs and maintenance expenses of $146,434, decreases in bad debt expenses of $68,527 and decreases in legal and professional fee expenses of $101,134. Real estate tax expense increased by $16,486 primarily due to increased real estate tax expenses at the Farrington Apartments, Preston Lake Apartments and Cambridge Green Apartments properties. Minority interest share of partnership income increased by $39,674 primarily as a result of an increase in partnership income on the University Towers Professional Space property, as a result of decreases in professional fee expenses. 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 $134,705 compared with a net gain of $22,070 in 2000: Gain from sales recognized at September 30, 2001 2000 Deferred gains recognized upon receipt of ---- ---- principal payments on notes: Mark Terrace $128,000 $16,000 Overlook 6,705 6,070 -------- ------- Net gain $134,705 $22,070 ======== ======= 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: Nine months ended Three months ended September 30, September 30, -------------------- -------------------- 2001 2000 2001 2000 ------ ------- ------ ------- Income before net gain (loss) from sales of properties, notes and securities $1,191,978 $ 938,925 $377,210 $219,480 Depreciation and amortization on real estate 1,333,336 1,143,703 448,649 439,574 ---------- ---------- -------- -------- Funds From Operations $2,525,314 $2,082,628 $825,859 $659,054 ========== ========== ======== ======== Distributions paid to shareholders $1,782,877 $1,774,532 ========== ========== FFO payout ratio 70.6% 85.2% ========== ========== 2001 2000 ---- ---- Cash flows from: Operating activities $ 2,669,421 $ 2,692,247 =========== ============ Investing activities $ 283,644 $(25,346,277) =========== ============ Financing activities $(2,664,560) $ 17,552,159 =========== ============ Balance Sheet Net mortgage portfolio increased by $711,124 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 decrease in the net mortgage portfolio of $235,228. Prepaid expenses and deposits in escrow increased by $394,663 as a result of increases of $111,693 in prepaid expenses and an increase of $282,970 in deposits in escrow. Cash and cash equivalents increased by $288,505 primarily as a result of the $384,000 principal payments received on the Mark Terrace note. Accrued liabilities increased by $349,997 as a result of a $337,756 increase in accrued real estate taxes. These taxes are paid from escrow accounts when the real estate taxes become due. In February, 2001, three directors of the Company each received 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 or sales of such 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 September 30, 2001, Presidential had $2,448,166 in available cash and cash equivalents, an increase of $288,505 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 $2,669,421 and investing activities of $283,644, offset by cash used in financing activities of $2,664,560. Operating Activities Cash from operating activities includes interest on the Company's mortgage portfolio and net cash received from rental property operations, which were $2,317,449 and $2,049,583 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 $1,845,174 on its mortgage portfolio of which $577,636 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 $411,211 in additions and improvements to its properties. Financing Activities The Company's indebtedness at September 30, 2001, consisted of $59,382,804 of mortgage debt. The mortgage debt, which is collateralized by individual properties, is nonrecourse to the Company with the exception of the $234,137 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 $463,339 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 three mortgages which are self-liquidating. During 2001, Presidential declared and paid cash distributions of $1,782,877 to its shareholders and received proceeds from its dividend reinvestment and share purchase plan of $65,463. 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 September 30, 2001, the Consolidated Loans have an outstanding principal balance of $4,782,908 and a net carrying value of $12,858. 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 $34,500,000. 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 September 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: November 9, 2001 By: /s/ Jeffrey F. Joseph ----------------------- Jeffrey F. Joseph President DATE: November 9, 2001 By: /s/ Elizabeth Delgado ----------------------- Elizabeth Delgado Treasurer -----END PRIVACY-ENHANCED MESSAGE-----