0000731245-95-000007.txt : 19950810 0000731245-95-000007.hdr.sgml : 19950810 ACCESSION NUMBER: 0000731245-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950809 SROS: AMEX 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: 95560177 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 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, 1995 --------------- 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, 1995 was 478,940 shares of Class A common and 3,039,891 shares of Class B common. PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES Index to 10-Q For the Six Months Ended June 30, 1995 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, 1995 1994 ------------ ------------ Mortgage portfolio (Note 2): Sold properties, accrual $34,938,937 $36,344,060 Related parties, accrual 1,185,439 1,204,499 Sold properties, impaired 16,145,376 14,879,200 Related parties, impaired 1,639,396 2,306,843 ------------ ------------ Total mortgage portfolio 53,909,148 54,734,602 ------------ ------------ Less discounts: Sold properties, accrual 3,854,281 4,155,722 Related parties, accrual 186,325 193,851 Sold properties, impaired 7,864,250 7,882,168 ------------ ------------ Total discounts 11,904,856 12,231,741 ------------ ------------ Less deferred gains: Sold properties, accrual 14,859,289 15,822,323 Sold properties, impaired 6,547,150 5,592,268 Related parties, impaired 1,639,396 2,306,843 ------------ ------------ Total deferred gains 23,045,835 23,721,434 ------------ ------------ Net mortgage portfolio (of which $1,909,106 in 1995 and $1,820,911 in 1994 are due within one year) 18,958,457 18,781,427 ------------ ------------ Real estate (Note 3) 23,709,886 23,479,627 Less: accumulated depreciation 4,770,288 4,475,288 ------------ ------------ Net real estate 18,939,598 19,004,339 ------------ ------------ Foreclosed properties (Note 4) 598,842 726,927 Minority partners' interest (Note 5) 4,187,884 4,281,262 Prepaid expenses and deposits in escrow 1,372,891 1,629,218 Other receivables (net of valuation allowance of $154,637 in 1995 and $117,096 in 1994) 774,838 872,169 Other receivables (related party) 12,022 12,224 Securities available for sale (Note 6) 2,081,479 1,766,851 Cash and cash equivalents 1,921,243 2,402,211 Other assets 1,254,650 1,522,248 ------------ ------------ Total Assets $50,101,904 $50,998,876 ============ ============ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
Liabilities and Stockholders' Equity June 30, December 31, 1995 1994 ------------ ------------- Liabilities: Mortgage debt: Properties owned $27,238,978 $27,489,824 Wrap mortgage debt on sold properties 6,278,344 6,492,285 ------------- ------------- Total (of which $972,229 in 1995 and $943,800 in 1994 are due within one year) 33,517,322 33,982,109 Executive pension plan liability (Note 8) 1,901,682 1,964,379 Accrued liabilities 1,793,765 2,088,404 Accrued postretirement cost (Note 9) 630,547 646,122 Deferred income 708,389 735,552 Accounts payable 265,563 428,335 Other liabilities 560,422 579,522 ------------- ------------- Total Liabilities 39,377,690 40,424,423 ------------- ------------- Stockholders' Equity: Common stock; par value $.10 a share (Note 1-C) Class A, authorized 700,000 shares, issued and outstanding 478,940 shares 47,894 47,894 Class B June 30, 1995 December 31, 1994 305,411 304,504 ------- ----------------- ----------------- Authorized: 10,000,000 10,000,000 Issued: 3,054,112 3,045,037 Treasury: 14,221 14,221 Additional paid-in capital 1,686,135 1,628,492 Retained earnings 8,920,823 9,071,188 Net unrealized loss on securities available for sale (Note 6) (43,481) (285,057) Class B, treasury stock (at cost) (192,568) (192,568) ------------- ------------- Total Stockholders' Equity 10,724,214 10,574,453 ------------- ------------- Total Liabilities and Stockholders' Equity $50,101,904 $50,998,876 ============= ============= See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30, --------------------------- 1995 1994 Income: ------------ ------------ Rental $3,891,451 $3,146,549 Interest on mortgages - sold properties 1,011,719 977,639 Interest on wrap mortgages 710,060 719,678 Interest on mortgages - related parties 124,706 145,632 Investment income 163,349 103,031 Other 37,106 115,800 ------------ ------------ Total 5,938,391 5,208,329 ------------ ------------ Costs and Expenses: General and administrative 987,583 1,094,245 Interest on notes payable and other 57,876 72,004 Interest on wrap mortgage debt 136,431 146,049 Depreciation on non-rental property 11,428 11,907 Rental property: Operating expenses 1,696,903 1,096,689 Interest on mortgages 1,140,338 651,774 Real estate taxes 376,286 293,189 Depreciation on real estate 299,199 224,052 Amortization of mortgage and organization costs 69,713 57,819 Minority interest share of partnership income 322,635 405,505 Loss from operations of foreclosed properties (Note 4) 31,544 44,918 Net (gain) loss from sales of foreclosed properties (Note 4) (64,605) 22,429 ------------ ------------ Total 5,065,331 4,120,580 ------------ ------------ Income before net gain from sales of properties and securities and cumulative effect of change in accounting principle 873,060 1,087,749 Net gain from sales of properties and securities 30,197 63,013 ------------ ------------ Income before cumulative effect of change in accounting principle 903,257 1,150,762 Cumulative effect of change in accounting for securities 37,617 ------------ ------------ Net Income $903,257 $1,188,379 ============ ============ Earnings per Common Share (Note 1-C): Income before net gain from sales of properties and securities and cumulative effect of change in accounting principle $0.25 $0.31 Net gain from sales of properties and securities 0.01 0.02 ------------ ------------ Income before cumulative effect of change in accounting principle 0.26 0.33 Cumulative effect of change in accounting for securities 0.01 ------------ ------------ Net Income per Common Share $0.26 $0.34 ============ ============ Cash Distributions per Common Share $0.30 $0.30 ============ ============ Weighted Average Number of Shares Outstanding 3,512,787 3,495,194 ============ ============ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED JUNE 30, --------------------------- 1995 1994 Income: ------------ ------------ Rental $1,939,241 $1,611,735 Interest on mortgages - sold properties 517,357 475,721 Interest on wrap mortgages 354,418 359,249 Interest on mortgages - related parties 64,532 73,529 Investment income 77,273 57,683 Other 22,610 102,056 ------------ ------------ Total 2,975,431 2,679,973 ------------ ------------ Costs and Expenses: General and administrative 471,007 622,483 Interest on notes payable and other 28,938 36,391 Interest on wrap mortgage debt 67,603 72,435 Depreciation on non-rental property 5,751 6,107 Rental property: Operating expenses 816,334 442,736 Interest on mortgages 571,242 340,090 Real estate taxes 187,472 146,595 Depreciation on real estate 151,121 111,826 Amortization of mortgage and organization costs 34,432 41,420 Minority interest share of partnership income 165,282 204,075 Loss from operations of foreclosed properties (Note 4) 19,036 21,689 Net (gain) loss from sales of foreclosed properties (Note 4) (44,839) 55,959 ------------ ------------ Total 2,473,379 2,101,806 ------------ ------------ Income before net gain from sales of properties and securities and cumulative effect of change in accounting principle 502,052 578,167 Net gain from sales of properties and securities 3,543 37,544 ------------ ------------ Income before cumulative effect of change in accounting principle 505,595 615,711 Cumulative effect of change in accounting for securities ------------ ------------ Net Income $505,595 $615,711 ============ ============ Earnings per Common Share (Note 1-C): Income before net gain from sales of properties and securities and cumulative effect of change in accounting principle $0.14 $0.16 Net gain from sales of properties and securities 0.01 0.02 ------------ ------------ Income before cumulative effect of change in accounting principle 0.15 0.18 Cumulative effect of change in accounting for securities ------------ ------------ Net Income per Common Share $0.15 $0.18 ============ ============ Cash Distributions per Common Share $0.15 $0.15 ============ ============ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------------- 1995 1994 Cash Flows from Operating Activities: ------------ ------------ Cash received from rental properties $4,054,490 $3,133,876 Interest received 1,653,131 1,620,681 Miscellaneous income (disbursements) (34,478) 181,362 Interest paid on rental property mortgages (1,136,492) (637,759) Interest paid on wrap mortgage debt (136,431) (146,049) Interest paid on loans (24,728) Cash disbursed for rental and foreclosed property operations (1,985,959) (1,405,907) Cash disbursed for general and administrative costs (1,457,462) (1,077,397) ------------ ------------ Net cash provided by operating activities 956,799 1,644,079 ------------ ------------ Cash Flows from Investing Activities: Payments received on notes receivable 453,062 419,352 Payments disbursed for investments in notes receivable (8,176) (5,500) Net payments received on sales of foreclosed properties 151,306 323,614 Payments disbursed for additions and improvements (277,651) (230,839) Proceeds from sales of securities 113,000 99,994 Purchases of securities (187,055) (100,000) Net cash receipts from operations of foreclosed properties 6,863 8,205 ------------ ------------ Net cash provided by investing activities 251,349 514,826 ------------ ------------ Cash Flows from Financing Activities: Principal payments on mortgage debt: Properties owned (250,846) (171,397) Wrap mortgage debt on sold properties (213,941) (206,417) Mortgage proceeds 326,536 Mortgage costs (609,093) Principal payments on note payable (125,247) Cash distributions on common stock (1,053,622) (1,048,346) Proceeds from dividend reinvestment and share purchase plan 58,550 65,272 Distributions to minority partners (229,257) (370,426) ------------ ------------ Net cash used in financing activities (1,689,116) (2,139,118) ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents (480,968) 19,787 Cash and Cash Equivalents, Beginning of Period 2,402,211 1,349,755 ------------ ------------ Cash and Cash Equivalents, End of Period $1,921,243 $1,369,542 ============ ============ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, ----------------------------- 1995 1994 ------------ ------------ Reconciliation of Net Income to Net Cash Provided by Operating Activities Net Income $903,257 $1,188,379 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change for securities (37,617) Depreciation and amortization 380,340 293,778 Gain from sales of properties and securities (30,197) (63,013) Net (gain) loss from sales of foreclosed properties (64,605) 22,429 Amortization of discounts on notes and fees (326,885) (306,733) Decrease (increase) in accounts receivable 97,533 (168,344) Increase (decrease) in accounts payable and accrued liabilities (535,683) 40,977 Increase (decrease) in deferred income (27,163) 133,748 Decrease in prepaid expenses, deposits in escrow and deferred charges 246,299 102,651 Increase (decrease) in security deposit liabilities (7,483) 21,468 Miscellaneous (1,249) 10,851 Minority share of partnership income 322,635 405,505 ------------ ------------ Total adjustments 53,542 455,700 ------------ ------------ Net cash provided by operating activities $956,799 $1,644,079 ============ ============ Supplemental noncash disclosures: Notes received from sales of foreclosed properties $80,200 $1,238,750 ============ ============ Deferred loan modification fee added to sold property note receivable $60,000 ============ ============ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1995 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. B. Principles of Consolidation - The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, the accompanying consolidated financial statements include 100% of the account balances of UTB Associates and PDL, Inc. and Associates Limited Co-Partnership ("Metmor Plaza Associates"), partnerships in which Presidential is the General Partner and owns a 66-2/3% interest and a 25% interest, respectively (see Note 5). All significant intercompany balances and transactions have been eliminated. C. Earnings Per Common Share - Per share data is based on the weighted average number of shares of Class A and Class B common stock outstanding and equivalents during each period. No dilution in per share earnings for the six months ended June 30, 1995 and 1994 would result from the exercise of stock options issued under the Company's stock option plans. D. Cash and Cash Equivalents - Cash and cash equivalents includes cash on hand, cash in banks and money market funds. E. Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 financial statements and accompanying notes should be read in conjunction with the Company's Form 10-K for the year ended December 31, 1994. 2. MORTGAGE PORTFOLIO The Company's mortgage portfolio includes notes receivable - sold properties and notes receivable - related parties and includes both accrual and impaired loans. Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and, accordingly, have classified loans that are within the scope of this statement as impaired loans. Notes receivable - sold properties consist of: (1) Long-term purchase money notes from sales of properties previously owned 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. Substantially all of these notes were either received from Ivy Properties, Ltd. or its affiliates (collectively "Ivy") in connection with a settlement agreement between the Company and Ivy executed in November, 1991 (the "Settlement Agreement") or from sales of foreclosed cooperative apartments received from Ivy pursuant to the Settlement Agreement (see Note 4). These notes 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 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, 1995, all of the notes in the Company's mortgage portfolio are current with the exception of those notes which are classified as impaired loans in accordance with SFAS No. 114. Two sold property loans, the Kent Terrace and the Fairfield Towers loans, and one related party loan, the Ivy Overlook loan, have been classified as impaired loans and at June 30, 1995, are in the aggregate amount of $17,784,772. At June 30, 1995, the loans have a net carrying value of $1,733,976 after deducting discounts of $7,864,250 and deferred gains of $8,186,546. In accordance with SFAS No. 114, the Company has determined that at this time no allowances for credit losses are required for these loans because the net carrying value of these loans is less than the fair value of the underlying collateral. The Company recognizes income on these loans only to the extent that such income is actually received. The average recorded investment in these loans during the period ending June 30, 1995 was $18,182,047. The $1,300,000 Kent Terrace note, which was due on October 31, 1994, was not paid when due because the owner has been unable to obtain a new mortgage loan on the property. As a result, Presidential commenced proceedings to foreclose on its mortgage on the property and the owner of the property filed for protection under Chapter 11 of the Bankruptcy Code. Pending the outcome of the foreclosure and Bankruptcy proceedings, the loan was not classified as a nonaccrual loan at December 31, 1994. Through December 31, 1994, substantially all interest had been paid when due. As a result of the adoption of SFAS No. 114 by the Company on January 1, 1995, this loan has been classified as an impaired loan. At June 30, 1995, the outstanding principal balance of this loan was $1,300,000 and there was $338,190 of interest deferred in accordance with the terms of the note. The net carrying value of the note was $329,212 after a deferred gain of $970,788. The Fairfield Towers and Overlook loans which were classified as nonaccrual loans at December 31, 1994 have been classified as impaired loans in accordance with SFAS No. 114. There have been no significant changes in the status of these loans since December 31, 1994 with the exception of the modification of the Overlook loan discussed below. Condominium sales at the Fairfield Towers property have continued and an additional fourteen units were sold during the six months ended June 30, 1995. Effective April 1, 1995, the Company and Ivy modified the terms of the Overlook loan to extend the maturity date from November 21, 1994 to December 31, 2003. From April 1, 1995 through December 31, 1995, the loan will bear interest at the rate of 5-1/2% per annum and from January 1, 1996 until maturity, the loan will bear interest at the rate of 6% per annum. The Overlook loan, which is a nonrecourse loan, continues to be secured by three second mortgages (the "Collateral Security") with face values totalling $1,639,396 at June 30, 1995. Interest will be due and payable only to the extent of interest payments received by Ivy on the Collateral Security. To the extent that Ivy receives interest on the Collateral Security in excess of the interest due on the Overlook loan, Ivy shall pay such amounts to Presidential to be applied by Presidential (a) first in reduction of any Deferred Interest (past due interest which has not been accrued for financial reporting purposes) and (b) then in reduction of the outstanding principal balance. At the time of the modification, the Overlook loan had an outstanding principal balance of $2,306,843. Such amount exceeds the Collateral Security by $667,447 and, as a result, the Company reduced the gross carrying value of the loan and its related deferred gain by the $667,447. The net carrying value of the Overlook loan remains at zero at June 30, 1995. The following table reflects the activity in impaired loans. IMPAIRED LOANS ----------------
Impaired Impaired Loan Additions Loan Balance (Payments) Balance Loan Description 12/31/94 1995 6/30/95 ----------------------------------- ------------- ------------ ------------ Notes receivable-sold properties: Properties previously owned- Fairfield Towers $14,879,200 ($33,824) $14,845,376 Kent Terrace 1,300,000 1,300,000 Notes receivable-related parties: Sold properties- Overlook (1) 2,306,843 (667,447) 1,639,396 ------------- ------------ ------------ Total $17,186,043 $598,729 $17,784,772 ============= ============ ============ Discount Deferred Net on Gain on Carrying Loans Loans Value Loan Description 6/30/95 6/30/95 6/30/95 ----------------------------------- ------------- ------------ ------------ Notes receivable-sold properties: Properties previously owned- Fairfield Towers ($7,864,250) ($5,576,362) $1,404,764 Kent Terrace (970,788) 329,212 Notes receivable-related parties: Sold properties- Overlook (1) (1,639,396) ------------- ------------ ------------ Total ($7,864,250) ($8,186,546) $1,733,976 ============= ============ ============ Six months ended June 30, -------------------------------- 1995 1994 ------------ ------------ Reported Interest Income and Amortization of Discount (Cash Basis) ----------------------------------- Fairfield Towers - interest income $25,291 $ Fairfield Towers - amortization of discount 17,918 Kent Terrace - interest income (2) 48,723 Overlook - interest income 57,285 69,238 ------------ ------------ Total $149,217 $69,238 ============ ============ Recognized Gain from Sale of Property ------------------------------------- Fairfield Towers $15,906 $ Kent Terrace (2) Overlook 5,371 ------------ ------------ Total $15,906 $5,371 ============ ============ Nonreported Interest Income and Amortization of Discount --------------------------------------------------------- The following additional amounts would have been reported if these loans had been fully performing: Fairfield Towers - interest income $471,583 $506,250 Fairfield Towers - additional interest income 53,422 37,003 Fairfield Towers - amortization of discount 393,743 349,547 Kent Terrace - interest income (2) 86,639 Overlook - interest income 41,671 144,642 ------------ ------------ Total $1,047,058 $1,037,442 ============ ============ (1) The $667,447 reduction for Overlook is an adjustment of the carrying value of the note so that it will not exceed the face value of the Collateral Security. Deferred gain was reduced by the same amount. (2) Kent Terrace was not impaired in 1994 and, as a result, no amounts are listed for the six months ended June 30, 1994.
3. REAL ESTATE Real estate is comprised of the following: June 30, December 31, 1995 1994 ----------- ------------ Land $ 3,615,176 $ 3,615,176 Buildings and leaseholds 20,000,194 19,779,473 Furniture and equipment 94,516 84,978 ----------- ----------- Total real estate $23,709,886 $23,479,627 =========== =========== 4. FORECLOSED PROPERTIES At June 30, 1995, Presidential owns a number of cooperative apartment units which it had received in satisfaction of certain loans due Presidential. These cooperative apartment units are located at five properties. Cooperative apartment units at four properties were received from Ivy in 1991 and 1992 in connection with the Settlement Agreement. In the fourth quarter of 1994, Presidential received five cooperative apartment units at Long Beach, New York from Ivy in payment of the $57,592 outstanding loan on that property and $44,204 of other amounts due to Presidential pursuant to the Settlement Agreement. These cooperative apartment units are reported as foreclosed properties on Presidential's consolidated balance sheets and are carried at the lower of cost or estimated fair value (net of estimated costs to sell). Net loss from operations of foreclosed properties is reported as a separate line item on the statement of operations, while net cash receipts from operations of foreclosed properties reduces the Company's carrying value of the foreclosed property. The following table presents the Company's foreclosed properties, loss from operations of foreclosed properties, gain (loss) from sales of foreclosed properties and number of units sold: Foreclosed properties: ---------------------------
Property Name and Location --------------------------------------------------------------- Hastings 6300 Riverdale 330 W. 72nd St. Gardens Ave. Towne House New York, Hastings, Bronx, New Rochelle, New York New York New York New York ------------ --------- ----------- ------------- Balance January 1, 1995 $55,840 $119,106 $76,196 $373,264 Capitalized costs 11,500 18,646 Net carrying value of property sold (65,531) (42,562) Net cash receipts from operations (2,378) (4,485) ------------ --------- ----------- ------------- Balance June 30, 1995 $53,462 $65,075 $76,196 $344,863 ============ ========= =========== ============= Loss from operations of foreclosed properties: ------------------------------------------------------- Six months ended June 30, 1995 $17,078 $6,828 ============ ========= =========== ============= Six months ended June 30, 1994 $9,167 $5,902 ============ ========= =========== ============= Gain (loss) from sales of foreclosed properties: ------------------------------------------------------- Six months ended June 30, 1995 $31,184 $34,575 ============ ========= =========== ============= Six months ended June 30, 1994 $33,530 ============ ========= =========== ============= Number of units sold: --------------------------- Six months ended June 30, 1995 12 3 ============ ========= =========== ============= Six months ended June 30, 1994 1 ============ ========= =========== ============= Property Name and Location -------------------------------------------- Long Beach Hoboken Total Long Beach, Hoboken, Foreclosed New York New Jersey (1) Properties ------------ --------- ----------- Balance January 1, 1995 $102,521 $ $726,927 Capitalized costs 7,778 37,924 Net carrying value of property sold (51,053) (159,146) Net cash receipts from operations (6,863) ------------ --------- ----------- Balance June 30, 1995 $59,246 $ $598,842 ============ ========= =========== Loss from operations of foreclosed properties: ------------------------------------------------------- Total Loss ----------- Six months ended June 30, 1995 $7,638 N/A $31,544 ============ ========= =========== Six months ended June 30, 1994 N/A $29,849 $44,918 ============ ========= =========== Gain (loss) from sales of foreclosed properties: ------------------------------------------------------- Total Gain (Loss) ----------- Six months ended June 30, 1995 ($1,154) N/A $64,605 ============ ========= =========== Six months ended June 30, 1994 N/A ($55,959) ($22,429) ============ ========= =========== Number of units sold: --------------------------- Total Units Sold ----------- Six months ended June 30, 1995 2 N/A 17 ============ ========= =========== Six months ended June 30, 1994 N/A 40 41 ============ ========= =========== (1) The remaining Hoboken apartment buildings were sold in June, 1994.
5. MINORITY PARTNERS' INTEREST Presidential is the General Partner of UTB Associates and Metmor Plaza Associates, partnerships in which Presidential has a 66-2/3% interest and a 25% interest, respectively. As the General Partner of these partnerships, Presidential exercises effective control over the business of these partnerships, and, accordingly, has included 100% of the account balances of these partnerships in the accompanying financial statements (see Note 1-B). The minority partners' interest reflects the minority partners' equity in the partnerships. Included in the Company's mortgage debt is a mortgage note payable by the Metmor Plaza Associates partnership which is substantially in excess of the historical cost of the property. This was due to a refinancing of the original mortgage note on the building and subsequent distribution of these proceeds to the partners. This event resulted in a negative partnership interest for each partner and a negative minority partners' interest on the Company's books. The estimated fair value of the building is significantly greater than the mortgage debt and the minority partners' interest is expected to be recovered when the building is sold and the partnership is liquidated. Minority partners' interest is comprised of the following: June 30, December 31, 1995 1994 ---------- ------------ Metmor Plaza Associates $4,445,999 $4,537,001 UTB Associates (258,115) (255,739) ----------- ----------- Total minority partners' interest $4,187,884 $4,281,262 =========== =========== 6. SECURITIES AVAILABLE FOR SALE The Company's investments are marketable equity securities consisting of stocks of listed corporations. Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The Company does not acquire securities for purposes of engaging in trading activities and, as a result, the Company's investments are classified as securities available for sale in accordance with this pronouncement. Disposition of such securities may be appropriate for either liquidity management or in response to changing economic conditions. The cost and fair value of securities available for sale are as follows: June 30, December 31, 1995 1994 ---------- ------------ Cost $2,124,960 $2,051,908 Gross unrealized gains 40,761 14,804 Gross unrealized losses (84,242) (299,861) ----------- ----------- Fair value $2,081,479 $1,766,851 ========== =========== Net unrealized loss on securities available for sale, which is a separate component of stockholders' equity on the Company's consolidated balance sheets, decreased by $241,576 from $285,057 at December 31, 1994 to $43,481 at June 30, 1995. During the six months ended June 30, 1995, the Company sold securities available for sale for gross proceeds of $113,000 and a gross (and net) loss of $1,002. During the six months ended June 30, 1994, the Company sold securities available for sale for gross proceeds of $100,000 and a gross (and net) loss of $6. Gains and losses on sales of securities are determined using the specific identification method. 7. INCOME TAXES Presidential elected to qualify as a Real Estate Investment Trust effective January 1, 1982 under Sections 856-860 of the Internal Revenue Code. Under those sections, 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, 1994, the Company had taxable income (before distributions to stockholders) of approximately $2,203,000 ($.63 per share), which included approximately $1,023,000 ($.29 per share) of capital gains. This amount will be reduced by approximately $95,000 ($.03 per share) of the 1994 distributions that were not utilized in reducing the Company's 1993 taxable income and by any eligible 1995 distributions that the Company may elect (under Section 858 of the Internal Revenue Code) to utilize as a reduction of its 1994 taxable income. As previously stated, 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, 1995, Presidential has distributed the required 95% of its 1994 REIT taxable income. In addition, although no assurances can be given, it is the Company's present intention to distribute all of its 1994 taxable income and, therefore, no provision for income taxes was made at December 31, 1994. Furthermore, the Company had taxable income (before distributions to stockholders) for the six months ended June 30, 1995 of approximately $667,000 ($.19 per share), which included approximately $156,000 ($.04 per share) of capital gains. This amount will be reduced by 1995 distributions that were not utilized in reducing the Company's 1994 taxable income and by any eligible 1996 distributions that the Company may elect to utilize as a reduction of its 1995 taxable income. Presidential has, for tax purposes, reported the gain from the sale of certain of its properties using the installment method. 8. PENSION PLANS Defined Benefit Plan Effective January 1, 1994, the Company adopted a noncontributory defined benefit pension plan, which covers substantially all of its employees. The plan provides monthly retirement benefits commencing at age 65. The monthly benefit is equal to the sum of (1) 6.5% of average monthly compensation multiplied by the total number of plan years of service (up to a maximum of 10 years), plus (2) .62% of such average monthly compensation in excess of one- twelfth of covered compensation multiplied by the total number of plan years of service (up to a maximum of 10 years). The Company makes annual contributions that meet the minimum funding requirements and the maximum contribution limitations under the Internal Revenue Code. Periodic pension costs are reflected in general and administrative expenses in the Company's consolidated statement of operations. Net periodic pension cost for the six months ended June 30, 1995 was $128,000. The assumptions for the discount rate, expected long-term rate of return of assets, and average increase in compensation used in determining net periodic pension cost were 7%, 7% and 5%, respectively. Executive Pension Plan Presidential has employment contracts with several active and retired key officers and employees. Such contracts are being accounted for as constituting pension agreements. The contracts generally provide for annual benefits in specified amounts commencing upon retirement for each participant for life, with an annual adjustment for an increase in the consumer price index. Presidential complies with the provisions of SFAS No. 87, "Employers' Accounting for Pensions". The principal assumption used in the accounting was a discount rate of 7-1/2%. Periodic pension costs are reflected in general and administrative expenses in the Company's consolidated statement of operations. Net periodic pension cost for the six months ended June 30, 1995, included the following components: Service cost-benefits earned during the period $ 5,456 Interest cost on projected benefit obligation 93,414 Net amortization 15,285 -------- Net periodic pension cost $114,155 ======== Presidential has elected not to fund expenses accrued under these contracts. 9. POSTRETIREMENT BENEFITS Presidential has employment contracts with several active and retired key officers and employees which provide for postretirement benefits other than pensions (such as health care benefits). The Company complies with the provisions of SFAS No. 106,"Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 requires the Company to accrue the estimated cost of retiree benefit payments during the years the employee provides services. The components of postretirement benefit cost for the six months ended June 30, 1995, were as follows: Service cost - benefits earned $ 2,739 Interest cost on accumulated postretirement benefit obligation 18,680 Net amortization (4,752) ------- Postretirement benefit cost $16,667 ======= 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, 1995 AND 1994 Results of Operations Financial Information for the six months ended June 30, 1995 and 1994: ---------------------------------------------------------------------- Income for 1995 increased by $730,062 from $5,208,329 in 1994 to $5,938,391 in 1995 primarily as a result of increases in rental income and investment income, partially offset by a decrease in other income. Rental income increased by $744,902 from $3,146,549 in 1994 to $3,891,451 in 1995 primarily as a result of the purchase of the Continental Gardens apartment property in December, 1994. Investment income increased by $60,318 from $103,031 in 1994 to $163,349 in 1995 primarily as a result of increased interest income on cash and cash equivalent accounts and interest income received on mortgage deposits in escrow. Other income decreased by $78,694 from $115,800 in 1994 to $37,106 in 1995 because the 1994 period included $71,000 of modification and late fees received on the Fairfield Towers note and a commitment fee of $15,503 on the Hoboken purchase money note. Costs and expenses increased by $944,751 from $4,120,580 in 1994 to $5,065,331 in 1995 primarily due to increases in all areas of rental property operations resulting from the ownership of the Continental Gardens apartment property which was purchased in December, 1994, as well as increases in operating expenses and mortgage interest on other rental properties. These increases were offset by a decrease in general and administrative expenses and a change in net (gain) loss from sales of foreclosed properties. General and administrative expenses decreased by $106,662 from $1,094,245 in 1994 to $987,583 in 1995 primarily due to decreases in salary expense of $59,489, as a result of an accrual for contractual bonuses of $87,380 in 1994 which were not accrued in 1995, offset by increases in salary expense of $27,891, decreases in professional services of $15,698 and decreases in franchise tax expense of $36,062. Rental property operating expenses increased by $600,214 from $1,096,689 in 1994 to $1,696,903 in 1995. The purchase of Continental Gardens referred to above resulted in increases of $234,689. In addition, at the Palmer Mapletree property there were increases in bad debts of $42,433, repairs and maintenance of $51,288 and insurance costs of $66,058. Also, the 1994 period reflected the receipt of net insurance proceeds of $210,991 pertaining to the flood at the Cambridge Green Apartments. Rental property mortgage interest increased by $488,564 from $651,774 in 1994 to $1,140,338 in 1995. This increase is primarily due to $353,658 of mortgage interest for Continental Gardens and an increase of $126,498 for the Metmor Plaza property. The Metmor Plaza mortgage has a variable rate of interest based on the Libor rate and the "Section 936" rate (which is established by the lender), but cannot exceed 8% per annum. Real estate tax expense increased by $83,097 from $293,189 in 1994 to $376,286 in 1995 as a result of the purchase of Continental Gardens. Rental property depreciation expense increased by $75,147 from $224,052 in 1994 to $299,199 in 1995 primarily as a result of the purchase of Continental Gardens. Depreciation for Continental Gardens was $95,323, partially offset by a decrease of $24,997 pertaining to the Palmer Mapletree property. Amortization of mortgage and organization costs increased by $11,894 from $57,819 in 1994 to $69,713 in 1995 as a result of the purchase of Continental Gardens and increased mortgage amortization on Metmor Plaza due to six months of expense in 1995 versus four months in 1994. Minority interest share of partnership income decreased by $82,870 from $405,505 in 1994 to $322,635 in 1995, as a result of a decrease in partnership income on the Metmor Plaza property. Loss from operations of foreclosed properties decreased by $13,374 from $44,918 in 1994 to $31,544 in 1995 due to the sale of the Hoboken, New Jersey property in June of 1994, offset by a loss at the Long Beach, New York property and an increased loss at the Hastings Gardens property. Net (gain) loss from sales of foreclosed properties increased from a loss of $22,429 in 1994 to a gain of $64,605 in 1995. The 1995 period includes a $31,184 gain on the sale of 12 apartments at the Hastings Gardens property. The 1994 period includes a $55,959 loss from the sale of the Hoboken, New Jersey property. Net gain from sales of properties and securities are sporadic (as they depend on the timing of sales or the receipt of installments or prepayments on purchase money notes). In 1995, the net gain from sales of properties and securities was $30,197 compared with a net gain of $63,013 in 1994. Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As a result of the adoption of SFAS No. 115, the cumulative effect of change in accounting for securities of $37,617 of income was recognized in the first quarter of 1994. Financial Information for the three months ended June 30, 1995 and 1994: ------------------------------------------------------------------------ Income for 1995 increased by $295,458 from $2,679,973 in 1994 to $2,975,431 in 1995 primarily as a result of increases in rental income and investment income, partially offset by a decrease in other income. Rental income increased by $327,506 from $1,611,735 in 1994 to $1,939,241 in 1995 primarily as a result of the purchase of the Continental Gardens apartment property in December, 1994. Investment income increased by $19,590 from $57,683 in 1994 to $77,273 in 1995 primarily as a result of increased interest income on cash and cash equivalent accounts and interest income received on mortgage deposits in escrow. Other income decreased by $79,446 from $102,056 in 1994 to $22,610 in 1995 because the 1994 period included $71,000 of modification and late fees received on the Fairfield Towers note and a commitment fee of $15,503 on the Hoboken purchase money note. Costs and expenses increased by $371,573 from $2,101,806 in 1994 to $2,473,379 in 1995 primarily due to increases in all areas of rental property operations resulting from the ownership of the Continental Gardens apartment property which was purchased in December, 1994, as well as increases in operating expenses and mortgage interest on other rental properties. These increases were offset by a decrease in general and administrative expenses and a change in net (gain) loss from sales of foreclosed properties. General and administrative expenses decreased by $151,476 from $622,483 in 1994 to $471,007 in 1995 primarily as a result of decreases in salary expense of $76,954 for contractual bonuses referred to above, decreases in professional services of $23,820 and a decrease of $31,333 in employee pension expense. Rental property operating expenses increased by $373,598 from $442,736 in 1994 to $816,334 in 1995. The purchase of Continental Gardens referred to above resulted in increases of $119,751. In addition, insurance expenses increased by $28,129 and at the Palmer Mapletree property bad debts increased by $27,656. Also, operating expenses for the 1994 period reflected the receipt of net insurance proceeds of $210,991 pertaining to the flood at the Cambridge Green Apartments. Rental property mortgage interest increased by $231,152 from $340,090 in 1994 to $571,242 in 1995. This increase is primarily due to $176,964 of mortgage interest for Continental Gardens and an increase of $49,819 for the Metmor Plaza property. The Metmor Plaza mortgage has a variable rate of interest based on the Libor rate and the "Section 936" rate (which is established by the lender), but cannot exceed 8% per annum. Real estate tax expense increased by $40,877 from $146,595 in 1994 to $187,472 in 1995 as a result of the purchase of Continental Gardens. Rental property depreciation expense increased by $39,295 from $111,826 in 1994 to $151,121 in 1995 primarily as a result of the purchase of Continental Gardens. Depreciation for Continental Gardens was $48,541, partially offset by a decrease of $12,414 pertaining to the Palmer Mapletree property. Amortization of mortgage and organization costs decreased by $6,988 from $41,420 in 1994 to $34,432 in 1995 as a result of lower mortgage cost amortization on Metmor Plaza, offset by mortgage costs on Continental Gardens. Minority interest share of partnership income decreased by $38,793 from $204,075 in 1994 to $165,282 in 1995, as a result of a decrease in partnership income on the Metmor Plaza property. Net (gain) loss from sales of foreclosed properties increased from a loss of $55,959 in 1994 to a gain of $44,839 in 1995. The 1995 period includes a $31,184 gain on the sale of 12 apartments at the Hastings Gardens property. The 1994 period reflects the $55,959 loss from the sale of the Hoboken, New Jersey property. Net gain from sales of properties and securities are sporadic (as they depend on the timing of sales or the receipt of installments or prepayments on purchase money notes). In 1995, the net gain from sales of properties and securities was $3,543 compared with a net gain of $37,544 in 1994. Balance Sheet Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and, accordingly, have classified loans that are within the scope of this statement as impaired loans. The Fairfield Towers and Ivy Overlook loans, which were previously classified as nonaccrual loans, have been reclassified as impaired loans. The Kent Terrace loan, in the outstanding principal amount of $1,300,000 and having a net carrying value of $329,212 after a deferred gain of $970,788, which was classified as an accrual loan has been reclassified as an impaired loan because the loan was not paid when due and the borrower filed for protection under Chapter 11 of the Bankruptcy Act. At June 30, 1995, these loans are in the aggregate amount of $17,784,772, and have a net carrying value of $1,733,976 after deducting discounts of $7,864,250 and deferred gains of $8,186,546. Effective April 1, 1995, the Company and Ivy modified the terms of the Overlook loan. At the time of the modification, the Overlook loan, which is a nonrecourse loan, had an outstanding principal balance of $2,306,843 and was secured by three second mortgages. Since the outstanding principal balance exceeded the face value of the security for the loan by $667,447, the Company reduced the gross carrying value of the loan and its related deferred gain by the $667,447. The net carrying value of the Overlook loan remains at zero at June 30, 1995. Foreclosed properties decreased by $128,085 from $726,927 at December 31, 1994 to $598,842 at June 30, 1995. This decrease was primarily the result of the sale of seventeen cooperative apartments during the first six months of 1995. Securities available for sale increased by $314,628 from $1,766,851 at December 31, 1994 to $2,081,479 at June 30, 1995. This increase was the result of a $241,576 increase in the fair value of securities held at June 30, 1995 and $187,055 of additional securities purchased during the period, offset by the sale of securities having a cost of $114,003. Other assets decreased by $267,598 from $1,522,248 at December 31, 1994 to $1,254,650 at June 30, 1995. This decrease was primarily the result of the sale of the remaining five cooperative apartments at Rye Colony, Rye, New York which had a basis of $191,386 and which were received from Ivy in 1994 as partial payment on the Overlook loan. In addition, $69,713 of mortgage and organization costs were amortized during the period. Net unrealized loss on securities available for sale decreased by $241,576 from $285,057 at December 31, 1994 to $43,481 at June 30, 1995. This decrease in unrealized loss is a result of the increase in the fair value of the securities available for sale for the period. 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. The Company is actively seeking to expand its portfolio of real estate equities and plans to utilize for this purpose a portion of its available funds and additional funds that the Company may receive from balloon payments due on the Company's notes receivable as they mature, as well as funds that may be available from external sources. However, the Company's plans to expand its portfolio of real estate equities may be affected by limitations on funds available to it on satisfactory terms from external sources. Presidential does not maintain any line of credit or short term financing arrangement. At the present time, Presidential obtains funds for working capital and investment from its available cash and cash equivalents, from operating activities and from repayments of its mortgage portfolio. At June 30, 1995, Presidential had $1,921,243 in available cash and cash equivalents and $2,081,479 in securities available for sale. The June 30, 1995 total of $4,002,722 represents a decrease of $166,340 from the $4,169,062 total at December 31, 1994. This decrease is primarily due to the payments of $414,403 in accrued bonus and employee pension costs, partially offset by an increase of $241,576 in the fair value of securities available for sale. Operating Activities Presidential's principal source of cash from operating activities is from interest on its mortgage portfolio, which was $1,516,700 in 1995, net of interest payments on wrap mortgage debt. Net cash received from rental property operations in 1995 was $702,782, net of distributions to minority partners. 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. Some of these notes wrap around underlying mortgage debt (the "Underlying Debt") which is paid by Presidential only out of funds received on its mortgage portfolio relating to the Underlying Debt. During 1995, the Company received principal payments of $239,121 on its mortgage portfolio (net of any principal payments attributable to the Underlying Debt), of which $199,983 represented prepayments, which are sporadic and cannot be relied upon as a regular source of liquidity. In 1995, the Company also received $151,306 from sales of foreclosed properties, which are also sporadic. During 1995, the Company invested $277,651 in additions and improvements to its properties. Financing Activities The Company's indebtedness at June 30, 1995, consisted of $33,517,322 of mortgages (including $6,278,344 of underlying indebtedness on properties not owned by the Company but on which the Company holds wraparound mortgages). The mortgage debt, which is secured by individual properties, is nonrecourse to the Company and generally is serviced with cash flow from the operations of the individual properties. During 1995, the Company made $250,846 of principal payments on mortgage debt on properties which it owns. The mortgages on the Company's properties are self-liquidating at fixed rates of interest with the exception of the mortgages on Metmor Plaza and Continental Gardens. During 1995, Presidential paid cash distributions of $1,053,622 to its shareholders and received proceeds from dividend reinvestments of $58,550. Fairfield Towers The Company's financial performance and liquidity in 1995 and subsequent years will be affected by the results of the condominium conversion of Fairfield Towers Apartments in Brooklyn, New York by the owner of that property. The Company holds a second mortgage having an outstanding principal balance of $14,845,376 on this 1,152 unit apartment property, which mortgage was modified in December, 1992 and is subordinate to a first mortgage having an outstanding principal balance of $16,410,281. Until the first mortgage is repaid (when approximately 50% of the units have been sold) Presidential will receive basic interest on its note payable only out of net cash flow from operations of the property and release payments upon the sale of each condominium unit averaging $3,000 per unit. All unpaid basic interest and additional interest (which is based on percentages of gross sales proceeds) will be deferred until after repayment of the first mortgage. While the Company's return on the loan during the initial years of the conversion will be limited, if the conversion is successful and the first mortgage is repaid, the Company expects to ultimately recover the outstanding principal balance of the note and substantial amounts of basic and additional interest. In June of 1994, the owners of the Fairfield Towers property closed the first sales of the condominium units pursuant to the conversion of the property to condominium status. At June 30, 1995, a total of 64 units were sold. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 27. Financial Data Schedule. (b) No reports on form 8-K have been filed during the quarter ended June 30, 1995. 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, 1995 By: /s/ Jeffrey F. Joseph --------------------- Jeffrey F. Joseph President DATE: August 9, 1995 By: /s/ Elizabeth Delgado --------------------- Elizabeth Delgado Treasurer EX-27 2
5 6-MOS DEC-31-1995 JUN-30-1995 1,921,243 2,081,479 19,899,954 154,637 0 8,071,579 23,709,886 4,770,288 50,101,904 3,739,946 32,545,093 353,305 0 0 10,370,909 50,101,904 0 5,938,391 0 2,731,675 0 0 1,334,645 903,257 0 903,257 0 0 0 903,257 .26 .26