-----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, QWKs5u/Lm2ix46M16+fW66Xasysrn+3mUVTQMO9ihT5x8/T4UmTplhAayDwICXx5 R7cWl1jbverUd4UzYOOABw== 0000765195-97-000005.txt : 19970815 0000765195-97-000005.hdr.sgml : 19970815 ACCESSION NUMBER: 0000765195-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660037 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 JUNE 30, 1997 -------------------------------------------------- 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 (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 June 30, 1997: 1,090,055 Shares of Series B Common Stock Outstanding as of June 30, 1997: 1,000 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PROPERTY RESOURCES EQUITY TRUST BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 (Unaudited) (Dollars in thousands, except per share amounts) 1997 1996 - ------------------------------------------------------------------------------- ASSETS: Rental property: Land $1,702 $2,099 Buildings and improvements 4,181 6,215 Tenant improvements 107 135 - ------------------------------------------------------------------------------- 5,990 8,449 Less: accumulated depreciation 1,337 1,995 - ------------------------------------------------------------------------------- 4,653 6,454 Cash and cash equivalents 388 772 Mortgage-backed securities, available for sale 173 173 Deferred rent receivable 47 77 Note receivable 726 736 Other assets 212 162 - ------------------------------------------------------------------------------- Total assets $6,199 $8,374 =============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY: Note payable $2,843 $2,750 Tenants' deposits and other liabilities 65 59 - ------------------------------------------------------------------------------- Total liabilities 2,908 2,809 - ------------------------------------------------------------------------------- Stockholders' equity: Common stock, Series A, without par value, stated value $10 per share; 10,000,000 shares authorized; 1,090,055 shares issued and outstanding in 1997 and 1996 9,384 9,384 Common stock, Series B, without par value, stated value $10 per share; 1,000 shares authorized, issued and outstanding in 1997 and 1996 10 10 Unrealized loss on mortgage-backed securities (9) (11) Retained earnings (deficit) (6,094) (3,818) - ------------------------------------------------------------------------------- Total stockholders' equity 3,291 5,565 - ------------------------------------------------------------------------------- Total liabilities and stockholders' equity $6,199 $8,374 =============================================================================== The accompanying notes are an intregal part of these financial statements. PROPERTY RESOURCES EQUITY TRUST STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 June 30 JUNE 30 June 30 (Dollars in thousands, except per share amounts) 1997 1996 1997 1996 - -------------------------------------------------------------------------------- REVENUE: Rent $199 $258 $371 $539 Interest 23 17 47 27 Dividends 29 1 39 2 Gain on sale of rental property - 88 370 88 - -------------------------------------------------------------------------------- Total revenue 251 364 827 656 - -------------------------------------------------------------------------------- EXPENSES: Interest 83 46 129 89 Depreciation and amortization 39 70 99 130 Operating 33 68 80 154 Related party 44 23 69 46 General and administrative 12 21 34 37 - -------------------------------------------------------------------------------- Total expenses 211 228 411 456 - -------------------------------------------------------------------------------- NET INCOME $40 $136 $416 $200 ================================================================================ Net income per share of Series A common stock $.04 $.12 $.38 $.18 ================================================================================ Dividends per share of Series A common stock $2.38 $.09 $2.47 $ .18 ================================================================================ The accompanying notes are an intregal part of these financial statements. PROPERTY RESOURCES EQUITY TRUST STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996 (Unaudited) (Dollars in thousands) 1997 1996 - ------------------------------------------------------------------------------- Cash flows from operating activities: Net income $416 $200 - ------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 106 132 Decrease in deferred rent receivable 30 2 (Increase) decrease in other assets (73) 35 Increase in tenants' deposits and other liabilities 6 53 Gain on sale of rental property (370) (88) - ------------------------------------------------------------------------------- (301) 134 - ------------------------------------------------------------------------------- Net cash provided by operating activities 115 334 - ------------------------------------------------------------------------------- Cash flow from investing activities: Origination of note payable 2,850 - Origination of note receivable - (750) Principal received on note receivable 10 5 Improvements to rental property (5) (7) Proceeds from sale of rental property 2,093 643 Disposition of mortgage-backed securities 2 2 - ------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 4,950 (107) - ------------------------------------------------------------------------------- Cash flow from financing activities: Principal payments on note payable (2,757) - Distributions paid (2,692) (98) - ------------------------------------------------------------------------------- Net cash used in financing activities (5,449) (98) - ------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (384) 129 Cash and cash equivalents, beginning of period 772 612 - ------------------------------------------------------------------------------- Cash and cash equivalents, end of period $388 $741 =============================================================================== The accompanying notes are an intregal part of these financial statements. PROPERTY RESOURCES EQUITY TRUST NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 NOTE 1- BASIS OF PRESENTATION The accompanying financial statements of Property Resources Equity Trust (the "Fund") have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, 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. However, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation have been included. The Fund presumes that users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote disclosure which would substantially duplicate the disclosure contained in the Fund's 1996 Annual Report on Form 10-K has been omitted. Certain 1996 amounts have been reclassified to conform to the 1997 presentation. Such reclassifications had no effect on previously reported results. NOTE 2 - BUSINESS ACTIVITY As of June 30, 1997, 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, in that regard, expects to commence marketing activity in 1998. At June 30, 1997, 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 six month period ended June 30, 1997, interest paid amounted to $122,000. 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 SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996 Total revenue for the six month period ended June 30, 1997 increased $171,000 or 26%, from $656,000 in 1996 to $827,000 in 1997. The increase in total revenue was primarily due to gain on sale of rental property as a result of the sale of the Graham Court Office Building. Rental revenue for the remaining property of the Fund increased $12,000 compared to the same period in 1996 which resulted from an increase in the average occupancy rate at the Good Guys Plaza. The average occupancy rate at the Good Guys Plaza increased from 94% in 1996 to 96% in 1997. For the six month period ended June 30, 1997 interest income increased $20,000 compared to the same period in 1996 as a result of the note receivable relating to the sale of the Agora Office Building. Dividend income increased $37,000 in 1997 when compared to the same period in 1996 as a result of an increase in the average investment balance. The increase in the average investment balance was due to the proceeds received from the sale of the Graham Court Business Park in March, 1997. Total expenses for the six month period ended June 30, 1997 decreased $45,000, or 10%, from $456,000 in 1996 to $411,000 in 1997. 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 Graham Court Business Park. The decrease was partially offset by an increase in interest expense resulting from the refinancing of the note payable for Good Guys Shopping Center. Net income for the six month period ended June 30, 1997 increased $216,000 as compared to the same period in 1996. The increase in net income was primarily due to the gain recognized on sale of rental property of $280,000 partially offset by a $63,000 decrease in net income (decrease in depreciation and amortization of $26,000, operating expenses of $74,000, general and administrative of $5,000 and rental revenue of $168,000) primarily resulting from the sale of the Agora Office Building in April 1996 and Graham Court Business Park, in March 1997. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, cash and cash equivalents totaled $388,000 and investments in mortgage-backed securities totaled $173,000. As of June 30, 1997, 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, in that regard, expects to commence marketing activity in 1998. At June 30, 1997, 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. PROPERTY RESOURCES EQUITY TRUST ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (Continued) 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 six-month period ended June 30, 1997, the Fund declared distributions totaling $2,692,000. 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 June 30, 1997. 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: AUGUST 13, 1997 EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 388 173 773 0 0 0 5,990 1,337 6,199 0 0 0 0 9,394 (6,103) 6,199 0 827 0 282 0 0 129 0 0 0 0 0 0 416 0 0
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