-----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, MhGcPJBUN9Auw+iN+ikOq4DLSEWO3nz0mi2VIcDME1d/695iMmKoRP55mIP6Y8wT eROg6iGRlFTnfMU1g28R1w== 0000765195-96-000007.txt : 19961118 0000765195-96-000007.hdr.sgml : 19961118 ACCESSION NUMBER: 0000765195-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 1934 Act SEC FILE NUMBER: 000-15880 FILM NUMBER: 96662848 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 SEPTEMBER 30, 1996 ------------------------------------------------- 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 (I.R.S. Employer incorporation or organization) 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 (415) 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 September 30, 1996: 1,090,065 Shares of Series B Common Stock Outstanding as of September 30, 1996: 1,000 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PROPERTY RESOURCES EQUITY TRUST BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (Unaudited)
(Dollars in thousands, except per share amounts) 1996 1995 - ------------------------------------------------------------------------------- ------------------- ---------------- ASSETS: Rental property: Land $ 2,099 $ 2,789 Buildings and improvements 6,214 6,548 Tenant improvements 135 194 Furniture and fixtures - 5 - ------------------------------------------------------------------------------- ------------------- ---------------- 8,448 9,536 Less: accumulated depreciation 1,941 2,145 - ------------------------------------------------------------------------------- ------------------- ---------------- 6,507 7,391 Cash and cash equivalents 768 612 Mortgage-backed securities, available for sale 190 198 Deferred rent receivable 73 71 Note receivable 741 - Other assets 85 78 - ------------------------------------------------------------------------------- ------------------- ---------------- Total assets $8,364 $8,350 =============================================================================== =================== ================ LIABILITIES AND STOCKHOLDERS' EQUITY: Note payable $2,750 $2,750 Tenants' deposits and other liabilities 54 88 - ------------------------------------------------------------------------------- ------------------- ---------------- Total liabilities 2,804 2,838 - ------------------------------------------------------------------------------- ------------------- ---------------- Stockholders' equity: Common stock, Series A, without par value, stated value $10 per share; 10,000,000 shares authorized; 1,090,065 shares issued and outstanding in 1996 and 1995 9,384 9,384 Common stock, Series B, without par value, stated value $10 per share; 1,000 shares authorized, issued and outstanding in 1996 and 1995 10 10 Unrealized loss on mortgage-backed securities (12) (7) Retained earnings (deficit) (3,822) (3,875) - ------------------------------------------------------------------------------- ------------------- ---------------- Total stockholders' equity 5,560 5,512 - ------------------------------------------------------------------------------- ------------------- ---------------- Total liabilities and stockholders' equity $8,364 $8,350 =============================================================================== =================== ================ The accompanying notes are an intregal part of these financial statements. PROPERTY RESOURCES EQUITY TRUST STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 (Dollars in thousands, except per share amounts) 1996 1995 1996 1995 - ----------------------------------------------------------- ----------- --------------- ---------------- --------------- REVENUE: Rent $264 $255 $803 $805 Interest 23 10 50 30 Dividends 3 1 5 2 Gain on sale of rental property - - 88 - - ----------------------------------------------------------- ----------- --------------- ---------------- --------------- Total revenue 290 266 946 837 - ----------------------------------------------------------- ----------- --------------- ---------------- --------------- EXPENSES: Interest 49 44 136 147 Depreciation and amortization 58 61 190 184 Operating 8 103 162 263 Related party 23 24 69 72 General and administrative 5 4 42 33 - ----------------------------------------------------------- ----------- --------------- ---------------- --------------- Total expenses 143 236 599 699 - ----------------------------------------------------------- ----------- --------------- ---------------- --------------- NET INCOME $147 $30 $347 $138 =========================================================== =========== =============== ================ =============== Net income per share of Series A common stock $.13 $.03 $.32 $.13 =========================================================== =========== =============== ================ =============== Dividends per share of Series A common stock $.09 $.07 $.27 $ .21 =========================================================== =========== =============== ================ =============== The accompanying notes are an intregal part of these financial statements. PROPERTY RESOURCES EQUITY TRUST STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 (Unaudited) Common Stock ------------------------------------------------ Series A Series B ----------------------------- --------------------- Excess of Accumulated (Dollars in Unrealized Gain/Loss Distributions in Excess thousands) Shares Amount Shares Amount on Securities of Net Income Total - ------------------ ---------------- ------------ ------------- ---------- ---------------------- ------------------- ------------ Balance, beginning of period 1,090,067 $9,384 1,000 $10 $ (7) $(3,875) $5,512 Redemption of Series A common stock (2) - - - - - - Unrealized loss on mortgage- backed securities - - - - (5) - (5) Net income - - - - - 347 347 Distributions declared - - - - - (294) (294) - ------------------ ---------------- ------------ ----------- ------------ ---------------------- ------------------- ------------ Balance, end of period 1,090,065 $9,384 1,000 $10 $(12) $(3,822) $5,560 ================== ================ ============ =========== ============ ====================== =================== ============ The accompanying notes are an intregal part of these financial statements. PROPERTY RESOURCES EQUITY TRUST STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) (Dollars in thousands) 1996 1995 - ------------------------------------------------------------------------------------- ------------- ----------- Cash flows from operating activities: Net income $347 $138 - ------------------------------------------------------------------------------------- ------------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 190 184 (Increase) decrease in deferred rent receivable (2) 12 Increase in other assets (30) - Increase (decrease) in tenants' deposits and other liabilities (34) 25 Gain on sale of rental property (88) - - ------------------------------------------------------------------------------------- ------------- ----------- 36 221 - ------------------------------------------------------------------------------------- ------------- ----------- Net cash provided by operating activities 383 359 - ------------------------------------------------------------------------------------- ------------- ----------- Cash flow from investing activities: Origination of note receivable (750) - Principal received on note receivable 9 - Improvements to rental property (7) (9) Proceeds from sale of rental property 812 - Disposition of mortgage-backed securities 3 15 - ------------------------------------------------------------------------------------- ------------- ----------- Net cash provided by investing activities 67 6 - ------------------------------------------------------------------------------------- ------------- ----------- Cash flow from financing activities: Distributions paid (294) (153) - ------------------------------------------------------------------------------------- ------------- ----------- Net cash used in financing activities (294) (153) - ------------------------------------------------------------------------------------- ------------- ----------- Net increase in cash and cash equivalents 156 212 Cash and cash equivalents, beginning of period 612 418 - ------------------------------------------------------------------------------------- ------------- ----------- Cash and cash equivalents, end of period $768 $630 ===================================================================================== ============= ===========
The accompanying notes are an intregal part of these financial statements. PROPERTY RESOURCES EQUITY TRUST NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 1 - ORGANIZATION Property Resources Equity Trust (the "Fund") is a California corporation formed on February 20, 1985 for the purpose of investing in income-producing real property. The offering period for the sale of the Fund's Series A common stock terminated on July 17, 1987 with total proceeds raised of $10,889,000 less offering costs of $1,505,000. As of the close of the offering, Property Resources Inc., (the "Advisor") had purchased 1,000 shares of the Fund's Series B common stock for $10,000 cash. The Fund is a real estate investment trust ("REIT") and elected REIT status for income tax purposes for the tax years commencing 1988. Under the Internal Revenue Code and applicable state income tax law, a qualified REIT is not subject to income tax if at least 95% of its taxable income is currently distributed to its stockholders and other tests are met. The Fund intends to distribute substantially all of its taxable income in the future. Accordingly, no provision is made for income taxes in these financial statements. NOTE 2- BASIS OF PRESENTATION The accompanying unaudited financial statements contain all adjustments (consisting of normal recurring accruals) which are necessary, in the opinion of management, for a fair presentation. The statements, which do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements, should be read in conjunction with the Fund's financial statements for the year ended December 31, 1995. NOTE 3 - RELATED PARTY TRANSACTIONS The Fund has entered into an agreement with the Advisor to administer the day-to-day operations of the Fund. Under the terms of the agreement, which is renewable annually, the Advisor will receive a fee equal to 5% of the total amount distributed to the stockholders. The fee is not payable with regard to distributions from the sale or refinancing of property. At September 30, 1996, cash equivalents included $2,000 invested in Franklin Money Fund which is an investment company managed by an affiliate of the Advisor. For the nine month period ended September 30, 1996 dividend income earned amounted to $5,000. The agreements between the Fund and the Advisor, or affiliates, provide for certain types of compensation and payments including but not limited to the types of compensation and payments which were paid or accrued by the Fund for those services rendered for the nine month period ended September 30, 1996: Management advisory fees, charged to related party expense $15,000 Reimbursement for data processing expenses, charged to related party expense 17,000 Property management fees, charged to related party expense 27,000 Shareholder services fees, charged to related party expense 10,000 Leasing commission, capitalized and amortized over the term of the related lease 31,000 PROPERTY RESOURCES EQUITY TRUST NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 4 - NOTE RECEIVABLE On April 16, 1996, the Fund sold the Agora Office Building to an unaffiliated buyer for a total sales price of $850,000. The total sales price included a $750,000 promissory note, collateralized by a second deed of trust against the Agora Office Building. Principal and interest payments are due monthly in the amount of $5,815 commencing on April 16, 1996 until maturity on April 16, 1998. As of September 30, 1996, the outstanding balance of the note was $741,000. NOTE 5 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION For the nine month period ended September 30, 1996, interest paid amounted to $136,000. 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 NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 Net income for the nine month period ended September 30, 1996 increased $209,000, or 151%, as compared to the same period in 1995. The increase in net income was primarily due to interest income earned on the note receivable of $20,000, gain on sale of rental property of $88,000 and a decrease in operating expenses of $101,000 primarily as a result of the sale of the Agora Office Building in April 1996 and to a refund of prior year property taxes at the Good Guys Plaza. Total revenue for the nine month period ended September 30, 1996 increased $109,000 or 13%, from $837,000 in 1995 to $946,000 in 1996. The increase in total revenue was primarily due to gain on sale of rental property as a result of the sale of the Agora Office Building. Rental revenue at the remaining two properties of the Fund increased $57,000 compared to the same period in 1995 but was offset by a decrease in rental revenue earned of $59,000 due to the sale of the Agora Office Building. For the nine month period ended September 30, 1996 interest income increased $20,000 compared to the same period in 1995 as a result of the note receivable that was taken back at the time of the sale of the Agora Office Building. Total expenses for the nine month period ended September 30, 1996 decreased $100,000, or 14%, from $699,000 in 1995 to $599,000 in 1996. The decrease in total expenses was primarily due to a decrease in operating expenses as a result of the sale of the Agora Office Building and to a refund of prior year property taxes at the Good Guys Plaza. RELATED PARTY EXPENSES The Fund has entered into an agreement with the Advisor to administer the day-to-day operations of the Fund. For the nine month period ended September 30, 1996, the Fund recorded $15,000 of advisory fee expense to the Advisor in accordance with the Advisory Agreement. The Fund's properties are managed by Continental Property Management Co., ("CPMC"), an affiliate of the Advisor. For the nine month period ended September 30, 1996, the Fund recorded $27,000 of property management fee expense to CPMC in accordance with the Property Management Agreement. The Fund's Board of Directors (including all of its Independent Directors) have determined, after review, that the compensation paid to the Advisor and to CPMC referenced above, as well as the expense reimbursements made by the Fund to the Advisor reflected in Note 3 to the accompanying financial statements, are fair and reasonable to the Fund. LIQUIDITY AND CAPITAL RESOURCES 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. At September 30, 1996, cash and cash equivalents totaled $768,000 and investments in mortgage-backed securities totaled $190,000. PROPERTY RESOURCES EQUITY TRUST ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) As of September 30, 1996, one of the Fund's properties was subject to secured financing with an outstanding balance of $2,750,000. Otherwise, the Fund's properties are owned free of indebtedness. Interest on the note accrues at a variable rate which is based on a certain bond index. The interest rate is not subject to a minimum or maximum rate of interest. On September 30, 1996, the interest rate was 6.88%. In certain circumstances, the payments due may be less than accrued interest. Any resulting accrued interest bears interest at the then current rate. The note is due in full in December, 1996. Management is currently negotiating the terms of a new loan from an unaffiliated lender to finance the payoff of the current loan. 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 management believes that inflation may have a positive effect on the Fund's property portfolio, but this effect generally will not be fully realized until such properties are sold or exchanged. 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. DISTRIBUTIONS 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 nine-month period ended September 30, 1996, the Fund declared distributions totaling $294,000. 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 September 30, 1996. 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 David P. Goss Chief Executive Officer Date: NOVEMBER 12, 1996 EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 768 190 814 0 0 0 8,448 1,941 8,364 0 0 0 0 9,394 (3,834) 8,364 0 946 0 463 0 0 136 0 0 0 0 0 0 347 0 0
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