-----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, Lp5lUqyi064TgaKXhCKOz9m6YrUlq/DZ9+OZTRFw1BUYFou0mmDKlN7T4jQoDhwa p6rneBsb49QVzPdDaO/pTA== 0000765195-98-000004.txt : 19980518 0000765195-98-000004.hdr.sgml : 19980518 ACCESSION NUMBER: 0000765195-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROPERTY RESOURCES EQUITY TRUST CENTRAL INDEX KEY: 0000765195 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 953959770 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15880 FILM NUMBER: 98626463 BUSINESS ADDRESS: STREET 1: 1800 GATEWAY DR STREET 2: 3RD FLOOR CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4153125824 MAIL ADDRESS: STREET 1: P O BOX 7777 CITY: SAN MATEO STATE: CA ZIP: 94404-7777 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 MARCH 31, 1998 -------------------------------------------------- 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 0-15880 ---------------------------------------------------------- PROPERTY RESOURCES EQUITY TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 95-3959770 - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) P. O. BOX 7777, SAN MATEO, CALIFORNIA 94403-7777 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (650) 312-2000 - -------------------------------------------------------------------------------- N/A - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report 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 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 Shares of Series A Common Stock Outstanding as of March 31, 1998: 1,090,052 Shares of Series B Common Stock Outstanding as of March 31, 1998: 1,000 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PROPERTY RESOURCES EQUITY TRUST BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 (Unaudited) (Dollars in thousands, except per share amounts) 1998 1997 - ------------------------------------------------------------------------------- ASSETS: Real estate: Land $1,702 $1,702 Buildings and improvements 4,132 4,132 Tenant improvements 160 157 - ------------------------------------------------------------------------------- 5,994 5,991 Less: accumulated depreciation 1,444 1,409 - ------------------------------------------------------------------------------- Real estate, net 4,550 4,582 Cash and cash equivalents 523 461 Mortgage-backed securities, available for sale - - Deferred rent receivable 63 57 Note receivable 712 717 Other assets, net 256 268 - ------------------------------------------------------------------------------- Total assets $6,104 $6,085 =============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY: Note payable $2,819 $2,827 Tenants' deposits and other liabilities 37 24 Distributions payable 65 - - ------------------------------------------------------------------------------- Total liabilities 2,921 2,851 - ------------------------------------------------------------------------------- Stockholders' equity: Common stock, Series A, without par value, stated value $10 per share; 10,000,000 shares authorized; 9,384 9,384 1,090,052 shares issued and outstanding in 1998 and 1997 Common stock, Series B, without par value, stated Value $10 per share; 1,000 shares authorized, issued and outstanding in 1998and 1997 10 10 Unrealized loss on mortgage-backed securities - Accumulated distributions in excess of net income (6,211) (6,160) - ------------------------------------------------------------------------------- Total stockholders' equity 3,183 3,234 - ------------------------------------------------------------------------------- Total liabilities and stockholders' equity $6,104 $6,085 =============================================================================== The accompanying notes are an intregal part of these financial statements. PROPERTY RESOURCES EQUITY TRUST STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited) (Dollars in thousands, except 1998 1997 per share amounts) - ---------------------------------------------------------- REVENUE: Rent $176 $172 Interest 13 24 Dividends 6 10 - ---------------------------------------------------------- Total revenue 195 206 - ---------------------------------------------------------- EXPENSES: Interest 68 46 Depreciation and amortization 39 60 Operating 30 47 Related party 13 20 General and administrative 31 27 - ---------------------------------------------------------- Total expenses 181 200 - ---------------------------------------------------------- Operating income before gain on 14 6 sale of property Gain on sale of property - 370 ========================================================== NET INCOME $14 $376 ========================================================== Net income per share of Series A $.01 $.35 common stock ========================================================== Dividends per share of Series A $.06 $.09 common stock ========================================================== The accompanying notes are an integral part of these financial statements. PROPERTY RESOURCES EQUITY TRUST STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (Unaudited) (Dollars in thousands) 1998 1997 - ------------------------------------------------------------------------------- Cash flows from operating activities: Net income $14 $376 - ------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 45 61 (Increase) decrease in deferred rent (6) 35 receivable Decrease (increase) in other assets 3 (58) Increase (decrease) in tenants' deposits and 13 (32) other liabilities Gain on sale of rental property - (370) - ------------------------------------------------------------------------------- 55 (364) - ------------------------------------------------------------------------------- Net cash provided by operating activities 69 12 - ------------------------------------------------------------------------------- Cash flow from investing activities: Principal received on note receivable 5 5 Improvements to rental property (4) - Proceeds from sale of rental property - 2,093 Disposition of mortgage-backed securities - 1 - ------------------------------------------------------------------------------- Net cash provided by investing activities 1 2,099 - ------------------------------------------------------------------------------- Cash flow from financing activities: Origination of note payable - 2,850 Borrowings under notes payable - - Principal payments on note payable (8) (2,750) Distributions paid - (98) - ------------------------------------------------------------------------------- Net cash (used in) provided by financing (8) 2 activities - ------------------------------------------------------------------------------- Net increase in cash and cash equivalents 62 2,113 Cash and cash equivalents, beginning of period 461 772 =============================================================================== Cash and cash equivalents, end of period $523 $2,885 =============================================================================== The accompanying notes are an integral part of these financial statements. PROPERTY RESOURCES EQUITY TRUST NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 NOTE 1- BASIS OF PRESENTATION The accompanying unaudited interim financial statements of Property Resources Equity Trust (the "Fund") have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all appropriate adjustments necessary to a fair presentation of the results of operations have been made for the periods shown. All adjustments are of a normal recurring nature. Certain prior year amounts have been reclassified to conform to current year presentations. These financial statements should be read in conjunction with the Fund's audited financial statements for the year ended December 31, 1997. NOTE 2 - BUSINESS ACTIVITY As of March 31, 1998, the Fund had one remaining property in its portfolio, Good Guys Shopping Center. Management currently intends to dispose of the Good Guys Plaza Shopping Center and has commenced marketing activity. At March 31, 1998, management estimates that the net realizable value of the property approximates its carrying value; however, there can be no assurance that the eventual sales price of the property will not result in a loss or that a sale will be consummated. NOTE 3 - NOTE PAYABLE On March 3, 1997, the note payable collateralized by the Good Guys Plaza Shopping Center was repaid from the proceeds of a new note payable. The new note payable, which is also collateralized by the property and matures in 2022, requires monthly payments of principal and interest at 8.8% until 2007, at which time the interest rate increases to at least 13.8% under an adjustment formula defined in the note agreement. NOTE 4 - SALE OF RENTAL PROPERTY On March 4, 1997, the Fund sold the Graham Court Business Park to an unaffiliated buyer for a total sales price of $2,200,000 resulting in net cash proceeds to the Fund of $2,093,000. In connection with the sale, the Fund recognized a gain of $370,000. NOTE 5 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION For the three-month period ended March 31, 1998, interest paid amounted to $61,754. NOTE 6 - SUBSEQUENT EVENT On April 16, 1998, the note receivable, $712,000 collateralized by the Agora building was paid in full. The proceeds will be distributed to shareholders in the second quarter. PROPERTY RESOURCES EQUITY TRUST ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the Financial Statements and Notes thereto. RESULTS OF OPERATIONS COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 Net income for the three-month period decreased $362,000 primarily due to the gain related to the sale of Graham Court in 1997. Total revenue for the three-month period ended March 31, 1998 decreased $11,000 or 5% due a decline in interest and dividend revenue. The decrease of $15,000 in these accounts from the comparable period in the prior year was attributable to lower average investment balances in the current period. Good Guys Plaza experienced a 3% increase in rental revenues in 1998 compared to the prior year and a tenant reimbursement made in 1997 was not repeated in the first quarter of 1998. These two factors led to an increase in rental revenues of $4,000 over the corresponding period in the prior year, despite the sale of Graham Court in March 1997. Total expenses for the three-month period decreased $20,000 or 10% due to the sale of Graham Court in March 1997. Operating expense, related party, depreciation and general and administrative expenses decreased as a result of the sale, however interest expense increased $21,000 due to the refinance of the Good Guys note in March 1997. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, cash and cash equivalents aggregated $523,000, which the Fund believes is adequate to meet its short-term operating cash requirements. Net cash provided by operating activities increased $57,000 when compared to the same period in 1997. The increase in cash flow from operating activities is attributable the improved occupancy and higher rents charged at the Good Guys Plaza. Cash flows provided by investing activities decreased $2,098,000 in 1998 as a result of proceeds received from the sale of Graham Court Business that occurred in 1997. PROPERTY RESOURCES EQUITY TRUST ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (Continued) Cash flows used in financing activities decreased $10,000 due to the refinancing of the note payable in 1997. As of March 31, 1998, the Fund had one remaining property in its portfolio. Management is currently marketing the property for sale, and a sale may occur in 1998. At March 31, 1998, management estimates that the net realizable value of the property approximates its carrying value; however, there can be no assurance that the eventual sales price of the property will not result in a loss or that a sale will be consummated. The Fund's principal sources of capital for the acquisition and renovation of property and for working capital reserves have been proceeds from the initial offering of its common stock and from cash flow after payment of distributions. On March 3, 1997, the note payable collateralized by the Good Guys Plaza Shopping Center was repaid from the proceeds of a new note payable. The new note payable, which is also collateralized by the property and matures in 2022, requires monthly payments of principal and interest at 8.8% until 2007, at which time the interest rate increases to at least 13.8% under an adjustment formula defined in the note agreement. In the short-term and in the long-term, management believes that the Fund's current sources of capital will continue to be adequate to meet both its operating requirements and the payment of distributions. IMPACT OF INFLATION The Fund's policy of negotiating leases which incorporate operating expense "pass-through" provisions is intended to protect the Fund against increased operating costs resulting from inflation. CASH DISTRIBUTION POLICY Distributions are declared quarterly at the discretion of the Board of Directors. The Fund's present distribution policy is to at least annually evaluate the current distribution rate in light of anticipated tenant turnover over the next two or three years, the estimated level of associated improvements and leasing commissions, planned capital expenditures, any debt service requirements and the Fund's other working capital requirements. After balancing these considerations, and considering the Fund's earnings and cash flow, the level of its liquid reserves and other relevant factors, the Fund seeks to establish a distribution rate which: i) provides a stable distribution which is sustainable despite short term fluctuations in property cash flows; ii) maximizes the amount of cash flow paid out as distributions consistent with the above listed objective; and iii) complies with the Internal Revenue Code requirement that a REIT annually pay out as distributions not less than 95% of its taxable income. During the three-month period ended March 31, 1998, the Fund declared distributions totaling $65,403. PROPERTY RESOURCES EQUITY TRUST PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Not applicable (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended March 31, 1998. SIGNATURE 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. PROPERTY RESOURCES EQUITY TRUST By: /s/ David P. Goss Chief Executive Officer Date: MAY 13, 1998 -----END PRIVACY-ENHANCED MESSAGE-----