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, 2001
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8594
-------
PRESIDENTIAL REALTY CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1954619
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 South Broadway, White Plains, New York 10605
------------------------------------------ ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, indicating area code 914-948-1300
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
------ ------
The number of shares outstanding of each of the issuer's classes of common stock
as of the close of business on August 8, 2001 was 478,840 shares of Class A
common and 3,238,613 shares of Class B common.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
For the Six Months Ended
June 30, 2001
Part I - Financial Information (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
Assets June 30, December 31,
2001 2000
-------------- --------------
Real estate (Note 2) $63,821,840 $63,537,365
Less: accumulated depreciation 10,702,626 9,818,165
-------------- --------------
Net real estate 53,119,214 53,719,200
-------------- --------------
Mortgage portfolio (Note 3):
Sold properties 27,654,238 28,191,380
Related parties 1,414,248 1,447,959
-------------- --------------
Total mortgage portfolio 29,068,486 29,639,339
-------------- --------------
Less discounts:
Sold properties 1,311,352 1,621,104
Related parties 110,582 114,794
-------------- --------------
Total discounts 1,421,934 1,735,898
-------------- --------------
Less deferred gains:
Sold properties 10,258,695 11,224,373
Related parties 871,435 884,355
-------------- --------------
Total deferred gains 11,130,130 12,108,728
-------------- --------------
Net mortgage portfolio (of which $434,589 in 2001
and $362,992 in 2000 are due within one year) 16,516,422 15,794,713
-------------- --------------
Minority partners' interest (Note 4) 7,760,019 7,838,643
Prepaid expenses and deposits in escrow 2,039,422 1,691,013
Other receivables (net of valuation allowance of
$176,311 in 2001 and $181,838 in 2000) 764,878 732,655
Cash and cash equivalents 2,454,282 2,159,661
Other assets 1,979,548 2,002,155
-------------- --------------
Total Assets $84,633,785 $83,938,040
============== ==============
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
Liabilities and Stockholders' Equity
June 30, December 31,
2001 2000
------------- --------------
Liabilities:
Mortgage debt (of which $647,326 in 2001 and
$624,439 in 2000 are due within one year) $59,534,342 $59,846,143
Executive pension plan liability 1,575,039 1,530,148
Accrued liabilities 2,190,360 1,868,547
Accrued postretirement costs 512,538 518,334
Deferred income 149,854 120,025
Accounts payable 346,344 419,290
Other liabilities 942,122 919,256
------------- --------------
Total Liabilities 65,250,599 65,221,743
------------- --------------
Stockholders' Equity:
Common stock; par value $.10 per share
Class A, authorized 700,000 shares, issued 478,940 shares
and 100 shares held in treasury 47,894 47,894
Class B June 30, 2001 December 31, 2000 324,046 323,015
----------- ------------------ -----------------------
Authorized: 10,000,000 10,000,000
Issued: 3,240,463 3,230,148
Treasury: 1,850 1,850
Additional paid-in capital 2,737,025 2,677,126
Retained earnings 16,660,758 16,055,448
Accumulated other comprehensive income (Note 6) 2,051 1,402
Treasury stock (at cost) (21,088) (21,088)
Notes receivable for exercise of stock options (367,500) (367,500)
------------- --------------
Total Stockholders' Equity 19,383,186 18,716,297
------------- --------------
Total Liabilities and Stockholders' Equity $84,633,785 $83,938,040
============= ==============
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
SIX MONTHS ENDED JUNE 30,
-----------------------------------
2001 2000
--------------- ----------------
Income:
Rental $7,989,033 $6,743,471
Interest on mortgages - sold properties 1,683,016 1,489,646
Interest on mortgages - related parties 97,582 89,921
Investment income 72,874 164,067
Other 18,716 24,701
--------------- ----------------
Total 9,861,221 8,511,806
--------------- ----------------
Costs and Expenses:
General and administrative 1,581,961 1,379,867
Depreciation on non-rental property 11,373 11,460
Rental property:
Operating expenses 3,182,972 2,832,419
Interest on mortgage debt 2,291,798 1,932,087
Real estate taxes 652,709 568,306
Depreciation on real estate 884,687 704,129
Amortization of mortgage costs 55,030 43,326
Minority interest share of partnership income 385,923 320,767
--------------- ----------------
Total 9,046,453 7,792,361
--------------- ----------------
Income before net gain (loss) from sales of properties, notes and securities 814,768 719,445
Net gain (loss) from sales of properties, notes and securities 978,598 (113,320)
--------------- ----------------
Net Income $1,793,366 $606,125
=============== ================
Earnings per Common Share (basic and diluted) (Note 1-C):
Income before net gain (loss) from sales of properties, notes and securities $0.22 $0.19
Net gain (loss) from sales of properties, notes and securities 0.26 (0.03)
--------------- ----------------
Net Income per Common Share $0.48 $0.16
=============== ================
Cash Distributions per Common Share $0.32 $0.32
=============== ================
Weighted Average Number of Shares Outstanding 3,712,317 3,694,556
=============== ================
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED JUNE 30,
-----------------------------------
2001 2000
--------------- ----------------
Income:
Rental $3,952,020 $3,862,939
Interest on mortgages - sold properties 721,386 745,481
Interest on mortgages - related parties 56,595 44,712
Investment income 33,358 37,314
Other 4,502 4,387
--------------- ----------------
Total 4,767,861 4,694,833
--------------- ----------------
Costs and Expenses:
General and administrative 757,048 658,698
Depreciation on non-rental property 5,764 5,785
Rental property:
Operating expenses 1,608,802 1,674,149
Interest on mortgage debt 1,148,700 1,166,038
Real estate taxes 329,090 320,914
Depreciation on real estate 444,671 433,545
Amortization of mortgage costs 25,002 22,585
Minority interest share of partnership income 194,009 152,572
--------------- ----------------
Total 4,513,086 4,434,286
--------------- ----------------
Income before net gain (loss) from sales of properties, notes and securities 254,775 260,547
Net gain (loss) from sales of properties, notes and securities 134,540 (126,023)
--------------- ----------------
Net Income $389,315 $134,524
=============== ================
Earnings per Common Share (basic and diluted) (Note 1-C):
Income before net gain (loss) from sales of properties, notes and securities $0.07 $0.06
Net gain (loss) from sales of properties, notes and securities 0.03 (0.03)
--------------- ----------------
Net Income per Common Share $0.10 $0.03
=============== ================
Cash Distributions per Common Share $0.16 $0.16
=============== ================
Weighted Average Number of Shares Outstanding 3,714,926 3,697,449
=============== ================
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30,
--------------------------------------
2001 2000
---------------- --------------
Cash Flows from Operating Activities:
Cash received from rental properties $7,914,696 $6,722,320
Interest received 1,578,945 1,643,806
Miscellaneous income 17,469 23,453
Interest paid on rental property mortgage debt (2,302,630) (1,849,707)
Cash disbursed for rental property operations (3,909,431) (3,744,260)
Cash disbursed for general and administrative costs (1,521,265) (1,474,500)
---------------- --------------
Net cash provided by operating activities 1,777,784 1,321,112
---------------- --------------
Cash Flows from Investing Activities:
Payments received on notes receivable 1,670,853 103,859
Payments disbursed for investments in notes receivable (1,100,000)
Payments of taxes payable on gain from sale of notes (220,500)
Payments disbursed for additions and improvements (290,855) (300,434)
Purchase of property (27,275,886)
Proceeds from sales of securities 2,331,119
Other 69,979
---------------- --------------
Net cash provided by (used in) investing activities 279,998 (25,291,863)
---------------- --------------
Cash Flows from Financing Activities:
Principal payments on mortgage debt (311,801) (1,147,017)
Mortgage proceeds 21,900,000
Mortgage costs paid (350,094)
Cash distributions on common stock (1,188,056) (1,182,448)
Proceeds from dividend reinvestment and share purchase plan 43,995 42,690
Distributions to minority partners (307,299) (274,737)
---------------- --------------
Net cash (used in) provided by financing activities (1,763,161) 18,988,394
---------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 294,621 (4,982,357)
Cash and Cash Equivalents, Beginning of Period 2,159,661 7,014,542
---------------- --------------
Cash and Cash Equivalents, End of Period $2,454,282 $2,032,185
================ ==============
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30,
---------------------------------
2001 2000
------------- ------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net Income $1,793,366 $606,125
------------- ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 951,090 758,915
Losses (gains) from sales of properties, notes and securities (978,598) 113,320
Issuance of stock for fees and expenses 8,467 9,113
Amortization of discounts on notes and fees (361,483) (184,954)
Minority share of partnership income 385,923 320,767
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 15,297 (186,346)
Increase in accounts payable and accrued liabilities 287,962 392,561
Increase in deferred income 29,829 110,005
Increase in prepaid expenses, deposits in escrow
and deferred charges (339,941) (605,913)
Decrease in security deposit liabilities (14,917) (11,233)
Other 789 (1,248)
------------- ------------
Total adjustments (15,582) 714,987
------------- ------------
Net cash provided by operating activities $1,777,784 $1,321,112
============= ============
See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
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 ownership
of income producing real estate and in the holding of notes and mortgages
secured by 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 six months ended June 30, 2001
and 2000. 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 accounting principles generally
accepted in the United States of America for interim financial information. The
results for such interim periods are not necessarily indicative of the results
to be expected for the year. 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 consolidated financial statements and accompanying notes should be read in
conjunction with the Company's Form 10-K for the year ended December 31, 2000.
E. Management Estimates - In preparing the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America, 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.
F. Derivative Instruments - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities", on January 1, 2001. Company management has determined
that the Company has no derivative financial instruments; therefore,
implementation of this standard had no impact on the Company.
G. Recent Accounting Pronouncements - In July, 2001, the Financial Accounting
Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets". These statements establish new
standards for accounting and reporting for business combinations and for
goodwill and intangible assets resulting from business combinations.
SFAS No. 141 applies to all business combinations initiated after June 30,
2001;the Company is required to implement SFAS No. 142 on January 1,2002.
Management believes that implementation of these statements will not have a
material impact on the Company's financial statements.
2. REAL ESTATE
Real estate is comprised of the following:
June 30, December 31,
2001 2000
----------- ------------
Land $ 9,599,970 $ 9,599,970
Buildings and leaseholds 53,854,978 53,595,647
Furniture and equipment 366,892 341,748
----------- ------------
Total real estate $63,821,840 $63,537,365
=========== ============
For the six months ended June 30, 2001, four of the properties owned by the
Company represented 26%, 17%, 12% and 10% of total rental income. Three
properties represented 30%, 14% and 10% of total rental income for the six
months ended June 30, 2000.
3. MORTGAGE PORTFOLIO
In January, 2001, the Company received payment in full on its $1,175,500
Woodgate note receivable that had been secured by the Windsor at Arbors property
in Alexandria, Virginia. As a result, the Company recognized $255,281 of
unamortized discount and $684,991 of deferred gain.
During the six months ended June 30, 2001, the Company received $256,000 in
principal payments on its Mark Terrace note resulting in the recognition of a
deferred gain of $256,000.
In February, 2001, the Company made a $1,100,000 loan secured by three apartment
properties located in New Jersey and by a $750,000 personal guarantee by one of
the borrower's principals. These properties also secure the $4,000,000 Fairfield
Towers loan. The loan requires monthly interest payments at the rate of 13% per
annum and the entire principal amount is due at maturity in February, 2009.
At June 30, 2001, all of the notes in the Company's mortgage portfolio are
current.
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:
June 30, December 31,
2001 2000
---------- ------------
Home Mortgage Partnership $7,980,625 $8,040,310
UTB Associates (220,606) (201,667)
---------- ------------
Total minority partners' interest $7,760,019 $7,838,643
========== ============
5. 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, 2000, the Company had taxable income (before
distributions to stockholders) of approximately $850,000 ($.23 per share) and
capital losses of approximately $32,000 ($.01 per share) which will be carried
forward to the 2001 tax year. The $850,000 taxable income will be reduced by the
$92,000 ($.02 per share) of its 2000 distributions that were not utilized in
reducing the Company's 1999 taxable income. In addition, the Company intends to
elect to apply any eligible year 2001 distributions to reduce its taxable income
for 2000 to zero.
Furthermore, the Company had taxable income (before distributions to
stockholders) for the six months ended June 30, 2001 of approximately $1,772,000
($.48 per share), which included approximately $1,283,000 ($.35 per share) of
capital gains. This amount will be reduced by 2001 distributions
that were not utilized in reducing the Company's 2000 taxable income and by any
eligible 2002 distributions that the Company may elect to utilize as a
reduction of its 2001 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.
6. 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 six months ended June 30, 2001 and 2000 was
$1,794,015 and $828,741, respectively.
7. 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. 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.
During 2000, a court trial was held in this matter, but no decision has yet been
rendered by the court. 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 $34,000 and $12,000 of income from
the Professional Space Lease for the six months ended June 30, 2001 and 2000,
respectively.
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. 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 SIX MONTHS ENDED JUNE 30, 2001 AND 2000
Results of Operations
Financial Information for the six months ended June 30, 2001 and 2000:
- ----------------------------------------------------------------------------
Revenue increased by $1,349,415 primarily as a result of increases in rental
income and interest income on mortgages-sold properties. These increases were
partially offset by a decrease in investment income.
Rental income increased by $1,245,562 primarily as a result of the purchase of
Farrington Apartments and Preston Lake Apartments in March, 2000. Rental income
increased by $998,270 for these two properties. In addition, rental income
increased by $106,581 at the Sunwood Apartments property and by $140,711 at all
other properties.
Interest on mortgages-sold properties increased by $193,370 primarily due to the
$255,281 amortization of discount on notes, which resulted from the $1,175,500
principal payment received on the Woodgate note receivable that had been secured
by the Windsor at Arbors property in Alexandria, Virginia. This increase was
partially offset by decreases of $77,938 in amortization of discounts on notes
receivable. Interest income increased by $16,027 on the sold property mortgage
portfolio.
Investment income decreased by $91,193 primarily as a result of the sale of
securities during 2000.
Costs and expenses increased by $1,254,092 primarily due to increases in a
majority of all categories of costs and expenses.
General and administrative expenses increased by $202,094 primarily as a result
of increases in salary expense of $124,895 (of which, $101,410 pertains to
increases in executive bonuses), increases in executive and employee pension
plan expenses of $50,873 and increases in insurance expense of $26,796.
Rental property operating expenses increased by $350,553 primarily as a result
of the purchase of Farrington Apartments and Preston Lake Apartments, which
increased rental property operating expenses by $295,566. In addition, at other
properties, insurance expense increased by $49,694 and snow removal expense
increased by $24,026.
Interest expense on mortgage debt increased by $359,711. The increase in
interest expense on mortgage debt for Farrington Apartments and Preston Lake
Apartments was $407,285. This increase was partially offset by a $29,246
decrease in interest expense on mortgage debt as a result of the repayment of
the mortgage on the Building Industries Center property in May of 2000.
Real estate tax expense increased by $84,403. The increase in real estate tax
expense for Farrington Apartments and Preston Lake Apartments was $88,517.
Depreciation expense on real estate increased by $180,558. The increase in
depreciation expense for Farrington Apartments and Preston Lake Apartments was
$174,421.
Amortization of mortgage costs increased by $11,704. The increase in
amortization of mortgage costs for Farrington Apartments and Preston Lake
Apartments was $8,157. In addition, amortization of mortgage costs increased by
$4,600 on the Home Mortgage Plaza property.
Minority interest share of partnership income increased by $65,156 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 2001, the net gain from sales of properties, notes and
securities was $978,598 compared with a net loss of $113,320 in 2000:
Gain from sales recognized at June 30, 2001 2000
Deferred gains recognized upon receipt of ---- ----
principal payments on notes:
Woodgate - $1,175,500 principal payment $684,991
Mark Terrace 256,000
Overlook 12,920 $ 11,695
330 West 72nd St. - co-op apt. note 24,687
Sale of property:
Broad Park Lodge apartment units 60,839
Sales of securities (185,854)
-------- ---------
Net gain (loss) $978,598 $(113,320)
======== =========
Financial Information for the three months ended June 30, 2001 and 2000:
- ----------------------------------------------------------------------------
Revenue increased by $73,028 primarily as a result of increases in rental income
and interest income on mortgages-related parties. These increases were partially
offset by decreases in interest income on mortgages-sold properties and in
investment income.
Rental income increased by $89,081 primarily as a result of increased rental
income of $38,966 at the Home Mortgage Plaza property and $38,495 at the Sunwood
Apartments property. In addition, rental income at other properties increased by
$53,310. These increases were partially offset by decreases of $41,690 at the
Farrington Apartments and Preston Lake Apartments properties.
Interest on mortgages-sold properties decreased by $24,095 primarily due to a
$38,551 decrease in amortization of discounts on notes receivable, which was
partially offset by a $14,456 increase in interest income on the sold property
mortgage portfolio.
Interest on mortgages-related parties increased by $11,883 primarily as a result
of a $16,000 interest payment received on the Consolidated Loans. This increase
was offset by decreases of $4,117 in interest income on the related parties
mortgage portfolio.
Investment income decreased by $3,956 primarily as a result of the sale of
securities during 2000.
Costs and expenses increased by $78,800 primarily due to increases in general
and administrative expenses and minority interest share of partnership income.
These increases were partially offset by decreases in rental property operating
expenses.
General and administrative expenses increased by $98,350 primarily as a result
of increases in salary expense of $65,986 (of which, $51,696 pertains to
increases in executive bonuses), increases in executive and employee pension
plan expenses of $25,437 and increases in insurance expense of $9,148.
Rental property operating expenses decreased by $65,347 primarily as a result of
decreases in repairs and maintenance expenses of $96,390, decreases in bad debt
expenses of $40,363 and decreases in legal and professional fee expenses of
$40,599. These decreases were partially offset by increases of $51,519 in
utility expenses, increases of $42,145 in insurance expense and an $18,830
increase in payroll expenses.
Minority interest share of partnership income increased by $41,437 primarily 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 2001, the net gain from sales of properties, notes and
securities was $134,540 compared with a net loss of $126,023 in 2000:
Gain from sales recognized at June 30, 2001 2000
Deferred gains recognized upon receipt of ---- ----
principal payments on notes:
Mark Terrace $128,000
Overlook 6,540 $ 5,920
Sales of securities (131,943)
-------- ---------
Net gain (loss) $134,540 $(126,023)
======== =========
Funds From Operations
Funds from operations ("FFO") represents net income computed in accordance with
generally accepted accounting principles ("GAAP"), excluding gains (losses) from
sales of properties, notes and securities, plus depreciation and amortization on
real estate. FFO is calculated in accordance with the National Association of
Real Estate Investment Trusts ("NAREIT") definition. FFO does not represent cash
generated from operating activities in accordance with GAAP, which is disclosed
in the Consolidated Statements of Cash Flows included in the financial
statements, and is not necessarily indicative of cash available to fund cash
requirements. There are no material legal or functional restrictions on the use
of FFO. FFO should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flows as a measure of liquidity. Management considers FFO a supplemental measure
of operating performance and along with cash flow from operating activities,
financing activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to make
capital expenditures and to fund other cash requirements.
FFO, as calculated in accordance with the NAREIT definition, is summarized in
the following table:
Six months ended Three months ended
June 30, June 30,
---------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
Income before net gain (loss)
from sales of properties,
notes and securities $ 814,768 $ 719,445 $ 254,775 $ 260,547
Depreciation and amortization
on real estate 884,687 704,129 444,671 433,545
---------- ---------- --------- ---------
Funds From Operations $1,699,455 $1,423,574 $699,446 $694,092
========== ========== ========= =========
Distributions paid to
shareholders $1,188,056 $1,182,448
========== ==========
FFO payout ratio 69.9% 83.1%
========== ==========
Cash flows from:
Operating activities $ 1,777,784 $ 1,321,112
=========== ============
Investing activities $ 279,998 $(25,291,863)
=========== ============
Financing activities $(1,763,161) $ 18,988,394
=========== ============
Balance Sheet
Net mortgage portfolio increased by $721,709 primarily as a result of a
$1,100,000 loan made in February, 2001. The $1,100,000 loan is secured by three
apartment properties located in New Jersey and by a $750,000 personal guarantee
by one of the borrower's principals. This increase was offset by the receipt of
the $1,175,500 principal payment on the Woodgate note receivable. In connection
with that payment, the Company recognized an unamortized discount of $255,281
and a deferred gain of $684,991 which resulted in a net decrease of $235,228.
Prepaid expenses and deposits in escrow increased by $348,409 as a result of
increases of $57,371 in prepaid expenses (primarily insurance) and increases of
$291,038 in deposits in escrow.
Cash and cash equivalents increased by $294,621 primarily as a result of the
$256,000 principal payments received on the Mark Terrace note.
Accrued liabilities increased by $321,813 as a result of a $321,175 increase in
accrued real estate taxes. These taxes are paid from escrow accounts when the
real estate taxes become due.
Deferred income increased by $29,829 primarily as a result of increases of
$64,580 in deferred interest income, offset by decreases of $34,751 in prepaid
rents and other income.
In February, 2001, 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 2001 year. The shares were valued at $5.645 per share, which was the average
market value for the previous month of the Class B common stock, and,
accordingly, the Company recorded $16,935 in prepaid directors fees (to be
amortized during 2001) 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 $16,635 to additional paid-in capital.
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. 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 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 June 30, 2001, Presidential had $2,454,282 in available cash and cash
equivalents, an increase of $294,621 from the $2,159,661 at December 31, 2000.
This increase in cash and cash equivalents was due to cash provided by operating
activities of $1,777,784 and investing activities of $279,998, offset by cash
used in financing activities of $1,763,161.
Operating Activities
Cash from operating activities includes interest on the Company's mortgage
portfolio and net cash received from rental property operations, which were
$1,578,945 and $1,395,336 in 2001, respectively. Net cash received from rental
property operations 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. During 2001, the
Company received principal payments of $1,670,853 on its mortgage portfolio of
which $420,322 represented prepayments and $1,175,500 is the balloon payment
received on the Woodgate note. Prepayments and balloon payments are sporadic and
cannot be relied upon as a regular source of liquidity.
Presidential made a $1,100,000 mortgage loan in February, 2001. The loan has an
annual interest rate of 13% and the entire principal is due at maturity in
February, 2009.
During 2001, the Company invested $290,855 in additions and improvements to its
properties.
Financing Activities
The Company's indebtedness at June 30, 2001, consisted of $59,534,342 of
mortgage debt. The mortgage debt, which is collateralized by individual
properties, is nonrecourse to the Company with the exception of the $238,291
Mapletree Industrial Center mortgage, which is collateralized 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 2001, the Company made $311,801
of principal payments on mortgage debt.
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 2001, Presidential declared and paid cash distributions of $1,188,056 to
its shareholders and received proceeds from its dividend reinvestment and share
purchase plan of $43,955.
Consolidated Loans
Presidential holds two nonrecourse loans (the "Consolidated Loans") which were
collateralized by substantially all of the remaining assets of Ivy Properties,
Ltd. and its affiliates ("Ivy"). At June 30, 2001, the Consolidated Loans have
an outstanding principal balance of $4,786,943 and a net carrying value of
$16,893. Pursuant to existing agreements between the Company and two of the Ivy
principals (Steven Baruch, Executive Vice President of Presidential, and Thomas
Viertel, Executive Vice President and Chief Financial Officer of Presidential),
the Company is entitled to receive, as payments of principal and interest on the
Consolidated Loans, 25% of the cash flow of Scorpio Entertainment, Inc.
("Scorpio"), a company owned by Messrs. Baruch and Viertel to carry on
theatrical productions. Scorpio is one of the producers of "The Producers", a
show which opened on Broadway in April of this year to extremely positive
reviews, won a record 12 Tony(R) Awards and now has an advance ticket sale of
approximately $37,500,000. Since Scorpio has a 5.95% interest in profits from
this production (after investors are repaid in full) and will receive additional
royalties and other fees from the production, Presidential has a substantial
indirect interest in "The Producers". If the show generates sufficient profits
to repay the investors (as it is expected to do by the end of 2001),
Presidential could then receive from Scorpio approximately $210,000 per year for
as long as "The Producers" continues to run at capacity on Broadway, which
amount will be applied to unpaid and unaccrued interest. The $210,000 projected
amount is an estimate only and assumes that the cash flow from Scorpio's other
activities continues to be sufficient to satisfy its overhead requirements.
While the continued profitability of any Broadway production is by its nature
uncertain and any estimate of Presidential's future cash flow from "The
Producers" must be viewed as speculative, it is also possible that Presidential
could receive substantially more than $210,000 per year from Scorpio as a result
of Scorpio's interest in future tours and overseas productions of the show,
although any income from these sources is too speculative to project.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) No reports on Form 8-K have been filed during the quarter ended June 30,
2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRESIDENTIAL REALTY CORPORATION
(Registrant)
DATE: August 9, 2001 By: /s/ Jeffrey F. Joseph
-----------------------
Jeffrey F. Joseph
President
DATE: August 9, 2001 By: /s/ Elizabeth Delgado
-----------------------
Elizabeth Delgado
Treasurer