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, 2000
----------------
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
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PRESIDENTIAL REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-1954619
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 South Broadway, White Plains, New York 10605
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, indicating area code 914-948-1300
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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 May 8, 2000 was 478,940 shares of Class A common
and 3,217,773 shares of Class B common.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
For the Three Months Ended
March 31, 2000
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 March 31, December 31,
2000 1999
-------------------- -------------------
Real estate (Note 2) $62,978,704 $35,647,633
Less: accumulated depreciation 8,501,203 8,231,480
-------------------- -------------------
Net real estate 54,477,501 27,416,153
-------------------- -------------------
Mortgage portfolio (Note 3):
Sold properties 28,456,200 28,481,797
Related parties 1,558,025 1,574,028
-------------------- -------------------
Total mortgage portfolio 30,014,225 30,055,825
-------------------- -------------------
Less discounts:
Sold properties 1,783,490 1,837,722
Related parties 129,633 132,073
-------------------- -------------------
Total discounts 1,913,123 1,969,795
-------------------- -------------------
Less deferred gains:
Sold properties 11,320,373 11,320,373
Related parties 902,568 908,343
-------------------- -------------------
Total deferred gains 12,222,941 12,228,716
-------------------- -------------------
Net mortgage portfolio (of which $123,872 in 2000
and $127,803 in 1999 are due within one year) 15,878,161 15,857,314
-------------------- -------------------
Minority partners' interest (Note 4) 7,869,541 7,904,533
Prepaid expenses and deposits in escrow 1,930,383 1,434,079
Other receivables (net of valuation allowance of
$80,317 in 2000 and $139,822 in 1999) 604,691 494,220
Securities available for sale (Note 5) 1,049,528 2,299,494
Cash and cash equivalents 1,965,788 7,014,542
Other assets 1,942,162 1,641,095
-------------------- -------------------
Total Assets $85,717,755 $64,061,430
==================== ===================
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
Liabilities and Stockholders' Equity
March 31, December 31,
2000 1999
------------------ ------------------
Liabilities:
Mortgage debt (of which $1,487,011 in 2000 and
$1,338,491 in 1999 are due within one year) (Note 6) $61,168,868 $39,379,458
Executive pension plan liability 1,492,776 1,479,185
Accrued liabilities 1,638,112 1,637,069
Accrued taxes payable 220,500
Accrued postretirement costs 530,132 538,398
Deferred income 94,196 46,533
Accounts payable 360,572 414,195
Other liabilities 882,291 799,490
------------------ ------------------
Total Liabilities 66,166,947 44,514,828
------------------ ------------------
Stockholders' Equity:
Common stock; par value $.10 per share
Class A, authorized 700,000 shares, issued and
outstanding 478,940 shares 47,894 47,894
Class B March 31, 2000 December 31, 1999 321,896 321,240
----------- ------------------ ------------------
Authorized: 10,000,000 10,000,000
Issued: 3,218,957 3,212,402
Treasury: 1,258 1,258
Additional paid-in capital 2,611,864 2,573,281
Retained earnings 17,090,255 17,209,589
Net unrealized loss on securities available for sale (Notes 5 and 8) (136,773) (221,074)
Class B, treasury stock (at cost) (16,828) (16,828)
Notes receivable for exercise of stock options (367,500) (367,500)
------------------ ------------------
Total Stockholders' Equity 19,550,808 19,546,602
------------------ ------------------
Total Liabilities and Stockholders' Equity $85,717,755 $64,061,430
================== ==================
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------------------------
2000 1999
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Income:
Rental $2,880,532 $2,603,761
Interest on mortgages - sold properties 744,165 841,053
Interest on wrap mortgages 299,387
Interest on mortgages - related parties 45,209 55,452
Investment income 126,753 111,407
Other 20,314 10,698
-------------- --------------
Total 3,816,973 3,921,758
-------------- --------------
Costs and Expenses:
General and administrative 721,169 666,867
Interest on note payable and other 185,849
Interest on wrap mortgage debt 31,322
Amortization of loan acquisition costs 3,128
Depreciation on non-rental property 5,675 6,255
Rental property:
Operating expenses 1,158,270 1,168,759
Interest on mortgages 766,049 746,305
Real estate taxes 247,392 221,575
Depreciation on real estate 270,584 243,441
Amortization of mortgage costs 20,741 221,771
Minority interest share of partnership income 168,195 128,653
-------------- --------------
Total 3,358,075 3,623,925
-------------- --------------
Income before net gain from sales of properties, notes and securities 458,898 297,833
Net gain from sales of properties, notes and securities (includes a provision
for Federal and State taxes of $1,566,474 in 1999) 12,703 6,718,968
-------------- --------------
Net Income $471,601 $7,016,801
============== ==============
Earnings per Common Share (basic and diluted) (Note 1-C):
Income before net gain from sales of properties, notes and securities $0.13 $0.08
Net gain from sales of properties, notes and securities 0.00 1.86
-------------- --------------
Net Income per Common Share $0.13 $1.94
============== ==============
Cash Distributions per Common Share $0.16 $0.16
============== ==============
Weighted Average Number of Shares Outstanding 3,692,081 3,608,628
============== ==============
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
2000 1999
---------------- ----------------
Cash Flows from Operating Activities:
Cash received from rental properties $2,997,647 $2,674,090
Interest received 800,259 1,119,661
Miscellaneous income 19,690 10,074
Interest paid on rental property mortgages (766,652) (751,264)
Interest paid on wrap mortgage debt (31,322)
Interest paid on note payable and other (199,983)
Cash disbursed for rental property operations (1,849,318) (1,052,703)
Cash disbursed for general and administrative costs (812,906) (392,859)
---------------- ----------------
Net cash provided by operating activities 388,720 1,375,694
---------------- ----------------
Cash Flows from Investing Activities:
Payments received on notes receivable 41,600 790,446
Proceeds from sale of notes receivable 20,331,599
Payments of taxes payable on gain from sale of notes (220,500)
Deposit received on contract of sale of property 87,300
Payments disbursed for additions and improvements (69,212) (267,844)
Purchase of property (27,275,886)
Proceeds from sale of property 69,979
Purchases of securities (3,120,231)
Proceeds from sales of securities 1,280,355
---------------- ----------------
Net cash (used in) provided by investing activities (26,173,664) 17,821,270
---------------- ----------------
Cash Flows from Financing Activities:
Principal payments on mortgage debt:
Properties owned (110,590) (105,600)
Wrap mortgage debt on sold properties (98,723)
Mortgage debt payment from proceeds of mortgage refinancing (3,120,190)
Mortgage proceeds 21,900,000 3,195,500
Mortgage costs (350,096) (82,824)
Principal payments on note payable (10,395,361)
Cash distributions on common stock (590,935) (576,651)
Proceeds from dividend reinvestment and share purchase plan 21,014 24,969
Distributions to minority partners (133,203) (270,670)
---------------- ----------------
Net cash provided by (used in) financing activities 20,736,190 (11,429,550)
---------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents (5,048,754) 7,767,414
Cash and Cash Equivalents, Beginning of Period 7,014,542 1,764,465
---------------- ----------------
Cash and Cash Equivalents, End of Period $1,965,788 $9,531,879
================ ================
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
2000 1999
---------------- ----------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net Income $471,601 $7,016,801
---------------- ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 297,000 474,595
Gain from sales of properties, notes and securities (12,703) (6,718,968)
Issuance of treasury stock for fees and expenses 5,378
Amortization of discounts on notes and fees (92,562) (296,829)
Minority share of partnership income 168,195 128,653
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (74,580) 137,674
Increase (decrease) in accounts payable and accrued liabilities (47,255) 456,109
Increase (decrease) in deferred income 47,663 (2,515)
Decrease (increase) in prepaid expenses, deposits in escrow
and deferred charges (454,619) 173,077
Increase in security deposit liabilities 82,046 2,601
Other 3,934 (882)
---------------- ----------------
Total adjustments (82,881) (5,641,107)
---------------- ----------------
Net cash provided by operating activities $388,720 $1,375,694
================ ================
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
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. Presidential operates in a single business segment,
investments in real estate related assets.
B. Principles of Consolidation - The consolidated financial statements include
the accounts of Presidential Realty Corporation and its wholly owned
subsidiaries. Additionally, the consolidated financial statements include 100%
of the account balances of UTB Associates and PDL, Inc. and Associates Limited
Co-Partnership ("Home Mortgage Partnership"), partnerships in which Presidential
or PDL, Inc., a wholly owned subsidiary of Presidential, is the General Partner.
All significant intercompany balances and transactions have been eliminated.
C. Net Income Per Share - Basic net income per share data is computed by
dividing the net income by the weighted average number of shares of Class A and
Class B common stock outstanding during each period. Basic net income per share
and diluted income per share are the same for the three months ended March 31,
2000 and 1999. The dilutive effect of stock options is calculated using the
treasury stock method.
D. Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with 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, 1999.
E. Management Estimates - In preparing the consolidated financial statements in
conformity with generally accepted accounting principles, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated balance sheets and the reported amounts of income and
expense for the reporting period. Actual results could differ from those
estimates.
2. REAL ESTATE
Real estate is comprised of the following:
March 31, December 31,
2000 1999
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Land $ 9,599,970 $ 5,461,173
Buildings and leaseholds 53,074,148 29,909,205
Furniture and equipment 304,586 277,255
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Total real estate $62,978,704 $35,647,633
=========== ===========
In March, 2000, the Company purchased two apartment properties, Farrington
Apartments, a 224 unit garden apartment property in Clearwater, Florida and
Preston Lake Apartments, a 320 unit garden apartment property in Tucker,
Georgia. The purchase price for the Farrington Apartments property was
$9,630,950 and the purchase price for the Preston Lake Apartments property was
$17,450,000. In connection with the purchase of these two apartment properties,
the Company obtained first mortgage loans of $7,900,000 and $14,000,000,
respectively.
The following pro forma consolidated results of operations are presented as if
the acquisitions of Farrington Apartments and Preston Lake Apartments had
occurred on January 1, 2000.
Three Months Ended March 31, 2000
----------------------------------
As Reported Pro Forma
----------- ----------
Income:
Rental $2,880,532 $3,872,137
Other 936,441 936,441
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Total 3,816,973 4,808,578
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Costs and Expenses:
Rental property:
Operating expenses 1,158,270 1,503,693
Interest on mortgages 766,049 1,183,744
Real estate taxes 247,392 322,071
Depreciation and amortization 291,325 452,936
Other 895,039 895,039
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Total 3,358,075 4,357,483
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Income before net gain from sales of
properties, notes and securities 458,898 451,095
Net gain from sales of properties,
notes and securities 12,703 12,703
---------- ----------
Net Income $ 471,601 $ 463,798
========== ==========
Net Income per Common Share (basic
and diluted) $0.13 $0.13
========== ==========
The pro forma consolidated results of operations include the actual operating
results of the acquired properties from January 1, 2000 to the date of
acquisition, plus adjustments to give effect to revised property management
fees, interest expense on acquisition debt, depreciation expense on the acquired
properties and amortization of mortgage costs. The pro forma information is not
necessarily indicative of the results of operations that would have occurred had
the acquisitions been made at the beginning of 2000 or the results of operations
for future periods.
3. MORTGAGE PORTFOLIO
The Company's mortgage portfolio includes notes receivable - sold properties and
notes receivable - related parties.
Notes receivable - sold properties consist of:
(1) Long-term purchase money notes from sales of properties previously owned by
the Company or notes purchased 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. These notes
generally 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 Properties, Ltd. or its
affiliates (collectively "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 March 31, 2000, all of the notes in the Company's mortgage portfolio are
current with the exception of the Mark Terrace mortgage note, which is secured
by 172 unsold cooperative apartment units at Mark Terrace Apartments, Bronx, New
York. The annual interest on the Mark Terrace note is due in advance in February
of each year. The 2000 interest payment of $140,084 has not been received and
the Company has accrued interest income of $36,423 for the period. The
outstanding principal balance of the note is $2,244,000 and the net carrying
value of the note is $1,685,750 after deducting a deferred gain of $558,250. The
Company anticipates that the annual interest payment will be received in the
second quarter of 2000.
4. MINORITY PARTNERS' INTEREST
Presidential is the General Partner of UTB Associates and PDL, Inc., a wholly
owned subsidiary of Presidential, is the General Partner of Home Mortgage
Partnership. Presidential has a 66-2/3% interest in UTB Associates, and
Presidential and PDL, Inc. have an aggregate 26% interest in Home Mortgage
Partnership. As the General Partner of these partnerships, Presidential and PDL,
Inc., respectively, exercise effective control over the business of these
partnerships, and, accordingly, Presidential consolidates these partnerships in
the accompanying financial statements. The minority partners' interest reflects
the minority partners' equity in the partnerships.
The minority partners' interest in the Home Mortgage Partnership is a negative
interest and therefore, minority partners' interest is a net asset on the
Company's financial statements. The negative basis for each partner's interest
in the Home Mortgage Partnership is due to the refinancing of the mortgage on
the property and the distribution of the proceeds to the partners. The mortgage
debt, which is included in the Company's financial statements, is substantially
in excess of the net carrying amount of the property, but the estimated fair
value of the property is significantly greater than the mortgage debt. Thus, the
asset recorded as minority partners' interest should be realized upon sale of
the property.
Minority partners' interest is comprised of the following:
March 31, December 31,
2000 1999
---------- ------------
Home Mortgage Partnership $8,092,494 $8,112,127
UTB Associates (222,953) (207,594)
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Total minority partners' interest $7,869,541 $7,904,533
========== ============
5. SECURITIES AVAILABLE FOR SALE
The cost and fair value of securities available for sale are as follows:
March 31, December 31,
2000 1999
---------- -----------
Cost $1,186,301 $2,520,568
Gross unrealized gains 1,590 1,824
Gross unrealized losses (138,363) (222,898)
---------- -----------
Fair value $1,049,528 $2,299,494
========== ===========
During the three months ended March 31, 2000, the Company sold securities
available for sale for gross proceeds of $1,285,263 and a net loss of $53,911.
This net loss was composed of a gross loss of $56,217 and a gross gain of
$2,306. During the three months ended March 31, 1999, there were no sales of
securities available for sale.
6. MORTGAGE DEBT
In connection with the purchase of Farrington Apartments and Preston Lake
Apartments in March, 2000, the Company obtained first mortgage loans secured by
the properties as follows:
Mortgage Interest Monthly Maturity Balloon
Property Loan Rate Payment Date Payment
- -------- -------- -------- ------- -------- -------
Farrington Apartments $ 7,900,000 8.25% $ 59,350 5/1/2010 $ 7,106,299
Preston Lake Apartments 14,000,000 8.15% 104,195 5/1/2010 12,564,077
7. INCOME TAXES
Presidential has elected to qualify as a Real Estate Investment Trust under the
Internal Revenue Code. A REIT which distributes at least 95% of its real estate
investment trust taxable income to its shareholders each year by the end of the
following year and which meets certain other conditions will not be taxed on
that portion of its taxable income which is distributed to its shareholders.
For the year ended December 31, 1999, the Company had taxable income (before
distributions to stockholders) of approximately $3,711,000 ($1.01 per share),
which included approximately $2,836,000 ($.77 per share) of capital gains. The
$3,711,000 was reduced by the $630,000 ($.17 per share) of undistributed
capital gains designated as paid under Section 857(b)(3)(D). At December 31,
1999, the Company accrued $220,500 for income taxes on the $630,000
undistributed capital gain, which tax was subsequently paid in January, 2000.
The $3,081,000 balance of taxable income will be reduced by the $801,000 ($.22
per share) of its 1999 distributions that were not utilized in reducing the
Company's 1998 taxable income. In addition, the Company may elect to apply any
eligible year 2000 distributions to reduce its 1999 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 March 31, 2000, Presidential has distributed all of the required 95% ($.23
per share) of its 1999 REIT taxable income. In addition, although no assurances
can be given, it is the Company's present intention to distribute all of its
1999 taxable income (after the $630,000 retained capital gain) and therefore, no
provision for income taxes was made for the $3,081,000 of taxable income at
December 31, 1999.
Furthermore, the Company had taxable income (before distributions to
stockholders) for the three months ended March 31, 2000 of approximately
$235,000 ($.06 per share), which included approximately $13,000 ($.00 per share)
of capital gains. This amount will be reduced by 2000 distributions
that were not utilized in reducing the Company's 1999 taxable income and by
any eligible 2001 distributions that the Company may elect to utilize as a
reduction of its 2000 taxable income.
Presidential intends to continue to maintain its REIT status. Presidential has,
for tax purposes, reported the gain from the sale of certain of its properties
using the installment method.
8. COMPREHENSIVE INCOME
The Company's only element of other comprehensive income is the change in the
unrealized gain (loss) on the Company's securities available for sale. Thus,
comprehensive income, which consists of net income plus or minus other
comprehensive income, for the three months ended March 31, 2000 and 1999 was
$555,902 and $6,951,889, respectively.
9. COMMITMENTS AND CONTINGENCIES
Presidential is not a party to any material legal proceedings except as noted
below.
UTB Associates, a partnership in which the Company holds a 66-2/3% interest, is
a tenant under a lease (the "Professional Space Lease") of 24,400 square feet of
professional office space at University Towers, a cooperative apartment building
in New Haven, Connecticut. UTB Associates sublets the professional space to
unrelated parties. In June, 1999, University Towers Owners Corp., the
cooperative corporation, filed a petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District
of Connecticut, New Haven division. As part of the bankruptcy proceedings, in
July, 1999 the cooperative corporation filed an Adversary Proceeding against UTB
Associates for termination of the Professional Space Lease and damages primarily
based on claims arising under Connecticut law. The Company has been advised by
its litigation counsel that there are meritorious defenses to the claim raised
by the cooperative corporation and that if these defenses are successful, it is
unlikely that the Professional Space Lease will be terminated or that any
damages will be assessed against UTB Associates. However, in light of the
uncertainties of litigation, no assurances can be given as to the outcome of the
litigation. The Company's financial statements reflect approximately $19,000 of
income from the Professional Space Lease for each of the quarters ended March
31, 2000 and 1999.
In addition, the Company may be a party to routine litigation incidental to the
ordinary course of its business. In the opinion of management, all of the
Company's properties are adequately covered by insurance in accordance with
normal insurance practices. The Company is not aware of any environmental issues
at any of its properties, with the exception of the environmental expenses
incurred in prior years at its Mapletree Industrial Center property in Palmer,
Massachusetts. The presence, with or without the Company's knowledge, of
hazardous substances at any of its properties could have an adverse effect on
the Company's operating results and financial condition.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Results of Operations
Financial Information for the three months ended March 31, 2000 and 1999:
- ----------------------------------------------------------------------------
Revenue decreased by $104,785 primarily as a result of decreases in interest on
wrap mortgages and mortgages-sold properties. These decreases were offset by
increases in rental income.
Rental income increased by $276,771 primarily as a result of the purchase of
Farrington Apartments on March 15, 2000, which increased rental income by
$86,043. In addition, rental income increased by $71,807 at the Home Mortgage
Plaza property and by $118,921 at all other properties. The Farrington
Apartments and the Preston Lake Apartments properties were purchased late in the
first quarter of 2000 and did not significantly impact results of operations.
Interest on wrap mortgages decreased by $299,387 as a result of the modification
of the New Haven wraparound mortgage notes in 1999 and the sale of the Grant
House wraparound mortgage note in 1999. As a result of these transactions, the
Company no longer holds any wraparound mortgage notes.
Interest on mortgages-sold properties decreased by $96,888 primarily due to the
$240,795 decrease in amortization of discounts on notes. The majority of the
discounts on the notes held by Presidential were entirely amortized as the notes
matured, or when a particular note was paid off or sold. This decrease was
partially offset by the $145,746 increase in interest as a result of rate
increases and modifications.
Costs and expenses decreased by $265,850 primarily due to decreases in interest
on note payable and other and decreases in amortization of mortgage costs. These
decreases were offset by increases in general and administrative expenses, real
estate tax expenses and minority interest share of partnership income.
Interest on note payable and other decreased by $185,849 as a result of the
repayment of the note payable in February, 1999.
Amortization of mortgage costs decreased by $201,030 primarily as a result of
the write-off in 1999 of unamortized mortgage costs of $166,756 and the $31,200
prepayment penalty fee associated with the prior mortgage on the Cambridge Green
property which was refinanced in 1999.
General and administrative expenses increased by $54,302 primarily as a result
of increases in salary expense of $22,743 and increases in executive pension
plan and employee pension plan expenses of $19,052 and $21,851, respectively.
Real estate tax expenses increased by $25,817 primarily as a result of property
tax rate increases and assessment increases.
Minority interest share of partnership income increased by $39,542 as a result
of an increase in partnership income on the Home Mortgage Plaza property.
Net gain from sales of properties, notes and securities are sporadic (as they
depend on the timing of sales or the receipt of installments or prepayments on
purchase money notes). In 2000, the net gain from sales of properties, notes and
securities was $12,703 compared with $6,718,968 in 1999:
Gain from sales recognized at March 31, 2000 1999
---- ----
Sales of mortgage notes:
Fairfield Towers First and Second Mortgages
(net of taxes of $1,566,474) sold in 1999 $6,050,740
Grant House wraparound mortgage note sold in 1999 425,000
Deferred gains recognized upon receipt of
principal payments on notes:
Pinewood - $317,662 principal prepayment
received in 1999 218,534
Overlook $ 5,775 5,228
Fairfield Towers Second Mortgage 19,466
Sale of property:
Broad Park Lodge 60,839
Sales of securities (53,911)
------- ----------
$12,703 $6,718,968
======= ==========
Balance Sheet
Real estate increased by $27,331,071 as a result of the purchase of Farrington
Apartments and Preston Lake Apartments in March, 2000. The capitalized costs for
Farrington Apartments, a 224 unit garden apartment property in Clearwater,
Florida was $1,900,000 for land and $7,896,421 for buildings and improvements.
The capitalized costs for Preston Lake Apartments, a 320 unit garden apartment
property in Tucker, Georgia, was $2,240,000 for land and $15,239,465 for
buildings and improvements. In addition, additions and improvements to other
properties were $65,185.
Prepaid expenses and deposits in escrow increased by $496,304 as a result of the
purchase of Farrington Apartments and Preston Lake Apartments in March of 2000.
Securities available for sale decreased by $1,249,966 as a result of the sale of
$1,334,267 in marketable equity securities, primarily interest-bearing corporate
preferred stocks, offset by an $84,301 increase in the fair value of securities
available for sale.
Cash and cash equivalents decreased by $5,048,754 primarily as a result of the
cash utilized for the purchase of Farrington Apartments and Preston Lake
Apartments.
Mortgage debt increased by $21,789,410 primarily due to the $7,900,000 mortgage
on Farrington Apartments and the $14,000,000 mortgage on Preston Lake
Apartments.
Deferred income increased by $47,663 primarily as a result of an increase of
$42,213 in prepaid rents.
In March, 2000, three directors of the Company were each given 1,000 shares of
the Company's Class B common stock as partial payment for directors fees for the
2000 year. The average market value for the previous month of the Class B common
stock, on which the fees were based, was $6.075 per share. As a result of this
transaction, the Company recorded $18,225 in prepaid directors fees (to be
amortized during 2000) based on the average market value of the stock. The
Company recorded additions to the Company's Class B common stock of $300 at par
value of $.10 per share and $17,925 to additional paid-in capital.
Net unrealized loss on securities available for sale decreased by $84,301 as a
result of the increase in the fair value of securities available for sale.
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things affect the demand for apartments or commercial space, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements.
Liquidity and Capital Resources
Management believes that the Company has sufficient liquidity and capital
resources to carry on its existing business and, barring any unforeseen
circumstances, to pay the dividends required to maintain REIT status in the
foreseeable future. During the quarter ended March 31, 2000, the Company
purchased two new properties and utilized a substantial portion of its available
funds, as well as obtaining mortgage financing for the purchase of these
properties. Except as discussed herein, management is not aware of any other
trends, events, commitments or uncertainties that will have a significant effect
on liquidity.
Presidential obtains funds for working capital and investment from its
available cash and cash equivalents, from securities available for sale, from
operating activities, from refinancing of mortgage loans on its real estate
equities, and from the sales of or repayments on its mortgage portfolio. The
Company also has at its disposal a $250,000 unsecured line of credit from a
lending institution.
At March 31, 2000, Presidential had $1,965,788 in available cash and cash
equivalents, a decrease of $5,048,754 from the $7,014,542 at December 31, 1999.
This decrease in cash and cash equivalents was due to cash provided by operating
activities of $388,720 and financing activities of $20,736,190, offset by cash
used in investing activities of $26,173,664.
Operating Activities
Presidential's principal source of cash from operating activities is from
interest on its mortgage portfolio, which was $800,259 in 2000. In 2000, net
cash received from rental property operations was $248,474, which is net of
distributions from partnership operations to minority partners but before
additions and improvements and mortgage amortization.
Investing Activities
Presidential holds a portfolio of mortgage notes receivable, which consist
primarily of notes arising from sales of real properties previously owned by
the Company. During 2000, the Company received principal payments of $41,600 on
its mortgage portfolio of which $4,866 represented prepayments, which are
sporadic and cannot be relied upon as a regular source of liquidity.
In March, 2000, the Company purchased Farrington Apartments and Preston Lake
Apartments for a purchase price of $9,630,950 and $17,450,000, respectively.
The Company obtained first mortgage loans of $7,900,000 and $14,000,000,
respectively, which are secured by the properties. (See Balance Sheet above and
Financing Activities below).
During 2000, the Company invested $69,212 in additions and improvements to its
properties.
The Company also holds a portfolio of marketable equitable securities which
decreased by $1,249,966, primarily as a result of the $1,334,267 sale of
corporate preferred stocks, offset by an increase in the fair value of
securities of $84,301.
Financing Activities
The Company's indebtedness at March 31, 2000, consisted of $61,168,868 of
mortgage debt. The mortgage debt, which is secured by individual properties, is
nonrecourse to the Company with the exception of the $255,541 Mapletree
Industrial Center mortgage, which is secured by the property and a guarantee of
repayment by Presidential. In addition, some of the Company's mortgages provide
for personal liability for damages resulting from specified acts or
circumstances, such as for environmental liabilities and fraud. Generally,
mortgage debt repayment is serviced with cash flow from the operations of the
individual properties. During 2000, the Company made $110,590 of principal
payments on mortgage debt.
In connection with the purchase of Farrington Apartments and Preston Lake
Apartments in March, 2000, the Company obtained first mortgage loans secured by
the properties as follows:
Mortgage Interest Monthly Maturity Balloon
Property Loan Rate Payment Date Payment
- -------- ---------- -------- -------- --------- ----------
Farrington Apartments $ 7,900,000 8.25% $ 59,350 5/1/2010 $ 7,106,299
Preston Lake Apartments 14,000,000 8.15% 104,195 5/1/2010 12,564,077
In addition, the Company paid mortgage costs of $350,096 for the mortgages
obtained for the new properties. These mortgage costs were capitalized to other
assets and will be amortized over the life of the mortgages applying the
interest method.
The mortgages on the Company's properties are at fixed rates of interest. The
majority of the mortgages have balloon payments due at maturity with the
exception of four mortgages which are self-liquidating.
During 2000, Presidential declared and paid cash distributions of $590,935 to
its shareholders and received proceeds from its dividend reinvestment and share
purchase plan of $21,014.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.12 Employment Agreement dated January 1, 2000 between the Company and
Jeffrey F. Joseph.
10.13 Employment Agreement dated January 1, 2000 between the Company and
Steven Baruch.
10.14 Employment Agreement dated January 1, 2000 between the Company and
Thomas Viertel.
27. Financial Data Schedule.
(b) During the calendar quarter ended March 31, 2000, the Company filed two
Form 8-K's dated March 27, 2000, and April 10, 2000 which disclosed
under Item 2 - Acquisition or Disposition of Assets the purchase of
Farrington Apartments and the purchase of Preston Lake Apartments,
respectively.
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: May 12, 2000 By: /s/ Jeffrey F. Joseph
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Jeffrey F. Joseph
President
DATE: May 12, 2000 By: /s/ Elizabeth Delgado
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Elizabeth Delgado
Treasurer