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, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE CHANGE 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
(State or other jurisdiction of incorporation or organization)
95-3959770
(I.R.S. Employer Identification No.)
P. O. Box 7777, San Mateo, California 94403-7777
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 312-2000
N/A
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Shares of Series A Common Stock Outstanding as of June 30, 1995: 1,090,067
Shares of Series B Common Stock Outstanding as of June 30, 1995: 1,000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(Dollars in 000's except per share amounts)
(Unaudited) Audited
1995 1994
ASSETS
Rental property:
Land $ 2,789 $ 2,789
Buildings and improvements 6,523 6,523
Tenant improvements 187 187
Furniture and fixtures 5 5
9,504 9,504
Less: accumulated depreciation 2,029 1,912
7,475 7,592
Cash and cash equivalents 539 418
Mortgage-backed securities, available for sale 218 217
Deferred rent receivable 73 86
Other assets 51 83
Total assets $ 8,356 $ 8,396
LIABILITIES AND STOCKHOLDERS' EQUITY
Note and bond payable $ 2,750 $ 2,750
Tenants' deposits and other liabilities 67 78
Total liabilities 2,817 2,828
Stockholders' equity:
Common stock, Series A, without par value. Stated value $10 per share;
10,000,000 shares authorized; 1,090,067 shares issued and
outstanding in 1995 and 1994 9,384 9,384
Common stock, Series B, without par value.
Stated value $10 per share; 1,000 shares 10
authorized, issued and outstanding in 1995 and
1994 10
Unrealized loss on mortgage-backed securities (9) (25)
Retained earnings (deficit) (3,846) (3,801)
Total stockholders' equity 5,539 5,568
Total liabilities and stockholders' equity $ 8,356 $ 8,396
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
(Dollars in 000's except per share amounts)
1995 1994
---- ----
Revenue:
Rent $288 $294
Dividends - 1
Interest 11 8
Total revenue 299 303
Expenses:
Interest 50 47
Depreciation and amortization 61 69
Operating 71 89
Related party 24 25
General and administrative 6 6
Total expenses 212 236
Net income $ 87 $ 67
Net income per share of Series
A common stock $.08 $.06
Dividends per share of Series
A common stock $.07 $.06
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
(Dollars in 000's except per share amounts)
1995 1994
---- ----
Revenue:
Rent $550 $573
Dividends 1 3
Interest 20 13
Total revenue 571 589
Expenses:
Interest 103 90
Depreciation and amortization 123 138
Operating 160 183
Related party 48 49
General and administrative 29 31
Total expenses 463 491
Net income $108 $ 98
Net income per share of Series
A common stock $.10 $.09
Dividends per share of Series
A common stock $.14 $.12
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995
(Unaudited)
(Dollars in 000's)
Common Stock
Series A Series B
Accumulated
Unrealized Dividends
Gain/Loss in Excess
on of Net
Shares Amount Shares Amount Securities Income Total
Balance beginning of
period 1,090,067 $9,384 1,000 $10 $(25) $(3,801) $5,568
Unrealized gain on
mortgage-backed - - - - 16 - 16
securities
Net income - - - - - 108 108
Dividends declared - - - - - (153) (153)
Balance, end of period 1,090,067 $9,384 1,000 $10 $(9) $(3,846) $5,539
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
(Dollars in 000's)
1995 1994
Cash flows from operating activities:
Net income $108 $ 98
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 123 138
Decrease in deferred rent receivable 13 10
Decrease in other assets 26 19
Decrease in tenants' deposits and other liabilities (11) (10)
Total adjustments 151 157
Net cash provided by operating activities 259 255
Cash flows from investing activities:
Improvements to rental property - (1)
Decrease in investment in mortgage-backed securities 15 43
Net cash provided by investing activities 15 42
Cash flows from financing activities:
Dividends paid (153) (131)
Net cash used in financing activities (153) (131)
Net increase in cash and cash equivalents 121 166
Cash and cash equivalents, beginning of period 418 240
Cash and cash equivalents, end of period $539 $406
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - ORGANIZATION
Property Resources Equity Trust (the "Fund") is a California corporation formed
on February 20, 1985 for the purpose of investing in income-producing real
property. The offering period for the sale of the Fund's Series A common stock
terminated on July 17, 1987 with total proceeds raised of $10,889,000 less
offering costs of $1,505,000. As of the close of the offering, Property
Resources Inc., (the "Advisor") had purchased 1,000 shares of the Fund's Series
B common stock for $10,000 cash.
The Fund is a real estate investment trust ("REIT") and elected REIT status for
income tax purposes for the tax years commencing 1988. Under the Internal
Revenue Code and applicable state income tax law, a qualified REIT is not
subject to income tax if at least 95% of its taxable income is currently
distributed to its stockholders and other tests are met. The Fund intends to
distribute substantially all of its taxable income in the future. Accordingly,
no provision is made for income taxes in these financial statements.
NOTE 2- BASIS OF PRESENTATION
The accompanying unaudited financial statements contain all adjustments
(consisting of normal recurring accruals) which are necessary, in the opinion of
management, for a fair presentation. The statements, which do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements, should be read in conjunction with
the Fund's financial statements for the year ended December 31, 1994.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Fund has entered into an agreement with the Advisor to administer the
day-to-day operations of the Fund. Under the terms of the agreement, which is
renewable annually, the Advisor will receive a fee equal to 5% of the total
amount distributed to the stockholders. The fee is not payable with regard to
distributions from the sale or refinancing of property.
At June 30, 1995, cash equivalents included $2,000 invested in Franklin Money
Fund which is an investment company managed by an affiliate of the Advisor. For
the six month period ended June 30, 1995 dividend income earned amounted to
$1,000.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
The agreements between the Fund and the Advisor, or affiliates, provide for
certain types of compensation and payments including but not limited to the
types of compensation and payments which were paid or accrued by the Fund for
those services rendered for the six month period ended June 30, 1995:
Management advisory fees, charged to related party expense $8,000
Reimbursement for data processing expenses, charged to related
party expense 18,000
Property management fees, charged to related party expense 18,000
Shareholder services fees, charged to related party expense 4,000
Leasing commission, capitalized and amortized over the term of
the related lease 2,000
NOTE 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the six month period ended June 30, 1995, interest paid amounted to
$103,000.
PART I - FINANCIAL INFORMATION
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.
Comparison of the six month periods ended June 30, 1995 and 1994
Net income for the six month period ended June 30, 1995 amounted to $108,000, an
increase of $18,000 as compared to net income of $98,000 in 1994. The decrease
is due to the following factors: a decrease in rental revenue of $23,000; an
increase in interest and dividends of $5,000; an increase in interest expense of
$13,000; a decrease in depreciation and amortization of $15,000; a decrease in
operating expenses of $23,000; a decrease in related party expense of $1,000;
and a decrease in general and administrative expense of $2,000.
Rental income for the six month period decreased by $23,000, or 4%, primarily
due to a decrease in the average occupancy rate at two of the Fund's properties.
The average occupancy rate of net rentable square feet for the six month periods
ended June 30, 1995 and 1994 at Graham Court Business Park was 88% and 89%; and
at Good Guys Plaza Shopping Center was 94% and 96%, respectively.
Interest and dividend income increased $5,000, or 31%, primarily due to higher
yields realized on short-term money market investments.
Total expenses for the six month period decreased by $28,000, or 6%, from
$491,000 in 1994 to $463,000. The decrease in total expenses is attributable to
the following factors: an increase in interest expense of $13,000, or 14%; a
decrease in depreciation and amortization of $15,000, or 11%; a decrease in
operating expenses of $23,000, or 13%; a decrease in related party expense of
$1,000 or 2%; and a decrease in general and administrative expense of $2,000, or
6%.
Interest expense increased $13,000, reflecting rate changes on the outstanding
note payable.
Operating expenses decreased $23,000, as a result of a decrease in property
taxes, utilities, repairs and maintenance and bad debt expense.
General and administrative expense decreased $2,000 due to a decrease in
telephone and answering service expenses.
Related Party Expenses
The Fund has entered into an agreement with the Advisor to administer the
day-to-day operations of the Fund. For the six month period ended June 30, 1995,
the Fund recorded $8,000 of advisory fee expense to the Advisor in accordance
with the Advisory Agreement.
The Fund's properties are managed by Continental Property Management Co.,
("CPMC"), an affiliate of the Advisor. For the six month period ended June 30,
1995, the Fund recorded $18,000 of property management fee expense to CPMC in
accordance with the Property Management Agreement.
The Fund's Board of Directors (including all of its Independent Directors) have
determined, after review, that the compensation paid to the Advisor and to CPMC
referenced above, as well as the expense reimbursements made by the Fund to the
Advisor reflected in Note 3 to the accompanying financial statements, are fair
and reasonable to the Fund.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion
and Analysis of Financial Condition
and Results of Operations
Impact of Inflation
The Fund's management believes that inflation may have a positive effect on the
Fund's property portfolio, but this effect generally will not be fully realized
until such properties are sold or exchanged. The Fund's policy of negotiating
leases which incorporate operating expense "pass-through" provisions is intended
to protect the Fund against increased operating costs resulting from inflation.
Liquidity and Capital Resources
The Fund's principal sources of capital for the acquisition and renovation of
property and for working capital reserves have been proceeds from the initial
offering of its common stock and from funds from operations after payment of
dividends.
At June 30, 1995, cash and cash equivalents totaled $539,000 and investments in
mortgage-backed securities totaled $218,000.
As of June 30, 1995, one of the Fund's properties were subject to secured
financing. The Good Guys Plaza shopping center is subject to a promissory note
collateralized by a Deed of Trust in the amount of $2,750,000. The note is
payable, interest only, at an adjustable rate of interest which is based on a
certain bond index. The interest rate is not subject to a minimum or maximum
rate of interest. On June 30, 1995, the interest rate was 7.3%. In certain
circumstances, the payments due may be less than accrued interest. Any resulting
accrued interest bears interest at the then current rate. The note is due in
full in December, 1996.
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 dividends.
Dividends
Dividends are paid quarterly at the discretion of the Board of Directors and
depend on the Fund's earnings, cash flow, financial condition and other relevant
factors. During the six month period ended June 30, 1995, the Fund declared and
paid dividends totaling $153,000.
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, 1995.
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 12, 1995